Question

The Maryville Cultural Center recently conducted a successful talent show in which local talent performed for a nominal prize. The talent show is an ongoing major event and is central to the center's mission. The event raised $6,300 in gross revenue. Expenses related to the event included $2,500 to rent an auditorium, $2,700 to advertise the event, $2,000 for trophies and other awards for the winner and the runners up, and $1,600 for printing and mailing tickets. The center believes there was no monetary value received by donors (attendees). To report this event in its statement of activities, the center will report:

a. Special event revenue of $6,300 and special event expense of $4,500.
b. Special event revenue of $6,300 and fund-raising expense of $4,300.
c. Special event revenue of $6,800 and fund-raising expense of $4,300.
d. Special event revenue of $6,300, special event expense of $4,500 and fund-raising expense of $4,300.

Answer 1

The Maryville Cultural Center will report special event revenue of $6,300 and special event expense of $8,800, resulting in a net loss for the event. Revenue does not cover the expenses, and there was no monetary value provided to the donors.

Step-by-step explanation:

The correct option to report the Maryville Cultural Center's talent show in its statement of activities is special event revenue of $6,300 and special event expense of $8,800. The total expenses are calculated by adding the auditorium rental fee ($2,500), advertising costs ($2,700), trophy and awards expenses ($2,000), and printing and mailing costs ($1,600), which gives a total of $8,800. Since there was no monetary value received by donors, the gross revenue remains as the special event revenue. Therefore, the correct answer is that the revenue is $6,300 and the expenses are $8,800, resulting in a net loss from the event.

An important concept for organizations is understanding when to continue or shut down operations based on their revenues and variable costs. For example, if the center earns revenues of $20,000 and its variable costs are $15,000, it should continue in business, as it is covering its variable costs and contributing to fixed costs. However, if the center only earns revenues of $10,000 while variable costs are $15,000, it should consider shutting down, as it is not even covering its variable costs.