Question

On December 31, Ecology Center, a nongovernment not-for-profit organization, received an unconditional pledge of $125,000 to be received in three years. The Ecology Center is confident that it will collect the entire $125,000. The Ecology Center uses the present value technique when measuring fair value. How should the Ecology Center record the pledge?

a) Recognize $125,000 as contribution revenue.
b) Recognize $125,000 as temporarily restricted revenue.
c) Recognize the present value of the pledge as contribution revenue.
d) Do not recognize any revenue until the cash is received.

Answer 1

The Ecology Center should recognize the present value of the pledge as contribution revenue using the present value technique.

Step-by-step explanation:

The Ecology Center should recognize the present value of the pledge as contribution revenue. Since the center uses the present value technique when measuring fair value, it is appropriate to record the present value of the pledge as revenue. The present value represents the current worth of future cash flow, taking into account the time value of money. Therefore, option c) is the correct way for the Ecology Center to record the pledge.