Not For Profit

Question 1

Define Not-for-profit (NFP) organizations

organized for the 1) p___se of providing 2) ch___e g___s/or s__s n_ for the purpose of earning a p__t

Answer 1

1) purpose
2) charitable goods/or services not
3) profit

Question 2

NFPs do not have 1) o__s that b__it from a res__al interest in the ea___s of the organization

Instead, any “profits” from the organization’s actitivies should be used to further the organization’s 2) ch___e p___se

Answer 2

1) owners that benefit from a residual interest in the earnings
2) charitable purpose

Question 3

Organizations that formed for chartiable purposes may qualify under section 1) __ of the tax code to be 2) e___t from 3) fe___l in__ t__s

Answer 3

1) 501
2) exempt
3) federal income taxes

Question 4

To be tax-exempt, the organization must have a 1) l___d p__se, confine its activities to its limited purpose, and not be involved in 2) p___l act___s

Answer 4

1) limited purpose
2) political activities

Question 5

Most NFP organizations seek section 1) ___ status because this section of the tax code allows donors to 2) de__t co___ns to a 501(c)(3) organization from 3) ta___e i___e

(this helps more an incentive to donate)

Answer 5

1) 501(c)(3)
2) deduct contributions
3) taxable income

Question 6

To apply for this section 501(c)(3) status, the organization must file Form 1) ___, “Ap__n for R___on of Ex___n Under Section ___ of the In___l S___e Re___e”

Answer 6

1) 1023, “Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Service Revenue”

Question 7

A common form of 501(c)(3) entity is that a of a public charity defined as

1. A c___, sc___, h___l, or p___ly supported c___y
2. An organization that receives more than ___ of its support from a combination of co___s, m___p fees, and g__s re___ts from exempt activities and no more than ___ of its support from gross investment income
3. An organization operated e___y for the b___t of organizations already described
4. An organization fo__d and o___d exclusively for p___c s___y

Answer 7

1. A church, school, hospital, or publicly supported charity
2. An organization that receives more than 1/3 of its support from a combination of contributions, membership fees, and gross receipts from exempt activities and no more than 1/3 of its support from gross investment income
3. An organization operated exclusively for the benefit of organizations already described
4. An organization founded and operated exclusively for public safety

Question 8

Most section 501(c)(3) organizations are required to file 1) F__ ___ on an annual basis (with some exceptions) which must be available for 2) p___ in____n

Answer 8

1) Form 990
2) public inspection

Question 9

Form 990 provides financial information including a 1) b__e s__t, re__s, ex___s, etc.

A breakdown of expenses is required that allows 2) in___ed pa___s to determine the costs of 3) sp___c pr___s, amount paid to 4) af___s, and amounts spent on 5) ad___n and f__ng V the provision pr___m s__es.

Answer 9

1) balance sheet, revenues, expenses, etc.
2) interested parties
3) specific programs
4) affiliates
5) administration and fundraising V the provision program services.

Question 10

Form 990 also requires list of 1) of___s, di____rs, t___es, key em____s, the amount of t___e each spends on behalf of the organization, and the co____n of each.

Answer 10

1) officers, directors, trustees, key employees, the amount of time each spends on behalf of the organization, and the compensation of each.

Question 11

Also, Sch. A of Form 990 provides information on the 1) five highest paid e___s (other than officers, directors, and trustees) making more than 2) $___ and the compensation of the 3) five highest paid in___t co___rs for se___s.

NFPs with annual revenues that are generally less than 4) $___ must file an annual 5) __-__ (__-__) with the 6) I__ to maintain t__-e___t status

Answer 11

1) five highest paid employees
2) $100,000
3) five highest paid independent contractors for services
4) $50,000
5) e-card (990-N)
6) IRS to maintain tax-exempt

Question 12

If tax-exempt organization generates income form activities that are 1) u___ to its tax exempt purpose this income is subject to tax at the 2) co___e or t___t r__.

This is called 3) U___d B___s I___e (___)

Answer 12

1) unrelated
2) corporate or trust rate
3) Unrelated Business Income (UBIT)

Question 13

Unrelated Business Income (UBIT)

This tax keeps tax exempt organizations from having an 1) un__ ad___e over f__ pr___t entities.

If the unrelated income is deemed too 2) si___t, the NFP may lose its tax smelt status. The UBIT is filed in 3) F__ 9__.

Answer 13

1) unfair advantage over for profit entities
2) significant
3) Form 990T.

