(Discussion problems for specific not-for-profit transactions)

For each of the following transactions, discuss the issues and state the appropriate accounting solution:

1. The Society to Eliminate Hunger spent $\$ 8,000$ to prepare and mail a twopage brochure to potential contributors. The brochure contained general information about the Society, described its accomplishments, pointed out that a contribution of $\$ 25$ would provide 25 dinners, and urged recipients to contribute. The Trustees want the accountant to charge the cost of preparing and mailing the brochures to the Distribution of Food Program.

The executive director thinks the expenses should be charged to fundraising expenses.
2. Professional lawyers and accountants volunteered to perform all the legal and audit services required by Youth Services, an NFPO. The Trustees of the NFPO take great pride in their low overhead rate. They tell the accountant: "We didn't pay for these services, so there's really no point in recording any expenses for them."
3. Sam Rich made annual contributions of $\$ 100,000$ for the past 3 years to Cardinal House, a not-for-profit drug treatment center. On December 20, 2004, Cardinal House received a letter from Sam, promising to contribute $\$ 500,000$ if the organization would change the name of the entity to Rich House. The Trustees debated the name change until it was time to issue the annual financial report but could not decide whether to make the change. They told the accountant: "We'd really like to report Sam's pledge as a receivable, because it will cause other donors to contribute. Besides, Sam has been a major supporter in the past and will probably contribute even if we don't change the name. We think we ought to recognize Sam's offer of $\$ 500,000$ as a revenue and a receivable."
4. A wealthy individual donated a valuable work of art to a museum. The museum intends to keep the work, protect it from harm and deterioration, and hang it in a location so all can see it. The accountant sees no need either to recognize the asset or to depreciate it. However, one of the newer trustees, the chief executive of a large business entity, said, "In our company, we depreciate everything. And we know that, ultimately, everything turns to dust. So, why don't we recognize the work of art as an asset and depreciate it?"
5. On March 1, 2004, Rebecca Mantha promised to contribute $\$ 15,000$, which was 50 percent of the estimated cost of a special program to be undertaken by the Shelley Center, an NFPO. Rebecca stated, however, that she would make the contribution only if the Center would raise the rest of the needed funds from other donors during the next 12 months. By December 31, 2004, the Center had raised $\$ 6,000$ of the additional amount needed. The Center expected to mount a special campaign to obtain the other $\$ 9,000$ and thought it would be successful. Should the Center recognize Rebecca's promise as a revenue for the year ended December 31, 2004?