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venchlu
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Posted: 03 May 2010 at 15:47 | IP Logged  

The city of Pine’s fiscal year-end is June 30. Pine levies property taxes in Jan of each year for the calendar year. One half of the levy is due in May, and one half is due in October. Property tax revenue is budgeted for the period in which payment is due. The following information pertains to Pine’s property taxes for the period from July 1, year 5 to June 30, year 6 :

 

                                                  Calendar Year

 

Year 5

Year 6

Levy

$2,000,000

$2,400,000

Collected in:

 

 

 May

950,000

1,100,000

July

  50,000

      60,000

October

920,000

 

December

   80,000

 

The $40,000 balance due for the May Year 6 installments was expected to be collected in Aug year 6. What amount should Pine recognize for property tax revenue for the fiscal year ended June 30, year 6??

A.      $2,160,000

B.      $2,200,000

C.      $2,360,000

D.      $2,400,000

The correct answer is B. It simple calculates =( 2,000,000+2,400,000) /2 = $2,200,000.

How to think through this question? I am so lost here. For me , I got my answer 3,200,000 which is not in the answer list. I thought the money we collected in Yeae5 is all revenue.

Thanks for reading such a long question.  It would be nice if someone can point out to me where I went wrong.



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conquercpa
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Joined: 09 Apr 2010
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Posted: 03 May 2010 at 21:54 | IP Logged  

Hi. I was first confused by the answer and explanation when I came across this question. But then I read the question again and here is what I think.

The key sentence in the question is "one-half of the levy is due in May and one-half is due in Oct." So that's why it is 50% of year 5 and year 6 revenue.

The $$$ collected in the months were distractor. But If you analyze closly, you can still come up with the same answer by using the info.

Because the city's year end is June 30. So 2 steps for the June 30, yr 6 revenue.

1. Revenue recorded from July--Dec for year 5 =All Oct Installments= $ collected in Oct+Dec=920,000+80,000=1,000,000 (note that 1/2 of the levy is due in May and one-half is due in Oct. so the $50,000 collected in July is excluded here because it is the May year 5 installment rev.)

2. Rev. recorded from Jan-June 30 for year 6 =all May installments=$ collected in May+in July +$40,000 balance due in Aug. (within 60 daysfrom June 30. to Aug)=1100,000+60,000+40,000=1,200,000.

Step 1+2=2,200,000.

I hope this makes sense..

 



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