White Sands Homeowner's Society (the Society) is a Not-for-Profit Organization that maintains a community on the shores of one of the best lakes in Canada. The community includes public walking trails, tennis courts, white sand beaches and a playground open to the public. The Society owns and operates a hall that can be rented out to the public or used for the Society's events. There are two full time employees to perform maintenance on the common areas, one full time employee to run the office and two part time employees to run the summer camp that is operated over the summer months and environmental education programs year-round. Homeowner fees are the main source of consistent revenue for the Society. They also receive donation revenue from time to time. Since the organization provides access to the public and operates educational programming, they generate some revenue from provincial and federal grants. The Society is required to follow GAAP and have chosen ASNPO for guidance. Since the activities of the organization benefit the community at large, they are considered a registered charity. The organization is now entering fiscal year 2021, the Sage file you have been given to start with, gives you the organization's opening balances as at January 1, 2021. The organization uses the restricted fund method and the sage file has been set up with the appropriate accounts and funds(departments) for you to start this case. The organization has three funds: a General fund, a Capital fund and an Endowment fund. The organization reports on each fund in the Statement of Financial Position, the Statement of Operations and the Statement of Changes in Fund Balances. Here are the Departments in Sage 50:
For simplicity, most modules in Sage are not used by the organization. Instead they use the general journal to record their transactions, ensuring that the appropriate account and department codes are used in all entries. The Capital fund tracks all restricted capital contributions and related expenses and records the capitalization and amortization of all capital assets. The Endowment fund tracks all endowment contributions. The General fund is used to track everything else. Ignore payroll tax and sales tax throughout this case. Accrual accounting is used. Each fund has its own bank account, tracked in account 1060 using the department code as appropriate (1000, 2000, 3000). Excerpts of significant accounting policies adopted by the Society: • Recognize contributed goods that would have otherwise been purchased at their estimated fair value. • Do not recognize the value of contributed services. • Straight line amortization for all depreciable capital assets beginning in the month acquired. Opening departmental balance sheet account descriptions as of January 1, 2021: General Fund: • The opening cash balance is cash used for general operations. • The term deposit on hand are used as a cash management tool. Excess cash is invested in term deposits until it is needed. • The receivables balance of $55,000 relates to a grant that the society expects to receive from the provincial government in January 2021. The grant can be used for general operations. • Supplies inventory relates to office supplies on hand only. All camp supplies and materials are expensed when purchased. • Accounts payable relate to general operating activities of the organization. • Deferred contribution revenue of $5,000 relates to a federal grant received in December 2020. This grant money is restricted for use in the summer camp program or environmental education program and must be used during fiscal 2021. Capital Fund: • The Society owns the public land in the community along with the community hall and furnishings in the hall. • Other equipment includes maintenance equipment for the community including lawnmowers, trailers, and other outdoor equipment. Part 1: Transactions (42 marks) Restore the "Starting File Sage Case" file from back up. You are the office manager and an active member of the society. Record the following transactions in the general journal related to January 2021, in Sage 50. Include a comment for each journal entry and include the question number indicated below in the source field, so that it is easy to determine which entry relates to each number below.
The hall rental rate is $1,500 per day or $200 per hour. In the month of January, the hall was rented out for 15 days by external parties, there were no hourly renters. All but $3,000 in cash was collected in January, the remainder is expected to be collected in February. Record this transaction using January 31st as the transaction date. 3. The term deposit and related interest is unrestricted and is held in the general fund. According to the January statement, $50 was earned and received in the term deposit account, use January 31st as the transaction date. 4. January 31st the society received an e-transfer for $35,000 related to the provincial government grant receivable. The government indicated in the letter that the amount remaining on the grant will be received in February. 5. During January, the organization increased their efforts to attract individual donors by setting up donation booths at the local grocery stores once a week. Individuals were able to specify if the donation was for general purposes (Unrestricted), to build a playground (Externally restricted - Capital fund) or to run the kids camp which doesn't start up until July (Externally restricted - No specific fund). Record the donations listed above (for the month of January) using January 31st as the transaction date. Cash was deposited into the appropriate bank account for each item listed. 6. On January 15th, a local fundraising group contributed $10,500 cash specifically to be used for the purchase of the new playground. Cash was deposited into the appropriate bank account. 7. On January 1st, one of the Society's members donated a new snow blower with an estimated fair value of $1,500 and an estimated useful life of 5 years. The Society needed a new snow blower and would have purchased a similar blower if this had not been donated. 8. Annual membership fees were collected from the 230 homes in the community on January 1st. The fee was $1,000/home in 2020. For 2021, the Society opted for a 5% fee increase. The fees cover January 1, 2021 to December 31, 2021 and are to be prorated evenly over the 12 months.
