ExpertHard1 markMultiple Choice
CPA · Question 40 · Area 3: Select Transactions
A Not-for-Profit receives a pledge of $100,000 in Year 1, contingent on raising a matching $100,000 from other donors. In Year 1, they raise $40,000. In Year 2, they raise the remaining $60,000. When should the $100,000 pledge be recognized as revenue?
A Not-for-Profit receives a pledge of $100,000 in Year 1, contingent on raising a matching $100,000 from other donors. In Year 1, they raise $40,000. In Year 2, they raise the remaining $60,000. When should the $100,000 pledge be recognized as revenue?
Answer options:
A.
Year 1 ($40,000) and Year 2 ($60,000).
B.
Year 2 ($100,000).
C.
Year 1 ($100,000).
D.
Year 1 as a Refundable Advance.
How to approach this question
Rule: Conditional Pledges = No Revenue until condition met. (If cash received -> Refundable Advance). Unconditional Pledges = Revenue immediately.
Full Answer
B.Year 2 ($100,000).✓ Correct
Conditional promises to give are not recognized as revenue until the conditions are substantially met. The condition (raising matching funds) was completed in Year 2, so the full $100,000 is recognized in Year 2.
Common mistakes
Recognizing pro-rata; confusing conditional with restricted (restricted is recognized immediately, just classified differently).
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