Chapter 11, Problem 29P

a.

To determine

Prepare the required journal entries to record the financial activities of the organization M and M C during the year.

Explanation of Solution

The required journal entries are as follows:

Date	Account title and Explanation	Post Ref	Debit ($)	Credit ($)
i.	Contributions receivable		$\$4,062,500$
	Cash		$124,800$
	Support—contributions (without donor restrictions)			$\$3,640,000$
	Support—contributions (with donor restrictions)			$422,500$
	Revenues—investment (without donor restrictions)			$24,960$
	Revenues—investment (with donor restrictions)			$99,840$
	(To recognize support and revenues)
ii.	Net assets released from restrictions - with donor restrictions		$\$260,000$
	Net assets released from restrictions - without donor restrictions			$\$260,000$
iii.	Expenses—program		$\$3,380,000$
	Expenses—support		$481,000$
	Payables			$\$3,861,000$
	(To record expenses)
iv.	Property, plant and equipment, net		$\$52,000$
	Program expense		$102,960$
	Support expense		$14,040$
	Cash			$\$169,000$
	(To record the net increase in long-term assets and depreciation expense)
v.	Cash		$\$130,000$
	Payables		$3,770,000$
	Contributions receivable			$\$3,900,000$
	(Paid for accounts payables and record contributions received)
vi.	Investments		$\$156,000$
	Cash			$\$56,000$
	(To record purchase of investments)
vii.	Long-term debt		$\$149,500$
	Cash			$\$149,500$
	(Paid debt)

b.

To determine

Prepare the statement of activities and the statement of financial position for organization M and M C.

Explanation of Solution

A non-profit organization issues a slightly different set of financial statements than those issued by a non-profit entity. The financial statements published by the non-profit organization are as follows:

• Statement of financial position: This is similar to the balance sheet of a for-profit entity, except that the net assets segment assumes the place of the equity portion used by a for profit entity. The net assets segment breaks down into unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.
• Statement of activities: The statement measures non-profit income and expenditures for the reporting period. Both sales and expenditures are broken down into the unrestricted temporary and permanently restricted classifications related to above for the statement of financial position.
• Statement of cash flows: This statement comprises information about cash flows into and out of a non-profit organization; in fact, it displays the degree of those non-profit operations that produce and use funds.
• Statement of functional expenses: The statement shows how the expenses are accumulated for each functional area of the company. Functional areas usually involve procurement and accounting, raising funds and services.

The statement of activities for the organization M and M C is as follows:

Statement of Activities		Without DonorRestrictions		With DonorRestrictions		Total
Support—contributions		$3,640,000		$422,500		$4,062,500
Revenues—investment		24,960		99,840		124,800
Net assets released from restrictions		260,000		(260,000)		0
Total revenue and gains		3,924,960		262,340		4,187,300
Expenses ­program		3,482,960				3,482,960
Expenses ­support		495,040				495,040
Total expenses		3,978,000				3,978,000
Change in net assets		(53,040)		262,340		209,300
Net assets, beginning of year		2,080,000		1,950,000		4,030,000
Net assets, end of year		$2,026,960		$2,212,340		$4,239,300

The statement of financial position for the organization M and M C is as follows:

Statement of Financial Position		Amount ($)
Cash		$14,300
Investments		3,276,000
Contributions receivable		838,500
Total current assets		4,128,800
Property, plant and equipment, net		1,612,000
Total assets		$5,740,800
Payables		$611,000
Total current liabilities		611,000
Long term liabilities		890,500
Total liabilities		1,501,500
Net assets-without donor restrictions		2,026,960
Net assets-with donor restrictions		2,212,340
Total net assets		$4,239,300
Total liabilities and net assets		$5,740,800