Reference no: EM13872910
For each of the following transactions, discuss the issues, and state the appropriate accounting solution:
1. The Society to Eliminate Hunger spent $ 8,000 to prepare and mail a two page brochure to potential contributors. The brochure contained general information about the society, described its accomplishments, pointed out that a contribution of $ 25 would provide 25 dinners, and urged recipients to contribute. The trustees want the accountant to charge the cost of preparing and mailing the brochures to the Distribution of Food Program. The executive director thinks the expenses should be charged to fund raising expenses.
2. The Good Folk Society commenced operations on January 1, 2012. On December 26, 2012, the society conducted a telethon and received pledges of $ 2,500,000. By December 31, 2012, when it closed its books, it had received $ 40,000 in cash. The trustees told the society accountant to report the $ 40,000 in cash as contributions for 2012 and to ignore the other pledges because ( a) we didn get the cash in 2012 and can use in 2012 what we didn get in 2012 and ( b) we are a new organization and cannot estimate how much additional cash we are going to receive. What should the accountant do?
3. Professional lawyers and accountants volunteered to perform all the legal and audit services required by Youth Services, an NFPO. The trustees of the NFPO take great pride in their low overhead rate. They tell the accountant: We didn't pay for these services, so there really no point in recording any expenses for them.
4. Sam Rich made annual contributions of $ 100,000 for the past 3 years to Cardinal House, a not for profit drug treatment center. On December 20, 2012, Cardinal House received a letter from Sam, promising to contribute $ 500,000 if the organization would change the name of the entity to Rich House. The trustees debated the name change until it was time to issue the annual financial report but could not decide whether to make the change. They told the accountant: Wed really like to report Sam pledge as a receivable, because it will cause other donors to contribute. Besides, Sam has been a major supporter in the past and will probably contribute even if we don change the name. We think we ought to recognize Sam offer of $ 500,000 as revenue and as a receivable.
5. A wealthy individual donated a valuable work of art to a museum. The museum intends to keep the work, protect it from harm and deterioration, and hang it in a location so all can see it. The accountant sees no need either to recognize the asset or to depreciate it. However, one of the newer trustees, the chief executive of a large business entity, said, In our company, we depreciate everything. And we know that, ultimately, everything turns to dust. So why don we recognize the work of art as an asset and depreciate it?
6. On March 1, 2012, Dr. Rebecca offered to contribute $ 15,000, which was 50 percent of the estimated cost of a special program to be undertaken by the Shelley Center, an NFPO. Dr. Rebecca stated, however, that she would make the contribution only if the center would raise the rest of the needed funds from other donors during the next 12 months. By December 31, 2012, the center had raised $ 6,000 of the additional amount needed. The center expected to mount a special campaign to obtain the other $ 9,000 and thought it would be successful. Should the center recognize Dr. Rebecca promise as revenue for the year ended December 31, 2012?