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Watrous Housing Corporation (WHC) is a community-sponsored not-for-profit housing organization that was incorporated on September 1, Year 5. Its pur- pose is to provide residential accommodation for physically disabled adults in the town of Watrous. The nature of WHC’s operations and its source of fund- ing are described in Exhibit I. The executive director of WHC has asked for your
Exhibit I
NATURE OF OPERATIONS
• In October Year 5, WHC purchased a 15-unit apartment building in downtown Watrous for $750,000. It then spent $250,000 in renovations to upgrade the building to make it accessible for physically disabled adults.
• WHC offers 24-hour non-medical attendant care. Support care services are provided through a combination of staff members and volunteers. The staff members receive a monthly salary. As an inducement to recruit and retain qualified support care workers, each staff member is allowed 15 sick days per year. The employee can bank the sick days not used in any one year. Upon termination or retirement, the employee is paid for banked sick days at the wage rate in effect at that time.
• Rental payments are due the first day of each month and are geared to each tenant’s income. Most of the tenants are very good about making their rent payments on time. Some rental payments are received late. On August 31, Year 6, there was $13,000 of unpaid rent.
• WHC plans to install central air conditioning in the building in April Year 7 at an expected cost of $50,000. This expenditure is being financed by a special fundrais- ing drive. By August 31, Year 6, this fundraising drive had raised $20,000 in cash and
$15,000 in pledges from citizens in the local community.
SOURCES OF FUNDING
• The cost of acquiring and renovating the apartment building was financed by a
$1,000,000 cash donation received from the estate of Mr. Smith who had stipulated that the funds be used for the purchase of a property.
• The provincial government funds approximately 70% of non-medical care and support costs. Claims are made monthly for the previous month’s eligible costs.
• WHC depends on outside fundraising efforts, primarily door-to-door canvassing and sponsored bingos, to cover the remaining non-medical care and support cost
assistance in establishing accounting policies for WHC for its general-purpose, year-end financial statements. The accounting policies should be consistent with Part III combined with relevant sections of Part II of the
CICA
Handbook.
Required:
Identify the major accounting issues, and provide recommendations on the accounting treatment of these issues in WHC’s financial statements for the year ended August 31, Year 6. Assume that WHC wants to use fund accounting with two funds, a general fund and a capital fund, and wants to use the deferral method to account for contributions. Also assume that annual revenues exceed $700,000.