Plants And Other Resources For External Reporting

Plants And Other Resourcesfor Purposes Of External Reporting Not For

Plants and Other Resources For purposes of external reporting, not-for-profits—unlike governments in their governmental funds—do not distinguish between plant and other types of resources. In 2014, the Northwest Ballet Association (NBA), a not-for-profit performing arts organization, undertook a major capital campaign to fund a new theater, expected to cost $10 million. It was quickly able to raise $6 million, all of which was donor restricted. It borrowed the balance, issuing a five-year, 8 percent term note for $4 million. During the year, the NBA broke ground on the project and incurred construction costs of $3.4 million. It earned $0.52 million in interest on temporary investments. It incurred and paid $0.32 million in interest on the note. In addition, as required by the note, it placed $0.7 million in a reserve fund (a specially dedicated bank account) for the repayment of the debt. Write a 1000 word, APA style paper that addresses the following: 1. To show how these transactions would be reflected on the NBA’s financial statements, prepare a December 31, 2014 statement of financial position and statement of activities. Assume that these were the only transactions in which the organization engaged and that all available cash, except that in the reserve fund, had been invested in short-term marketable securities. Be sure to properly classify all resources as to whether they are temporarily restricted or unrestricted. 2. Comment briefly on whether the contributions from donors and the proceeds from the bonds should be reported as restricted or unrestricted. 3. Comment briefly on whether the $0.7 million in the reserve fund should be reported as restricted or unrestricted. Be sure to include a title page and 2 references. Only the body of the paper will count towards the word requirement.

Paper For Above instruction

This paper analyzes the financial reporting implications for the Northwest Ballet Association’s (NBA) 2014 transactions, focusing on the presentation of resources and understanding restrictions on contributions and funds under nonprofit accounting standards. It evaluates how these transactions would be reflected in the NBA’s financial statements—the statement of financial position and statement of activities—and discusses the classification of contributions, bond proceeds, and the reserve fund as restricted or unrestricted resources as per generally accepted accounting principles (GAAP) for not-for-profit organizations.

Introduction

The financial statements of not-for-profit organizations differ significantly from those of governmental entities, primarily in the treatment of resources as restricted or unrestricted. The NBA’s extensive capital campaign, debt issuance, and related transactions provide an illustrative case of how these elements are recorded and classified within the nonprofit financial reporting framework. Understanding these classifications’ implications is essential for accurately portraying the organization’s financial health and compliance with accounting standards.

Statement of Financial Position (Balance Sheet) as of December 31, 2014

The statement of financial position reflects the NBA’s resources categorized based on restrictions—either temporarily or unrestricted. Given the information provided, the resources can be summarized as follows:

• Assets: Cash, investments, construction in progress, and the reserve fund.
• Liabilities: Debt payable (the five-year note).
• Net Assets: Divided into unrestricted, temporarily restricted, and possibly permanently restricted (though not mentioned here). Since all donor contributions were restricted, they would initially be reported as temporarily restricted, with reclassifications occurring as restrictions are satisfied.

The cash and investments, excluding the reserve fund, would be presented as unrestricted assets if they are available for general purposes. The $6 million raised from donors, being donor restricted, would be classified as temporarily restricted until the funds are used for their designated purpose, i.e., construction costs. The $4 million borrowed from the note would be reported as a liability; the related construction costs incurred thus far would be included in construction in progress.

The reserve fund of $0.7 million would be classified as a restricted asset since it is designated specifically for debt repayment. The construction costs of $3.4 million would be classified as construction in progress on the assets side of the statement, reflecting ongoing capital development.

Statement of Activities (Changes in Net Assets) for the Year Ended December 31, 2014

The statement of activities summarizes revenue streams and expenses, highlighting the restrictions on net assets. Contributions from donors ($6 million) are reported as increases in temporarily restricted net assets until used for their specific purpose. Interest earned on investments ($0.52 million) would typically be unrestricted unless restricted by donor stipulations, which were not specified.

Interest expense ($0.32 million) related to the note would be recorded as an expense. The $0.7 million placed into the reserve fund would be a decrease in unrestricted cash but would be shown as an increase in restricted net assets if it’s designated for debt repayment.

The incurred construction costs, totaling $3.4 million, would be capitalized as part of assets and do not appear directly on the statement of activities until completion and disposition. Overall, the net increase or decrease in net assets would reflect the classified revenues and expenses, with appropriate releases of restrictions upon project completion or fund usage.

Classification of Contributions, Bond Proceeds, and Reserve Funds

• Contributions and bond proceeds: The $6 million donor contributions are restricted until used for specific purposes related to the capital project, thus reported as temporarily restricted. The $4 million bond proceeds are considered restricted as the organization is obligated to use these funds for the project and repayment of debt, indicating a donor-imposed restriction or a contractual restriction.
• The $0.7 million in the reserve fund: This fund is designated specifically for debt repayment, making it a restricted asset according to nonprofit standards. Its purpose is clearly defined, and it is segregated for this obligation, thus classified as temporarily restricted net assets.

Conclusion

In summary, the NBA’s 2014 transactions demonstrate typical nonprofit accounting considerations, including the classification and presentation of resources based on restrictions. Donor contributions and bond proceeds are reported as temporarily restricted assets until their purpose is fulfilled, while specific funds like the reserve for debt repayment are similarly classified. Accurate classification ensures transparency and compliance with nonprofit accounting standards, providing stakeholders with a clear picture of the organization’s financial position and resource availability.

References

• Financial Accounting Standards Board (FASB). (2016). Accounting Standards Codification 958—Not-for-Profit Entities.
• GASB. (2020). Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments. Governmental Accounting Standards Board.