1C - General-Purpose Financial Statements: Not-For-Profit Business Entities

Question 1

Box, a nongovernmental not-for-profit organization, had the following transactions during the year:

Proceeds from sale of investments $ 80,000
Purchase of property, plant, and equipment 10,000
Proceeds from long-term debt 100,000
Loss on sale of investment 5,000
What amount should be reported as net cash provided by financing activities in Box’s statement of cash flows?

$100,000

$70,000

$80,000

$75,000

Answer 1

$100,000
The only item for Box that qualifies as a financing activity is the proceeds from long-term debt of $100,000.

The proceeds from the sale of investments and purchase of property, plant, and equipment would be classified as investing activities. Losses are not reported on the statement of cash flows under the direct method and are a noncash adjustment to the operating section under the indirect method.

Question 2

Which of the following assets of a nongovernmental not-for-profit charitable organization must be depreciated?

A bulk purchase of $20,000 of linens for its nursing home

Land valued at $1,000,000 being used as the site of the new senior citizen home

Building costs of $500,000 for construction in progress for senior citizen housing

A freezer costing $150,000 for storing food for the soup kitchen

Answer 2

A freezer costing $150,000 for storing food for the soup kitchen

The freezer is a long-lived, tangible asset currently being used in operations. It also has a limited life. Assets not being used in operations and land are not depreciated

Question 3

Alpha Hospital, a large not-for-profit entity, has adopted an accounting policy that does not imply a time restriction on gifts of long-lived assets. An accounting firm prepared Alpha’s annual financial statements without charge to Alpha. Indicate the manner in which this transaction affects Alpha’s financial statements.

Increase in unrestricted revenues, gains, and other support

Increase in net assets with donor restrictions

Decrease in an expense

Increase in board-restricted net assets

Answer 3

Increase in unrestricted revenues, gains, and other support

The donation of a professional service, which the hospital would otherwise have to pay out cash for, is reportable as a donation and would increase unrestricted revenues, gains, and other support. It would also increase expense. The designation “board-restricted net assets” does not exist.

Question 4

Zokro, a nongovernmental not-for-profit organization, uses the indirect method to prepare its statement of cash flows. In determining its net cash provided (used) by operating activities, Sokro must add back which of the following to the change in net assets?

Purchase of equipment

Payment on long-term debt

Depreciation

Decrease in accounts payable

Answer 4

Depreciation

A statement of cash flows for a not-for-profit entity prepared under the indirect method begins with changes in net assets and adjusts for noncash items, such as depreciation, which are added back.

Question 5

A statement of cash flows for a not-for-profit entity prepared under the indirect method begins with changes in net assets and adjusts for noncash items, such as ___, which are added back.

Answer 5

depreciation

Question 6

In a not-for-profit entity, which of the following should be included in total expenses?

Depreciation

Neither grants to other organizations nor depreciation

Grants to other organizations and depreciation

Grants to other organizations

Answer 6

Grants to other organizations and depreciation

Per FASB ASC 720-25-25-1, contributions made by a business are considered expenses of the period. Not-for-profit entities recognize expenses the same way as businesses, so the contribution would be considered an expense with the other expenses of the period. FASB ASC 958-720-45-15 lists depreciation as an expense.

Question 7

A storm broke glass windows in Lea Meditators’ building. Lea is a not-for-profit religious organization. A member of Lea’s congregation, a professional glazier, replaced the windows at no charge. In Lea’s statement of activities, the breakage and replacement of the windows should:

be reported as an increase in both expenses and contributions.

be reported by note disclosure only.

not be reported.

be reported as an increase in both net assets and contributions.

Answer 7

be reported as an increase in both expenses and contributions.

Contributions received shall be recognized as revenues or gains in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received

Question 8

A nongovernmental not-for-profit entity received the following donations of corporate stock during the year:

                                     Donation 1  Donation 2  Number of shares                           2,000       3,000

Adjusted basis $ 8,000 $5,500
Fair market value at time of donation 8,500 6,000
Fair market value at year-end 10,000 4,000
What net value of investments will the organization report at the end of the year?

$14,000

$13,500

$14,500

$12,00

Answer 8

14,000

The FASB guidance provides that investments in equity securities (stock) with readily determinable market value are reported at market value

Question 9

Which of the following resources increases the net assets with donor restrictions of a nongovernmental, not-for-profit voluntary health and welfare entity?

Refundable advances for purchasing playground equipment

Membership fees to fund general operations

Donor contributions to fund a resident camp program

Participants’ deposits for an entity-sponsored trip

Answer 9

Donor contributions to fund a resident camp program

Question 10

During the current year, a voluntary health and welfare entity receives $300,000 in unconditional promises to give expected to be collected in less than one year. Of this amount, $100,000 has been designated by donors for use next year to support operations. If 15% of the unrestricted promises are expected to be uncollectible, what amount of unrestricted support should the entity recognize in its current-year financial statements?

$200,000

$300,000

$270,000

$170,000

Answer 10

The contributions that donors intend to be used to finance the next year’s operations are restricted support. Promises that donors intend to be used to finance current-year operations are reported as unrestricted support after deducting the uncollectible portion of the receivables.

$300,000 - $100,000 = $200,000
$200,000 × 0.15 = $30,000
$200,000 - $30,000 = $170,000

Question 11

A portfolio of equity securities that are traded on a national exchange is donated to a private, not-for-profit college as an endowment fund. How should the equity portfolio be valued in the college’s year-end financial statements three years after the donation?

Using fair value at the date of the financial statements

Using the donor’s original cost basis

Using the fair value at the time of donation

Using the lower of fair value at donation and fair value at the date of the financial statementsThe equity portfolio should be valued in the college’s year-end financial statements three years after the donation at fair value at the date of the statements

Answer 11

Using fair value at the date of the financial statements

The equity portfolio should be valued in the college’s year-end financial statements three years after the donation at fair value at the date of the statements. Donated equity securities with readily determinable market values are reported at market value; the length of the holding period is irrelevant.

Question 12

The ___portfolio should be valued in the college’s year-end financial statements three years after the donation at fair value at the date of the statements

Answer 12

equity

Question 13

Gridiron University is a private university. A successful alumnus has recently donated $1,000,000 to Gridiron for the purpose of funding a “center for the study of sports ethics.” This donation is conditional upon the university raising matching funds within the next 12 months. The university administrators estimate that they have a 50% chance of raising the additional money. How should this donation be accounted for?

As restricted support

As unrestricted support

As a refundable advance

As a memorandum entry reported in the footnotes

Answer 13

As a refundable advance

As a refundable advance,” considering the conditional donation as a liability called “refundable advance,” is the only correct answer.

Question 14

Clear Co.’s trial balance has the following selected accounts:

Cash (includes $10,000 in bond-sinking
fund for long-term bond payable) $50,000
Accounts receivable 20,000
Allowance for doubtful accounts 5,000
Deposits received from customers 3,000
Merchandise inventory 7,000
Unearned rent 1,000
Prepaid expenses 2,000
What amount should Clear report as total current assets in its balance sheet?

$72,000

$74,000

$64,000

$67,000

Answer 14

A current asset is any asset expected to be sold, consumed, or exhausted through normal operations within one fiscal year or one operating cycle (whichever is greater). Current assets typically include cash and cash equivalents, receivables, inventory, and prepaid expenses. The allowance for doubtful accounts is a contra-current asset. Deposits received from customers and unearned rent are both liabilities; Clear should report the remaining $64,000 as total current assets.

Cash (net of $10,000 in bond-sinking
fund classified as Other Asset) $40,000
Accounts receivable 20,000
Allowance for doubtful accounts (5,000)
Merchandise inventory 7,000
Prepaid expenses 2,000
TOTAL $64,000

Question 15

How should unconditional promises to give received by a nongovernmental not-for-profit entity that will be collected over more than one year be reported?

Deferred revenue, valued at present value

Contributions receivable, valued at the amount promised

Long-term contributions receivable, valued at the expected collection amount

Contributions receivable, valued at their present values

Answer 15

Contributions receivable, valued at their present values

The contributions receivable are valued at present values, not future values. The contributions should be recognized as revenue in the period they are made and not deferred.

Question 16

In Year 1, Gamma, a not-for-profit organization, deposited at a bank $1,000,000 given by a donor to pur­chase endowment securities. The securities were purchased January 2, Year 2. At December 31, Year 1, the bank recorded $2,000 interest on the deposit. In accordance with the bequest, this $2,000 was used to finance ongoing program expenses in March of Year 2. At December 31, Year 1, what amount of the bank balance should be included as current assets in Gamma’s statement of financial position?

$1,002,000

$0

$1,000,000

$2,000

Answer 16

$2,000

In this situation, the income from the endowment is available to fund current program expenses (those incurred within the year). Since the principal of the endowment is designated for security investments (which are not current assets), only the income related to the investment is current, since it is intended to be expended within the coming year.

Question 17

Bridging the Gap, a nongovernmental not-for-profit entity that provides assistance for improved communications between individuals from different generations, received the following pledges (unconditional promises from donors), due within the current year:

Restricted for improvements to building $61,000
Unrestricted 83,000
Pledges are legally enforceable, but because Bridging the Gap has a low rate of noncollection, they choose to not enforce their legal right. Bridging the Gap’s experience indicates that 3% of all unconditional promises prove to be uncollectible. What amount should Bridging the Gap report as contributions receivable, net of any required allowance account?

$59,170

$80,510

$144,000

$139,680

Answer 17

$139,680

Contributions receivable expected to be collected within a year (and the related revenues) are reported net of estimated uncollectible contributions.

$61,000 + $83,000 = $144,000
$144,000 × 0.03 = $4,320 (estimated uncollectible)
$144,000 – $4,320 = $139,680 (net receivables)

Question 18

Pica, a nongovernmental not-for-profit entity, received unconditional promises of $100,000 expected to be collected within one year. Pica received $10,000 prior to year-end. Pica anticipates collecting 90% of the contributions and has a June 30 fiscal year-end. What amount should Pica record as contribution revenue as of June 30?

$80,000

$100,000

$90,000

$10,000

Answer 18

$90,000
Under FASB ASC 958-605-25-2, not-for-profit entities must record unconditional promises to give as contributions revenue when the promise is made. Under FASB ASC 958-605-30-6, such contributions may be recorded at net realizable value, or net of any allowance for uncollectible pledges.

Question 19

When a nongovernmental not-for-profit entity has board-designated net assets, where should the amounts and purposes of these net assets be disclosed?

Neither on the face of the statement of financial position nor in the notes to the financial statements

On the face of the statement of financial position but not in the notes to the financial statements

In the notes to the financial statements but not on the face of statement of financial position

Either on the face of the statement of financial position or in the notes to the financial statementsA donor provided a $10 million gift for a specific program to a nongovernmental, not-for-profit organization. The organization cannot spend the $10 million, but it may use the income on the gift for the donor-specified program. In the organization’s statement of activities, the gift should be reported as part of the change in:

restricted—nonspendable.

net assets without donor restrictions.

net assets with donor restrictions.

temporarily restricted net assets.

Answer 19

Either on the face of the statement of financial position or in the notes to the financial statements

Nongovernmental not-for-profit entities have the option to report board designated net assets either on the face of the statement of financial position or in the notes to the financial statements.

Question 20

A donor provided a $10 million gift for a specific program to a nongovernmental, not-for-profit organization. The organization cannot spend the $10 million, but it may use the income on the gift for the donor-specified program. In the organization’s statement of activities, the gift should be reported as part of the change in:

restricted—nonspendable.

net assets without donor restrictions.

net assets with donor restrictions.

temporarily restricted net assets.

