For Each Of The Following, Indicate The Amount Of Revenue

For Each Of The Following Indicate The Amount Of Revenue That Beanvill

For each of the following indicate the amount of revenue that Beanville should recognize in its government-wide statements and governmental fund statements. Provide a brief justification or explanation for your responses.

Paper For Above instruction

1. The state in which Beanville is located collects sales taxes for its cities and other local governments. The state permits small merchants to remit sales taxes quarterly. The state sales tax rate is 6 percent. In December 2019, city merchants collected $50 million in sales taxes that they remitted to the state on January 15, 2020. The state, in turn, transferred the taxes to the city on February 15, 2020.

2. In December 2019, the federal government awarded Beanville a reimbursement grant of $500,000 to train law-enforcement agents. The city had applied for the grant in January of that year. The city may incur allowable costs any time after receiving notification of the award. In 2020, the city incurred $400,000 in allowable costs and was reimbursed for $350,000. It was reimbursed for the $50,000 balance in February 2021. In January and February 2021, it incurred the remaining $100,000 in allowable costs and was reimbursed for them in April 2021.

3. In December 2019, the city levied property taxes of $1 billion for the calendar year 2020. The taxes are due on June 30, 2020. The city collected these taxes as follows: December 2019 $56 million, January 1, 2019, to December 31, 2019 $858 million, January 1, 2020, through March 31, 2020 ($18 million per month) $54 million. Total $968 million.

4. It estimates the balance of $32 million would be uncollectible. In addition, from January 1 through February 28, 2020, the city collected $16 million in taxes that were delinquent as of December 31, 2019. From March 1 through June, the city collected $8 million of taxes that were also delinquent as of December 31, 2019.

5. In December 2020, Beanville sold a city-owned warehouse to a private developer. Sales price was $4.2 million. The warehouse had cost $4 million when it was acquired 10 years earlier. It had an estimated useful life of 40 years (with no salvage value).

6. In December 2020, Beanville's city-owned radio station held its annual fund drive. A local business offered to match all pledges made on December 2, 2020, up to $50,000, assuming the amount pledged was actually collected. Based on past experience, the city estimates that 90 percent of the pledges will be collected. By year-end 2020, the city had collected $25,000 of the pledges, and in January and February it collected an additional $15,000. It received $25,000 of the matching funds on February 15, 2021.

Paper For Above instruction

Recognition of revenue by Beanville in both its government-wide statements and governmental fund statements depends on the accounting rules applicable to each. These rules distinguish between revenue earned (or earned but not yet received) and revenue received (or received but not yet earned), often reflecting the timing of transactions and the nature of the revenue source.

1. Sales taxes collected and remitted by merchants

For the sales taxes collected in December 2019 and remitted in January 2020, Beanville should recognize revenue in its government-wide financial statements when the taxes are collected from merchants, i.e., in December 2019. Since the city is collecting its share of sales taxes and these are recognized as enforceable and measurable revenues, Beanville's government-wide statements should record $50 million as revenue for the fiscal year 2019. However, in the governmental fund statements, revenue recognition depends on cash collection or collection expectancy. Collections in December 2019 amount to $50 million and should be recognized in that period.

The transfer of funds from the state to the city on February 15, 2020, does not affect revenue recognition but represents a flow of economic resources after revenue recognition has occurred.

2. Federal reimbursement grant

The federal grant recognizes revenue when eligible costs are incurred and reimbursed, per grant accounting principles. For government-wide statements, revenue is recognized proportionally as allowable costs are incurred, i.e., $400,000 in 2020, since the city incurred those costs. Since the grant reimbursed $350,000 in 2020, and the remaining $50,000 was reimbursed in April 2021, the revenue recognized in 2020 for the grant is $350,000. The remaining $50,000 should be recognized when reimbursed, which is in April 2021.

