Question

Southeastern College began the year with endowment investments of $1,200,000 and $700,000 of restricted cash designated...

Southeastern College began the year with endowment investments of $1,200,000 and $700,000 of restricted cash designated by a donor for capital additions.

During the year an additional $500,000 donation was received for capital additions. These funds, together with those contributed in the prior year, were used to purchase 150 acres of land adjacent to the university.

An alum contributed $200,000 to the permanent endowment and pledged to provide an additional $400,000 early next year. The cash was immediately invested.

By terms of the endowment agreement, interest and dividends received on the investments are restricted for scholarships. Gains or losses from changes in the fair value of the investments, however, are not distributed but remain in the endowment. During the year, $48,000 of interest and dividends were received on endowment investments.

At year-end, the fair value of the investments had increased by $7,000.


Required:
Prepare journal entries to record the above transactions assuming:
a. Southeastern College is a public university.
b. Southeastern College is a private university.

Homework Answers

Answer #1

The journal entries are as follows:

On receipt of Endowment Fund:

Cash A/c Dr 5,00,000

To Contributions-Temporary Restriction 5,00,000

On purchase of land:

Land A/c Dr 22,00,000

To Cash A/c 22,00,000

On Subsequent Contribution:

Cash A/c Dr

To Contributions- Permanent Restriction

Pledge may be of two types: Conditional and unconditional.

For a conditional pledge ,we can recognise such pledge only upon satisfying conditions attached to such pledge.

For an unconditional pledge we can recognise as and when the pledge is made.

So entry for recognising a unconditional pledge is:

Pledge Asset Receivable A/c Dr 4,00,000

To Pledge Income A/c 4,00,000

On receipt of interest and dividends from endowment Investment:

Cash A/c Dr 48,000

To Scholarship Reserve A/c 48,000

On Increase in Fair Value of Endowment Fund:

Investments A/c Dr 7000

To Gain on increase in value 7000.

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