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Freeman Town's General Fund

The fund equity section of the interim balance sheet of the Freeman Town's General Fund, as of June 30, 2005, was:

Fund Equity:
Appropriations $2,551,600
Less: Expenditures $1,349,000
Encumbrances 112,000 1,461,000
Available Appropriations $1,090,600
Reserve for encumbrances 112,000
Fund Balance 122,600
Total Fund Equity $1,325,200

The fund equity section of the balance sheet for the same fund as of December 31, 2005, the end of the fiscal year, was:

Fund Equity:
Reserve for encumbrances $ 32,000
Reserve for Inventory of Supplies 60,000
Total Reserved Fund Equity $ 92,000
Fund Balance 81,600
Total Fund Equity $ 173,600

A local newspaper ran a feature article and an editorial on the incompetence of the city administrators in "running the General Fund at a loss of over $1,150,000 in the last six months of 2005," since the Total Fund Equity decreased from $1,325,200 to $173,600.
Is the newspaper correct? Why or why not? If you need additional information in order to be sure of your answer, explain what additional information you need.

Solution Preview

Freeman Town's General Fund 2005 budgetary and operating statement accounts were closed before the December 31 balance sheet could be prepared. Therefore, the $173,600 is the excess of General Fund ...

Solution Summary

Describes the fund equity section of the interim balance sheet.