Doctor Strange (DS) is a not-for-profit organization set up to research reducing the use of pesticide on Canadian and international farms. It is being funded by an annual government grant of $525,000 for each of the next 5 years. DS has recently completed its first year of operations and has come to you for advice regarding its first set of financial statements for the year ended December 31, 2019. DSs accounting systems are run by Joseph, who has several years experience from the accounting department of a major farm coop, but who has never done not-for-profit accounting. It is now January 15, 2020 and Joseph would like to set up accounting policies that can be used for a least the term of the government grant. He has specifically asked that you provide advice on the following issues.

REQUIRED:

a) Doctor Strange completed its first fundraising campaign in December 2019. It was successful and resulted in pledges totaling $100,000, for use at managements discretion, to be collected in March 2020. Joseph is hopeful that 95% of the pledges will be collected.

ai) Explain whether the pledges can be set up as an asset on the statement of financial position as at December 31, 2019.

aii) Disregard your answer to (i) and assume that the pledges can be recorded for financial statement purposes. Prepare the journal entry that would be recorded. (3 marks)