chapter 11 problems_2

Assignment Problems For Chapter 11(The solutions for these problems are only available in

the solutions manual that has been provided to your instructor.)

Assignment Problem Eleven - 1(Restricted Fund And Deferral Method Accounting)The Osgoode Hospital was founded in 1982 in order to provide limited patient care servicesin the local community. It is a not-for-profit organization and was originally funded by dona-tions of $8,400,000. These funds were used to acquire land and to construct and equip theircurrent facility. Prior to 2008, all accounting was done through a single general fund.

In 2008, it instituted a new fund raising campaign to raise funds for replacing some of its agingequipment. As the funds raised in this campaign can only be used for this purpose, manage-ment has established a separate restricted fund. There are no restrictions on the use of anyincome produced by investments made in this fund. Osgoode will account for this Replace-ment Fund using the restricted fund method. However, they will continue to use the deferralmethod for the General Fund.

As of December 31, 2008, the Balance Sheets of the Hospitals two funds are as follows:

General ReplacementFund Fund

Cash $ 65,000 $125,000Accounts Receivable 105,000Allowance For Bad Debts ( 18,000)Supplies Inventory 46,000Investments (At Cost) 325,000Land 1,090,000Building 5,800,000Building - Accumulated Amortization ( 1,550,000)Equipment 1,950,000Equipment - Accumulated Amortization ( 588,000)

Total Assets $6,900,000 $450,000

Accounts Payable $ 46,000Deferred Contributions -

Building And Equipment 5,612,000Invested In Land 1,090,000Externally Restricted Fund Balance N/A $450,000Unrestricted Fund Balance 152,000

Total Liabilities And Fund Balance $6,900,000 $450,000

Other Information:

1. During 2009, Osgoode billed the provincial government and its patients a total amount of$3,263,000. Of this amount, $2,247,000 was for room and board, with the balance beingfor professional services. All accounts are due within 30 days.

2. Collections of Accounts Receivable during 2009 totaled $2,984,000.

3. During 2009, $27,000 of Accounts Receivable had to be written off. At the end of theyear, is is estimated that further write offs will be equal to 1 percent of annual billings.

Canadian Advanced Accounting (2nd IC Edition) - Assignment Problems

Assignment Problems For Chapter 11Page 42

4. Equipment costing $82,000 was acquired with cash from the Replacement Fund.

5. During 2009, Osgoode paid operating expenses of $3,216,000. They also paid $196,000for supplies.

6. During 2009, an individual contributes $375,000 on condition that this full amount beinvested in government bonds. While the income from these bonds can be used for anypurpose, the principal cannot be used. Osgoode established an Endowment Fund for thiscontribution.

7. During 2009, the hospital received unrestricted contributions of $161,000. In addition,it received interest payments of $12,000 from the investments held in the endowmentfund.

8. Accounts Payable balances are related to operating expenses and to supplies. The respec-tive amounts at December 31, 2008 and December 31, 2009, are as follows:

December 31 December 312008 2009

Operating Expenses $32,000 $35,000Inventory Of Supplies 14,000 18,000

Total $46,000 $53,000

9. Supplies on hand on December 31, 2009 totaled $28,000.

10. Amortization on the building for 2009 was $65,000. For the equipment, the total amorti-zation was $97,000, of which $12,000 related to equipment purchased by theReplacement Fund.

11. On December 31, 2009, accrued interest on the investments in the Replacement Fundwas $17,000. There are no restrictions on the use of this income.

Required: Provide the journal entry that would be required to record each item of OtherInformation. In addition, indicate the fund in which each journal entry would be recorded.



Assignment Problem Eleven - 2 (Fund Accounting)The Bookkeepers Rehabilitation Fund is a registered Canadian charity, organized to providerehabilitation for those Chartered Bookkeepers (CBs, hereafter) that have found so muchstress in their daily work that they have been driven to various acts of depravity.

The fund maintains several residences where such individuals are provided with a compre-hensive program of physical and mental therapy. The program is carefully designed to restorethem to their former status as esteemed professionals. The work of the fund is supported by acombination of user fees, support from various community organizations, and an annual fundraising dinner.

