Choice "D" is correct. Any payments received before eligibility requirements have been met must be matched by a liability (or, if only time requirements have not been met, a deferred inflow of resources).The total eligibility requirements met are $500,000. However, time requirements have only been met for a pro rata portion of the total grant equal to $300,000 ($900,000/3). Revenue will be recognized for the $300,000 for which both eligibility and time requirements have been met, deferred inflows will be recognized to the extent that eligibility requirements have been met although time requirements still apply. Any difference will be recognized as a liability as shown below.
Total amount received | | $ 900,000 | |
Less: Time and eligibility requirements satisfied (revenue) | | 300,000 | (900,000 ÷ 3) |
Earned eligibility requirements satisfied | $ 500,000 | | |
Less: Revenue | 300,000 | | |
Less: Deferred inflows of resources | | 200,000 | |
Unearned revenue (liability) | | $ 400,000 | |
Choices "c", "a", and "b" are incorrect, per the explanation above
