Choice of accounting principles may have significanteconomic consequencesIn preparing its budget proposals, a city’s...*Choice...

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Accounting

Choice of accounting principles may have significanteconomic consequences
In preparing its budget proposals, a city’s budget committeeinitially estimated that total revenues would be $120 million andtotal expenditures would be $123 million. In light of the balancedbudget requirements that the city has to meet, the committeeproposed several measures to either increase revenues or decreaseexpenditures. They included the following:
1. Delay the payment of $0.4 million of city bills from the lastweek of the fiscal year covered by the budget to the first week ofthe next fiscal year.
2. Change the way property taxes are accounted for in thebudget. Currently, property taxes are counted as revenues only ifthey are expected to be collected during the budget year. Newbudgetary principles would permit the city to include as revenuesall taxes expected to be collected within 60 days of the followingfiscal year in addition to those collected during the year. Thecommittee estimates that the change would have a net impact of $1.2million.
3. Change the way that supplies are accounted for in the budget.Currently, supplies are recognized as expenditures at the time theyare ordered. The proposal would delay recognition of theexpenditures until they are actually received. The committeeestimates a net effect of $0.8 million.
4. Defer indefinitely $1.5 million of maintenance on city roads.Except as just noted with respect to supplies, the city currentlyprepares its budget on a near?cash basis, even though other basesare also legally permissible. It prepares its year?end financialstatements, however, on an accrual basis.
a. Indicate the impact that each of the proposals would have onthe city’s (1) budget, (2) annual year?end financial statements,and (3) “substantive” economic well?being.
b. It is sometimes said that choice of accounting principlesdoesn’t matter in that they affect only the way the entity’s fiscal“story” is told; they have no impact on the entity’s actual fiscalhistory or current status. Do you agree? Explain.

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4.2 Ratings (732 Votes)

a Impact Budet Financial Statement substantive 1 Delay the payment of 04 million of city bills from the last week of the fiscal year covered by the budget to the first week of the next fiscal year The city budgets on a cash basis delaying the payment of bills by one week would reduce the budget deficit shifting cost to the next year No impact on the accrualbased financial statements A very Minor direct impact on the citys substantive economic wellbeing 2 Change the way See Answer

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In: Accounting*Choice of accounting principles may have significanteconomic consequences*In preparing its budget proposals, a city’s...*Choice of accounting principles may have significanteconomic consequences*In preparing its budget proposals, a city’s budget committeeinitially estimated that total revenues would be $120 million andtotal expenditures would be $123 million. In light of the balancedbudget requirements that the city has to meet, the committeeproposed several measures to either increase revenues or decreaseexpenditures. They included the following:1. Delay the payment of $0.4 million of city bills from the lastweek of the fiscal year covered by the budget to the first week ofthe next fiscal year.2. Change the way property taxes are accounted for in thebudget. Currently, property taxes are counted as revenues only ifthey are expected to be collected during the budget year. Newbudgetary principles would permit the city to include as revenuesall taxes expected to be collected within 60 days of the followingfiscal year in addition to those collected during the year. Thecommittee estimates that the change would have a net impact of $1.2million.3. Change the way that supplies are accounted for in the budget.Currently, supplies are recognized as expenditures at the time theyare ordered. The proposal would delay recognition of theexpenditures until they are actually received. The committeeestimates a net effect of $0.8 million.4. Defer indefinitely $1.5 million of maintenance on city roads.Except as just noted with respect to supplies, the city currentlyprepares its budget on a near?cash basis, even though other basesare also legally permissible. It prepares its year?end financialstatements, however, on an accrual basis.a. Indicate the impact that each of the proposals would have onthe city’s (1) budget, (2) annual year?end financial statements,and (3) “substantive” economic well?being.b. It is sometimes said that choice of accounting principlesdoesn’t matter in that they affect only the way the entity’s fiscal“story” is told; they have no impact on the entity’s actual fiscalhistory or current status. Do you agree? Explain.

*Choice of accounting principles may have significanteconomic consequences*In preparing its budget proposals, a city’s...*Choice...