Not for Profit

Question 1

Contribution revenue

Answer 1

Rule: Generally, the difference between the fair value of purchases and the amount transferred is classified as a contribution revenue. Sales revenue is the sales value of the purchase

Question 2

Contribution revenue

Answer 2

Rule: Cash contributions and unconditional pledges are recognized as contribution revenue in the year in which the cash or pledge is received.

Question 3

Contirbution revenue

Answer 3

Pica would recognize contribution revenue based on the net realizable value of its pledges receivable.

Pledge Receivable $ 100,000
Allowance for Doubtful Accounts $ 10,000
Contribution Revenue 90,000

Question 4

Internal board designated funds

Answer 4

are considered unrestricted

Question 5

Temp restricted

Answer 5

donor imposed stipulations either expire by passage of time or can be fulfilled and removed by actions of the organization.
Cannot be displayed as a deficit
Any ver expenditure should be classfied as a reduction of unrestricted asset

Question 6

Permanently restricted assets

Answer 6

limited by donor imposed stipulations that neither expire by passage of time not can be fulfilled or otherwise removed by actions of the organization

Endowment fund

Question 7

temp restricted

Answer 7

a. must be spent as donor stipulates, eg cancer research
b. time, restricted until a period passes
c. Acquistion of plant, restricted until facility is built

Question 8

Revenues

Answer 8

Cash contributions = revenue
Unconditional promises=revenues
conditional promises=earned r

Question 9

Gains and losses

Answer 9

Rule: Generally, losses on the investments of a donor-restricted endowment fund (permanently restricted net assets for external reporting purposes) serve to reduce temporarily restricted net assets

Question 10

income

Answer 10

Income on endowment fund releases restriction

Question 11

assets received

Answer 11

Assets received by a not-for-profit organization that are not restricted either permanently or temporarily as regards to purpose, time or acquisition are classified as unrestricted. Long-lived assets would be recognized as unrestricted unless there was an accounting policy relative to time restrictions. Accounting policies implying time restrictions would result in classification of the asset as temporarily restricted and releasing the asset from restriction as it depreciates.

Question 12

Required statements

Answer 12

Rule: Not-for-profit corporations are required to produce the following financial statements:
Statement of Financial Position
Statement of Activities
Statement of Cash Flows

Question 13

Encouraged statements

Answer 13

Not-for-profit corporations are generally encouraged, but not required, to produce a Statement of Functional Expenses. Voluntary Health and Welfare organizations, a subset of all not-for-profit entities, are required to present a Statement of Functional Expenses.

Question 14

unrestricted and temporarily restricted revenues

Answer 14

Board discretionary funds are unrestricted. Contributed services are unrestricted. To be restricted, the donation must be restricted by the donors, creditors, grantors or laws or regulations. A promise to contribute is restricted until conditions (collection) or eligibility requirements (date, etc.) have been satisfied.

Question 15

Inter-related

Answer 15

In order for not-for-profit organizations to be financially interrelated as defined by FASB ASC 958-605, their relationship must share both characteristics: one organization must be able to influence the operating and financial decisions of the other AND have an ongoing economic interest in the net assets of the other.

Question 16

donated

Answer 16

Donated property is recorded at its fair market value and is recognized as support.
Donated property is recorded as support, not as a direct increase to net assets.

Question 17

exchange

Answer 17

Exxhange transations are classified as unrestricted net assets and revenues no matter what

Question 18

NFP expenses fall under two categories

program services

support servces

Answer 18

he expense categories used by not-for-profit organizations generally fall under two main headings: program services and support services. Program services relate to functional expenses directly related to the mission of the organization. Support services summarize the functional expenses related to general and administrative costs, costs of membership development, and fundraising. Fundraising contemplates inducing potential donors to contribute to the entity. Membership activities involve seeking prospective members, ensuring current member satisfaction, etc

Question 19

Investing activities

Answer 19

vesting activities in the statement of cash flows should include proceeds from the sale of long lived assets or insurance proceeds associated with the loss of long lived assets. Entities that do not capitalize their permanent collections display insurance proceeds from lost, stolen or damaged items on the statement of activities in an appropriate change in net asset classification separate from revenues, expenses, gains, and losses.

Question 20

Contributions

Answer 20

Contributions to a non-profit include transactions which are unconditional (not requiring a future event to occur), non-reciprocal, voluntary, and not of an ownership investment. Contribution revenue for Year 1 includes the $2,000 to be used for meals and the $500 payment above the FMV of the subscriptions. The $10,000 contribution requires a future event to take place (completion of the playroom) and is, thus, conditional and not included in contributions. Conditional receipts are displayed as refundable advances (a liability).

