Acct /14/2010 Prof. T. Gordon

Transcription

1 Duke County Property taxes 31Dec Fiscal year end Fall Jan Property taxes assessed 15Mar Property taxes due a On January 15, 2010, the county supervisors levied property taxes of $180 million for year ending Dec 31, Officials estimated that 1 percent would be uncollectible 1/15/2010 Property Tax Receivable current $ 180,000,000 Deferred property tax revenue $ 178,200,000 Allow for uncollectible prop taxes $ 1,800,000 It is deferred revenue because it is not available until collected. b During 2010, it collected $125 million in property taxes. during Cash $ 125,000, Prop Tax Rec'bl current $ 125,000,000 Deferred prop tax revenue $ 125,000,000 Property tax revenue $ 125,000,000 In January and February 2011, before the 2010 financial statements were prepared, the county collected another $48 million in 2010 property c1 FUND= taxes. General Fund (modified accrual) Debit Credit Deferred prop tax revenue $ 48,000,000 Property tax revenue $ 48,000,000 Recognize as "available" amounts collected in first 60 days after close of fiscal year It reclassified as delinquent the remaining balance due for 2010 property c2 FUND= taxes. General Fund (modified accrual) Debit Credit 12/31/2010 Property tax receivabledelinquent $ 55,000,000 Property Tax Receivable current $ 55,000,000 (The remaining balance is 9 months overdue) c3 Jan & Feb Cash $ 48,000, Property taxes receivable delinquent $ 48,000,000 Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx Duke Cnty Prop tax (sol) Page 1 of 6

2 In January 2011 the county levied property taxes of $195 million, of which officials estimated that 1.1 percent would be uncollectible. d 1/15/2011 Property Tax Receivable current $ 195,000,000 Deferred property tax revenue $ 192,855,000 Allow for uncollectible prop taxes $ 2,145,000 During the remainder of 2011 the county collected $4 million more in property taxes related to 2010, $163 million relating to 2011, and $1.5 million in advance for The county also collected $50,000 in interest and penalties on the delinquent property taxes. e during Cash $ 168,550,000 year 2011 Property Tax Receivable current $ 163,000,000 Property Tax Receivable delinquent $ 4,000,000 Property taxes collected in advance (liab) $ 1,500,000 Interest and penalties on delinquent taxes $ 50,000 e2 Deferred property tax revenues (2010) $ 4,000,000 Deferred property tax revenues (2011) $ 163,000,000 Property tax revenues $ 167,000,000 In December 2011, liens were placed on the real estate associated with the remaining 2010 delinquent taxes receivable. The original allowance is adjusted to $1,000,000 and both the receivable and allowance are f FUND= reclassified. General Fund (modified accrual) Debit Credit Tax Liens Receivable $ 3,000,000 Property Tax Receivable delinquent $ 3,000,000 Allowance for uncollectible prop taxes $ 1,800,000 Allowance for uncollectible liens $ 1,000,000 Deferred property tax revenues $ 800,000 In early 2011, court costs associated with the tax liens were paid by the county in the amount of $35,000. This amount will be collected from the g property owners as part of the delinquent property tax bills. Tax Liens Receivable $ 35,000 Cash $ 35,000 To record court costs and other costs incurred in converting delinquent taxes, related penalities and interest into tax liens. Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx Duke Cnty Prop tax (sol) Page 2 of 6

3 In 2011 the liens are processed and owners pay the taxes or the property is sold and the taxes and related court costs are collected from the selling price. The county receives $2.5 million (including $49,000 in h interest and penalties) and writes off the remaining balance. Allowance for uncollectible liens $ 1,000,000 Cash $ 2,500,000 Tax liens receivable $ 3,035,000 Interest and penalties on delinquent taxes (revenue) $ 49,000 Deferred property tax revenues (2010) $ 2,000,000 Property tax revenues $ 2,416,000 To record collection of liens and close 2010 deferred & allowance acct balances $ 5,500,000 $ 5,500,000 Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx Duke Cnty Prop tax (sol) Page 3 of 6

4 Duke County Property taxes Supporting Taccts Prop tax rec'bl current dr cr balance bal fwd $ a 180,000, $ 180,000,000 b 125,000, $ 55,000,000 c2 55,000, $ ending bal 2010 $ d 195,000, $ 195,000,000 e 163,000, $ 32,000,000 $ $ $ $ $ $ 32,000,000 32,000,000 32,000,000 32,000,000 32,000,000 32,000,000 Allow for uncollectible dr cr balance bal fwd a 1,800, (1,800,000.00) d 2,145, (3,945,000.00) f 1,800, (2,145,000.00) (2,145,000.00) Prop tax rec'bl delinquent dr cr balance bal fwd c2 55,000, ,000, c3 $ 48,000,000 7,000, e 4,000, ,000, f 3,000, Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx Duke Cnty Prop tax (sol) Page 4 of 6

