MCQ's (my own, starting from F6 M1)

Question 1

Not-for-profit corporations are required to produce what financial statements?

Answer 1

Statement of financial position
Statement of activities
Statement of cash flows
Not-for-profit corporations are also required to disclose, display, or separately report the relationship between functional and natural classifications of expenses

Question 2

Stanton College, a not-for-profit organization, received a building with no donor stipulations as to its use. What type of net assets should be increased when the building was received?

Answer 2

Net assets without donor restrictions

Question 3

At the beginning of the year, the Baker Fund, a nongovernmental not-for-profit corporation, received a $125,000 contribution restricted to youth activity programs. During the year, youth activities generated revenue of $89,000 and had program expenses of $95,000. What amount should Baker report as net assets released from restrictions for the current year?

Answer 3

$95,000.
Restricted donations are released from restriction when eligibility requirements have been satisfied. The Baker Fund has satisfied the restriction on $95,000 by spending the money on program expenses.

Question 4

The following expenditures were made by Green Services, a society for the protection of the environment.
Printing of the annual report - $12,000
Unsolicited merchandise sent to encourage contributions - $25,000
Cost of an audit performed by a CPA firm - $3,000
What amount should be classified as fundraising costs in the society’s statement of activities?

Answer 4

$25,000
Fundraising expenses are incurred to induce contributions. Of the expenses listed, only the unsolicited merchandise sent to encourage contributions qualifies as fundraising. The printing of the annual report and the cost of an audit would be reported under supporting services - management and general expenses.

Question 5

Guidance included in FASB ASC 958, Financial Statements of Not-for-Profit Organizations, focuses on:

Answer 5

Basic information for the organization as a whole.
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.

Question 6

What is a primary purpose and focus of the statement of activities for a nongovernmental, not-for-profit organization?

Answer 6

To demonstrate how the organization’s resources are used in providing various programs and services
The primary purpose and focus of the statement of activities (the approximate equivalent of an income statement in commercial settings) for a nongovernmental, not-for-profit organization is to demonstrate how the organization’s resources are used in providing various programs and services.

Question 7

Which classifications is required for reporting of expenses by all not-for-profit organizations?

Answer 7

Functional classification in the statement of activities and natural classification analyzed by function in the notes to the financial statements
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.

Question 8

The purpose of a statement of financial position for a nongovernmental not-for-profit entity is to provide relevant information about…

Answer 8

The assets, liabilities, and net assets, and about their relationships to one another at a moment in time.
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.

Question 9

Which types of information would be included in total net assets in the statement of financial position for a nongovernmental not-for-profit organization?

Answer 9

Net assets without donor restrictions and net assets with donor restrictions
The components of net assets of not-for-profit organizations are classified in two possible ways: with donor restrictions and without donor restrictions

Question 10

If a project that was funded by donor restricted net assets is completed by year-end will the funds be considered donor restricted at year-end?

Answer 10

No

Question 11

What is considered noncurrent in this not-for-profit trial balance?
Cash and cash equivalents - $98,000 (includes $22,000 restricted for building improvements)
Grants receivable - $20,000 (owed by the state for specified capital expenditures incurred during the year)
Land, buildings, and equipment - $250,000
Long-term investments - $130,000
Marketable securities - $90,000
Prepaid insurance - $15,000 (remaining term of policy is two years from fiscal year-end)

Answer 11

$499,500
Restricted cash of $22,000
Land, building, and equipment of $250,000
Long-term investments of $130,000
Marketable securities of $90,000
Prepaid insurance of $7,500 (half is current and half is noncurrent)

Question 12

A nongovernmental, not-for-profit entity should report a reclassification of net assets in its statement of activities if a donor:

Answer 12

Withdraws previously imposed restrictions on a gift of cash.
When donor restrictions are either satisfied or withdrawn, the funds will be reclassified from out of net assets with donor restrictions into net assets without donor restrictions.
The donor withdraws previously imposed restrictions on a gift of cash. This withdrawal will move the net assets from with or without donor restrictions because because the not-for-profit entity can now use the funds as they wish.

Question 13

Are supporting services activities other than program services?

Answer 13

Yes.
Program services (expenses) are the activities for which an organization is chartered. Support services are everything not classified on the statement of activities as a program service.

Question 14

Do program service expenses include only direct costs relating to providing program services?

