Question

The FASB requires that investments initially be recorded by a not-for-profit organization at cost, or in the case of donated investments at fair value as of the date of the donation. What is the initial recording requirement for investments?

Option 1: Fair value as of the date of the donation
Option 2: Cost
Option 3: Historical cost
Option 4: Market value

Answer 1

The initial recording requirement for investments by a not-for-profit organization is at cost, or at fair value as of the date of the donation for donated investments.

Step-by-step explanation:

The Financial Accounting Standards Board (FASB) sets the guidelines for not-for-profit organizations to follow regarding the recording of their investments. When an investment is purchased by a not-for-profit organization, it should initially be recorded at cost. However, if the investment is donated to the organization, it is required to be recorded at fair value as of the date of the donation. This ensures that the organization's financial statements accurately reflect the value of the assets at the time of acquisition, whether they are purchased or received as a donation.

However, if the investment is donated, it should be recorded at fair value as of the date of the donation. This means that investments purchased by the organization will be recorded at the amount paid, while donated investments will be recorded at their fair value at the time of donation.