5 Duke County Property taxes continued Deferred property tax revenues (2010 only) dr cr balance bal fwd $0 a 178,200, $ (178,200,000) b 125,000, $ (53,200,000) c1 48,000, $ (5,200,000) c2 $ (5,200,000) ending bal 2010 $ (5,200,000) e2 4,000, $ (1,200,000) f 800, $ (2,000,000) h2 2,000, $ $ Allowance against tax liens dr cr balance bal fwd f 1,000, (1,000,000.00) h 1,000, h2 Tax Liens Receivable dr cr balance bal fwd f 3,000, ,000, g 35, ,035, h 3,035, Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx Duke Cnty Prop tax (sol) Page 5 of 6

6 Duke County Property taxes continued 2010 prop taxes collected revenues recognized b $ 125,000,000 b $ 125,000,000 c3 $ 48,000,000 c1 $ 48,000,000 e $ 4,000,000 e2 $ 4,000,000 $ 177,000,000 h $ 2,416,000 h $ 2,500,000 cash $ 179,416,000 g $ (35,000) court costs h $ (49,000) interest & penalties (cash basis) $ 179,416,000 total actually collected $ 180,000, levy $ 584,000 actual bad debts Original est of bad debts = $ 1,800,000 Unlike business, Change when liens set up = $ (800,000) there is no bad Collected over est (h) $ (416,000) debt expense Default rate = 0.324% $ 584,000 Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx Duke Cnty Prop tax (sol) Page 6 of 6

7 Revenue recognition examples Chapter 4 GASB 33 Fall 2010 Support for Example 1 1. An imposed nonexchange transaction. A city levies property taxes of $575 million for In 2009 it collects $485 million. It collects Jan $25 million of the remaining 2009 taxes during each of the first Feb three months of 2010 and estimates that the $15 million balance Mar Ending rec'bl will be uncollectible. never Less allow Net rec'bl 1a Taxes receivable $ 575,000,000 Very similar to example on page 131 Allowance for uncollectible prop tax $ 15,000,000 but text example also transfers to "delinquent" account" Deferred prop tax revenue $ 560,000,000 TRUE writes off delinquent, etc. Cash $ 485,000,000 Billed 575,000,000 Tax receivable $ 485,000,000 Collected (485,000,000) Deferred prop tax revenue $ 485,000,000 Recbl EoY 90,000,000 Property tax revenue $ 485,000,000 To recognize property taxes collected Collected in ,000,000 Jan/Feb ,000,000 Deferred prop tax revenue $ 50,000,000 Total revenue 535,000,000 Funds based Property tax revenue $ 50,000,000 (50,000,000) Adjustment remove Jan/Feb To recognize property taxes received within 60 days of fiscal year end $ 90,000,000 Add receivable Therefore total property tax revenue reported in funds = $ (535,000,000) $ (15,000,000) Less uncollectible Text shows reclassification of $90M balance to "delinquent" to avoid commingling with 2010 Prop taxes 560,000,000 Govtwide revenue See separate property tax example for more detailed style J E s 1b How would this be different for the full accrual statements (We don't actually MAKE this entry use workpaper to get from fund accounting to the entitywide statements) Cash $ 485,000,000 Property tax receivable $ 90,000,000 Allowance for uncollectible prop tax $ 15,000,000 Property tax revenue $ 560,000,000 TRUE In most states, a lien against real or personal property is automatic. After a specified period of time, the government can sell the property to satisfy the lien. Accordingly, there is a legal enforcement mechanism for property taxes which requires us to book a receivable when the taxes are levied. Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx GASB33sol Page 1 of 11

