[SuperAccountingGod]

I was trying to make T accounts for this question but I still got it wrong. Can someone help me understand why the answer is C using T charts? Apparently the explanation doesn’t take into account the 30K that was written off during the year which I don’t get why.

The following information is relevant to one of the City of Mullins’ General Fund’s derived tax revenues:

Fiscal year-end June 30
Beginning receivables $450,000
Beginning deferred revenues 100,000
Beginning allowance for doubtful accounts 50,000
Receipts 1,250,000
Ending receivables 600,000
Receivables collected 6/30 – 8/30 125,000
Ending allowance for doubtful accounts 60,000
The City of Mullins considers derived tax receivables collected within 60 days after the close of the fiscal year to be “available.” Furthermore, the City wrote off $30,000 of receivables as uncollectible during the year.

What amount of revenues would be reported at the entity-wide level?

A.
$1,090,000

B.
$1,100,000

C.
$1,390,000

Incorrect D.
$1,400,000

[alloverit]

The $30,000 has already been accounted for. If it had not been written off, the ending receivable balance would be $630,000. The $30,000 is there to distract you. Further, it appears that the $125,000 is included in either receipts or receivables (where it is included is irrelevant for this question).

Revenue ($1,250,000+$600,000+$50,000)-($450,000+$60,000)=$1,390,000

[SuperAccountingGod]

I figured that was the case. But it didn't tell me that it was already written off leading me to believe that I had to record it in the ADA account. I've worked on similar problems where it does give me a ADA amount and I have to write it off, especially when I was already given beginning and ending balances for A/R. As for the receipts is that money being collected so credit to A/R or new A/R being recognized so debit A/R? I think this entire question was stupid.

[alloverit]

Yes. Receipts is what they actually collected. The only sticking point on the question to me is the $125,000 which was conveniently labeled as “available”…meaning that it was either A) already included in receipts or B) already included in AR. Governmental uses modified accrual for the most part so things get a bit weird.

I've seen this question before, and don't remember for sure, but I think the answer was totally different. I don't like it either. It forces the candidate into a back door solution based on the answer choices due to the lack of clarity.

[Globetrotter]

I think the key here is that they are asking for “entity-wide” which uses good old accrual accounting.
So, you start with (Beg A/R minus Beg allowance) minus receipts plus new accrued revenues (you are looking for those) = End A/R – minus end allowance.
Thus, $450k – $50K – $1,250K + X = $600k – $60k. Solving for X, we are getting $1,390K.
As someone has pointed out before, writing off uncollectables does not effect your “income”.

[CPA candidate 001]

What is baffling to me is the beginning balance of the unearned revenue of $100,000.

That implies the revenue was earned by the end of the year, and moved out from the liabilities into the revenue, but the cash would have been already collected in the previous year. So why wouldn't you add $100,000 to the problem to get $1,490,000??

At least that's not an answer choice but I have no idea what I'm missing here.

[Author]

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