Exercise 7 (LO 10) VHwo, journal entries. Record the following events of Mental

Question

Exercise 7 (LO 10) VHwo, journal entries. Record the following events of Mental Health Clinic, a VHWO: 1. A contribtion of $20,000 was received and is to be used for the purchase of equipment, but not until an addition to the building is constructed. Construction has begun on the building 2. Equipment costing $17,000, with a book value of $8,000, was sold for $10,000. The gain is unrestricted. 3. Depreciation of $9,000 is recorded on various plant items. 4. Equipment was purchased for $18,000, with payment due in 30 days from donor-restricted resources. Mental Health Clinic elects to release the donor restriction upon acquisition of the equipment. 5. The liability for the equipment purchased in item (4) was paid.

Explanation / Answer

Below are the journal enteries to be made :-

1. Cash Dr 20000

Unearned Contribution 20000

( Since condition should be met before contribution revenue can be recognized )

2. Bank A/c / Cash A/c Dr. 10000

Accumulated Depreciation Dr 9000

Equipment A/c 17000

Unrestricted Gain- Disposal of assets 2000

( Depreciation charged is calculated by Acquisition cost - book value and is reversed during the sale of such asset)

3. Depreciation Expense Dr 9000

Accumulated Depreciation-Plant Items 9000

( Being depreciation charged)

4 (a). Temporary Restricted Asset Dr 18000

Account Payable 18000

( Since restriction is imposed therefore restricted asset is debited and purchased on credit not on cash therefore account payable is credited)

4. (b) Temporary Restricted Contribution / Net Asset 18000

Unrestricted Net Assets 18000

( Release of restriction therefore transferred to unrestricted assets)

5. Account Payable Dr 18000

Cash / Bank 18000

( Being payment made for the asset purchased on credit.)

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