|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.