Problems 135 2. The county executive has boasted that the "better than anticipated results" (based on the comparison of the schedule that appears in the financial statements) are evidence of "sound fiscal management and effec tive cost controls on the part of the county adminis tration. Do you agree? 3. Which of the three schedules best demonstrates legal compliance? Explain 4. Which schedule best demonstrates effective manage ment? Explain. P. 3-8 Budget variances have to be interpreted with caution The data presented below were taken from the books and records of the village of Kirkville. All amounts are in millions The village encumbers all outlays. As is evident from the data, some goods or services that were ordered and encumbered have not yet been received. City regulations require that all appropriations lapse at year-end. Village of Kirkville Amounts Received Estimated/ Amounts Appropriated Encumbered Estimated Cost Actual Cost Actual Revenues Revenues Property taxes Sales taxes $ 2,900 3,900 Licenses Other 300 700 12.500 $ 7,800 3,600 200 400 $12,000 Expenditures/Appropriations General government 3,000 $2,600 $2,400 Public safety 6,000 5,900 Recreation 1,200 1,200 5,000 800 $2,800 4,900 900 Health and sanitation 2,300 2.200 $12.500 $11,900 2,200 $10,400 2,100 $10,200 Excess of estimated revenues over appropriations Beginning unassigned fund balance Estimated unassigned ending fund balance 300 1,200 $ 1.500 1. Prepare summary entries to record The budget b. The encumbrance of the goods and services c. The receipt of the goods and services. All invoices were paid in cash d. The actual revenues (all cash receipts) 2. Prepare summary entries to close the accounts. 3. What would be the year-end a. Fund balance (unsigned)? b. Reserve for encumbrance balance (irrespective of how classified 4. Prepare a schedule in which you compare budgeted to actual revenues and expenditures 5. A citizen reviews the budget to actual schedule that you have prepared. She comments on the rather substantial favorable variance between budgeted and actual expenditures and questions why the govern- ment did not spend the full amount of money that it appropriated. Briefly explain to her the nature of P. 3-9 the variance. A city's note to its financial statements provides considerable Insight into its budget practices Shown below is an excerpt from a note, headed Bud gets, from the Smith City annual report for the fiscal year ended June 30