Reference no: EM132961679

First Harvest (FH) collects food for distribution to people in need. During its first month of operations, the organization collected a substantial amount of food and also $26,000 in cash from a donor. The donor specified that the money was to be used to pay down a loan that the organization had with the local bank. The loan had been taken out to buy land, on which the organization plans to build a warehouse facility. A warehouse is needed since, although the organization does not plan to keep a lot of food in stock, sorting and distribution facilities are crucial. FH has also received $100,000, which, according to the donor, is to be deposited, with any income earned to be used as FH sees fit.

Problem 1: In which of the following ways should the $100,000 contribution be accounted for under the following revenue recognition methods?

Choices:

1) Deferral method: Direct increase in net assets
Restricted fund method: Revenue of the endowment fund

2) Deferral method: Direct increase in net assets
Restricted fund method: Revenue of the general fund

3) Deferral method: Revenue
Restricted fund method: Revenue of the endowment fund

4) Deferral method: Revenue
Restricted fund method: Revenue of the general fund