FAR 1B2 SoA

Question 1

💰 How is a promise to contribute next year classified in the current year?

Answer 1

✅ Restricted contribution revenue
✅ Recognized immediately upon receipt of the promise
✅ Measured at net realizable value (NRV) if expected to be collected within a year

Question 2

⚖️ How should contributed legal or outside services be classified?

Answer 2

✅ Unrestricted revenue
✅ Must be expensed at the same time

Question 3

🎓 What are primary/program services in an NFP?

Answer 3

✅ Expenses directly related to the primary mission
✅ Examples: Education, research, healthcare

Question 4

🏛️ What are supporting services in an NFP?

Answer 4

✅ Expenses not directly related to the mission
✅ Examples: Management & general expenses, fundraising costs

Question 5

📈 What does “Changes in Net Assets” include?

Answer 5

✅ Original donation
✅ Increases from investment income
✅ Net appreciation of investments
✅ Less maintenance costs

Question 6

🛠️ When are donated services recorded as revenue?

Answer 6

1️⃣ Create or enhance nonfinancial assets
2️⃣ Require specialized skills and are provided by professionals (e.g., doctors, accountants, engineers)
❌ Other donated services are NOT recognized
📑 Disclosure of non-recognized donated services is encouraged but not required

Question 7

Is netting allowed for major ongoing NFP activities?

Answer 7

❌ No, netting revenues and expenditures from fundraising is not allowed

Question 8

🔄 What is the difference between contribution revenue and exchange transactions?

Answer 8

✅ Contribution revenue: No direct value received in return
✅ Exchange transactions: Member dues that include services must be partially deducted from contribution revenue

Question 9

📅 What is restricted support in an NFP?

Answer 9

✅ Pledged contributions for a specific purpose in future years
✅ If used in the current year, it is unrestricted support

Question 10

📊 How are investment gains and losses recorded in an NFP?

Answer 10

✅ As unrestricted revenue, unless the donor specifies restrictions on the principal investment

Question 11

📏 How should contribution revenues be measured?

Answer 11

✅ Present value (PV) or net realizable value (NRV) if collected within a year

Question 12

🏦 How are grants to other organizations classified?

Answer 12

✅ As an expense in the statement of activities

Question 13

📉 How are expenses reported in an NFP

Answer 13

✅ As decreases in net assets without donor restrictions

Question 14

🎁 How are donated supplies recorded in an NFP?

Answer 14

✅ Initially as an asset
✅ Expensed at fair value as they are consumed

Question 15

📜 When are unconditional promises recorded?

Answer 15

✅ In the period they are promised or received, whichever is earlier
✅ Timing of cash receipts (installments) does NOT affect recognition

Question 16

🔄 What are split-interest agreements?

Answer 16

✅ Trusts where resources are shared with another beneficiary

Question 17

🏦 What are the five types of split-interest agreements?

Answer 17

1️⃣ Perpetual trusts held by third parties
2️⃣ Charitable gift annuities
3️⃣ Charitable lead trusts
4️⃣ Pooled income funds
5️⃣ Charitable remainder trusts

Question 18

⚖️ What defines a governmental entity?

Answer 18

✅ Bodies corporate and politic
✅ Entities with tax-levying power

Question 19

🏛️ Are nongovernmental not-for-profits subject to federal taxation?

Answer 19

✅ No, they are tax-exempt

Question 20

🔎 What are the three conditions for an NFP to classify joint activities outside of fundraising?

Answer 20

1️⃣ The activity serves a program function or management purpose
2️⃣ The audience was chosen based on criteria other than ability to donate
3️⃣ The activity motivates action beyond just contributing

Question 21

🏗️ Must nongovernmental NFPs depreciate fixed assets?

Answer 21

✅ Yes, all fixed assets must be depreciated, except for land

Question 22

🎁 How are donated assets recorded?

Answer 22

✅ At fair value on the donation date

Question 23

📊 How must NFP expenses be reported?

