Question

A private sector, not-for-profit hospital received a pledge of $150,000 in 2014 to be used for a building to be constructed in 2015 but contingent on the hospital being able to raise an equivalent amount from other donors. As of the end of 2014, half the amount had been raised from other donors. In 2015, the hospital raised the amount from other donors. The donor gave the $150,000 to the hospital in 2015 and the building was completed in 2016. In which year should the hospital recognize the $150,000 from the pledge?

1. $100,000 in 2020 and $50,00 in 2021
2. $150,000 in 2021
3. $150,000 in 2020
4. $100,000 in 2019 and $50,000 in 2020

Answer 1

The hospital should recognize the entire $150,000 pledge in 2015 as that is the year when the matching funds were fully raised and the pledge became unconditional.

Step-by-step explanation:

The hospital should recognize the $150,000 pledge in the year when all the conditions for receiving the pledge were satisfied. This means when the pledge is no longer conditional, i.e., when the hospital has met the stipulated requirement of raising an equivalent amount from other donors. Since the hospital raised the remaining amount from other donors and the donor gave the $150,000 to the hospital in 2015, the hospital should recognize the full amount of $150,000 in 2015 as contribution revenue in accordance with the accrual accounting principle. The completion of the building in 2016 does not affect the recognition of the contribution; it is the satisfaction of the conditional pledge that triggers revenue recognition.