Deck 13: Accounting for Not-For-Profit Organizations

Question 1

Similarity in the characteristics of nongovernmental not-for-profit (NFP)organizations and governmental NFP organizations can make it difficult to determine whether the NFP is nongovernmental or governmental in nature.

Answer 1

True
Explanation: It can be difficult to differentiate NFPs since both types of NFP organizations share similar characteristics (e.g., no profit motive, no defined ownership, benefits received may not be comparable to resources provided). The AICPA in its not-for-profit accounting and auditing guide does provide additional guidance to auditors to help with the determination of whether an NFP is a governmental or nongovernmental entity.

Question 2

Contributions received in a prior period and restricted by the donor for construction of a building were reported as increases to "temporarily restricted net assets" in the period received.When the building is constructed in a subsequent period an NFP would report "contributions" for the amount released from restrictions.

Answer 2

False
Explanation: The cost of the constructed building would be reported in the statement of activities as "net assets released from temporary restrictions", rather than again as "contributions". If it is the NFP's policy to consider all building and equipment acquisitions as temporarily restricted, then the restriction will be released over time as depreciation is recorded.

Question 3

Expense amounts by natural classification can be determined from the statement of functional expenses,as can the expense amounts for program services and supporting services categories.

Answer 3

True
Explanation: The statement of functional expenses provides totals both for natural expense classifications (object- of-expenses) and program services and supporting services classifications, although the statement is only required for VHWOs.

Question 4

Investments should be initially recorded by a not-for-profit organization at cost,or in the case of donated investments at fair value as of the date of the donation.

Question 5

Not-for-profits are required to prepare a statement of cash flows.

Question 6

Supporting services expenses include fund-raising and management and general expenses that are not directly attributable to specific programs.

Question 7

Museums and religious organizations must capitalize and report in their balance sheets assets such as works of art,historical treasures,historical archives,and similar collectible items if they are held for public inspection.

Question 8

Under current accounting and reporting standards nongovernmental,not-for-profit organizations (NFPs)must utilize the fund accounting structure set forth in the AICPA Audit and Accounting Guide Not-for-Profit Entities.

Question 9

A statement of functional expenses is not required of all voluntary health and welfare organizations.

Question 10

GAAP for nongovernmental,not-for-profit organizations is set by the FASB and the AICPA.

Question 11

Under FASB standards the statement of activities for a not-for-profit organization is required to be separated into operating and nonoperating activity.

Question 12

FASB generally requires that not-for-profit organizations record unconditional pledges as support (contributions)only when received in cash.

Question 13

Hospitals,colleges and universities,voluntary health and welfare organizations,and other not-for-profit organizations all follow the same standards for recognition of revenues and expenses.

Question 14

Donated materials are generally not recognized as contributions by a not-for-profit organization.

Question 15

FASB requires that support from special events,if related to the central ongoing and major activities of the organization,and related direct costs,be reported at their gross amounts in the statement of activities rather than reporting the special events support net of direct costs.

Question 16

Which of the following characteristics of not-for-profit organizations (NFPs)can be used to distinguish a nongovernmental from a governmental NFP?

A) Contributions by resource providers who do not expect a return on investment.
B) Ability to impose taxes on citizens.
C) Absence of ownership interests.
D) All of the above characteristics are generally different for nongovernmental versus governmental NFPs.

Question 17

A voluntary health and welfare organization (VHWO)is a type of NFP that depends primarily on
charges for services as a source of revenue,rather than on contributions from the public at large.

Question 18

Cash received by a nongovernmental NFP in year 1 that the donor stipulates is to cover operating expenses of the following year should be recognized as an "increase in temporarily restricted net assets" in year 1 and as "net assets released from restrictions" in year 2.

Question 19

Donated services should be recorded as contributions by a nongovernmental,not-for-profit organization if material,and if they meet the recognition criteria set out by FASB.

Question 20

Donor-imposed restrictions must be clearly reflected in financial statements of not-for-profit organizations.

Question 21

Which of the following would be considered "contribution revenue or support" of a not-for-profit organization?

A) Gain on disposal of capital assets.
B) Monies received from a fund-raising campaign.
C) Money received from rental of surplus office space.
D) Investment earnings.

Question 22

Under FASB standards,which of the following contributions would not have to be reported as an asset on the statement of financial position of a not-for-profit organization?

A) Land was donated to the Friends of the Forest Society for conversion into a nature trail.
B) The original courthouse was donated to the Historical Preservation Society for conversion into a museum.
C) An art collector donated a famous oil painting to a local nongovernmental art museum for display in its exhibit hall.
D) A valuable coin collection was donated to the Youth for Conservation organization,which the organization plans to sell at current market prices.

