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

Question 1

Q

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

A

$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

Q

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

A

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

Q

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

A

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

Q

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

A

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

Q

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

A

depreciation

Question 6

Q

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

A

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

Q

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

A

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

Q

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

A

14,000

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

Question 9

Q

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

A

Donor contributions to fund a resident camp program

Question 10

Q

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

A

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

Q

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

A

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

Q

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

Question 13

Q

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

A

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

Q

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

A

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

Q

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

A

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

Q

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

A

$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

Q

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

A

$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

Q

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

A

$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

Q

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

A

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

Q

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

A

net assets with donor restrictions.

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

Question 21

Q

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

A

$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

Q

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

A

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

Q

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

A

$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

Q

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

A

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

Q

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

A

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

Q

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

A

$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

Q

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

A

general fund unrestricted revenues.

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

Question 28

Q

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

Answer

A

restricted

Question 29

Q

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

A

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

Q

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

A

$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

Q

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

A

$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

Q

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

A

$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

Q

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

A

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

Q

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

A

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

Q

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

A

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

Q

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

A

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

Q

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

A

functional

natural

Question 38

Q

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

A

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

Q

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

A

$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

Q

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

A

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

Q

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

A

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

Q

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

A

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

Q

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

A

$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

Q

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

A

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

Q

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

A

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

Q

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

A

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

Q

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

A

$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

Q

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

A

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

Q

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

A

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

Q

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

Answer

A

financing

investing

Question 51

Q

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

A

$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

Q

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

A

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

Q

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

A

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

Q

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

A

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

Q

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

A

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

Q

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

A

financial position
activities
cash flows

Question 57

Q

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

Answer

A

operating

financing

Question 58

Q

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

A

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

Q

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

Answer

A

assets
liabilities
net assets

Question 60

Q

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

A

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

Q

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

A

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

Q

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

A

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

Q

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

Answer

A

decreases

Question 64

Q

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

A

$33,200

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

Answer 64

A

$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.

Answer 65

A

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.

Answer 66

A

$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.

Answer 67

A

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.

Answer 68

A

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

Answer 69

A

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

Answer 70

A

hospital

restricted

Answer 71

A

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

Answer 72

A

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.

Answer 73

A

functional
revenues
activities

Answer 74

A

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).

Answer 75

A

collections
capitalize
all

Answer 76

A

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

Answer 77

A

$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.

Answer 78

A

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.

Answer 79

A

functional
natural
financial
financial

Answer 80

A

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.

Answer 81

A

contributions

Answer 82

A

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.

Answer 83

A

Investments

Answer 84

A

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.

Answer 85

A

Net assets without donor restrictions

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

Answer 86

A

$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.

Answer 87

A

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)

Answer 88

A

Program

supporting

Answer 89

A

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.

Answer 90

A

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.

Answer 91

A

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).

Answer 92

A

special
special
donated

Answer 93

A

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.

Answer 94

A

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.

Answer 95

A

activities
balance
revenues

Answer 96

A

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.”

Answer 97

A

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.

Answer 98

A

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.

Answer 99

A

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

Answer 100

A

$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.

Answer 101

A

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.

Answer 102

A

Investments

activities

Answer 103

A

Cost for the annual fundraising dinner

Supporting services have several functional subclassifications: management and general expenses, fundraising expenses and membership development.

Answer 104

A

management
fundraising
development

Answer 105

A

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.

Answer 106

A

unrestricted

Answer 107

A

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

Answer 108

A

$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.

Answer 109

A

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

Answer 110

A

contribution

Cash flows

Answer 111

A

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

Answer 112

A

restricted revenues

Answer 113

A

$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.

Answer 114

A

$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.

Answer 115

A

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)

Answer 116

A

statement

financial position

Answer 117

A

$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.

Answer 118

A

Nongovernmental
nongovernmental
assets

Answer 119

A

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.

Answer 120

A

financial
activities
cash flows

Answer 121

A

$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.

Answer 122

A

financial position

net

Answer 123

A

$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

Answer 124

A

restricted support

Answer 125

A

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

Answer 126

A

$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.

Answer 127

A

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

Answer 128

A

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.

Answer 129

A

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)

Answer 130

A

nonbusiness

resource providers

Answer 131

A

$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

Answer 132

A

Contributions

present

Answer 133

A

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.

Answer 134

A

statement activities
income
statement activities

Answer 135

A

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.

Answer 136

A

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

Answer 137

A

statement of activities

Answer 138

A

Net assets

Answer 139

A

FALSE

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

Answer 140

A

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

Answer 141

A

$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

Answer 142

A

grouping

Program Services and Supporting

Answer 143

A

Program service

Supporting Services

Answer 144

A

program
audience
True

Answer 145

A

$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.

Answer 146

A

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.

Answer 147

A

with
without

face; notes

Answer 148

A

Present Value

Net Realizable Value

Answer 149

A

conditions

Remote

Answer 150

A

$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

Answer 151

A

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.

Answer 152

A

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).

Answer 153

A

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.

Answer 154

A

$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.

Answer 155

A

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:

The services create or enhance nonfinancial assets; or
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.

Answer 156

A

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.)

Answer 157

A

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.

Answer 158

A

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.

Answer 159

A

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).”

Answer 160

A

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.

Answer 161

A

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.

Answer 162

A

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.

Answer 163

A

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.

Answer 164

A

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:

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; and
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.

Answer 165

A

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.