On May 1, the City of Dustin was notified of approval of a $300,000 federal operating grant, payable on a reimbursement basis as the city expends resources for the intended purpose of the grant. As of May 1, no expenditures had been made for grant purposes. The journal entry to record approval of this grant will include:
A) A credit to Revenues in the amount of $300,000.
B) A credit to Deferred Inflows of Resources-Grant Proceeds in the amount of $300,000.
C) A debit to Grants Receivable in the amount of $300,000.
D) No journal entry will be made until expenditures for the authorized purpose occur.

Question

Quizplus · Accepted Answer

Since the grant is payable on a reimbursement basis, the city must first incur and pay for the expenses before recognizing the grant revenue. Therefore, no journal entry is made upon grant approval.

On May 1, the City of Dustin Was Notified of Approval