Question 21

Contribution

Answer 21

Contributions to a non-profit include transactions which are unconditional (not requiring a future event to occur), non-reciprocal, voluntary, and not of an ownership investment. The FMV of the theater tickets (the exchange part of the transaction) would not be considered in determining the amount of the contribution revenue. The $50 above the FMV of the tickets is contribution revenue.

Question 22

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

Answer 22

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.). This method helps donors and others in assessing an organization’s service efforts.

Question 23

financing activities

Answer 23

The unrestricted cash contributions totaling $500,000 are reported as increases in operating activities in the statement of cash flows. The $200,000 restricted cash contributions are reported as increases in financing activities since the restriction is the acquisition of property, not general operations.

Question 24

Restricted to unrestricted

Answer 24

Unrestricted net assets would increase by the amount of the reclassification of temporarily restricted net assets whose restrictions have been satisfied and then reduced by scholarship expense.

Question 25

Donated services

Answer 25

Donated services are recognized if the services received either (1) create or enhance non-financial assets, or (2) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Both of these conditions are met. The roofer’s specialized skills were needed to repair the roof that would have been repaired otherwise.

Question 26

Endowment

Answer 26

Since the external donor restricted the $1,000,000 gift for the purchase of endowment securities, that deposit is restricted cash and a non-current asset. The earnings on the endowment is designated by the external donor for ongoing program expense. As such, it is unrestricted cash and a current asset.

Question 27

Net change for net assets

Answer 27

A not-for-profit organization prepares a Statement of Activities that presents changes in unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.

Question 28

ongoing or central transactions

Answer 28

Revenues and expenses for a non-profit hospital arise from “activities associated with the provision of health care services, which constitute the ongoing major or central operations of providers of health care services.” Both room and board fees from patients and recovery room fees are activities, which are considered patient service revenues.

Question 29

Contributuon versus liability

Answer 29

The Amer Benevolent Society received a donation from a philanthropist for the benefit of a specific beneficiary and the Amer Benevolent Society has no variance power (discretion) relative to the use of the contribution. Receipt of this cash is not a contribution received, it is a liability.

Question 30

unrecognized contributions

Answer 30

An entity need not recognize contributions of works of art, historical treasures, and similar assets if the donated items are added to collections that meet all of the following conditions:
Are held for public exhibition, education, or research in furtherance of public service rather than financial gain.
Are protected, kept unencumbered, cared for, and preserved.
Are subject to an organizational policy that requires the proceeds from sale of collection items to be used to acquire other items for collections.

Question 31

Donated medicines

Answer 31

Donations of medicines are included as other operating revenue at the fair value of the medicine, since the medicine constitutes part of the ongoing major operation of the hospital.

Question 32

Cost allocation

Answer 32

he three functional classifications for expenses incurred by a non-profit organization are: program services, management and general costs, and fund-raising and other supporting services. When common costs are incurred, they should be allocated to the appropriate classifications. Since Cancer Educators’ $10,000 common costs were for program functions and fund-raising functions, the costs should be allocated to those two classifications only

Question 33

Contributed services

Answer 33

ontributions of services are recognized as earnings if the services received either (1) create or enhance non-financial assets, or (2) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Both of these conditions are met so the following entry would be made to record the breakage and replacement of the windows:
Debit (Dr) Credit (Cr)
Expense $ XXX
Contributions $ XXX

Question 34

Revenue classification

Answer 34

The three most generally used revenue classifications for a hospital are patient services revenues, other operating revenues, and non-operating revenues. Other operating revenues are those generated by operations other than patient services. Revenues from educational programs would be classified as other operating revenues. Non-operating revenues represent incidental earnings not related to the ongoing and central operations of the hospital. Unrestricted gifts would be classified as non-operating revenues.

Question 35

Depreciation expense

Answer 35

Non-profit organizations record depreciation on fixed assets. Depreciation is reported as an element of expense in the organization’s Statement of Activities.Non-profit organizations record depreciation on fixed assets. Depreciation is reported as an element of expense in the organization’s Statement of Activities.

Question 36

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

Answer 36

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 37

Term Endowment

Answer 37

Quasi-endowment funds account for assets that have been internally designated by the institution for a specific purpose. Quasi-endowment funds would be displayed as unrestricted net assets on externally published financial statements.

