What amount of tax revenue is it required to collect

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Reference no: EM13142577

The Burnet County Road Authority was established as a separate government to maintain county highways. The road authority was granted
statutory power to impose property taxes on county residents to cover its costs, but it is required to balance its budget, which must be prepared on a cash basis. In its first year of operations it engaged in the following transactions, all of which were consistent with its legally adopted, cash-based budget: Purchased $10 million of equipment, all of which had an anticipated useful life of 10 years. To
finance the acquisition, the authority issued $10 million in 10-year term bonds (i.e., bonds that mature in 10 years) Incurred wages, salaries, and other operating
costs, all paid in cash, of $6 million Paid interest of $0.5 million on the bonds Purchased $0.9 million of additional equipment, paying for it in cash. This equipment had a useful life of only three years

1. The authority’s governing board levies property taxes at rates that are just sufficient to balance the authority’s budget. What is the amount of tax revenue that it is required to collect?

2. Assume that in the authority’s second year of operations, it incurs the same costs, except that it purchases no new equipment. What amount of tax revenue is it required to collect?

3. Make the same assumption as to the tenth year, when it has to repay the bonds. What amount of tax revenue is it required to collect?

4. Comment on the extent to which the authority’s budgeting and taxing policies promote interperiod equity. What changes would you recommend?

Reference no: EM13142577

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