[Anonymous]

Please help me out. I looked over the answer and I just don’t get why they count the 500 excess of FMV into the contribution Revenue. I thought we always just record donation at the FMV which is $1000..Can anyone please explain to me the concept behind it? appreciate it so much!!

Child Care Centers, Inc., a not-for-profit organization, receives revenue from various sources during the year to support its day care centers. The following cash amounts were received during Year 1.

$2,000 restricted by the donor to be used for meals for the children.

$1,500 received for subscriptions to a monthly child care magazine with a fair market value to subscribers of $1,000.

$10,000 to be used only upon completion of a new playroom that was 75% complete at December 31, Year 1.

What amount should Child Care Centers record as contribution revenue in its Year 1 Statement of Activities?

a.

$11,000

b.

$10,000

c.

$2,500

d.

$2,000

Explanation

Choice “c” is correct. Contributions to a non-profit include transactions which are unconditional (not requiring a future event to occur), non-reciprocal, voluntary, and not of an ownership investment. Contribution revenue for Year 1 includes the $2,000 to be used for meals and the $500 payment above the FMV of the subscriptions. The $10,000 contribution requires a future event to take place (completion of the playroom) and is, thus, conditional and not included in contributions. Conditional receipts are displayed as refundable advances (a liability).

Choice “d” is incorrect. Contributions to a non-profit include transactions which are unconditional (not requiring a future event to occur), non-reciprocal, voluntary, and not of an ownership investment. In this instance, contribution revenue for Year 1 not only includes the $2,000 to be used for meals but also payments in excess of the fair value of the subscriptions.

Choice “b” is incorrect. The $10,000 contribution requires a future event to take place (completion of the playroom) and is, thus, conditional and therefore not considered a contribution in Year 1. Conditional receipts are displayed as a refundable advance (a liability).

Choice “a” is incorrect. The $10,000 contribution requires a future event to take place (completion of the playroom) and is, thus, conditional and not considered a contribution in Year 1. Conditional receipts are displayed as a refundable advance (a liability). The additional $1,000 included in this proposed solution appears to represent the fair value of the subscriptions provided in response to a $1,500 donation. The reimbursement for the fair value of the subscriptions would not be accounted for as a contribution.