Chapter 18, Problem 42P

The University of Danville is a private not-for-profit university that starts the current year with $700,000 in net assets: $400,000 unrestricted. $200,000 temporarily restricted, and $100,000 permanently restricted. The following transactions occur during the year.

  Prepare journal entries for each transaction. Then determine the end-of-year balances for unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets by creating a statement of activities.

  a.    Charged students $1.2 million in tuition.

  b.    Received a donation of investments that had cost the owner $100,000 but was worth $300,000 at the time of the gift. According to the gift’s terms, the university must hold the investments forever but can spend the dividends for any purpose. Any changes in the value of these securities must be held forever and cannot be spent.

  c.    Received a cash donation of $700,000 that must be used to acquire laboratory equipment.

  d.    Gave scholarships in the amount of $100,000 to students.

  e.    Paid salary expenses of $310,000 in cash.

  f.    Learned that a tenured faculty member is contributing his services in teaching for this year and will not accept his $80,000 salary.

  g.    Spent $200,000 of the money in (c) on laboratory equipment (no time restriction is assumed on this equipment).

  h.    Learned that at the end of the year, the investments in (b) are worth $330,000.

  i.    Received dividends of $9,000 cash on the investments in (b).

  j.    Computed depreciation expense for the period of $32,000.

  k.    The school’s board of trustees decides to set aside $100,000 of previously unrestricted cash for the future purchase of library books.

  l.    Received an unconditional promise of $10,000, which the school fully expects to collect in three years although its present value is only $7,000. The school assumes that the money cannot be used until the school receives it.

  m.    Received an art object as a gift that is worth $70,000 and that qualifies as a work of art. The school prefers not to record this gift.

  n.    Paid utilities and other general expenses of $212,000.

  o.    Received free services from alumni who come to campus each week and put books on the shelves in the library. Over the course of the year, the school would have paid $103,000 to have this work done.

To determine

Record general entries and prepare a statement of activity for university D, a private not-for-profit entity.

Explanation of Solution

General entries for university D:

Date	Account Title and Explanation	Post Ref.	Debit    ($)	Credit     ($)
a.	Tuition receivable		1,200,000
	Unrestricted net assets- tuition revenue			1,200,000
	(To record the tuition fee charged to students)
b.	Investment		300,000
	Permanently restricted net assets – contribution			300,000
	(To record the donated investment at its fair value)
c.	Cash		700,000
	Temporarily restricted net assets- contribution			700,000
	(To record the cash donated for buying equipments)
d.	Financial aid – scholarship		100,000
	Tuition receivable			100,000
	(To record the scholarship given to students)
e.	Salary expense		310,000
	Cash			310,000
	(To record the cash expenses of salary)
f.	Salary expense		80,000
	Unrestricted net assets – service donated			80,000
	(To record the service donated by the faculty member)
g.	Equipment		200,000
	Cash			200,000
	(To record the purchase of equipments)
	Temporarily restricted net assets – reclassification		200,000
	Unrestricted net assets - reclassification			200,000
	(To record the reclassification of assets)
h.	Investment		30,000
	Permanently restricted net assets – unrealized gain on investment			30,000
	(To record the gain on the investment at the end of the year)
i.	Cash		9,000
	Unrestricted net assets – dividend revenue			9,000
	(To record the dividend received on investment)
j.	Depreciation expense		32,000
	Accumulated depreciation			32,000
	(To record the depreciation expense for the period)
k.	Cash – internally restricted		100,000
	Cash			100,000
	(To record the cash restricted by the trustees)
l.	Pledge receivable		7,000
	Temporarily restricted net assets –contribution			7,000
	(To record the present value of pledge received)
m.	No entry as entity prefer not to record it
	General expenses – utilities		212,000
	Cash			212,000
n.	(To record the general expenses)
o.	No entry as the service cannot sold if not donated

Table: (1)

To determine

Prepare a statement of activates in the book of university D.

Explanation of Solution

Statement of activities of university D:

Statement of activities
Particular	Unrestricted  net assets	Temporarily restricted net assets	Permanently restricted net assets
Public support:
Contributions - cash		$700,000
Contribution-pledge		$7,000
Contribution - service	$80,000
Contribution - investment			$300,000
Total public support	$80,000	$707,000	$300,000
Revenue:
Tuition fee (after adjusting scholarship)	$1,100,000
Unrealized gain on investment			$30,000
Dividend income	$9,000
Total revenue	$1,109,000	$                                    -	$30,000
Net assets realized from restriction	$200,000	($200,000)
Total public support and revenue	$1,389,000	$507,000	$330,000
Expenses:
Salaries	$390,000
Depreciation	$32,000
general expense - utilities	$212,000
Total expense	$634,000	-	-
Increase in net assets	$755,000	$507,000	$330,000
Net assets- beginning of the year	$400,000	$200,000	$100,000
Net assets- closing of the year	$1,155,000	$707,000	$430,000

Table: (2)