Fort Kent is a city that receives reimbursements from its state government’s Department of Social Services for expenditures incurred in conducting a locally administered program that benefits troubled teens. The state program provides reimbursement up to $75,000 based on grant applications submitted annually by each local government and provides notification of the amounts approved prior to the grant year. Each local government determines the teen programs and mix of services most appropriate for its community. Reimbursements are made only after services have been provided and documented claims for reimbursements have been submitted to the state. Due to backlogs near year-end, such reimbursements may take several months to process and, hence, approval and payment may not take place in the same fiscal year that claims are submitted to the state.

Required
a. Explain how Fort Kent should record the grant upon notification of the award. When should asset and revenue recognition occur? Please explain your answer.
b. Fort Kent expended $100,000 in allowable expenditures during the current year and submitted documentation for reimbursement to the state. If the reimbursement is not received prior to year-end, how should the grant be reported in the year-end financial statements?