Question

I have to prepare journal entries for P.12-5

Prepare journal entries to take into account the following events and transactions. In January 2017, the Wildlife Preservation Society received a grant from the Westwood Foundation of $6 million to be paid in three annual installments of $2 million starting on December 31, 2017. The grant may be used for any legitimate activity engaged in by the Society. The Society applies a discount rate of 6 percent to long-term receivables. During the year it also received $1 million in pledges from numerous individuals. The pledges must be used to support the Society's educational programs. The Society expects that 5 percent will be uncollectible. The balance will be fulfilled within several months of year-end. It collects $900,000 of the pledges and writes off $25,000 as uncollectible. The Society receives its three annual payments of $2 million from the Foundation. Suppose instead that the Society received numerous grants that are spread over a period of several years and thereby has a basis for establishing an allowance for uncollectible grants. Would an interest rate of the same 6 percent still be appropriate for taking into account the time value of money? Explain.

Answer 1