ExpertMedium1 markMultiple Choice
CPA · Question 40 · Area III: Select Transactions
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?
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:
A.
No entry.
B.
Debit Expense $5,000; Credit Contribution Revenue $5,000.
C.
Debit Asset $5,000; Credit Contribution Revenue $5,000.
D.
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
B
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.
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...HardQ02Parent Co. acquired 80% of Sub Co. on January 1, Year 1. During Year 1, Parent sold inventory to ...HardQ03A nongovernmental not-for-profit organization received a $500,000 pledge in Year 1 to be used for...MediumQ04A nongovernmental not-for-profit entity reports the following cash flows for the current year:<br...MediumQ05A city government levies a special property tax dedicated solely to the repayment of general obli...Medium