Question

2. Hi Tech University is going to receive a $3 million grant from the National Hockey Association in December of 2020 to develop an effective neck brace to prevent injuries in its non-goalie hockey players. The terms of the NHA grant covers $1.5 million of direct costs and $0.5 million of overhead costs. In addition, the grant stipulates that the NHA will be the sole beneficiary of the research. The university plans to carry out the required research during 2021 and anticipates that it will incur direct costs totaling $1.5 million.

You are the Accounting Supervisor at the University. The Chief Fiscal Officer, knowing that you recently took a class in Government and Not-for-Profit Accounting, comes to you for advice. The CFO asks you to brief him on the following items…

a. What accounting entries, if any, should Hi Tech make, now that it has been notified of the grant?

b. What accounting entries, if any, should Hi Tech make in 2021?

c. In to which funds would the entries be recorded?

d. What if we make the results of the research available to the general public and not just the NHA? How will that change things?

e. What if the NHA indicates that, instead of providing the funds at the beginning of the grant, it will not make any payments on the research until delivery of the final research product. What effect will that have, if any, on the accounting entries that we plan to make in parts a) and b)?

Answer 1

A) Journal entries of grnats notified :
Bank/cash a/c Dr	$ 3 million
To Grants received from National Hockey Association a/c		$ 3 million

B) now here, on 2021 as the grant has become conditional upon incurring qualifying expenses:
Direct Cost a/c Dr	$ 1.5 million
Overhead cost a/c   Dr	$ 0.5 million
To Cash/Bank A/c		$ 2 million
Grant receivable a/c Dr	$ 2 million
to Grant revenue a/c		$ 2 million

C) Into hockey fund or sports fund the grant will be recorded

D) If the results of the research is made public, it will prove the authenticty of the research and also it will increase the faith of NHA upon Hi tech university to assist it further with more grants in the future.Moreover, even the public will get greater insights into the workings of Hi yech unversity thus making it a very reliable institution.

E) Now if NHA decides that it will not provide grants earlier but only on the completion of the final research product, then the journal entries will be as follows:

Direct Cost a/c Dr	$ 1.5 million
Overhead cost a/c   Dr	$ 0.5 million
To Cash/Bank A/c		$ 2 million

Bank/cash a/c Dr	$ 2 million
To Grants received from National Hockey Association a/c		$ 2 million