Question 14

Introduction to NFP Organizations

Question 15

In addition to unrelated business income, another area of concern to the IRS is 1) ex___e ex__e co___on

Answer 15

1) excessive executive compensation

Question 16

One of the requirements for 501(c)(3) status is that no part of the 1) n__ ea___s of the organization may inure to the 2) b__t of any pr__e sh___er or in___ual

Answer 16

1) net earnings
2) benefit of any private shareholder or individual

Question 17

If the IRS deems compensation to be 1) ex___e (u___ed) “in___ate sa__ns” may be imposed on the recipient of the benefits and those who approved it 2) (board of di___s/tr___es)

These intermediate sanctions allow the IRS to imposed 3) p___s without the drastic action of stripping the organization of its tax-exempt status

Answer 17

1) excessive (unjustified) “intermediate sanctions”
2) (board of directors/trustees)
3) penalties

Question 18

Single Audit Act

Organizations (like state and local government, NFP organizations, etc) often rely on 1) fe___l d___s for a significant portion of their financial sources.

Answer 18

1) federal dollars

Question 19

Single Audit Act

Consolidates the auditing and reporting requirements for organizations expending 1) $___ or more of federal awards within a fiscal year

Answer 19

1) $750,000

Question 20

Sarbanes Oxley Act

also affects NFPs

-though not required, SOX impacts the relationships between auditors and not for profit auditors (compliance with SOC may be awarding of grants by donor organizations)

-SOX limits the services that auditors can provide to their clients

Question 21

Service Efforts and Accomplishments (SEA) Reporting

In order to communicate how 1) ef___e an organization is f__g its pu___e, it’s necessary to report both 2) fi__l and n__ fi__l information. This is called 3) se___e ef__s and ac___s.

It’s motivated by the lack of a “bottom line” focus for not for profit organizations (and governments)

Answer 21

1) effective an organization is fulfilling its purpose
2) financial and non financial
3) service efforts and accomplishments.

Question 22

Accounting for NFPs Organizations

Non-governmental and NFPs falls under the guidance of the 1) ___

Answer 22

1) FASB

Question 23

FASB wants NFP’s to

1. all NFPs must recognize de____
2. p___s (u___al p___es to give)
   entry: DR: ___ ___ CR: ___ ____
3. In___s in d__t and e___y securities are carried at m___t v__e
4. Transfers of a___s to a NFP entity for a specified th__ p__ beneficiary are offset by li___ (the NFP) is an ag___y relationship and d__n’t record re___

Answer 23

1. all NFPs must recognize depreciation
2. pledges (unconditional promises to give)
   entry: DR: Accts Rec CR: Contribution Revenue
3. Investments in debt and equity securities are carried at market value
4. Transfers of assets to a NFP entity for a specified third party beneficiary are offset by liability (the NFP) is an agency relationship and doesn’t record revenue)

Question 24

GAAP requires that financial reporting by nonprofit organizations be presented for the entity taken as a whole.

A complete set of financial statements include:
1. Statement of F___l P___n (b__ sh___t)

2. Statement of A___s - op___g st___t reporting ex___e by fu___n
3. Statement of C__ F__ - o___g, fi___g, in___g (cash donations that must be used for ___ purposes per donor restrictions are fi___ activities)
4. Statement of F___l E___s - a matrix that classifies e___e by f___n (s___c p___ms) and o___t (s___s) this should include a di___e of the method for a___n of e____s amount functional categories

Answer 24

1. Statement of Financial Position (balance sheet)
2. Statement of Activities - operating statement reporting expense by function
3. Statement of Cash Flow - operating, financing, investing (cash donations that must be used for LT purposes per donor restrictions are financing activities)
4. Statement of Functional Expenses - a matrix that classifies expense by function (specific programs) and object (salaries) this should include a disclosure of the method for allocation of expenses amount functional categories

Question 25

2 classes of net assets are to be reported

1. Net assets wi___ d___ r____s (u___)
2. Net assets wi__ d___r r___s (r____)

Answer 25

1. Net assets without donor restrictions (unrestricted)
2. Net assets with donor restrictions (restricted)

Question 26

1. Net assets without donor restrictions (unrestricted)

-should include 1) di___e of any amounts that are 2) s__ a__e as bo__ de___d f__s

Answer 26

1) disclosure
2) set aside as board designated funds

Question 27

2. Net assets with donor restrictions (restricted)

-additional 1) di___es are made regarding 2) s___ic a__ts and re__ns

-Disclosure regarding restrictions on specific assets and liabilities may be accomplished in the statement of 3) fi__l po___n or f___es

Answer 27

1) disclosures
2) specific amounts and restrictions
3) financial position or footnotes

Question 28

Revenues in all classes are recognized on the 1) a___al b___s.

