Facts: A county government and a legally separate organization—the Sports Stadium Authority—entered into an agreement under which the authority issued revenue bonds to construct a new stadium. Although the intent is for the authority to make debt service payments on the bonds from a surcharge on ticket sales, the county agreed to annually advance the Sports Stadium Authority the required amounts to make up any debt service shortfalls and has done so for several years. Accordingly, the county has recorded a receivable from the authority and the authority has recorded a liability to the county for all advances made under the agreement.

Ticket surcharge revenues that exceed $1,500,000 are to be paid to the county and to be applied first toward interest and then toward principal repayment of advances. Both parties acknowledge, however, that annual ticket surcharge revenues may never exceed$1,500,000 because reaching that level would require an annual paid attendance of 3,000,000. Considering that season ticket holders and luxury suite renters are not included in the attendance count, it is quite uncertain if the required trigger level will ever be reached.

The authority has twice proposed to raise the ticket surcharge amount, but the county in both cases vetoed the proposal. Thus, the lender in this transaction (the county) has imposed limits that appear to make it infeasible for the borrower (the authority) to repay the advances. Consequently, the authority’s legal counsel has taken the position that the authority is essentially a pass-through agency with respect to the advances in that the authority merely receives the advances and passes them on to a fiscal agent for debt service payments. Moreover, they note that the bonds could never have been issued without the county’s irrevocable guarantee of repayment because all parties knew from the beginning that the authority likely would not have the resources to make full debt service payments.

Based on the foregoing considerations, the authority’s legal counsel has rendered an opinion that the liability for the advances can be removed from the authority’s accounts. The county tacitly agrees that the loans (advances) are worthless because it records an allowance for doubtful loans equal to the total amount of the advances. Still, the county board of commissioners refuses to remove the receivable from its accounts because of its ongoing rights under the original agreement for repayment.

Required

Alternatively, assume you are the independent auditor for the county and, based on the same analysis you conducted for the previous requirement, indicate whether or not you concur with the county continuing to report a receivable for debt service advances on its General Fund balance sheet and government-wide statement of net position.

A citizens’ group in your state has placed an amendment on an upcoming election ballot. The measure would prohibit new debt issuances by state or local governments, which would presumably reduce taxes as a result of less tax-supported debt. Supporters of the amendment claim the proposed measure will force government to operate more efficiently and cut bloated spending, while opponents fear that public services and the quality of life in the state will be severely affected if the amendment passes.

Required

Why do governments typically issue general long-term debt? What types of services might be limited if debt was no longer a financing option?

How are general long-term liabilities distinguished from other long-term liabilities of the government? How does the financial reporting of general long-term liabilities differ from the financial reporting of other long-term liabilities?

Under what circumstances might a government consider an advance refunding of general obligation bonds outstanding?

Surf City is a rapidly growing city on the Mid-Atlantic coast, with a current population of 200,000. To cope with the growing vehicular traffic and the need for infrastructure expansion (e.g., streets, sidewalks, lighting, storm water drains, and sewage systems), members of the city council have recently engaged in debate about the merits of alternative mechanisms for financing expansion. The alternatives the council is exploring are (1) a sales tax referendum to increase an existing one-half-cent capital improvement tax by one-quarter cent on every dollar of sales; (2) a development fee of $0.50 per square foot imposed on real estate developers for new residential and commercial buildings; and (3) a term bond issue maturing in 20 years.

Public debate at recent city council meetings has been contentious, with developers arguing that the burden for infrastructure improvements would be disproportionately placed on homeowners and businesses, whereas reliance on a sales tax increase would permit part of the infrastructure burden to be borne by nonresidents who shop in and otherwise enjoy the benefits of Surf City. Some voters fear that a term bond will adversely impact their children when the large principal payment is due in 20 years. Developers also have argued that more of the existing one-half-cent capital improvement tax should be spent for street and sidewalk improvements and less should be spent for improvement of public buildings, parks, and biking trails.

Proponents of the proposed real estate development fee argue that new residential and commercial building is the main factor driving the growing demand for infrastructure development. Thus, they argue, it is most appropriate that new residents and new businesses shoulder much of the burden for expanding infrastructure. They further argue that the development fee will result in only a modest, largely invisible increase in the cost of each new building. Finally, they argue that Surf City citizens enjoy better health and a generally higher quality of life as a result of park and biking trail improvements, and that the existing one-half-cent sales tax should continue to support recreational facilities.

Supporters of the bond option argue that borrowing the funds for expansion will allow for continued urban growth without placing undue burden on developers, business owners, or current residents. They point to the balloon payment and stress that over the upcoming 20 years, the increased population base will be better able to fund the city’s expansion. They worry that any tax increases will stifle growth and discourage tourists or other visitors from spending money in the city.

Required

Evaluate the advantages and disadvantages of each potential financing option from the viewpoint of (1) a city council member, (2) current homeowners and business owners, and (3) potential new homeowners or new business owners. Provide a written analysis of the options from the perspective of each party.

