Background

H2O Kindness, Inc. (H20) is a 501c3 not-for-profit organization who began service in 2016. The company addresses the international water and sanitation crisis by providing clean water to at-risk populations around the world. H2O builds large 1,500 gallon tanks that will instantly filter contaminated water into clean drinking water. The not-for-profit company has three primary objectives. The first objective is to provide emergency and long-term water filtration services to at-risk populations, the second objective is to educate the public about the global water crisis, and the third objective is to research new and innovative water and sanitation solutions. You serve as a volunteer on H2O Kindness board of directors. In previous years, H2O Kindness provided financial information to major donors and their board of directors. However, during the fiscal year ended June 30, 2019 H2O Kindness expended over $750,000 in federal funds resulting in a requirement to comply with all single audit requirements. This will be the first year H2O Kindness has received an audit opinion and the company president, Logan Porter, wants the audit to run smoothly. Mr. Porter asked the board to help his staff apply accounting revenue recognition standards to H2O kindness transactions. H2O Kindness raises funds through a variety of means. First, the company regularly applies for and receives government and private grants. Second, they hold an annual benefit gala. Third, H2O Kindness collaborates with employers to raise private donations from individuals. Fourth, the company sells wells to individuals and businesses. Finally, H2O Kindness is renovating their building with volunteer services. Like most business majors, Mr. Porter completed both financial and managerial accounting principles courses. However, Mr. Porter and his employees are not accounting experts and have not studied how recent revenue recognition standards should be applied at H2O Kindness. Mr. Porter does understand that the standards are periodically updated and wants H2O Kindness to adopt any new standard issued as soon as possible. The company is unsure how to categorize several transactions and needs your assistance to record financial information correctly.

1. On 6/1/2019, H2O Kindness received a $200,000 grant from a Private Foundation. The grant specifies that monies must be used to build new water wells in at least four underdeveloped communities in South America. As of 6/30/2019, H2O Kindness has installed three wells in qualifying communities. The remaining well will be installed in July 2019. H2O typically installs over 40 new wells a year. At the completion of the project, the Foundation requires H2O Kindness to submit a report detailing the monies spent and providing specific information about each of the four locations. H2O Kindness must return all grant monies if it does not build four new water wells in qualifying communities. The private foundation does not receive any direct or indirect benefit from the wells. (All related expenses have been recorded.)

2. H2O Kindness hosts an annual gala on New Years Eve. The gala includes a performance by the local symphony, dinner, a presentation educating attendees about the water crisis and updating them on yearly successes, and finally a dance to ring in the New Year. Tickets to the gala are pre-sold at a cost of $250 each. Tickets to similar non-charitable events offered by local hotels cost $100 each. H2O Kindness collected $250,000 in ticket revenue for the 12/31/2018 event. In addition to ticket revenue, H2O Kindness accepts the following sponsorship for the event: Platinum sponsor the sponsor pays $50,000 to sponsor the event. In exchange, the sponsor receives 10 tickets to the gala and is publically recognized for their sponsorship in all media coverage. A similar advertising campaign would likely cost the sponsor $10,000. H2O Kindness sold 4 platinum sponsorships for the 12/31/2018 event. (All related expenses have been recorded.)