Pledges (2) u___al pr___s) for 3) f___e s__s are recorded as
DR ____ _____ and CR ___

in the appropriate net asset classification at 4) cu___t ___ (PV; re___s should be reduced for u___e a___e)

Answer 28

1) accrual basis
2) unconditional promises
3) future sums are recorded as
DR Pledges Receivable and CR Revenues
4) current FV (PV; revenues should be reduced for uncollectible allowance)

Question 29

Contributions must be distinguished from 1) ex___e r___s (involved an exchange of v__e between the p__)

Contributions that are 2) co___l on c___n e___ts are n__ r___ed as d___e until all conditions are m__

Restricted reaches may be recognized 3) b___ being ex___d for the re___d purpose (important to distinguish do__ im___d condition V re___n)

Answer 29

1) exchange revenues (involved an exchange of value between the parties)
2) conditional on certain events are not recognized as dengue until all conditions are met
3) before being expensed for the restricted purpose (important to distinguish donor imposed condition V restriction)

Question 30

All expenses are recorded under 1) net a___s (u___d and grouped by fu___n)

Answer 30

1) net assets (unrestricted and grouped by function)

Question 31

The 2 major functional classifications

1. P___ se____ - fu___g the m__n of the or___n
2. Su___ activities (a___on and f___ng)

Answer 31

1. Program services - fulfilling the mission of the organization
2. Supporting activities (administration and fund-raising)

Question 32

What are the 3 categories of expenses?

1. P___ S___
2. Ad___e
3. Fu___g

Answer 32

1. Program Services
2. Administrative
3. Fundraising

Question 33

Additional detail regarding expenses is included in the statement of 1) fu___al ex___s.

Disclosures must include how the organization manages 2) li___y and in___n regarding the availability of financial assets to meet operating cash requirements.

Answer 33

1) functional expenses
2) liquidity and information

Question 34

Revenues are recognized in 1) b___ categories of 2) n__ a__s, but all expenses are recorded under restricted net assets are reclassified as 3) u___d n__ a___.

In order to avoid a creating a negative balance of unrestricted net assets, restricted net assets are reclassified as 4) un__d when the re__n e__s.

Answer 34

1) both
2) net assets
3) unrestricted net assets
4) unrestricted when the restriction expires.

Question 35

EX. Suppose money is donated to be used for a restricted purpose or time period in the future. (Pledges to be collected in another fiscal period are considered to be “restricted” as to time)

The entry to record the donation is

DR- __ or (__)
CR ____

Answer 35

Dr - Cash (or Pledges Receivable)
Cr - Contributions Revenue - restricted

Question 36

When the money is used for intended purpose (or time restriction passes) the amount is reclassified:

DR - ____
CR - ____

Answer 36

DR - Net assets reclassified - restricted
CR - net assets reclassified - unrestricted

Question 37

Plant assets purchased with 1) re___d f__s are reclassified as un___d at the ti__ of p___se;

2) new st___s el___e the option to re___y these amount as d___ed

Answer 37

1) restricted funds are reclassified as unrestored at the time of purchase;

2) new standards eliminate the option to reclassify these amount as depreciated

Question 38

Donated nonfinancial assets and services

Contributions revenue related to donated nonfinancial assets (including services) should be reported 1) se___e from other donations (with added disclosure that disaggregates these donations by type of asset, whether the assets were monetized or utilized)

Answer 38

1) separate

Question 39

Donated nonfinancial assets and services

Donated nonfinancial assets are recorded at their 1) fa__ m___t v__e on the date of the g__

If measurable, donated services are recognized as both revenue and an asset or expense if the services either
1. cr___ or e___ce a no__ial a__t

2. involve sp___d s__s that would have to be otherwise p___d and there’s the equivalent of an em__r-em___e relationship
   entry:
   DR: ___ (s__y, w___s, te___g)
   CR: ___ ___

Answer 39

1) fair market value on the date of the gift
1. create or enhance a nonfinancial asset

2. involve specialized skills that would have to be otherwise purchased and there’s the equivalent of an employer-employee relationship
   entry:
   DR: Expense (salary, wages, teaching)
   CR: Contribution Revenue

Question 40

Collections (works 1) a_ held by a museum) must be held for public display and protected and preserved.

