You haverecently received an accounting designation and, to celebrate, you areout for dinner with a long- time friend, Sandy. Sandy feels that "the key to success is networking, because getting to know influential people can help your career." However, Sandy may be taking this a little too far. Sandy recently joined the board of directors for two not-for-profit organizations (NFPs). Big Charity ("Big") has annual revenues of $850,000 and 20 paid employees. Small Foundation ("Small") has average annual revenues of $75,000 and only one paid employee. It uses the deferral method of accounting. Sandy has been appointed as the treasurer at both organizations. A great way to network!" says Sandy. Unfortunately, Sandy barely passed her high school accounting course and has not taken any accounting courses since that time. She knows that the boards of directors of both organizations want to comply with GAAP to ensure key donors will be confident about the NFPs' financial statements. However, Sandy is not sure what the specific guidelines are for NFPs under GAAP. Required Address each of Sandy's concerns, making sure your advice complies with GAAP. 1. Sandy stated that "Small received a piece of equipment on January 1, 20X8, valued at $32,000, which was donated by a friend of the charity. We want to record the $32,000 as contribution revenue and amortize the equipment on a straight-line basis over four years." Is this the correct treatment and why? Assuming it is, prepare the journalentries required for the contribution and amortization for the year ended December 31, 20X8. 2. "Small also received its first pledge ever, and it is a bigone," said Sandy. "A local high- technology company has promised to pay us $30,000 per year for the next three years, starting July 1, 20X9. It put no restrictions on how we use the donation." Explain how the not for profit organizations should account for pledges. In particular, would the accounting for pledges differ for Small since this is its first pledge ever? 3. "Big received a $600,000 endowment donation on January 1, 20X8, to be used as follows: the principal is to remain intact but any interest earned can be used for charity for what- ever purpose it chooses." Prepare the journal entries for the $600,000 and $30,000 interest eamed and received in 20x8 on the endowment donation. 4. *Iconvinced the board of directors of Bigto hold a vote next week to change our accounting for our head office building. It was acquired for $2,000,000 on January 1 20X1 and was amortized over 25 years at $80,000 per year. However, buildings similar to ours are selling for close to $5,000,000 now. Therefore, I want to stop amortizing the building. Since we are an NFP, this is acceptable isn't it?" asks Sandy. State whether this would be acceptable and briefly explam 5. "Small uses a lot of volunteers. Their contributions are valuable and I want to record them. We do it for our bookkeeper at Big