A town's garbage trucks accidentally sideswiped two parked automobiles in the fiscal year ended December 31, 2019. One case was settled for $3,000 in 2019, and the town expects to pay that claim in January 2020. In the other case, the claimant originally demanded $15,000. The town attorney thinks they can settle the claim for $10,000, but it probably will take two years to settle the case. What amount should the town report as a claims liability on the General Fund's December 31, 2019 balance sheet?

Question

Quizplus · Accepted Answer

Claims and judgments create "liabilities" that governments "normally" expect to liquidate over future time periods with financial resources that are available in those future periods. Governments recognize expenditures and liabilities in governmental funds as the liabilities mature (i.e., as they come due for payment) each year on the occurrence of relevant events, such as when claims are settled. Any portion of the liability that has not matured is considered general long-term debt, rather than fund debt. The town will report a fund liability for the $3,000 claim that was settled in 2019 and as such, is due for payment on December 31, 2019 and is expected to be paid in January 2020. The other claim has not been settled and is not due for payment. Therefore, it is not reported in the General Fund's balance sheet.

A Town's Garbage Trucks Accidentally Sideswiped Two Parked Automobiles in the Fiscal