Beach City Received a Gift of Corporate Stock Valued at $1,200,000

question 49

Essay

Beach City received a gift of corporate stock valued at $1,200,000 on the date of the gift. The donor specified that the principal amount of the gift be maintained in perpetuity, but that earnings can be used to acquire works of art to improve the appearance of public buildings. All changes in fair value are to increase or decrease the principal amount of the gift. Assuming that Beach City uses a permanent fund to account for the endowment and a special revenue fund to account for the earmarked earnings from the endowment, explain the accounting process for (1) receipt of the original gift, (2) receipt of quarterly dividends, (3) notification that fair value of the original stock increased by $3,000 during the year, and (4) the effect on fund balances of closing temporary accounts at year-end. (Note: Ignore the effects of the transactions at the government-wide level).

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Definitions:

Cardinal Trait

A characteristic or feature that is so dominant in an individual's personality that it influences nearly all of their actions and attitudes.

Dominates

To have a commanding influence on; exercise control over.

Personality Trait

A characteristic or quality that defines an individual's consistent behaviors and attitudes over time.

Traits

Characteristic patterns of thoughts, feelings, and behaviors that are relatively stable across time and situations, contributing to individual differences.