Question

This problem summarizes typical transactions engaged in by not-for-profit organizations.

The American Association for Freedom, a political think tank, was recently established. During its first year of operations it engaged in the following transactions and was affected by the following events (in summary form):

1. It received a $10,000,000 endowment contribution, all in stocks and bonds.

2. It received $3,000,000 in additional contributions, all restricted for its educational programs and $2,300,000 in unrestricted contributions.

3. It acquired $800,000 in furniture, fixtures, and equipment, all of which have an expected useful life of 10 years.

4. It recognized depreciation on the furniture, fixtures, and equipment, purchased earlier in the year.

5. It spent $2,400,000 on educational programs.

6. It earned $300,000 in interest and dividends on its endowment investments.

7. By year-end the value of its investments had appreciated by $600,000.

8. It incurred $1,300,000 in administrative expenses.

9. Near year-end it received a pledge of $4,500,000, to be fulfilled in three annual installments of $1,500,000 beginning in one year. The Association determined that a discount rate of 6 percent was appropriate.

a. Prepare journal entries to record these events and transactions. Be sure to indicate the fund-type in which the entry would be made. Use the terms without donor restrictions or donor restrictions in each journal entry.

Answer 1

General Journal

No	Account Title and Explanation	Debit	Credit
1	Investment	$10,000,000
	Endowment Contribution Fund		$10,000,000
	(To record Contributions Made)
2	Cash	$5,300,000
	Educational Programs		$3,000,000
	General Reserve Account		$2,300,000
	(To record additional contributions & Educational Funds)
3	Furniture, Fixture & Equipment	$800,000
	Cash		$800,000
	(To record asset purchased)
4	Depreciation Expanse	$80,000
	Furniture Fixture & Equipment		$80,000
	(To record Depreciation )
5	Education Expenses	$2,400,000
	Cash		$2,400,000
	(To record education expenses)
6	Cash	$300,000
	Interest & Dividend Income		$300,000
	(To record interest & dividend earned)
7	No entry is required since it is an assumed long term investment
8	Administrative Expenses	$1,300,000
	Cash		$1,300,000
9	No entry is required