FAR 8/30 – Why is this wrong?

  • Creator
    Topic
  • #1936993
    SuperAccountingGod
    Participant

    Can someone please explain to me why we’re not using the $10K received prior to year end? If the $10K does not constitute as contribution Revenue, then what is it? Thanks.

    “Pica, a nongovernmental not-for-profit entity, received unconditional promises of $100,000 expected to be collected within one year. Pica received $10,000 prior to year-end. Pica anticipates collecting 90% of the contributions and has a June 30 fiscal year-end. What amount should Pica record as contribution revenue as of June 30?

    Incorrect A.
    $10,000

    B.
    $80,000

    C.
    $90,000

    D.
    $100,000”

    ANSWER IS C.

Viewing 5 replies - 1 through 5 (of 5 total)
  • Author
    Replies
  • #1937038
    rubberducky
    Member

    According to my materials , “An unconditional promise to give (also known as a pledge) is a contribution and is recorded at its fair value when the promise is made”. So you should record it when it's pledged, but then you also have to take into consideration the allowance for uncollectible pledges (only 90% is estimated to be collected) so that would bring you to $90,000

    #1937497
    SuperAccountingGod
    Participant

    So in this case, the $10K received doesn't constitute as contribution revenue? Just the $100k?

    #1937839
    rubberducky
    Member

    I believe that the $10,000 is part of the total $100,000 to be contributed. Basically, the contributor is actually giving the total of $100,000 in small increments. Regardless of how much money is actually received, they would actually record the amount pledged (minus the allowance for uncollectible amounts). I hope this made sense, I remember getting caught up on this question as well

    #1937914
    charlesrskinner
    Participant

    The 10k already received is to throw you off… the 100k to be contributed times the anticipated collection percentage gives you 90k. Whether you received the 10k or not does not matter as its asking for contribution revenue. In other words, think of the entry like this…

    Dr. Cash 10k
    Dr. Contribution Receivable 80k
    Cr. Contributed Revenue 90k

    #1937917
    SuperAccountingGod
    Participant

    Ok, that makes more sense. I would have never inferred the $10k was already included in the total amount just based on how the question was asking it *rolls eyes*.

Viewing 5 replies - 1 through 5 (of 5 total)
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