302308 Flashcards
Free Waters is a nongovernmental not-for-profit entity that educates the public about public access to lakes and waterways. On May 23, 20X3, Free Waters received unconditional promises of $232,000 expected to be collected within one year. Free Waters received $157,000 prior to year-end. Free Waters anticipates collecting 95% of the contributions and has a June 30 fiscal year-end. What amount should Pica record as contribution revenue as of June 30?
$157,000
$232,000
$220,400
$75,000
$220,400
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.
Therefore, $220,400 ($232,000 × 95%) should be recorded as contribution revenue.
Not-for-Profit Entity
According to the FASB ASC Glossary, a not-for-profit entity is distinguished from a business entity by three characteristics: contribution of significant resources from providers who do not expect proportionate return, operating purposes other than to provide goods or services for profit, and absence of ownership interests like business enterprises. In addition, the IRS stipulates that no part of the organization’s net earnings can inure for the benefit of any specific person or persons.
FASB ASC Glossary
IRS Form 1023
AICPA Audit and Accounting Guide Not-for-Profit Entities, Section 15.09
2122.06
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), or are peripheral or incidental to the NFP (gains).
2122.07
Contribution revenues (support) from gifts, grants, bequests, etc. are reported in the period they are unconditionally promised or received, whichever is earlier. Recognition of contribution revenues is not deferred because donations are restricted. Revenues are measured at the present value (or net realizable value for any contributions expected to be received within a year after the unconditional promise was made).
2122.08
The statement of activities needs to indicate whether contributions received are restricted by donor stipulations or are unrestricted.
Donor-restricted contributions are reported as restricted revenues or gains (restricted support), which increase net assets with donor restrictions. However, donor-restricted contributions whose restrictions are met in the same reporting period may be reported as unrestricted support in net assets without donor restrictions provided that a not-for-profit has a similar policy for reporting investment gains and income, reports consistently from period to period, and discloses its accounting policy.
In the absence of a donor’s explicit stipulation or circumstances surrounding the receipt of a contribution that make clear the donor’s implicit restriction on use, the placed-in-service approach must be used to report expirations of restrictions on gifts of cash or other assets to be used to acquire or construct a long-lived asset. The over-time approach is no longer allowed.
2122.09
Donor and grantor restrictions may be time restrictions or use restrictions. A time restriction on a portion of net assets is satisfied by the passage of time. A use restriction on the purpose for which donated resources may be used is satisfied by expending resources for the restricted purpose. When restrictions are satisfied, “net assets released from restrictions” are reported as an increase in the changes in net assets without donor restrictions section and as a decrease in the changes in net assets with donor restrictions section.
The Uniform Prudent Management of Institutional Funds Act (UPMIFA) adds an additional concern for recording a donor restriction, stipulating that a donated asset may not be reduced below the original donated value and must therefore be classified as a permanently restricted asset.
If an asset is covered by UPMIFA, any loss in asset value below the original donation amount should be recorded as a reduction in unrestricted net assets, net of any investment income and expenses.
2122.10
Unrestricted contributions to be collected in the subsequent period or periods are reported as changes in net assets with donor restrictions because they are considered to have a time restriction. (This restriction is presumed unless the donor specified that the contribution is intended to finance current-period activities.) A condition imposed by a donor on a contribution would create an uncertainty of receipt that would prevent the entity from recognizing either a revenue or receivable until the condition is met.
2122.11
Contributions must be distinguished from exchange transactions since the revenue recognition criteria are different for the two. Some items (e.g., membership dues) are exchange transactions for some organizations, contributions for others, and part exchange transaction and part contribution for still other organizations. (Membership dues are exchange transactions to the extent that the organization provides benefits or services of equal value to the members.) If the organization does not give anything in exchange for an increase in net assets, then the transaction would be accounted for as a donation.
2122.12
Revenues from special fundraising events must be reported at the gross amount raised. Direct costs of holding the event must be reported separately either as direct deductions from special-event revenues or in the expenses section of the statement of activities.
2122.13
Contribution revenues should be reported for the fair value of donated materials and for free use of facilities or other assets. Expenses should be reported upon use of the materials or facilities.
2122.14
Contribution revenues and either assets or expenses should be reported for donated services at their fair value that create or enhance nonfinancial assets or if the following three conditions are met:
Specialized skills are required to perform the services.
The individuals donating the services possess those skills.
The organization would have to buy the services if they were not donated.
FASB ASC 958-605-25-2
FASB ASC 958-605-30-6