Endowment funds are funds for which outside donors have stipulated that the principal is to be maintained intact in perpetuity. Endowment funds would be reported externally as permanently restricted net assets.

erm endowment funds are funds for which outside donors have stipulated that the principal is to be maintained intact for a specified term or until the happening of some event. Term endowment funds would be reported externally as temporarily restricted net assets.

Question 38

required financial statements

Answer 38

The required financial statements for a not-for-profit hospital are a balance sheet, a statement of activities, and a statement of cash flows.

Question 39

Restricted funds

Answer 39

Restricted funds are restricted as to use by the donor, grantor, or other source of the resources. They are externally restricted funds.

Question 40

Donated services

Answer 40

The value of donated services should be recorded as both a contribution and an expense if the services performed are a normal part of the program or supporting services and would otherwise be performed by salaried personnel. Clearly the two volunteers who replaced the secretary (value $10,000) would qualify under these criteria. The services performed by the other volunteers for special events would not qualify since they are not a normal part of the program and would not otherwise be performed by salaried personnel. Total salary and wage expense equals $150,000 paid staff plus $10,000 donated services = $160,000.

Question 41

revenues

Answer 41

Revenues from tuition and fees are reported at the gross amount. Only refunds are netted against the revenue. Scholarships and tuition remissions are shown separately as expenditures

Question 42

equity securities

Answer 42

Marketable equity securities with readily determinable fair values and all investments in debt securities are measured at fair value in the statement of financial position. Gains and losses on investments are reported in the statement of activities as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulations or law.

Question 43

equity securities

Answer 43

In the case of non-profit organizations such as churches, marketable equity securities are reported at market value as of the balance sheet date. Therefore, Midtown Church would report the investment at market value at the date of the balance sheet date.

Question 44

Investments

Answer 44

Non-profit organizations such as churches may pool all investments of various internal accounting funds, but must equitably allocate realized and unrealized gains and losses to net asset classifications as appropriate.

Question 45

Cash flow

Answer 45

Cash flows from Operating Activities in a nongovernmental not-for-profit organization include applicable agency transactions, unrestricted cash contributions, program income, and interest income or dividend income from investments

Question 46

Cash flows

Answer 46

Cash received with donor-imposed restriction limiting its use to long-term purposes (such as construction of a new building) is displayed as a financing activity on the statement of cash flows of a not-for-profit organization.There is no classification in the statement of cash flows used for not for profit organizations entitled “Capital financing activities.” This classification is used in the statement of cash flows prepared for a proprietary fund of a government. Note the difference

Question 47

unrestricted revenues,gains and other support services

Answer 47

he amount reported as unrestricted revenues, gains and other support on the statement of activities of a not-for-profit hospital would include all income earned by the hospital and any amounts released from restriction. Charity care, those health care services provided but never expected to result in cash flows to the hospital, are not recorded as receivable or as revenue. Charity care is not recognized on the face of the financial statements but is disclosed.Bad debt expense is recognized as an expense, not as a contra revenue.

Question 48

Net Patient revenue

Answer 48

net patient revenue in an amount equal to its gross patient service revenue net of both charity care and the difference between established billing rates and fees negotiated with third party payors (sometimes called contractual adjustments).

Question 49

Contribution revene

Answer 49

otal contribution revenue is $75,000. The $50,000 unrestricted pledge is reported as contribution revenue on the statement of activities, even though it is to be paid (and collected) in the following year. The $25,000 cash gift is reported as contribution revenue on the statement of activities, even though it is restricted (it is recorded as restricted revenue). The “notice” from a recent graduate that the college is named as a beneficiary is not definite enough for the recording of revenue (the recent graduate may live a long time and may change his or her will at any time). Total contribution revenue is thus $75,000

Question 50

Investment appreciation

Answer 50

In this question, the donor stipulated that the income ($50,000) and the investment appreciation ($80,000) be used in maintain the senior center. Both the income and the investment appreciation represent increases in temporarily restricted net assets (total of $130,000). The actual $60,000 spent represents a decrease in temporarily restricted net assets. Thus, the total change is a $70,000 increase.

Question 51

Depreciation

Answer 51

A nongovernmental not-for-profit charitable organization is accounted for using the accrual method, so normal accrual accounting is used. A freezer would be considered a fixed asset and would be depreciated.Construction in progress is not depreciated, regardless of the type of organization.