8 2. An imposed nonexchange transaction. In November 2009 Very similar to example on page 135 police issue $320,000 in parking tickets. Of the fines assessed, $230,000 are paid without protest by the due date of December Support for example 2 31, Of the balance, $14,000 have been protested and are subject to hearings. Of this $14,000, approximately $5,000 will be 320 tickets issued collected. An additional $31,000 will "trickle in" (but owing to 230 tickets paid uncertainly are not available for expenditure in 2009). It is 90 balance unpaid estimated that $45,000 will be uncollectible. Protested parking 14 protested tickets are not enforceable until the judge rules on the protest. If 76 receivable (legally enforceable) not protested by a set date, the tickets are legally enforceable. 45 allowance 31 deferred 2a Cash $ 230,000 Revenues from parking tickets $ 230,000 Receivable parking tickets $ 76,000 Allowance for uncollectible tickets $ 45,000 Deferred revenue from tickets $ 31,000 not available 2b How would this be different for the full accrual statements (We don't actually MAKE this entry use workpaper to get from fund accounting to the entitywide statements) Cash $ 230,000 Parking tickets receivabke $ 76,000 Revenues from parking fines $ 261, Allowance $ 45,000 $ 612,000 $ 612,000 $ The reason we did not book a receivable for the $14,000 in parking tickets protested is that the tickets are not legally enforceable until the judge rules. When no one protests the parking tickets, they can be legally enforced. See pages in text. Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx GASB33sol Page 2 of 11

9 3. Derived tax revenues. In December 2009 merchants collect $40 million in sales taxes. Of these, $19 million are collected prior Very similar to example on page 136 to December 15 and must be remitted to the state by January 15, The remaining $21 million must be remitted to the state by For the December sales taxes collected on behalf of the city, February 15, The state remits to the city within 30 days of the city will get $19 around the middle of February and the filing the return. remaining $21 around March 15. Assuming use of a "60 days" rule, the collections in March are not "available" and 3a Sales taxes receivable $ 40,000,000 would not be reported as revenue in govttype funds Deferred sales tax revenue $ 19,000,000 Sales tax revenue $ 21,000,000 TRUE Note that no cash has been received so far from the December sales! However, the amount due by Mar 15 would not be within 60 days after end of fiscal year and could not be considered available. 3b How would this be different for the full accrual statements (We don't actually MAKE this entry use workpaper to get from fund accounting to the entitywide statements) Sales taxes receivable $ 40,000,000 Sales tax revenue $ 40,000,000 Very similar to example on page Derived tax revenues. In November and December 2009 merchants collect $30 million in sales taxes. Of these, $12 million are remitted to the state, as due, by December 15, 2009; the remaining $18 million are due on January 15, The state remits the taxes to the city 30 days after it receives them. For the Nov & Dec sales tax collected on behalf of the city: the city gets $12 on or before 4a Sales taxes receivable $ 30,000,000 Jan 15 and $18 on or before Feb 15. Sales tax revenue $ 30,000,000 So all of the receipts collected for Nov and Dec All collected within 60 days of yearend and therefore available are "available" if the city uses the "within 60 days" criterion. 4b How would this be different for the full accrual statements (We don't actually MAKE this entry use workpaper to get from fund accounting to the entitywide statements) Same as 4a because all of the revenue will be available Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx GASB33sol Page 3 of 11

10 (Revised example simplified) 5. Income tax revenues (derived nonexchange). a. A state government has a fiscal year that ends Oct 31. However, taxpayers pay state income taxes on a calendar year basis. It initially expects to collect at total of $700M in income taxes for income earned by individuals and corporations during 2010 of which $100M will be refunded when returns are filed on April 15, b. Projected revenues are close to budget through Oct The state has collected in cash $530M through payroll deductions related to 2010 tax returns. Based on past experience, about 86% of payroll withholdings will be retained as income tax revenues. c. During the FY , audits of tax returns identifies $38M in unpaid taxes (including penalties and interest). For the year ending Oct 31, 2010, the state has collected $22M and expects to eventually collect a total of $35M by April 1, (Assume only the $22M is available for FY ). Similar to example on page 139 We could try to get fancy with estimates but with different tax years for taxpayers than the fiscal year for govt it is probably not worth the effort too many uncertainties! GASB pragmatically suggests a "cash basis" recognition of income taxes (in an example) 5a No entry made to record receivable and deferred revenues For 2010 income tax returns to be filed in 2011 Oct 31, 2010 Summary entry 5b Cash $ 530,000,000 Assumes that collections from audits are recognized when rec'd (no rec'bl booked) Income tax revenue $ 530,000,000 Based on audits Billed 38 Oct 31, 2010 Summary entry recorded as audits are completed Collected (22) 5c Income taxes receivable (audits) $ 38,000,000 Receivable 16 ending bal Deferred income tax revenue $ 35,000,000 Allowance (3) Allowance for uncollectible taxes $ 3,000,000 Collectible 13 def revenues ending bal Cash $ 22,000,000 Estimated 22 rec'd Income taxes receivable (audits) $ 22,000,000 revenues 13 to be collected (net rec'bl) Deferred income tax revenue $ 22,000,000 from audits 35 Est revenue from audits Income tax revenue $ 22,000,000 5c How would this be different for the full accrual statements The deferred income tax revenue would be recognized ($35M instead of just $22M) Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx GASB33sol Page 4 of 11

