Chapter 19 - Not-For-Profit Entities Chapter 19 Not-For-Profit Entities Multiple Choice Questions Which rule-making body is currently setting standards of financial reporting for private not-for-profit universities and for public (governmental) universities? A Option A B Option B C Option C D Option D Net assets restricted as to time or purpose should be classified as: I temporarily restricted II permanently restricted A I only B II only C Both I and II D Neither I nor II 19-1 Chapter 19 - Not-For-Profit Entities A not-for-profit organization received a donation temporarily restricted as to use The donated amount was later spent in accordance with the restriction In which category(ies) of net assets should the related revenues and expenses be recognized? A Option A B Option B C Option C D Option D According to FASB 93, "Recognition of Depreciation by Not-For-Profit (NFP) Entities," NFP entities should recognize depreciation: I on all long-lived tangible assets II on all long-lived intangible assets A I only B II only C Both I and II D Neither I nor II The term "restricted" as used in university accounting refers to a constraint on the use of funds which has been: I internally imposed II externally imposed A I only B II only C Either I or II D Neither I nor II 19-2 Chapter 19 - Not-For-Profit Entities According to Statement of Financial Accounting Standards 117, the statement of financial position of a private university should report the excess of the university's assets over its liabilities as: A fund balance B unrestricted and restricted fund balance C retained earnings D unrestricted, temporarily restricted, and permanently restricted net assets Which of the following is an example of volunteer services received by a not-for-profit entity that should be recognized as revenue? I Services requiring specialized skills, provided by individuals with those skills, that otherwise would have to be purchased II Services of lay faculty at a private university operated by a religious order III Services that create or enhance non-financial assets, regardless of whether or not they require specialized skills A I only B I and III only C II and III only D I, II, and III In a university, class cancellation refunds of tuition and fees should be recorded as: I a reduction of revenue from tuition and fees II a reduction of accounts receivable A I only B II only C Either I or II D Neither I nor II 19-3 Chapter 19 - Not-For-Profit Entities Which of the following recognition and measurement bases best summarizes the usual treatment of current contributions to private not-for-profit entities in accordance with FASB 116? A Option A B Option B C Option C D Option D 10 According to FASB 124, not-for-profit entities should report investments in the financial statements at: I fair market value II lower of cost or market A I only B II only C Either I or II D Neither I nor II 11 Investment income for not-for-profit entities may include: I interest from debt investments II dividends from equity investments III changes in the fair values of both debt and equity investments A I only B I and II only C I and III only D I, II, and III 19-4 Chapter 19 - Not-For-Profit Entities 12 A private university received $280,000 from student tuition and fees for the year 2009 summer session The session began on June 20, 2009, and ended on July 30, 2009 The university's fiscal year end is June 30 According to the AICPA College and University Audit Guide, how should the university report the $280,000 of receipts in its financial statements for the year ended June 30, 2009? A Current revenue of $280,000 B Current revenue of $70,000 and deferred revenue of $210,000 C Deferred revenue of $280,000 D Restricted current revenue of $280,000 13 Assume that a private university collects tuition and fees at the beginning of summer school, in which two weeks are offered in the first fiscal year and the remaining six weeks are offered in the second fiscal year According to the approach recommended by the National Association of College and University Business Officers (NACUBO), the university would: A record the collections as a debit to Cash and a credit to Deferred Revenue for the entire amount of the collections B record the collections as a debit to Cash and a credit to Restricted current revenue for the entire amount of the collections C account for the entire tuition and fees as revenue in the first fiscal period D recognize revenue in the first fiscal period for two-eighths of the tuition and fees and record six-eighths of the collections as a deferred revenue 14 A private university offers graduate assistantships to qualified students each year In exchange for the waiver of tuition, graduate assistants are required to assist faculty members with research and other activities Assume a graduate assistant received a $4,000 tuition waiver for the current academic year Based on these facts, the university should record A tuition revenues of $4,000 and expenditures of $4,000 B tuition revenues of $0 and expenditures of $0 C tuition revenues of $4,000 and expenditures of $0 D tuition revenues of $4,000 and a reduction of tuition revenues of $4,000 19-5 Chapter 19 - Not-For-Profit Entities 15 For the year ended June 30, 2009, a university assessed its students a total of $4,000,000 for tuition