A city government uses modified accrual accounting for its governmental funds. Property taxes are levied on January 1 for the fiscal year ending December 31. The city expects to collect 98% of the $10,000,000 levy within 60 days after year-end, and the remaining 2% within 90 days. During the current fiscal year, $9,500,000 of the current levy was collected. How much property tax revenue should the city recognize in its General Fund for the current fiscal year?
- A$9,700,000
- B$9,800,000
- C$10,000,000
- D$9,500,000
Show answer & explanationAnswer & explanation
Correct answer: B. $9,800,000
Under modified accrual, revenues are recognized when they are measurable and 'available' to finance expenditures of the current period. 'Available' generally means collectible within the current period or soon enough thereafter (typically 60 days) to pay liabilities of the current period. The $9,500,000 collected plus the 300,000 (98% of 10M - 9.5M) expected within 60 days are recognized.
Why the other options are wrong
- A. This amount is incorrect. It seems to be 95% of the total levy, which doesn't align with the 'available' criteria.
- C. This represents the full levy, but not all of it is expected to be collected within the 'available' period.
- D. This only includes cash collected, ignoring amounts expected to be collected within 60 days.
Modified Accrual Revenue Recognition - Property Taxes
Under modified accrual, property tax revenues are recognized when they are measurable and 'available' to finance expenditures of the current period. 'Available' typically means collected within the current period or within 60 days after year-end.
- Measurable and Available criteria.
- Available generally means 60 days post-year-end.
- Uncollectible amounts and those beyond 60 days are deferred.
Memory trick: Revenues are counted if they're 'MEASURABLE and NEAR' (N-ear = 60 days).