On July 1, 2020, the beginning of its fiscal year, Ridgedale County recorded gross property tax levies of $4,200,000. The county estimated that 2 percent of the taxes levied would be uncollectible. As of April 30, 2021, the due date for all property taxes, the county had collected$3,900,000 in taxes. During the current fiscal year, the county collected $53,000 in delinquent taxes and$4,800 in interest and penalties on the delinquent taxes. The county imposed penalties and interest in the amount of $14,500 but only expects to collect$12,800 of that amount. At the end of the fiscal year (June 30, 2021), uncollected taxes, interest, and penalties are reclassified. They are not expected to be collected within the first 60 days for the following fiscal year.

Required

Prepare the journal entry necessary to record interest and penalties if they are not expected to be collected soon after year-end.

How is the isotope iodine -131 represented? A. ${ }_{52}^{131} \mathrm{I}$ B. ${ }_{53}^{131} \mathrm{I}$ C. ${ }_{78}^{131} \mathrm{I}$ D. ${ }_{53}^{78} \mathrm{I}$

Differences between common stock and preferred stock.

The following changes took place last year in Pavolik Company’s balance sheet accounts:

Asset and Contra-Asset Accounts			Liabilities and Equity Accounts
Cash	$5	D	Accounts payable	$35	I
Accounts receivable	$110	I	Accrued liabilities	$4	D
Inventory	$70	D	Income taxes payable	$8	I
Prepaid expenses	$9	I	Bonds payable	$150	I
Long-term investments	$6	D	Common stock	$80	D
Property, plant, and equipment	$185	I	Retained earnings	$54	I
Accumulated depreciation	$60	I
__________
D = Decrease; I = Increase

Long-term investments that had cost the company$6 were sold during the year for $16 and land that had cost$15 was sold for $9. In addition, the company declared and paid$30 in cash dividends during the year. Besides the sale of land, no other sales or retirements of plant and equipment took place during the year. Pavolik did not retire any bonds during the year or issue any new common stock. The company’s income statement for the year follows: $$ \begin{array}{lrr} \text{Sales}&\text{}&\text{\$700}\\ \text{Cost of goods sold}&\text{}&\underline{\text{\hspace{}5pt400}}\\ \text{Gross margin}&\text{}&\text{300}\\ \text{Selling and administrative expenses}&\text{}&\underline{\text{\hspace{5pt}184}}\\ \text{Net operating income}&\text{}&\text{116}\\ \text{Nonoperating items:}&\text{}&\text{}\\ \qquad\text{Loss on sale of land}&\text{\$(6)}&\text{}\\ \qquad\text{Gain on sale of investments}&\underline{\text{\hspace{5pt}10}}&\underline{\text{\hspace{15pt}4}}\\ \text{Income before taxes}&\text{}&\text{120}\\ \text{Income taxes}&\text{}&\underline{\text{\hspace{10pt}36}}\\ \text{Net income}&\text{}&\underline{\underline{\text{\$\hspace{5pt}84}}}\\ \end{array} $$ The company’s beginning cash balance was $90 and its ending balance was$85. Required: 1. Use the indirect method to determine the net cash provided by operating activities for the year. 2. Prepare a statement of cash flows for the year.

Flandro Company uses a standard cost system and sets predetermined overhead rates on the basis of direct labor-hours. The following data are taken from the company’s budget for the current year:

Denominator activity (direct labor-hours)   5,000 
Variable manufacturing overhead cost      $25,000 
Fixed manufacturing overhead cost$59,000

The standard cost card for the company’s only product is given below:

$$\begin{array}{lrrr} \textbf{}&\textbf{(1)}&\textbf{(2)}&\textbf{Standard}\\ \textbf{}&\textbf{Standard Quantity}&\textbf{Standard Price}&\textbf{Cost}\\ \textbf{Inputs}&\textbf{or Hours}&\textbf{or Rate}&\textbf{(1) x (2)}\\[5pt] \text{Direct materials}&\text{3 yards}&\text{\$4.40 per yard}&\text{\$13.20}\\ \text{Direct labor}&\text{1 hour}&\text{\$12 per hour}&\text{12.00}\\ \text{Manufacturing overhead}&\text{1 hour}&\text{\$16.80 per hour}&\underline{\text{\hspace{5pt}16.80}}\\ \text{Standard cost per unit}&\text{}&\text{}&\underline{\underline{\text{\$42.00}}}\\ \end{array}$$

During the year, the company produced 6,000 units of product and incurred the following costs:

Materials purchased, 24,000 yards at $4.80 per yard$115,200 
Materials used in production (in yards)                     18,500 
Direct labor cost incurred, 5,800 hours at $13 per hour$75,400 
Variable manufacturing overhead cost incurred              $29,580 
Fixed manufacturing overhead cost incurred$60,400

Required:

1. Create a new standard cost card that separates the variable manufacturing overhead per unit and the fixed manufacturing overhead per unit.

