Island College is a private boys’ school and is operated as a not-for-profit organization. During 20X1 the school received $1,000,000 in private donations from individuals to establish a scholarship fund for its students. The principal amount of the fund must be invested in government bonds. The interest on the fund can only be used to provide scholarships to students. For the year ended December 31, 20X1, the fund earned interest of $60,000, and scholarships totalling $40,000 were awarded to students in need. At the end of the year, the balance in the scholarship fund was $1,020,000.
On January 1, 20X1, a local businessperson donated a small bus to the school. The bus seats 20 people and was worth approximately $80,000 at the time of the donation. It has an estimated useful life of six years with a residual value of $20,000. The school amortizes its capital assets using the straight-line method.
Required
a. Prepare the journal entries to capture all activities related to the scholarship fund, assuming the school uses the deferral method and it does not have a separate endowment fund for the scholarship.
b. Prepare the journal entries to capture all activities related to the scholarship fund, assuming the school uses the restricted-fund method and records all entries in a separate endowment fund for the scholarship.
c. Assume the school wishes to record the value of the donated bus. Prepare journal entries for 20X1 to capture all activities related to the donated bus, assuming the school uses the deferral method and does not have a separate capital asset fund for the donated bus.
d. Assume the school wishes to record the value of the donated bus. Prepare journal entries for 20X1 to capture all activities related to the donated bus, assuming the school uses the restricted-fund method and has a separate capital asset fund for the donated bus.
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