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Leah Pasternak

Government & Not for Profit ACC410



Chapter 12: Not-for-Profit Organizations- Homework Submission

12-7

1. Exchange transactions are accounted for as ordinary commercial transactions and therefore these
transactions are always unrestricted.

Cash 6,000,000
Advance in-Service revenue 6,000,000

Advance in-Service revenue 6,000,000
Service Revenue 6,000,000

2. Since not-for-profits usually recognize gifts of cash and other assets not preceded by a pledge as
revenue upon receipt, the transactions would be made in a temporarily restricted fund by the recipient
organization and when the cash is received and available for use the transaction is transferred to an
unrestricted fund.

Pledges Receivable 6,000,000
Revenue from contributions 6,000,000

Cash 6,000,000
Pledges Receivable 6,000,000

3. Exchange transactions are distinguished from contributions in a couple of different ways. A
contribution is a transfer of assets and in this particular transaction the donor does not expect any equal
value in return. These transactions are accounted for like any other ordinary commercial transaction and
are made to an unrestricted account. In pledges, NFPs recognize gifts of cash or other assets which are
not preceded by a pledge as revenue upon receipt. If a gift is of other assets and not cash, the other
assets are measured at their fair market value.

4. No, the approach would not have to be much different. This type of promise by the donor to make a
contribution only after a report that the research had actually been completed by CAA is called a
conditional promise. Resources that are provided by the donor can still be held as restricted or
unrestricted funds.

12-8

Cash 30,000
Revenue from contributions 30,000
(restricted fund)

Resources released from restrictions 21,000
(restricted fund)
Cash 21,000
Equipment 21,000
(unrestricted fund)
Resources released from restriction 21,000

Depreciation expenses 21,000
(unrestricted fund)
Accumulated depreciation 21,000


12-9
1.
Northwest Ballet Association
For the year ended December 31, 2013
Statement of Activities
(in millions)

Unrestricted Restricted
Revenues:
Contributions 6
Interest from investments 0.52

Total revenues 0.52 6

Expenditures:
Interest 0.32
Excess of revenue over
expenditure 0.20
Resources released 3.40 (3.40)

Net increase in the funds 3.60 2.60

2. Technically, governments restricted grants are comparable to contributions for NFPs. The definition
of restricted contributions means that they can be used only for the specified purposes. A conditional
gift is also comparable to a restricted gift. NFPs must report their investments at fair value just like any
other business entity. The donation should be kept in a restricted fund and the interest and sale of the
bond would be kept in an unrestricted fund.

3. The NBA must report their investment according to both GASB and FASB standards at fair value. The
$0.7 million which was placed in a reserve fund should be restricted since this money is specifically for
repayment of the original debt.

12-10

1. The principal amount in the permanently restricted endowment fund would be $2 million at the end
of all years.

2. The principal amount in the related temporarily restricted fund for the year end balances in 2014,
2015 and 2016 would be as follows:
2014 a gain of $120,000 added to unrestricted net assets with a yearend balance of $120,000
2015 a loss of $60,000 added to the unrestricted net assets with a yearend balance of $60,000
2016 only $60,000 to the extent of previous deduction, in gain of $70,000 should be added to
unrestricted net assets and yearend balance would be $120,000, temporarily restricted net assets would
be $10,000

12-11

1.
Fund Type 2013 2014 2015 2016

Permanently restricted $5,000,000 $5,000,000 $5,000,000
Temporarily restricted ($500,000) 0
Unrestricted $600,000 $300,000 $400,000

2. According to FASB statement No. 124, Accounting for certain investments held by not-for-profit
Organization, it should first charge investment losses to temporarily restricted net assets. In this
scenario, we would assign no loss to the permanently restricted net assets and $500,000 to the
temporarily restricted assets.

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