A public college was the recipient of an annuity gift. The elderly alumnus donated cash of $110,000 and investments of $610,000 with the restriction that the college pays them a sum of $50,000 per year for five years. If the annuity payable has been actuarially valued at $305,000, the college should report revenues upon receipt of the gift in the amount of

Question

Quizplus · Accepted Answer

The college should report revenues upon receipt of the gift in the amount of the actuarially valued annuity, which is $305,000. This is because the alumnus donated $720,000 worth of assets, but with the restriction that the college pays them a sum of $50,000 per year for five years, which totals to $250,000. Therefore, the remainder of the gift that the college is free to use for its own purposes is $720,000 - $250,000 = $470,000. However, since the actuarially valued annuity is only $305,000, the difference of $470,000 - $305,000 = $165,000 is considered a discount on the gift. Therefore, the college should report revenues upon receipt of the gift in the amount of $305,000 + $165,000 = $415,000.

A Public College Was the Recipient of an Annuity Gift