Below you will find your first exam. It’s worth 15% of your total grade.The exam is split into two sections. Part one contains instructions for completing a month cash budget. Use the data provided to estimate the 2016 budget amounts and create a table for each fund.Part two contains a series of questions related to your estimates. Your final report should be a printed document containing the four budget tables and the answers to the questions in Part 2. Please type your answers in Word or a similar program. Only include your answers in the report. Do not waste additional paper by printing this document. Be sure to follow the instructions carefully and address all parts of each question. Remember that I expect you to take time to make your final product look professional. Use the formatting tools in Excel and Word, or whatever software you choose to use, to make your answers easy to find and tables easy to read.
The exam will be graded out of 100 points. I’ll award pointsfor each question based on whether or not your final answers are correct, the methods you used to solve each problem, and the amount of effort put into the overall presentation of your answers.Note that it is possible to get an answer wrong and receive partial credit, assuming your report demonstrates that youput effort into solving the problem and clearly communicating your answers.
As a reminder, we should have time for exam questions on most presentation days. Look for an announcement on Canvas for additional help sessions outside of class. I’m also happy to answer questions by email or over the phone, but please try to utilize the class time I’m offering.
Note, this exam will be time consuming. Do not wait till the last minute to start work on it. Also, be sure to print your final report early to avoid any unforeseen printing problems. Good Luck!
Part One – The Budget Tables (60 Points)
As the new controller for the city of Cashton, you are concerned about next year’s budget (2016). Specifically, you’re concerned that you may not have enough cash to cover all of your expenses each month (cash flow problems). As a result, you’ve decided to create a monthly cash budget for each of the four major funds of the city. Use the following data to create a monthly cash budget for each fund.
Fund Balance for January 1:
General Fund $680,350
Parks General $74,892
Motor Vehicle $156,547
Cumulative Capital $964,601
Revenue Estimates:All estimates are taken from the budget approved by the City Council last year.
Property Tax: Collections are received by the city on May 1 and November 1. Cashton gives a discount for early payment to encouraged citizens to pay their bill early. As a result, five-eighths of the total levy is received in the first payment. Cashton has experienced a 2% delinquency rate in the past. The total property tax levy for each fund is:
General Fund $2,894,000
Parks General $685,000
Cumulate Capital $228,000
Parking Meters (general fund): Revenues run about $9,000 per month. In warmer months (May, June, July and August) collections are typically 20% lower due to less people driving. Collections are generally 15% higher in December due to holiday shopping downtown.
Permits (general fund): The county engineering department collects permit fees for Cashton throughout the year and remits them to you at the end of each quarter. The total collections are estimated at $360,000 with 20% coming in Q1 and Q4, 25% in Q2, and 35% in Q3.
Traffic Fines (half to general fund, half to motor vehicle): Estimated at $8,500 per month.
Swimming Pool Admissions (parks general): Estimates are based on prior years.
Parks Concessions (parks general): estimates are based on prior years.
Gasoline Taxes (motor vehicle): The state collects gasoline and excise taxes on vehicles operated within the state and shares those revenues with local governments to help maintain their vehicles and equipment. Payments are remitted to local governments at the end of each quarter. Last year Cashton received a total of $440,000. The state estimates 2015 collections to be roughly 3% higher.
Expenditure Estimates:All estimates are based on currently approved appropriations by the City Council.
Payroll:Paydays are every other Friday. The first payday is January 1st.
General Fund $93,000 biweekly
Parks General $17,500 biweekly
Motor Vehicle $2,500 biweekly
Seasonal Employees: Cashton hires additional temporary help in summer months (May thru September). These paychecks are issued on the same day as the regular payroll.
Parks General $6,000 biweekly
Motor Vehicle $1,700 biweekly
Regular Expenditures: Payments to suppliers are issued every other Wednesday starting January 6th. The following amounts represent the average amount per disbursement based on the previous year’s expenditure patterns.
General Fund $29,000 /disbursement
Parks General $4,500 /disbursement
Motor Vehicle $1,450 /disbursement
Seasonal Expenditures: Cashton generally experience higher costs in the summer months (May thru September). These disbursements occur on the same days as the other regular expenditures.
Parks General $2,300 /disbursement
Motor Vehicle $5,800 /disbursement
Debt Service: Cashton issued a bond four years ago for general infrastructure improvements. Payments are due semiannually on January 30th($162,000) and August 30th ($128,000). Debt service is paid from the cumulative capital fund.
Capital Expenditures: Cashton has planned the following capital expenditures for 2015. Payment is due on the date listed.
General Fund – Three new police cars valued at $18,000 each (April 15th)
Motor Vehicle –One dump truck valued at $67,500 (September 30th)
Motor Vehicle – One snowplow valued at $34,000 (September 30th)
Part Two – The Questions (40 Points)
1) Is the budget in balance as it is proposed? How large is the annual deficit or surplus for each fund? Note, I’m asking for four numbers here.
2) Will Cashton experience cash flow problems throughout the year? If so, which funds will have problems? When will the problems occur?
3) What could Cashton do to avoid the cash flow problems that you found in the previous question? There are many valid answers. Don’t simply say “cut expenses or raise revenue”. Be specific. Please list at least three actions they could take.
4) What is the total ending balance for all four funds as of December 31st? We refer to this amount as a cash reserve. Why do agencies hold cash reserves? Is it appropriate for Cashton to hold that much cash in reserve? Explain your answer.