Nonexchange revenues can be of four types.
The GASB has identified four classes of nonexchange revenues:
- Derived tax
1. For each of the following revenue transactions involving a city, identify the class in which the revenue falls and prepare a journal entry for a governmental fund for the current year (2004), as necessary. Provide a brief explanation or justification for your entry.
a. In December 2004, the state in which the city is located announced that it would grant the city $20 million to bring certain public facilities into compliance with the state's recently enacted disability laws. As of year-end the city had not yet received the funds and it had not yet expended any funds on the state-mandated facility improvements.
b. The city imposes a $100 tax on all sales of real estate. The tax is collected by the title companies that process the sales and must be forwarded to the state within thirty days of the transaction. In December, there were 600 sales of real estate. As of year-end the city had collected $40,000 of the $60,000 that it was owed.
c. In December 2004, the state announced that the city's share of state assistance for the calendar year 2005 would be $120 million.
d.The city imposes a tax on all boats owned by residents. The tax is equal to 1 percent of the assessed value of a boat (determined by the city by taking into account the boat's original cost and its age). The tax is payable on the last day of the year prior to the year which the tax is intended to finance. In 2004 the city levied $640,000 of 2005 boat taxes of which it collected $450,000.
e. A local resident sends to the city a copy of her will, in which she bequeaths $3 million to the city museum upon her death.
f. The U.S. Justice Department announces that it will reimburse the city, up to $400,000, for the purchase of telecommunications equipment. As of year-end the city had incurred only $200,000 in allowable expenditures.
g. A resident donates $10 million in securities to the city to support a cultural center. Only the income from the securities, not the principal, can be spent.
a) In December 2004, the state in which the city is located announced that it would grant the city $20 million to bring certain public facilities into compliance with the state's recently enacted disability laws. As of year-end the city had not yet received the funds and it had not yet expended any funds on the state-mandated facility improvements.
Government Mandated Non-exchange Revenue
Grant Receivable $20
Grant Revenue $20
To record a state disability grant (All of the eligible requirements were fulfilled by the city at the time of announcement of the award. This fund can be used anytime therefore the revenue can be recognized at the time when the grant was announced. This grant would be recorded in a special revenue fund because of it being subject to purpose restrictions.)
b) The city imposes a $100 tax on all sales of real estate. The tax is collected by the ...
The solution discusses the different types of nonexchange revenues.
The distinction between exchange and nonexchange revenues
The distinction between exchange and nonexchange revenues is not always obvious. You are the independent auditor of various governments. You have been asked for your advice on how the following transactions should be accounted for and reported. Characteristic of each transaction is ambiguity as to whether it is an exchange or a nonexchange transaction. For each transaction indicate whether you think it is an exchange or a nonexchange transaction and make a recommendation as to how it should be accounted for (i.e., the amount and timing of revenue recognition). Justify your response. Note: The GASB has not specified the distinction between exchange and nonexchange transactions. Hence, in this problem, you should consider how you think the transaction should be accounted for; you need not be limited by current GASB standards.
3. A city charges a developer an ''impact fee'' of $15,000 to compensate, in part, for improvements to the infrastructure in the area in which the developer plans to build residential homes. The city will make the improvements when construction on the new homes gets underway.
4. A city charges restaurants a license fee of $2,500. The license covers a period of two years. The fees must be used for health department inspections.
5. The city issues permits for residents to use city tennis courts. The fee is $100 per year. A small fraction of what it would cost to play on comparable private courts and an amount that covers only a small portion of the cost of constructing, maintaining, and operating the courts.View Full Posting Details