Answer 14

No.
Program services are all expenses (direct and indirect) that relate to activities for which an organization are chartered, not just direct costs

Question 15

Are organizations required to report expense information by functional and natural classification in a separate financial statement using a matrix format?

Answer 15

No.
While details of functional classifications and their relationship to natural expense classifications must be presented either in the notes or on the face of the financial statements, there is no requirement that it be presented in a separate financial statement using a matrix format.

Question 16

Are organizations required to report expenses by functional classification in the notes to the financial statements?

Answer 16

No.
Expenses by functional classification must be presented either in the notes or on the face of the financial statements.

Question 17

The Jupiter Children’s Center, a not-for-profit organization, receives State grants to fund its ongoing programming. Grants are annual contracts that are structured as cost reimbursement agreements requiring expenditure of grant funding before revenues are deemed to be earned. Assuming the Jupiter Children’s Center expended all grant funds in accordance with program requirements, what would the center likely record grant revenue as?

Answer 17

Support (contribution revenue) without donor restrictions, provided that the center discloses and consistently applies this accounting policy.

Question 18

In the preparation of the statement of activities for a nongovernmental not-for-profit organization, all expenses are recorded as decreases in what net asset class?

Answer 18

Net assets without donor restrictions

Question 19

A nongovernmental, not-for-profit entity calculated a $4,000 increase in net assets with donor restrictions for the current fiscal year before the consideration of the following:
- A cash donation designated by the donor as an endowment in perpetuity - $28,000
- Net assets released from restrictions - $12,000
- A donation received that was designated as quasi-endowment - $21,000
What should be reported as the increase in net assets with donor restrictions in the current year statement of activities?

Answer 19

$20,000
The not-for-profit entity would report an increase in net assets with donor restrictions in the current year statement of activities of $20,000
Increase in net assets with donor restrictions (unadjusted) - $4,000
Contribution with donor restriction (endowment in perpetuity) - $28,000
Net assets released from restrictions - ($12,000)
Increase in net assets with donor restrictions (adjusted) = $20,000
The $21,000 donation received in the current year that was later designated as a quasi-endowment would be classified as a donation without donor restrictions and excluded from this computation.

Question 20

What are contributions available for use at the board’s discretion classified as?

Answer 20

Revenues and gains without donor restrictions

Question 21

What are contributed services classified as?

Answer 21

Revenues and gains without donor restrictions. Services are rendered and consumed simultaneously as expenses. Expenses are classified as reductions of net assets without donor restrictions

Question 22

What are promises to contribute classified as?

Answer 22

Revenues and gains with donor restrictions. A promise carries an implied time restriction until conditions (collection) or eligibility requirements (date, etc.) have been satisfied.

Question 23

Is charity care included in net patient revenues?

Answer 23

No

Question 24

In year 1, a private institution received $100,000 designated by the donor for scholarships for superior students. In year 2, they selected the students and awarded the scholarships. How should the year 2 transaction be reported in its statement of activities for the year 2?

Answer 24

As both an increase and decrease of $100,000 in net assets without donor restrictions. First for the reclassification of with donor restrictions to without, and then reduced by the scholarship expense.

Question 25

A not-for-profit organization receives $150 from a donor. The donor receives two tickets to a theater show and an acknowledgement in the theater program. The tickets have a fair value of $100. What amount is recorded as contribution revenue?

Answer 25

$50. Contributions to a not-for-profit include transactions that are unconditional (not requiring a future event to occur), nonreciprocal, voluntary, and not of an ownership investment.

Question 26

Delta Hospital purchased medicines from Field Pharmaceutical at a cost of $5K. However, Field notified Delta that the invoice was being cancelled and that the medicines were being donated to Delta. What should Delta record this donation of medicines as?

Answer 26

Other operating revenue

Question 27

What is an example of measurable performance-related barriers that are typically indicative of conditions attached to promises (pledges) or resources received by a not-for-profit organization?

Answer 27

Entitlement to assets contingent upon the achievement of producing specific outputs or measurable outcomes.

Question 28

What is contribution recognition for not-for-profit organizations based on the concept of?

Answer 28

Satisfying conditions

Question 29

How do you account for conditional promises or pledges?

Answer 29

They receive no accounting treatment

Question 29

How do you account for conditional contributions?

Answer 29

As a refundable advance

Question 30

Oz, a non-governmental not-for-profit organization, 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?

