Do-Good Inc. is a not-for-profit organization that was formed on January 1, 2020. Do-Good has a December 31 year end. It has an accounting policy of capitalizing and amortizing its capital assets. On April 1, 2020, Do-Good purchased equipment costing $8,000. The equipment is estimated to have a useful life of 4 years, with no residual value at that time. This transaction was the only transaction that took place to date. The equipment was purchased from a restricted fund contribution of $8,400. In which fund would the purchase and amortization of the asset be recorded?

Question

Quizplus · Accepted Answer

The purchase and amortization of the capital asset should be recorded in the Capital Fund. This fund is used to account for the acquisition and financing of long-term assets such as buildings, land, and equipment. Since the equipment was purchased with a restricted fund contribution, it would be appropriate to record this transaction in the Capital Fund which is used to account for capital contributions and expenditures. Additionally, since the accounting policy of Do-Good is to capitalize and amortize its capital assets, the amortization expense of the equipment would also be recorded in the Capital Fund.