The accounting system of this organization is based on three funds. These are an OperatingFund, a Capital Fund, and a Capital Asset Fund. As the name implies, all operating revenuesand most operating expenses are recorded in the Operating Fund.

The Capital Fund is used to record major grants from government organizations. Alsorecorded here would be allocation of these grants to either the Capital Asset Fund or the Oper-ating Fund, as well as income from investments made with Capital Fund resources.

The Capital Asset Fund is designed to record capital assets purchased from both the CapitalFund and the Operating Fund. Amortization of these assets is also recorded in this fund as adirect reduction of the Fund Balance

On January 1 of the current year, the Balance Sheets of the three Funds are as follows:

Operating Fund

AssetsCash $290,000Temporary Investments (At Cost) 605,000Interest Receivable 28,000Fees Receivable 47,000

Total $970,000

EquitiesAccounts Payable $205,000Wages Payable 155,000Unrestricted Balance 610,000

Total $970,000

Capital Fund

AssetsCash $ 28,000Term Deposits 895,000

Total $923,000

EquitiesFund Balance $923,000

Total $923,000

Capital Asset Fund

AssetsFurniture and Fixtures $4,150,000Buildings 3,110,000Accumulated Amortization ( 2,585,000)

Total $4,675,000



EquitiesFund Balance $4,675,000

Total $4,675,000

Other Information:

1. During the year, the Fund billed user fees totalling $3,395,000. Collections for the yearwere $3,102,000 while, at the end of the year, $172,000 in billed fees were judged to beuncollectible.

2. During the year, community organizations pledged total contributions of $11,215,000.At the end of the current year, $275,000 of this amount had not been received. There areno restrictions on the use of these contributions.

3. The annual fund raising dinner is scheduled for December 1. A separate Dinner Fund isestablished to account for this event and, on November 1, $875,000 was advanced fromthe Operating Fund to set up this special Fund. The event was a success, generating totalrevenues of $3,425,000 and incurring total costs of $1,015,000. All revenues had beencollected at the event but there were $130,000 in costs which had not been paid. TheDinner Fund repaid the original $875,000 advanced from the Operating Fund and, inaddition, disbursed $2,395,000 as a loan to the Operating Fund.

4. During the year, salaries and wages of $11,422,000 were paid. At the end of the currentyear, accrued salaries and wages amounted to $217,000.

5. During the year, invoices for goods and services were received in the amount of$4,427,000. Payments on Accounts Payable for the year were $4,425,000.

6. The Temporary Investments in the Operating Fund were sold during the year for$617,000. Also during the year, the Operating Fund collected interest of $63,000,including the $28,000 accrual in the January 1 Balance Sheet.

7. Under a special grants program, the Federal Government has agreed to provide$5,000,000 towards the acquisition of an existing building. The building is to beconverted into a large new residence to accommodate the increasing numbers of CBsrequiring the help of the Fund. The first $2,000,000 of this grant was received during thecurrent year. The Bookkeepers Rehabilitation Fund incurred costs of $205,000 in antici-pation of acquiring the new building. A total of $15,000 of these costs were unpaid at yearend. Of the remaining cash, $1,750,000 was invested in term deposits. Both the prin-cipal and interest of all term deposits were rolled over every thirty days, with the totalbalance rising to $2,765,000 on December 31 of the current year.

8. Amortization on the capital assets amounts to $890,000 for the year.

Required: For each of the four funds, including the temporary Dinner Fund:

A. Provide the journal entry that would be required to record each item of Other Informa-tion. Your solution should indicate the fund in which each journal entry would berecorded.

B. Provide a Statement Of Operations And Fund Balances and a Statement Of Financial Posi-tion. Note that there is no Statement Of Operations And Fund Balances for the CapitalAsset Fund.



