20.7 Flashcards
Under Cura Hospital’s established rate structure, healthcare services revenues of $9 million would have been earned for the year ended December 31. However, only $6.75 million was collected because of charity allowances of $1.5 million and discounts of $750,000 to third-party payors. For the year ended December 31, what amount should Cura report as healthcare services revenues in the statement of operations?
$6,750,000.
Gross healthcare services revenues do not include charity care, which is disclosed separately in the notes to the financial statements. Moreover, such revenues are reported in the financial statements net of contractual and other adjustments. Thus, healthcare services revenues are recorded in the accounting records at the gross amount (excluding charity care) of $7.5 million but reported in the financial statements at the net realizable value of $6.75 million.
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?
Financing activities.
Cash inflows from financing activities include receipts of restricted resources that by donor stipulation must be used for long-term purposes. A cash contribution for the construction of a new building is a resource that must be used for long-term purposes.
In the statement of cash flows of a nongovernmental not-for-profit entity (NFP), noncash investing and financing activities
Must be reported in related disclosures but not in the statement.
Information about all investing and financing activities that affect recognized assets or liabilities but not cash flows must be disclosed. Given only a few transactions, disclosure may be on the same page as the statement of cash flows. Otherwise, they may be reported elsewhere in the statements with a clear reference to the statement of cash flows. Examples of such noncash transactions include obtaining assets by assuming liabilities and exchanging a noncash asset or liability for another.
Fact Pattern:
NFP, a nongovernmental not-for-profit entity, reported a change in net assets of $300,000 for the current year. Changes occurred in several balance sheet accounts as follows:
Equipment: $25,000 increase
Accumulated depreciation: 40,000 increase
Note payable: 30,000 increase
Additional Information:
- During the current year, NFP sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000.
- In December of the current year, NFP purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000.
- Depreciation expense for the year was $52,000.
In NFP’s current-year statement of cash flows, net cash provided by operating activities should be
$437,000.
An NFP should adjust the change in net assets for the effects of items that have no effect on net cash provided by operating activities. Depreciation is included in the determination of the change in net assets but has no cash effect. Thus, depreciation should be added. The sale of equipment resulted in a gain included in the determination of the change in net assets, but the cash effect is classified as an inflow from an investing activity. Thus, the gain should be subtracted. The cash outflow for the purchase of equipment is from an investing activity and has no effect on the change in net assets. Thus, it requires no adjustment. The net cash provided by operating activities is $347,000 ($300,000 change in net assets + $52,000 depreciation – $5,000 gain).
A large nongovernmental not-for-profit entity’s statement of activities must report the net change for net assets that are
With donor restrictions:
Without donor restrictions:
Yes
Yes
The statement of financial position must at a minimum report the amounts of net assets without donor restrictions, net assets with donor restrictions, and total net assets. The statement of activities should report the changes in each category.
Pann, a nongovernmental not-for-profit organization, provides food and shelter to the homeless. Pann received a $15,000 gift with the stipulation that the funds be used to buy beds. In which net asset class should Pann report the contribution?
Net assets with donor reatrictions.
A statement of financial position of an NFP must report at a minimum net assets in two classes: (1) net assets without donor restrictions and (2) net assets with donor restrictions. The cash gift is reported in net assets with donor restrictions because it will be expended for the stated purpose.
A nongovernmental not-for-profit entity discovered that equipment purchased for cash on January 1, Year 1, for $650,000 was incorrectly expensed instead of capitalized. The equipment should have been depreciated (straight-line method) over 5 years with no salvage value. What amount should be recorded as purchases of equipment on a cash flow statement (indirect method) dated December 31, Year 5?
$0.
Any error related to a prior period discovered after the statements are available to be used must be reported as an error correction by restating the prior period statements. The carrying amounts of (1) assets, (2) liabilities, and (3) net assets at the beginning of the first period reported are adjusted for the cumulative effect of the error on the prior periods. Corrections of prior-period errors must not be included in the change in net assets from operations for the current year. Consequently, the purchase of equipment is not presented as a cash flow from investing activities in the statement of cash flows for Year 5. But $130,000 [($650,000 ÷ 5 years) – $0 salvage value] is added to the change in net assets in the reconciliation to net cash flow from operating activities.
