In April, Year1, Delta Hospital purchased medicines from Field Pharmaceutical Co. at a cost of $5,000. However, Field notified Delta that the invoice was being canceled and that the medicines were being donated to Delta. Delta should record this donation of medicines as:
a. A memorandum entry only
b. A $5,000 credit to non-operating expensed
c. A $5,000 credit to operating expenses
d. Other operating revenun
Answer:D
Choice "d" is correct. Donations of medicines are included as other operating revenue at the fair value of the medicine, since the medicine constitutes part of the ongoing major operation of the hospital.
Choice "a" is incorrect. Donated goods are recorded on the books and records of a not-for-profit organization. A memorandum entry is not adequate.
Choice "b" is incorrect. Pharmaceuticals represent part of the ongoing and central operations of the hospital. Donated items would represent other operating revenue and, ultimately, operating expenses.
Choice "c" is incorrect. Donated pharmaceuticals represent operating revenue, not a reduction in expenses. Amounts would be presented gross and not net.