Question

During the year ended December 31, 2017, Johnson City received a state grant of $600,000 to finance the purchase of buses and an additional grant of $200,000 to aid in the financing of bus operations in 2017. This is a reimbursement grant. Only $400,000 of the capital grant was used in 2017 for the purchase of buses, but the entire operating grant of $200,000 was expended in 2017.

7. If Johnson City's bus transportation system is accounted for as part of the city's General Fund, how much should Johnson City report as grant revenues for the year ended December 31, 2017?
a. $200,000
b. $400,000
c. $600,000
d. $800,000

Answer 1

Johnson City should report a total of $600,000 as grant revenues for the year ended December 31, 2017, which includes $400,000 spent from the capital grant on bus purchases and $200,000 from the operating grant.

Step-by-step explanation:

The question asks about the amount of grant revenues Johnson City should report for the year ended December 31, 2017, in relation to the state grants received for bus purchases and operations. Since the grants are reimbursement-based, revenues can only be recognized to the extent that the grants are expended. Johnson City spent $400,000 of the capital grant on bus purchases and the entire $200,000 operating grant. Therefore, the correct amount of grant revenues reported should be the total of the capital grant spent plus the operating grant, which equals $600,000.