Answer 30

$2,500. Contribution revenue would be $47,500.

Question 31

How should unconditional pledges received by a nongovernmental not-for-profit organization that will be collected over more than one year be reported?

Answer 31

Pledges receivable, valued at their present values

Question 32

T or F: Investment income, custodial fees, and other advisory expenditures should be netted on a nongovernmental not-for-profit entity’s statement of activities.

Answer 32

T. Investment returns are reported net of any related investment expense.

Question 33

T or F: Revenues and expenditures from the sale of used equipment should be netted on a nongovernmental not-for-profit entity’s statement of activities.

Answer 33

T. Not-for-profit organizations account for disposal of equipment by netting proceeds (“revenues”) against carrying value (expired cost or “expenditures”) to report a gain or loss on disposal in a manner consistent with commercial enterprises.

Question 34

T or F: Gains and losses from exchange rates or other foreign currency translations should be netted on a nongovernmental not-for-profit entity’s statement of activities.

Answer 34

T. Gains and losses associated with changes in foreign currency exchange rates are presented net consistent with commercial accounting standards.

Question 35

T or F: Revenues and expenditures from an annual fundraising event representing a major source of revenue should be netted on a nongovernmental not-for-profit entity’s statement of activities.

Answer 35

F. Special events that represent ongoing and major activities of the not-for-profit organization, such as an annual fundraising campaign, should fully display gross fundraising revenues and fundraising expenses. While peripheral or incidental events may be presented on a net basis, major fundraising campaigns will present revenues and expenses separately. Annual fundraising events such as a gala, dinner, or auction that represent a major source of support for the not-for-profit are displayed showing gross revenues and expenses for he event. Normal ongoing appeals soliciting funding would recognize contribution revenue net of the cost of any related premiums.

Question 36

Does tuition revenue include scholarships?

Answer 36

Yes

Question 37

Does tuition revenue include tuition remissions?

Answer 37

Yes

Question 38

The M Foundation, a not-for-profit organization, is financially interrelated with its beneficiary organization, B Uni. Receipts of the M would be displayed/disclosed in the B Uni financial statements as:

Answer 38

A change in the Uni’s interest in the foundation on the statement of activities

Question 39

R, a nongovernmental not-for-profit organization, 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 T bills had a FV of $15,000 at the time of the transfer. At what amount should R report the T bills in its statement of financial position?

Answer 39

$15,000. FV

Question 40

R received equity securities valued at $100,000 as a gift without donor restrictions at the beginning of Year 1. During Year 1, R 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 R’s net assets ?

Answer 40

$115,000

Question 41

B, a nongovernmental not-for-profit organization, received funds during its annual campaign that were specifically pledged by the donor to another nongovernmental not-for-profit health organization. How should B record these funds?

Answer 41

Increase in assets and increase in liabilities

Question 42

At what value should a nongovernmental NFP org record shares of stock when received?

Answer 42

FV on the date of donation

Question 43

NFP orgs are considered financially interrelated orgs in the event that 1 of the orgs:

Answer 43

is both able to influence the operating and financial decisions of the other AND has an ongoing economic interest in the net assets of the other

Question 44

How should a nongov NFP org classify G/L on investments purchased with endowment assets w donor restrictions?

Answer 44

Unless explicitly restricted by donor or law, G&L should be reported in the statement of activities as increases or decreases in net assets w/o donor restrictions

Question 45

In the BS of a NFP hospital, marketable equity securities should be reported at:

Answer 45

FV w/ G&L reported in the statement of activities

Question 46

What leads to the use of fund accounting by a governmental organization?

Answer 46

Financial Control & Legal Restrictions

Question 47

What is the primary authoritative body for determining the measurement focus and basis of accounting standards for governmental fund operating statements?

Answer 47

Governmental Accounting Standards Board (GASB)

Question 48

What are considered the three primary user groups of the external financial reports of a state government?

Answer 48

Citizens, legislative/oversight groups, and investors/creditors

Question 49

Which characteristic of service efforts and accomplishments is the most difficult to report for a governmental entity?