If sold the proceeds must be 2) r____d in collections and or us___ for the di__ ca__ of e___g collections.

Answer 40

1) art
2) reinvested
3) used for the direct care of existing collections

Question 41

Collections

If qualifying as a collection, the items may be recorded as assets offset by 1) re___d n__ a__s.

Alternatively, collections may be 2) un____ in the ledger and included in n__ di___e.

Answer 41

1) restricted net assets
2) unrecorded in the ledger and included in note disclosure (footnote)

Question 42

Although not for profits do not focus on a “profit motive”, a 1) su__s may be desirable to generate 2) w__g ca___l, fa___e ex__n, and provide a safety net when funding sources run l__

Answer 42

1) surplus
2) working capital, facilitate expansion, and provide a safety net when funding sources run low

Question 43

A more meaningful performance measure is the ratio of 1) p___m se___ e___es to t___ e___s.

This ratio provides insight to the 2) ef___y of the organization in f___g its m___n.

A minimum of 3) __% is recommended by the better business bureau

Answer 43

1) program service expenses to total expenses
2) efficiency of the organization in fulfilling its mission
3) 65%

Question 44

Ratio of program service expenses to total expenses

the importance of this ratio raises the significance of how 1) c__ are al____d between p___m and su___g (ad___e and f___g) categories.

Answer 44

1) costs are allocated between program and supporting (administrative and fundraising)

Question 45

The AICPA provides guidance on allocating fundrasing costs to other joint activities if

1. The p__ of the j___ activity includes the ac___nt of p__m fu__s
2. The a___e is selected based on more than po__al for co___ns
3. The c___t of the activity c__ for s___c action that helps f__ the organizations m___

*if any above 3 conditions are not met for particular activity, the costs should 1) ___ be a__d to program functions but should be reported as 2) fu___g

Answer 45

1. The purpose of the joint activity includes the accomplishment of program functions
2. The audience is selected based on more than potential for contributions
3. The content of the activity calls for specific action that helps fulfill the organizations mission

1) NOT be allocated
2) fundraising

Question 46

Liquidity and Availability of Resources

NFPs must 1) di___e in___on (q___ve and q___ve) regarding the 2) av___y and m___nt of li___d resources to meet the cash needs of general expenditures for the next year.

Answer 46

1) disclose information (qualitative and quantitative)
2) availability and management of liquid

Question 47

Mergers and Acquisitions

When a NFP organization combines with another organization, it’s important to determine if the combination is a 1) m__r or an ac___n

Answer 47

1) merger or an acquisition

Question 48

Mergers and Acquisitions

Define Merger

creates a 1) new e___y with a new b__ and is accounted for using the ca___r method (B_) of the p__-ex___g entities are carried over to the new entity - as a result no g___l is recognized

Answer 48

1) new entity with a new bond and is accounted for using the carryover method (BV) of the pre-existing entities are carried over to the new entity - as a result no goodwill is recognized

Question 49

Mergers and Acquisitions

Define Acquisitons

a combination that 1) d__ n__ qualify as a m___r and requires the ac___n method be used for reporting purposes

Answer 49

1) does not qualify as a merger and requires the acquisition method be used for reporting purposes

Question 50

Mergers and Acquisitions

Under the acquisition method, identifiable 1) as___ and li___s are recognized at f__ va__ and any result g____l is reported.

If the amount paid is 2) l__ than f__ va___ (or if the acquisition is the result of a do___), the donated portion is recognized as c___n re___

Answer 50

1) assets and liabilities are recognized at fair value and any result goodwill is reported
2) less than fair value (or if the acquisition is the result of a donation), the donated portion is recognized as contribution revenue

Question 51

Mergers and Acquisitions

Accounting for goodwil resulting from an acquisition depends on whether the entity derives its 1) mostly from c___ns or from the 2) s__ of pr___ or se___s.

If the entity is business like in nature, the goodwill is 3) ca___d as an as___t; if revenues are primarily the result of contributions, the goodwill is 4) ex___ on the d__ of ac___n

no asset recorded
DR goodwill
CR acquisition

Answer 51

1) mostly from contributions
2) sale of products or services
3) capitalized as an asset
4) expensed on the date of acquisition

Question 52

Colleges and Universities

Question 53

Contributions Revenue are recognized when an 1) un___l pr___e to give is made.

