Culver City recognizes as revenues/expenditures those amounts collected/paid during the year or within 60 days of fiscal year-end.The City offers a pension benefit to its employees who meet certain age and years of employment criteria.The City participates in the State Pension Plan.The City's actuarially determined contribution requirement to the State Pension Plan for the fiscal year ended 6/3/11 is $5 million.Due to cash inflow shortages the City, which budgeted $5 million for pension payments, paid only $4 million in the fiscal year ended 6/30/11.The City paid the remaining amount on September 30, 2011.Assuming the City maintains its books and records in a manner that facilitates the preparation of the government-wide financial statements, what is the appropriate entry to record the pension payments and recognize any associated liability?
A)Debit Expenditures $5 million; Credit Cash $4 million and Pension payable $1 million.
B)Debit Expenses $5 million; Credit Cash $4 million and Pension payable $1 million.
C)Debit Expenditures $4 million; Credit Cash $4 million.
D)Debit Expenses $4 million; Credit Cash $4 million.

Question

Quizplus · Accepted Answer

The appropriate entry to record the pension payments and recognize any associated liability would be to recognize the full actuarially determined contribution requirement of $5 million as an expense and credit $4 million to cash and the remaining $1 million to pension payable. This is because the City has an obligation to pay the full amount determined by actuarial calculations, and the delay in payment does not change the fact that the obligation exists. Therefore, option B is the correct choice.

Culver City Recognizes as Revenues/expenditures Those Amounts Collected/paid During the Year