XYZ is a local charity that commenced operations on January 1, 2020. XYZ uses the restricted fund method of accounting for contributions. XYZ has a general fund, a capital fund and an endowment fund. For the following partial data provided, prepare the journal entry to record that transaction. You should provide a description for each entry and/or support (as needed). Specify which fund or funds must be used to record the entry. a) A recent campaign raised cash of $10,000 and pledges of $10,000 for current year operations. Approximately 94% of the pledges are expected to be collected. Use the allowance method. Consider how the journal entry would change given there was no evidence to support a 94% collection rate. b) Government grants amounted to $50,000, half of which was received. The balance is expected by late 2021. The grants may be applied to any of the organization's programs. c) Revenue deferred earlier in the year in the amount of $5,000 was recognized. d) Accounts payable and wages payable amounting to $10,000 and $5,000 were paid. e) Total Wage costs amounted to $60,000 (25% of these expenses are still payable at the end of 2020) which breaks down as follows: Program 1 = $40,000 Program 2 = $10,000 Administration = $10,000 f) A wealthy local businessman donated $100,000 to be held in endowment, with the interest earned to be unrestricted. g) The investments in an endowment fund earned interest in the amount $3,000. There is no restriction on how they can be used. h) Cash contributions of $200,000 restricted for the purchase of a building was received in the operating year. The building was also purchased in the year at a cost of $200,000. Amortization expense for the building amounted to $10,000. i) A campaign was run late 2020 to raise money for next year’s operations. A total of 89,000 was collected and total administration costs were $31,000. j) The charity was fortunate to have many volunteers. Not having the volunteers would have resulted in the charity having to pay $55,000 for extra help. k) A local investor donated a rare book collection in May 2020. The collection is valued anywhere from $100,000 - $200,000. l) The charity received advertising services in September 2020 (to promote the campaign run at the end of the year). Approximate value of the advertising was $2,000.  

REQUIRED:

a) Prepare the necessary journal entries to reflect the transactions. 10 marks

b) Section 4433 (Tangible Capital Assets) contains a compromise provision applicable to small NFPOs. Explain briefly what this is referring to (e.g. address the threshold and what alternatives exist). 2 marks

c) If XYZ had only one fund (a general / operating fund) and used the deferral method for recording contributions, prepare the journal entries for the transactions that would change from part a. 3 marks

Answer rating: 100% (QA)

a General Fund Debit Cash 10000 Credit Contributions Receivable 10000 Description Recording the cash ... View the full answer