A CPA volunteers to audit the financial statements of a local NFP. The CPA's normal billing rate for this service is $5,000. The NFP would have had to purchase this service if not donated. How should the NFP record this transaction?

Answer options:

No entry.

Debit Expense $5,000; Credit Contribution Revenue $5,000.

Debit Asset $5,000; Credit Contribution Revenue $5,000.

Debit Expense $5,000; Credit APIC $5,000.

How to approach this question

Contributed Services are recognized if they create/enhance a non-financial asset OR require specialized skills, are provided by someone with those skills, and would typically need to be purchased (SOME).

Full Answer

B.Debit Expense $5,000; Credit Contribution Revenue $5,000.✓ Correct

The service requires specialized skills (CPA), was provided by a specialist, and would otherwise have been purchased. Recognize revenue and related expense at fair value ($5,000).

Common mistakes

Failing to recognize services that meet the criteria.

Question 39 All questions Question 41

Practice the full CPA FAR Practice Exam 4

50 questions · hints · full answers · grading

More questions from this exam

Q01Orion Corp. is preparing its Statement of Cash Flows for the year ended December 31, Year 1, usin...Hard Q02Parent Co. acquired 80% of Sub Co. on January 1, Year 1. During Year 1, Parent sold inventory to ...Hard Q03A nongovernmental not-for-profit organization received a $500,000 pledge in Year 1 to be used for...Medium Q04A nongovernmental not-for-profit entity reports the following cash flows for the current year:<br...Medium Q05A city government levies a special property tax dedicated solely to the repayment of general obli...Medium

View all 50 questions →