Deck 16: Non-Slg Not-For-Profit Organizationssfas 116 and 117 Approach

Question 1

Requirements: Explain the way a nongovernmental, not-for-profit organization must report the following items in its statement of activities:
A. Receipt of unrestricted contributions
B. Pledges restricted to a specific program
C. Collections, in a subsequent year, of pledges restricted to a specific purpose
D. Pledges restricted to fixed asset construction
E. Earnings on restricted investments

Answer 1

A. Unrestricted contributions received in cash are reported as revenues in the changes in unrestricted net assets section of the statement of activities in the period received. If the unrestricted contributions are pledges that are not received by year end, a time restriction is implied unless the donor specifies that the resources are contributed to support the current period. Because of the implied time restrictions, the pledges would be reported as contributions at their present value or at their net realizable value in the changes in temporarily restricted net assets section. When collected, net assets released from restrictions is reported as an increase in the changes in unrestricted net assets and as a decrease in the changes in temporarily restricted net assets section.
B. Pledges restricted to a specific program are reported as contributions in the changes in temporarily restricted net assets section of the statement of activities, either at present value or at net realizable value. When the pledge has been received and expenses incurred for the restricted purpose, net assets released from restrictions is reported as an increase in the changes in unrestricted net assets and as a decrease in the changes in temporarily restricted net assets sections.
C. This collection is not reflected in the statement of activities. There are two restrictions in this case when the pledges are made-a time restriction implied and a use restriction. Collection removes the time restriction, but the use restriction remains. Hence, the assets are not yet released from restrictions.
D. Pledges restricted to fixed asset construction are reported as contributions in the changes in temporarily restricted net assets section of the statement of activities, either at present value or at net realizable value. When construction costs are incurred for the restricted purpose, an organization must adopt one of two polices. Under the first approach, when construction costs are incurred, net assets released from restrictions is reported as an increase in the changes in unrestricted net assets and as a decrease in the changes in temporarily restricted net assets sections. Under the second approach, when construction costs are incurred, there is no change in net assets. As the assets are used up depreciated, depreciation expense is reported in unrestricted net assets and net assets released from restrictions is reported as an increase in the changes in unrestricted net assets and as a decrease in the changes in temporarily restricted net assets sections.
The depreciation expense and the net assets released from restrictions are not necessarily equal in amount. For instance, while they may be recognized over the same period, residual value would not be taken into account in computing the net assets released from restrictions-even if the same time period is appropriate.
E. Earnings on restricted investments are considered unrestricted unless the donor specifically restricted their use. Therefore, these earnings are reported as investment income in the changes in unrestricted net assets section.

Question 2

The statement of net assets for a nongovernment nonprofit organization would report the following components of net assets except

A) Unrestricted net assets.
B) Temporarily restricted net assets.
C) Net investment in capital assets.
D) Permanently restricted net assets.

Answer 2

C

Question 3

Membership dues of nongovernment, not-for-profit organizations are

A) Always treated as exchange transactions and reported as revenues.
B) Always treated as contribution revenues.
C) Permitted to be reported either as exchange revenues or as contributions revenues depending on the organization's preference.
D) Reported as contribution revenues if no benefits are received as a result of membership.

Answer 3

D

Question 4

Special fund-raising events of a nongovernment, not-for-profit organization

A) Must always be reported as revenues and at gross amounts.
B) Must always be reported as gains and at net amounts.
C) Must be reported as revenues at gross amounts or gains reported at net amounts.
D) Must be reported as revenues at gross amounts unless the event is incidental or peripheral.