These revenues will be classified based on 2) d___r-i___ed sti__ns regarding the use of resources

Answer 53

1) unconditional promise
2) donor-imposed stipulations

Question 54

Pledges to be collected in 1) f___e periods are i____y recorded as re___d re___s at the present value of ex__d re__s.

If available for unrestricted purposes, the amounts are reclassified as 2) un___d in the periods they are collected.

Future collections that 3) e__ed the recorded present values are treated as 4) ad____l C___s Re___e (rather than interest income)

Answer 54

1) future periods are initially recorded as restricted revenues at the present value of expected receipts
2) unrestricted
3) exceed
4) additional Contributions Revenue

Question 55

Plant assets acquired with 1) re___d r___s are recorded as 2) u___d at the t___ of ac___on

(new standards eliminate the option to 3) r___y the amounts from re___d to u___d as the asset is d___ed).

Answer 55

1) restricted resources
2) unrestricted at the time of acquisition
3) reclassify the amounts from restricted to unrestricted as the asset is depreciated

Question 56

Unrestricted funds may be set aside by the board “as if” they were 1) end___ by an o___e party.

These amounts may be reported as 2) “b___ d__d” within the category, 3) N__ As__ W___t Do___ Re___ns; these are often called 4) q__i-en___ts

Answer 56

1) endowed by an outside party
2) “board designated”
3) Net Assets Without Donor Restrictions
4) quasi-endownments

Question 57

Tuition is recognized net of student scholarships [contra revenue] and fellowships for which 1) n__ w__k must be pe___d.

Student aid in return for service (e.g., student work) is 2) ex__d (colleges and universities often use the term expenditures even though the accrual basis is used to determine amounts to “expense”).

Uncollectible accounts are treated as a 3) re___ re___n.

Answer 57

1) no work must be performed
2) expensed
3) revenue reduction.

Question 58

Contributed services, if recognized, are recorded as both a 1) re__e and an e___e.

Donated services should only be recognized if they
(1) cr__ or e___e no___al as__s
(2) require sp___d s___s that would have been pu___d if not d___d

Answer 58

1) revenue and an expense

(1) create or enhance nonfinancial
assets
(2) require specialized skills that would have been purchased if not donated

Question 59

Contributions to a related foundation specifically for a college or university should be recognized by that institution (e.g., dr-___ ____; cr-____ ___).

Answer 59

e.g., dr-Contributions Receivable; cr-Contributions Revenue).

Question 60

Outflows are classified by function.

The major function education and general, includes the subcategories of instruction, research, public service, academic support, student services, institutional support, plant operation and maintenance, and scholarships and fellowships

Question 61

Another function, auxiliary services, includes self-sufficient activities such as: food services, dormitories, bookstores, etc

Question 62

Much of the internal management data is reported by ‘program’ (e.g., accounting program); programs may be combined into ‘organizational units’ (e.g., the school of business; the school of education; etc.).

Within the program areas, expenditures are classified by ‘natural class’ or ‘object code’ (i.e., salaries, supplies, rent, etc.)

Question 63

Revenues and expenses for sessions included in separate fiscal years should be apportioned between the years on the accrual basis (e.g., when summer school extends past a June 30 fiscal year-end).

Question 64

The costs of soliciting funds must be considered 1) fu____ e___e unless certain criteria are met re: purpose, audience, and content.

If all of the criteria are met, 2) j___ costs may be al____d between functions

Answer 64

1) fund-raising expense
2) joint-costs may be allocated

Question 65

Define Split Interest Agreements

Donors will often set up a 1) t___that provides benefits to both a 2) n__-f__-pr___ org___n and other be___s.

Answer 65

1) trust
2) not-for-profit organization and other beneficiaries.

Question 66

Split-Interest Agreements

1. C___le L___ T___t: The trust pays a sti____d amount or percentage to the NFP for a stipulated p___d of time;

when the time has ex___d; the remainder of the trust is p___ b__k to the d___ or other b__y

Answer 66

1. Charitable Lead Trust: The trust pays a stipulated amount or percentage to the NFP for a stipulated period of time;

when the time has expired; the remainder of the trust is paid back to the donor or other beneficiary

Question 67

Charitable Lead Trust

the university is not acting as trustee over the assets, the journal entry to record the initiation of a charitable lead trust is as follows (recorded at the PV of expected future receipts):

