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Need Explanation- FAR CPA-01243

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Posted 06 August 2015 - 12:54 AM

Famous, a non-governmental not-for-profit art museum, has elected not to capitalize its donated permanent collections. In Year 1, a bronze statue was stolen. The statue was not recovered and insurance proceeds of $35,000 were paid to Famous in Year 2. This transaction would be reported in:


The statement of activities as permanently restricted revenues.


The statement of cash flows as cash flows from investing activities.


II only.


I only.


Both I and II.


Neither I nor II.

Becker - Explanation

Choice "a" is correct. Investing activities in the statement of cash flows should include proceeds from the sale of long lived assets or insurance proceeds associated with the loss of long lived assets. Entities that do not capitalize their permanent collections display insurance proceeds from lost, stolen or damaged items on the statement of activities in an appropriate change in net asset classification separate from revenues, expenses, gains, and losses.




I feel like that explanation contradicts itself. It is saying that investing activities on the CF statement should include insurance proceeds. Then it says entities that do NOT capitalize - which in this question the museum did not capitalize - display insurance proceeds on the statement of activities. Is it saying it goes on both? Maybe I am missing something?


Thank you! :) - AJ



Sit for FAR Aug 28th at 1:00pm - getting nervous!!