A donor agrees to contribute $5,000 per year at the end of each of the next five years to a voluntary health and welfare organization. The donor did not place any use restrictions on the amount pledged. The stream of the payments is discounted at 6 percent. The first payment of $5,000 is received at the end of the first year. The present value factor for a five-payment annuity due on June 30, 20X9, at 6 percent is 4.2124.
-Based on the preceding information,at the end of the first year,the pledge increased unrestricted net assets by:
A) $25,000.
B) $21,062.
C) $4,212.
D) $5,000.

Question

Quizplus · Accepted Answer

At the end of the first year, only the first payment of $5,000 was received. Therefore, the present value of that payment is simply $5,000. The pledge did not increase unrestricted net assets by the full five-year amount of $25,000 because the organization had not yet received those subsequent payments. Therefore, the correct answer is D) $5,000, which represents the present value of the first payment.

A Donor Agrees to Contribute $5,000 Per Year at the End