Question

On January 1, Read, a nongovernmental not-for-profit organization, received $20,000 and an unconditional pledge of $20,000 for each of the next 4 calendar years to be paid on the first day of each year. The present value of an ordinary annuity for 4 years at a constant interest rate of 8% is 3.312. What amount of net assets with donor restrictions is reported in the year the pledge was received?

Answer 1

Answer: $66,240

Explanation: Organizations may be offered donations by individuals, government or other organizations. When donations do not have any terms of use as ordered by the donor and such donation has been received by the organization, such donations are termed unrestricted assets.

However, donations in which donors specify the expected use of the donation are classed as restricted asset. Pledges made and are expected to be paid or offered in the future are classed as temporary restricted asset as these assets will be paid at a later time.

Assets restricted by time and are expected in the future are recognized at the net present value.

From the question ;

Present Value(PV) of ordinary annuity for 4 years at constant rate of 8% is given as 3.3212

Therefore,

Restricted net asset = $20,000 ×3.312 = $66,240

Answer 2

The amount of $66240 is reported as the net assets with donor restrictions

Step-by-step explanation:

The fair value of the annual $20,000 payments are made annually for the next four years to be paid on the first day of each month.

Since the present value of an ordinary annuity for 4 years at a constant interest rate of 8% is 3.312, we can calculate the present value of payments.

The present value of the payments = ($20,000 × 3.312)= $66240 Unconditional pledge to give cash amounts in the future are reported as donor-restricted support unless the donor it is stated for current activities.

The amount of $66240 is reported as the net assets with donor restrictions