Chapter 16, Problem 50P

On December 1, 2017, a state government awards a city government a grant of $1 million to be used specifically to provide hot lunches for all schoolchildren. No money is received until June 1, 2018. For each of the following, indicate whether the statement is true or false and, if false, explain why.

1. a. Because the government received no money until June 1, 2018, no amount of revenue can be recognized in 2017 on the government-wide financial statements.
2. b. If this grant has no eligibility requirements and the money is properly spent in September 2018 for the hot lunches, the revenue should be recognized during that September.
3. c. Because this money came from the state government and because that government specified its use, this is a government-mandated nonexchange transaction.
4. d. If the government had received the money on December 1, 2017, but eligibility reimbursement requirements had not been met yet, unearned revenue of $1 million would have been recognized on the government-wide financial statements.