and fees Included in this amount was $300,000 of tuition remissions awarded to graduate teaching assistants, and $150,000 of scholarships awarded to undergraduate students Tuition and fees totaling $3,550,000 were collected during the year ended June 30, 2009 What amount should be reported in the unrestricted fund as net revenue from tuition and fees for the year ended June 30, 2009? A $4,000,000 B $3,550,000 C $3,700,000 D $3,850,000 16 A private not-for-profit university generally must depreciate all tangible fixed assets, except: I works of art and other historical treasures II administration buildings A I only B II only C Both I and II D Neither I nor II 17 A private college received an offer from a CPA who is an alumnus to teach a onesemester advanced accounting course at no cost FASB 116 prescribes that this contribution of service: A need only be disclosed in the footnotes to the financial statements B be recorded as an asset with an equivalent amount recorded in the unrestricted fund balance C be recorded as a revenue with an equivalent amount recorded as an expenditure D need not be recorded if the service is for a period less than one academic year 18 In accordance with FASB 117, contributions from donors which are to be permanently invested should be disclosed on the statement of activities of a private university as an increase in: A Permanently restricted net assets B Permanently restricted fund balance C Endowment fund balance D Deferred revenues 19-6 Chapter 19 - Not-For-Profit Entities 19 For the year ended June 30, 2009, a private college received contributions from alumni which were restricted for faculty research stipends to be awarded during the next fiscal year For the year ended June 30, 2009, these contributions should be disclosed on the statement of activities of the private college as an increase in: A the fund balance of the restricted current fund B temporarily restricted net assets C deferred revenues D temporarily restricted fund balance 20 A private, not-for-profit university should prepare which of the following financial statements? A I, II, and III B II, III, and IV C I, II, and IV D II, III, and V 21 Unrestricted gifts and endowment income of a private university are reported as A increases in the unrestricted current fund balance on the statement of changes in fund balances B unrestricted revenues on the statement of current funds revenues, expenditures, and other changes C unrestricted revenues on the statement of activities D increases in the unrestricted current fund balance on the statement of activities 19-7 Chapter 19 - Not-For-Profit Entities 22 One of the major objectives of FASB 117 is to A emphasize the different fund structures that currently exist for all private, nonprofit organizations B change the reporting for governmental organizations so that their reporting is comparable to that of private, nonprofit organizations C report combined financial statements, instead of individual fund financial statements, for all private, nonprofit organizations D bring about greater uniformity in the financial statements of all private, not-for-profit organizations 23 A not-for-profit private college in Virginia created a separate foundation responsible for obtaining financial support from alumni and others Foundation assets are used for the benefit of the college Donations made to the foundation and subsequently transferred to the college should be: A recognized as revenues by the foundation when received, and as revenues of the college when transferred B recognized as revenues by the foundation when received and as expenses by the foundation when transferred C recognized both as a change in its interest in the foundation and as revenues by the college when the donation is received by the foundation D recognized as an increase in net assets of the foundation and as revenues of the college when the donation is received by the college 24 FASB 93: A guides depreciation B guides accounting for contributions C establishes financial display requirements D establishes the accounting for investments 19-8 Chapter 19 - Not-For-Profit Entities 25 On the statement of operations prepared for a private, not-for-profit hospital, patient service revenue earned during the year is reported net of amounts for which of the following items? I Contractual adjustments II Bad debts expense A I only B II only C I and II D Neither I nor II 26 A private, not-for-profit hospital received a cash contribution of $100,000 from Samantha Hicks on November 14, 2008 Ms Hicks specified the money be used to acquire equipment On December 31, 2008, the hospital had not expended any of Ms Hicks' contribution On the statement of changes in net assets for the year ended December 31, 2008, the hospital should report the contribution as a $100,000 increase in A temporarily restricted net assets B unrestricted net assets C fund balance D deferred revenue 27 Unrestricted current funds of a private university designated by the governing board for a specific future purpose should be reported as part of: A unrestricted net assets B temporarily restricted net assets C board-restricted net assets D term endowments 28 A private, not-for-profit geographic society received cash contributions which were restricted by the donors for the acquisition of fixed