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11 August, 05:58

A city borrows $800,000 in January because it does not receive property taxes until May. It borrows on a tax anticipation note, which it will repay in May when taxes are collected. How would the city classify the proceeds from the note if it were to prepare governmental-type fund financial statements on March 31?

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  1. 11 August, 06:19
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    Liability

    Explanation:

    The city classify the proceeds from the note as a Liability if it were to prepare governmental-type fund financial statements on March 31.

    Liabilities:

    These are the debts which company has to pay. If company has liabilities it means company has to pay to some other entity/supplier or someone for its debts. It includes loans, account payable and many other accounts in financial statement.

    In our case company has borrowed $800,000 in January and will repay in May after taxes are collected. If city has to prepare the financial statement before May then this $800,000 will be the liability in the statement.
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