11 6. Voluntary nonexchange transaction (time requirement). In December 2009 a City is notified that, per legislatureapproved formulas, it has been awarded $500,000 in assistance for law enforcement activities. The funds must be used to supplement police officer salaries, acquire equipment, or otherwise improve police services within the city. The funds will be received in March 2010 and must be used in Very similar to example on page 142 FUND= General Fund Debit Credit 6a no entry The funds are for NEXT year Per GASB33, par. 19, there should not even be recognition of a receivable. Time requirements are a type of eligibility requirement and all eligibility requirements must be met before asset/revenues are recognized Note that the "purpose restriction" isn't much of a restriction it is what school districts would spend the money for anyway. Therefore, when received, record in general fund 6b How would this be different for the full accrual statements same no entry 6c What if the cash was received in December 2007? Cash $ 500,000 Deferred grant revenue $ 500,000 Same for governmentwide statements. Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx GASB33sol Page 5 of 11

12 7. Voluntary nonexchange transaction (purpose requirement). In December 2009 a City is notified that it has been awarded $500,000 as part of a grant proposal to better coordinate 911 emergency responses within the county. The funds will be paid in February 2010 and can be spent at any time. Very similar to example on page 143 FUND= Special Revenue Fund Debit Credit 7a Grant receivable $ 500,000 Grant revenue $ 500,000 Items could be purchased and the money would be available to pay the a/p since the funds will be deposited in February (and we could be making this entry in February as though it had happened in Dec.) 7b 7c How would this be different for the full accrual statements same entry What if the cash is not received until late March? Special Revenue Fund Grant receivable $ 500,000 Deferred grant revenue $ 500,000 For governmentwide statements, it would be the same entry as 7a Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx GASB33sol Page 6 of 11

13 8. Nonexchange transaction (eligibility & purpose requirement) In December 2009 a city is awarded a grant of $500,000 to train its police officers in first aid and community relations. During 2009 it expends $300,000 on training, for which it is reimbursed $250,000. It expects to be reimbursed for the $50,000 balance early in 2010 and to expend and be reimbursed for the remaining $200,000 of its grant in Very similar to example on page 143 THIS IS HOW IT WOULD "HAPPEN" debit credit Expenditures for grantrelated ite $ 300,000 A/P or cash $ 300,000 Grant receivable $ 300,000 Deferred Grant revenue $ 300,000 SUMMARY ENTRY (SEE PROCESS TO RIGHT) Cash $ 250,000 8a Cash $ 250,000 Grant receivable $ 250,000 Grant receivable $ 50,000 Grant revenue $ 300,000 Deferred grant revenue $ 300,000 This is a reimbursementtype grant so eligibility requirements are not met Grant revenue $ 300,000 until costs are incurred that satisfy the terms of the grant. So far, costs incurred are $300,000. Note that the remaining $200,000 is NOT recognized as a receivable. Grant Receivable $ 300,000 8b How would this be different for the full accrual statements? $ 250,000 same Ending = $ 50, Voluntary nonexchange transaction (contingency eligibility requirement). In January 2009, a private foundation agrees to match all private cash contributions up to $10 million received by a cityowned museum during its fund drive. In 2009 the museum receives $6 million in private cash contributions. Very similar to example on page 143 9a Cash $ 6,000,000 Contributions received $ 6,000,000 Foundation grant receivable $ 6,000,000 Grant revenue $ 6,000,000 9b How would this be different for the full accrual statements same Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx GASB33sol Page 7 of 11

