Problem: Restricted Fund Method
Kids Fitness Society (the Society) is a Not-for-Profit Organization that promotes fitness for youth by running a summer camp at one of the best lakes in Canada. The camp includes biking trails, tennis courts, canoeing, and a playground. The Society also owns and operates a small hall with a kitchen on the property that can be rented out to the public when not in use for summer programs. However, the Board of Directors recently approved a motion to construct an addition to the hall in an effort to increase the halls' square footage.
There are two full time employees to perform maintenance on the common areas, one full time employee to run the office and two part time employees to run the fitness camp that is operated over the summer months.
The main sources of revenue for the Society have been federal and provincial grants as well as public donations in response to radio and television advertisements. Other fundraisers are conducted throughout the year as needed.
The organization is now starting its fiscal year for 2022 and you have gathered the following facts:
1) Method of Accounting - The Society uses the accrual basis for accounting. The Society has adopted the Restricted Fund Method of accounting for contributions which uses the following three funds:
• Operating Fund
• Capital Fund
• Endowment Fund
(Note: Each "fund" has its own bank account.)
2) Donations-In-Kind - Contributed goods that would otherwise be purchased are recognized at their estimated fair market value. Contributed services from service volunteers are NOT recognized due to the difficulty in estimating fair market value.
3) Pledges & Contributions - Pledges are only recognized in the financial statements if the amount to be collected can be reasonably estimated and collectability is reasonably assured.
4) Depreciation Methods - Capital assets are capitalized at cost and are being depreciated over their estimated useful lives using the "Straight-Line" method of depreciation. For capital assets purchased or used part-way through the year, depreciation expense is prorated to the nearest whole month.
Task
• Prepare journal entries for each of the following transactions that occurred during January 2022. Be sure to specifically indicate which "fund" the journal entry belongs to, as "fund accounting" is required under the Restricted Fund Method of Accounting. If no entry is required, indicate "No Entry" with a discussion as to why.
• On January 1st, one of the Society's members donated a new canoe with an estimated fair value of $2,000 and an estimated useful life of 5 years. The Society needed a new canoe and would have purchased a similar canoe if this had not been donated.