[jessanqi]

can anyone please help, what’s the difference between these two questions???

The following balances appeared in the City of Reedsbury’s general fund at June 30, 20X5:
Account Balance
Dr. (Cr.)
Encumbrances – current year $200,000
Expenditures:
Current year $3,000,000
Prior year $100,000
Fund balance reserved for encumbrances:
Current year $(200,000)
Prior year None

Reedsbury maintains its general fund books on a legal budgetary basis, requiring revenues and expenditures to be accounted for on a modified accrual basis. In addition, the sum of current year expenditures and encumbrances cannot exceed current year appropriations.

What total amount of expenditures (and encumbrances, if appropriate) should Reedsbury report in the general fund “actual” column of its combined statement of revenues, expenditures, and changes in fund balance – budget and actual – for the year ended June 30, 20X5?

A. $3,000,000
B. $3,100,000
C. $3,200,000
D. $3,300,000

Explanation
The correct answer is C. With respect to the “actual” column of a combined statement of revenues, expenditures, and changes in fund balance (budget and actual), there should be included therein both actual expenditures as well as encumbrances which have not been liquidated as of the end of the period. Therefore, Reedsbury should report a total of $3,200,000 ($3,000,000 current expenditures and $200,000 current year encumbrances).

The following balances appeared in the City of Reedsbury’s general fund at June 30, 20X5:
Account Balance
Dr. (Cr.)
Encumbrances – current year $200,000
Expenditures:
Current year $3,000,000
Prior year $100,000
Fund balance reserved for encumbrances:
Current year $(200,000)
Prior year None

Reedsbury maintains its general fund books on a legal budgetary basis, requiring revenues and expenditures to be accounted for on a modified accrual basis. In addition, the sum of current year expenditures and encumbrances cannot exceed current year appropriations.

What total amount of expenditures (and encumbrances, if appropriate) should Reedsbury report in the general fund column of its combined statement of revenues, expenditures, and changes in fund balance for the year ended June 30, 20X5?

A. $3,000,000
B. $3,100,000
C. $3,200,000
D. $3,300,000

Explanation
The correct answer is B. The balance in “encumbrances” at the end of a fiscal period does not represent an expenditure for that period but is reported as a reserve of the fund balance. Thus, expenditures are considered only those items for which the precise amount of the liability has been established in the current period. In addition, where an item which has been encumbered in one period is established as a liability in a subsequent period, such amount is reduced from the reserved fund balance. In this case, however, there was no fund balance reserved as of June 30, 20X4; therefore, even the “prior year” expenditures must be reported as expenditures of the current period ($100,000) together with the current period expenditures ($3,000,000) for a total of $3,100,000.

[abanhiqbal]

This is an extremely similar question but the “actual” is referring to the budget and actual (current expenditures + encumbrance outstanding) for the period. The encumbrance outstanding is a committed purchase that has not occurred yet. The second one is representing an outstanding amount (previous year of 100,000) which has presumed to not have been presented in the last period's combined statement of revenues, expenditures, and changes in fund balance, representing the “gross” amount spent in this period. It ignores the encumbrance because it is not considered an expenditure.

[jessanqi]

Thanks Aban Iqbal,

But why the $100,000 previous not included in the actual expenditure for this year regarding to the first question??

[BBHYX]

which test bank are these questions from? I also think they are very confusing

[jessanqi]

from Yaeger CPA review, they are using the Wiley book.

[Author]

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