Deck 12: Accounting for Not-For-Profit Organizations

Question 1

When a not-for-profit entity's funds are classified as restricted,who has imposed the restrictions?

A)the entity's board of trustees
B)donors
C)the bondholders
D)government regulators

Answer 1

B

Question 2

Under which of the following circumstances would a not-for-profit organization's net assets be classified as temporarily restricted?

A)donors impose stipulations on the use of resources that expire with the passage of time or that can be fulfilled by actions of the organization
B)donors stipulate that resources must be held intact in perpetuity,but that the income from the gift may be used for any purpose desired by the organization's trustees
C)the entity's board of directors requires that unrestricted resources be set aside for a specific purpose
D)the bank lending money to the organization requires a percentage of maximum debt service to be set aside in a sinking fund

Answer 2

A

Question 3

For not-for-profit entities,external financial reporting focuses on:

A)individual funds
B)fund groups
C)the organization as a whole
D)major funds

Answer 3

C

Question 4

Ruth Richter gives a not-for-profit entity $25,000 in cash.She tells the entity that it may use the gift for particular research project but only after it receives at least $20,000 cash from other donors to help complete the project.If the entity fails to raise the additional $20,000,it must return Ruth's gift.What account should the entity credit when it receives Ruth's gift?

A)Unrestricted support - contributions
B)Temporarily restricted support - contributions
C)Refundable advance (deferred revenue)
D)Allowance for uncollectible contributions

Question 5

A not-for-profit organization receives $3,400,000 of pledges in its annual telethon.When should the organization recognize contribution revenue?

A)when cash is received
B)when the pledges are received,provided they are in written form
C)when the pledges are received,less an appropriate allowance for uncollectible pledges
D)when the pledges are received,provided the entity classifies the pledges as unrestricted

Question 6

Matt Shaw buys 100 shares of common stock for $8,000 in January.The value of the stock fluctuates in a narrow range (averaging $8,700)throughout the year.In November,when it has a value of $9,500,he donates it to a not-for-profit entity.On December 31,the stock has a fair value of $8,200.At what amount should the entity value the stock on its December 31 statement of financial position?

A)$8,000
B)$8,200
C)$8,700
D)$9,500

Question 7

In which classification of net assets are expenses reported?

A)only in unrestricted net assets
B)only in temporarily restricted net assets
C)either in unrestricted or temporarily restricted net assets
D)either in unrestricted,temporarily restricted,or permanently restricted net assets

Question 8

Which of the following characteristics of a brochure prepared by an NFPO is not relevant to whether the cost of the brochure can be allocated between program and fund-raising functions?

A)page count
B)content
C)purpose
D)audience

Question 9

In response to a fund-raising campaign,an electric utility provides free electricity to a not-for-profit entity.How should the not-for-profit entity report this gift in its statement of activities?

A)It should not be reported in the statement.
B)It should not be reported on the face of the statement,but should be disclosed in the notes.
C)It should be reported at its fair value as a revenue and as an expense.
D)The entity may choose either to not report it or to report it at fair value as a revenue and as an expense.

Question 10

A group of citizens donate their time to construct a building to provide shelter for the homeless,to be run by a not-for-profit entity.In this situation,what is the applicable accounting rule for recognizing the fair value of the services on the face of the financial statements?

A)donations that take a form other than cash should not be recognized.
B)the fair value of contributed services should not be recognized unless the services require specialized skills,are provided by individuals who have those skills,and which the entity would need to be purchased if not donated.
C)contributed services should be recognized at the fair value of the assets they create.
D)donations should be recognized on the face of financial statements only for cash,securities,and other tangible assets;all other donations should be described in the notes.

Question 11

The FASB requires not-for-profits to report net assets and resource inflows and outflows in which categories?

A)Current and noncurrent
B)Unrestricted,temporarily restricted,or permanently restricted depending on the existence and nature of donor restrictions
C)Unrestricted,temporarily restricted,or permanently restricted depending on the existence and nature of donor and creditor restrictions
D)Unrestricted,temporarily restricted,or permanently restricted depending on the existence and nature of creditor,donor,and supplier restrictions

Question 12

Steve Watson,a local certified public accountant (CPA),donates a significant amount of his spare time to Beth's Gallery,a not-for-profit museum.He donates 50 hours to audit the books and 80 hours selling products at the museum store.He charges his regular clients $200 an hour as a CPA.How should the Gallery report Mr.Watson's donation of time?

