ACC 675

Not-For-Profit Case

2020

The not-for-profit organization, City Hope, operates in the intercity of Jones Town.City Hope provides limited health care, career training, as well as addiction and family counseling services.Services are provided free or on an income-based scale.The following transaction and events occurred in 2019.Answer the questions related to each.

A.Developer Company, a for-profit entity, specializes in converting intercity commercial properties into affordable Section 8 family housing units.Developer recognizes the value of City Hope's services and offers City Hope space in one of its properties to establish a satellite clinic.The terms of the agreement are a 10-year lease for 2,000 square feet at an annual rent of $1.City Hope's attorney has assured the board that the agreement will remain enforceable over the 10-year period.City Hope had planned to expand its services into this part of the city, but had been deterred by the rent rates in the area.The normal rent for comparable office space is $24,000.At the time of the agreement, City Hope's incremental borrowing rate was 6%.City Hope accepted and signed the lease agreement on January 1, 2019 and is able to open the clinic by the end of the month.City Hope does not prepare monthly adjusting entries.

1. Prepare, if necessary, the journal entry to recognize the lease agreement on January 1, 2019.

2.Prepare the lease/rent related journal entry for December 31, 2019.

B. In January 2019, City Hope was contacted by the attorney representing the estate of Carl Jones.The attorney notified City Hope that Mr. Jones had passed away and his will had named City Hope as the charitable remainder beneficiary of $100,000 trustthat was established at State Bank (who was to act as the trustee).The terms of the trust agreement required State Bank, as trustee, to invest the trust assets and pay $5,000 at the end of each year to Mr. Jones's wife as annuitant (the income beneficiary specified in the trust) for the remainder of her life. Upon the death of the annuitant, City Hope is to receive the remainder of the trust's assets which can be used for any purpose consistent with its mission.In follow-up conversations with the Bank and the attorney, City Hope learned the trust's assets were expected to earn a 4% return over the life of the trust and given the wife's age the trust was expected to terminate in fourteen (14) years.City Hope believes the 4% is an appropriate discounting rate.

1.Prepare the journal entry to recognize the contribution embodied in the trust agreement, assuming the trust was established is established on January 1, 2019.

2.State Bank reported the December 31, 2019 trust balance was $106,000 prior to any distributions.The fund manager reported the 2019 return had been an unexpectedly high due to a favorable market but continued to believe the long-term return of 4% was reasonable.Prepare the City Hope journal entry as of December 31, 2019, adjust for the trust and any related income.

C.With the addition of the second center referred to above in point A, City Hope adopted a new practice of using the services of volunteers to meet its staffing needs of both locations and its new client services.Listed below are the services provided by volunteers.For each service, indicate whether it should be recognized (explain why or why not) and if recognized how should the service be valued.

1.Three certified PTSD counselors are meeting with veterans one evening per week.

2.Twenty volunteers completed a "teaching reading" training class to staff a new adult literacy program that meets one night per week.

3.Two attorneys and one CPA serve on the board of directors which meets monthly.

4.Before the new site opened, five employees from a local construction company painted the offices and meeting rooms.All the painters live in the neighborhood.

5.A retired accounting professor provides basic bookkeeping services before the records are forwarded to City Hope's CPA firm for preparation of the monthly statements for the board of director's monthly meetings.

D.In January 2019, City Hope received a 2-year, $800,000 grant from the Veterans of Foreign Wars (VFW) to provide specific career training to disabled veterans.City Hope is required to submit to the VFW quarterly reports of the grant related expenses.At the end of the grant period, any unused assets are forfeited, and any un-allowed costs must be reimbursed.During the year, City Hope incurred $425,000 in expenses related to the new veterans' training program and filed three quarterly reports with the VFW.

1.How should Hope City characterize grant agreement (contribution or exchange)?Explain the reasoning behind your decision.

2.How should the agreement be reflected in the 2019 financial statements?In your answer, include the amounts and descriptions to be reported in each of the financial statements.