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?
Net assets without donor restrictions and net assets with donor restrictions.
Net assets are reported in the statement of financial position at a minimum as net assets without donor restrictions and net assets with donor restrictions.
Assuming no contrary law or regulation, gains and losses on investments by an NFP should be included in the
Statement of activities as changes in net assets without donor restrictions.
An NFP’s statement of activities is equivalent to a for-profit entity’s income statement. Assuming no contract law or donor stipulation, gains and losses, dividends, interest, and other investment income are reported when they occur in the statement of activities as changes in net assets without donor restrictions.
During the current year, Mill Foundation, a nongovernmental not-for-profit entity, received $100,000 in unrestricted 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.
An internal decision to designate a portion of net assets without donor restrictions as an endowment is not a restriction. If the contributions had been restricted by the donor, the classification of the assets would have been net assets with donor restrictions.
A nongovernmental not-for-profit entity’s statement of activities is similar to which of the following for-profit financial statements?
Income Statement.
The statement of activities of an NFP reports information about the uses of resources to provide programs or services. It includes the changes in net assets and changes in categories of net assets (reclassifications). Revenues, expenses, gains, and losses increase or decrease net assets. A for-profit entity’s income statement reports revenues from, and expenses of, the entity’s major activities and gains or losses from other activities.
What is the primary purpose of the statement of activities of a nongovernmental not-for-profit organization?
To report the changes in net assets for the period.
The general-purpose financial statements of a nongovernmental not-for-profit entity (NFP) are the statement of financial position, statement of activities, and statement of cash flows. A statement of financial position is equivalent to a for-profit entity’s balance sheet. It presents information about assets, liabilities, net assets, and their relationships at a moment in time. A statement of activities is an operating statement equivalent to a for-profit entity’s income statement. It presents changes during the reporting period in the classes of net assets, including reclassifications of net assets. It also includes information about how resources are used to provide programs and services. An NFP’s statement of cash flows is similar to the statement reported by for-profit entities.
On January 1, Read, a nongovernmental not-for-profit organization, received $20,000 and an unconditional pledge of $20,000 for each of the next 4 calendar years to be paid on the first day of each year. The present value of an ordinary annuity for 4 years at a constant interest rate of 8% is 3.312. What amount of net assets with donor restrictions is reported in the year the pledge was received?
$66,240.
Contributions received are accounted for at fair value. The fair value of the annual $20,000 payments may be estimated using the present value of payments. The present value of the payments equals $66,240 ($20,000 × 3.312). Unconditional promises to give cash amounts in the future are reported as donor-restricted support unless the donor clearly intended support for current activities. Because unconditional promises to give amounts in future periods usually increase net assets with donor restrictions, the amount of $66,240 is reported accordingly. The $20,000 received on January 1 increases net assets without donor restrictions.
In the financial statements of a nongovernmental not-for-profit entity, information about perpetual donor-imposed restrictions on assets must be disclosed in
The notes or in separate line items within net assets with donor restrictions.
Information about the nature and amounts of donor-imposed restrictions must be provided on the face of the statement of financial position or in the notes. Also, to report different types of restrictions, separate line items may be included in (1) net assets with donor restrictions or (2) the notes. Examples are (1) assets to be used for a specific purpose, to be preserved, and not to be sold and (2) assets to be invested to provide permanent income (e.g., donor-restricted perpetual endowment).
On December 30 of the current year, Leigh Museum, a nongovernmental not-for-profit entity (NFP), received a $7 million donation of Day Co. shares with donor-stipulated requirements as follows:
- Shares valued at $5 million are to be sold, with the proceeds used to erect a public viewing building.
- Shares valued at $2 million 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 statement of financial position for the current year?
$7,000,000.
A donor-imposed restriction may be temporary or perpetual. The shares to be sold and used for a specified project and the shares to be retained in perpetuity are both donor-restricted support. The NFP should report $7 million as net assets with donor restrictions.
