A city borrows $800,000 in January because it does not receive property taxes until May.It borrows on a tax anticipation note,which it will repay in May,when the taxes are collected.How would the city classify the note if it were to prepare financial statements on March 31?
A)as an other financing source
B)as a liability
C)as a revenue
D)as a direct increase in equity

Question

Quizplus · Accepted Answer

The note is a borrowing, which creates a liability for the city. Even though the note will be repaid through tax revenue, it is still considered a liability until it is repaid.

A City Borrows $800,000 in January Because It Does Not