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Topic
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Wiley Question –
I’m not sure if I’m missing something or if there’s just conflicting information here, and if so, which one is right?
Here’s the question. My issue is with the pledge being classified as temporarily restricted:
During year 1, Jones Foundation received the following support:
A cash contribution of $875,000 to be used at the board of directors’ discretion;
A promise to contribute $500,000 in year 1 from a supporter who has made similar contributions in prior periods;
Contributed legal services with a value of $100,000, which Jones would have otherwise purchased.
At what amounts would Jones classify and record these transactions?
The answer: Unrestricted Revenue, $975,000 Temporarily Restricted Revenue, $500,000
Relevant part of the explanation: Restricted revenues are recorded only when a restriction has been placed by the donor. One type of restricted revenue is a pledge that has not been received during the year. This considered a time restriction; accordingly, the $500,000 would be considered a temporarily restricted revenue based on a time restriction.
Here’s what I think and CPAexcel seems to agree with me. Because the $500,000 is being received in the same period as the pledge is made and isn’t restricted in any way, it should count as an unrestricted revenue. Relevant CPAexcel quote:
The portion of the pledge that is to be received in subsequent fiscal periods is considered “temporarily restricted” (time restricted – see below); the portion that is to be received in the current period is recognized as “unrestricted,” assuming that no other restrictions, such as a purpose restriction, are specified;
So, what’s the deal? It seems like one of the two have to be wrong. The pledge is made in year 1 for year 1 and no other restrictions are placed on it, so why would it be time restricted?
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