Question 23

A local philanthropist made an unconditional pledge to donate $100,000 to a not-for-profit organization to be paid in five equal installments of $20,000 beginning in two years.Under FASB standards the pledge would be recognized as

A) A contribution of $20,000 in each of the five years a contribution is made.
B) A contribution of $100,000 in the year the pledge is made,adjusted for the estimated uncollectible amount.
C) Deferred support of $100,000 in the year the pledge was made.
D) A contribution of $100,000 in the year the pledge was made,discounted for the difference between the pledge and its present value.

Question 24

Investments in equity securities that have a readily determinable market value and all debt securities of a not-for-profit organization are reported at

A) Lower of cost or market.
B) Amortized cost.
C) Fair value.
D) Cost.

Question 25

Temporarily restricted net assets are released from restrictions

A) At the end of each fiscal year.
B) As assets are spent for the purposes intended by the donor.
C) When funds are returned to the donor.
D) When they are converted to permanently restricted net assets.

Question 26

Responsibility for establishing generally accepted accounting principles (GAAP)for nongovernmental,not-for-profit organizations rests with the FASB and was most clearly established

A) By the FASB Codification.
B) When the FASB was created in 1974.
C) When the GASB was created in 1984.
D) In the AICPA's Statement of Auditing Standards No.69 (hierarchy of GAAP).

Question 27

Securities donated to a not-for-profit organization should be recorded at the

A) Donor's recorded amount.
B) Fair market value at the date of the gift,or the donor's recorded amount,whichever is lower.
C) Fair market value at the date of the gift,or the donor's recorded amount,whichever is higher.
D) Fair market value at the date of the gift.

Question 28

A not-for-profit (NFP)organization acting as a financial intermediary receives a contribution.Under the FASB Codification the NFP would be most likely to recognize the contribution as a liability under which of the following situations?

A) The NFP has variance power.
B) The NFP is acting as an agent,receiving the contribution on behalf of another organization.
C) The NFP is financially interrelated with the organization on whose behalf it received the contribution.
D) The NFP is controlled by the organization on whose behalf it received the contribution.

Question 29

Which of the following would be reported as an Asset with Restrictions on Use?

A) A cash contribution for a program activity,such as diabetes research.
B) A cash contribution for a new building.
C) Cash restricted by debt covenants with lenders.
D) Cash restricted by the board for purchase of new computer equipment.

Question 30

A voluntary health and welfare organization would report the account Provision for Uncollectible Pledges as which of the following?

A) Expense.
B) Contra revenue.
C) Contra asset.
D) FASB allows management to determine its policy for reporting the Provision for Uncollectible Pledges.

Question 31

Which of the following is a condition that must be met for contributed services to a not-for-profit organization (NFP)to be recorded as both a contribution and as an expense?

A) The service creates or enhances nonfinancial assets,such as a carpenter renovating a building.
B) The service requires a specialized skill and is provided by someone who possesses the specialized skill,such as a lawyer preparing contracts.
C) The service supplements the management function,such as an auditor preparing a program audit,which is not normally done.
D) All of the above must be met for contributed services to be recognized as a contribution and an expense.

Question 32

The FASB Codification requires the following financial statements for all nongovernmental,not-for- profit organizations

A) Statement of financial position,statement of activities,statement of cash flows,and statement of functional expenses.
B) Statement of financial position,statement of operations,statement of cash flows,and statement of functional expenses.
C) Statement of financial position,statement of activities,and statement of cash flows.
D) Statement of financial position,statement of revenues and expenses,statement of cash flows,and statement of functional expenses.

Question 33

A not-for-profit organization incurred $10,000 in management and general expenses in the current fiscal year.In the organization's statement of activities prepared in conformity with FASB standards,the $10,000 would be reported as

A) A deduction from program revenue.
B) Fund-raising expense.
C) Program services expenses.
D) Supporting services expenses.

Question 34

Under FASB standards how would a not-for-profit organization recognize a conditional pledge?

A) It would debit Pledges Receivable and credit Contributions-Temporarily Restricted.
B) It would debit Pledges Receivable and credit Deferred Contributions.
C) It would disclose the amount of the conditional pledge in the notes to the financial statements.
D) It would not recognize the conditional pledge until pledge conditions are substantially met.

Question 35

Depreciation expense in a not-for-profit organization should be

A) Assigned to or allocated to the functions to which it relates.
B) Reported under the management and general function.
C) Disclosed in the notes to the financial statements.
D) Allocated to program but not support functions.

Question 36

A not-for-profit organization that follows FASB standards must display the changes in all classes of net assets on the

A) Statement of activities.
B) Statement of financial position.
C) Statement of cash flows.
D) Statement of functional expenses.

Question 37

A donor provides a large cash contribution that is to be used for acquisition of a new building.Under FASB standards,how would this contribution be reported by a not-for-profit organization on its statement of cash flows?

A) Operating activity.
B) Investing activity.
C) Financing activity.
D) Capital and related financing activity.

Question 38

Which of the following statements is correct regarding reporting of special events and related direct costs under current FASB standards?

