REQUIRED:

a$.$ Discuss whether the Foundation should use the deferral method or the restricted fund method for revenue recognition. Discuss also whether the foundation has any choices regarding its accounting for capital assets.

a$.$ Assume that the Foundation uses the restricted fund method for revenue recognition and creates appropriate funds for restricted and endowment contributions in addition to a general fund. Prepare journal entries to record the transactions and events described above. Indicate in which fund the entry should be recorded.

b$.$ Prepare a statement of operations in good format for the Foundation for the year ended December $31,20$X$2.$

c$.$ Prepare a statement of financial position in good format for the Foundation as at December $31,20$X$2.$

d$.$

i$.$ Assume instead that the Foundation uses the deferral method for revenue recognition and uses a single general fund. Repeat the requirements for part $($b$)$ above.

ii$.$ QUESTION $1$

On January $1,20$X$2,$ Luther, $,$a local college professor and philanthropist, started the MLK Foundation, a not$-$for$-$profit institute designed to help retired adventurers adjust to normal life once their treasure$-$hunting days are over.

During the year, the following transactions took place:

$-$ On January $1,$ Luther donated land with an old building with a market value of $\backslash (\backslash$$ $725,000\backslash ),$ furniture with a value of $\backslash (\backslash$$ $25,000\backslash ),$ and cash of $\backslash (\backslash$$ $500,000\backslash ).$ Mr$.$ Luther placed no special restrictions on the use of these assets. The fair value of the land alone was determined to be $\backslash (\backslash$$ $400,000\backslash ).$ The building required extensive refurbishment.

$-$ On February $23,$ the Foundation received a donation of $\backslash (\backslash$$ $415,000\backslash ).$ No restrictions were placed on this donation.

$-$ On March $1,$ the Foundation began a month$-$long fund$-$raising drive to collect contributions for refurbishment of the building. All donations received from the fund$-$raising campaign were designated for use in refurbishing the building. During March, a total of $\backslash (\backslash$$ $425,000\backslash )$ was collected.

$-$ The total costs to refurbish the building amounted to $\backslash (\backslash$$ $600,000\backslash ).$ In addition to the donations raised from the fund$-$raising drive, the Foundation used cash from the unrestricted donations for this purpose. The building was ready for operations by the end of June.

$-\backslash (\backslash$quad $\backslash )$ On May $15,$ the Foundation received $\backslash$$$1,000,000$ from the estate of Mr$.$ J$.$ Bond. In his will, Mr$.$ Bond indicated that the donation was not to be used for the day$-$to$-$day activities of the Foundation but was to be invested in government bonds. The interest earned from the bonds could be used as the Foundation chose. Accordingly, the Foundation established an endowment fund for this contribution and invested the cash received in government bonds.

$-$ Interest earned for the year ending December $31$ on the government bonds amounted to $\backslash$$$18,000.$

$-$ During the year ending December $31,$ the foundation paid the following amounts in cash:

$\backslash (\backslash$$ $24,000\backslash )$ Office supplies $(\backslash (\backslash$$ $6,000\backslash )$ worth remain unused at year$-$end$)$

$\backslash (\backslash$$ $15,000\backslash )$ Utilities $($the bill for December, $\backslash$$$1,600$ remained unpaid$)$

$\backslash (\backslash$$ $72,000\backslash )$ Salaries for Foundation workers $(\backslash (\backslash$$ $10,000\backslash )$ remained unpaid at the end of the year$)$

$-$ The building is estimated to have a remaining useful life of $20$ years, whereas the furniture is expected to last another $5$ years. No residual value is expected for either asset.