Answer 20

net assets with donor restrictions.

Only restrictions imposed by donors or grantors are considered restrictions in accounting for not-for-profit organizations.

Question 21

Safe Haven has the purpose of providing safety and education for women who are the victims of domestic violence. Safe Haven is a nongovernmental not-for-profit entity. In the current year, Safe Haven received a gift of debt securities from a donor. The cost of the debt securities to the donor was $75,000, with an additional $250 for brokerage fees that were paid by the donor prior to the transfer of the securities. The debt securities had a fair value of $83,450 at the time of the transfer. If a statement of financial position were prepared at that time, at what amount should Safe Haven report the debt securities?

$75,250

$83,450

$75,000

$83,600

Answer 21

$83,450

In FASB ASC 958-605-30-2, the FASB states that “contributions received shall be measured at their fair values,” and FASB ASC 958-320-35-1 states that “investments in debt securities shall be measured at fair value.”

Fair value of readily traded securities is found by considering current market values ($83,450).

Question 22

A private not-for-profit entity’s statement of activities should report the net change for net assets:

without donor restrictions.

Changes in net assets are not reported on the statement of activities.

both with and without donor restrictions.

with donor restrictions.

Answer 22

both with and without donor restrictions.

The FASB indicates that the statement of activities for a not-for-profit entity shall report the amount of change in net assets with donor restrictions and net assets without donor restrictions.

Question 23

Oz, a nongovernmental not-for-profit entity, received $50,000 from Ame Company to sponsor a play given by Oz at the local theater. Oz gave Ame 25 tickets, which generally cost $100 each. Ame received no other benefits. What amount of ticket sales revenue should Oz record?

$47,500

$2,500

$50,000

$0

Answer 23

$2,500

This payment is partially an exchange transaction and partially a contribution and the two parts should be accounted for separately. Oz would recognize ticket sales revenue for the 25 tickets ($2,500) and recognize the balance as contribution revenue.

Question 24

Alpha Hospital, a large not-for-profit entity, has adopted an accounting policy that does not imply a time restriction on gifts of long-lived assets. Alpha received investments subject to the donor’s requirement that investment income be used to pay for outpatient services. Indicate the manner in which this transaction affects Alpha’s financial statements.

Increase in net assets with donor restrictions

No required reportable event

Increase in unrestricted revenues, gains, and other support

Increase in net assets without donor restrictions

Answer 24

Increase in net assets with donor restrictions

When investments are donated and the principal of those funds cannot be expended, those investments are restricted. Therefore, Alpha must record an increase in its net assets with donor restrictions.

Question 25

ABC Foundation, a not-for-profit entity, has, over the years, received a number of donations that the donors wish to be held permanently. Although most of these were donations of cash and investments, the organization also received two parcels of land with buildings on them. The donors' wishes were that the real estate not be sold but be used by the organization or rented with the income used for any organizational purpose. Which of the following is false regarding the reporting for these net assets with donor restrictions? The real estate holdings would be included with the other net assets with donor restrictions, with additional information included in the notes to the statements. The real estate holdings would be included with the other net assets with donor restrictions, with additional information shown on the face of and in the notes to the financial statements. The real estate holdings would be included with the other net assets with donor restrictions, with no other details offered. The real estate holdings would be included with the other net assets with donor restrictions, with additional information shown on the face of the statements.

Answer 25

The real estate holdings would be included with the other net assets with donor restrictions, with no other details offered. In addition to the sum of the two classes of net assets, the FASB requires information about the nature and amounts of the different types of restricted assets of a not-for-profit entity to be disclosed. Disclosure could be on the face of the statements, in the notes to the statements, or by a combination of both.

Question 26

Mattes Curators is an organization that seeks to acquire and maintain historic buildings. During 20X8, Mattes was given a gift of securities with the indicated stipulations: Debt securities valued at $1,545,000 are to be held for one year and then are to be sold with the proceeds used to provide funds for acquisition of a historic residence in the community. Equity securities valued at $470,000 are to be used for whatever purposes Mattes’ board of directors deems appropriate. What amount should Mattes include as net assets without donor restrictions as a result of this donation? $0 $2,015,000 $1,545,000 $470,000

Answer 26

$470,000 Mattes would record additional net assets without donor restrictions resulting from this donation of $470,000 because the equity securities were donated with no donor stipulations.

Question 27

Unrestricted earnings on specific-purpose fund investments that are part of a hospital’s central operations are reported as: specific-purpose fund unrestricted revenues. general fund deferred revenues. specific-purpose fund restricted revenues. general fund unrestricted revenues

Answer 27

general fund unrestricted revenues. Unless specifically restricted, earnings on restricted investments are recorded as an increase in net assets without donor restrictions

Question 28

Unless specifically __, earnings on restricted investments are recorded as an increase in net assets without donor restrictions

Answer 28

restricted

Question 29

The net asset reclassifications of a nongovernmental not-for-profit organization would be reported on which of the following? Statement of functional expenses Statement of cash flows Statement of financial position Statement of activities

Answer 29

Statement of activities The statement of activities provides information about the change in amount and nature of net assets by reporting on changes in net assets with donor restrictions and net assets without donor restrictions for a period of time

Question 30

Ragg Coalition, a nongovernmental not-for-profit entity, received a gift of treasury bills. The cost to the donor was $20,000, with an additional $500 for brokerage fees that were paid by the donor prior to the transfer of the treasury bills. The treasury bills had a fair value of $15,000 at the time of the transfer. If a statement of financial position were prepared at that time, at what amount should Ragg report the treasury bills? $20,500 $15,000 $20,000 $15,500

Answer 30

$15,000 In FASB ASC 958-605-30-2, the FASB states, “Contributions received shall be measured at their fair values,” and FASB ASC 958-320-35-1 states that “investments in debt securities shall be measured at fair value.”

Question 31

During the year, Smith University’s board of trustees established a $100,000 fund to be retained and invested for scholarship grants. The fund earned $6,000 which had not been disbursed at December 31. What amount should Smith report in a quasi-endowment fund’s net assets at December 31? $6,000 $100,000 $0 $106,000

Answer 31

$106,000 Since the principal of the endowment and the income from investment of endowment funds are both restricted to the purpose of funding scholarships, and the investment income remained undisbursed at the end of the fiscal year, the principal and income both contribute to the net assets of this specific fund.

Question 32

In 20X1, Citizens' Health, a voluntary health and welfare entity, received a bequest of a $200,000 certificate of deposit maturing in 20X2. The only donor stipulations were that the certificate be held until maturity and the interest revenue be used to build a playground for the preschool program. Interest revenue was $16,000 for 20X1 and 20X2 combined. When the certificate matured and was redeemed, the board of trustees adopted a formal resolution designating $40,000 of the proceeds for the future purchase of playground equipment. At the end of 20X2, Citizen had not yet built the playground or purchased any equipment. What amount should Citizen report in its 20X2 statement of financial position as net assets with donor restrictions as the result of the bequest? $0 $40,000 $56,000 $16,000

Answer 32

$16,000 The only donor restriction of the use of the bequest is that the interest of $16,000 be used to build a playground. The restriction will be satisfied when the $16,000 is spent for the specific purpose stipulated.

Question 33

In 20X1, Wildlife Rescue, a not-for-profit entity that works with injured wild animals, received donations of $5,200 for supplies. In 20X2, $600 was spent for this purpose and another $2,100 was spent and all supplies used by the end of 20X3. What should Wildlife Rescue report in the statement of financial position for 20X3 regarding the donation? Net assets without donor restrictions $600, net assets with donor restrictions $2,100 Net assets without donor restrictions $2,700, net assets with donor restrictions $2,500 Net assets without donor restrictions $0, net assets with donor restrictions $2,500 Net assets without donor restrictions $0, net assets with donor restrictions $0

Answer 33

Net assets without donor restrictions $0, net assets with donor restrictions $2,500 The donation was earmarked for a specific purpose. As of the date of the statement of financial position for 20X3, the unspent donation amounted to $2,500 that would be reflected in net assets with donor restrictions. The 20X3 supplies purchase and use of supplies would be reported in the statement of activities as both an increase at the time of purchase (reclassification from net assets with donor restrictions to net assets without donor restrictions) and a decrease (expense) at the time of use with a zero net effect on net assets without donor restrictions by the end of 20X3.

Question 34

A nongovernmental, not-for-profit organization held the following investments: ``` Fair Value Fair Value Investment Cost (Beginning of Year) (End of Year) Stock A (100 shares) $50 per share $45 $51 Stock B (200 shares) $40 per share $41 $49 ``` What amount of stock investments should be reported in the year-end statement of financial position? $14,900 $13,000 $12,700 $13,800

Answer 34

Not-for-profit entities follow FASB accounting guidance, which requires that investments in equity securities with readily determinable market values are reported at fair value. Investment gains and losses are reported as changes in net assets without donor restrictions unless their use is restricted by explicit donor stipulations or by law. Total fair value at the end of the year is [(100 shares × $51) + (200 shares × $49)] = $14,900.

Question 35

At which of the following amounts should a nongovernmental not-for-profit entity report investments in debt securities? Historical cost Quoted market prices Discounted expected future cash flows Potential proceeds from liquidation sale

Answer 35

Quoted market prices Investments in debt securities should be reported at market prices because that is the source of readily available fair value information. Discounted expected future cash flows are required to value financial assets for which there is no market that can provide fair value information. Historical cost is used to value acquisitions of property, plant, and equipment. Liquidation values generally are used when liquidation of an entity is imminent.

Question 36

Financial statements prepared by a voluntary health and welfare nongovernmental not-for-profit organization must report expenses by the following classification(s): Natural Neither functional nor natural Both functional and natural

Answer 36

Both functional and natural Accounting standards for not-for-profit entities require expenses to be disclosed by both functional and natural classifications. The choice to only report one or the other is not allowable

Question 37

Accounting standards for not-for-profit entities require expenses to be disclosed by both ___and ___classifications. The choice to only report one or the other is not allowable

Answer 37

functional | natural

Question 38

In 20X0, $400,000 was donated to Beaty Hospital, a private not-for-profit institution, by a donor who stipulated that the money be used to upgrade research equipment. The new equipment was not acquired until 20X1. How should the purchase of the equipment be reported in the 20X1 statement of activities? As a decrease in net assets with donor restrictions and an increase in net assets without donor restrictions As an increase in net assets without donor restrictions only As a decrease in net assets with donor restrictions only As a program expense

Answer 38

As a decrease in net assets with donor restrictions and an increase in net assets without donor restrictions Satisfaction of specific purpose restrictions in 20X1 requires a reclassification from net assets with donor restrictions (where the $400,000 was recorded in 20X0) to net assets without donor restrictions. The equipment would also be reported as an asset in the statement of financial position.

Question 39

RST Charities received equities securities valued at $100,000 as an unrestricted gift. During the year, RST received $5,000 in dividends from these securities; at year-end, the securities had a fair market value of $110,000. By what amount did these transactions increase RST's net assets? $100,000 $110,000 $115,000 $105,000

Answer 39

$115,000 Investments are initially recorded at fair value if received as a contribution or gift. Unrealized gains on investments carried at fair value also increase net assets. As the investments themselves were an unrestricted gift, the unrealized gain would increase net assets without donor restrictions. Investment income includes dividends that increase net assets without donor restrictions unless there are donor stipulations.