Question 5

Selected accounts of the Weinstein Musical Society, a nongovernment, not-for-profit organization for the year ended December 31, 20X5 is presented below in alphabetical order all amounts are in thousands of dollars and all accounts have a normal balance:
$\begin{array}{llr} \text {Administrative salaries } &\$45\\ \text {Cash contributions restricted for Classical Music Appreciation Program } &250\\ \text { Collections of unrestricted pledges from prior year } &300\\ \text { Depreciation-Office Equipment } &2\\ \text { Depreciation-Equipment-Classical Music Appreciation Program. } &12\\ \text {Depreciation-Maestro Program } &5\\ \text { Fundraising expenses} &75\\ \text { Investment Income } &100\\ \text { Materials and supplies used-Maestro Program. } &330\\ \text { Payment of interest on note.} &22\\ \text {Payment to retire long-term note that matured during the year } &250\\ \text { Pledges during year and outstanding at year end to support Maestro Program } &1,200\\ \text {Rent-Performance Halls-Professional Program. } &500\\ \text {Salaries-Professional Program. } &379\\ \text { Teacher salaries - Classical Music Appreciation Program } &23\\ \text { Teacher salaries-Maestro Program} &77\\ \text { Temporarily restricted net assets, January \( 1,20 \mathrm{X} 5 \). } &1,100\\ \text { Ticket sales-Performances of Musicians in the Professional Program. } &150\\ \text { Unrestricted cash contributions} &800\\ \text {Unrestricted net assets, January 1, 20X5. } &320\\ \text { Unrestricted pledges during year and outstanding at year end. } &540\\ \text { Unrestricted earnings on investments of temporarily restricted investments. } &58\\\end{array}$
All expenses of the Maestro and the Classical Music Appreciation Programs are payable from donor restricted resources.
Requirement: Prepare the Statement of Activity for the Society

Question 6

A nongovernment, not-for-profit organization provides the following information and asks you to determine how much revenue should be reported in each of its changes in net assets categories. All pledges are unconditional $$\begin{array} { | l | r | } \hline \text { Cash contributions restricted to specific proprarns } & \$ 200,000 \\\hline \text { Cash contributions restricted to endownent } & \$ 1,000,000 \\\hline \begin{array} { l } \text { Net realizable value of pledges to a buildirg prograrn } \\\text { resulting fron current year furdd raising efforts }\end{array} & \$ 450,000\\\hline \begin{array} { l } \text { Net realizable value of unconditional pledges resulting } \\\text { from curtent year fund raising efforts }\end{array} &\$105,000 \\\hline\end{array}$$ $\begin{array}{llr}&\text { Changes in }\\&\text { Temporarily }&\text { Permanently }\\\text {Unrestricted}&\text { Restricted }&\text {Restricted}\\\text {Net Assets}&\text { Net Assets}&\text { Net Assets}\end{array}$

A) $\quad \$ 105,000 \quad \$ 650,000 \quad \$ 1,000,000$
B) $\quad \$ 105,000 \quad \$ 200,000 \quad \$ 1,450,000$
C) $\quad \$ 0 \quad\quad\quad\quad \$305,000\quad\$1,450,000$
D) $\quad \$ 0 \quad\quad\quad\quad \$ 755,000 \quad \$ 1,000,000$

Question 7

Other not-for-profit organizations include

A) Hospitals.
B) Colleges and universities.
C) Religious organizations.
D) Voluntary health and welfare organizations.

Question 8

Nongovernment not-for profit organizations that wish to follow generally accepted accounting principles in the preparation of their financial statements should follow

A) FASB standards.
B) GASB standards.
C) FASB standards.
D) AICPA Auditing Accounting Guide Non-Profit Organizations.

Question 9

Transactions: The following selected transactions occurred for a nongovernmental, not-for-profit organization. All amounts are in thousands of dollars.
1. Unrestricted cash contributions received during the year, $300.
2. Restricted cash contributions were received during the year for the following: a Education programs, $43; b Building fund, $202; and c Endowment, $1,000.
3. Pledges received during the year were as follows: Unrestricted, $3,000; b Building fund, $5,000; and c Endowment, $20,000. 10% of pledges receivable typically prove uncollectible. Pledges expect to be collected early in the next year.
4. A benefit concert was held to raise resources for the building fund. Receipts totaled $1,400 and direct costs incurred totaled $850.
5. Salary expenses incurred for the education programs were paid, $14.
6. Materials were purchased on account for the education programs, $25.
7. Fees paid to an architect for design of the building during the year were $92. Additionally, payments to the building contractor during the year were $110.
8. Earnings on endowment fund investments are restricted to the entity's education programs. The earnings for the year were $13.
9. Cost of materials used for education programs during the year, $32
10. Earnings on building fund investments were not restricted by donors but the board requires that they be used to finance the building. The earnings on those investments for the year were $25.
Requirement: Prepare the journal entries for the above transactions.

