[Anonymous]

I don’t understand why is it $500 the amount above FMV?? Please help, shouldn’t it be the whole $1000 FMV be recognized as contribution revenue? See question and solution below.

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.10,000

b.11,000

c.2,000

d. 2,500

Choice “d” 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).

[jennknee]

Hello! The fair market value should be subtracted from contribution revenue because it is not a contribution — it is essentially an exchange of revenue for value. You pay $1,500 for the subscription, but you get something in return worth $1,000, so you are really only contributing $500.

It's like when you donate money to a charity, say $50, but you get a free stuffed animal worth $20, you can only deduct on your taxes the $30. Does this help?

AUD - 7/5/13 - 93
FAR - 8/24/13 - 91
BEC - 11/30/13 - 92
REG - 2/24/14 - 91! DONE!

CPAreviewforFREE, Wiley Test Bank, Becker, and NINJA FLASHCARDS. <3
Candidate from California

[jennknee]

Hello! The fair market value should be subtracted from contribution revenue because it is not a contribution — it is essentially an exchange of revenue for value. You pay $1,500 for the subscription, but you get something in return worth $1,000, so you are really only contributing $500.

It's like when you donate money to a charity, say $50, but you get a free stuffed animal worth $20, you can only deduct on your taxes the $30. Does this help?

AUD - 7/5/13 - 93
FAR - 8/24/13 - 91
BEC - 11/30/13 - 92
REG - 2/24/14 - 91! DONE!

CPAreviewforFREE, Wiley Test Bank, Becker, and NINJA FLASHCARDS. <3
Candidate from California

[Whopper Warrior]

when you purchase something of a tangiable value, that reduces the contribution recieved / the contribution you can deduct.

in this case, lets say a donor could go to publishers clearinghouse and get a magazine subscription for $10. Instead they do it throught the Boys and Girls club website and pay $15. Really they are receiving a $10 subscription and a $5 donation.

The donor can deduct $5, the reciever includes 10 as subscription revenue and 5 as contribution revenue

ALL 4 parts passed summer 13
Ethics October 13
Experience (waiting)

Becker Only

[Whopper Warrior]

when you purchase something of a tangiable value, that reduces the contribution recieved / the contribution you can deduct.

in this case, lets say a donor could go to publishers clearinghouse and get a magazine subscription for $10. Instead they do it throught the Boys and Girls club website and pay $15. Really they are receiving a $10 subscription and a $5 donation.

The donor can deduct $5, the reciever includes 10 as subscription revenue and 5 as contribution revenue

ALL 4 parts passed summer 13
Ethics October 13
Experience (waiting)

Becker Only

[Anonymous]

Thanks, it makes sense now!

[Anonymous]

Thanks, it makes sense now!

[Author]

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