Deck 14: Not-For-Profit Organizations Regulatory, taxation, and Performance Issues

Question 1

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.

Answer 1

False
Explanation: Each of these organizations may have different standards for revenue and expense recognition, particularly if they are governmentally owned or affiliated. In fact, some public colleges and universities recognize expenditures, not expenses. It is true, however, that all nongovernmental entities of these types, those subject to FASB jurisdiction, report support, revenues, and expenses on a similar basis for external financial reporting purposes.

Question 2

Not-for-profit organizations should be conservative and record pledges as support (contributions)only when received in cash.

Answer 2

False
Explanation: NPOs that follow generally accepted accounting principles will use accrual accounting. Pledges should be recorded as receivables and support in the year received. An allowance should be established for estimated uncollectible pledges, if deemed necessary. Contribution revenue (i.e., support) should be reported in the statement of activities in the appropriate section, as a change in either unrestricted, temporarily restricted, or permanently restricted net assets.

Question 3

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

Answer 3

True
Explanation: This is the classification scheme illustrated and discussed in Chapter 14.

Question 4

The statement of activities for an NPO must be prepared exactly as prescribed by the Financial Accounting Standards Board in SFAS No.117.

Question 5

Investments should be recorded at cost,or in the case of donated investments,at fair value as of the date of the gift.On subsequent balance sheets investments should be marked to and reported at market value with the valuation method disclosed and consistently followed.

Question 6

Donated materials are seldom recognized as a contribution and as an expense by a not-for-profit organization.

Question 7

SFAS No.117 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 8

All not-for-profit organizations covered by the AICPA Audit and Accounting Guide Not-for-Profit Organizations are under the standards-setting jurisdiction of the FASB.

Question 9

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.

Question 10

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 11

Depreciation expense is reported in the statement of activities prepared by nongovernmental,not-for-profit organizations.

Question 12

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

Question 13

A voluntary health and welfare organization (VHWO)is a type of NPO that depends primarily on charges for services as a source of revenue,rather than on contributions from the public at large and provides health and welfare services to the public for a nominal or no fee.

Question 14

The statement of financial position prepared by a nongovernmental NPO presents net assets in these categories: unrestricted; temporarily restricted; invested in capital assets,net of related debt; and permanently restricted.

Question 15

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

Question 16

NPOs are required to prepare a statement of cash flows.

Question 17

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

Question 18

Cash received by a nongovernmental NPO 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 criteria set out in SFAS No.116.

Question 20

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 NPO would report "contributions" for the amount released from restrictions.

Question 21

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

A)In the 1930s.
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)in 1992.

Question 22

A local philanthropist pledged to make a donation of $100,000 to an NPO to be paid in five equal installments of $20,000 beginning in the next fiscal year.Under FASB standards the pledge would be recognized as

A)Support of $20,000 in each of the following five years.
B)Support of $20,000 in the year the pledge was made and $80,000 as deferred support.
C)Deferred support of $100,000 in the year the pledge was made.
D)Support of $100,000 in the year the pledge was made,discounted at an appropriate rate for future receipts.

Question 23

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 that is converting the courthouse to 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 24

Which of the following is not a condition that must be met for contributed services to a not-for-profit organization (NPO)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 is provided by someone who possesses specialized skills,such as a lawyer preparing contracts.
C)The service provides tangible benefit,such as serving food to clients.
D)The service would have to be purchased if not donated,such as a pro bono annual audit by a local audit firm.

Question 25

A good reason for an NPO to adopt fund accounting even though FASB standards do not require it is that

A)The NPO provides more than one type of program service.
B)The NPO's capital assets are significant.
C)Restrictions have been placed on the use of certain of its assets by donors.
D)The NPO's donated services are significant.

Question 26

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 27

Statement of Financial Accounting Standards (SFAS)No.116 on contributions received and contributions made describes measurement and reporting rules for

A)Exchange transactions,such as membership dues and charges for services.
B)Nonexchange transactions,such as unrestricted and restricted gifts.
C)Gains and losses on investment income.
D)Investment income (i.e.,dividends and interest).

