02 General-Purpose Financial Reporting: Nongovernmental Not-for-Profit Entities

Question 1

List the three financial statements that are required for all private not-for-profit organizations.

Answer 1

1. Statement of financial position
2. Statement of activity (operations)
3. Statement of cash flows

Question 2

What authoritative body has jurisdiction over private not-for-profit organizations?

Answer 2

The Financial Accounting Standards Board (FASB)

Question 3

List the four broad categories of not-for-profit organizations.

Answer 3

1. Hospitals and other health care entities
2. Colleges and universities
3. Voluntary health and welfare organizations
4. Other not-for-profit organizations

Question 4

List the two categories of a not-for-profit organization’s net assets.

Answer 4

1. Net assets without a donor restriction
2. Net assets with a donor restriction

Question 5

List the two broad classifications for expenditures within a not-for-profit organization.

Answer 5

1. Program services
2. Supporting services

Question 6

In what net asset categories are operating expenses recognized by a private not-for-profit organization?

Answer 6

Net assets without a donor restriction. Expenses are not recognized in the net assets with a donor restriction category.

Question 7

A donor gave $15,000 to a not-for-profit organization and specified a beneficiary (a particular individual) to receive the funds. What must the not-for-profit organization possess in order to recognize the $15,000 as a contribution?

Answer 7

Variance power. The not-for-profit (NFP) must have the ability to set aside the donor restriction (e.g., redirect the resources to another beneficiary or revoke the restriction). The NFP would recognize a liability if it does not have variance power.

Question 8

List the two subclassifications of expenditures for supporting services within a not-for-profit organization.

Answer 8

1. Management and general
2. Fund raising

Question 9

Describe the accounting entry for a not-for-profit organization that has a donor restriction of $5,000 satisfied.

Answer 9

The entry is a reclassification. “Net assets released from restrictions” is reported as a $5,000 decrease in the revenue section of net assets with a donor restriction and as a $5,000 increase in the revenue section of net assets without a donor restriction.

Question 10

List two types of temporary restrictions for private not-for-profit organizations.

Answer 10

1. Time restrictions, when the donor stipulates that the resources must be spent in a certain time period
2. Purpose restrictions, when the donor stipulates that the resources must be spent on a specific manner

Question 11

What is the journal entry to record receipt of $100,000 in pledges when it is estimated that 20% of the pledges will be uncollectible?

Answer 11

DR: Pledges Receivable $100,000
CR: Est. Uncollectible Pledges $20,000
CR: Contribution (Revenue) $80,000

Question 12

Describe the general revenue recognition rule for contributions.

Answer 12

In general, contributions are recognized as revenue in the period when the contribution is made, regardless of whether they are received in cash or not.

Question 13

When is a contribution of services recognized?

Answer 13

It is recognized if the services require special skills, the person providing the services possess those skills, and the services would have been purchased if not obtained by donation.

Question 14

When are conditional promises to give recognized?

Answer 14

They are recognized when the conditions are substantially met or the likelihood of the conditions not being met is remote.

Question 15

Define “underwater” endowments and how they are reported in the financial statements.

Answer 15

An endowment is underwater when its fair value is less than the original gift or a level set by the donor or by law. The amount underwater is disclosed in the net assets with a donor restriction of the statement of financial position.

Question 16

Define “term endowments.”

Answer 16

Gifts and bequests from third parties that are to be retained and invested for a period of time or until a specific event occurs, but after the criterion has been met, the full amount can be spent.

Question 17

How is tuition revenue reported?

Answer 17

It is reported net of tuition discounts and scholarship allowances in the operating statement. However, scholarships, assistantships, and tuition waivers granted in return for services are reported as expenses.

Question 18

List the three conditions that must be met in order for assets to be classified as “collectibles.”

Answer 18

Held for public exhibition, education, or research rather than financial gain
Protected, kept unencumbered, cared for, and preserved
Subject to a policy that requires proceeds from sales of collection items to be used to acquire other items for collections, the direct care of existing collections, or both.