M3 - Not-For-Profit Financial Reporting: Part 1

Question 1

Other expenses such as fund raising, membership development, and general and administrative expenses should be included as a part of program services or supporting services?

Answer 1

Supporting Services

Program services would be something like labor negotiations for a labor union.

Question 2

“Management and General” expenses incurred by a community foundation should be reported as part of supporting services in the “statement of activity” (true or false)

Answer 2

True

Question 3

“Net assets subject to the passage of time” is a classification of net assets with donor restrictions that is disclosed in the notes to the financial statements and would not be appropriate for a board-designated endowment. (true or false)

Answer 3

True

Question 4

Net assets with donor restrictions can only be created by a donor. (true or false)

Answer 4

True

They can not be internally stipulated for financial statements.

Question 5

“Board-designated net assets (for future expenditures)” represent board designations of monies that may be expended, not invested and left unspent long-term. (true or false)

Answer 5

True

Question 6

The expense categories used by not-for-profit organizations generally fall under two main headings, what are they?

Answer 6

Program Services

Support Services

Question 7

Program services relate to functional expenses directly related to the mission of the organization. (true or false)

Answer 7

True

Question 8

Support services summarize the functional expenses related to general and administrative costs, cost of membership development, and fundraising. (true or false)

Answer 8

true

Fundraising contemplates inducing potential donors to contribute to the entity. Membership activities involve seeking prospective members, ensuring current members satisfaction, etc. Membership activities mimic marketing activities (a general and administrative expense) in commercial settings.

Question 9

Not-for-profit corporations are required to produce the following financial statements

Answer 9

• statement of financial position (balance sheet)
• statement of activities (similar to income statement)
• statement of cash flows

Question 10

Not-for-profits do NOT account for fund balances in F/S issued for EXTERNAL use. (true or false)

Answer 10

True

Question 11

A not-for-profit organization needs to report its expenses in the statement of activities by their functional classification (program classification, supporting activities, fund-raising, etc.) and disclose the expenses in a natural classification by function in the notes to the financial statements. (true or false)

Answer 11

True

Question 12

A gift for the purchase of endowment securities that has restricted principal according to the donor’s restrictions is a current or non-current asset?

Answer 12

non-current asset.

Endowment funds, donor restricted in perpetuity, are non-current.

Question 13

Not-for-profit reporting guidance included in FASB ASC 958 primarily focuses on basic information for the organization as a whole. The standards establish guidance for general-purpose external financial statements provided by a not-for-profit organization. (true or false)

Answer 13

True

Question 14

In the preparation of the statement of activities for a nongovernmental not-for-profit organization, all expenses are reported as decreases in which of the following net asset classes?

Answer 14

Net assets without donor restrictions

Expenses are reported as decreases in net assets without donor restrictions.

Question 15

Donor-imposed restrictions that are met in the same period they are received may be recorded as support (contribution revenue) without donor restrictions, provided that the organization discloses and consistently applies this accounting policy. (true or false)

Answer 15

true

Question 16

A not-for-profit organization classifies balances in its statement of financial position as assets, liabilities, and net assets. (true or false)

Answer 16

true

Question 17

The purpose of the Not-for-profit statement of activities is to report the revenues and expenses, gains and losses, and reclassifications between classes of net assets that produce the change in net assets for the period in total and for each applicable classification of net assets (either with or without donor restrictions). (true or false)

Answer 17

true

Question 18

The purpose of the statement of financial position for a nongovernmental not-for-profit entity would be the same as the purpose fulfilled by the balance sheet produced by a commercial entity: it provides relevant information about assets, liabilities and equity (net assets) and their relationship to one another at a moment in time. (true or false)

Answer 18

True

Question 19

Net assets of a nongovernmental not-for-profit organization are most appropriately characterized as the residual interest of the not-for-profit entity. (true or false)

Answer 19

true

The ownership interest of a not-for-profit organization are unlike business enterprises. Resources do not belong to a defined class of owners, only the not-for-profit entity itself and the mission for which it was formed. The net assets represent the difference between the not-for-profit organization’s assets and liabilities.