Question 52

Cash flow

Answer 52

For a nongovernmental not-for-profit organization, the borrowing would be a cash inflow from financing activities, and the purchase of the truck would be a cash outflow from investing activities. For a nongovernmental not-for-profit organization, the commercial format for the statement of cash flows is followed.

Question 53

Expenses

Answer 53

Expenses are reported as decreases in unrestricted net assets.

Question 54

Expenses

Answer 54

Both grants to other organizations and depreciation are recorded as expenses in a not-for-profit organization.

Question 55

Equity securities

Answer 55

All debt securities and those equity securities that have readily determinable fair values are measured at fair value in the statement of financial position. Gains and losses on investments are reported in the statement of activities. Investment income (e.g., dividends and interest) is reported in the period earned as an increase in net assets.

Question 56

Statement of activities

Answer 56

The statement of activities is most similar to an income statement. The not-for-profit organization’s statement of activity shows revenues, expenses and changes in net assets (net income).

Question 57

depreciation

Answer 57

Depreciation is recorded in accordance with generally accepted accounting principles. Operating expenses, such as depreciation, are recorded as unrestricted and serve to decrease unrestricted net assets

Question 58

statement of functional expense

Answer 58

The statement of functional expenses is required for voluntary health and welfare organizations but is optional for all others. The best example of a voluntary health and welfare organization of the three choices given is a shelter for the homeless, the organization that likely receives most of its operating income from general donations and is organized to improve the overall health and welfare of a specific segment of society.

Question 59

Good faith deposits

Answer 59

Good faith deposits associated with conditional promises would be recorded as a liability titled “refundable advance.” The use of the $1,000,000 gift is conditional upon raising matching funds from others. Until the matching funds are received (or the condition has been substantially met), the monies contributed are payable back to the donor. No revenue is recognized.

Question 60

Support services

Answer 60

Support services typically involve items such as fund raising, administration, management, and membership development. Salaries for fund raisers would be classified as support.

Question 61

Reclassification

Answer 61

When a temporary restriction is satisfied, a reclassification is shown on the statement of activities by decreasing temporarily restricted net assets and increasing unrestricted net assets. Since the donor restricted contribution funds a capital asset, the increase in unrestricted net assets is not reduced by an expense

Question 62

Functional classification

Answer 62

The most common functional classifications for nongovernmental not-for-profits are program services, fund-raising and management and general.

Question 63

Restrictions

Answer 63

The donation will not be included in unrestricted net assets. $8,000,000 of the stock donation will be included in temporarily restricted net assets because the donor has specified how the not-for-profit must used the proceeds from the sale of the stock and $2,000,000 of the stock donation will be included in permanently restricted net assets because the donor specified that the stock could not be sold.

Question 64

Pledges receivable

Answer 64

Unconditional pledges that will be collected over more than one year should be reported as pledges receivable, valued at their present value.

Question 65

restrictions

Answer 65

Cash contributions restricted by the donor for long-term purposes must be reported as a cash inflow in the financing activities section of the statement of cash flows, segregated from other financing activities.Cash flows from operations would include cash flows from contributions, program income and agency transactions. Cash flows from operations might also include receipts designated by the entity’s governing body for use for long-lived assets. Donor restricted receipts to be used for long-lived assets, however, are classfied as financing actiivities.Investing activities typically result from the purchase of long-lived assets or from sales of assets (e.g. equity securities) restricted for the acquisition of long-lived asset. Donor restricted cash receipts to be used for long-lived assets, however, are classified as financing activities.

Question 66

Donated services

Answer 66

Donated services are recorded at fair value if they create/enhance a non-financial asset or the required specialized skills the provider possesses and would otherwise have been purchased by the organization receiving the services. The services provided by the veterinarian and the board member represent specialized skills that would have required the shelter to purchase the services in the absence of the volunteers. The nurse volunteering as an extra receptionist and volunteer dog walking do not require specialized skills and may not have been otherwise needed so they are not recorded as revenue.

Question 67

Whitestone, a nongovernmental not-for-profit organization, received a contribution in December, Year 1. The donor restricted use of the contribution until March, Year 2. How should Whitestone record the contribution?

Answer 67

The contribution will be recorded as revenue in Year 1, and it will be classified as temporarily restricted until the time period for the restriction has passed.

Question 68

restricted

Answer 68

None of the funds will be unrestricted. The $100,000 is permanently restricted, and the income derived from the endowment is also donor restricted and will be reported as increases in temporarily restricted net assets.

