Accounting for Governmental & Nonprofit Entities
Accounting for Governmental & Nonprofit Entities
17th Edition
ISBN: 9780078025822
Author: Jacqueline L. Reck James E. Rooks Distinguished Professor, Suzanne Lowensohn, Earl R Wilson
Publisher: McGraw-Hill Education
Question
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Chapter 8, Problem 18EP

a)

To determine

Prepare the journal entries for the each of the foregoing transactions that affected the tax agency fund.

a)

Expert Solution
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Explanation of Solution

Fiduciary activities: Fiduciary activities are those activities done by persons or organizations to another parties with utmost good faith and trust. A fiduciary activity may involve managing funds, assets and other valuables of a person or a group of people.

The person or organization involved in fiduciary activities need to act ethically in the best interest of others. Government also involve in fiduciary activities by holding the assets of individuals or organization to benefit them.

Tax Agency fund: One government for different governmental funds and for different governments collects the tax Agency fund. The tax collected from the citizens is accounted and remit adequate amount of tax to appropriate funds and other governments. The major issue, which makes the accounting of “tax Agency fund” complex, is the time taken for the collection of taxes.

Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.

Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.

Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Prepare the journal entries for the each of the foregoing transactions that affected the tax agency fund:

DateAccounts title and explanationPost ref.Debit ($)Credit ($)
 Taxes receivable for other funds and governments—current $24,843,000 
     Due to other funds and governments  $24,843,000
 (To record the current year tax levied)   
     
 Cash $13,700,000 
 

    Taxes receivable for other funds

and governments—current

  $13,700,000
 (To record the collection of current year tax )   
     
 Due to other funds and governments $13,700,000 
     Due to county general fund  $5,818,294
     Due to town of bay shore  $2,629,046
     Due to sun Coast County consolidated     school district  $3,557,903
     Due to various towns  $1,694,757
 (To record the reimbursement of county)   
     
 Due to county general fund $5,818,294 
 Due to town of bay shore $2,629,046 
 Due to sun coast county consolidated          school district $3,557,903 
 Due to various towns $1,694,757 
     Cash   $13,700,000
 (To record the cash payment made to reimbursement of county)   

Table (1)

Notes to the above table:

Calculate the tax collected from Bay Shore:

The tax collected from Bay Shore is calculated by initially dividing the amount of tax on Bay Shore by total amount of tax levied and multiplying it with the cash collected. The amount of tax on Bay Shore is $4,840,000, total amount of tax levied is $24,843,000 and cash collected is $13,700,000. The calculation is as follows:

Tax collected=(Amount of tax on bayshoreTotal amount of tax levied)×Cash=($4,840,000$24,843,000)×$13,700,000=$0.194823491×$13,700,000=$2,669,082

Thus, the tax collected on Bay Shore is $2,669,082.

Calculate Custodian’s liability:

The Custodian’s liability is calculated by deducting 1.5 percentage of the tax collected from it. The amount to be deducted is $40,036($2,669,082×1.5%). The calculation is as below:

Agency liability=Tax collected1.5% of tax collected=$2,669,082$40,036=$2,629,046

Thus, the Custodian’s liability is $2,629,046.

Calculate the tax collected from school:

The tax collected from school is calculated by initially dividing the amount of tax on school by total amount of tax levied and multiplying it with the cash collected. The amount of tax on school is $6,550,000, total amount of tax levied is $24,843,000 and cash collected is $13,700,000. The calculation is as follows:

Tax collected=(Amount of tax on schoolTotal amount of tax levied)×Cash=($6,550,000$24,843,000)×$13,700,000=$0.263655758×$13,700,000=$3,612,084

Thus, the tax collected on school is $3,612,084.

Calculate agency’s liability:

The agency’s liability is calculated by deducting 1.5 percentage of the tax collected from it. The amount to be deducted is $54,181($3,612,084×1.5%). The calculation is as below:

Agency liability=Tax collected1.5% of tax collected=$3,612,084$54,181=$3,557,903

Thus, the agency’s liability is $3,557,903.

