Under the modified cash basis of accounting, cash payments for assets with lives longer than one accounting period (buildings, equipment, insurance, etc.) are recorded as assets and adjustments are made each period.
a. True
b. False
Indicate whether the statement is true or false
Question 2
A city accounts for its hospital in an Enterprise Fund. An individual brings a malpractice suit against the hospital in 2013 .
City lawyers are concerned about losing the case if it goes to court, but estimate that it is probable they can settle it out of court for 50,000 . In any event, the city does not expect any cash outflows on the claim for several years. How should the Enterprise Fund report this item in its statements for the year ended December 31, 2013?
a. no reporting is necessary
b. the situation should be reported only by means of note disclosure
c. the enterprise fund should report a claims expense and a current liability of 50,000
d. the enterprise fund should report a claims expense and a noncurrent liability of 50,000
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