Question 40

Not-for-profit entities must disclose the types of donor restrictions. Which of the following is not an example of a type of restriction? Acquisition of long-lived assets Support for a particular operating activity Investment for a specified term Temporary or permanent

Answer 40

Temporary or permanent Donor restrictions are no longer listed as either temporary or permanent. Appropriate disclosures for restrictions on donations include support for a particular operating activity, investment for a specified term, use in a specified period, and/or acquisition of long-lived assets.

Question 41

During 20X1, Jones Foundation received the following support: A cash contribution of $875,000 to be used at the board of directors' discretion A promise to contribute $500,000 in 20X2 from a supporter who has made similar contributions in prior periods Contributed legal services with a value of $100,000, which Jones would have otherwise purchased At what amounts would Jones classify and record these transactions? Unrestricted revenue: $975,000; Restricted revenue: $0 Unrestricted revenue: $875,000; Restricted revenue: $500,000 Unrestricted revenue: $975,000; Restricted revenue: $500,000 Unrestricted revenue: $1,375,000; Restricted revenue: $0

Answer 41

Unrestricted revenue: $975,000; Restricted revenue: $500,000 The foundation should report unrestricted revenue of $975,000. This is the $875,000 contribution as well as the $100,000 in contributed services. The value of volunteer services is recognized as contributions insofar as the services require specialized skills, were provided by persons possessing those skills, and would typically have been purchased if not provided by donation. A promise to contribute a specified amount to an organization should be recorded as income immediately upon receipt of the promise. Because the promised contribution ($500,000 in this scenario) will not be collected until the subsequent year, it should be considered restricted. Because the promised contribution is expected to be collected within one year of the financial statement date, it may be measured at net realizable value.

Question 42

Pann, a nongovernmental not-for-profit entity, provides food and shelter to the homeless. Pann received a $15,000 gift with the stipulation that the funds be used to buy beds. Pann is planning to acquire the beds in the next period. In which net asset class should Pann report the contribution? Net assets with board restrictions Net assets with donor restrictions Endowment Net assets without donor restrictions

Answer 42

Net assets with donor restrictions Donor wishes related to the $15,000 gift are use restrictions that will be met in time; therefore, the contribution is recorded as an increase in net assets with donor restrictions. The contribution would not be considered an increase in net assets without donor restrictions because the beds will not be acquired within the same accounting period

Question 43

A nongovernmental not-for-profit college has a portfolio of bond investments that had an original cost of $2,000,000. The college's board of trustees voted to hold the principal of this fund intact in perpetuity and designated the earnings to reimburse faculty for travel to academic conferences. During the year, interest of $50,000 was earned in cash. The fair value of the bonds was $1,980,000. What amount should the college report as net assets with donor restrictions at year-end? $1,980,000 $0 $2,000,000 $2,030,000

Answer 43

$0 Only the donor can restrict assets; the board of trustees does not hold that power. Therefore, the amount of net assets with donor restrictions at year-end is $0.

Question 44

The Cats and Dogs League was organized as a nongovernmental not-for-profit organization. The League received a pledge of $10,000 to be used to build an addition to the kennel. This donation will not be received for three years. How should this pledge be recorded? It should not be accounted for until it is received. As restricted support of $10,000 As restricted support of the present value of $10,000 As a conditional promise to give of $10,000

Answer 44

As restricted support of the present value of $10,000 The pledge is classified as restricted since it will be satisfied by expending resources for the restricted purpose (i.e., building the addition to the kennel).

Question 45

The Pel Museum, a not-for-profit entity, received a contribution of historical artifacts. Pel need not recognize the contribution if the artifacts are to be sold and the proceeds used to: hire a new development director to solicit donations for the collection. support general museum activities. purchase buildings to house collections. acquire other items for collections.

Answer 45

acquire other items for collections. The glossary to the FASB Codification defines a “collection” as works of art, historical treasures, or similar items meeting the following conditions: They are held for public exhibition rather than financial gain. They are cared for and preserved. They are subject to an organizational policy that requires the use of proceeds from sales of collection items to be used to acquire other items for collections, the direct care of existing collections, or both.

Question 46

ABC Company transfers a building having a fair value of $800,000 to High Tech University, a private not-for-profit university, for $300,000 cash. High Tech should account for the building as follows: As a contribution of $800,000 As an exchange transaction of $300,000 and no contribution As a contribution of $500,000 and an exchange transaction for the $300,000 paid to ABC Company As an exchange transaction of $800,000

Answer 46

As a contribution of $500,000 and an exchange transaction for the $300,000 paid to ABC Company Since the fair value of the building exceeded the amount High Tech University paid ABC for the building, a portion of the transaction should be accounted for as a contribution. The $300,000 portion that High Tech University paid ABC Company for the building should be accounted for as an exchange transaction. The $500,000 excess of the fair value of the building over the amount High Tech paid should be accounted for as a contribution

Question 47

During the year, Granite Co. sold a building for $100,000, resulting in a gain of $20,000. The building has a net book value of $80,000 at the time of the sale. Granite uses the indirect method when preparing its statement of cash flows. What is the amount that would be included in Granite's financing activities section because of the building sale? $100,000 $20,000 $0 $80,000

Answer 47

$0 Cash flows from financing activities involve debt and equity financing. Cash flows from investing activities involve asset transactions other than cash and those assets related directly to the determination of operating results (e.g., inventories, receivables). The proceeds from the sale of the building are classified as an investing activity; gains are an operating activity adjustment for noncash items under the indirect method of cash flow presentation. Therefore, the amount that would be included in the financing section is $0.

Question 48

Ostens Hope Center is a nongovernmental not-for-profit charitable entity that seeks to provide meals to those who would otherwise go hungry. Which of the following assets needs to be depreciated by Ostens? Food inventory to be used during the next month Land used upon which the kitchen building was built Disposable products used for serving meals Gas ranges used to bake and cook meals

Answer 48

Gas ranges used to bake and cook meals The gas ranges are long-lived, tangible assets currently being used in operations. They also have a limited life. Assets not being used in operations and land are not depreciated. The food inventory and the meal serving supplies are not long-lived assets and therefore should not be depreciated.

Question 49

A nongovernmental not-for-profit entity borrowed $5,000, which it used to purchase a truck. In which section of the organization's statement of cash flows should the transaction be reported? In cash inflow and cash outflow from financing activities In cash inflow from financing activities and cash outflow from investing activities In cash inflow and cash outflow from investing activities In cash inflow from operating activities and cash outflow from investing activities

Answer 49

In cash inflow from financing activities and cash outflow from investing activities Raising cash through borrowings is a financing activity. Using cash to purchase a truck is an investing activity.

Question 50

Raising cash through borrowings is a ___activity. Using cash to purchase a truck is an ___activity.

Answer 50

financing | investing

Question 51

Motocrossers Inc. is a nongovernmental not-for-profit entity that maintains a motocross facility. Motocrossers received an unrestricted pledge of $90,000 from one of the riders who trained on the track early in his career. Of the promised amount, $60,000 was designated by the donor for use during the current year, and $30,000 was designated for next year. Twelve percent (12%) of the contributions receivable are expected to be uncollectible. What amount should Motocrossers report as restricted support (contributions) in the statement of activities for the current year? $90,000 $86,400 $26,400 $30,000

Answer 51

$26,400 Of the $90,000 of contributions, $60,000 designated for use during the current year would have been collected in full by the date of the financial statements issued as of the end of the year. This $60,000 would be reported in the statement of activities as unrestricted support. Of the remaining $30,000, 12% or $3,600 is estimated to be uncollectible. Therefore, the $26,400 anticipated to be collected in the subsequent year is reported in the statement of activities as restricted support (due to the time restriction).

Question 52

According to the FASB Accounting Standards Codification, the financial statements of a not-for-profit entity focus on: standardization of funds nomenclature. inherent differences of not-for-profit entities that impact reporting presentations. the entity as a whole. distinctions between current fund and noncurrent fund presentations.

Answer 52

the entity as a whole. FASB ASC 958-210-45-1 states that the statement of financial position “shall focus on the not-for-profit entity as a whole” and shall report the amounts of its total assets, liabilities, net assets, total net assets with donor restrictions, and total net assets without donor restrictions.

Question 53

Imaging Solutions Corporation transfers magnetic scanning equipment to Physician’s Medical School, a part of Lundeen University, a private not-for-profit university. The scanning equipment has a fair value of $1,300,000. Physician’s Medical School paid $450,000 cash to Imaging Solutions Corporation. Physician’s Medical School should account for the equipment as follows: As a contribution of $1,300,000 As an exchange transaction of $1,300,000 As a contribution of $850,000 and an exchange transaction for the $450,000 paid to Imaging Solutions Corporation As an exchange transaction of $450,000 and no contribution

Answer 53

As a contribution of $850,000 and an exchange transaction for the $450,000 paid to Imaging Solutions Corporation Since the fair value of the equipment exceeded the amount Physician’s Medical School paid Imaging Solutions Corporation for the scanning equipment, a portion of the transaction should be accounted for as a contribution. The $450,000 portion that Physician’s Medical School paid Imaging Solutions Corporation for the scanning equipment should be accounted for as an exchange transaction. The $850,000 excess of the fair value of the scanning equipment over the amount Physician’s Medical School paid should be accounted for as a contribution. This transaction is an example of one that is in part an exchange and in part a contribution.

Question 54

According to the FASB Accounting Standards Codification, a full set of financial statements for a private not-for-profit college or university would include the following: Statement of activities and statement of cash flows Statement of financial position, statement of activities, and statement of cash flows Statement of financial position and statement of cash flows Statement of financial position and statement of activities

Answer 54

Statement of financial position, statement of activities, and statement of cash flows According to FASB ASC 958-205-45-4, a full set of financial statements for a private not-for-profit entity that is not a health and welfare entity, like a college or university, would include a statement of financial position, a statement of activities, and a statement of cash flows

Question 55

The Jackson Foundation, a not-for-profit entity, received contributions in 20X1 as follows: Unrestricted cash contributions of $500,000 Cash contributions of $200,000 to be restricted to acquisition of property Jackson's statement of cash flows should include which of the following amounts? Operating Activities: $0; Investing Activities: $500,000; Financing Activities: $200,000 Operating Activities: $700,000; Investing Activities: $0; Financing Activities: $0 Operating Activities: $500,000; Investing Activities: $200,000; Financing Activities: $0 Operating Activities: $500,000; Investing Activities: $0; Financing Activities: $200,000

Answer 55

Operating Activities: $500,000; Investing Activities: $0; Financing Activities: $200,000 The statement of cash flows prepared by a not-for-profit entity uses the standard FASB categories. Unrestricted contributions are reported as operating activities while contributions restricted for long-term purposes (i.e., plant acquisitions) are reported as financing activities.

Question 56

According to FASB ASC 958-205-45-4, a full set of financial statements for a private not-for-profit entity that is not a health and welfare entity, like a college or university, would include a statement of __ ___, a statement of ___, and a statement of __ ___

Answer 56

financial position activities cash flows

Question 57

Unrestricted contributions are reported as ___activities while contributions restricted for long-term purposes (i.e., plant acquisitions) are reported as ___activities

Answer 57

operating | financing

Question 58

Which of the following financial categories are used in a nongovernmental not-for-profit entity's statement of financial position? Changes in net assets with donor restrictions and net assets without donor restrictions Assets, liabilities, and net assets Income, expenses, and changes in net assets Net assets, income, and expenses

Answer 58

Assets, liabilities, and net assets The NFP account equation uses the term “net assets” for equity. Its accounting equation is assets equal liabilities plus net assets.

Question 59

The NFP account equation uses the term “net assets” for equity. Its accounting equation is ___equal ___plus _ _ .