A)report $26,000 (130 hours @ $200)as contribution revenue and expense
B)report $0 as contribution revenue and expense,and describe Mr.Watson's services to the museum in a note to the statements
C)report $10,000 (50 hours @ $200)as contribution revenue and expense;also,disclose in a note to the statements the fair value of selling services provided by Watson and others
D)report $10,000 (50 hours @ $200)plus the fair value of the selling services provided by Watson and others

Question 13

A not-for-profit entity conducts a special fund-raising campaign at the end of fiscal year 2012,intended to raise funds for general operations that take place during fiscal year 2013.It receives pledges totaling $200,000.Based on past experience,the entity expects to receive $150,000 in cash.How should the entity report these events?

A)recognize the entire amount pledged as unrestricted contribution revenue in 2012
B)recognize the amount pledged (net of a $50,000 allowance for estimated uncollectibles)as unrestricted contribution revenue in 2012
C)recognize the amount pledged (net of a $50,000 allowance for estimated uncollectibles)as temporarily restricted contribution revenue in 2012;and report the 2013 expenses as changes in temporarily restricted net assets in 2013
D)recognize the amount pledged (net of a $50,000 allowance for estimated uncollectibles)as temporarily restricted contribution revenue in 2012;and reclassify the net assets as unrestricted at the beginning of 2013

Question 14

Showing the amount and nature of donor-imposed restrictions on the statement of net assets helps financial statement readers to assess a not-for-profit organization's

A)corporate responsibility
B)budgetary compliance
C)financial flexibility
D)liquidity

Question 15

A not-for-profit organization enters into an agreement with a local bank to provide it with a letter of credit for a building project.The bank requires the organization to put aside 10% of pledges collected for the building project in a separate account as a good faith deposit for the line of credit.At year-end,the organization has $255,000 in this separate account.How should the $255,000 of net assets be classified?

A)As unrestricted net assets because the restriction is from a creditor relationship
B)As temporarily restricted net assets until the money is used on the building project
C)As temporarily restricted net assets until the line of credit is repaid and the separate account closed.
D)As restricted net assets

Question 16

Which of the following financial statements is not required to be prepared by not-for-profit organizations?

A)statement of financial position
B)statement of donations and contributions received
C)statement of cash flows
D)statement of activities

Question 17

According to the Financial Accounting Standards Board,the distinguishing characteristics of not-for-profit organizations (NFPOs)do not include which of the following?

A)NFPOs can issue debt on which the interest is exempt from federal taxation
B)NFPOs receive significant contributions from resource providers who do not receive proportionate value in return
C)NFPOs operate for purposes other than to provide goods and/or services at a profit
D)NFPOs do not have defined ownership interests that can be sold or transferred

Question 18

A not-for-profit organization receives a pledge from a donor in fiscal 2013.The terms of the pledge are such that the organization will receive a large contribution in fiscal 2015.At what value should the pledge be reported in the organization's 2013 statement of financial position?

A)face or nominal value
B)compound value
C)marginal value
D)present value

Question 19

The Turtle Island Singers receive three gifts during the year 2012: (a)$3,000,which may be used for any purpose at any time; (b)$5,000,which must be used for a special concert in a nursing home;and (c)$1,000,which may be used for any purpose,but only in the year 2013.When it receives the gifts,how should the entity classify them:

A)$3,000 as unrestricted revenue and $6,000 as temporarily restricted revenue
B)$4,000 as unrestricted revenue and $5,000 as temporarily restricted revenue
C)$8,000 as unrestricted revenue and $1,000 as temporarily restricted revenue
D)$9,000 as unrestricted revenue

Question 20

Ken Labich promises to give a not-for-profit university $2 million for a new library,but only if the university is able to raise an equal amount in cash from other donors.When should the university recognize Ken's promise as revenue?

A)when it receives Ken's promise
B)when it receives Ken's promise,provided it also fully discloses (in notes to the financial statements)the conditions set forth in Roger's promise regarding other contributions
C)gradually;that is,each time it receives cash from another donor,the entity would recognize a portion of Ken's promise as revenue
D)when the conditions imposed by Ken are substantially met;that is,when it receives approximately $2 million in cash from other donors

Question 21

A not-for-profit museum owns a building and a large collection of art works.Both the building and the art works are capitalized on the entity's statement of financial position.What is the general rule regarding depreciation of the building and the art works?

