Determine whether each of the following statements is true or false, and explain why.
1. A police department requisitions $40,000 in equipment. The cost of the equipment received is $41,600. As required for fund financial statements, a $40,000 encumbrance is recorded at the time the order was placed. A $41,600 expenditure is recorded upon receipt of the equipment.
2. A city reports a landfill in its general fund. At the end of the first year, the city anticipated that landfill clean-up, after it’s full, would cost $1,200,000 and reported it as 11% full. At the end of the second year, the city revised its estimates to $1,150,000 and 20% full. Payments are not due for several years. A $98,000 expense should be reported on government-wide financial statements for the second year.
3. On the first day in January of Year 1, a city signs a six-year lease for a communications system (for use by police department). Six $15,000 yearly payments will be made under the terms of the lease, with the first payment due immediately. The present value of the $90,000 in cash flows, based on an interest rate of 10%, is $65,329. First-year fund financial statements should report $15,000 in total expenditures.
4. An agency fund does not have revenues or expenses but reports expenditures.
5. On the first day in January of Year 1, a city signs a six-year lease for a communications system (for use by police department). Six $15,000 yearly payments will be made under the terms of the lease, with the first payment due immediately. The present value of the $90,000 in cash flows, based on an interest rate of 10%, is $65,329. First-year government-wide financial statements should report expenses of $20,033.