assets In which section of the statement of cash flows would these cash contributions be reported? A Financing activities B Investing activities C Operating activities D Capital and related financing activities 19-9 Chapter 19 - Not-For-Profit Entities 29 On the statement of activities for a private, not-for-profit literary society, expenses decrease which of the following classes of net assets? I temporarily restricted net assets II unrestricted net assets A I only B II only C Either I or II D Neither I nor II 30 Bridger Hospital, which is operated by a religious organization, provides charity care for the indigent living in the region served by the hospital How should Bridger report the amount of its charity care on its financial statements? A In the notes to the financial statements only B As unrestricted revenues on the statement of operations C As net patient service revenue and as an expense, equal to the net patient service revenue, on the statement of operations D As temporarily restricted revenue on the statement of operations 31 The governing board of Samaritan Hospital, which is operated by a religious organization, designated $500,000 of cash for future expansion of the hospital On the hospital's balance sheet, the cash designated for future plant expansion would be disclosed in which of the following classes of net assets? A Temporarily restricted net assets B Unrestricted net assets C Plant replacement and expansion D Board designated net assets 32 Good Care Hospital, which is operated by a religious organization, received contributions of $1,000,000 from donors who stipulated that the cash be used to construct an addition to the hospital As of the balance sheet date, none of the contributions had been expended for construction On the hospital's balance sheet, the cash contributions would be disclosed in which of the following classes of net assets? A Temporarily restricted net assets B Donor restricted net assets C Assets whose use is limited D Permanently restricted net assets 19-10 Chapter 19 - Not-For-Profit Entities -82 Transaction: Received cash contribution from donor who stipulated the contribution be permanently invested Effect on Statement of Operations: A Increases operating income B Decreases operating income C The transaction is reported on the statement of operations, but there is no effect on operating income D The transaction is not reported on the statement of operations AACSB: Reflective Thinking AICPA: Decision Making 83 Transaction: Acquired investments with cash received in the previous item Effect on Statement of Operations: A Increases operating income B Decreases operating income C The transaction is reported on the statement of operations, but there is no effect on operating income D The transaction is not reported on the statement of operations AACSB: Reflective Thinking AICPA: Decision Making 84 Transaction: Received tuition revenue from hospital nursing program and cash from sales of goods in the hospital gift shop Effect on Statement of Operations: A Increases operating income B Decreases operating income C The transaction is reported on the statement of operations, but there is no effect on operating income D The transaction is not reported on the statement of operations AACSB: Reflective Thinking AICPA: Decision Making 19-68 Chapter 19 - Not-For-Profit Entities 85 FASB 117 requires that an ONPO provide three financial statements Which of the following is not one of them? A A statement of financial position B A statement of activities C A statement of cash flows D A statement of functional expenses AACSB: Reflective Thinking AICPA: Decision Making 86 Reporting requirements of other not-for-profit entities (ONPOs) are similar to those of which of the following entities? A A public university B A voluntary health and welfare organization C An enterprise fund of a state or local government D A hospital operated by a county government AACSB: Reflective Thinking AICPA: Decision Making Essay Questions 19-69 Chapter 19 - Not-For-Profit Entities 87 The following information is contained in the funds which are used to account for the transactions of the Hope Hospital, which is operated by a nonprofit, religious organization The balances in the accounts are as of June 30, 2009, the end of the hospital's fiscal year Credit amounts are in parentheses Additional information: The $64,000 in the specific purpose fund is restricted for research activities to be conducted by the hospital Required: Prepare a balance sheet for Hope Hospital as of June 30, 2009 19-70 Chapter 19 - Not-For-Profit Entities 19-71 Chapter 19 - Not-For-Profit Entities AACSB: Analytic AICPA: Reporting 19-72 Chapter 19 - Not-For-Profit Entities Private Not-For-Profit (NFP) Entities Select from this list of terms to answer the following questions Indicate your choice by entering the letter corresponding to the correct term A term may be used more than once or not at all 88 "Responsible for establishing accounting standards for private NFP entities" describes which term listed above? D AACSB: Reflective Thinking AICPA: Decision Making 19-73 Chapter 19 - Not-For-Profit Entities 89 "Classification of an endowment contribution" describes which term listed above? K AACSB: Reflective Thinking AICPA: Decision Making 90 "Reported as an expenditure