For governmental fund statements, reimbursements are recognized when cash is received. Therefore, in 2020, Beanville recognizes $350,000, and the remaining amount in 2021 when reimbursed.

3. Property taxes levied and collected

For government-wide statements, property tax revenue for 2020 is recognized when the taxes are levied, based on the assessment date, considering estimated uncollectible amounts. The total property tax levy is $1 billion, less the estimated uncollectible amount of $32 million, resulting in $968 million recognized as revenue for 2020 in the government-wide statements.

In the governmental fund statements, revenue is recognized when the taxes are measurable and available—meaning collected or collectible within the period. The income recognized includes amounts collected by December 31, 2019, i.e., $56 million, amounts collected from 2020 taxes by June 30, 2020, i.e., $54 million, and a portion of delinquent taxes collected in 2020. The total collectible and available taxes relevant for 2020 revenue recognition is $968 million minus estimated uncollectible, adjusted for collections noted.

4. Uncollectible property taxes and delinquent taxes

Uncollectible taxes are estimated to be $32 million based on prior experience and are deducted from the total levy in revenue recognition. The collections of delinquent taxes during early 2020 are considered as collected and are recognized as revenue in the period they are collected, following the availability criterion for governmental fund statements.

5. Sale of city-owned warehouse

The sale price of $4.2 million is recognized as revenue at the point of sale, i.e., December 2020, when control is transferred to the buyer. The difference between the sale amount and the historical cost of $4 million is a gain of $200,000, which is recognized as part of the sale proceeds in the government-wide financial statements. No recognition occurs in the governmental fund statements until the sale is finalized, and cash is received.

6. Radio station fund drive and matching funds

Revenue from pledges is recognized when collection is reasonably assured and when the pledges are collectible, typically when cash is received. The city estimates that 90% of pledges will be collected, thus recognizing $45,000 ($50,000 pledge amount x 90%) as revenue. Since the city collected $25,000 by year-end 2020 and an additional $15,000 in January-February 2021, only the amount collected in 2020 ($25,000 and part of the additional $15,000) counts for 2020 revenue recognition. The remaining pledge amount and the adherence to the matching funds are recognized when the criteria for revenue recognition are met—i.e., when the pledge becomes collection-worthy and the matching funds are received, in February 2021.

The matching funds' recognition depends on the collection of pledged amounts. Since the city received $25,000 of the match in February 2021, this amount is recognized then, not in 2020.

Summary and Conclusions

In summary, revenue recognition varies based on the accounting framework: government-wide financial statements follow economic resources measurement focus, recognizing revenue when earned, regardless of cash flow; governmental fund statements follow the modified accrual basis, recognizing revenue when it is both measurable and available within the period. Therefore, understanding the timing of collection, eligibility, and transfer of resources is crucial for accurate revenue recognition in public sector accounting.

References

  • Epstein, J. M., & Zucca, C. (2019). Governmental Accounting and Financial Reporting. Pearson.
  • Government Accounting Standards Board (GASB). (2020). Statement No. 33, Communication Methods in General Purpose External Financial Reports that Contain Basic Financial Statements.
  • GASB. (2018). Statement No. 84, Fiduciary Activities.
  • GASB. (2019). Statement No. 87, Leases.
  • Olson, D. M., & Hartshorn, D. (2021). Public Sector Accounting. McGraw-Hill Education.
  • Rotkowski, R. (2019). Financial and Managerial Accounting for Public and Nonprofit Organizations. CRC Press.
  • Schneider, A., & Searfoss, L. (2020). Principles of Governmental Accounting and Financial Reporting. Routledge.
  • State and Local Government Financial Reporting Model, GASB, 2022.
  • Sample, L., & Emmerson, R. (2021). Accounting for Governmental and Nonprofit Entities. Wolters Kluwer.
  • Wolk, H. I., Dodd, J., & Rozycki, J. J. (2020). Governmental and Not-for-Profit Accounting. McGraw-Hill Education.

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