Reference no: EM132050441

Problem - Nonexchange expenditures are the mirror image of nonexchange revenues.

A state government provided several grants to school districts and local governments during its fiscal year ending August 31.

1. On August 1, 2012, it announced a $2 million grant to a local school district for the purchase of computers. The district can spend the funds upon receipt. On September 15, 2012, the state mailed a check for the full amount to the district. The district spent $1.5 million on computers during fiscal 2013 (i.e., the year ending August 31, 2013) and expects to spend the remaining $0.5 million in fiscal 2014.

2. On the same date the state announced a $10 million grant to another school district for the acquisition of equipment. However, per the provisions of this grant the state will make payments only upon receiving documentation from the district that it has incurred allowable costs. In fiscal 2013, the district incurred and documented allowable costs of $8 million. Of this, the state paid only $7 million, expecting to reimburse the district for the balance early in fiscal 2014.

3. The state also announced a $5 million grant to a third school district, again for the acquisition of computers. The state will make annual five $1 million payments to the district, starting on September 15, 2013. The district is required to expend the funds in the fiscal year in which they are received.

4. Toward the end of fiscal 2013, it awarded a $500,000 contract to the accounting department of a local university to support a review of the state's cost accounting system. The department intends to carry out the review during 2014 and issue its final report to the state in early 2015. Upon announcing the award, the state made an advance payment of $100,000 to the department. It intends to pay the balance when the department completes the project to the satisfaction of the state.

a) Prepare the journal entries that the state would make in fiscal 2013 to record the awards in an appropriate governmental fund. Briefly justify the amount of expenditure that you recognized.

b) What, if any, adjustment to the amount of expenditure recognized would the state have to make in preparing its government-wide statements?

c) Describe briefly how the recipients would account, in both fund and government-wide statements for the awards.