Longer Life is a not-for-profit organization that works to create cures for deadly diseases. It was created on December 30, 2019 from generous contributions.

The balance sheet as of January 1, 2020 shows the following balances:

Cash                                                    $1,400,000

Deferred contributions                         400,000

Unrestricted net assets                         800,000

Net assets – Endowments                    200,000

The deferred contributions relate to restricted donations that must be used for the purchase of equipment (20% of the amount) and for specific research expenses (80% of the amount). Also, 40 percent of any investment income from endowments must be used to cover the purchase of advertising services for the fund raising campaign and the rest is unrestricted.

During the year ended December 31, 2020, the organization completed the following transactions:

1.            At the beginning of 2020, Longer Life received an unusual gift. A former member of the association transferred by a will a piece of land with a fair value of $165,000. The will stipulates that the land should be sold and that the amount should be maintained in permanence by the association. The investment income is however unrestricted.

2.            Unrestricted contributions of $420,000 were received.

3.            Research expenses of $346,000 were incurred, including $120,000 of specific research expenses related to restricted contributions. All expenses were paid, except an amount of $10,000 that is still owed at the end of 2020.

4.            Equipment was purchased for an amount of $75,000 using restricted contributions. The related amortization expense is $8,000.

5.            Additional equipment was purchased for an amount of $100,000 using unrestricted funds. The amortization expense for this equipment is $12,000.

6.            A grant of $60,000 was received from United Way. This grant is unrestricted.

7.            A donor gave $50,000 to the charity for specific purposes. The related expenses will be incurred in 2021.

8.            Endowment funds were used to purchase investments for an amount of $180,000 that generated an investment income of $17,000 for 2020 (totally cashed).

9.            Advertising expenses of $5,000 were paid using restricted funds.

10.          Fund-raising expenses of $75,000 and administrative expenses of $155,000 were paid using unrestricted money.

11.          An unrestricted pledge of $100,000 was received. The organization expects to collect the entire amount.

12.          In 2020, the association spent $50,000 cash to develop a web site that will be used to promote its activities and collect donations. The development is almost complete and the web site will be officially launched in January 2021.

13.          At the end of 2020, the association invested $800,000 in term deposits maturing in 30 to 90 days.

Required

A. Prepare a statement of operations and a statement of changes in net assets for 2020 and a statement of financial position as of December 31, 2020 assuming that Longer Life adopts the deferral method of accounting for contributions and wishes to present net asset invested in capital assets separately. (Please provide the details of the figures included in the amounts reported to facilitate marking – i.e. journal entries, etc…).

B. If Longer Life was to adopt the restricted fund method of accounting for contributions, identify the funds that the organization should use for financial reporting purposes. (financial statements are not required)