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The following are the 20X2 transactions of the Midwest Heart Association, which has the following funds and fund balances on January 1, 20X2: Unrestricted net assets $ 281,000 Temporarily restricted net assets 87,000 Permanently restricted (endowment) net assets 219,000

1. Had Unrestricted pledges totaling $700,000, of which $150,000 is for 20X3 and uncollectible pledges estimated at 8 percent.
2. Had restricted use grants totaling $150,000.
3. Collected a total of $520,000 of current pledges and wrote off $30,000 of remaining uncollected current pledges.
4. Purchased office equipment for $15,000.
5. Used unrestricted funds to pay the $3,000 mortgage payment due on the buildings.
6. Received interest and dividends of $27,200 on unrestricted investments and $5,400 on temporarily restricted investments. An endowment investment with a recorded value of $5,000 was sold for $6,000, resulting in a realized transaction gain of $1,000. A donor-imposed restriction specified that gains on sales of endowment investments must be maintained in the permanently restricted endowment fund.
7. Recorded and allocated depreciation as follows:
Community services $ 12,000 Public health education 7,000 Research 10,000 Fund-raising 15,000 General and administrative 9,000 8. Had other operating costs of the unrestricted current fund: Community services $ 250,600 Public health education 100,000 Research 81,000 Fund-raising 39,000 General and administrative 61,000 9. Received clerical services totaling $2,400 donated during the fund drive. These are not part of the expenses reported in item 8. It has been determined that these donated services should be recorded.
Required: a. Prepare journal entries for the transactions in 20X2 b. Prepare a statement of activities for 20X2.

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Answer:

Midwest Heart Association

1. Journal Entries:

1. Debit Pledges Receivable $700,000

Credit Pledges Revenue $700,000

To record unrestricted pledges received.

1. Debit Uncollectible Expense $56,000

Credit Allowance for Uncollectibles $56,000

To record 8% of uncollectible pledges.

2. Debit Temporarily restricted net assets $150,000

Credit Pledges Receivable $150,000

To record receipt of restricted use grants.

3. Debit Unrestricted net assets $520,000

Credit Pledges Receivable $520,000

To record current pledges collected

3. Debit Allowance for Uncollectible $26,000

Credit Uncollectible Expense $26,000

To record the write-off of $30,000 remaining uncollected pledges.

4. Debit Office Equipment $15,000

Credit Unrestricted net assets $15,000

To record the purchase of office equipment

5. Debit Building Mortgage $3,000

Credit Unrestricted net assets $3,000

To record the payment of mortgage on buildings.

6. Debit Unrestricted net assets $27,200

Debit Temporarily restricted net assets $5,400

Credit Interest and dividends Revenue $32,600

To record the receipt of interest and dividends.

6. Debit Permanently restricted net assets $1,000

Debit Unrestricted net assets $5,000

Credit Sale of Endowment Investment $6,000

To record the sale and gain of endowment investments.

7. Debit Depreciation Expense:

Community services $ 12,000

Public health education $7,000

Research $10,000

Fundraising $15,000

General and administrative $9,000

Credit Accumulated Depreciation $53,000

To record depreciation expense for the year.

8. Debit Other expenses:

Community services $ 250,600

Public health education $100,000

Research $81,000

Fundraising $39,000

General and administrative $61,000

Credit Unrestricted net assets $531,600

To record other expenses.

Debit Clerical services expense $2,400

Credit Donated clerical services $2,400

To record the receipt of donated clerical services.

b. Statement of Activities for the year ended December 31, 20X2:

Revenue:

Pledges $700,000

Interest and dividends 32,600

Sale of Endowments 6,000 $738,600

Depreciation expense:

Community services $ 12,000

Public health education $7,000

Research $10,000

Fundraising $15,000

General & administrative $9,000 53,000

Other expenses:

Community services $ 250,600

Public health education $100,000

Research $81,000

Fundraising $39,000

General and administrative $61,000 531,600

Clerical services expense $2,400

Change in net assets $151,600

Step-by-step explanation:

a) Data and Calculations

1. Unrestricted net assets

Beginning balance $ 281,000

Pledges receivable 520,000

Office equipment (15,000)

Building mortgage (3,000)

Interest and Dividends 27,200

Sale of Endowment 5,000

Other expenses (531,600)

Ending balance $278,600

2. Temporarily restricted net assets

Beginning balance $ 87,000

Restricted use grants $150,000

Interest and Dividends 5,400

Ending balance $242,400

3. Permanently restricted (endowment) net assets

Beginning balance $ 219,000

Gain from Endowment 1,000

Ending balance $220,000

b) Midwest Heart Association's Statement of Activities is the financial statement that shows the revenues and expenses of the association, including the change in net assets during a period. It is like the income statement of a profit-making entity that shows revenue and expenses. While the excess in revenue over expenses is called net income for a profit-making entity, it is called change in net assets for a non-profit-making organization like Midwest Heart Association.

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