A city engages in the transactions that follow. For each transaction indicate the amount of revenue or expenditure that it should report in 2014. Assume first that the main objective of the financial statements is to enable users to assess budgetary compliance. Then calculate the amounts, assuming that the main objective is to assess interperiod equity. The city prepares its budget on a ‘‘modified’’ cash basis (that is, it expands the definition of cash to include short-term marketable securities), and its fiscal year ends on December 31.
1. Employees earned $128,000 in salaries and wages for the last five days in December 2014. They were paid on
January 8, 2015.
2. A consulting actuary calculated that per an accepted actuarial cost method, the city should contribute $225,000 to its firefighters’ pension fund for benefits earned in 2014. However, the city contributed only
$170,000, the amount budgeted at the start of the year.
3. The city acquired three police cars for $35,000 cash each. The vehicles are expected to last for three years.
Solution:
1) Budgetary Compliance: Recognize salaries and wages costs when they are paid.
$0 in 2014 and $128,000 in 2015.
The amount is $0 in 2014 because it is paid in 2015 and not in 2014.
Interperiod equity: Recognize the salaries and wages costs when they are earned. $128,000 in 2014.
The amount is $128,000 because it is earned in 2014.

2) Budgetary Compliance: Recognize the amount paid during 2014 is $170,000.
The amount is $170,000 in 2014 because it is budgeted at the start of the year.
Interperiod equity: Recognize the amount earned during 2014 is $225,000.
The amount is $225,000 because it is earned in the year 2014.

3) Budgetary Compliance: Recognize the cost of vehicles when the cars were paid for $35000*3 = $105,000 in 2014.
The amount is $35,000 each and there are three police cars,