Answer 59

assets liabilities net assets

Question 60

NFPs that allocate joint costs disclose all of the following in the notes to the financial statements except: the total amount allocated during the period and the portion allocated to each functional expense category. the types of activities for which joint costs have been incurred. a statement that such costs have been allocated. the amount of joint costs for each kind of joint activity.

Answer 60

the amount of joint costs for each kind of joint activity. Not-for-profit entities (NFPs) that allocate joint costs are encouraged, but not required, to disclose the amount of joint costs for each kind of joint activity, if practical. They must disclose the following in the notes to the financial statements: the types of activities for which joint costs have been incurred; a statement that such costs have been allocated; and the total amount allocated during the period and the portion allocated to each functional expense category.

Question 61

Belle, a nongovernmental not-for-profit entity, received funds during its annual campaign that were specifically promised by the donor to another nongovernmental not-for-profit health entity. How should Belle record these funds? Decrease in assets and decrease in fund balance Increase in assets and increase in liabilities Increase in assets and increase in revenue Increase in assets and increase in deferred revenue

Answer 61

Increase in assets and increase in liabilities Donors often use one not-for-profit as an intermediary to forward donations to the ultimate recipient. If the intermediary has the right to redirect the resources, then it would recognize restricted support or revenue. In this case, Belle has been given specific instructions to forward the resources to another entity and has been given no discretion. It is acting as an agent.

Question 62

Langohrs is a nongovernmental not-for-profit entity whose mission is to educate the community about conservation of water and other natural resources. How should Langohrs report rental expense in its statement of activities? It should not be included. It should be included as an increase in net assets with donor restrictions. It should be included as a decrease in net assets without donor restrictions. It should be reclassified from net assets without donor restrictions to net assets with donor restrictions, depending on donor-imposed restrictions on the assets.

Answer 62

It should be included as a decrease in net assets without donor restrictions. All expenses reported on the statement of activities by a not-for-profit are reported as decreases in net assets without donor restrictions.

Question 63

All expenses reported on the statement of activities by a not-for-profit are reported as ___in net assets without donor restrictions.

Answer 63

decreases

Question 64

Healing Gardens is a not-for-profit entity that maintains secluded gardens for individuals who seek healing and solace. During the fiscal year 20X9, Healing Gardens received the following donations of securities: Security 1 Security 2 Adjusted basis $14,000 $17,500 Fair market value at time of donation 15,700 19,400 Fair market value at year-end 13,200 20,000 What net value of investments will the organization report at the end of the year? $33,200 $35,100 $30,700 $31,500

Answer 64

$33,200 | The investments would be reported at fair value at the end of the year, $33,200 ($13,200 + $20,000).

Question 65

Altruist Humanitarians received debt securities valued at $525,000. The donation was given as a gift with no restrictions. During the same year, Altruist Humanitarians received $21,000 in interest from these securities; at year-end, the securities had a fair market value of $502,000. By what amount did these transactions change Altruist Humanitarians’ net assets? $502,000 $504,000 $546,000 $523,000

Answer 65

$523,000 Net assets changed by $523,000 (the end-of-the-year fair value of $502,000 and the interest of $21,000). Unrealized gains on investments carried at fair value increase net assets and unrealized losses on investments carried at fair value decrease net assets. As the investments themselves were an unrestricted gift, increasing net assets, the unrealized loss would decrease net assets without donor restrictions. Investment income includes dividends that increase net assets without donor restrictions unless there are donor stipulations.

Question 66

As part of the required quantitative disclosures, NFPs must disclose the availability of financial assets to meet cash needs for general expenditures within one year. Additional quantitative disclosures are required to be included in the notes. Which of the following is not one of those note disclosures? An analysis of expenses by both functional and natural classifications External limits imposed by donors Internal limitations The availability of financial assets due to their nature

Answer 66

An analysis of expenses by both functional and natural classifications Not-for-profit entities (NFPs) must disclose the availability of financial assets to meet cash needs for general expenditures within one year as part of their quantitative disclosures. Additional quantitative note disclosures include information about the availability of financial assets due to their nature (i.e., their liquidity); external limits imposed by donors, laws, and contracts; and internal limitations. An analysis of expenses by both functional and natural classifications can be disclosed either in the notes or on the face of the statement of financial position.

Question 67

A not-for-profit entity receives $150 from a donor. The donor receives two tickets to a theater show and an acknowledgment in the theater program. The tickets have a fair market value of $100. What amount is recorded as contribution revenue? $50 $100 $150 $0

Answer 67

$50 The amount of contribution revenue recognized in an exchange transaction is reduced by the fair market value of the consideration given by the organization to the donor. The $150 received is reduced by the $100 fair market value of the theater tickets for total contribution revenue of $50.

Question 68

A storm damaged the roof of a new building owned by K-9 Shelters, a not-for-profit entity. A supporter of K-9, a professional roofer, repaired the roof at no charge. In K-9's statement of activities, the damage and repair of the roof should: not be reported. be reported by note disclosure only. be reported as an increase in both expenses and contributions. be reported as an increase in both net assets and contributions.

Answer 68

be reported as an increase in both expenses and contributions. The contributed services should be recorded as an increase in contributions and the repair to the roof should be reported as an increase in expenses. Donated services are recorded as donation income if the services received either: create or enhance nonfinancial assets, or require specialized skills, are provided by individuals possessing those skills, and would need to be purchased if not provided by the donor.

Question 69

___services are recorded as donation income if the services received either: create or enhance nonfinancial assets, or require specialized skills, are provided by individuals possessing those skills, and would need to be purchased if not provided by the donor.

Answer 69

Donated

Question 70

Which of the following accounts would appear in the plant fund of a not-for-profit private college? Fuel inventory for power plant Both Fuel inventory for power plant and Equipment Equipment Neither Fuel inventory for power plant nor Equipment

Answer 70

Equipment A plant fund is established for a specific purpose, in this case to accumulate assets for plant acquisition or capital projects over a longer period of time. Fuel is normally considered an inventory item, which is a current asset and can be expended across multiple uses—not only a specific capital project

Question 71

In private not-for-profit hospital accounting, restricted funds are: restricted as to use only for board-designated purposes. restricted as to use by the donor, grantor, or other source of the resources. not available unless the board of directors remove the restrictions. not available for current operating use; however, the income generated by the funds is available for current operating use.

Answer 71

restricted as to use by the donor, grantor, or other source of the resources. In hospital accounting, as in accounting for other not-for-profit entities, restricted funds are restricted as to use by the donor, grantor, or other party external to the organization

Question 72

In ___accounting, as in accounting for other not-for-profit entities, ___funds are restricted as to use by the donor, grantor, or other party external to the organization

Answer 72

hospital | restricted

Question 73

Nongovernmental not-for-profit entities are required to provide which of the following external financial statements? Statement of financial position, statement of comprehensive income, statement of cash flows Statement of cash flows, statement of comprehensive income, statement of unrelated business income Statement of financial position, statement of activities, statement of cash flows Statement of comprehensive income, statement of cash flows, statement of gains and losses

Answer 73

Statement of financial position, statement of activities, statement of cash flows

Question 74

Birdlovers, a not-for-profit community foundation, incurred $5,000 in management and general expenses in 20X1. In Birdlovers statement of activities for the year ended December 31, 20X1, the $5,000: is presented as a contra account offsetting revenue and gains. decreases net assets with donor restrictions. decreases net assets without donor restrictions. is presented as a program expense.

Answer 74

decreases net assets without donor restrictions. Management and general expenses are reported in a separate functional classification from program expenses. They are shown as expenses and not as an offset to revenues. All expenses in the statement of activities are classified as changes in net assets without donor restrictions.

Question 75

Management and general expenses are reported in a separate ___classification from program expenses. They are shown as expenses and not as an offset to ___. All expenses in the statement of ___are classified as changes in net assets without donor restrictions

Answer 75

functional revenues activities

Question 76

Which of the following options is permitted by the FASB for reporting collections held by nongovernmental not-for-profit organizations? Do not capitalize collections. (No contributions would be reported for donated collections, and expenses would be reported for purchases of collections.) Capitalize collections purchased or donated after the effective date of the FASB’s guidance on accounting for collections (and recognize contributions revenue equal to the fair value of such collections that are donated). Capitalize all collections purchased or donated (and recognize contributions revenue equal to the fair value of the collections that are donated). All of the options listed here for reporting collections are permitted by the FASB.

Answer 76

All of the options listed here for reporting collections are permitted by the FASB. The FASB permits three options for reporting collections: Capitalize collections purchased or donated after the effective date of the FASB’s guidance on accounting for collections (and recognize contributions revenue equal to the fair value of such collections that are donated). Do not capitalize collections. (No contributions would be reported for donated collections, and expenses would be reported for purchases of collections.) Capitalize all collections purchased or donated (and recognize contributions revenue equal to the fair value of the collections that are donated).

Question 77

The FASB permits three options for reporting collections: Capitalize ___purchased or donated after the effective date of the FASB’s guidance on accounting for collections Do not __collections. Capitalize __collections purchased or donated

Answer 77

collections capitalize all

Question 78

A donor gives $10,000 to a nongovernmental, not-for-profit organization with instructions that it must be used to fund the organization’s general operating expenses during the following fiscal year. The donation will increase the organization's: restricted retained earnings. net assets without donor restrictions. net assets with donor restrictions. restricted net assets.

Answer 78

net assets with donor restrictions. Only restrictions imposed by donors or grantors are considered restrictions in accounting for not-for-profit organizations. Donor and grantor restrictions may be time restrictions or use restrictions

Question 79

Only restrictions imposed by donors or grantors are considered restrictions in accounting for not-for-profit organizations. Donor and grantor restrictions may be ___restrictions or ___restrictions

Answer 79

time | use

Question 80

Settam, a nongovernmental not-for-profit entity, received a donation of stock with donor-stipulated requirements as follows: Shares valued at $8,000,000 are to be sold with the proceeds used for renovation. Shares valued at $2,000,000 are to be retained with the dividends used to support current operations. What amount should Settam include as net assets without donor restrictions as a result of this donation? $0 $2,000,000 $8,000,000 $10,000,000

Answer 80

$0 Settam would not record additional net assets without donor restrictions resulting from this donation because the entire donation is subject to donor-stipulated requirements.

Question 81

All NFPs are required to disclose an analysis of expenses by both functional and natural classifications to be presented in: one location in the financial statements, whether in the notes or in a separate financial statement. one location in the financial statements: a separate financial statement. two locations in the financial statements: the notes and in a separate financial statement. one location in the financial statements: the notes.

Answer 81

one location in the financial statements, whether in the notes or in a separate financial statement. All not-for-profit entities (NFPs) are required to disclose an analysis of expenses by both functional and natural classifications to be presented in one location in the financial statements, whether in the notes or in a separate financial statement.

Question 82

All not-for-profit entities (NFPs) are required to disclose an analysis of expenses by both ___and ___classifications to be presented in one location in the ___statements, whether in the notes or in a separate __statement.

Answer 82

functional natural financial financial

Question 83

A not-for-profit organization is exempt from reporting which of the following contributed services as gross revenue? A special education teacher tutors children with learning disabilities. An attorney solicits contributions on behalf of the organization. A CPA prepares the organization's tax return. A carpenter builds shelves for the office.

Answer 83

An attorney solicits contributions on behalf of the organization. The classification of contributions received as revenues or gains depends on whether the transactions are part of the NFP’s (not-for-profit entity’s) ongoing major or central activities (revenues). Events are peripheral or incidental if they are not an integral part of an NFP’s usual activities, or if their gross revenues or expenses are not significant in relation to the NFP’s annual budget.

