Chapter 19, Problem 19.7.1P

To determine

Concept Introduction:

Accounting treatment of Various transactions Private Universities:

As per GASB Statement No 33, FASB No 116, Exchange transactions are treated as reciprocal transfers in which each party receives and sacrifices approximately equal value, are not considered restricted. government grants, which are required to pass as financial aid to students, are accounted as agency transactions.

Contributions are treated as unconditional transfers of cash or other assets to an entity.

To prepare: The journal entries for the given transactions assuming fund accounting has not been used.

Answer to Problem 19.7.1P

1. Entry floated at par a $20,000,000, 8% serial bond issued on July 1

	Debit $	Credit $
Cash	20,000,000
Bonds payable		20,000,000

Interest on bond payable

	Debit $	Credit $
Expenses − Interest on bonds	1,600,000
Interest on bond payable		1,600,000

Contribution specifically for new building construction

	Debit $	Credit $
Cash	5,000,000
Revenue - Temporarily restricted contribution		5,000,000

b. Payments for construction to date total $7,000,000.

	Debit $	Credit $
Construction in progress	7,000,000
Contracts payable		7,000,000

2. Entry Interest payments are made on December 31.

	Debit $	Credit $
Interest on bond payable	800,000
Cash		800,000

3. Entry construction of the building is completed at an additional cost of $18,000,000. Payment is made for $16,000,000.

Debit $

Credit $

Construction in progress	18,000,000
Contract payable	7,000,000
Contract payable		2,000,000
Cash		23,000,000

4. Entry for the first bond serial payment of $2,000,000 plus interest is paid.

	Debit $	Credit $
Bonds Payable	2,000,000
Interest on bond payable	800,000
Cash		2,800,000

5. Entry a gift of land and a building was received, appraised at $200,000 and $350,000, respectively.

	Debit $	Credit $
Land	200,000
Building	350,000
Revenue - Unrestricted Property Contributions		550,000

Mortgage payable

	Debit $	Credit $
Mortgage payable	90,000
Cash		90,000

6. Entry Pledges with a present value of $200,000 to be paid over the next five years were received.

	Debit $	Credit $
Contribution receivable	200,000
Revenue - Temporarily restricted contribution		200,000

It is estimated that $20,000 of the pledges will not be collected.

	Debit $	Credit $
Expenses - Institutional support (Allowance for Uncollectible contributions)	20,000
Allowance for Uncollectible contributions		20,000

7. Entry donation of $500,000 of stock was made

	Debit $	Credit $
Contributions Receivable	500,000
Revenue - Temporarily restricted contributions		500,000

8. Entry dividends of $10,000 on the stock in item

	Debit $	Credit $
Cash	10,000
Revenue - Unrestricted Investment income		10,000

9. Entry Depreciation on the building received $25,000

	Debit $	Credit $
Expenses - Operation and maintenance	25,000
Accumulated Depreciation		25,000

Closing Entry Unrestricted net assets

	Debit $	Credit $
Revenue - Unrestricted property contribution	550,000
Revenue - Unrestricted Investment income	10,000
Expenses operation and Maintenance of plant		25,000
Unrestricted Net Assets		535,000

Closing entry Temporarily restricted Net assets

	Debit $	Credit $
Revenue - Temporarily restricted contribution	200,000
Revenue - Temporarily restricted contribution	500,000
Temporarily restricted Net Assets		700,000

Explanation of Solution

1. The above entry can be explained receipts form bond floatation received and credited to bond payable accounts and accrued interest has been recognized.

A contribution for building construction received and credited to Contribution Temporarily restricted.

2. The above entry can be explained as payment made during construction is transferred to construction in progress account
3. The above entry can be explained as half yearly interest due on bonds has been paid
4. The above entry can be explained as once construction is completed contract payable account and construction in progress account has to be settled by making payment but based on the agreement only 16,000,000 has been paid remaining 2,000,000 is due which will remain in contract payable account till cleared.
5. The above entry as recognition of first bond serial payment of $2,000,000 plus interest is paid
6. The above entry land and building donated has to be recognised as unrestricted property contributions and mortgage payment agreed has to be recognised.
7. The above entry can be explained receivable for building renovation and uncollectible contribution allowance has to be created.
8. The above entry can be explained donation from is recognized.
9. The above entry can be explained receipts of donation on donated stock has been received and recognized.
10. The above entry can be explained receipts form bond floatation received and credited to bond payable accounts and accrued interest has been recognized.