Answer 49

Relevance

Question 50

In complying with GASB 34, a government will present separate fund financial statements for its governmental and proprietary funds. The purpose of this presentation is to:

Answer 50

Report additional and detailed information about the primary government

Question 51

Fund accounting is used by governmental units with resources that must be:

Answer 51

Segregated for the purpose of carrying on specific activities or attaining certain objectives

Question 52

The city accountant for a newly established municipality is setting up the new fund structure for the city’s accounting system. How many funds should the accountant establish for the city?

Answer 52

The minimum number of funds consistent with legal requirements and sound financial administration

Question 53

What funds most appropriately use the current financial resources measurement focus and modified accrual basis of accounting in their fund financial statements?

Answer 53

Governmental

Question 54

Does the general fund use the economic resources measurement focus and accrual basis of accounting?

Answer 54

No

Question 55

Does the internal service fund use the economic resources measurement focus and accrual basis of accounting?

Answer 55

Yes

Question 56

Does the permanent fund use the economic resources measurement focus and accrual basis of accounting?

Answer 56

No

Question 57

Does the capital projects fund use the economic resources measurement focus and accrual basis of accounting?

Answer 57

No

Question 58

The primary emphasis in accounting and reporting for governmental funds is on:

Answer 58

Source, use, and balance of current financial resources

Question 59

At December 31, Year 1, the following balances were due from the state government to Clare City’s various funds:
Capital projects
300,000
Custodial and trust
100,000
Enterprise
80,000
In Clare’s December 31, Year 1, financial statements, what amount should be reported in governmental funds?

Answer 59

$300,000

Question 60

The city of C has 2 trust funds for the benefit of the city’s library, A and B. Only the earnings from A can be expended and both the principal and interest from B can be expended. How should the city report each trust fund?

Answer 60

A: Permanent, B: Special revenue

Question 61

What basis of accounting should be used when preparing a governmental funds statement of revenues, expenditures, and changes in fund balance?

Answer 61

Modified accrual basis of accounting

Question 62

The governmental fund measurement focus is on the determination of:
Income: Y/N
Financial Position: Y/N
Current Financial Resources: Y/N

Answer 62

Income: N
Financial Position: Y
Current Financial Resources: Y

Question 63

A local governmental unit could have funds using which accounting bases?

Answer 63

Both accrual basis and modified accrual basis

Question 64

Which bases of accounting is required to be used in the government-wide financial statements for:
Business-type activities
Governmental activities

Answer 64

Accrual basis for both governmental activities and business-type activities

Question 65

Does internal service funds use the modified accrual basis of accounting?

Answer 65

No, they are proprietary - use the modified accrual basis of accounting

Question 66

Do special revenue funds use the modified accrual basis of accounting?

Answer 66

Yes, they are governmental funds

Question 67

Do enterprise funds use the modified accrual basis of accounting?

Answer 67

No, they are proprietary - use the full accrual basis of accounting

Question 68

Do private purpose trust funds use the modified accrual basis of accounting?

Answer 68

No, they are fiduciary funds - use the full accrual basis of accounting

Question 69

Should capital projects fund use modified accrual basis?

Answer 69

Yes, they are governmental (GRaSPP)

Question 70

Should pension trust funds use the modified accrual basis?

Answer 70

No, they are fiduciary (CIPPOE) and use the full accrual basis

Question 71

Should proprietary funds use the modified accrual basis?

Answer 71

No, proprietary funds (SE - include internal Service funds and Enterprise funds) use the full accrual basis

Question 72

Under the modified accrual basis of accounting for a governmental unit, revenues should be recognized in the accounting period in which they:

Answer 72

become available and measurable

Question 73

Which of the following items is recognized for governmental activities in the government-wide statement of activities and not the statement of revenues, expenditures, and changes in fund balance for governmental funds?

A.	 Transfers between governmental funds.

B.	 A state grant awarded and received for road repairs that were completed this fiscal year.

C.	 Property tax revenue for an amount deferred because it was not available.

D.	 Salaries payable at the end of the current year that will be paid at the beginning of the subsequent year

Answer 73

C.

Question 74

A permanent fund of a muni would have the same measurement focus as:

Answer 74

General fund

Question 75

What fund of a govt’al unit uses the same basis of accounting as the special revenue fund?

Answer 75

capital Projects

Question 76

Sig City used the following funds for financial reporting purposes:
General fund
Internal service fund
Airport enterprise fund
Pension trust fund
Capital projects fund
Special revenue fund
Debt service fund
How many of Sig’s funds use the accrual basis of accounting?

Answer 76

3