recognizing grants as revenue
Grants are not necessarily recognized as revenue when they are awarded.
Columbus City was awarded a state reimbursement grant of $150,000 to assist its adult literacy program. The following were significant events relating to the grant:
a. The city, which is on a calendar year, was notified of the award in November 2012.
b. During 2013 it expended $30,000 on the literacy program and was reimbursed for $20,000. It expected to receive the balance in January 2014.
c. In 2014 it expended the remaining $120,000 and was reimbursed by the state for the $10,000 owing from 2013 and the amount spent in 2014.
1. Prepare journal entries to record the events in a governmental fund.
2. Suppose instead that the city received the entire $150,000 in cash at the time the award was announced in 2012. How much revenue should the city recognize in its governmental fund statements in each of the three years? Explain.
3. Suppose that, instead of a reimbursement grant, the state awarded the city an unrestricted grant of $150,000, which the city elected to use to support the adult literacy program. The city received the entire $150,000 in cash at the time the award was announced in 2012. How much revenue should the city recognize in its governmental fund statements in each of the three years? Explain.
4. Assume the same facts as for questions 1, 2, and 3. How much revenue should the city recognize in its government-wide statements for each of the three years? Explain.
Sales taxes should be recognized when the underlying event takes place.
A state requires “large” merchants (those with sales over a specified dollar amount) to report and remit their sales taxes within 15 days of the end of each month. It requires “small” merchants to report and remit their taxes within 15 days of the end of each quarter.
In January 2013 large merchants remitted sales taxes of $400 million, owing to sales of December 2012. In February 2013 they remitted $280 million of sales taxes, owing to sales of January 2013. In January 2013 small merchants remitted sales taxes of $150 million, owing to sales of the fourth quarter of 2012.
1. Prepare a journal entry to indicate the impact of the transactions on the state’s governmental fund financial statements for the year ending December 31, 2012.
2. Suppose instead that 10% of the taxes received by the state were collected on behalf of a city within the state. It is the policy of the state to remit the taxes to the city 30 days after it receives them. Prepare a journal entry to indicate the impact of the transactions on the city’s governmental fund financial statements for the year ending December 31, 2012.
3. Suppose instead that it is the policy of the state to remit the taxes to the city 90 days after it receives them. How does your response to question 2 differ? Explain. Is your response the same with respect to the city’s government-wide statements?
The amount of revenue to be recognized from grants depends on the type of grant.
The following information relates to three grants that the town of College Hills received from the state during its fiscal year ending December 31, 2012:
a. A cash grant of $200,000 that must be used to repair roads;
b. $150,000, in cash, of a total grant of $200,000, to reimburse the town for actual expenditures incurred in repairing roads. During the year, the town incurred $150,000 in allowable repair costs;
c. A cash entitlement grant of $200,000 that is intended to supplement the town’s 2013 budget and must be expended in that year.
1. Prepare journal entries to record the three grants in a governmental fund.
2. What amount of revenue should be reported for each grant in the town’s government-wide statement of activities for 2012? Where on that statement should these revenues most likely be reported?
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