Assignment Problem Eleven - 3 (Accounting Recommendations)On August 15, 2006, the European Exchange Club (EEC) was formed in an effort to create aunited social group out of several separate regional clubs in the vicinity of the city of Decker,located in central Canada. The purpose of the group is to combine resources to meet therecreational, cultural, and social needs of its collective members. EEC was formed throughthe collaboration of the following clubs and their memberships:

Members

The Canadian Russian Society 12,300The Italian Clubs Of Canada 10,800Portuguese Cultural Foundation 4,100Association Of Greeks Of The World 2,700The German Groups 1,100Other 1,700

Total 32,700

It is now December 2009. EECs executives have spent the past few years planning andpreparing for its operation. The clubs community centre is expected to be fully completednext year. The facilities of the club will include the following:

a multi-purpose building to house banquets, meetings and arts activities hiking trails indoor/outdoor tennis facilities bicycle trails baseball diamonds an indoor/outdoor pool a soccer field

The multi-purpose building is 75 percent complete, and EECs executives have stated that it isapproximately within budget. Estimated building costs were outlined in a 2006 feasibilitystudy, as follows:

Construction Cost $2,300,000Site Preparation Costs 400,000Furniture And Fixtures 550,000Consulting Fees 120,000Miscellaneous 80,000

Total $3,450,000

The four acres of land on which the facility is built were provided by the provincial govern-ment by way of a five-year lease at $1 a year. The adjacent land of 60 acres was contributed tothe club by The Italian Clubs Of Canada. Previously, this land had been leased to a farmer for$54,000 a year. The 64 acres will be used for the following projects, which will incur the addi-tional costs listed below:

Hiking Trails $ 595,000Baseball Diamonds 30,000Soccer Field 22,000Bicycle Trails 95,000Indoor/Outdoor Pool 700,000Indoor/Outdoor Tennis Facilities 300,000

Total $1,742,000



In addition to these development costs, the club faces annual operating costs of approxi-mately $740,000, outlined in Exhibit I. John Mendez-Smith, the newly elected president ofthe club, has approached your firm, Young and Kerr Accountants, to prepare a report thatprovides recommendations on accounting. You took the notes appearing in Exhibit II at ameeting with the clubs president and executive committee.

Required: Prepare the report.

(CICA Adapted)

Exhibit IEuropean Exchange Club

Yearly Budget

Operating RevenuesMembership Fees $ 91,000Social Rentals 185,000Meeting Rentals 50,000Sport Rentals 23,000Concessions 61,000Fundraising Events 225,000

Total Operating Revenues $635,000

Operating CostsSalaries $363,000Administrative Costs 39,000Maintenance 126,000Utilities 112,000Educational Scholarships 100,000

Total Operating Costs $740,000

Exhibit IINotes Taken From Your Meeting With

Mr. Mendez-Smith And The Executive Committee

1. Under the lease agreement with the province, EEC is responsible for maintenance and allcosts of improvements. The lease agreement provides for 20 renewal terms of five yearsduration each. Renewal is based on the condition that EEC makes the clubs servicesavailable to all present and future EEC member-clubs and their membership.

2. EEC has requested an operating grant from the provincial government. Its proposalrequests the province to provide EEC with annual funds to cover 50 percent of approvedoperating costs incurred to provide services to all club members.

The City of Decker wishes to construct an arena and a swimming pool and has opposedthe proposed operating grant. The City has asked to be the first in line for availableprovincial funds.

The committee members suspect that they will have to compromise on their proposal andare having problems determining the minimum annual funds required by the club fromthe province.

3. The Russian and Italian clubs have been arguing with other clubs over the equalization



payments required from each club. Currently, each club makes payments to EEC basedupon their proportionate membership. Payments for each calendar year are made onFebruary 1 of the following year.

The Russian group performs the administrative functions of EEC and has charged, andwill continue to charge, the club only 50% of the market value of these services.

4. The accounting function is a major concern of the member-club representatives. Inparticular, they have raised the following issues:

a) Several fund raising events are organized by individual member clubs.

b) Any donations to EEC are received through the member clubs.

c) No accounting has been made of services donated to EEC by the members of the indi-vidual clubs.

d) EEC has approached a bank to assist in future phases of the clubs development. Thebank has informed EEC that it is interested in asset values and EECs ability to repay theloans.



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