Choice "B" is correct. The term "expenditure" used in the question stem defines the listed transactions as governmental fund transactions that are accounted for using the current financial resources measurement focus. (The term "expense" would be used for proprietary funds using the economic resources measurement focus that embraces both current and noncurrent activity.) The claims and judgments expenditures would be the sum of the claims paid ($800,000) and the increase in the current liability ($40,000), or a total of $840,000. The noncurrent liability is not an expenditure of the governmental fund for Year 1.Choice "d" is incorrect. The non-current liability is not an expenditure of the governmental fund.Choice "a" is incorrect. Only the $40,000 increase in the current liability should be added to the $800,000 claims paid amount, not the entire $140,000 ending current liability balance.Choice "c" is incorrect. The $40,000 increase in the current liability should be added to the $800,000 claims paid amount.