PROBLEMS

P.12-1

This problem summarizes typical transactions engaged in by not-for-profit organizations.

The American Association for Freedom, a political think tank, was recently established. During its first year of operations it engaged in the following transactions and was affected by the following events (in summary form):

1. It received a $10,000,000 endowment contribution from a donor, all in stocks and bonds.
2. It received $3,000,000 in additional contributions, all restricted for its educational programs and $2,300,000 in contributions without donor restrictions.
3. It acquired $800,000 in furniture, fixtures, and equipment, all of which have an expected useful life of 10 years.
4. It recognized depreciation on the furniture, fixtures, and equipment, purchased earlier in the year.
5. It spent $2,400,000 on educational programs.
6. It earned $300,000 in interest and dividends on its endowment investments.
7. By year-end the value of its investments had appreciated by $600,000.
8. It incurred $1,300,000 in administrative expenses.
9. Near year-end it received a pledge of $4,500,000, to be fulfilled in three annual installments of $1,500,000 beginning in one year. The Association determined that a discount rate of 6 percent was appropriate.
10. Prepare journal entries to record these events and transactions. Be sure to indicate the fund-type in which the entry would be made.
11. Prepare a year-end statement of financial position and statement of activities.