P. 10-9 Choice of accounting basis may determine whether endowment principal will be preserved. At the start of a year, the JKG Foundation received a $10 million bequest consisting of a commercial warehouse building and $5 million of cash. The foundation immediately invested the $5 million cash in 20-year, 7 percent corporate bonds having a face value of $4,485,512. The bonds, which pay interest annually, were purchased to yield 6 percent. The total premium was $514,488, and hence the total purchase price was $5 million. The annual interest payments (7 percent of the face value) are $313,986. During the year, the fair value of the bonds decreased by $13,986, an amount equivalent to the first year's amortization of the bond premium. is 20 years. applicable law specifies how income is to be determined. 1. Determine the amount available for expenditure, assuming that the foundation calculates income: The JKG Foundation leased out the warehouse for $600,000 per year. The useful life of the building Per the terms of the bequest, income only is available for spending. However, neither the terms nor the a. On a cash basis b. On a full accrual basis, recognizing changes in the market value of the securities and depreciating 2 Asume that the foundation spent al lits income. Prepare both a cash-basis and an accrual-basis balance 3. Is there a difference in fund balance between the two balance sheets? If not, can it be said that one basis (on a straight-line basis) the warehouse sheet. of accounting better preserves the endowment principal? Explain