Chapter 19, Problem 1E

1.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

To indicate: The recording of receipt of unconditional cash contribution by private universities.

Answer to Problem 1E

The unconditional cash contribution is recorded as Credit contribution unrestricted.

Explanation of Solution

The above-stated transaction will be recorded as credit contribution because revenues are recognized in the year in which it is received. The contribution will be considered unrestricted because there is no restriction on its usage.

2.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

To indicate:The recording of receipt of cash to be used for a specific purpose by private universities.

Answer to Problem 1E

Receipt of cash to be used for a specific purpose is recorded as Credit contribution temporarily restricted.

Explanation of Solution

The above-stated transaction will be recorded as credit contribution because revenues are recognized in the year in which it is received. The contribution will be considered as restricted because the contribution can be used for a specific purpose only. The restriction will be released once the condition of the donor will be met.

3.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

To indicate:The recordingof receipt of an unconditional promise to give by private universities

Answer to Problem 1E

The unconditional cash contribution is recorded as Credit contribution unrestricted.

Explanation of Solution

The above-stated transaction will be recorded as credit contribution because revenues are recognized in the year in which it is received. The contribution will be considered as unrestricted because there is no restriction imposed by the donor on its usage.It will be recorded by debiting contributions receivable account and credit revenue unrestricted contribution.

4.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

To indicate:The recording of an unconditional promise to give over a 5 years period by private universities.

Answer to Problem 1E

Unconditional cash contribution is recorded as Credit contribution unrestricted.

Explanation of Solution

The above stated transaction will be recorded as credit contribution because revenues are recognized in the year in which it is received. The contribution will be considered as unrestricted because there is no restriction imposed by the donor on its usage. It will be recorded by debiting contributions receivable account and credit revenue unrestricted contribution.

5.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

To indicate:The recording of receipt of investments that are to be used to set up an endowment with earnings available for operations by private universities.

Answer to Problem 1E

Credit contributions − permanently restricted

Explanation of Solution

The above stated transaction will be recorded as credit contribution because revenues are recognized in the year in which it is received. The contribution is permanently restricted as there is preconditions imposed by the contributor regarding utilisation of contribution, but earnings on such contributions are free from restrictions and can be used as unrestricted.

6.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

To indicate:The recording of receipt of a fixed asset with donor-specified use for an outreach program.

Answer to Problem 1E

Credit contributions − temporarily restricted

Explanation of Solution

The above stated transaction will be recorded as credit contributions because receipt of contribution is recorded in the year in which it is received. The transaction will be recorded as temporarily restricted because the fixed asset can be used only for specific purpose. The restriction will be released when the asset is placed over useful life of the asset.

7.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

To indicate: The recording of receipt of a conditional promise to give.

Answer to Problem 1E

No entry

Explanation of Solution

No entry will be made to record the stated transaction because the contribution is not received. It is only a promise. The entry will be recorded only when conditions will be met.

8.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

To indicate: The recording of receipt of a fixed asset with no donor restriction.

Answer to Problem 1E

Credit contributions − unrestricted

Explanation of Solution

The above stated transaction will be recorded as credit contributions because receipt of contribution is recorded in the year in which it is received. The transaction will be recorded as unrestricted because the fixed asset can be used freely without any restrictions.

9.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

To indicate:The recording of receipt offree accounting service.

Answer to Problem 1E

Credit contribution - Unrestricted

Explanation of Solution

The above stated transaction will be recorded as credit contributions because receipt of contribution is recorded in the year in which it is received. Receiving any contribution by way of skills are considered as unrestricted. Hence, it would be treated as an unrestricted contribution.

10.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

To indicate:The recording of receipt of time of volunteers who helped with fund raising mailings.

Answer to Problem 1E

No entry

Explanation of Solution

The above stated transaction is not a skilled service. It is volunteer in nature and no payment is made for it. Hence, no entry will be made for recording the stated transaction. However, a disclosure can be made in the footnotes for recording it.

11.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

Credit contributions can be treated as unrestricted, temporarily restricted, permanently restricted depending on the conditions applied by the contributors.

