Designate whether each transaction results in an increase or decrease in Unrestricted or Restricted Net Assets.
1. A pledge increases temporarily restricted net assets.
2. The collection on the pledge has already been accounted for.
3. The expenditure from the capital campaign decreases the temporarily restricted net assets and is transferred to unrestricted net assets.
4. Since no restrictions are placed on how interest income can be used, the interest is placed in unrestricted net assets.
5. Operating revenues are unrestricted net assets.
6. Salaries, utilities, and operating supplies are paid from unrestricted net assets.
7. Depreciation decreases unrestricted net assets.
8. Because the volunteer services do not require specialized skills, they are not recorded.
9. Because the securities are received for permanent endowment, they are recorded in permanently restricted net assets.
10. Interest and dividends received on the endowment will be used to sponsor visiting speakers and are placed in temporarily restricted net assets.
11. This conditional pledge is not recorded until the matching pledges are raised.
A.A merger is a transaction in which the governing bodies of two or more not-for-profit entities relinquish control of those entities to create a new not-for-profit entity. To qualify as a new entity, the combined entity must have a newly formed governing body. An acquisition occurs when a not-for-profit obtains control of another not-for-profit or a business in a transaction not meeting the definition of a merger.
B.In a merger, the new entity uses the carryover method. Under the carryover method the entity does not recognize additional assets (intangibles) or changes in the fair value of recognized assets and liabilities. The asset and liability book balances are "carried over" to the new reporting entity. In an acquisition, the entity records the acquired assets and liabilities at their fair values, not at the acquired entity's book values.
C.Goodwill may only be recorded in acquisitions, not mergers. However, the recording of goodwill is dependent on the type of not-for-profit organizations. Not-for-profit entities that derive their revenues from business-like activities are required to measure and report goodwill as an asset in the same manner as businesses. However, entities that derive their revenues primarily from contributions are to charge (i.e. expense) the amount that represents goodwill in the Statement of Activities for the period which includes the date of acquisition
Record Journal entries:
In the problem journal entries are required in the book of an Government educational Foundation. These entries are passed on the basis of guidelines of FASB. Journals are shown below-
Debit and Credit Rules:
• Debiting will increase the expense and asset accounts and, crediting will decrease them.
• Crediting will increase the Revenues, liabilities, and equity accounts, and debiting will decrease them.
(a) Expense of postage is debited. Since money is going out cash is credited.
(b) Supplies purchased initially on credit. Therefore at the time of purchase, stock (current asset) is debited and accounts payable (liability) is credited.
(c) Out of total purchase of $1,900, $1,200 payment is made in cash. Thus $700 is due for payment.
(d) Year end supplies stock is $450. Initial stock was $400. Thus $400+$1,900-$450 =$1,850 is used in production. It is a part of cost of production. It is debited and supplies are credited.