In 2014, the Northwest Ballet Association (NBA), a not-for-proﬁt performing arts organization, undertook a major capital campaign to fund a new theater, expected to cost $10 million. It was quickly able to raise $6 million, all of which was donor restricted. It borrowed the balance, issuing a ﬁve-year, 8 percent term note for $4 million.
During the year, the NBA broke ground on the project and incurred construction costs of $3.4 million. It earned $0.52 million in interest on temporary investments. It incurred and paid $0.32 million in interest on the note. In addition, as required by the note, it placed $0.7 million in a reserve fund (a specially dedicated bank account) for the repayment of the debt.
1. To show how these transactions would be reﬂected on the NBA's ﬁnancial statements, prepare a December 31, 2014 statement of ﬁnancial position and statement of activities. Assume that these were the only transactions in which the organization engaged and that all available cash, except that in the reserve fund, had been invested in short-term marketable securities. Be sure to properly classify all resources as to whether they are temporarily restricted or unrestricted.
2. Comment brieﬂy on whether the contributions from donors and the proceeds from the bonds should be reported as restricted or unrestricted.
3. Comment brieﬂy on whether the $0.7 million in the reserve fund should be reported as restricted or unrestricted.