On January 16th, a single private donor provided the Society with an endowment of $75,000 as he was committed to keeping the community vibrant. The cash was deposited into the appropriate bank account. Any interest earned on the endowment can be used at the Society's discretion. The endowment must be invested in specific long-term investments as outlined in the agreement. You go to the bank on January 18th to transfer the money into the designated investment. 10. The Society has been searching for ways to make the canal that runs through the community clearer, as algae continues to grow in the summer months. January 8th the Society pays $6,500 on account to have a study completed on the effectiveness of an aeration process. 11. The salaries and benefits for general operations staff for the month of January is $11,500, paid from the chequing account. Additionally, volunteers spent 15 hours on the set up, operation and take down of the donation booths at the local grocery stores in January. Minimum wage in Alberta is $15/hour. Record the appropriate entry on January 31st. 12. The following operating expenses were incurred in January (record on January 31st) but have not yet been paid for: • Janitorial fees for hall rental - $2,000 • Office expenses - $2,110 • Advertising - $12,000 • Utilities - $2,000 13. Record the amortization expense for all depreciable capital assets for the month of January 2021. • Hall $850,000 - Straight line 30 years, no residual value • Furnishings $50,000 - Straight line 10 years, no residual value • Other equipment recorded prior to Fiscal 2021 was $25,000 - Straight line 5 years, no residual value • Other equipment recorded in January 2021 was $1,500 - Straight line 5 years, no residual value 14. An invoice was received January 1st for $1,020 for insurance on the hall and equipment for January 2021. This invoice will be paid in February 2021. 15. The Society will spend the restricted cash from the federal grant received last year as they run their programming in 2021. There was a good deal on materials for education programming, so on January 20th the Society spent $1,500 of the restricted grant money (paid in cash). 16. Office supplies worth $60 were used from inventory in January 2021.
The members would like to know the details of the following balances at January 31, 2021. (4 marks) i. What is the remaining balance ($) of our provincial grant? ii. What is the remaining balance ($) of our federal grant? 2. We have a new fund this year, the endowment fund. (6 marks) i. Why don't we have any expenses going through this fund? ii. Will we have expenses going through this fund in the future? Why or why not? 3. Our community continues to grow, and it looks like we need to consider a significant extension to the hall very soon. (8 marks) i. How can the Society restrict some of the cash for a significant renovation in the future? ii. What does this type of restriction look like in the financial statements? iii. Can we make changes to the restricted balance if we decide we have restricted too much or too little? If so, how can this be done? 4. The organization needs $100,000 to construct the new playground and just started raising funds this year. (10 marks) i. How much do we have set aside right now? ii. How were these funds raised? iii. Given our current financial situation, what are some options for how we can fund the remaining capital needed for the playground this summer? Which option would you recommend and why? 5. Hall rental is such a pain for our Society because weddings and parties make so much noise and there is increased traffic in the community. We would like to know more about the financial impact of the hall rental operations. (9 marks) i. Currently, expenses that we include related directly to hall rental include 100% of janitorial fees, 90% of utilities and 20% of advertising for the month. Given these expenses, how much net income did we generated from hall rental in January? Are there any other costs we might want to consider when assessing the results? ii. Currently we're not able to easily see hall rental revenues net of expenses in Sage 50 reporting. What are some options to better track and report this within our accounting software, which option would you recommend and why?