Question

These two events occurred in the same city toward the end of calendar year 2022:

• City employees earned $85,000 during the last week of December 2022, but were not paid until early January 2023.
• A city sanitation vehicle accidentally sideswiped a parked car in December 2022. The city acknowledges that it was at fault, and its attorneys believe it will need to pay $10,000 to settle the claim. However, the city is slow in settling claims, so it probably won't pay the claim until early 2024.
Based on these two events, how much should the city report as expenditures in its financial statements for the year ended December 31, 2022?
a. $0
b. $10,000
c. $85,000
d. $95,000

Answer 1

The city should report $95,000 as expenditures in its financial statements for the year ended December 31, 2022.

Step-by-step explanation:

The city should report $95,000 as expenditures in its financial statements for the year ended December 31, 2022.

The city employees earned $85,000 during the last week of December 2022, which is an expense that should be reported for the year ended December 31, 2022. Even though they were not paid until early January 2023, it is still considered an expenditure in 2022.

The city also acknowledges that it was at fault in the accident and its attorneys believe it will need to pay $10,000 to settle the claim. Although the payment may not be made until early 2024, the expense should still be recognized in 2022 as it is an obligation of the city.