Question

Care Foundation is a voluntary health and welfare organization funded by contributions from the general public. Care sold equipment for $30,000 which cost $40,000 and had a book value of $25,000 at the time of sale. In recording the sale, Care should:

A) Record a gain of $ 5,000.
B) Record "temporarily restricted revenue" of $ 30,000.
C) Both (a) and (b) above.
D) Neither (a) nor (b) above.

Answer 1

Care Foundation should record a gain of $5,000 for the sale of equipment, as the sale price exceeds the book value. The transaction doesn't involve any temporarily restricted revenue, making option A the correct answer.

Step-by-step explanation:

The subject question involves a transaction related to accounting for the sale of equipment by a non-profit organization, Care Foundation. The equipment which originally cost $40,000 was sold for $30,000, but its book value was noted as $25,000 at the time of sale. To record this transaction, Care should note the difference between the selling price and the book value. Since the selling price ($30,000) is higher than the book value ($25,000), Care will record a gain of $5,000, which is the excess of the sale proceeds over the book value of the equipment.

Therefore, the correct answer to this question is to Record a gain of $5,000 (Option A). As this is a regular sale of an asset and not a contribution or a donation, there is no need to record it as "temporarily restricted revenue." Hence, option B is not correct, and option C that suggests both are correct is also not applicable.