Ray of Light (ROL) is a not-for-profit organization formed 7 years ago by Ella, a retired professional singer. The choir won several major singing competitions across North America and is in the process of producing their own music available on itunes and on CD available next month. The choir intends to record an annual CD of its Christmas concert music, which will also be available by download on itunes. Ella is in charge of ROL's daily operations. All major financial and operating decisions are approved by the Board of Directors. Initial financing for ROL came from private donations. This year a fundraising committee was formed to raise funds for special projects. Your CPA firm has a policy of supporting its staff in volunteering their time to not-for-profit activities. You recently joined ROL's board of directors and volunteered to assist with all accounting issues. Details on ROL's accounting policies and other related information are provided below in Exhibit A. Required: Use the information above and in Exhibit A, prepare a memo to identify and explain any four accounting and financial reporting issues for ROL. Recommend how the items you identified should be reported in the financial statements. State any assumptions you make.
Ray of Light (ROL) is a not-for-profit organization formed 7 years ago by Ella, a retired professional singer. The choir won several major singing competitions across North America and is in the process of producing their own music available on itunes and on CD available next month. The choir intends to record an annual CD of its Christmas concert music, which will also be available by download on itunes.
Ella is in charge of ROL's daily operations. All major financial and operating decisions are approved by the Board of Directors. Initial financing for ROL came from private donations. This year a fundraising committee was formed to raise funds for special projects.
Your CPA firm has a policy of supporting its staff in volunteering their time to not-for-profit activities. You recently joined ROL's board of directors and volunteered to assist with all accounting issues. Details on ROL's accounting policies and other related information are provided below in Exhibit A.
Required: Use the information above and in Exhibit A, prepare a memo to identify and explain any four accounting and financial reporting issues for ROL. Recommend how the items you identified should be reported in the financial statements. State any assumptions you make.
Exhibit A:
Donation - Historical Sheet Music: A donor recently died and, in her will, left a large selection of historical sheet music to ROL. Since the sheet music is very old, it is not possible to objectively determine its historical value in dollars. The music will be performed by ROL during concerts. The original sheet music will be preserved and displayed in a glassed-in case to preserve it and make it available for public display.
Restricted Government Grants: This year, ROL plans to submit applications to receive two restricted government grants. The first grant for $30,000 was restricted for the purchase of new choir garments. The second grant for $75,000 was restricted to purchasing and install a new air-conditioning and heating unit to protect the historical sheet music from damage due to temperature changes. The government requires that ROL attaches audited financial statements to its two grant applications to prove financial need.
Annual Pledges: Every Christmas, ROL holds and annual benefit concert and fundraising drive. Singers ask all concert guests to provide a donation or pledge an amount. All pledge revenue is recognized when the pledge is made by the donor.
Capital Asset Purchases This Year: A local music store provided sheet music stands at
Revenues: ROL members provided singing lessons to the public this year to raise revenue. The singing lesson revenue earned this year was $40,000. Annual revenue from all sources was $200,000 last year and $350,000 this year.
Fundraising Costs: Part of the advertising and promotion costs for fundraising are allocated to education each year since part of the purpose of these campaigns is to educate the public on ROL's goals.
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