ExpertMedium1 markMultiple Choice
CPA · Question 31 · Area III: State & Local Governments
A city government levies $2,000,000 in property taxes for the fiscal year ending December 31. $1,800,000 is collected during the year. $100,000 is collected in January of the following year. The remaining $100,000 is expected to be collected in June of the following year. Under the modified accrual basis, what amount of property tax revenue should be recognized for the fiscal year?
A city government levies $2,000,000 in property taxes for the fiscal year ending December 31. $1,800,000 is collected during the year. $100,000 is collected in January of the following year. The remaining $100,000 is expected to be collected in June of the following year. Under the modified accrual basis, what amount of property tax revenue should be recognized for the fiscal year?
Answer options:
A.
$2,000,000
B.
$1,800,000
C.
$1,900,000
D.
$1,950,000
How to approach this question
Apply the 'Available' criterion. Revenue = Collections during year + Collections within 60 days after year-end. Exclude amounts collected later.
Full Answer
C.$1,900,000✓ Correct
C
Under modified accrual, property tax revenue is recognized when levied if it is 'available' (collected within the current period or soon enough thereafter to pay current liabilities, typically 60 days). $1,800,000 (current) + $100,000 (Jan - within 60 days) = $1,900,000. The June collection is deferred.
Common mistakes
Recognizing full levy; recognizing only cash collected in year.
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