Question 10

Transactions: The following selected transactions occurred for a nongovernment, not-for-profit organization. All amounts are in thousands of dollars.
1. Received a contribution of stock to establish an endowment fund. The income from the endowment is unrestricted. The donor had acquired the stock for $23 about 20 years earlier. Its estimated fair value when donated was $250.
2. Pledges receivable at year end were $100, all from pledges received during the year. The pledges are unrestricted and 5% percent of the pledges are estimated to be uncollectible. The pledges expect to be collected early next year.
For questions 3-5, assume that the organization has adopted a policy that restrictions on donations made for capital purposes are met when the capital item is purchased.
3. A cash gift of $200 was received restricted for the purchase of equipment.
4. Equipment of $80 was purchased from the gift restricted for this purpose.
5. Depreciation expense for the year on the equipment purchased is $10.
For questions 6-8, assume that the organization has adopted a policy that restrictions on donations made for capital purposes are not met when the capital item is purchased.
6. A cash gift of $200 was received restricted for the purchase of equipment.
7. Equipment of $80 was purchased from the gift restricted for this purpose.
8. Depreciation expense for the year on the equipment purchased is $10.
Requirement: Prepare the journal entries for the above transactions.

Question 11

A private school is given $40,000 to permanently endow one of its education programs. A debit of $40,000 should be made to

A) Cash.
B) Unrestricted cash.
C) Temporarily restricted cash.
D) Cash restricted for endowment.

Question 12

A nongovernment voluntary health and welfare organization received unrestricted cash donations of $23,000 for the current year, $30,000 of donations to be used for the following year, and a $100,000 donation to establish a permanent investment endowment. The organization should report

A) Unrestricted revenues of $53,000 and permanently restricted revenues of $100,000.
B) Temporarily restricted revenues of $153,000.
C) Unrestricted revenues of $23,000 and temporarily restricted revenues of $130,000.
D) Unrestricted revenues of $23,000, temporarily restricted revenues of $30,000, and permanently restricted revenues of $100,000.

Question 13

The board of directors of a nongovernmental not-for-profit organization voted to designate $100,000 of its unrestricted net assets to be used for its permanent endowment. Which of the following best describes the accounting and financial reporting implications of this action?

A) The net assets are still considered unrestricted.
B) The net assets are now considered temporarily restricted.
C) The net assets are now considered permanently restricted.
D) Unrestricted net assets will decrease in total.

Question 14

Nongovernment not-for-profit organizations are required to report their financial statements on

A) A current financial resources measurement focus.
B) An economic resources measurement focus.
C) A cash measurement focus.
D) An accrual measurement focus.

Question 15

Fund-raising expenses are classified as

A) Program services expenses.
B) Supporting services expenses.
C) Management and general expenses.
D) Nonoperating expenses.

Question 16

The line item, net assets released from restrictions, may be reported in a nongovernment, not-for-profit organization's statement of activities in which classifications?

A) Changes in unrestricted net assets only.
B) Changes in unrestricted net assets and changes in temporarily restricted net assets.
C) Changes in unrestricted net assets and changes in permanently restricted net assets.
D) Changes in unrestricted net assets, changes in temporarily restricted net assets, and/or changes in permanently restricted net assets.

Question 17

A not-for-profit organization receives donated supplies valued at $40,000 in June. As of the fiscal year end December, 31, 20X3, the organization had used 25% of the materials. The organization should report

A) Restricted contributions of $40,000 and no expenses.
B) Restricted contributions and expenses of $40,000.
C) Unrestricted contributions of $40,000 and expenses of $10,000.
D) Unrestricted contributions of $10,000 and no expenses.

Question 18

Listed below are two transactions for an alcohol rehabilitation treatment program. All amounts are in thousands of dollars.
Transactions:
1. Received pledges of $300 and cash gifts of $100 during the year to be used only for alcohol rehabilitation treatment programs.
2. Incurred expenses of $220 for its alcohol rehabilitation program but paid the expenses from unrestricted resources, not from available restricted resources.
Requirement: Prepare the journal entries for these transactions.

