A city that has a 12/31 fiscal year end has adopted a policy of recognizing the maximum amount of property tax revenue allowable under GAAP.Property taxes of $720,0000 of which 10% are estimated to be uncollectible are levied in October 2010 to finance the activities of the fiscal year 2011.During 2011, cash collections related to property taxes levied in October 2010 were $600,000.In 2012 the following amounts related to the property taxes levied in October 2010 were collected: January $30,000; March, $6,000.For the fiscal year ended 12/31/11, what amount should be recognized as property tax revenues related to the 2010 levy on the governmental fund financial statements?
A) $720,000.
B) $648,000.
C) $630,000.
D) $600,000.

Question

Quizplus · Accepted Answer

The policy of recognizing the maximum amount of property tax revenue allowable under GAAP means that the city should recognize the revenue when it is measurable and available, which is when the taxes are levied in October 2010. However, since 10% of the taxes are estimated to be uncollectible, the revenue should be recognized net of that amount, which is $648,000 ($720,000 x 90%).

The cash collections of $600,000 represent only the amount collected in 2011 and should not affect the recognition of revenue in the 2011 fiscal year.

The collections in 2012 of $30,000 and $6,000 relate to the 2010 property tax levy and should be recognized as revenue in the 2012 fiscal year. However, they do not affect the recognition of revenue in the 2011 fiscal year.

Therefore, the amount that should be recognized as property tax revenues related to the 2010 levy on the governmental fund financial statements for the fiscal year ended 12/31/11 is $630,000 ($720,000 x 90% - $30,000 - $6,000).

A City That Has a 12/31 Fiscal Year End Has