Reference no: EM133198248
Greenlawns is a Not-For-Profit Organization that provides meals and shelter to senior citizens who are homeless.
Greenlawns began operations on January 1st. 2020 with an endowment of $2,000,000 from a wealthy senior citizen.
Greenlawns has guaranteed financing from its provincial government to cover operating costs of $600,000 per year for the next 10 years.
Greenlawns is permitted to spend any income earned on the endowment for any activities it chooses, but it is not permitted to spend any of the $2,000,000 endowment. During 2022, it earned $100,000 in interest on its endowment.
In addition, on January 1st. 2022, a local car dealer donated 3 SUVs with a total value of $90,000. These SUVs provide essential transportation for Greenlawns workers and the Organization plans to amortize the vehicles on a straight-line basis over their expected useful lives of 6 years each.
Required:
a. Provide journal entries required to record the endowment of $2,000,000, the government contribution of $600,000, and the interest on the endowment contribution under the restricted fund method of accounting. Assume Greenlawns uses only 2 funds (an endowment fund and an operating fund).
b. Disregard your answer to part(a) and assume that Greenlawns has decided to use the deferral method of accounting and maintains only an operating fund. Provide the journal entries required to record the endowment contribution of $2,000,000 (ignore the related interest of $100,000). In addition, provide all journal entries required for the year 2022 relating to the SUVs.
c. State three reasons why the directors of Greenlawns might wish to adopt the restricted fund method of accounting for its activities.