The Art League is a not-for-profit organization dedicated to promoting the arts within the community. There are
Question:
The post-closing trial balance for the Art League as of June 30, 2019, is shown here.
Following is information summarizing the transactions of the Art League for the year ended June 30, 2020.
1. During the year, unrestricted cash was received from the following sources: grants, $11,600, of which $4,600 had been reported as receivable on June 30, 2019; annual contributions from fund drives and other unrestricted gifts, $13,861; membership dues, $16,285; tuition and fees for educational workshops, $6,974; and sales of members art, $12,010, of which 20 percent represents commissions earned by the Art League.
2. Interest earnings were as follows: interest on investments without donor restrictions totaled $686; interest on investments restricted for programs totaled $925; interest on investments in the permanent endowment totaled $344 (these investment earnings are restricted for program use).
3. Grants receivable as of year-end totaled $5,020, of which $3,120 was earned in the current year (thus without donor restrictions) and $1,900 was reported as deferred revenue.
4. The Art League receives free rent from the city at an estimated value of $18,000 a year.
5. Expenses incurred during the year were as follows: salaries and fringe benefits, $46,900; utilities $3,080; printing and postage, $1,310; and miscellaneous, $640. As of year-end, the balances of the following accounts were Prepaid Expenses, $840, and Accounts Payable and Accrued Expenses, $2,746.
6. During the year, $2,900 of short-term investments were sold, with the proceeds used to purchase two computers and a printer at a cost of $2,835. The resources used were restricted for the purchase of equipment.
7. In accordance with the terms of the Art League endowment, income earned by the endowment for the provision of free art instruction for children with disabilities was provided at a cost of $825. This amount was allocated to community art education.
8. Depreciation on equipment in the amount of $1,642 was recorded.
9. Expenses for the year were allocated 30 percent to Exhibition Program, 30 percent to Community Art Education, 25 percent to Management and General Expenses, and 15 percent to Fund-Raising. (Round to the nearest dollar.)
10. Proceeds of art sales, net of commissions charged by the Art League, totaled $9,608. This amount was paid to member artists during the year.
11. All nominal accounts were closed at year-end.
Required
a. On the advice of its independent auditor, the Art League does not record support and expenses related to the value of services donated by the volunteers. Discuss the criteria for recognition of donated services, and comment on the auditors likely rationale for not recognizing them in this case.
b. Make all necessary journal entries to record these transactions. Expense transactions should be initially recorded by object classification unless otherwise instructed; in entry 9, expenses will be allocated to functions.
c. Prepare a statement of activities for the year ended June 30, 2020.
d. Prepare a statement of financial position for the year ended June 30, 2020.
Step by Step Answer:
Accounting for Governmental and Nonprofit Entities
ISBN: 978-1259917059
18th edition
Authors: Jacqueline L. Reck, James E. Rooks, Suzanne Lowensohn, Daniel Neely