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Do-Good Inc. is a not-for-profit organization that was formed on January 1, 2020. Do-Good has a...

Do-Good Inc. is a not-for-profit organization that was formed on January 1, 2020. Do-Good has a December 31 year end. It has an accounting policy of capitalizing and amortizing its capital assets. On April 1, 2020, Do-Good purchased equipment costing $8,000. The equipment is estimated to have a useful life of 4 years, with no residual value at that time. This transaction was the only transaction that took place to date.

The equipment was purchased from an unrestricted contribution of $8,000.

What would be the balance in the General Fund on December 31, 2020?

a. $6,000

b. $6,400

c. $0

d. $8,000

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Answer #1

Answer: Option a) $6,000

Explaination:

In Non Profit Organization there is no Capital Fund Account. Difference between Asset & Liabilities is known as Capital fund and Difference between Income & expenditure is transfer to this fund. Capital Fund is also known as General Fund.

Value of Equipment on Dec. 31st, 2020:  Fixed Asset Value - Depriciation Value

Purchase Price: $8,000

Useful Life of Equipment: 4 Years

As per Formula of Depriciation Expense = (Cost of Fixed Asset- Estimated Scrap/Salvage Value) / Useful Life

Scrap/Salvage Value here is= 0

So Depriciation of Equipment will be = (8000-0)/4 = 2000

Value of Equipment on 31st Dec. 2020 = Fixed Asset Value - Depriciation Value : $8000-$2000 = $6,000.

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