Question

A state whose fiscal year ends June 30, 2013, had the following transactions and events. For each item, compute how much total expenditures the state will report in the General Fund Statement of revenues, expenditures, and changes in fund balance for the year ended June 30, 2013. Also, state the accounting principle that governs calculation of the amount to be accrued at the end of the accounting period.

During the year, the state paid salaries of $3,600,000. Its employees also earned $150,000 during the period June 23–30, but the payroll for that period will be paid on July 12.

The state permits its employees to accumulate up to 30 days of vacation leave. The employees are entitled to be paid on termination or retirement for any unused vacation days. At the beginning of the fiscal year, the state’s liability for unused vacation pay was $720,000. By the end of the fiscal year, the vacation pay liability had increased to $810,000. The latter amount includes $16,000 owed to employees who retired as of June 30, 2013, with unused vacation pay. That amount will be paid on July 12, 2013.

At the beginning of the fiscal year, the state’s actuary advised the budget director that a total of $430,000 would have to be paid into a Retiree Health Care Trust Fund if the state were to contribute to the fund based on the benefits earned by its active employees during fiscal 2013. The adopted budget, however, contained an appropriation for $115,000, the amount of benefits the state expected to pay on behalf of retired employees. During the year, actual payments on behalf of retired employees were $96,000. An additional $12,000 was scheduled to be paid in July 2013 for health care benefits claimed in June 2013.

a) Salaries: $3,750,000; Accrual Principle

b) Vacation Pay: $90,000; Matching Principle

c) Retiree Health Care Fund: $108,000; Matching Principle

Answer 1

The total expenditures the state will report in the General Fund Statement of revenues, expenditures, and changes in fund balance for the year ended June 30, 2013, are as follows: Salaries: $3,750,000; Vacation Pay: $90,000; Retiree Health Care Fund: $108,000.

Step-by-step explanation:

To calculate the total expenditures the state will report in the General Fund Statement of revenues, expenditures, and changes in fund balance for the year ended June 30, 2013, we need to consider the following transactions and events:

1. Salaries: The state paid salaries of $3,600,000. Additionally, employees earned $150,000 from June 23–30, but the payroll for that period will be paid on July 12. Therefore, the total expenditure for salaries is $3,750,000.
   Accounting principle: Accrual Principle
2. Vacation Pay: The liability for unused vacation pays increased from $720,000 to $810,000 over the fiscal year. This includes $16,000 owed to retired employees. Therefore, the increase of $90,000 in the vacation pay liability represents the total expenditure.
   Accounting principle: Matching Principle
3. Retiree Health Care Fund: The state's actuary advised that $430,000 should be contributed to the Retiree Health Care Trust Fund, but the adopted budget only contained an appropriation of $115,000. Actual payments on behalf of retired employees were $96,000, with an additional $12,000 scheduled to be paid in July 2013 for June 2013 benefits claimed. Therefore, the total expenditure for the Retiree Health Care Fund is $108,000.
   Accounting principle: Matching Principle