Concept explainers
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
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
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 $103,000 to have this work done.
a.
Record general entries and prepare a statement of activity for university D, a private not-for-profit entity.
Explanation of Solution
General entries for university D:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
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)
b.
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)
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Chapter 18 Solutions
ADVANCED ACCOUNTING
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