E22-2 2. A nongovernmental not for profit entity gives donors a sweatshirt impri

Question

E22-2

2. A nongovernmental not for profit entity gives donors a sweatshirt imprinted with its log when they pay $25 dues. The value of the sweatshirt is approximately $25. This transaction is most likely reported as:

a. An exchange transaction

b. An agency transaction

c. A contribution

d. A gift in kind

3. How will a nongovernmental not-for profit entity rrecord an agency transaction in which it receives resources?

a. No entry is made in the accounts

b.Debit the asset account and credit contribution revenue

c. Debit the asset account and credit temporarily restricted net assets

d. Debit the asset account and credit a liability account

Explanation / Answer

Ans to Q # 2: Most likely, the transaction should be recorded as a Contribution. The reason is that the the referred not-for-profit-entity has actually received $ 25 (or more) from the donor. The entity, in turn, gives them a swatshirt Irrespective of the cost of the sweatshirt, the same is not in exchange of the contribution of a donor. It is also not a gift in kind becuase it is not all a gift. The entity giving the sweathirt is not compulsory for the entity.

Ans to Q# 3: The answer is b.This should be reorded bu debiting the asset account and credit contribution revenue. The receipt by the entity in he form of resources should not ge un entered in the accounts because the resource become the asset of the entity. Moreover, no liabiity is created because the entity does not have to make any payment against the resources received. Going by these, option a and d are not sustainable. The ooption c - of crediting temporarily restricted net asset is also not according to the principles of accounting. Hence, option B is the bst answer.

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