The City of Katerah maintains its books and records in a manner that facilitates the preparation of the fund financial statements. The city has adopted the 60-day rule for all revenue recognition for which it is appropriate. Prepare all necessary journal entries to record the City’s revenues for the year ended December 31, 2007, arising from the following events:
a. On January 15, the City received notification that it was the recipient of a $200,000 federal grant to assist in the operation of its “Meals on Wheels” program. The federal government expects to send the cash in about three months. This is not a reimbursement-type grant, and all eligibility requirements have been met.
b. In February the City spent $21,000 on “Meals on Wheels.”
c. In April, the City received the $200,000 from the federal government.
is this an exam question?
To prepare the necessary journal entries to record the City's revenues for the year ended December 31, 2007, arising from the events mentioned, you would follow the guidelines for revenue recognition and the specific timeline of events.
a. On January 15, the City received notification of a $200,000 federal grant for the "Meals on Wheels" program:
To record this revenue, you need to adhere to the 60-day rule for revenue recognition. Since the cash is expected in about three months, you can assume it will be received within the 60-day window. Therefore, you record the revenue on January 15:
Debit: Accounts Receivable - Federal Grant $200,000
Credit: Revenue - Federal Grant $200,000
b. In February, the City spent $21,000 on "Meals on Wheels":
This expense does not affect the revenue recognition since it is related to the expenditure of the grant.
Debit: Meals on Wheels Expense $21,000
Credit: Cash or Accounts Payable $21,000
c. In April, the City received the $200,000 from the federal government:
To record the receipt of the grant funds, you need to update the revenue recognition and account for the cash received:
Debit: Cash (or Accounts Receivable - Federal Grant) $200,000
Credit: Accounts Receivable - Federal Grant $200,000
It's important to note that these journal entries reflect a simplified approach and may not capture all relevant details or specific accounting policies that the City of Katerah might have. It's recommended to consult the appropriate accounting guidelines and procedures specific to the City of Katerah for accurate and complete financial reporting.