The General Fund of the City of Lexington approved a tax levy for the calendar year 2012 in the amount of $2,000,000.Of that amount,$30,000 is expected to be uncollectible.During 2012,$1,750,000 was collected.During 2013,$100,000 was collected during the first 30 days,$70,000 was collected during the next 30 days,and $50,000 was collected during the next 30 days.During the postaudit,you discovered that the City showed $2,000,000 in revenues.What adjusting entry would you need to make,assuming you decided to allow the maximum amount of revenues for 2012,using modified accrual accounting?

Question

Quizplus · Accepted Answer

The maximum amount of revenue that can be recognized in 2012 is $1,750,000, which was collected during the year. The remaining $250,000 ($2,000,000 - $1,750,000) is considered deferred revenue and should be recognized in 2013 when it is collected. Therefore, the adjusting entry would be to debit Revenues for $50,000 (the amount collected in the first 30 days of 2013) and credit Deferred Revenues for $50,000.

The General Fund of the City of Lexington Approved a Tax