2. Compute the materials price and quantity variances. Also, compute the labor rate and efficiency variances.

3. Compute the variable overhead rate and efficiency variances. Also, compute the fixed overhead budget and volume variances.

4. What effect, if any, does the choice of a denominator activity level have on unit standard costs? Is the volume variance a controllable variance from a spending point of view? Explain.

Dawson Toys, Ltd., produces a toy called the Maze. The company has recently established a standard cost system to help control costs and has established the following standards for the Maze toy:

$$\begin{matrix} \text{Direct materials: 6 microns per toy at \$0.50 per micron}\\ \text{Direct labor: 1.3 hours per toy at \$8 per hour}\\ \end{matrix}$$

During July, the company produced 3,000 Maze toys. Production data for the month on the toy follow: Direct materials: 25,000 microns were purchased at a cost of$0.48 per micron. 5,000 of these microns were still in inventory at the end of the month. Direct labor: 4.000 direct labor-hours were worked at a cost of$36.000. 1. Compute the following variances for July: a. The materials price and quantity variances. b. The labor rate and efficiency variances. 2. Prepare a brief explanation of the possible causes of each variance.

Logistics Solutions provides order fulfillment services for dot.com merchants. The company maintains warehouses that stock items carried by its dot.com clients. When a client receives an order from a customer, the order is forwarded to Logistics Solutions, which pulls the item from storage, packs it, and ships it to the customer. The company uses a predetermined variable overhead rate based on direct labor-hours. In the most recent month, 120.000 times were shipped to customers using 2.300 direct labor-hours. The company incurred a total of $7.360 in variable overhead costs. According to the company's standards, 0.02 direct labor-hours are required to fulfill an order for one item and the variable overhead rate is$3.25 per direct labor-hour. 1. According to the standards, what variable overhead cost should have been incurred to fill the orders for the 120,000 items? How much does this differ from the actual variable overhead cost? 2. Break down the difference computed in requirement 1 into a variable overhead rate variance and a variable overhead efficiency variance.

Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company's planning budget for May appears below:

$$\begin{matrix} \text{Puget Sound Divers}\\ \text{Planning Budget}\\ \text{For the Month Ended May 31}\\ \text{Budgeted diving-hours (q)} & \text{100}\\ \text{Revenues (\$ 365.00q)} & \text{\$ 36.500}\\ \text{Expenses:}\\ \text{Wages and salaries (\$ 8.000+\$ 125.00q)} & \text{20.500}\\ \text{Supplies (\$ 3.00q)} & \text{300}\\ \text{Equipment rental (\$ 1.800+\$32.00q)} & \text{5.000}\\ \text{Insurance (\$ 3.400)} & \text{3.400}\\ \text{Miscellaneous (\$ 630+\$ 1.80q)} & \text{810}\\ \text{Total expense} & \text{30.010}\\ \text{Net operating income} & \text{\$ 6.490}\\ \end{matrix}$$

During May, the company's activity was actually 105 diving-hours. Prepare a. flexible budget for that level of activity.

SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles for the Travel cost pool, number of pickups and deliveries for the Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool. The Other cost pool has no activity measure because it is an organization-sustaining activity. The following costs will be assigned using the activity-based costing system. $$ \begin{matrix} \text{Driver and guard wages} & \text{\$ 720.000}\\ \text{Vehicle operating expense} & \text{280.000}\\ \text{Vehicle depreciation} & \text{120.000}\\ \text{Customer representative salaries and expenses} & \text{160.000}\\ \text{Office expenses} & \text{30.000}\\ \text{Administrative expenses} & \text{320.000}\\ \text{Total cost} & \text{\$ 1.630.000}\\ \end{matrix} $$ The distribution of resource consumption across the activity cost pools is as follows: $$ \begin{matrix} \text{ } & \text{Travel} & \text{Pickup and Delivery} & \text{Customer Service} & \text{Other} & \text{Totals}\\ \text{Driver and guard wages} & \text{50\\%} & \text{35\\%} & \text{10\\%} & \text{5\\%} & \text{100\\%}\\ \text{Vehicle operating expense} & \text{70\\%} & \text{5\\%} & \text{0\\%} & \text{25\\%} & \text{100\\%}\\ \text{Vehicle depreciation} & \text{60\\%} & \text{15\\%} & \text{0\\%} & \text{25\\%} & \text{100\\%}\\ \text{Customer representative salaries and expenses} & \text{0\\%} & \text{0\\%} & \text{90\\%} & \text{10\\%} & \text{100\\%}\\ \text{Office expenses} & \text{0\\%} & \text{20\\%} & \text{30\\%} & \text{50\\%} & \text{100\\%}\\ \text{Administrative expenses} & \text{0\\%} & \text{5\\%} & \text{60\\%} & \text{35\\%} & \text{100\\%}\\ \end{matrix} $$ Complete the first stage allocations of costs to activity cost pools.