The Brown Training Centre is a charitable organization dedicated to providing computer training to unemployed people. Individuals must apply to the centre and indicate why they would like to take the three-month training session. If their application is accepted, they must pay a $200 deposit. The deposit is refunded upon successful completion of the course or is forfeited as a processing fee if the individual does not complete the course.
During the first year of operations in Year 3, 90 individuals were accepted into the course. Of these 90 individuals, 50 completed the course, 10 dropped out, and 30 were still taking the course at the end of the fiscal year.
The centre receives most of its funding from the provincial government. During the year, the government advanced $1,000,000 to cover operating costs. Within two months of the year-end, the centre must provide financial statements pre pared in accordance with GAAP. The government will cover all operating costs.
The excess of amounts advanced over the amount expended must be carried over and applied to operating costs of the next year. Operating costs to be reimbursed are defined to exclude purchases of capital assets and are to be reduced by the amount of application fees forfeited.
A private company donated computers and office equipment with a fair value of $320,000. The centre was fortunate to receive this donation. Otherwise, it would have had to raise money through other means to purchase these items. The capital assets were put into use as of April 1, Year 3, and have an estimated useful life of three years. The centre uses the straight-line method to amortize its capital assets. The part-time bookkeeper for the centre prepared the following cash flow statement for the year ended December 31, Year 3:
Cash receipts
Government grant .......... $1,000,000
Deposits from course participants ... 18,000
Total cash receipts ........ 1,018,000
Cash expenditures
Salaries and benefits ........ 620,000
Administration and supplies ...... 220,000
Rent and utilities ......... 160,000
Refund of deposits ......... 10,000
Total cash disbursements ..... 1,010,000
Cash balance at end of year ...... $ 8,000
At the end of the year the following costs had been incurred but not yet paid:
Salaries and benefits ......... $ 8,000
Utilities ............ 6,000
At the end of the year the following costs had been incurred but not yet paid:
Salaries and benefits ........ $ 8,000
Utilities ........... 6,000
The executive director of the centre has asked you for assistance in preparing the financial statements for the centre for the first year of operations. The deferral method should be used in accounting for the contributions.
Required:
(a) Briefly explain how the accrual basis of accounting is applied when accounting for capital assets for an NFPO.
(b) Prepare the statement of revenues and expenses for the centre for the year ended December 31, Year 3.
(c) Compute the following liabilities on the statement of financial position for the centre at December 31, Year 3:
(i) Accrued liabilities
(ii) Deposits from course participants
(iii) Deferred contributions