Question

A local Conservatory recently held a fund-raising drive. The purpose of the fund raiser was to raise money for purchasing land that will provide habitat for an endangered animal. During the drive, a donor pledged $10 million to the project but with an additional stipulation that the Conservatory raise an additional $7.5 million from other sources. The Conservatory is a not-for-profit entity, so what accounting entry should it make when the $10 million pledge is made?

1. Debit Pledges receivable $10 million; Credit Net Assets with Donor Restrictions $10 million.
2. Debit Pledges receivable $10 million; Credit Deferred Revenue $10 million.
3. Debit Pledges receivable $17.7 million; Credit Deferred Revenue $17.5 million.
4. No entry is made at the time of the pledge.

Answer 1

Correct Answer for this question is Option D. No entry is made at the time of Pledge.

If a person pledge to contribute in a future period with no restrictions or conditions attached to it , then we may recognize revenue at net realizable value if payment will be made by him within 1 year or at present value of future cash flows if payment is made at later dates.

If a person pledges to give some amount with conditions attached to it, then we should not recognize revenue until all the conditions put by contributor have been met.