of the fund using plant and equipment" describes which term listed above? O AACSB: Reflective Thinking AICPA: Decision Making 91 "Financial statement of a private NFP entity" describes which term listed above? H AACSB: Reflective Thinking AICPA: Decision Making 92 "Tangible fixed assets not depreciated by a private college or university" describes which term listed above? P AACSB: Reflective Thinking AICPA: Decision Making 19-74 Chapter 19 - Not-For-Profit Entities 93 "Basis for measuring investments in financial statements" describes which term listed above? A AACSB: Reflective Thinking AICPA: Decision Making 94 "Classification of investment income from endowment investments if there are no donor restrictions as to income" describes which term listed above? B AACSB: Reflective Thinking AICPA: Decision Making 95 "Classification of contributions restricted by purpose" describes which term listed above? L AACSB: Reflective Thinking AICPA: Decision Making 96 "Basis for measuring expenditures for contributed services requiring special skills" describes which term listed above? A AACSB: Reflective Thinking AICPA: Decision Making 19-75 Chapter 19 - Not-For-Profit Entities 97 "Basis for measuring contributions" describes which term listed above? A AACSB: Reflective Thinking AICPA: Decision Making 98 "Net asset classifications per FAC 6" describes which term listed above? N AACSB: Reflective Thinking AICPA: Decision Making 99 "Basis of accounting for private NFPs" describes which term listed above? G AACSB: Reflective Thinking AICPA: Decision Making 19-76 Chapter 19 - Not-For-Profit Entities 100 The CFO of a "Not-for-Profit" hospital is making a presentation at your college The presentation is for Business and Health-Science majors During the presentation the CFO mentions assets being reported "above the line." On the way out your roommate a healthscience major asks, you an accounting major, to explain what the CFO was referring to What you respond? Not-for-Profit hospitals report an operating performance indicator in their statement of operations This item reports the hospital's operating activities for the period and should include both operating income (loss) for the period and other income available for current operations FASB 117 requires that net assets released from restrictions that are used in operations to be included in the performance indicator, thus, "above the line" This allows the reader of the financial statements to be able to identify assets that were previously restricted, held for specified purposes by the donor, that are now available for use in operations Therefore, expenses incurred to achieve the entity's operations can be matched with the resources AACSB: Communication AICPA: Critical Thinking The transactions described in the following questions occurred in a voluntary health and welfare organization during the year ended December 31, 2008 For each transaction, indicate its effect(s) on the organization's statement of activities prepared for the year ended December 31, 2008 List all effects of transactions affecting more than one class of net assets Indicate your choice(s) by entering the letter corresponding to the effects listed here: 19-77 Chapter 19 - Not-For-Profit Entities 101 Received cash contributions restricted by donors for research C AACSB: Reflective Thinking AICPA: Decision Making 102 Incurred fund-raising costs B AACSB: Reflective Thinking AICPA: Decision Making 103 Depreciation expense for the year was recorded B AACSB: Reflective Thinking AICPA: Decision Making 104 The governing board designated assets for plant expansion G AACSB: Reflective Thinking AICPA: Decision Making 105 A gain was realized from the sale of securities which were permanently invested The gain is restricted as to use C AACSB: Reflective Thinking AICPA: Decision Making 19-78 Chapter 19 - Not-For-Profit Entities 106 Endowment income was earned The donor specified that the income be used for community service C AACSB: Reflective Thinking AICPA: Decision Making 107 Received a multi-year pledge, with cash being received this year and for the next years Donors did not place any use restrictions on how the pledges were to be spent A and C AACSB: Reflective Thinking AICPA: Decision Making 108 Income was earned from investments of assets that the board previously designated for plant expansion A AACSB: Reflective Thinking AICPA: Decision Making 109 Received pledges from donors who placed no time or use restrictions on how the pledges were to be spent A AACSB: Reflective Thinking AICPA: Decision Making 19-79 Chapter 19 - Not-For-Profit Entities 110 Received cash contributions restricted by donors for equipment C AACSB: Reflective Thinking AICPA: Decision Making 111 Acquired equipment with all of the contributions previously received from donors for equipment purchases A and D AACSB: Reflective Thinking AICPA: Decision Making 112 Expended 75 percent of the contributions previously received from donors for research D AACSB: Reflective Thinking AICPA: Decision Making 19-80 Chapter 19 - Not-For-Profit Entities 113 Following are four independent transactions or events that relate to a voluntary health and welfare organization: Cash disbursement of $45,000 was made from the general fund's unrestricted assets for the purchase of new equipment for the