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 government-wide financial statements?
A)$720,000.
B)$648,000.
C)$630,000.
D)$600,000.

Question

Quizplus · Accepted Answer

The city has adopted a policy of recognizing the maximum amount of property tax revenue allowable under GAAP. However, 10% of the levied property taxes are estimated to be uncollectible, which means that only 90% is expected to be collected.

For the fiscal year ended 12/31/11, the city had levied $720,000 in property taxes, but only $600,000 was collected in cash related to those levies. This means that the city did not collect the full amount of the property taxes it had levied in October 2010.

Therefore, the amount that should be recognized as property tax revenues related to the 2010 levy on the government-wide financial statements for the fiscal year ended 12/31/11 would be the amount that was actually collected in cash, which is $600,000.

In 2012, additional collections totaling $36,000 ($30,000 in January and $6,000 in March) were made, but these are not relevant to the fiscal year ended 12/31/11. They would be recognized in the financial statements for the fiscal year ended 12/31/12.

The correct answer is B) $648,000. ($720,000 x 90%)

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