DR: ____ ____ ($PV of f___ receipts)
CR: ____ _____ ($PV of f___ receipts)

Answer 67

DR: Contributions Receivable ($PV of future receipts)
CR: Contributions Revenue-Restricted ($PV of future receipts)

Question 68

Charitable Lead Trust

If the assets are transferred to the university as the trustee, the JE is as follows:

DR: ____ (or other __) [$___]
CR: ____ ____ [$__ of f___ i___]
CR: ____ [‘plug’]

Answer 68

DR: Investments (or other asset) [$FMV]
CR: Contributions Revenue-Restricted $PV of future income
CR: Liability ‘plug’

Question 69

Split-Interest Agreements

2. Charitable Re__r T__t: The trust pays a st____d d__ar a__t (charitable remainder annuity trust) or percentage of the trust’s f___ m___t va___ (charitable remainder unitrust) to a t___d p__ beneficiary for a sp___d ti___ period.

When the time has ex___, the trust re___r goes to the NFP institution

Answer 69

2. Charitable Remainder Trust: The trust pays a stipulated dollar amount (charitable remainder annuity trust) or percentage of the trust’s fair market value (charitable remainder unitrust) to a third party beneficiary for a specified time period.

When the time has expired, the trust remainder goes to the NFP institution

Question 70

Charitable Remainder Trust

The journal entry to record the charitable remainder trust is as follows:

DR: ____ (or other ___) [$___]
CR: ____ (co____l o___) [$__ of f___ pa__]
CR: ___ [plug]

Answer 70

DR: Investments (or other asset) [$FMV]
CR: Liability (contractual obligation) [$PV of future payments]
CR: Contributions Revenue-Restricted ‘plug

Question 71

Split-Interest Agreements

3) Perpetual Trust held by a Third Party: A permanent trust established with some other organization (e.g., a bank) as trustee. Income from the trust is paid to the NFP in perpetuity.

The journal entry to record the present value of the future cash receipts is recorded in the permanently restricted net assets, as follows: [the $PV of future receipts should approximate the assets FMV(i.e., PV of a perpetuity)]

DR: ____ _____ [$___ of f__ r___s]
CR: ____ _____ [$PV of f__e re___ts]

Income is then recorded each year in the unrestricted or restricted net assets, as appropriate.

Answer 71

DR: Contributions Receivable [$PV of future receipts]
CR: Contributions Revenue-Restricted [$PV of future receipts]

Question 72

Split-Interest Agreements

4. Charitable Gift Annuity

Same as a charitable remainder trust with no fo___ t___t a__nt

Answer 72

no formal trust agreement

Question 73

Split-Interest Agreements

5. Pooled Life Income Fund

This is a pooling of the assets of several life income agreements.

A ‘life income’ agreement provides that all income from the fund goes to a specified beneficiary.

Question 74

Pooled Life Income Fund

When the beneficiary dies the assets pass to the NFP organization.

The journal entry to record the fair value of the transfer of assets for a life income agreement is:

DR: ____ (or other a___) [$F__]
CR: ____ ____ [$PV of fu__ in___]
CR: ____ ___ (dis____ in___t) ‘plug’

Answer 74

DR: Investments (or other asset) $FMV
CR: Contributions Revenue-Restricted [$PV of future income]
CR: Deferred Revenue (discounted interest) ‘plug’

Question 75

Healthcare Organizations

Question 76

Governmental health care entities following the GASB standards must classify net assets as:

I___ in C___ As__ N__ of R__d D__
R___
U___

Answer 76

Invested in Capital Assets Net of Related Debt
Restricted
Unrestricted

Question 77

For Profit health care entities classify equity accounts as 1) p___-in ca__ and re___ e___s

Answer 77

1) paid-in capital and retained earnings

Question 78

In addition, if unrestricted net assets are designated by the board for particular purposes, the
assets are classified as ‘1) A__s Wh__ U___ is Li___d’.

This amount may be offset by 2) ‘Net Assets Wi____ D___ Re___s, B___d D____d.’

Answer 78

‘1) Assets Whose Use is Limited’.
2) ‘Net Assets Without Donor Restrictions, Board Designated.’

Question 79

Operating revenues are classified as

1. P__ Se___ Revenues
2. Pr___ Revenues
3. O__ Revenues
4. T___ Revenues

Answer 79

1. Patient Service Revenues
2. Premium Revenues
3. Other Revenues
4. Tuition Revenues

Question 80

Operating revenues

1. Patient Service Revenues - the total ‘n___ p___t se___e r___s’ equals ‘g___s p___t ser___e revenues’ (excluding ch__e c___e) less ‘co___al ad___s’[allowances] (discounts provided to third-party payers).

