On January 1, 2018, the balance sheet of a city's funds for the acquisition of library books

Question:

On January 1, 2018, the of a city's funds for the acquisition of library books showed the following (in thousands):
...........................Permanent(Nonexpendable)..................Special Revenue (Expendable)
Cash............................................. $ 1,400.............................................. $120
Marketable securities........................... 10,000............................................... 160
Commercial office building.................... 18,000
Total assets...................................... $39,400.............................................. $280
Fund balance.................................... $39,400.............................................. $280
The endowment was established in 2014 with a contribution of cash, securities, and real estate (a building) having a total market value of $24 million. The endowment agreement stated that income only (including both realized and unrealized investment gains), could be used to acquire library books.
The building has a useful life of 40 years with no expected . It had a market value of $20 million when acquired. It is held exclusively to earn income and hence is categorized as an investment.
The following table provides information about cash transactions and other events during 2018 (in thousands):
.....................................................................................Permanent.......... Special Revenue
Interest and dividends received (in cash)........................................... $ 760......................... $60
Rent received (in cash)............................................................... $1,800
Cash expenditures for building maintenance........................................ $ 400
Increase during the year (prior to sale) in fair value of securities sold............ $ 20.......................... $ 2
Increase during the year in fair value of securities on hand at year-end...........$ 130......................... $15
Decrease during the year in fair value of commercial office building............ $ 500
As of January 1, 2018, all prior-year earnings of the nonexpendable fund had been transferred to the expendable fund and are therefore available for expenditure.
1. Prepare in good form a schedule in which you calculate the total amount available at December 31, 2018, for the acquisition of books.
2. Suppose that the donors specified that to protect the endowment against inflation the change in fair value of all investments should be excluded from the calculation of income available for expenditure. How would that affect your calculation?
3. Would such a policy, which excludes both gains and losses in the fair value of investments (including the commercial office building), make sense? Would it really ensure that the value of the endowment principal is not dissipated?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...