Investment gains and losses have to be recognized as they occur—and have to be assigned to the appropriate category of net assets.
During 2013, the Pulmonary Disease Foundation received a contribution of marketable securities that were to be placed in a permanent endowment fund. Neither donor stipulations nor applicable state law require that capital gains or increases in value be added to the endowment principal. The income from the securities was to be restricted for research in pulmonary diseases. The following schedule indicates the value of the securities as of the date of receipt (labeled ‘‘cost’’), the fair value at December 31, 2013, and the unrealized gains and losses of the year.
1. Prepare a journal entry to record the unrealized net gain during the year. Be sure to indicate the type of fund (e.g., unrestricted, temporarily restricted, and permanently restricted) in which the entry would be made. Assuming no other transactions and no other assets in the relevant funds, show how the investments would be reported on the foundation’s year-end 2013 balance sheet.
2. During 2014, the foundation sold the North-west Industries securities for $280. Prepare appropriate journal entries to record the sale. Credit the gain to the same account in which you credited the unrealized appreciation of 2013.
3. As of December 31, 2014, the market value of the Campbell Corp. securities had increased to $320, and that of the St. Regis, Inc., securities to $180. Prepare a journal entry to record the unrealized gain during the year. Show how the foundation would report the investment portfolio on its December 31, 2014, balance sheet. You may combine the cash and securities of each type of fund into a single account.

  • CreatedApril 29, 2015
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