ACCT 410 W4di4 Capital Assets Debt Service 1

ACCT 410 W4di4 Capital Assets Debt Service 1

ACCT 410 W4Di4 Capital Assets Debt Service 1

Capital Assets

Debt Service

Investment Marketable Securities

Long-Term Obligations

After reviewing the reading materials for week 4 that included Graham Vol. 2: chapters 28 and 29. Please use the reading material provided to complete your responses, any outside resources should be annotated on your References page.

  1. A not-for-profit organization receives a restricted gift. When, and in which type of fund, should it recognize the revenue? When, and in which type of fund, should it recognize the related expense? What is the reason for the apparent inconsistency between the fund types in which the revenues and expenses are reported?

The gift would be recognized at the time it was received and the type of fund would depend on the reasons why it was restricted. Gifts with purpose or designated time span will be recognize as temporarily restricted fund until the time of restriction has been fulfilled. Revenues derived from a restricted gift are recognized when received and recorded as debit to cash and credit to revenues from contributions which is classified as restricted fund. The related expense is recorded as debit to net assets released from restriction and credit to cash. Expenses are reported in statement of activities as negative revenue.The reason for the inconsistency between the fund types is due to the restricted nature of the gift, and that the expenditure of the resource is often not recognized in the sameaccountingperiod.

  1. A foundation promises to donate $1 million to a local public broadcasting station (a not-for-profit organization) in one year. When, and in what amount, should the station recognize revenue? The station applies a discount rate of 10 percent to all pledges. Would your response be the same if the foundation pledged to donate the funds only if and when the station agreed to carry a particular program? Why do many not-for-profits object to the standards pertaining to revenue recognition of pledges?

Upon receipt of pledges, it should be recognized in a restricted fund and should be measured at the present value of estimated future cash flows using a risk free rate. Hence the station should recognize revenue amounting to $909,091 (the present value of $1 million discounted for one year at 10 percent) upon receiving the pledge.If the pledged amount is conditional upon the station’s agreement to carry a particular program, then it should be recognized as revenue only when the station satisfied the stipulated condition — that is, by carrying a particular program.Many not-for-profit organizations argue to the requirement that pledges be recognized as revenue because only upon the receipt of donation it will be available for expenditure. Therefore, they oppose that the entity’s financial statements leave the impression that these organizationshavegreater resources than they actually do.

  1. Members of the National Accounting Association, a not-for-profit organization, are charged annual dues of $150. Of this amount, $50 is restricted, per association policy, to covering the cost of the association’s journal, which every member receives. In what category of restrictiveness should the association report the portion of revenues associated with the journal? Explain.

It appears that the portion of the dues restricted to cover the cost of the journal is a result of an exchange transaction rather than a contribution. Hence, it should be classified as unrestricted since it is not donor restricted.