The amount of charity care provided should be disclosed in the n___ to the financial statements (these are called in___t c__)

Answer 80

the total ‘net patient service revenues’ equals ‘gross patient service revenues’ (excluding charitable care) less ‘contractual adjustments’ (discounts provided to third-party payers).

The amount of charity care provided should be disclosed in the notes to the financial statements (these are called indigent care)

Question 81

Operating revenues

2. Premium Revenues - Recognized for fi__ f___ paid on a per member (per c___) basis for h___re services provided to me___rs of a c__ed group.

These are called ‘ca___n’ a___ts.

Answer 81

Recognized for fixed fees paid on a per member (per capita) basis for healthcare services provided to members of a covered group.

These are called ‘capitation’
agreements.

Question 82

Operating revenues

3. Other Revenues - Includes earnings from c___a, g__ sh__p, pa__g lot, t___n, etc.

Answer 82

cafeteria, gift shop, parking lot, tuition, etc.

Question 83

Unrestricted gifts, bequests, and investment income may be reported as either operating or nonoperating income, depending on organizational policy

Answer 83

Unrestricted gifts, bequests, and investment income may be reported as either operating or nonoperating income, depending on organizational policy

Question 83

Operating revenues

4. Tuition Revenues - for t__g h___s) may be reported se___ly, if significant

Answer 83

for teaching hospitals) may be reported separately, if significant

Question 84

Expenses

As discussed for all not-for-profits, all expenses are accrued and deducted in the unrestricted category.

This includes ‘D____n E___e’ and ‘B___ D___s E____e’ for u___e p___t s___e re___s (un___e p___es are offset against revenues when the pledge is recorded).

This requires that restricted net assets be reclassified to the unrestricted category when the restriction is lifted

Answer 84

As discussed for all not-for-profits, all expenses are accrued and deducted in the unrestricted category.

This includes ‘Depreciation Expense’ and ‘Bad Debts Expense’ for uncollectible patient service revenues (uncollectible pledges are offset against revenues when the pledge is recorded).

This requires that restricted net assets be reclassified to the unrestricted category when the restriction is lifted

Question 85

Expenses

A p____e indicator must be provided (i.e., Ex__ of Re__s over E___).

This item must exclude re___ed co___s and contributions related to lo___-t__ a__s, u__d g___ns and los__es except for those related to trading securities, and some other items.

Answer 85

A performance indicator must be provided (i.e., Excess of Revenues over Expenses).

This item must exclude restricted contributions and contributions related to long-term assets, unrealized gains and losses except for those related to trading securities, and some other items.

Question 86

For a not-for-profit organization, the primary benefit of having section 501(c)3 status is

A. it exempts the organization from IRS intermediate sanctions.

B. donors may deduct contributions from their taxable income.

C. it exempts the organization from the Unrelated Business Income Tax.

D. it designates the organization as having financial stability.

Answer 86

B. donors may deduct contributions from their taxable income.

Question 87

In order to maintain their 501(c)3 status, not-for-profit organizations are required to file an annual

A. Form 1040
B. Form 990
C. Form 990T
D. Form 1120

Answer 87

B. Form 990

Question 88

All expenses of a not-for-profit entity are accounted for as deductions from

A. restricted revenues.
B. unrelated business income.
C. restricted or unrestricted net assets, depending on the circumstances.
D. unrestricted net assets.

Answer 88

D. unrestricted net assets.

Question 89

In order for some of the expenses related to a joint activity to be allocated to program services, the activity must meet the three tests of:

A. purpose, audience, and content.
B. operating, investing, and financing.
C. program services, administration, and fund-raising.
D. unrestricted, temporarily restricted, and permanently restricted

Answer 89

A. purpose, audience, and content.

Question 90

The three categories of functional expenses are

A. operating, investing, and financing.

B. program services, administration, and fund-raising.

C. unrestricted, temporarily restricted, and permanently restricted.

D. appropriations, encumbrances, and expenditures.

Answer 90

B. program services, administration, and fund-raising.

Question 90

Baker College has billed students a total of $800,000 for tuition for the spring semester. Of this, $50,000 has been discounted for gpa-related scholarships. Another $75,000 has been discounted in exchange for students fulfilling the role of teaching assistants and tutors. Which of the following is true regarding the financial statement impact of these transactions?