Question 84

The classification of ___received as revenues or gains depends on whether the transactions are part of the NFP’s (not-for-profit entity’s) ongoing major or central activities (revenues

Answer 84

contributions

Question 85

At what value should a nongovernmental not-for-profit organization record shares of stock when received? Fair value on the date of donation Donor's basis Average of donor's basis and fair value on the date of donation Fair value at end-of-year

Answer 85

Fair value on the date of donation Investments in debt and equity securities, such as shares of stock or investments in corporate bonds, are reported at fair value (also called market value) on the date of donation.

Question 86

___in debt and equity securities, such as shares of stock or investments in corporate bonds, are reported at fair value (also called market value) on the date of donation.

Answer 86

Investments

Question 87

During the current year, Mill Foundation, a nongovernmental not-for-profit entity, received $100,000 in contributions from the general public. Mill's board of directors stipulated that $75,000 of these contributions would be used to create an endowment. At the end of the current year, how should Mill report the $75,000 in the net assets section of the statement of financial position? Net assets without donor restrictions Net assets with a use restriction Net assets with board restrictions Net assets with donor restrictions

Answer 87

Net assets without donor restrictions There are only two categories of net assets reported for nongovernmental not-for-profit entities: Net assets without donor restrictions Net assets with donor restrictions Board restrictions are not “true” restrictions and are therefore classified as net assets without donor restrictions; only donors can impose true restrictions.

Question 88

In the preparation of the statement of activities for a nongovernmental not-for-profit entity, all expenses are reported as decreases in which of the following net asset classes? Net asset with donor restrictions Total net assets Expenses are not reported on the statement of activities. Net assets without donor restrictions

Answer 88

Net assets without donor restrictions The FASB states that a statement of activities shall report expenses as decreases in net assets without donor restrictions.

Question 89

A nongovernmental not-for-profit entity named Support Local Area Painters (SLAP) received $7,500 from Hue Corporation to sponsor a gallery showing by local painters. SLAP gave Hue Corporation 40 tickets for the event. The cost of the tickets to the general public is $35. Hue did not receive any other benefits. What amount of ticket sales revenue should SLAP record? $0 $6,300 $1,400 $7,500

Answer 89

$1,400 This payment is partially an exchange transaction and partially a contribution, and the two parts should be accounted for separately. SLAP would recognize ticket sales revenue for the 40 tickets at the price available to the general public (40 × $35 = $1,400) and recognize the balance ($6,100) as contribution revenue.

Question 90

Which of the following would a nongovernmental not-for-profit educational institution report as program services? Management salaries Publicity costs Teacher salaries Fundraising expenses

Answer 90

Teacher salaries Program services expenses are incurred in carrying out the primary mission of an organization, in this case the provision of educational services by teachers. All other expense classifications in this question pertain to supporting services (management, general, or fundraising)

Question 91

Program services expenses are incurred in carrying out the primary mission of an organization. All other expense classifications pertain to ___services

Answer 91

Program | supporting

Question 92

ASU 2016-14 stipulates a number of disclosures required for underwater endowment funds. Which of the following is not one of the required disclosures? Comparison of underfunded versus overfunded endowment funds The NFP’s policy, and any actions taken during the period, concerning the appropriation of underwater endowment funds The aggregate amount of the fair value of underwater endowment funds Total original endowment gifts or levels required to be maintained by donor stipulation or law

Answer 92

Comparison of underfunded versus overfunded endowment funds Required disclosures do include the governing board’s interpretation of the relevant state UPMIFA law as to its ability to spend from underwater endowment funds; the not-for-profit entity's (NFP’s) policy, and any actions taken during the period, concerning the appropriation of underwater endowment funds; the aggregate amount of the fair value of underwater endowment funds; the total original endowment gifts or levels required to be maintained by donor stipulation or law; and the total amount of funds’ deficiencies.

Question 93

Which of the following types of information would be included in total net assets in the statement of financial position for a nongovernmental not-for-profit organization? Total current net assets and liabilities Total current assets and long-term assets Assets with donor restrictions, assets without donor restrictions, and net liabilities Net assets with donor restrictions and net assets without donor restrictions

Answer 93

Net assets with donor restrictions and net assets without donor restrictions The total net assets in the statement of financial position is the total equity of a not-for-profit entity. The equity is reported in two categories, net assets with donor restrictions and net assets without donor restrictions, depending on whether there are donor-imposed constraints on asset use. Within these categories or in the notes, additional detail can be included about donors' wishes for their contributed assets.

Question 94

A nongovernmental not-for-profit animal shelter receives contributed services from the following individuals valued at their normal billing rate: Veterinarian provides volunteer animal care $8,000 Board members volunteer to prepare books for audit 4,500 Registered nurse volunteers as receptionist 3,000 Teacher provides volunteer dog walking 2,000 What amount should the shelter record as contribution revenue? $12,500 $11,000 $14,500 $8,000

Answer 94

Contribution revenues and assets or expenses should be reported for donated services if: special skills are required to perform the service, the individual providing the service has those special skills, and the organization would have to buy the services if they were not donated. Therefore, $12,500 would be recorded as contribution revenue ($8,000 + $4,500 = $12,500).

Question 95

Contribution revenues and assets or expenses should be reported for donated services if: ___skills are required to perform the service, the individual providing the service has those ___skills, and the organization would have to buy the services if they were not ___.

Answer 95

special special donated

Question 96

How should a nongovernmental not-for-profit entity classify gains and losses on investments purchased with net assets with donor restrictions? Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in net assets without donor restrictions. Gains and losses can only be reported net of expenses in the statement of activities. Gains may not be netted against losses in the statement of activities. Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in net assets with donor restrictions.

Answer 96

Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in net assets without donor restrictions. Investment gains and losses are reported as unrestricted revenues in the statement of activities unless the donor of the principal investment amount has explicitly instructed otherwise. The statement of activities is focused on clarifying whether revenues are unrestricted or restricted so gains may or may not be netted for presentation, and gains may or may not be reported net of expenses.

Question 97

A statement of activities prepared by a nongovernmental not-for-profit organization is most similar to which of the following financial statements prepared by a for-profit entity? Statement of changes in stockholders' equity Statement of cash flows Income statement Balance sheet

Answer 97

Income statement A statement of activities most closely resembles an income statement. It covers a period of time (from date 1 to date 2) instead of being a point-in-time statement (at date 1) like a balance sheet. It is derived from changes in net assets. Increases in net assets are similar to revenues while decreases are similar to expenses, both of which can be found on the income statement.

Question 98

A statement of ___most closely resembles an income statement. It covers a period of time (from date 1 to date 2) instead of being a point-in-time statement (at date 1) like a ___sheet. It is derived from changes in net assets. Increases in net assets are similar to ___while decreases are similar to expenses, both of which can be found on the income statement.

Answer 98

activities balance revenues

Question 99

Regarding noncompliance with donor-imposed restrictions, the FASB requires disclosure of which of the following? Noncompliance with donor-imposed restrictions if there is a reasonable possibility that a material contingent liability has been incurred Noncompliance with donor-imposed restrictions if there is a reasonable possibility the noncompliance could lead to a material loss of revenue Noncompliance with donor-imposed restrictions if the noncompliance could cause the inability to continue as a going concern I and III only I, II, and III I only I and II only

Answer 99

I, II, and III According to FASB ASC 958, noncompliance “with donor-imposed restrictions should be disclosed if there is a reasonable possibility that a material contingent liability has been incurred at the date of the financial statements or there is at least a reasonable possibility that the noncompliance could lead to a material loss of revenue or could cause an entity to be unable to continue as a going concern.”

Question 100

Which of the following is not a required disclosure by a not-for-profit entity (NFP)? The nature and amounts of different restrictions that impact when the donor-restricted net assets can be used Any governing board actions that result in self-imposed limits on the use of resources The amounts and purposes of board designations of net assets with donor restrictions The types of donor restrictions

Answer 100

The amounts and purposes of board designations of net assets with donor restrictions NFPs are required to disclose information about the nature, type, and amount of the different types of restrictions that impact how and when, if ever, the donor-restricted net assets can be used. Disclosures are also required about the amounts and purposes of board designations of net assets without (not with) donor restrictions. Any governing board actions that result in self-imposed limits on the use of resources will also be disclosed in the notes to the financial statements.

Question 101

On a nongovernmental, not-for-profit entity's statements of activities, which of the following amounts should not be netted together under any circumstances? Revenues and expenditures from the sale of used equipment Revenues and expenditures from an annual fundraising campaign Investment income, custodial fees, and other advisory expenditures Gains and losses from exchange rates or other foreign currency translations

Answer 101

Revenues and expenditures from an annual fundraising campaign The only option listed where net reporting is disallowed is revenues and expenditures from annual fundraising events because fundraising represents a major ongoing activity for not-for-profit entities. Investment revenues (gains) and expenditures (losses), provided the amount of investment expenses is disclosed on either the face of the statement of activities or in the notes, are subject to net reporting. Peripheral or incidental transactions (sale of equipment) or gains and losses outside of the entity’s control (changes in exchange rates) are allowed to be reported net.

Question 102

In 20X4, Raptor Rehabilitation, a not-for-profit entity that seeks to rehabilitate injured wild birds, received donations of $12,500 for supplies. In 20X5, $3,100 was spent for this purpose. During 20X6, the expenditures for supplies was $6,400. At the end of 20X6, all supplies that had been purchased had been used. In its statement of financial position at the end of 20X6, what should Raptor Rehabilitation report regarding the donation? Net assets without donor restrictions $0; net assets with donor restrictions $0 Net assets without donor restrictions $9,500; net assets with donor restrictions $3,000 Net assets without donor restrictions $3,100; net assets with donor restrictions $6,400 Net assets without donor restrictions $0; net assets with donor restrictions $3,000

Answer 102

Net assets without donor restrictions $0; net assets with donor restrictions $3,000 The donation was earmarked for a specific purpose. As of the date of the statement of financial position for 20X6, the unspent donation amounted to $3,000 ($12,500 – $3,100 – $6,400) that would be reflected in net assets with donor restrictions. The 20X6 supplies purchase and use of supplies would be reported in the statement of activities as both an increase at the time of purchase (reclassification from net assets with donor restrictions to net assets without donor restrictions) and a decrease (expense) at the time of use with a zero net effect on net assets without donor restrictions by the end of 20X6

Question 103

The Turtle Society, a nongovernmental not-for-profit entity, receives numerous contributed hours from volunteers during its busy season. Chris, a clerk at the local tax collector's office, volunteered 10 hours per week for 24 weeks transferring turtle food from the port to the turtle shelter. His rate of pay at the tax office is $10 per hour, and the prevailing wage rate for laborers is $6.50 per hour. What amount of contribution revenue should Turtle Society record for this service? $0 $2,400 $840 $1,560

Answer 103

$0 Contributions of services are recognized as revenues if they “create or enhance nonfinancial assets” or “require specialized skills” that would need to be purchased if not donated. Specialized skills are possessed by trained and often licensed or certified professionals. Turtle feeding does not require such specialized training or skills, and would not be paid for if Chris did not donate his time. Therefore, no revenue is recognized for Chris's volunteered time.

Question 104

How should a nongovernmental not-for-profit organization report investments in its financial statements? Par value with gains and losses reported in the statement of activities Historical cost with no gains or losses reported Fair value with gains and losses reported in the statement of activities Amortized value with gains and losses reported in the statement of comprehensive income

Answer 104

Fair value with gains and losses reported in the statement of activities Investments should be reported at fair value on the statement of financial position with gains and losses reported on the statement of activities as a change in net assets.

