Forest Hill Lodge Bingo Hall – Not-for-Profit Accounting (Deferral vs Restricted Fund)
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10 Terms
Hopkin’s Teaching Farm is an NPO in Edmonton. The organization uses fund accounting and has a fund that is used for contributions that are not restricted. Which one of the following funds is being described?
A | Restricted fund |
B | Endowment fund |
C | Capital asset fund |
D | General fund |
General fund
Women’s Recovery House (WRH) is a Vancouver-based NPO. In September, Year 1, someone who was helped by the organization in the past won $5 million in a lottery. She was so grateful to have been helped in her time of need that she provided WRH with a $1 million endowment on September 30, Year 1. The funds were invested in a government bond on October 1, Year 1 (at par).
The bond pays 4% interest annually with the first payment to be received on September 30, Year 2. WRH uses the restricted fund method and discloses a general fund and an endowment fund.
How much revenue is recorded by WRH at its December 31, Year 1, year end because of this endowment, in all funds?
A | $10,000 |
B | $0 |
C | $1,010,000 |
D | $1,000,000 |
Both the endowment contribution and three months of interest on the bonds are recorded as revenue in Year 1: $1,000,000 + (1,000,000 × 4% × 3/12) = $1,010,000
Lal World Organization (LWO) is an NPO that provides famine relief. LWO uses the restricted fund method of accounting and has three funds set up: a general fund, a capital asset fund (through which it is raising cash for the purchase of a new administrative building), and an endowment fund. LWO has been operating for 25 years and has a December 31 year end.
In May, LWO receives a contribution of $10,000. The funds may only be used on operating expenses for the new administrative building, which is expected to be complete in the fall of the following year. LWO’s management decides not to start a new restricted fund for this donation.
Which one of the following describes when revenue should be recognized for the contribution, and in which fund?
A | In the general fund when the contribution is received/receivable |
B | In the general fund when the related expenses are incurred |
C | In the capital asset fund when the related expenses are incurred |
D | In the capital asset fund when the contribution is received/receivable |
In the general fund when the related expenses are incurred
he Gray Accountants Society (TGAS) is an NPO set up to assist retirees. During the year, the society received a donation of land with a building. At the time of the donation, the land had a fair value of $100,000 and the building had a fair value of $250,000. The building has a 40-year life and no residual value. TGAS uses the deferral method to record contributions.
What amount is recognized as a deferred contribution at the time the land and building were donated?
A | $350,000 |
B | $0 |
C | $100,000 |
D | $250,000 |
$250,000
CRS Corp., an NPO, received $150,000 cash from a donor on December 20, Year 1, for the purpose of purchasing office furniture. CRS has a December 31 year end. Office equipment was purchased on January 2, Year 2, for $140,000 cash. The excess contribution is restricted to future office equipment needs. The furniture is expected to last 10 years and has a residual value of $0 at that time. CRS uses the straight-line method to amortize its assets and the deferral method to record contributions.
Which one of the following journal entries would be made on December 31, Year 2?
A |
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B |
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C |
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D |
DR Deferred contributions | 14,000 | |
CR Contribution revenue | 14,000 |
Kamloops’ Cat Crusaders (KCC) is an established NPO funded by government grants and private donations. It prepares its annual financial statements using the restricted fund method of accounting for contributions and discloses a general fund, a capital asset fund, and an endowment fund. KCC has a December 31 year end.
On November 1, KCC received $300,000 from the provincial government to purchase a new building, to be used for general operating purposes. The building purchase closed in the following year, on January 4. The useful life of the building was estimated to be 25 years. KCC uses the straight-line method to amortize its capital assets.
Which one of the following journal entries is recorded on January 4, when the building purchase is made?
A |
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B |
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C |
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D |
DR Building (capital asset fund) | 300,000 | |
CR Cash (capital asset fund) | 300,000 |
Teen Value Corp. (TVC), an NPO, received $90,000 cash from a donor on June 15, for the purpose of purchasing a cabin. TVC has a June 30 year end. The cabin was purchased on July 20, for $110,000 cash. The wooden cabin is expected to last 25 years and has a residual value of $0 at that time. TVC uses the straight-line method to amortize its assets.
If TVC uses the restricted fund method to record contributions and reports a capital asset fund, which one of the following journal entries is correct for recording the transaction on June 15?
A |
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B |
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C |
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D |
DR Cash (capital asset fund) | 90,000 | |
CR Contribution revenue (capital asset fund) | 90,000 |
Doug and Judy Foundation (DJF), a Canadian NPO, uses the deferral method to account for contributions and has a March 31 year end. On April 1, Year 1, DJF received $100,000 from a local company to be used to help fund the purchase of six buses. One year later, on April 1, Year 2, the buses were purchased for a total of $500,000. The buses have a useful life of eight years and a residual value of $0.What will be the balance in the deferred contributions account related to the buses two years after the purchase on March 31, Year 4?
A | $0 |
B | $375,000 |
C | $75,000 |
D | $62,500 |
$75,000
Although the contribution was received on April 1, Year 1, the purchase of the buses did not occur until April 1, Year 2. The amortization and revenue recognition should therefore only be recorded from April 1, Year 2. The deferred contribution account will be debited and credited from April 1, Year 1, until March 31, Year 4, as follows:
DR | CR | |
|---|---|---|
April 1, Year 1 Receipt of contribution for buses | $100,000 | |
March 31, Year 3, contribution revenue (to match with buses; amortization $100,000 / 8) | $12,500 | |
March 31, Year 4, contribution revenue (to match with buses; amortization $100,000 / 8) | 12,500 | |
Balance |
The Youth Centre (TYC) is an established NPO funded by private donations. It prepares its annual financial statements using the restricted fund method of accounting for contributions and discloses a general fund, a recreation fund, and a capital asset fund.
During Year 3, a public campaign was held to raise funds for use in operations for the following operating year to make up for an expected shortfall. Cash of $350,000 was collected and pledges for an additional $40,000 were made by the end of the year. Based on prior years’ experience, it is estimated that approximately 80% of these pledges will be collected.
What is the net amount of pledges receivable that TYC would record at the end of Year 3 related to this campaign?
A | $40,000 |
B | $32,000 |
C | $390,000 |
D | $312,000 |
$32,000
The pledges receivable can be recognized if the amount is reasonably estimated and collection is reasonably assured. Management has prior years’ experience, and is confident that 80% can be collected, so that is the amount that can be recognized. The pledges received are for the next operating year, so this amount must be deferred until next year. The net pledges receivable based on management’s best estimate: $40,000 × 80% = $32,000.
On February 22, Skateboard Club (SC), an NPO with a March 31 year end, is given land with the fair value of $200,000. At the end of the fiscal year, it had revenues of $1,000,000. SC has an amortization policy where depreciable assets greater than $50,000 in value are amortized evenly over 10 years.
Which one of the following is the journal entry required on February 22? SC uses the deferral method to account for contributions.
A | DR Capital assets (land) $200,000; CR Net assets $200,000 |
B | DR Capital assets (land) $200,000; CR Deferred contribution $200,000 |
C | DR Net assets $200,000; CR Capital assets (land) $200,000 |
D | No journal entry is required. |
DR Capital assets (land) $200,000; CR Net assets $200,000
Per ASNPO, Section 4410.34, when capital asset that is not amortized over time is contributed, it is recognized as direct increases in net assets.