For purposes of external reporting, not-for-profits. unlike governments in their governmental funds-do not distinguish between plant and other types of resources. In 2014, the Northwest Ballet Association (NBA), a not- for-profit performing arts organization, undertook a major capital campaign to fund a new theater, expected to cost $10 million. It was quickly able to raise $6 million, all of which was donor restricted. It borrowed the balance, issuing a five-year, 8 percent term note for $4 million. During the year, the NBA broke ground on the project and incurred construction costs of $3.4 million. It earned $0.52 million in interest on temporary investments. It incurred and paid $0.32 million in interest on the note. In addition, as required by the note, it placed $0.7 million in a reserve fund (a specially dedicated bank account) for the repayment of the debt. 1. To show how these transactions would be reflected on the NBA's financial statements, prepare a December 31, 2014 statement of financial position and statement of activities. Assume that these were the only transactions in which the organization engaged and that all available cash, except that in the reserve fund, had been invested in short-term marketable securities. Be sure to properly classify all resources as to whether they are temporarily restricted or unrestricted. 2. Comment briefly on whether the contributions from donors and the proceeds from the bonds should be reported as restricted or unrestricted. 3. Comment briefly on whether the $0.7 million in the reserve fund should be reported as restricted or unrestricted.
For purposes of external reporting, not-for-profits. unlike governments in their governmental funds-do not distinguish between plant and other types of resources. In 2014, the Northwest Ballet Association (NBA), a not- for-profit performing arts organization, undertook a major capital campaign to fund a new theater, expected to cost $10 million. It was quickly able to raise $6 million, all of which was donor restricted. It borrowed the balance, issuing a five-year, 8 percent term note for $4 million. During the year, the NBA broke ground on the project and incurred construction costs of $3.4 million. It earned $0.52 million in interest on temporary investments. It incurred and paid $0.32 million in interest on the note. In addition, as required by the note, it placed $0.7 million in a reserve fund (a specially dedicated bank account) for the repayment of the debt. 1. To show how these transactions would be reflected on the NBA's financial statements, prepare a December 31, 2014 statement of financial position and statement of activities. Assume that these were the only transactions in which the organization engaged and that all available cash, except that in the reserve fund, had been invested in short-term marketable securities. Be sure to properly classify all resources as to whether they are temporarily restricted or unrestricted. 2. Comment briefly on whether the contributions from donors and the proceeds from the bonds should be reported as restricted or unrestricted. 3. Comment briefly on whether the $0.7 million in the reserve fund should be reported as restricted or unrestricted.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:For purposes of external reporting, not-for-profits.
unlike governments in their governmental funds-do not
distinguish between plant and other types of resources.
In 2014, the Northwest Ballet Association (NBA), a not-
for-profit performing arts organization, undertook a
major capital campaign to fund a new theater, expected
to cost $10 million. It was quickly able to raise $6 million,
all of which was donor restricted. It borrowed the
balance, issuing a five-year, 8 percent term note for $4
million.
During the year, the NBA broke ground on the project
and incurred construction costs of $3.4 million. It earned
$0.52 million in interest on temporary investments. It
incurred and paid $0.32 million in interest on the note. In
addition, as required by the note, it placed $0.7 million in
a reserve fund (a specially dedicated bank account) for
the repayment of the debt.
1. To show how these transactions would be reflected on
the NBA's financial statements, prepare a December 31,
2014 statement of financial position and statement of
activities. Assume that these were the only transactions in
which the organization engaged and that all available
cash, except that in the reserve fund, had been invested
in short-term marketable securities. Be sure to properly
classify all resources as to whether they are temporarily
restricted or unrestricted.
2. Comment briefly on whether the contributions from
donors and the proceeds from the bonds should be
reported as restricted or unrestricted.
3. Comment briefly on whether the $0.7 million in the
reserve fund should be reported as restricted or
unrestricted.
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