On January 1, the Old Town Heart Association recieved a $1,000,000 endowment fro
ID: 2535719 • Letter: O
Question
On January 1, the Old Town Heart Association recieved a $1,000,000 endowment from the Chamber family. Under the terms of the gift, the Association must permanently restrict the endowment - but may spend up to half of the interest earned on the gift or half of all profits earned from selling such investments for operating purposes. The Association immediately invested the proceeds in some "blue chip" stocks. Afterwards, the Association spent half of the $50,000 dividends earned from the Chamber portfolio for operating purposes. Where in the Statement of Cash Flows (ie: operating, investing, or financing activities) should the Association report these transactions? Memorandum should contain the following: facts, issues, conclusions, authorities, application of authorities, keywords.
Explanation / Answer
Transaction 1 : Received $1,000,000 endowment fee - Financing Activity- Association has received a kind of investment towards equity. Hence this activity will be reported under Financing Activity.
Transaction 2: Investment of half the proceeds in blue chip stocks - Investing Activity. -Investing the money is using the money for other the oprations.This is not a financing activity. No Equity or Loan was involved. It is purely an Investing Activity.
Transaction 3: $50000 spent for operating purposes - Operating Activities - $50000 have been spent for day to day activities of the association and hence will be classified as Operating Activitiy.