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.The present value factor for a four-payment annuity due on June 30,20X9,at 6 percent is 3.4651.
-Based on the preceding information,the journal entry to recognize present value at the time the pledge is received includes:
A)a credit to Pledges Receivable-Temporarily Restricted for $25,000.
B)a debit to Contributions-Temporarily Restricted for $21,062.
C)a debit to Pledges Receivable-Temporarily Restricted for $21,062.
D)a credit to Contributions-Temporarily Restricted for $25,000.

Question

Quizplus · Accepted Answer

The present value of the pledge is calculated as follows:

PV = $5,000 x 4.2124 = $21,062

Therefore, at the time the pledge is received, the organization should make the following journal entry:

Debit: Pledges Receivable-Temporarily Restricted for $21,062
Credit: Contributions-Temporarily Restricted for $21,062

Option A and D are incorrect because they do not reflect the correct present value of the pledge. Option B is incorrect because it debits Contributions-Temporarily Restricted, which is not appropriate since the contribution has not yet been received.

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