Final answer:
1. Debit Cash $4,180,000, Credit Pledge Receivable $4,180,000, Credit Unrestricted Net Assets $220,000. 2. The accounting treatment would be the same for a public university.
Step-by-step explanation:
Journal Entry for Nonprofit University
Upon receiving the pledge letter from the alumnus, Hannon University should record the following journal entry:
- Debit Pledges Receivable $4,400,000
- Credit Contributions - Pledge $4,400,000
Since Hannon University expects to collect 95% of the pledged amount, an allowance for doubtful accounts should be recorded:
- Debit Allowance for Doubtful Accounts $220,000 (which is 5% of $4,400,000)
- Credit Pledges Receivable $220,000
After the allowance entry, the net receivable amount is $4,180,000 (which is 95% of the pledged amount).
Recording Pledge for Public University
If Hannon University were a public university, the pledge would be recorded as revenue in accordance with the financial accounting rules for government entities, which differ from private, nonprofit accounting practices. The entry would be:
- Debit Pledges Receivable $4,400,000
- Credit Revenue from Contributions $4,400,000