Question 28

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 caption.
C)Disclosed in the notes to the financial statements.
D)Allocated to program but not support functions.

Question 29

Which of the following statements is not a true statement about reporting of financially related not-for-profit entities?

A)If an NPO has a controlling interest in a for-profit entity,it should consolidate that entity's financial information with its own.
B)If an NPO has a joint agreement with another NPO to provide transportation for clients of the other organization,it should consolidate that entity's financial information with its own.
C)If an NPO has an economic interest in another entity but not control,it should disclose that in the notes to the financial statements.
D)If an NPO has significant influence over a for-profit entity,it should use the equity method to report that investment on its financial statement.

Question 30

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 31

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 NPO.
B)Special events must be reported net of related direct costs,even if they are of a peripheral or incidental nature.
C)All special events may be reported net of related direct costs.
D)Expenses of promoting and conducting special events should be netted directly against special events revenue.

Question 32

An NPO 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)A reduction of permanently restricted assets.
C)Program services expenses.
D)Supporting services expenses.

Question 33

All of the following are characteristics of not-for-profit organizations (NPOs)that distinguish them from business organizations except

A)Contributions by resource providers who do not expect a return on investment.
B)Ability to impose taxes on citizens.
C)Operating purposes other than to earn a profit.
D)Absence of ownership interests.

Question 34

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 35

Statement of Financial Accounting Standards (SFAS)No.117 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 36

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

A)Fund accounting may provide a good mechanism for facilitating reporting to donors for restricted grants.
B)Fund accounting may be used by NPOs for external purposes,but not internal purposes.
C)Fund accounting is not allowed.
D)SFAS Nos.116 and 117 method of reporting three classes of net assets (unrestricted,temporarily restricted,and permanently restricted)replaces fund accounting for both internal and external reporting purposes.

Question 37

Securities donated to an NPO 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 38

Accounting standards for NPOs require

A)Accrual accounting.
B)Modified accrual accounting.
C)Fund accounting.
D)Capitalization of collections.

Question 39

Which of the following would be considered "contribution revenue or support" of an NPO?

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

Question 40

Which of the following organizations would be covered by the AICPA Audit and Accounting Guide Not-for-Profit Organizations?

A)Political parties.
B)Employee benefit and pension plans.
C)Proprietary hospitals.
D)Farm cooperatives.

Question 41

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 NPO 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 42

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 43

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

Question 44

Unrealized gains on the investment portfolio of a not-for-profit organization are

A)Not recognized.
B)Reported in the net asset section of the balance sheet.
C)Depends on whether the gains relate to trading,available-for-sale,or held-to-maturity assets.
D)Reported on the statement of activities.

Question 45

The primary standards-setting body for a public museum that receives the majority of its funding from local property taxes is

A)American Institute of CPAs (AICPA).
B)Financial Accounting Standards Board (FASB).
C)Government Accountability Office (GAO).
D)Governmental Accounting Standards Board (GASB).

Question 46

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

Question 47

Explain how SFAS No.136 provides for the recognition and reporting of funds received by one not-for-profit organization on behalf of another.

Question 48

Which of the following is not one of the criteria specified in AICPA Statement of Position 98-2 that provides guidance on when 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 49

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 50

Explain the purpose of AICPA Statement of Position 98-2 as it relates to reporting fund-raising expenses of a not-for-profit organization.How is this statement applied?

Question 51

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 52

Describe the difference between fund accounting and the accounting methods required by SFAS Nos.116 and 117.

Question 53

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

Question 54

The following are key terms in Chapter 14 that relate to accounting for not-for-profit organizations:
A.Nonexchange transactions
B.Temporarily restricted net assets
C.Collections
D.Variance power
E.Exchange transactions
F.Board-designated net assets
G.Permanently restricted net assets
H.Promise to give
For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.

Question 55

When a not-for-profit (nongovernmental)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 56

A not-for-profit organization that follows GAAP 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.