A. Net Tuition Revenue is $800,000; Student Compensation Expense is $125,000

B. Net Tuition Revenue is $675,000; Student Compensation Expense is $0

C. Net Tuition Revenue is $750,000; Student Compensation Expense is $75,000

D. Net Tuition Revenue is $725,000; Student Compensation Expense is $50,000

Answer 90

C. Net Tuition Revenue is $750,000; Student Compensation Expense is $75,000

Question 91

A wealthy landowner donated several million dollars to a charitable trust. The trust agreement specifies that the income from the trust will pay for the donor’s grandchildren to attend the college of their choice. After the last grandchild has graduated or achieved the age of 25, the trust assets will go to a local not-for-profit college. The college will account for this split-interest agreement as a

A. footnote disclosure with no journal entry required.
B. charitable lead trust.
C. life income trust.
D. charitable remainder trust.

Answer 91

D. charitable remainder trust.

Question 91

Stratford University received a pledge from a wealthy alumnus for $50,000 at the end of the next three years, starting in the current year. Stratford will discount the future pledges at 7% to record the contribution receivable.

Refer to the previous question…what amount of contributions revenue should be recorded in the next year?

A. zero
B. $3,271
C. $50,000
D. $6,328

Answer 91

D. $6,328

Question 92

Stratford University received a pledge from a wealthy alumnus for $50,000 at the end of the next three years, starting in the current year. Stratford will discount the future pledges at 7% to record the contribution receivable. What is the total contributions revenue that should be recorded in the current year? (round to the nearest dollar)

A. $50,000
B. $150,000
C. $140,187
D. $140,401

Answer 92

D. $140,401

Question 93

A retired couple donates their evenings to take care of the custodial needs of the dormitories on the campus of their alma mater. Due to their generosity, the university does not need to hire the services of a professional custodial company. How should the university account for the couple’s donated services?

A. dr-Janitorial Expense; cr-Contributions Revenue

B. No entry or footnote disclosure is required.

C. No journal entry is required; just a footnote disclosure regarding the value of the donated services.

D. dr-Janitorial Expense; cr-Deferred Revenue

Answer 93

A. dr-Janitorial Expense; cr-Contributions Revenue

Question 94

When a not-for-profit hospital provides services to an uninsured, homeless individual who cannot pay, the value of those services are reported as

A. bad debts expense.
B. a contractual allowance.
C. a footnote disclosure.
D. a contra-revenue.

Answer 94

C. a footnote disclosure.

Question 95

Medicare reimbursements are based on predetermined rates for specified DRGs. DRG is an acronym for

A. Discounted Reimbursement Groups
B. Diagnosis Related Groups
C. Discounted Rate Groups
D. Dudley do-Right Groupi

Answer 95

B. Diagnosis Related Groups

Question 96

A patient with Medicare coverage was recently admitted to the Good Guys Hospital under a DRG that will provide $15,000 to the hospital. The ‘list’ price for the hospital services is $23,000. Choose the proper journal entry to record these services.

A. dr-Accounts Receivable 15,000; dr-Contractual Allowance 8,000; cr-Patient Service Revenue 23,000

B. dr-Accounts Receivable 15,000; dr-Bad Debts Expense 8,000; cr-Patient Service Revenue 23,000

C. dr-Accounts Receivable 15,000; cr-Patient Service Revenue 15,000

D. dr-Accounts Receivable 23,000; cr-Contractual Allowance 8,000; cr-Patient Service Revenue 15,000

Answer 96

A. dr-Accounts Receivable 15,000; dr-Contractual Allowance 8,000; cr-Patient Service Revenue 23,000

Question 97

A company has entered into an agreement with the local hospital under which a monthly premium will be paid to the hospital for each employee covered by the agreement. When hospital care is required, the only fee to the hospital will be a set low-rate per day. This is called a(n)

A. capitulation agreement.
B. capitation agreement.
C. good deal for the hospital.
D. coronation agreement.

Answer 97

B. capitation agreement.

Question 98

The board of trustees for a local not-for-profit hospital has set aside $5 million of unrestricted funds for a new cancer research facility. This amount will be reported in the asset section of the balance sheet as

A. Unrestricted Assets.
B. Board-designated Assets.
C. Endowment Assets.
D. Assets Whose Use is Limited.

Answer 98

D. Assets Whose Use is Limited.