The College of Central North (a private school) has the following events and transactions: On January 1, Year 1, the board of trustees voted to restrict $1.9 million of previously unrestricted investments to construct a new football stadium at some future time. On April 1, Year 1, Dr. Johnson gives the school $4 million in investments that is to be held forever, but all subsequent cash income is to be used to help pay for construction (and, later, maintenance) of the football stadium. On December 31, Year 1, the investments in (b) generate $500,000 in cash interest revenue. In addition, the investments went up in value by $44,000. On January 1, Year 2, the school builds a football stadium with the restricted $2.4 million in funds. Cash is paid. The stadium has a 20-year life and no salvage value. On January 2, Year 2, Dr. Johnson buys a seat for the current year on the 50-yard line of the stadium for $30,000 in cash when this seat’s fair value is actually $12,000. On January 3, Year 2, Dr. Johnson provides free medical services to the school. These services have a $14,000 value and require a specialized skill that the school needed and would have bought otherwise. On January 4, Year 2, Dr. Johnson donated a painting to be displayed in the school library. It is appraised at a value of $30,000. Unless otherwise noted, assume that the school does not have a policy that assumes a time restriction on assets bought with restricted funds. For each of the following independent situations, indicate whether the statement is true or false and briefly state the reason for your answer. On January 1, Year 1, unrestricted net assets reported by the school will be reduced. As of December 31, Year 1, temporarily restricted net assets will have increased by $500,000 during the year. On December 31, Year 1, permanently restricted net assets went up by $44,000. On January 1, Year 2, unrestricted net assets increased by $500,000. Unless a time restriction is placed on the use of the football stadium, depreciation expense will not be recorded in Year 2. If a time restriction is placed on the use of the football stadium, depreciation expense will not be recorded in Year 2. For reporting purposes, unrestricted net assets increased by $30,000 on January 2, Year 2. For reporting purposes, contribution revenues increased by $18,000 on January 2, Year 2. On January 3, Year 2, unrestricted net assets were reported as going both up and down.

The College of Central North (a private school) has the following events and transactions: On January 1, Year 1, the board of trustees voted to restrict $1.9 million of previously unrestricted investments to construct a new football stadium at some future time. On April 1, Year 1, Dr. Johnson gives the school $4 million in investments that is to be held forever, but all subsequent cash income is to be used to help pay for construction (and, later, maintenance) of the football stadium. On December 31, Year 1, the investments in (b) generate $500,000 in cash interest revenue. In addition, the investments went up in value by $44,000. On January 1, Year 2, the school builds a football stadium with the restricted $2.4 million in funds. Cash is paid. The stadium has a 20-year life and no salvage value. On January 2, Year 2, Dr. Johnson buys a seat for the current year on the 50-yard line of the stadium for $30,000 in cash when this seat’s fair value is actually $12,000. On January 3, Year 2, Dr. Johnson provides free medical services to the school. These services have a $14,000 value and require a specialized skill that the school needed and would have bought otherwise. On January 4, Year 2, Dr. Johnson donated a painting to be displayed in the school library. It is appraised at a value of $30,000. Unless otherwise noted, assume that the school does not have a policy that assumes a time restriction on assets bought with restricted funds. For each of the following independent situations, indicate whether the statement is true or false and briefly state the reason for your answer. On January 1, Year 1, unrestricted net assets reported by the school will be reduced. As of December 31, Year 1, temporarily restricted net assets will have increased by $500,000 during the year. On December 31, Year 1, permanently restricted net assets went up by $44,000. On January 1, Year 2, unrestricted net assets increased by $500,000. Unless a time restriction is placed on the use of the football stadium, depreciation expense will not be recorded in Year 2. If a time restriction is placed on the use of the football stadium, depreciation expense will not be recorded in Year 2. For reporting purposes, unrestricted net assets increased by $30,000 on January 2, Year 2. For reporting purposes, contribution revenues increased by $18,000 on January 2, Year 2. On January 3, Year 2, unrestricted net assets were reported as going both up and down.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The College of Central North (a private school) has the following events and transactions:

On January 1, Year 1, the board of trustees voted to restrict $1.9 million of previously unrestricted investments to construct a new football stadium at some future time.
On April 1, Year 1, Dr. Johnson gives the school $4 million in investments that is to be held forever, but all subsequent cash income is to be used to help pay for construction (and, later, maintenance) of the football stadium.
On December 31, Year 1, the investments in (b) generate $500,000 in cash interest revenue. In addition, the investments went up in value by $44,000.
On January 1, Year 2, the school builds a football stadium with the restricted $2.4 million in funds. Cash is paid. The stadium has a 20-year life and no salvage value.
On January 2, Year 2, Dr. Johnson buys a seat for the current year on the 50-yard line of the stadium for $30,000 in cash when this seat’s fair value is actually $12,000.
On January 3, Year 2, Dr. Johnson provides free medical services to the school. These services have a $14,000 value and require a specialized skill that the school needed and would have bought otherwise.
On January 4, Year 2, Dr. Johnson donated a painting to be displayed in the school library. It is appraised at a value of $30,000.

Unless otherwise noted, assume that the school does not have a policy that assumes a time restriction on assets bought with restricted funds.

For each of the following independent situations, indicate whether the statement is true or false and briefly state the reason for your answer.

On January 1, Year 1, unrestricted net assets reported by the school will be reduced.
As of December 31, Year 1, temporarily restricted net assets will have increased by $500,000 during the year.
On December 31, Year 1, permanently restricted net assets went up by $44,000.
On January 1, Year 2, unrestricted net assets increased by $500,000.
Unless a time restriction is placed on the use of the football stadium, depreciation expense will not be recorded in Year 2.
If a time restriction is placed on the use of the football stadium, depreciation expense will not be recorded in Year 2.
For reporting purposes, unrestricted net assets increased by $30,000 on January 2, Year 2.
For reporting purposes, contribution revenues increased by $18,000 on January 2, Year 2.
On January 3, Year 2, unrestricted net assets were reported as going both up and down.

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