ACCT 4650 - Example 2 (Includes Capital Assets)
This is an extension of the example above. It involves the same Local Care Society (LCS)
and extends their activities into the year ending December 31, 2009. It is made more
complex by the addition of capital assets and their amortization. The basic data for LCS for
the year ending December 31, 2009 is as follows:
There are no additional endowment contributions during
the year ending December 31, 2009. The endowment investments have income of
$3,000 during this period.
During the year ending December 31, 2004, $600,000 in
unrestricted contributions were received. At year end, there is an additional $40,000 in
contributions that are receivable. The Board believes that this is a reasonable estimate
of the amount that will actually be collected. This total was allocated $360,000 to meals
activity, $180,000 to clothing activity, and $100,000 for the acquisition of a building to
be used in the organizations operations.
On July 1, 2009, the organization acquires a building for a total cost of
$100,000. Of this total, $20,000 represents the fair value of the land on which the
building is situated and the remaining $80,000 reflects the fair value of the building. The
estimated useful life of the building is 10 years and no significant residual value is
anticipated. The organization uses straight line amortization, charging only one-half
year's amortization in the year in which an asset is acquired.
The organization continues to accept additional contributions
that are restricted to use in the clothing activity. During the year ending December 31,
2009, restricted contributions of $175,000 were received. No contributions are
receivable at year end.