EX$.12-3$

Minor differences in the terms of a contribution may justify major differences in revenue recognition.

Upon meeting with the executive director of the Crime Victims Advocacy Group, the president of a private foundation agreed to contribute in the following year $$100,000$ in support of the group's proposed new program to focus specifically on providing legal assistance to victims of violent crimes. Suppose that the foundation's formal letter describing its pledge was worded in three different ways:

$$We are pleased to pledge $$100,000$ in support of your group's efforts to advocate for victims of crimes.$$

$$We are pleased to pledge $$100,000$ in support of your group's efforts to develop a new program to provide legal assistance to victims of violent crimes.$$

$$We are pleased to pledge $$100,000$ upon your developing a new program to provide legal assistance to victims of violent crimes.$$

For each of the three options:

Prepare the journal entries that should be made on receipt of the letter from the foundation. Assume that it was likely that the pledge would be fulfilled in the same period as it was made. However, the organization opts to initially record as restricted all pledges that could be also have been recorded as unrestricted because they were fulfilled that they were made.

Prepare the journal entries that should be made to record the fulfillment of the pledge and the expenditure of $$100,000$ on appropriate activities consistent with the pledge.

Comment on why minor differences in wording might justify major differences in accounting.

Be sure to indicate the type of fund in which your entries would be made.