Unrestricted funds are credit contributions where no donor restrictions are applied, these funds usually used towards the operating expenses of the organization.Temporarily restricted funds have some restrictions regarding the usage of such funds. Permanently restricted contributions which are permanently restricted by explicit donor stipulations of by law.

To indicate:The recording of receipt of a cash contribution to be used next year for general operations at the discretion of management.

Answer to Problem 1E

Credit contributions − temporarily restricted

Explanation of Solution

The above stated transaction will be recorded as credit contributions because receipt of a cash contribution is recorded in the year in which it is received, whether it is used or not. The transaction will be recorded as temporarily restricted because the contribution has time restriction, when the time restriction will be satisfied, restriction will be released.

12.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

Credit contributions can be treated as unrestricted, temporarily restricted, permanently restricted depending on the conditions applied by the contributors.

Unrestricted funds are credit contributions where no donor restrictions are applied, these funds usually used towards the operating expenses of the organization.Temporarily restricted funds have some restrictions regarding the usage of such funds. Permanently restricted contributions which are permanently restricted by explicit donor stipulations of by law.

To indicate:The recording of receipt of a cash contribution to be used next year for research project.

Answer to Problem 1E

Credit contributions − temporarily restricted

Explanation of Solution

The above stated transaction will be recorded as credit contributions because receipt of a cash contribution is recorded in the year in which it is received, whether it is used or not. The transaction will be recorded as temporarily restricted because the contribution has time restriction, when the expenses will be incurred in the next year, restriction will be released.

13.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

Credit contributions can be treated as unrestricted, temporarily restricted, permanently restricted depending on the conditions applied by the contributors.

Unrestricted funds are credit contributions where no donor restrictions are applied, these funds usually used towards the operating expenses of the organization. Temporarily restricted funds have some restrictions regarding the usage of such funds. Permanently restricted contributions which are permanently restricted by explicit donor stipulations of by law.

To indicate:The recording of receipt of a cash as part of a government grant funding a cancer research project. A report with research results will be prepared for government funding agency.

Answer to Problem 1E

Credit refundable deposit

Explanation of Solution

The above stated transaction is recorded as revenue. The cash receipts will have to be refund to the government agency as receipts are collected on behalf of the government. Therefore, the stated transaction will be recorded as credit refundable deposit.

14.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

Credit contributions can be treated as unrestricted, temporarily restricted, permanently restricted depending on the conditions applied by the contributors.

Unrestricted funds are credit contributions where no donor restrictions are applied, these funds usually used towards the operating expenses of the organization. Temporarily restricted funds have some restrictions regarding the usage of such funds. Permanently restricted contributions which are permanently restricted by explicit donor stipulations of by law.

To indicate:The recording of receipt of a cash contribution to be used for acquisition of fixed asset.

Answer to Problem 1E

Credit contributions − temporarily restricted

Explanation of Solution

The above stated transaction will be recorded as credit contributions because receipt of a cash contribution is recorded in the year in which it is received, whether it is used or not. The transaction will be recorded as temporarily restricted because the contribution can be used only for the acquisition of fixed assets. The restriction will be released when the asset is placed over useful life of the asset.

15.

To determine

Concept Introduction:

Accounting for contributions:

Contributions are defined by FASB Statement No 116, as “a settlement of a liability or the cancellation of the liability, any unconditional transfer made for the cash and other assets to an entity in a voluntary nonreciprocal transfer. Private colleges and universities recognize contributions and unconditional promises to give as revenues or gains in the period received.

Credit contributions can be treated as unrestricted, temporarily restricted, permanently restricted depending on the conditions applied by the contributors.

Unrestricted funds are credit contributions where no donor restrictions are applied, these funds usually used towards the operating expenses of the organization. Temporarily restricted funds have some restrictions regarding the usage of such funds. Permanently restricted contributions which are permanently restricted by explicit donor stipulations of by law.

To indicate: The recording of receipt of a permanent collection of geography maps that will be displayed to the public

Answer to Problem 1E

No entry

Explanation of Solution

The above stated transaction will not be recorded because the contribution is not received in cash. The contribution received will be displayed to the public and therefore, it will not be recorded by the private university.