organization The organization receives an unrestricted cash gift of $80,000 from a donor Common stock investments with a total carrying value of $100,000 were sold by a permanently restricted endowment fund for $112,000 before any dividends were earned on these stocks The gain is donor-restricted to remain in the permanently restricted fund General obligation bonds payable with a face amount of $750,000 were sold at par, with the proceeds required to be used solely for construction of a new building This building was completed at a total cost of $750,000, and the total amount of bond issue proceeds was disbursed toward this cost Disregard interest capitalization Required: For each of these transactions or events, prepare journal entries specifying the affected funds and showing how these transactions or events should be recorded by the organization 19-81 Chapter 19 - Not-For-Profit Entities AACSB: Analytic AICPA: Reporting 114 The FASB has issued five standards that have direct applicability to private, not-forprofit entities From the list given below, match each standard to the area it deals with AACSB: Reflective Thinking AICPA: Reporting 19-82 [...]... board-designated net assets of $6,000 49 Which financial statement is (are) required for a voluntary health and welfare organization which is not required for a private, not- for- profit hospital? I A statement of operations II A statement of functional expenses A I only B II only C Both I and II D Neither I nor II 19- 15 Chapter 19 - Not- For- Profit Entities 50 A private, not- for- profit hospital expended $35,000... Entities Private Not- For- Profit (NFP) Entities Select from this list of terms to answer the following questions Indicate your choice by entering the letter corresponding to the correct term A term may be used more than once or not at all 88 "Responsible for establishing accounting standards for private NFP entities" describes which term listed above? 19- 29 Chapter 19 - Not- For- Profit Entities 89 "Classification... which term listed above? 19- 31 Chapter 19 - Not- For- Profit Entities 97 "Basis for measuring contributions" describes which term listed above? 98 "Net asset classifications per FAC 6" describes which term listed above? 99 "Basis of accounting for private NFPs" describes which term listed above? 100 The CFO of a "Not- for- Profit" hospital is making a presentation at your college The presentation is for. .. transaction is not reported on the statement of operations 85 FASB 117 requires that an ONPO provide three financial statements Which of the following is not one of them? A A statement of financial position B A statement of activities C A statement of cash flows D A statement of functional expenses 19- 26 Chapter 19 - Not- For- Profit Entities 86 Reporting requirements of other not- for- profit entities (ONPOs)... describes which term listed above? 90 "Reported as an expenditure of the fund using plant and equipment" describes which term listed above? 91 "Financial statement of a private NFP entity" describes which term listed above? 92 "Tangible fixed assets not depreciated by a private college or university" describes which term listed above? 19- 30 Chapter 19 - Not- For- Profit Entities 93 "Basis for measuring... those of which of the following entities? A A public university B A voluntary health and welfare organization C An enterprise fund of a state or local government D A hospital operated by a county government Essay Questions 19- 27 Chapter 19 - Not- For- Profit Entities 87 The following information is contained in the funds which are used to account for the transactions of the Hope Hospital, which is operated... pledges would not be collected How should the voluntary health and welfare organization report these pledges on its financial statements prepared at the end of its fiscal year, June 30, 2009? A As fund balance for $45,000 B As contribution revenue-unrestricted for $45,000 C As contribution revenue-unrestricted for $50,000 D As fund balance-unrestricted for $50,000 19- 11 Chapter 19 - Not- For- Profit Entities. .. that an "other not- for- profit entity" (ONPO) provide three financial statements Which of the following is NOT one among them? A A statement of functional expenses B A statement of financial position C A statement of activities D A statement of cash flows 19- 18 Chapter 19 - Not- For- Profit Entities 61 A private, not- for- profit hospital received the following restricted contributions and other receipts... those skills, and would typically need to be purchased if not provided by donations III The services will be performed within the current fiscal year A I or II B I or III C II or III D I, II, III 19- 13 Chapter 19 - Not- For- Profit Entities 44 The disclosure, "net assets released from restrictions," is reported on which of the following financial statements for a voluntary health and welfare organization?... Indicate your choice(s) by entering the letter corresponding to the effects listed here: 101 Received cash contributions restricted by donors for research 102 Incurred fund-raising costs 19- 33 Chapter 19 - Not- For- Profit Entities 103 Depreciation expense for the year was recorded 104 The governing board designated assets for plant expansion 105 A gain was realized from the sale of securities which were permanently