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RshaoKh
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Posted: 16 Sep 2009 at 19:18 | IP Logged  

CPA-05190
A capital projects fund for a new city courthouse recorded a receivable of $300,000 for a state grant and a $450,000 transfer from the general fund.  What amount should be reported as revenue by the capital projects fund?

Answer: $300,000

I thought that state grants were only recorded as revenue AFTER they have been used?  If that's correct, why does the answer include the 300,000?  I don't see any information about the 300,000 being used....  The answer also goes on to say that the accounts receivable assumes that we have already used the 300,000.  How did they get that assumption?

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bryris
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Posted: 16 Sep 2009 at 19:59 | IP Logged  

If the grant is specifically for the construction of a capital project, it is deposited directly into the capital projects fund. Under the modified accrual concept, a receivable can be booked only if it will be available to spend on current obligations.

The 450,000 is from the general fund. It is money that was booked as revenue in the general fund and is merely transferred to the CPF. It is an OFS to the CPF.

I don't understand the "already used" idea you refer to. From the viewpoint of a fund, this must mean already expended. The only logic I can put with this is that the grant's terms are such that it will only reimburse expenditures. IOW, the revenue is booked when all conditions for its receipt are met (i.e. expenditures have been made towards the project in the amount of the grant).

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RshaoKh
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Posted: 16 Sep 2009 at 20:11 | IP Logged  

Thanks!  You mentioned that under the modified accrual concept, a receivable can be booked only if it will be available to spend on current obligations.  I'm still a bit confused though.  I'm not really understanding how the booking of the accounts receivable implies that we have already spent the grant money.  If the problem had replaced accounts receivable in this problem with cash, would the answer still have included the 300,000?  In the Beckers' textbook, they had an example where restricted cash was received from a capital grant.  The journal entry was dr. cash and cr. deferred revenue.  I'm just confused as to why the receivable isn't deferred revenue in this case.

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bryris
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Posted: 16 Sep 2009 at 20:44 | IP Logged  

Can you type up the answer word for word?

The grant must have been a reimbursement. Many grants are only paid if/when the receiving entity makes the expenditure. Thus, when the expenditure is made, the conditions are then met to book the revenue even though the cash hasn't been received.

To answer your question, if cash had been debited, it'd still have been revenue it is was specifically for the CPF and not transferred from some other fund.


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RshaoKh
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Posted: 16 Sep 2009 at 20:49 | IP Logged  

Answer: Choice "b" is correct (300,000).  The state grant would be reported as revenue in the capital projects fund, and the transfer from the general fund would not (it would be recorded as an "other financing source" and not as revenue).  Thus, revenue is $300,000.  The receivable associated with this capital project assumes revenues have been earned by either incurring eligible capital outlay expenditures or by satisfaction of other pertinent grant requirements prior to accruing the receivable.

That's why I'm a bit confused.  The Becker's textbook says that unless the capital grant is spent, it is classified as deferred revenue.  However, in order to record the cash received, you would debit cash and credit deferred revenue.  In this problem, wouldn't the same idea apply?  You would debit accounts receivable and credit deferred revenue.  The problem doesn't mention anything about completing the project or incurring any expenses related to it.

Here's another question to illustrate my question:

Financing for the renovation of Fir City's municipal park, begun and completed during 1992, came from the following sources:
Grant from state government $400,000
Proceeds from general obligation bond issue 500,000
Transfer from Fir's general fund 100,000
In its 1992 capital projects fund operating statement, Fir should report these amounts as:

Answer: Revenues = 400,000
Other financing sources = 600,000

In this problem, I agree that the grant money for 400,000 would be revenue since the problem clearly states that the project was started AND completed in the same year (in other words, expenses were incurred so revenue was recognized).  The original problem didn't mention anything about completing the project or beginning it.

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