Question 105

___should be reported at fair value on the statement of financial position with gains and losses reported on the statement of ___as a change in net assets.

Answer 105

Investments | activities

Question 106

Which of the following costs should a nongovernmental not-for-profit organization report as a supporting service expense? Cost incurred to advertise the programs of the organization Salary paid to a program director Cost for the annual fundraising dinner Printing cost incurred to create educational fliers on the prevention of illness

Answer 106

Cost for the annual fundraising dinner Supporting services have several functional subclassifications: management and general expenses, fundraising expenses and membership development.

Question 107

Supporting services have several functional subclassifications: ___and general expenses, ___expenses and membership ___.

Answer 107

management fundraising development

Question 108

A $100,000 gift was received by Group Home Projects, a nongovernmental not-for-profit organization. Group's board of directors stipulated that this gift must be invested for a period of four years, with the income to be used for general operations. How should the gift be reported in Group Home's statement of activities? Unrestricted contribution of $25,000 and restricted contribution of $75,000 Unrestricted contribution Restricted contribution Deferred revenue

Answer 108

Unrestricted contribution When resources are under control of the governing board and not specifically restricted by an outside donor, the resources are considered unrestricted and the resulting income is unrestricted revenue.

Question 109

When resources are under control of the governing board and not specifically restricted by an outside donor, the resources are considered __ and the resulting income is unrestricted revenue.

Answer 109

unrestricted

Question 110

XYZ Museum, a not-for-profit entity, received a very important painting three years ago as a donation to its permanent collection. At the time of receipt, the painting was appropriately valued. The museum does not capitalize its collections. Disclosure would be handled by: disregarding the painting entirely because XYZ Museum opted not to capitalize. including the value of the painting in the net assets with donor restrictions. including the value of the painting in the net assets without donor restrictions. including a line item on the face of the financial statement with disclosures regarding XYZ Museum's permanent art collection, which includes the painting.

Answer 110

including a line item on the face of the financial statement with disclosures regarding XYZ Museum's permanent art collection, which includes the painting. A not-for-profit entity may opt not to capitalize works of art, historical treasures, and the like as long as the items meet the definition of collection items: held for exhibition, protected, and preserved, with a policy that requires sales for acquisition of other collection items, direct care, or both

Question 111

The Seasoned Village, a voluntary health and welfare entity devoted to supporting the elderly, received a $2,500,000 permanent endowment during the year. The donation carried the stipulation that the income and investment appreciation is to be used to maintain its senior center. The endowment fund reported a net investment appreciation of $182,000 and investment income of $100,000. The organization spent $147,000 to maintain its senior center during the year. What amount of change in net assets with donor restrictions should the organization report as a result of these transactions? $100,000 $282,000 $135,000 $2,635,000

Answer 111

$2,635,000 The change in net assets with donor restrictions includes the original donation of $2,500,000, any increases from investment income ($100,000) and net investment appreciation ($182,000) that the donor restricted to use for the senior center, and any decreases from the amount of resources spent for the restricted purpose ($147,000). These net assets released from restrictions reduce net assets with donor restrictions and increase net assets without donor restrictions by $147,000. Therefore, the change in net assets with donor restrictions is $2,500,000 + $182,000 + $100,000 − $147,000, or $2,635,000.

Question 112

A not-for-profit voluntary health and welfare entity should report a contribution for the construction of a new building as cash flows from which of the following in the statement of cash flows? Capital financing activities Financing activities Operating activities Investing activities

Answer 112

Financing activities According to FASB ASC 958-230-55-3, a contribution to a not-for-profit restricted to long-term purposes like construction shall be reported as a cash flow from financing activities. Cash flows received from investment income restricted by donor stipulation to the same purposes also are reported as financing activities, not as operating activities

Question 113

According to FASB ASC 958-230-55-3, a __to a not-for-profit restricted to long-term purposes like construction shall be reported as a cash flow from financing activities. ___ ___received from investment income restricted by donor stipulation to the same purposes also are reported as financing activities, not as operating activities

Answer 113

contribution | Cash flows

Question 114

During the current year, the local humane society, a nongovernmental not-for-profit entity, received a $100,000 permanent endowment from Cobb. Cobb stipulated that the income must be used to care for older horses that can no longer race. The endowment reported income of $8,000 in the current year. What amount of unrestricted contribution revenue should the humane society report for the current year? $100,000 $108,000 $0 $8,000

Answer 114

$0 Endowments that must be maintained in perpetuity (permanent endowment), as well as income from the endowment, are classified as restricted revenues.

Question 115

Endowments that must be maintained in perpetuity (permanent endowment), as well as income from the endowment, are classified as ___ _____.

Answer 115

restricted revenues

Question 116

A nongovernmental not-for-profit entity received a $2,000,000 gift from a donor who specified it be used to create an endowment fund that would be invested in perpetuity. The income and any investment gains from the fund are to be used to support a specific program in the second year and beyond. An investment purchased with the gift earned $40,000 during the first year. At the end of the first year, the fair value of the investment was $2,010,000. What is the net effect on net assets with donor restrictions at year-end? $40,000 increase $10,000 increase $50,000 increase $0

Answer 116

$50,000 increase The donor's gift of $2 million is considered an increase in net assets with donor restrictions because the donor directed that it be perpetually held as an investment. The investment revenue and the gain on the value of the investment are both also considered an increase in net assets with donor restrictions as the donor directed how investment income is used. If the donor had not explicitly directed the use of investment gains on the endowment, such gains would be considered an increase in net assets without donor restrictions.

Question 117

In 20X3, Clear Vision, a voluntary health and welfare entity, received a donation of $350,000 of debt securities that mature at the end of 20X5. When the donation was made, the donor stipulated that the debt securities be held until maturity and the interest revenue be used to fund a summer camp for blind children. Interest revenue was $52,500 for 20X3, 20X4, and 20X5 combined. When the debt securities matured and the proceeds were received, the board of trustees adopted a formal resolution designating $75,000 of the proceeds for the future funding of the summer camp. At the end of 20X5, Clear Vision had not yet provided the summer camp experience. What amount should Clear Vision report in its 20X5 statement of financial position as net assets with donor restrictions as the result of the bequest? $127,500 $52,500 $0 $75,000

Answer 117

$52,500 The only donor restriction of the use of the donation is that the interest of $52,500 be used to provide a summer camp experience for blind children. The restriction will be satisfied when the $52,500 is spent for the specific purpose stipulated. The $350,000 principal from the debt securities is classified as net assets without donor restrictions, even though a portion of it is designated by the board of trustees, because the board is not a donor.

Question 118

The purpose of a statement of financial position for a nongovernmental not-for-profit entity is to provide relevant information about: the cash receipts and cash payments during a period in time. the changes in permanently restricted net assets, temporarily restricted net assets, and unrestricted net assets for a period of time. the assets, liabilities, and net assets, and about their relationships to one another at a moment in time. the effects of transactions and other events and circumstances that change the amount and nature of net assets

Answer 118

the assets, liabilities, and net assets, and about their relationships to one another at a moment in time. The statement of financial position is comparable to a balance sheet, and reports assets, liabilities, and net assets (rather than equity) at a point in time (i.e., year-end)

Question 119

The ____ of ___ _____is comparable to a balance sheet, and reports assets, liabilities, and net assets (rather than equity) at a point in time (i.e., year-end)

Answer 119

statement | financial position

Question 120

On December 31, 20X1, Dahlia, a nongovernmental not-for-profit entity, purchased a vehicle with $15,000 unrestricted cash and received a donated second vehicle having a fair value of $12,000. Dahlia expects each vehicle to provide it with equal service value over each of the next five years and then to have no residual value. Dahlia has an accounting policy implying a time restriction on gifts of long-lived assets. In Dahlia's 20X2 statement of activities, what depreciation expense should be included under changes in net assets without donor restrictions? $0 $2,400 $3,000 $5,400

Answer 120

$5,400 Nongovernmental not-for-profit entities must depreciate all fixed assets used in operations except land. All expenses of nongovernmental not-for-profit entities must be reported as changes in net assets without donor restrictions. Donated assets must be recorded at fair value at the date of donation. Therefore, the depreciation expense both of the purchased vehicle ($15,000 ÷ 5 years, or $3,000) and of the donated vehicle ($12,000 ÷ 5 years, or $2,400) must be reported under changes in net assets without donor restrictions. The total depreciation expense of the two vehicles is $5,400.

Question 121

______not-for-profit entities must depreciate all fixed assets used in operations except land. All expenses of ______not-for-profit entities must be reported as changes in net assets without donor restrictions. Donated ____must be recorded at fair value at the date of donation.

Answer 121

Nongovernmental nongovernmental assets

Question 122

The notes to the financial statements for not-for-profit entities (NFPs) are an integral part of the: statement of financial position, statement of activities, and statement of cash flows. statement of financial position, statement of activities, and statement of equity. statement of financial position, statement of cash flows, and statement of natural expenses. statement of changes in assets, statement of activities, and statement of cash flows.

Answer 122

statement of financial position, statement of activities, and statement of cash flows. The notes to a not-for-profit entity's financial statements are considered an integral part of those statements, which include only the statement of financial position, the statement of activities, and the statement of cash flows.

Question 123

The notes to a not-for-profit entity's financial statements are considered an integral part of those statements, which include only the statement of ____ position, the statement of ____, and the statement of ___ ___.

Answer 123

financial activities cash flows

Question 124

On December 30, 20X1, Leigh Museum, a not-for-profit entity, received a $7,000,000 donation of Day Co. shares with donor stipulated requirements as follows: Shares valued at $5,000,000 are to be sold with the proceeds used to erect a public viewing building. Shares valued at $2,000,000 are to be retained with the dividends used to support current operations. As a consequence of the receipt of the Day shares, how much should Leigh report as net assets with donor restrictions on its 20X1 statement of financial position? $7,000,000 $0 $2,000,000 $5,000,000

Answer 124

$7,000,000 The statement of financial position of a not-for-profit entity shall report the amounts of two classes of net assets: with donor restrictions and without donor restrictions. Both the shares valued at $5,000,000 and the assets donated with a stipulation that they be invested permanently to provide income, like the shares valued at $2,000,000, should be reflected in net assets with donor restrictions, for a total of $7,000,000.

Question 125

The statement of ____ ____ of a not-for-profit entity shall report the amounts of two classes of ___assets: with donor restrictions and without donor restrictions.

