A skilled carpenter repaired the roof of the administrative building for a private not-for-profit free of charge. The not-for-profit would have had to pay $2,000 for this service if not donated.What entry should the not-for-profit make?

Question

Quizplus · Accepted Answer

The not-for-profit received a service as a donation, which should be recognized as contribution revenue in the financial statements. At the same time, the value of the donated service should be recognized as supporting service expense. This treatment conforms to the accounting principle of matching expenses with revenues.

Choice A is incorrect because even though no cash transactions occurred, the not-for-profit still received a valuable service that should be recognized in the financial statements.

Choice C is incorrect because capital expenditures are typically associated with fixed assets, such as equipment, and not with repairs and maintenance of existing assets.

Choice D is incorrect because the donated service did not increase the carrying value or improve the functionality of the building, which is required for capitalization of expenditures.

A Skilled Carpenter Repaired the Roof of the Administrative Building