Choice "B" is correct. Employer contribution additions to a governmental pension fund are recorded as expenditures and expenses in the appropriate fund financial statements. The annual required contribution (ARC), not the benefits paid or the unfunded actuarial liability, is the amount of the expense that would appear in Lily City's water enterprise fund level financial statements. The expense is:

Choice "d" is incorrect. Benefits paid ($100,000) are charges to deductions in the pension level financial statements and are not expenses displayed in the governmental or proprietary fund financial statements. Choice "c" is incorrect. Benefits paid ($100,000) are charges to deductions in the pension level financial statements and would not be combined with the annual required contribution as expenses displayed in the governmental or proprietary fund financial statements.Choice "a" is incorrect. Benefits paid ($100,000) are charges to deductions in the pension level financial statements, and changes in the unfunded liability ($800,000) may include deferred inflows and outflows and would not be combined with the annual required contribution as expenses displayed in the governmental or proprietary fund financial statements. The best answer is the annual required contribution, an amount that excludes all other pension activity.