Answer 125

financial position | net

Question 126

Just Breathe is a voluntary health and welfare entity that educates the public about asthma and promotes healthy lifestyle choices to improve lung health. Just Breathe receives $180,000 in unconditional promises to give expected to be collected in less than one year. Of this amount, $70,000 has been designated by donors for use next year to support operations. If 10% of the unrestricted promises are expected to be uncollectible, what amount of unrestricted support should the entity recognize in its current-year financial statements? $110,000 $169,000 $180,000 $99,000

Answer 126

$99,000 The contributions that donors intend to be used to finance the next year's operations are restricted support. Promises that donors intend to be used to finance current-year operations are reported as unrestricted support after deducting the uncollectible portion of the receivables. $180,000 – $70,000 = $110,000 $110,000 × 0.10 = $11,000 $110,000 – $11,000 = $99,000

Question 127

The contributions that donors intend to be used to finance the next year's operations are ___ ____

Answer 127

restricted support

Question 128

How should a nongovernmental, not-for-profit entity report donor-restricted cash contributions for long-term purposes in its statement of cash flows? As a noncash transaction Financing activity inflow Operating activity inflow Investing activity inflow

Answer 128

Financing activity inflow The cash flow statement for a not-for-profit is similar to a business cash flow statement. In a modification from the business cash flow statement, cash contributions received from donors who have restricted the use to long-term purposes are reported as financing activities. Thus, “operating activity inflow” and “investing activity inflow” use the wrong categories of cash flows. “As a noncash transaction” is incorrect because cash is clearly received in this transaction

Question 129

During the current fiscal year, Foxx, a nongovernmental not-for-profit entity, received unrestricted promises to give of $300,000. Of the promised amount, $200,000 was designated by donors for use during the current year, and $100,000 was designated for next year. Five percent (5%) of the contributions receivable are expected to be uncollectible. What amount should Foxx report as restricted support (contributions) in the statement of activities for the current year? $100,000 $200,000 $190,000 $95,000

Answer 129

$95,000 Of the $300,000 of contributions, $200,000 designated for use during the current year would have been collected in full by the date of the financial statements issued as of the end of the year. This $200,000 would be reported in the statement of activities as unrestricted support. Of the remaining $100,000, 5% or $5,000 is estimated to be uncollectible. Therefore, the $95,000 anticipated to be collected in the subsequent year is reported in the statement of activities as restricted support.

Question 130

Cancer Educators, a not-for-profit entity, incurred costs of $10,000 when it combined program functions with significant fundraising functions. Which of the following cost allocations might Cancer report in its statement of activities? Program services: $10,000; Fundraising: $0; General services: $0 Program services: $6,000; Fundraising: $4,000; General services: $0 Program services: $0; Fundraising: $6,000; General services: $4,000 Program services: $0; Fundraising: $0; General services: $10,000

Answer 130

Program services: $6,000; Fundraising: $4,000; General services: $0 FASB ASC 958-720-45-29 through 45-37 states that joint costs should be allocated between fundraising and the appropriate program or management and general function if three criteria are met

Question 131

A nongovernmental not-for-profit entity's statement of activities is similar to which of the following for-profit financial statements? Statement of retained earnings Income statement Balance sheet Statement of cash flows

Answer 131

Income statement In discussing the financial statements for not-for-profit entities (NFPs), the FASB Codification states a “statement of activities for NFPs is the financial statement that an NFP issues instead of a business entity's income statement.

Question 132

The primary purpose of a not-for-profit organization's statement of activities is to provide relevant information to its: managers. state regulatory body. beneficiaries. resource providers

Answer 132

resource providers. SFAC 4, Objectives of Financial Reporting by Nonbusiness Organizations, indicates that financial reporting by nonbusiness organizations should provide information useful to present and potential resource providers (e.g., creditors, suppliers, employees, donors, taxpayers)

Question 133

SFAC 4, Objectives of Financial Reporting by Nonbusiness Organizations, indicates that financial reporting by ____-___organizations should provide information useful to present and potential ____ _____ (e.g., creditors, suppliers, employees, donors, taxpayers)

Answer 133

nonbusiness | resource providers

Question 134

Community Enhancers, a nongovernmental not-for-profit entity, received the following unconditional promises from donors, sometimes referred to as “pledges”: Unrestricted $400,000 Restricted for capital additions 300,000 Unconditional promises are legally enforceable. However, Community's experience indicates that 5% of all unconditional promises prove to be uncollectible. What amount should Community report as contributions receivable, net of any required allowance account? $700,000 $665,000 $285,000 $380,000

Answer 134

$665,000 Contributions receivable expected to be collected within a year (and the related revenues) are reported net of estimated uncollectible contributions. Further, if the contributions are multi-year, the receivables (and the corresponding revenues) must be reported at present value. $400,000 + $300,000 = $700,000 $700,000 × 0.05 = $35,000 $700,000 - $35,000 = $665,000

Question 135

_____receivable expected to be collected within a year (and the related revenues) are reported net of estimated uncollectible contributions. Further, if the contributions are multi-year, the receivables (and the corresponding revenues) must be reported at ____ value.

Answer 135

Contributions | present

Question 136

What is a primary purpose and focus of the statement of activities for a nongovernmental, not-for-profit organization? To demonstrate the ability of the organization to meet donor-imposed restrictions on resources To provide relevant information about the cash receipts and cash payments of the organization during a period To provide a cost-benefit analysis of the use of the organization’s resources To demonstrate how the organization’s resources are used in providing various programs and services

Answer 136

To demonstrate how the organization’s resources are used in providing various programs and services The statement of activities for a not-for-profit entity (NFP) is the financial statement that an NFP issues in lieu of a business entity’s income statement. Unlike the statement of financial position, the statement of activities is more of a period-of-time measurement of the NFP instead of a point-in-time measurement. The statement of activities provides important information about (1) the effects of transactions and other events and circumstances that change the amount and nature of net assets; (2) the relationships of those transactions and other events and circumstances to each other; and (3) how the NFP’s resources are used in providing various programs or services.

Question 137

The ____of ____for a not-for-profit entity (NFP) is the financial statement that an NFP issues in lieu of a business entity’s _____statement. Unlike the statement of financial position, the ____of ____ is more of a period-of-time measurement of the NFP instead of a point-in-time measurement.

Answer 137

statement activities income statement activities

Question 138

Cliff Hospital, a private not-for-profit institution, has an endowment fund, the income from which is required to be used for library acquisitions. How should the income be reported in the statement of activities if there have not yet been any library acquisitions using such income? As an increase in deferred revenues As an increase in net assets with donor restrictions As an increase in permanently restricted net assets As an increase in net assets without donor restrictions

Answer 138

As an increase in net assets with donor restrictions The endowment fund income has a restriction as to its use. The restriction will be satisfied when the library acquisitions have been made and the restriction can be released at that time. The terminology “permanently restricted net assets” is no longer appropriate.

Question 139

An ___fund is an established fund of cash, securities, or other assets to provide income for the maintenance of a not-for-profit entity The use of the assets of the fund may be with or without donor-imposed restrictions.T/F NFP’s governing board may NOT earmark a portion of its net assets as a board-designated endowment fund. T/F

Answer 139

Endowment TRUE False - They CAN earmark a portion of its net assets as board designated endowment fund.

Question 140

The __ of ___ for a not-for-profit entity (NFP) is the financial statement that an NFP issues in lieu of a business entity’s income statement.

Answer 140

statement of activities

Question 141

The statement of activities reports revenues as “increases in __ ___ without donor restrictions,” unless the use of the assets

Answer 141

Net assets

Question 142

Unlike the statement of financial position, the statement of activities is more of a point-in-time measurement of the NFP instead of a period-of time-measurement. ... T/F

Answer 142

FALSE The statement of activities is more of a PERIOD OF TIME measurement of the NFP instead of a point-in time-measurement.

Question 143

Revenues are reported as increases in unrestricted net assets unless the use of the assets received is limited by donor-imposed restrictions. T/F Investment income, including unrealized gains and losses on investments reported at fair value, is reported as changes in net assets without donor restrictions unless there are donor restrictions on the use of the investment income. T/F Expenses are reported as decreases in ____ net assets. Can expenses ever be a decrease in restricted net assets? Can gains/losses be a decrease in restricted net assets?

