Question

For a number of years, a private not-for-profit entity has been preparing financial statements that do not necessarily follow generally accepted accounting principles. At the end of the most recent year (Year 2), those financial statements show total assets of $1,400,000, total liabilities of $200,000, total unrestricted net assets of $600,000, total temporarily restricted net assets of $400,000, and total permanently restricted net assets of $200,000. In addition, total expenses for the year were $700,000 (shown in unrestricted net assets).

  

On January 1, Year 2, several supporters of the entity above spent their own money to construct a garage for its vehicles that is worth $80,000. It should last for 20 years and will have no salvage value although no time restriction was assumed. The entity increased its contributed support within the unrestricted net assets by $80,000 and increased its expenses within unrestricted net assets by $80,000.

a.	What was the correct amount of unrestricted net assets at the end of Year 2?

       

b.	What was the correct amount of total assets at the end of Year 2?

       

c.	What was the correct amount of expenses for Year 2?

      

Answer 1

Solution:

a)

Particulars	Amount
vechile price	$80,000
Less: Depreciation ($80,000/20)	($4,000)
Expenses overstated	$76,000
Unrestrict net assets	$600,000
Total net assets	$676,000

b)

Particulars	Amount
vechile price	$80,000
Less: Depreciation ($80,000/20)	$4,000
Net balance	$76,000
Total assets	$1,400,000
Total net assets	$1,476,000

c)

Expenses = Total expenses - Overstated expenses

=$700,000 -$76,000

=$624,000

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