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Lincoln City has a 6/30 fiscal year-end.The City has a policy of recognizing revenues/ expenditures when collected/paid or if expected to be collected/paid within 60 days of year-end.
The City has a sick leave benefit policy for its employees.The policy allows City employees one day of paid sick leave per month and permits them to accumulate sick leave they do not take.Sick leave vests at the completion of the fifth year of employment, and unused sick leave is paid in cash upon termination or retirement.During the fiscal year ended 6/30/11, City employees who are paid from the General Fund, earned $2.8 million of sick leave, of which $1.0 was taken.Of the balance, the City estimates $.2 million will be taken in the next sixty days, $.6 million will be taken in the next five years, $.4 million will vest, and $.6 million will never be taken.
-The amount of sick pay liability that should appear on the government-wide financial statements at 6/30/11 is
A)$.1.2 million.
B)$.4 million.
C)$.2 million.
D)No liability should appear.

Question

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Lincoln City has a 6/30 fiscal year-end.The City has a policy of recognizing revenues/ expenditures when collected/paid or if expected to be collected/paid within 60 days of year-end.
The City has a sick leave benefit policy for its employees.The policy allows City employees one day of paid sick leave per month and permits them to accumulate sick leave they do not take.Sick leave vests at the completion of the fifth year of employment, and unused sick leave is paid in cash upon termination or retirement.During the fiscal year ended 6/30/11, City employees who are paid from the General Fund, earned $2.8 million of sick leave, of which $1.0 was taken.Of the balance, the City estimates $.2 million will be taken in the next sixty days, $.6 million will be taken in the next five years, $.4 million will vest, and $.6 million will never be taken.
-The amount of sick pay liability that should appear on the government-wide financial statements at 6/30/11 is
A)$.1.2 million.
B)$.4 million.
C)$.2 million.
D)No liability should appear.

Quizplus · Accepted Answer

The sick pay liability that should be recognized at year-end is the amount of sick pay employees have earned but have not taken, including amounts expected to be taken within 60 days of year-end, as well as amounts that will vest and be payable upon termination or retirement. 
Therefore, the sick leave liability that should appear on the government-wide financial statements at 6/30/11 would be:
$2.8 million (total sick leave earned)
-$1.0 million (sick leave taken)
-$0.2 million (sick leave expected to be taken within 60 days of year-end) 
-$0.6 million (sick leave to be taken over the next five years) 
-$0.6 million (sick leave that will never be taken) 
= $0.4 million 
Hence, the correct answer is B).

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