Question

The City of Wagner is awarded a state grant for its police department to educate school children on the dangers of illicit drug use. The grant is for $30,000 and is intended to pay for half of a police officer's salary for Wagner's current fiscal year. Wagner must pay the officer's salary before being reimbursed by the state for one-half of the salary that Wagner pays. The City of Wagner pays $15,000 for the police officer salary in the first quarter of the year and bills the state. Which account and amount is credited by Wagner to record the billing to the state?

a. Due from state government for $15,000
b. Deferred inflows of resources—grant for $7,500
c. Intergovernmental revenues—grants for $7,500
d. Due from state government for $7,500

Answer 1

The City of Wagner should credit the Option a. 'Due from state government for $15,000' to record the billing to the state for the police officer's salary covered by the grant.

Step-by-step explanation:

The City of Wagner bills the state $15,000 for the police officer's salary in the first quarter of the year as part of the grant received to educate school children on the dangers of illicit drug use. The appropriate accounting entry to record this billing would be to credit an account. Since Wagner must pay out the entire salary and then be reimbursed for half, when they bill the state, they are anticipating a receivable. Therefore, the correct entry would be to credit the Due from state government account.

The full amount of the billing is $15,000, corresponding to the sum Wagner paid for the police officer's salary. As the grant covers half the salary, the expected reimbursement is for this amount, but the credit should reflect the billing amount.

The correct account and amount to be credited by Wagner to record the billing to the state is therefore 'Due from state government for $15,000'.