Question

Vacation City was awarded a $500,000 federal operating grant for use in year 2. On December 1 of year 1, half of the grant money was received by the City. The journal entry to record receipt of the grant funds will include:________.

A) A credit to Revenues in the amount of $250,000.
B) A credit to Deferred Inflows of Resources-Grant Proceeds in the amount of $250,000.
C) A debit to Grant Expenditures in the amount of $250,000.
D) No journal entry will be made until expenditures are made in Year 2.

Answer 1

B) A credit to Deferred Inflows of Resources-Grant Proceeds in the amount of $250,000.

Step-by-step explanation:

The grant from the government is given for a purpose to anyone, it may have attached some obligation which to be performed by the receiving party. So, at the time of receipt of grant it will be recorded as deferred income. after subsequent period this amount is recognized as income based on the level of obligatory work done or passage of time.