Answer 143

``` True True Unrestricted NO! Yes - only if it is by donor stipulation or law. ```

Question 144

Fenn Museum, a nongovernmental not-for-profit entity, had the following balances in its expense categories for the statement of activities: Education $300,000 Fundraising 250,000 Management and general 200,000 Research 50,000 What amount should Fenn report as expenses for support services? $500,000 $350,000 $800,000 $450,000

Answer 144

$450,000 The costs incurred by the not-for-profit entity in carrying out its primary mission are considered program expenses. As a museum, both education and research can be considered primary to the Fenn Museum's mission. Supporting services expenses are separated into two categories: Management and general Fundraising

Question 145

The FASB defines functional classification as a method of ___expenses according to the purpose for which costs are incurred. The primary functional classifications are ___ ___ and ___ activities.

Answer 145

grouping | Program Services and Supporting

Question 146

___ ___ expenses are those expenses associated with the mission of the entity and are subclassified by specific programs ___ ___ have several functional subclassifications: management and general expenses, fundraising expenses, and membership development

Answer 146

Program service | Supporting Services

Question 147

Costs of joint activities such as fundraising telethons and mailings are required to be reported as fundraising activities (which is a supporting service) unless three conditions are met: One or more of the purposes of the activity is to accomplish some ___ function or management and general responsibility of the organization. The ___for the activity was chosen based on some criteria other than the ability to make contributions. The content of the activity motivates the audience to take specific actions other than making contributions, and these actions support the program goals or fulfill a management and general responsibility of the organization. T/F

Answer 147

program audience True

Question 148

A voluntary health and welfare entity received a $700,000 permanent endowment during the year. The donor stipulated that the income and investment appreciation be used to maintain its senior center. The endowment fund reported a net investment appreciation of $80,000 and investment income of $50,000. The organization spent $60,000 to maintain its senior center during the year. What amount of change in net assets with donor restrictions should the organization report as a result of these transactions? $770,000 $50,000 $70,000 $130,000

Answer 148

$770,000 The change in net assets with donor restrictions includes the original donation of $700,000, any increases from investment income ($50,000) and net investment appreciation ($80,000) that the donor restricted to use for the senior center, and any decreases from the amount of resources spent for the restricted purpose ($60,000). These net assets released from restrictions reduce net assets with donor restrictions and increase net assets without donor restrictions by $60,000. Therefore, the change in net assets with donor restrictions is $700,000 + $80,000 + $50,000 − $60,000, or $770,000.

Question 149

Which of the following best describes a situation in which an unconditional contribution should be recognized as revenue by a private not-for-profit organization? In the period when cash or other assets are received at the carrying value on the books of the donor In the period in which the donor states its unconditional promise to make the contribution and at the carrying value on the books of the donor In the period received at fair value In the period in which the donor states its intention to make the contribution and at fair value

Answer 149

In the period received at fair value Unconditional contributions, whether promised or received as cash, are recognized as revenue in the period received. Contributions revenue should be measured at fair value, not donor's book value. Donor intentions to give, rather than unconditional promises, are not considered revenue.

Question 150

Net assets are classified into two required categories: net assets ___donor restrictions and net assets ___donor restrictions. NFPs must disclose the amounts and purposes of board-designated net assets either on the __of the statement of financial position or in the __.

Answer 150

with without face; notes

Question 151

Contributions receivable for unconditional contributions are reported at the ___ ___of the expected cash flows from contributions for those EXCEEDING a year. (If Amber heard pledges to give you $7m in 10 years, you record $5m because $7m received in 10 years will be worth $5m today) Those collectible within a year may be recorded at ___ ___ ___. (If Amber Heard says she pledges to give you $5k, you record $5k)

Answer 151

Present Value | Net Realizable Value

Question 152

Conditional promises to give are not recorded as contributions receivable until the ___ are met or the likelihood of their not being met becomes ___

Answer 152

conditions | Remote

Question 153

Child Care Centers, Inc., a not-for-profit entity, receives revenue from various sources during the year to support its day care centers. The following cash amounts were received during 20X1: $2,000 restricted by the donor to be used for meals for the children $1,500 received for subscriptions to a monthly child care magazine with a fair market value to subscribers of $1,000 $10,000 to be used only upon completion of a new playroom that was 75% complete at December 31, 20X1 What amount should Child Care Centers record as contribution revenue in its 20X1 Statement of Activities? $10,000 $11,000 $2,000 $2,500

Answer 153

$2,500 Restricted contributions are recognized as revenue when received or promised. The $2,000 restricted for meals is recognized as restricted revenue. Conditional promises to give are not recognized as revenue until all conditions are met. The $10,000 represents a conditional promise since it may not be used until completion of a new playroom. Therefore, none of the $10,000 is recognized as revenue currently. Exchange transactions represent actions that involve a reciprocal transfer between the organization and the donor. In these situations, the amount given by the donor that is recognized as contribution revenue is reduced by the fair market value of the consideration given by the organization to the donor. The $1,500 received for subscriptions represents a $1,000 payment for the subscription and a $500 unrestricted contribution. Total contribution revenue is: Restricted $2,000 Unrestricted 500 Total revenue $2,500

Question 154

Contribution revenues (support) from gifts, grants, bequests, etc. are reported in the period they are unconditionally promised or received, whichever is ___.

Answer 154

Earlier

Question 155

A statement of financial position for a nongovernmental not-for-profit organization reports amounts for which of the following classes of net assets? Current Temporarily unrestricted Long-term Without donor restrictions

Answer 155

Without donor restrictions A nongovernmental statement of financial position shows two classes of net assets: with donor restrictions and without donor restrictions. Current, long-term, and temporarily unrestricted are not classes of net assets.

Question 156

All of the following are acceptable when not-for-profit (NFP) entities accept unconditional promises to give except: when promises to give cash are initially recognized, the amount recognized should exclude amounts expected to be uncollectible. when promises to give cash are initially recognized, the amount recorded could be based on the present value of estimated future cash flows. when promises to give cash are initially recognized, an expense for estimated uncollectible promises should be recorded. NFPs may use the fair value at the date a promise to give securities was initially recognized even if the contribution will not take place for several years.

Answer 156

when promises to give cash are initially recognized, an expense for estimated uncollectible promises should be recorded. NFPs should not record an expense for estimated uncollectible promises when promises to give are initially recognized. The other three treatments are proper. FASB ASC 958-605-30-8 allows NFPs to use the fair value at the date a promise to give securities was initially recognized even if the contribution will not take place for several years. When promises to give cash are initially recognized, they could be based on the present value of estimated future cash flows (FASB ASC 958-605-55-22). When NFPs recognize promises to give, they create an Allowance for Uncollectible Promises (or Contributions) but do not recognize Bad Debt Expense as a business does. Instead, the NFP recognizes the net realizable value of the contribution revenue (FASB ASC 958-605-30-4).

Question 157

Pharm, a nongovernmental not-for-profit entity, is preparing its year-end financial statements. Which of the following statements is required? Statement of changes in fund balance Statement of revenue, expenses, and changes in fund balance Statement of cash flows Statement of changes in financial position

Answer 157

Statement of cash flows The key to this question is that this is a not-for-profit entity, not a government. The basic financial statements for a not-for-profit entity are statement of financial position (like a balance sheet), statement of activities, statement of cash flows, and for voluntary health and welfare entities, a statement of functional expenses.

Question 158

In Year 2, the Nord Association, a nongovernmental not-for-profit entity, received a $100,000 contribution to fund scholarships for medical students. The donor stipulated that only the interest earned on the contribution be used for the scholarships. Interest earned in Year 2 of $15,000 was used to award scholarships in Year 3. What amount should Nord report as net assets with donor restrictions in the statement of financial position at the end of Year 2? $15,000 $0 $100,000 $115,000

Answer 158

$115,000 The $100,000 contribution is meant by the donor to remain invested, so the balancing equity in the accounting equation would be net assets with donor restrictions. The $15,000 of interest earned is meant by the donor to be used for a specific purpose, to fund scholarships. The scholarships will be awarded in Year 3 although the interest was earned in Year 2. For the statement of financial position, therefore, the $15,000 of interest earnings is also considered net assets with donor restrictions since the restriction on use will not be released until Year 3. The total amount of net assets with restrictions is $115,000.

Question 159

A storm damaged the roof of a nongovernmental, not-for-profit organization's building. A professional roofer repaired the roof at no charge. How should the roof repairs be recognized in the statement of activities? As an increase in expenses and an increase in contributions from donated services As an increase in the building account and an increase in net assets without donor restrictions As an increase in fixed assets and an increase in contributions from donated services No recognition is required in the financial statements, but a note disclosure is required.

Answer 159

As an increase in expenses and an increase in contributions from donated services For nonprofits, contribution revenues should be reported for donated services at their fair value, with a matching amount of expense recognized in the appropriate category, under two circumstances: 1. The services create or enhance nonfinancial assets; or 2. All three of the following conditions are met: a. Specialized skills are required to perform the services; b. The individuals donating the services possess those skills; and c. The organization would have to buy the services if they were not donated. Essentially this is a wash entry, but the activity can be tracked through the recording process.

Question 160

When should a conditional pledge to a nongovernmental not-for-profit organization be recognized as revenue? Immediately When the cash is received At the beginning of the next fiscal period When the pledge conditions are met

Answer 160

When the pledge conditions are met Conditional promises to give are not recorded as contributions receivable until the conditions are met or the likelihood of their not being met becomes remote. (Note: Contributions receivable for unconditional contributions are reported at the present value of the expected cash flows from contributions, except that those collectible within a year may be recorded at net realizable value.)

Question 161

How should a nongovernmental not-for-profit entity report depreciation expense in its statement of activities? It should be included as a decrease in net assets without donor restrictions. It should be reclassified from net assets without donor restrictions to net assets with donor restrictions, depending on donor-imposed restrictions on the assets. It should not be included. It should be included as an increase in net assets with donor restrictions.

Answer 161

It should be included as a decrease in net assets without donor restrictions. All expenses reported on the statement of activities by a not-for-profit are reported as decreases in net assets without donor restrictions. Although not requiring a cash payment, depreciation is an expense.

Question 162

A nongovernmental not-for-profit entity sold a truck for $5,000. The proceeds from the sale were used to purchase two new computers for the office at a total price of $1,800. In which section of the organization's statement of cash flows should the transactions be reported? As a cash inflow of $5,000 from financing activities and a cash outflow of $1,800 from investing activities As a cash inflow of $5,000 from investing activities and a cash outflow of $1,800 from operating activities As a cash inflow of $1,800 from investing activities and a cash outflow of $5,000 from investing activities As a cash inflow of $5,000 from investing activities and a cash outflow of $1,800 from investing activities

Answer 162

As a cash inflow of $5,000 from investing activities and a cash outflow of $1,800 from investing activities Cash received from the sale of a long-term asset ($5,000) is reported as an inflow in the investing section of the statement of cash flows. Cash used to purchase long-term assets ($1,800) is reported as an outflow in the investing section of the statement of cash flows. Although both transactions are classified as investing activities, they are not permitted to be netted together.

Question 163

In a statement of activities of the People's Environmental Protection Association, a voluntary community organization, depreciation expense should: be included as an element of expense. be included as an element of support. not be included. be included as an element of other changes in fund balances

Answer 163

be included as an element of expense.. As a voluntary community organization, the People's Environmental Protection Association is considered a not-for-profit entity as described in the FASB Accounting Standards Codification Glossary . FASB ASC 958-360-35-1 provides that a not-for-profit entity “shall recognize the cost of using up the future economic benefits or service potentials of its long-lived tangible assets (as) depreciation (expenses).”

Question 164

Pahn, a nongovernmental not-for-profit organization, received an unconditional promise to give $50,000. The donor stipulated that the donation must be used in the next fiscal year. Pahn received and spent the $50,000 in the next year. For the current fiscal year, what element of Pahn's statement of financial position will increase as a result of the unconditional promise to give? Unrestricted support Deferred contributions Cash and cash equivalents Contribution receivables

Answer 164

Contribution receivables A promise to give (sometimes referred to as a “pledge,” though this term is discouraged by the FASB) is recognized as receivable when it is unconditional or any conditions on the promise are met. Contributions receivables and contributions revenues are recognized in the period that unconditional contributions are made. Unrestricted contributions to be collected in the subsequent period or periods are reported as changes in net assets without donor restrictions.

Question 165

Alpha Hospital, a large not-for-profit entity, has adopted an accounting policy that does not imply a time restriction on gifts of long-lived assets. Alpha's board designates $1,000,000 to purchase investments whose income will be used for capital improvements. Income from these investments, which were not previously accrued, is received. Indicate the manner in which this transaction affects Alpha's financial statements. Increase in board-restricted net assets Increase in net assets with donor restrictions No required reportable event Increase in unrestricted revenues, gains, and other support

Answer 165

Increase in unrestricted revenues, gains, and other support When resources are under control of the governing board and not specifically restricted by an outside donor, the resources are considered unrestricted and the resulting income is unrestricted revenue. The designation “board-restricted net assets” does not exist.

Question 166

Janna Association, a nongovernmental not-for-profit entity, received a cash gift with the stipulation that the principal be held for at least 20 years. How should the cash gift be recorded? A temporary liability An advance Net assets without donor restrictions Net assets with donor restrictions

Answer 166

Net assets with donor restrictions Term endowment gifts such as the one described in this question are restricted, becoming available for unrestricted use after a certain point in time. There are only two classes of net assets: with and without donor restrictions. Therefore, the cash should be recorded as net assets with donor restrictions.

Question 167

An unrestricted cash contribution should be reported in a nongovernmental not-for-profit entity's statement of cash flows as an inflow from: investing activities. financing activities. capital and related financing activities. operating activities.

Answer 167

operating activities. As illustrated in FASB ASC 958-205-55-18, unrestricted contributions are reported as operating activities. Cash received from contributions restricted by donors for noncurrent purposes such as fixed asset construction, acquisition or improvement, term endowments, or permanent endowments are classified as financing activities in the statement of cash flows. Cash received from investment income restricted by donor stipulation to the same purposes also are reported as financing activities, not as operating activities.

Question 168

Costs of joint activities like mailings and telethons are required to be reported as fundraising activities unless certain criteria are satisfied. Which of the following is not one of those criteria? The content of the activity motivates the audience to take specific actions other than making contributions, and these actions support the program goals or fulfill a management and general responsibility of the entity. One or more of the purposes of the activity is to accomplish some program function or management and general responsibility of the entity. The audience for the activity was chosen based on some criteria other than the ability to make contributions. All of the answer choices are conditions under which joint activities are not required to be reported as fundraising activities.

Answer 168

All of the answer choices are conditions under which joint activities are not required to be reported as fundraising activities. There are three conditions that must be met to allow a nongovernmental not-for-profit to report costs of joint activities in a category other than fundraising activities. Those three conditions are: 1. one or more of the purposes of the activity is to accomplish some program function or management and general responsibility of the entity; 2. the audience for the activity was chosen based on some criteria other than the ability to make contributions; and 3. the content of the activity motivates the audience to take specific actions other than making contributions, and these actions support the program goals or fulfill a management and general responsibility of the entity. Therefore, all of the answer choices are conditions under which joint activities are not required to be reported as fundraising activities.

Question 169

Alpha Hospital, a large not-for-profit entity, has adopted an accounting policy that does not imply a time restriction on gifts of long-lived assets. Alpha's board designates $1 million of assets already on hand to purchase investments whose income will be used for capital improvements. Indicate the manner in which this transaction affects Alpha's financial statements. No required reportable event Increase in net assets without donor restrictions Increase in net assets with donor restrictions Increase in unrestricted revenues, gains, and other support

Answer 169

No required reportable event This designation of the board as to use of the income from investments is neither a change in restrictions nor a change in revenue/expenses. Thus, it is not a required reportable event. Only donors can place restrictions, not the board.