Chapter 12 - Additional Notes (Deferral Method)

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Accounting

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Nov 24, 2024

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Uploaded by phuongnhu1503

What is deferral method? we will have to apply concept - reverse matching in order to recog nize the contribution as revenue, the related expense has to incurred first! not every transaction we will apply reverse matchign unrestricted contribution - we don't apply, and we will recognize the contribution as revenue dir Restricted contribution - yes we will apply we will have to recognize to deferred contribution (liability) until the related expense incurred! endowment - we will directly recognize to net asset, not deferred contribution if the restricted donation for capital asset, the deferred contribution will be recognized to the reven as calculating the amortization expesne (def. contribution)/ useful life into revenu example - someone donated $3,000 for project A. project A is new project, so expense has incurred Cash 3000 deferred contribution - project a 3000 incurred expense of 1,200 for project A Project A expense 1200 cash 1200 Deferred contribtuion - project 1200 Revenue - project A contribution 1200 if someone dated a land ($1,000,000) Land 1000000 net asset - land 1000000

rectly.\ nue usins the same same method

Peaceful Organization Statement of Financial Position As of December 31, Year 1 Current Assets Cash and term deposits 289,000 Capital assets: Equipment and furniture - Buildings - Accumulated amortization - - Total assets 289,000 Current Liabilities Accounts payable 34,000 Wages payable 45,000 Accrued liabitlies 30,000 109,000 Net Assets Unrestricted net assets 180,000 Total liabilities and net assets 289,000

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Year 2 Events (a) All the payables and accrued liabilities at the end of previous year were paid off. (b) The organization held a fund raising campaign for the Year 3 operations. - Cash collected - $89,000 - Pledges expected to realize - $30,000 - Fund raising cost - $8,400 but the organiation paid $5,000 only (c) (d) (e) (f) (g) (h) A founding member of the organization contributed $250,000 on the conditions that the principal amount to be invested in marketable securities and that only income earned from the investment is spent on operations. The above contribution (i.e. $250,000) was invested in government bond. Later, the organization received interest of $10,000. The organization purchased several computers and laptops for operation. The total costs of the computers were $8,000 and unrestricted fund is being used. Provincial government announced that a grant of $500,000 in Year 6 to purchase a building at an estimated cost of $300,000. The remaining $200,000 will be used to purchase any equipment and furnitures. $50,000 of the grant will be paid in the following year. The organization purchased the building at $300,000 and paid in full. The organization also purchased furniture at a cost of $120,000. The Organization paid $110,000 and the remaining of the balance will be paid in the following year. Invoices totalling $16,500 were received for goods and contracted services. Of these invoices, $6,000 will be paid in the following year. Other events - Salaries paid in the amount of $90,500 - Radio donated its airtime. Fair value is $3,000 - Amortization expense of the following: Building - $12,000 (using restricted fund) furniture - $15,000 (using restricted fund) Computer - $1,600 (transfer from general fund) Provincial government donated $30,000 in December which the fund would be used for the following year operations.

Journal Entries (a) Accounts payable 34,000 Wages payable 45,000 Accrued liabitlies 30,000 Cash 109,000 (b) Cash 89,000 Pledge receivable 30,000 Revenue - donations 119,000 Fundraising expense 8,400 Cash 5,000 Accounts payable 3,400 (c) Cash 250,000 Net assets - endowment 250,000 Investment 250,000 Cash 250,000 Cash 10,000 Revenue - investment income 10,000 (d) Equipment 8,000 Cash 8,000 (e) Cash 450,000 Grant receivable 50,000 Deferred building campaign contributions 300,000 Deferred equipment campaign contributions 200,000 ("Def. campaign contribution" represents unspent contribution) Building 300,000 Cash 300,000 Deferred building campaign contributions 300,000 Deferred contributions - capital assts 300,000 ("Def contribution - capital assets" represents unamortized capital asset) Furniture 120,000 Cash 110,000 Accounts payable 10,000 Deferred equipment campaign contributions 120,000 Deferred contributions - capital assts 120,000 (f) Goods and services expense 16,500 Cash 10,500 Accounts payable 6,000

(g) Salaries expense 90,500 Cash 90,500 Advertisement expense 3,000 Revenue - radio airtime 3,000 Amortization expense 28,600 Accumulated amortization 28,600 Deferred contribution - capital assets 27,000 Revenue - amortizaton of deferred contribution 27,000 (h) Cash 30,000 Deferred revenue 30,000

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Peaceful Organization Statement of Revenues and Expenses For the Year Ended December 31, Year 2 Revenues Contributions 119,000 Donation - airtime 3,000 Investment income 10,000 Amortization of deferred con. 27,000 159,000 Expenses Fundraising 8,400 Administration 16,500 Salaries 90,500 Advertisement 3,000 Amortization 28,600 147,000 Excess of revenues over expenses 12,000 Peaceful Organization Statement of Changes in Net Assets For the Year Ended December 31, Year 2 Unrestricted Total Balance, January 1 - 180,000 180,000 Excess of revenues over expenses - 12,000 12,000 Endowment contributions 250,000 - 250,000 Balance, December 31 250,000 192,000 442,000 Restricted for endowment purposes

Peaceful Organization Statement of Financial Position For the Year Ended December 31, Year 2 Total Current Assets Cash and term deposits 235,000 Pledges receivables 30,000 Grant receivables 50,000 315,000 Investment 250,000 Capital assets: Equipment and furniture 128,000 Buildings 300,000 Accumulated amortization (28,600) 399,400 Total assets 964,400 Current Liabilities Accounts payable 19,400 Deferred revenue 30,000 49,400 Long-term Liabilities Deferred contribution - capital assets 393,000 Deferred equipment campaign contribution 80,000 473,000 Total liabilities 522,400 Net Assets Net assets restricted for endowment purposes 250,000 Unrestricted net assets 192,000 442,000 Total liabilities and net assets 964,400