A) Special events and related direct costs must be reported separately at their gross amounts if they relate to the ongoing major operations of an NFP.
B) Special events revenues are to be reported at gross amounts,even if direct costs are of a peripheral or incidental nature.
C) With few exceptions special events revenues are reported net of related direct costs.
D) Expenses of promoting and conducting special events should be netted directly against special events revenue.

Question 39

Which of the following statements is true regarding fund accounting for not-for-profit organizations (NFPs)?

A) Fund accounting can be used by NFPs for external purposes,but not internal purposes.
B) Fund accounting can provide a good mechanism for facilitating reporting to donors.
C) Fund accounting is not allowed.
D) Fund accounting for internal and external reporting purposes has been replaced by FASB with the three classes of net assets (unrestricted,temporarily restricted,and permanently restricted).

Question 40

An example of an increase in net assets for a not-for-profit organization that would be labeled revenue rather than support is

A) An unconditional promise to give.
B) Investment income.
C) A restricted gift.
D) An allocation of funds from the local United Way organization.

Question 41

Under FASB standards,expenses of a not-for-profit organization can only be shown as reductions of unrestricted net assets.

Question 42

Describe the difference between fund accounting and the accounting methods required by FASB.

Question 43

Explain the accounting for contributions received by a financial intermediary.

Question 44

When a nongovernmental not-for-profit organization spends money for the purpose for which an external donor intended,then the expense is reported as a

A) Decrease in temporarily restricted net assets.
B) Decrease in unrestricted net assets.
C) Decrease in permanently restricted net assets.
D) Decrease in current-restricted fund balance.

Question 45

Which of the following is not one of the criteria specified in the FASB Codification for determining whether joint costs with a fund-raising appeal can be reported with program expenses rather than as fund- raising expenses?

A) Purpose.
B) Audience.
C) Time period.
D) Content.

Question 46

Distinguish not-for-profit organizations from entities in the governmental and commercial sectors of the U.S.economy.

Question 47

The statement of financial position prepared by a nongovernmental NFP presents net assets in these categories: unrestricted,temporarily restricted,net investment in capital assets,and permanently restricted.

Question 48

If the program services expenses category includes both directly related costs and indirect costs allocated to it,why is it necessary to have a separate category of "supporting services expenses"?

Question 49

In the current year,the not-for-profit organization (NFP)How to Read Government Financial Reports received both cash of $1,000 and pledges of $2,000 to be used for teaching citizens how to read government financial reports.During the year the organization spent $1,500 teaching citizens to read financial statements.Assuming the NFP has a policy of spending its restricted resources first,in the current year what amount of contributions can be reclassified as unrestricted?

A) $1,000.
B) $1,500.
C) $2,000.
D) $3,000.

Question 50

Distinguish between "support" and "revenues from exchange transactions".

Question 51

Would a not-for-profit library that receives the majority of its resources from a specific tax levy on local citizens remitted to the city follow the same financial reporting principles as would a library that operates without a dedicated tax and instead relies on contributions from individuals and grants from foundations and governments? Explain.

Question 52

The purpose of a statement of functional expenses is to

A) Report on the net income of each program compared to that of supporting the programs.
B) Report on program expenses and supporting expenses.
C) Report on the natural expenses (object-of-expense),as well as program and support functions expenses.
D) Report on the cash flows of each program and that of supporting the programs.

Question 53

Explain when donated materials should be recognized as a contribution and as an expense by a nongovernmental not-for-profit organization.

Question 54

Which of the following terms is used to indicate that a donor provided a gift with explicit instructions that the gift is to be used for a specific purpose by the not-for-profit but the entire amount may be spent right away?

A) Board-designated net assets.
B) Permanently restricted net assets.
C) Endowment assets.
D) Temporarily restricted net assets.

Question 55

In the current year,the not-for-profit organization Save the Butterflies Foundation received cash of $500 to be used as the Foundation wished and $1,000 to be used for butterfly research.Save the Butterflies also received pledges of $700 that it can use as it wishes and $600 for its building fund.All pledges are expected to be received next year.How much would Save the Butterflies report as temporarily restricted contributions in the current year?

A) $1,000.
B) $1,600.
C) $1,300.
D) $2,300.

Question 56

For each of the following unrelated transactions,record the journal entry that would be made by a nongovernmental,not-for-profit organization involved in medical research.If no journal entry is recorded,explain why there is no journal entry.
a.The entity received $1,500 in cash contributions.Of that amount,$1,000 is to be used for medical research.
b.The entity received pledges of $700,000 for its endowment fund.All pledges will be collected next year.
c.The entity received donated services of $1,200 from medical researchers who helped with the entity's on-going drug development research.It also received $300 in donated services from students,who helped clean the research facilities.
d.The entity paid medical research operating expenses of $5,000 that were related to restricted net assets it had received in prior years.

Question 57

Explain the purpose of FASB ASC 958-720-45 on joint-cost accounting as it relates to reporting fund- raising expenses of a not-for-profit organization.How is this standard applied?