IS THIS REALLY AN ASSET?
Mercy Hospital is located near Springfield, Missouri. A religious organization created the not-for-profit hospital more than 70 years ago to meet the needs of area residents who could not otherwise afford adequate health care. Although the hospital is open to the public in general, its primary mission has always been to provide medical services for the poor.
On December 23, 2010, a gentleman told the hospital’s chief administrative officer the following story: “My mother has been in your hospital since October 30. The doctors have just told me that she will soon be well and can go home. I cannot tell you how relieved I am. The doctors, the nurses, and your entire staff have been just wonderful; my mother could not have gotten better care. She owes her life to your hospital.”
“I am from Idaho. Now that my mother is on the road to recovery, I must return immediately to my business. I am in the process of attempting to sell an enormous tract of land. When this acreage is sold, I will receive $15 million in cash. Because of the services that Mercy Hospital has provided for my mother, I want to donate $5 million of this money.” The gentleman proceeded to write this promise on a piece of stationery that he dated and signed.
Obviously, all of the hospital’s officials were overwhelmed by this individual’s generosity. This $5 million gift was 50 times larger than any other gift ever received. However, the controller was concerned about preparing financial statements for 2010. “I have a lot of problems with recording this type of donation as an asset. At present, we are having serious cash flow problems; but if we show $5 million in this manner, our normal donors are going to think we have become rich and don’t need their support.”
What problems are involved in accounting for the $5 million pledge? How should Mercy Hospital report the amount?
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