Question 19

A not-for-profit organization was the recipient of a significant fixed asset donation. The assets, a building valued at $82,000, and one acre of land, valued at $210,000, are going to be used by the organization for office space and parking. The donor's net book value of the building was $22,000, and the land basis was $65,000. The not-for-profit organization's total basis for the assets should be

A) $87,000.
B) $104,000.
C) $147,000.
D) $292,000.

Question 20

A nongovernment not-for-profit organization received donated services from a local volunteer. The volunteer works as a receptionist for the organization. The market value of service is $5,000. How should this activity be reported be in the statement of activities?

A) Not be reported.
B) Unrestricted support, $5,000.
C) Restricted support, $5,000.
D) Both unrestricted support and program expense, $5,000.

Question 21

Fund raising expenses are reported as

A) Nonoperating expenses.
B) Operating expenses.
C) Program expenses.
D) Supporting services expenses.

Question 22

Land valued at $100,000 was donated to a not-for-profit organization. The donation came with no restrictions. The organization's management decided to hold the land for resale and use the proceeds to establish a reserve for future capital needs. Which of the following journal entries would be made on the date of donation? $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\begin{array}{lrr}&\text { Debit } & \text { Credit }\end{array}$

A)
$\begin{array}{lll}\text { Land Held for Resale } & \$ 100,000\\\text { Restricted Contributions }&& \$ 100,000 \\\end{array}$

B)
$\begin{array}{lll}\text { Land Held for Resale }&\quad \$ 100,000 \\\text { Capital Contributions }&& \$ 100,000 \\\end{array}$

C)
$\begin{array}{lcc}\text { Land Held for Resale } & \$ 100,000\\\text { Unrestricted Contributions }&& \$ 100,000 \\\end{array}$

D)
$\begin{array}{lcc}\text { Land Held for Resale }& \$ 100,000 \\\text { Temporarily Restricted Contributions} && \$ 100,000 \\\end{array}$

Question 23

Which of the following financial statements is only required for nongovernment voluntary health and welfare organizations?

A) Statement of net assets.
B) Statement of activities.
C) Statement of cash flows.
D) Statement of functional expenses.

Question 24

A nongovernment, not-for-profit organization received $5,000,000 of unconditional pledges during 2013 that had not been collected by year end. In its 2013 statement of activities, the organization should recognize

A) No revenues, but should report receivables and deferred revenues in its balance sheet.
B) Unrestricted revenues of $5,000,000.
C) Temporarily restricted revenues of $5,000,000.
D) Permanently restricted revenues of $5,000,000.

Question 25

Nongovernment not-for-profit organizations recognize revenues when

A) Pledges are measurable and available.
B) Unconditional pledges become due.
C) Unconditional pledges are made by donors, even if not yet collected.
D) Unconditional pledges are made by donors and qualifying costs have been incurred.

Question 26

Nongovernment, not-for-profit organizations use the following classifications to report expenses in the statement of activities

A) Unrestricted, temporarily restricted, and permanently restricted.
B) Operating and nonoperating.
C) Management and general and supporting services.
D) Mission critical, non-mission-critical, and discretionary.

Question 27

What costs may be deducted directly from revenues instead of being reported with the as other expenses?

A) Direct costs of special fund raising events.
B) Expenses for benefits provided in exchange for membership dues.
C) Fund raising expenses.
D) Depreciation expense.

Question 28

A nongovernment, not-for-profit environmental organization conducts a mailing about the dangers of global warming. Included in the mailing is a request for donations. How should this activity be reported be in the statement of activities?

A) Fund-raising expense.
B) Program expense.
C) Fund-raising, unless certain criteria are met.
D) Allocated between fund-raising and program support.

Question 29

Investment earnings of $1,250 were earned on restricted investments. The earnings are to be used for various research projects during the current year. The earnings would be reported as

A) Unrestricted revenues.
B) Temporarily restricted revenues.
C) Permanently restricted revenues.
D) General interest revenue.

Question 30

In 20X8 the following pledges were made: $35,000 in unrestricted contributions for use in 20X8; $20,000 in contributions restricted for use in 20X9; and a $400,000 contribution restricted for the establishment of a permanent endowment. It is anticipated that 10% of all pledges except the endowment pledge will be uncollectible. Pledges receivable for 20X8 should be

A) $455,000.
B) $449,500.
C) $55,000.
D) $49,500.

