A City accounts for its hospital in an Enterprise Fund. An individual brings a malpractice suit against the hospital in 2017. City lawyers are concerned about losing the case if it goes to court, but estimate that it is probable they can settle it out of court for $50,000. In any event, the City does not expect any cash outflows on the claim for several years. How should the Enterprise Fund report this item in its statements for the year ended December 31, 2017?

Question

Quizplus · Accepted Answer

Enterprise Funds report expenses, including malpractice claims, on the full accrual basis of accounting. In addition, Enterprise Fund statements of net position should be presented using a "classified" format. Because the claim won't be settled for several years, it should be reported as a noncurrent liability.

A City Accounts for Its Hospital in an Enterprise Fund