Question 69

Operating expense

Answer 69

Operating expenses are decreases in unrestricted net assets. Operating expenses are listed separately under “Expenses and Losses” in the Statement of Activities. Restricted resources eligible for expenditure are reclassified to unrestricted and their use is reported as an expense to derive the change in unrestricted net assets.

Question 70

restrictions

Answer 70

Temporarily restricted net assets would increase by $50,000, the amount of the investment earnings of $40,000 and the $10,000 increase in the market value of the underlying permanently restricted investment.

Question 71

restrictions

Answer 71

Finn Foundation would report permanently restricted income in the amount of the $1,000,000 contribution. The permanently restricted amount cannot be spent but, instead, must be invested. The restrictions on the donation will never disappear or be satisfied by the Foundation by expenditure of the money. The $80,000 in earnings from the investment, however, would be accounted for as temporarily restricted revenue since it can be used to satisfy donor stipulations, a recreational program for the elderly.

Question 72

Beneficiaries

Answer 72

Rule: Beneficiaries recognize an interest in the net assets of the recipient when the organizations are financially interrelated. The interest in the net assets of the recipient is adjusted for the beneficiary’s share of the change with the following entry:
Debit (Dr) Credit (Cr)
Interest in net assets $ XXX
Equity transaction (statement of activities) $ XXX

Question 73

Donor imposed stipulations

Answer 73

Donor-imposed restrictions that are met in the same period they are received may be recorded as unrestricted support (contribution revenue), provided that the organization discloses and consistently applies this accounting policy

Question 74

contributed assets

Answer 74

Rule: The simultaneous receipt and use of utilities is a form of contributed assets and not services. The foundation would recognize the fair value of the contributed electricity as both revenue and expense in the period it is received.

Question 75

balance sheet

Answer 75

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

Question 76

Multi year pledges

Answer 76

Multiyear pledges have an implied time restriction and are temporarily restricted.

Question 77

variance power

Answer 77

Belle would account for the monies pledged by the donor to another not-for-profit organization as an asset and as a liability to that other organization. Recipients (like Belle) that do not have variance power (do not have any latitude with regard to use of the funds received) would recognize the asset received as a liability to the beneficiary.

Question 78

Treasury bills

Answer 78

Ragg would report the treasury bills at their fair value of $15,000 on the statement of financial position. All debt securities that have readily determinable fair values are measured at fair value in the statement of financial position.

Question 79

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

Answer 79

The components of net assets of not-for-profit organizations are classified in one of three possible ways: unrestricted, temporarily restricted, or permanently restricted net assets.

Question 80

Temporarily restricted assets

Answer 80

Increases in temporarily restricted net assets result from contributions with donor imposed restrictions that can be fulfilled and removed by actions of the organization such as use for a purpose that meets donor stipulations. Donor contributions that are to be used for a resident camp program would meet the definition of temporarily restricted contributions that increase temporarily restricted net assets.

Question 81

statement of activities

Answer 81

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 (unrestricted, temporarily restricted, and permanently restricted).

Question 82

Program services

Answer 82

Program service expenses include charges associated with the activities for which the organization is chartered. Teacher salaries, for an educational organization, would be a program expense. Expenses not related to program services, support services, include publicity costs (e.g., membership development), management and general expenses (e.g., management salaries), and fundraising expenses.

Question 83

Investments

Answer 83

Not-for-profit organizations report investments in debt securities and those equity securities that have readily determinable fair values at fair value in the statement of financial position with gains and losses reported in the statement of activities.

Question 84

Pledge receivable

Answer 84

The donation pledged to Pahn would increase pledge receivables. A pledge received by a not-for-profit to be used in a future period would most likely be recorded as temporarily restricted pledge receivable and temporarily restricted support. The temporary restriction is implied by time (monies are not yet received).

Question 85

Internal board designated

Answer 85

Group Home Projects would report board-designated resources and related income as unrestricted. Only donors can restrict contributions. Internal board designated funds are considered unrestricted.

Question 86

Donated Services

Answer 86

Donated services should be booked as both an expense and as contribution revenue at fair value as long as the services create/enhance a nonfinancial asset or require specialized skills that the provider possesses that would otherwise have to be purchased by the organization. Given that the roofer in this example was a professional who fixed the roof at no cost, the roof repairs should be booked as an increase (debit) to expense and an increase (credit) to contributions from donated services (contributions—nonoperating revenue).