A performing arts NFP received a contribution of tickets valued at $500 to a show it produced. The tickets were given to a major donor as an acknowledgment of their annual support, which is common practice for the NFP. How should the NFP record these tickets?
- ARecognize contribution revenue of $500 and fundraising expense of $500.
- BNo revenue or expense should be recognized as it is an acknowledgment, not a reciprocal exchange.
- CRecognize contribution revenue of $500 and program expense of $500.
- DRecognize contribution revenue of $500 and an increase in net assets without donor restrictions.
Show answer & explanationAnswer & explanation
Correct answer: C. Recognize contribution revenue of $500 and program expense of $500.
When an NFP provides goods or services in exchange for a contribution, the fair value of the goods or services provided reduces the contribution revenue. However, if the goods or services are provided as an 'acknowledgment' and are incidental to the contribution, the entire contribution is recognized. In this case, the tickets are the NFP's own product, so the NFP records the full contribution and simultaneously records the expense of providing the tickets.
Why the other options are wrong
- A. While related to donors, the provision of program tickets is typically a program expense, not a fundraising expense, unless the sole purpose was fundraising.
- B. The NFP provided its own service (tickets) for which there is a cost, and it received a benefit (the donor's support). This is not an 'acknowledgment' in the sense of a non-reciprocal token, but offering a service that has value.
- D. This incorrectly omits the expense incurred by providing the tickets.
NFP Goods/Services Provided
When an NFP provides its own goods or services as part of a contribution arrangement, it generally recognizes the full contribution revenue and a corresponding expense for the fair value of the goods/services provided.
- Full contribution revenue is recognized.
- Corresponding expense is recorded (e.g., program or fundraising).
- Differs from quid pro quo, where revenue is reduced by value of goods/services.
Memory trick: Full contribution in, full expense out for NFP's own show.