Question 31

A nongovernment not-for-profit organization statement of activities reports

A) Only changes in unrestricted net assets.
B) Only changes in unrestricted net assets that are revenues, expenses, gains, or losses.
C) Changes in both unrestricted and temporarily restricted net assets.
D) Changes in unrestricted, temporarily restricted, and permanently restricted net assets.

Question 32

With respect to collections, nongovernment not-for-profit organizations are

A) Required to capitalize all collections.
B) Prohibited from capitalizing collections.
C) Required to either capitalize all collections or to capitalize no collections.
D) Permitted to capitalize no collections, to capitalize all collections, or to capitalize only those collections acquired after FASB Statement 116 was adopted.

Question 33

Pledges should be reported by a nongovernment not-for-profit organization as revenues in the period that they are unconditionally received

A) By the organization.
B) By the organization if the pledges are unrestricted.
C) By the organization if the pledges are unrestricted and have been collected by year end.
D) If the organization has incurred qualifying costs.

Question 34

How should a nongovernment not-for-profit organization generally report increases in the fair value of marketable debt securities in its statement of activities?

A) Such increases in fair value should not be reported because debt securities are reported at amortized cost.
B) As an increase in restricted net assets
C) As an increase in temporarily restricted net assets
D) As an increase in unrestricted net assets, unless restricted by donor stipulation or law

Question 35

A nongovernment not-for-profit organization received a cash donation of $100,000 restricted for a specific operating purpose. Only $20,000 of expenses related to the specific operating purpose was incurred during the current year. How should this activity be reported be in the statement of activities?

A) Expenses in changes in unrestricted net assets, $20,000.
B) Expenses in changes in temporarily restricted net assets, $20,000.
C) Net assets released from restrictions in the permanently restricted assets, $20,000.
D) Expenses and net assets released from restriction in temporarily restricted net assets, $20,000.

Question 36

A nongovernment not-for-profit organization received a cash donation of $100,000 restricted for a specific operating purpose. Only $20,000 of the donation was spent during the current year. How should the donation be reported be in the statement of activities?

A) Unrestricted revenues- $100,000.
B) Unrestricted revenues - $20,000.
C) Temporarily restricted revenues - $100,000.
D) Temporarily restricted revenues - $20,000.

Question 37

Which of the following financial statements is not required for all nongovernment not-for-profit organizations?

A) Statement of net assets.
B) Statement of activities.
C) Statement of cash flows.
D) Statement of functional expenses.

Question 38

A nongovernment not-for-profit organization received a cash donation restricted for construction of a new building. How should the donation be reported be reported in the statement of cash flows?

A) Cash inflows from operating activities.
B) Cash inflows from financing activities.
C) Cash inflows from investing activities.
D) Cash inflows from capital and related financing activities.

Question 39

Computer equipment used in the business office of a not-for-profit organization was sold for $9,000. The original cost of the equipment had been $21,000 and there was $15,000 of accumulated depreciation as of the date of sale. How will the gain be reported?

A) Gains are not recognized in not-for-profit organizations.
B) Unrestricted gain of $3,000.
C) Temporarily restricted gain of $3,000.
D) Permanently restricted gain of $3,000.

Question 40

The net realizable value or present value of unrestricted pledges receivable outstanding at the end of a year for a nongovernmental not-for-profit organization are

A) Always considered unrestricted net assets.
B) Always considered temporarily restricted net assets.
C) Always considered permanently restricted net assets.
D) Considered temporarily restricted unless the donor specified that the pledge was intended to finance current year expenses.

Question 41

Which of the following is true for a nongovernment, not-for-profit organization?

A) Revenues and expenses may be reported in changes in unrestricted net assets.
B) Revenues and expenses may be reported in changes in temporarily restricted net assets.
C) Revenues and net assets released from restrictions may be reported in changes in permanently restricted net assets.
D) Expenses may be reported in changes in unrestricted net assets, changes in temporarily restricted net assets, and changes in permanently restricted net assets.