Question

The City of Troy collects its annual property taxes late in its fiscal year. Consequently, each year it must finance part of its operating budget using tax anticipation notes. The notes are repaid upon collection of property taxes. On April 1, the city estimated that it will require $2,000,000 to finance governmental activities for the remainder of the fiscal year. On that date, it had $720,000 of cash on hand and $780,000 of current liabilities. Collections for the remainder of the year from revenues other than current property taxes and from delinquent property taxes, including interest and penalties, were estimated at $850,000.

Required

1. Calculate the estimated amount of tax anticipation financing that will be required for the remainder of the current fiscal year.
2. Assume that on April 2, the City of Troy borrowed the amount calculated in part a by signing tax anticipation notes bearing 6 percent per annum to a local bank. Record the issuance of the tax anticipation notes in the general journals of the General Fund and governmental activities at the government-wide level.
3. By October 1, the city had collected a sufficient amount of current property taxes to repay the tax anticipation notes with interest. Prepare the general journals of the General Fund and governmental activities at the government-wide level.

Answer 1

Answers a) city of Troy Estimated required tax anticipation financing - particulars - Amount Amount Estimated expenditere requcei rementia Budgeled expenditure $2,000,000 Current Liabilities payable K 780,000 $2,780,000 Leus'- Estimated resources available: cash in hand $790,000 Collection of Budgeted revenue and delinquent property taxes $850,000 ($1,570,000 Estimated amount of required Tax $1,210,000 anticipation note financing .: The estimated amount of Taxe anticipation note Financing for the fiscal year is $1,210,000. b) Journal entry - General fund and governmental activities: Date particulars - LA Debit eredit cash al $1,210.000 C. TO Tase Anticipation note payable Being Issue of the Tax anticipation notes $1,210,000 Date Credil I particulars TLF Debit General fundi Tax anticipation noles payable Me or $1,210,000 Expendilere Ale ( 1210,000x67x62703 $36,300 . To cash Governmental actuhies.- Taxe anticipation noles payableacon $1210,000 General government is interest of $36300 To cash $1246,300 $1,246300