14 10. Voluntary nonexchange transaction (pledges). A private citizen pledges $25,000 to a countyoperated museum. The government is confident that the promised donation will actually be made no later than 60 days past the end of the current fiscal year. FUND= Fund where zoo is accounted for Debit Credit 10a Pledges receivable $ 25,000 Contribution revenue $ 25,000 slightly different from textbook example on page b How would this be different for the full accrual statements? same 10c What if the gift is not received midway through the NEXT fiscal year? By the time the FS are being finalized, at least 60 days will Fund have passed so we would then know for sure whether the Pledges receivable $ 25,000 contribution had been available or not! Deferred contribution revenue $ 25,000 For governmentwide statements, it would be the same as 11a 11. Voluntary nonexchange transaction (endowment gift). A private citizen donates $5 million to a city to maintain the rose garden in a city park. She stipulates that the principal remain intact permanently and that only the income be used for the intended purpose. different from text book example on page 144 FUND= Permanent Fund Debit Credit 11a Cash $ 5,000,000 Contributions received $ 5,000,000 11b 11c How would this be different for the full accrual statements same would be part of restrictednonexpendable net assets What if the $1M is a PLEDGE that is not received until midway through the next year? No entry would be made at all for either fundsbased or governmentwide financial statements. The reason is that the endowment implies a time restriction that cannot be met until there is money to invest. See Example 24 in GASB33 Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx GASB33sol Page 8 of 11

15 12. Donation of fixed assets. A builder donates two parcels of land to a city. Each has a fair value of $5 million. The city intends to use one as a park and to sell the other. Very similar to examples on page a Land held for sale $ 5,000,000 Contributions revenue $ 5,000,000 Assuming the land is actually sold for this amount no later than 60 days after the end of the fiscal year. Otherwise, deferred revenue. Land or other capital assets held for use is NEVER recorded in a government fund. Instead, it is only on the "schedule of capital assets" 12b How would this be different for the full accrual statements? Land held for sale $ 5,000,000 Capital assets $ 5,000,000 Contributions revenue $ 10,000, On behalf payments. A state government is responsible for funding the state s teacher retirement system. An independent school district is the beneficiary of a $4 million state payment on its behalf. Very similar to examples on page 148 FUND= School district general fund Debit Credit 13a Pension expenditures $ 4,000,000 There are apparently a variety of practices some Revenue stateaid (pensions) $ 4,000,000 accountants belief this "in and out" accounting is appropriate only when the payments cover costs for 13b School district govt wide stmts which the recipient is legally responsible Pension expense $ 4,000,000 Revenue stateaid (pensions) $ 4,000,000 13c Must be "symmetrical" recognition by giver and receiver State of Idaho (general fund) Expenditures aid to school districts $ 4,000,000 Cash (to pension plan) $ 4,000,000 We ll learn more about pensions in later chapters Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx GASB33sol Page 9 of 11

16 14. Food Stamps. In November the City received from the federal government $50 million in food stamps. During the year it distributed $47 million. Very similar to examples on page 147 Example of a "pass through grant" Alternate style (as in example on page 147) debit credit 14a Food stamps (PAPER) inventory $ 50 Expenditures food stamps $ 47 Deferred revenues food stamps $ 50 Revenue food stamps $ 47 Expenditures food stamps $ 47 Food stamps inventory $3 Food stamps inventory $ 47 Deferred revenues food stamps $3 "Paper" food stamps are inventoried at face value. Expenditures are recognized at face value when the stamps are distributed to beneficiaries Deferred revenues food stamps $ 47 Revenue food stamps $ 47 14c 14b How would this be different for the full accrual statements? same What if the benefit system is electronic (like a debit card)? Food stamps are now mostly electronic. Per GASB24, electronic food stamps are not expenditures UNTIL THE RECIPIENT USES THE BENEFIT and there would generally be no balance and the entry would be based on recipient's use of the benefit: Expenditures food stamps $ 47 Revenue food stamps $ 47 (for both fundsbased and govtwide financials) Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx GASB33sol Page 10 of 11

17 15. Exchange transaction. In June 2010, a city imposed license fees on barber and beauty shops for the first time. It collected $480,000. The fees are intended to cover the cost of health inspections by Sept. 30. The licenses cover the oneyear period from July 1 to June 30. The city s fiscal year begins on Oct. 1. Very similar to examples on page 154 FUND= General Fund (maybe a restricted fund) Debit Credit 15a Cash $ 480,000 Revenue licenses $ 480,000 Fiscal year ends 9/30/2009 License period ends 6/30/2010 Accrual would mean that 3 months had been "earned" 15b How would this be different for the full accrual statements? Usually same as in fund, however, they could use full accrual??? $ 480,000 1/4 $ 120, Cash $ 480,000 Revenue licenses $ 120,000 Deferred revenue licenses $ 360,000 Matching to years is possible but has not been mandated by GASB so governments tend to use cash basis argument that it isn't material Ch04RevRecog_examples_w_sol_F10_for_CR.xlsx GASB33sol Page 11 of 11