Prepare needed journal entries for 2014 and 2015

Assignment Help Financial Accounting

Reference no: EM134047

Question :

In December 2014, the Consumer Association of America (CAA), a not-for-pro?t research association, received noti?cation of a $6 million grant from the Sporting Goods Manufacturers Association (SGMA) to prepare a football helmet that will give better protection against head injuries. The grant was intended to cover $4 million of direct costs and $2 million of indirect (overhead) costs. The grant contract stipulated that the SGMA would make its payment to the CAA upon receiving invoices from CAA for the actual direct costs incurred. It further needed that the research results be reported only to the SGMA and not be made publicly available. Each reimbursement payment for direct costs incurred would also add an appropriate proportion of indirect costs (i.e., an additional $0.50 for each $1 of direct costs).

In 2015 the CAA carried out and completed the research for which it contracted. Direct costs were, as evaluated, $4 million. It submitted the required invoices and received payment in full.

1. Prepare needed journal entries for 2014 and 2015. Be sure to indicate whether each entry should be made to an unrestricted or temporarily restricted fund. You need not, thus, record the indirect costs themselves.

2. Consider instead that in December 2014, the CAA received a pledge of $6 million from the National Sports Association (NSA). The donation is for research relating to football helmets. The NSA is a not-for-pro?t agency, and the results of any research will be in the public domain. In January 2015, the CAA received the contribution. Throughout the remainder of 2015, it carried out its football-related research (incurring $4 million of direct costs). Prepare the required journal entries for 2014 and 2015, and show whether each entry should be made to an unrestricted or a temporarily restricted fund.

3. Comment on any differences between the two awards that might justify differences in revenue recognition.

Reference no: EM134047

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