Answer 23

✅ As changes in net assets without donor restrictions

Question 24

When are conditional promises recognized as revenue?

Answer 24

✅ Only when all conditions are met

Question 25

💰 When are contributions recognized as revenue in an NFP?

Answer 25

✅ In the period in which the unconditional promise to give is received ❌ Timing of cash collection does NOT affect recognition

Question 26

🔄 Does the distinction between restricted and unrestricted pledges impact revenue recognition?

Answer 26

❌ No, both are recognized in full when the unconditional promise is made ✅ The distinction only impacts net assets (equity) in the financial statements

Question 27

🔒 What is an example of restricted support?

Answer 27

✅ Contributions designated by donors for use next year to support operations

Question 28

🏛️ What are the two expense categories in an NFP Statement of Activities?

Answer 28

✅ Program Services: Directly related to the mission ✅ Support Services: Administrative or fundraising-related ❌ No other categories exist

Question 29

🎓 What are examples of Program Services expenses?

Answer 29

✅ Education (school, museum) ✅ Research (scientific foundation) ✅ Healthcare services (hospital) ✅ Environmental programs (conservation group) ✅ Food distribution (food bank)

Question 30

🏦 What are examples of Support Services expenses?

Answer 30

✅ Fundraising (development, donor relations) ✅ Management & General (executive salaries, accounting, HR, office expenses) ✅ Administrative expenses (legal fees, board meetings, audit costs, insurance)

Question 31

🔄 Examples of Program vs. Support Services

Answer 31

✅ Salaries: Teacher's salary in a nonprofit school → Program Service CEO’s salary in a nonprofit school → Support Service (Management & General) ✅ Facility Costs: Classroom rent for a nonprofit school → Program Service Headquarters office rent → Support Service (Management & General) ✅ Marketing & Events: Educational campaign about public health (if the NFP’s mission is public health awareness) → Program Service Fundraising gala for donors → Support Service (Fundraising)

Question 32

🏗️ How does depreciation impact an NFP's financials?

Answer 32

✅ Reduces net assets (instead of net income like in for-profits)

Question 33

📊 How is net income reported in an NFP?

Answer 33

✅ It is classified as “Net Assets” ✅ Divided into two categories: with donor restrictions & without donor restrictions

Question 34

📝 How does the Statement of Activities (SoA) compare to a for-profit income statement?

Answer 34

✅ NFPs do not report net income; they report changes in net assets ✅ The SoA is split into two sections: Revenue & Expenses (with and without donor restrictions) ✅ Essentially, it is two full P&Ls in one statement

Question 35

📉 How are expenses, including depreciation, classified in the SoA?

Answer 35

✅ Always reported under net assets without donor restrictions

Question 36

💰 How are contribution revenues (support) recognized?

Answer 36

✅ Reported in the period they are unconditionally promised or received, whichever is earlier

Question 37

📏 How are revenues measured in an NFP?

Answer 37

✅ At present value (PV) or net realizable value (NRV) for contributions expected to be received within a year

Question 38

🔄 What does a change in net assets with donor restrictions include?

Answer 38

✅ Original donation ✅ Investment income & appreciation that is donor-restricted ✅ Decreases from resources spent for the restricted purpose

Question 39

🏢 How do businesses classify contributions made to an NFP?

Answer 39

✅ As an expense of the period ✅ NFPs recognize expenses the same way, so contributions are treated as an expense

Question 40

How should a nongovernmental NFP report donated supplies & services?

Answer 40

Donated services are recorded as revenue & expense if they: ✅ Create/enhance a nonfinancial asset 🏗️ ✅ Require specialized skills that would otherwise need to be purchased 🎓⚖️ Consumed donated supplies are recorded as an expense 🏥📦

Question 41

How is total expense calculated?

Answer 41

✅ Total Expenditures + Recognized Donated Services + Consumed Donated Supplies 📊 Example Calculation: $630,000 (incurred expenses) + $40,000 (legal services) + $15,000 (supplies) = $685,000 total expenses