Question

EastTown University, a state-funded public institution, had the following activities. Record the journal entries for EastTown, all of which are for fiscal year 2019.

1. A generous alumnus donated $600,000 in cash that can only be used for research on heart disease.
2. Expenses of $300,000 were made in cash for heart disease research.
3. EastTown issued $4,000,000 in long-term bonds to construct a new parking garage on campus.
4. The parking garage was partially completed at a total cash expenditure of $3,600,000.
5. Interest was paid in the amount of $240,000 on the long-term bonds issued for the parking garage project.

Answer 1

There are intotal 5 transaction

1. Donation received

2. Research and development expenditure

3. Issuance of Bond

4. Creation of asset

5. Payment of Interest

Journal entry with Explanation.

1. If donation is received for a specific purpose its is credited in a Corpous Fund A/c, in this case donation is received in cash for Research on Heart Disease and the same cannot be used for any other purpose.

2. Research expenditure before the developement of intangible asset is expensed out and charged to Profit & Loss A/c.

3. This is very straight forward in issuance of bond cash is received and liability is recognised.

4&5.Here Asset is being constructed and interest is paid on borrowed fund (i.e Bond), here construction of asset is partially completed so as per accounting standard interest paid during the time of construction of asset is added to the cost of asset, in our case interest of $240000 is to be added to the cost of asset i.e $3600000 so total cost would be $3840000.