Exercise 2 (LO 4, 6) Contributions, statement of activities. Early in 2018, a not-for- profit organization received a $4,000,000 gift from a wealthy benefactor. This benefactor speci- fied that the gift be invested in perpetuity with income restricted to provide speaker fees for a lecture series named for the benefactor. The not-for-profit is permitted to choose suitable investments and is responsible for all other costs associated with initiating and administering this series. Neither the donor's stipulation nor the law addresses gains and losses on this permanent endowment. In 2018, the investments purchased with the gift earned $100,000 in dividend income. The fair value of the investments increased by $300,000. The not-for-profit's accounting policy is to record increases in net assets, for which a donor-imposed restriction is met in the same accounting period as gains and investment income are recognized, as increases in unrestricted net assets. Five presentations in the lecture series were held in 2018. The speaker fees for the five pre- sentations amounted to $400,000. The not-for-profit organization used the $100,000 dividend income to cover part of the total fees. Because the board of directors did not wish to sell part of the investments, the organization used $250,000 in unrestricted resources to pay the remainder of the speaker fees. For items (1) through (5), determine whether the transaction should be recorded in the 2018 statement of activities as an increase in: A. Unrestricted net assets. B. Temporarily restricted net assets. C. Permanently restricted net assets. D. Either unrestricted or temporarily restricted net assets.
Exercise 2 (LO 4, 6) Contributions, statement of activities. Early in 2018, a not-for- profit organization received a $4,000,000 gift from a wealthy benefactor. This benefactor speci- fied that the gift be invested in perpetuity with income restricted to provide speaker fees for a lecture series named for the benefactor. The not-for-profit is permitted to choose suitable investments and is responsible for all other costs associated with initiating and administering this series. Neither the donor's stipulation nor the law addresses gains and losses on this permanent endowment. In 2018, the investments purchased with the gift earned $100,000 in dividend income. The fair value of the investments increased by $300,000. The not-for-profit's accounting policy is to record increases in net assets, for which a donor-imposed restriction is met in the same accounting period as gains and investment income are recognized, as increases in unrestricted net assets. Five presentations in the lecture series were held in 2018. The speaker fees for the five pre- sentations amounted to $400,000. The not-for-profit organization used the $100,000 dividend income to cover part of the total fees. Because the board of directors did not wish to sell part of the investments, the organization used $250,000 in unrestricted resources to pay the remainder of the speaker fees. For items (1) through (5), determine whether the transaction should be recorded in the 2018 statement of activities as an increase in: A. Unrestricted net assets. B. Temporarily restricted net assets. C. Permanently restricted net assets. D. Either unrestricted or temporarily restricted net assets.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Exercise 2 (LO 4, 6) Contributions, statement of activities. Early in 2018, a not-for-
profit organization received a $4,000,000 gift from a wealthy benefactor. This benefactor speci-
fied that the gift be invested in perpetuity with income restricted to provide speaker fees for a
lecture series named for the benefactor. The not-for-profit is permitted to choose suitable
investments and is responsible for all other costs associated with initiating and administering
this series. Neither the donor's stipulation nor the law addresses gains and losses on this permanent
endowment. In 2018, the investments purchased with the gift earned $100,000 in dividend
income. The fair value of the investments increased by $300,000. The not-for-profiť's accounting
policy is to record increases in net assets, for which a donor-imposed restriction is met in the same
accounting period as gains and investment income are recognized, as increases in unrestricted net
assets.
Five presentations in the lecture series were held in 2018. The speaker fees for the five pre-
sentations amounted to $400,000. The not-for-profit organization used the $100,000 dividend
income to cover part of the total fees. Because the board of directors did not wish to sell part of
the investments, the organization used $250,000 in unrestricted resources to pay the remainder
of the speaker fees.
For items (1) through (5), determine whether the transaction should be recorded in the
2018 statement of activities as an increase in:
A. Unrestricted net assets.
B. Temporarily restricted net assets.
C. Permanently restricted net assets.
D. Either unrestricted or temporarily restricted net assets.
1. The receipt of the $4,000,000 gift
2. The $100,000 in dividend income
3. The $300,000 unrealized gain
4. The $100,000 in dividend income, assuming the lecture series is not to begin until 2019
5. The $300,000 unrealized gain, assuming the lecture series is not to begin until 2019
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