Calculate the tax collected from towns:

The tax collected from towns is calculated by initially dividing the amount of tax on towns by total amount of tax levied and multiplying it with the cash collected. The amount of tax on town is $3,120,000, total amount of tax levied is $24,843,000 and cash collected is $13,700,000. The calculation is as follows:

Tax collected=(Amount of tax on schoolTotal amount of tax levied)×Cash=($3,120,000$24,843,000)×$13,700,000=$0.125588697×$13,700,000=$1,720,565

Thus, the tax collected on town is $1,720,565.

Calculate agency’s liability:

The agency’s liability is calculated by deducting 1.5 percentage of the tax collected from it. The amount to be deducted is $25,808($1,720,565×1.5%). The calculation is as below:

Agency liability=Tax collected1.5% of tax collected=$1,720,565$25,808=$1,694,757

Thus, the agency’s liability is $1,694,757.

Calculate the tax collected from county:

The tax collected from county is calculated by initially dividing the amount of tax on county by total amount of tax levied and multiplying it with the cash collected. The amount of tax on county is $10,333,000, total amount of tax levied is $24,843,000 and cash collected is $13,700,000. The calculation is as follows:

Tax collected=(Amount of tax on countyTotal amount of tax levied)×Cash=($10,333,000$24,843,000)×$13,700,000=$0.415932053×$13,700,000=$5,698,269

Thus, the tax collected on town is $5,698,269.

Calculate agency’s liability:

The agency’s liability is calculated by adding all the deductions made in case of Bay Shore, school, and town. The amount to be added is $120,025($40,036+$54,181+$25,808). The calculation is as below:

Agency liability=Tax collectedTotal deductions=$5,698,269+$120,025=$5,818,294

Thus, the agency’s liability is $5,818,294.

b)

To determine

Prepare the journal entries for the each of the foregoing transactions that affected the S county general fund.

b)

Expert Solution
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Explanation of Solution

Prepare the journal entries for the each of the foregoing transactions that affected the S county general fund:

DateAccounts title and explanationPost ref.Debit ($)Credit ($)
 Taxes receivable - Current $10,333,000 
     Estimated uncollectible current taxes   $413,000
     Revenues   $9,919,680
 (To record the current year tax levied)   
     
 Cash $5,818,294 
     Taxes receivable - Current  $5,698,269
     Revenues (collection fees)   
 (To record the collection of current year tax )   

Table (2)

Calculate uncollectible current tax and revenues:

It is given that the uncollectible current tax is 4 percent of the gross levy. Here, the gross levy is $10,333,000. The uncollectible amount is $413,320($10,333,000×4%). Revenue amount is the difference between gross levy and uncollectible amount. It is calculated as $9,919,680($10,333,000$413,320).

c)

To determine

Prepare the journal entries for the each of the foregoing transactions that affected the S county general fund.

c)

Expert Solution
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Explanation of Solution

Prepare the journal entries for the each of the foregoing transactions that affected the S county general fund:

DateAccounts title and explanationPost ref.Debit ($)Credit ($)
 Taxes receivable - Current $4,840,000 
     Estimated uncollectible current taxes   $96,800
     Revenues   $4,743,200
 (To record the current year tax levied)   
     
 Cash $2,629,046 
 Expenditures (collection fees) $40,036 
     Taxes receivable - Current  $2,669,082
 (To record the collection of current year tax )   

Table (3)

Calculate uncollectible current tax and revenues:

It is given that the uncollectible current tax is 4 percent of the gross levy. Here, the gross levy is $4,840,000. The uncollectible amount is $96,800($4,840,000×4%). Revenue amount is the difference between gross levy and uncollectible amount. It is calculated as $4,743,200($4,840,000$96,800).

d)

To determine

State the financial statements that would be prepared by the tax agency fund.

d)

Expert Solution
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Explanation of Solution

Financial statement to be prepared by the tax Agency fund:

Tax agency fund net position is the financial statement to be prepared by the tax agency fund, which shows the balances of assets and liabilities of the fund. It also comprises of other agency funds used by the company. In the statement of fiduciary net position, the total asset and liabilities of agency funds is shown in the single agency fund column.

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