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.Per its contractual arrangement, the city's required contribution to the State Pension Plan for the fiscal year ended 6/30/15 is $5 million.Due to cash inflow shortages the city, which budgeted $5 million for pension contributions, paid only $4 million in the fiscal year ended 6/30/15.The city paid the remaining amount on September 30, 2015.Assuming the city maintains its books and records in a manner that facilitates the preparation of government-wide financial statements, how should the city record the pension contribution and any associated liability for the year ended 6/10/15?
A)Debit Expenditures $5 million; Credit Cash $4 million and Pension contribution payable $1 million.
B)Debit Expenses $5 million; Credit Cash $4 million and Pension contribution 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

Since the city's required contribution to the State Pension Plan for the fiscal year ended 6/30/15 is $5 million and the city made a partial payment of $4 million during the year, there is a remaining liability of $1 million that should be recorded as a Pension Contribution Payable. Therefore, the correct entry would be to debit Expenses for the full $5 million, credit Cash for the $4 million paid during the year, and record the remaining liability of $1 million as a credit to Pension Contribution Payable.

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