Question & Answer: 1. The City of Smithburg is beginning the process of putting together the budget for the upcoming fiscal year.The city has de…..

1. The City of Smithburg is beginning the process of putting together the budget for the upcoming fiscal year.The city has determined that it will need to raise $10,000,000 from property taxes from the residents of Smithburg.In order to assess property taxes to its citizens, the city accountant has been provided the following information:

Property taxes to be collected                                                                        $10,000,000
Allowance for uncollectible property taxes                                          1% of taxes levied
Total assessed value of property for the fiscal year                             $120,000,000
Expected reduction in assessed value from appeals                                    $500,000
Assessed value of City proper that is not subject to tax                        $2,800,000
Adjustments to assessed values for senior citizens exemptions       $1,200,000

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From this information, compute the following three items:

a).           The gross amount of property taxes required to be levied.
b).          The tax rate per $100 of net assessed valuation.
c).           The property tax a homeowner will have to pay for a house assessed at $120,000.

2. Reiver village is a growing community somewhere in the great state of Iowa and has adopted the following budget for its current fiscal year.

Reiver Village
General Fund
Operating Budget
Current Fiscal Year

Estimated Revenues
Property taxes                  $   2,200,000
Charges for services               480,000                         $ 2,680,000

Appropriations
Administration                  $     360,000
Public Safety                          1,980,000                            2,340,000

Budgeted Increase in Fund Balance                                         $     340,000

Reiver village also had the following operating transactions during the year.

Levied property taxes.

Placed orders for materials and supplies for:
Administration332,000
Public safety 1,520,000

Collected revenues of:
Property taxes 2,200,000
Charges for services462,000

Received items on order for:
Administration280,000
Public safety 1,108,000

Paid cash for items received for:
Administration290,000
Public safety 1,103,000

Received items on order for:
Administration46,000
Public safety380,000

Paid cash for items received for:
Administration42,000
Public safety372,000

Collected revenues of:
Property taxes—0—
Charges for services28,000

For this problem, complete the following items.

Prepare the journal entries for Reiver village on a separate sheet of journal paper (including the budgetary entry).

Post those journal entries to the appropriate ledger accounts as provided in the following ledgers.

Reiver Village
General Fund/Revenues Ledger
Current Fiscal Year

Source: Property Taxes

Entry No. Item Estimated Revenue

DR

Actual Revenue

CR

Difference

DR (CR)

Source: Charges for Services

Entry No. Item Estimated Revenue

DR

Actual Revenue

CR

Difference

DR (CR)

Reiver Village
General Fund/Appropriations Ledger
Current Fiscal Year

Function: Administration

Entry No. Item Appropriation

CR

Encumbrances

DR        CR

Expenditures Available Appropriation

CR

Function: Public Safety

Entry No. Item Appropriation

CR

Encumbrances

DR        CR

Expenditures Available Appropriation

CR

GENERAL JOURNAL                                                                       Page

Date Description of entry Post Ref Debit Credit

Expert Answer

 

1. a. Gross amount of property taxes required to be levied =   Amount required
(1 – Allowance % for uncollectable property taxes)

So, gross amount = 10,000,000 / (1 – 0.01) = $10,101,010.10

b. Net assessed value = 120,000,000 – (500,000 + 2,800,000 + 1,200,000) = $115,500,000

Gross tax required to be levied = $10,101,010.10

Tax rate per $100 of net assessed valuation = 10,101,010.10 / 115,500,000 * 100 = 8.745%

c. Property tax on a house assessed at $120,000 = 120,000 * 8.745% = $10,495

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