A)The building must be depreciated,but the art works cannot be depreciated.
B)Both the building and the art works must be depreciated.
C)Neither the building nor the art works can be depreciated.
D)The building must be depreciated,but the art works need not be depreciated if the collection meets the three criteria established by the FASB.

Question 22

A not-for-profit arts organization receives a $300,000 gift from a donor who specifies that the gift must be maintained in perpetuity and that the income from the gift is to be used only to take disabled persons to the theater.How should the entity report the $300,000 gift in the net asset section of its statement of financial position?

A)as unrestricted
B)as temporarily restricted
C)as permanently restricted
D)as restricted for programs for the disabled

Question 23

Which of the following is an example of a mandatory transfer in college and university accounting?

A)a transfer to a Plant Fund to set aside amounts that will be used to pay debt service in accordance with a clause in a bond agreement
B)a transfer to a Plant Fund based on a decision by the Board of Trustees to build a new school of engineering
C)a transfer to a Plant Fund based on a decision by management to build new box seats in the football stadium for major donors
D)a reclassification from temporarily restricted to unrestricted net assets

Question 24

A not-for-profit museum holds a collection of historical treasures.It manages the treasures in a manner that meets all three criteria permitting the option to either capitalize the collection or not.The museum has chosen not to capitalize its collection.It then receives a donation of several items that it intends to sell to help meet operating expenses.How should the museum account for the donated items?

A)It must recognize the fair value of the donated items as revenues or gains and assets when it receives the donation.
B)It has an option either to recognize or not to recognize the fair value of the donated items as revenues or gains when it receives the donation.
C)It may not recognize a revenue or gain until it sells the donated items.
D)It must disclose the donation in the notes to the financial statements,but it may not recognize a revenue or gain until it sells the donated items.

Question 25

A not-for-profit arts organization receives a $300,000 gift from a donor who specifies that the gift must be maintained in perpetuity,and the income from the gift is to be used only to take disabled persons to the theater.The entity derives $20,000 from investing the gift,but has not spent it by year-end.How should the entity report the $20,000 of resources in the net asset section of its statement of financial position?

A)as unrestricted
B)as temporarily restricted
C)as permanently restricted
D)as permanently restricted,with a note describing how the resources will be used

Question 26

The Bob Buckham Senior Center,a not-for-profit entity,serves a hot meal to senior citizens every Friday evening.All the food is donated by a local supermarket.All the food preparation and serving is done by local volunteers.If the Center had to pay for the food,it would need to spend $10,000 a year.If it had to pay for the food preparation and service,it would need to spend $12,000 a year.How should it report these contributions in its financial statements?

Question 27

A donor had previously donated $2,000 to a not-for-profit entity,stipulating that the gift must be used to finance the annual Fall Harvest festival.The festival is held and the gift is used for the stipulated purpose.Which of the following best describes the effect of the journal entries needed to record the expense resulting from use of the gift?

A)An expense is reported in the temporarily restricted column of the statement of activities.
B)An expense is reported in the temporarily restricted column of the statement of activities,temporarily restricted net assets are increased,and unrestricted net assets are decreased.
C)An expense is reported in the unrestricted column of the statement of activities.
D)An expense is reported in the unrestricted column of the statement of activities,unrestricted net assets are increased,and temporarily restricted net assets are decreased.

Question 28

Say No To Meth,a not-for-profit entity devoted to informing the public about the hazards of methamphetamine,sends out brochures to a large number of doctors,urging that the brochures be placed in the doctors' waiting rooms.The four-page brochure contains a description of the addictive and destructive nature of the drug,but half of the last page contains an appeal for funds,in relatively large type.How should the entity report the $30,000 expense of preparing,printing,and mailing the brochure in its statement of activities?

A)The entire $30,000 must be reported as a fund-raising expense.
B)The entire $30,000 must be reported as a program expense.
C)The $30,000 should be allocated between fund-raising and program expenses,using appropriate cost accounting techniques.
D)The $30,000 should be reported under the caption "Program and fund-raising expenses."

Question 29

In not-for-profit accounting,under what circumstances does a reclassification occur?

A)Temporarily restricted net assets are released from time or purpose restrictions.
B)Unrestricted net assets are reclassified to temporarily restricted net assets.
C)Resources of the current unrestricted fund are transferred to the land,building and equipment fund.
D)A pledge previously classified as a "conditional promise" becomes "unconditional."

Question 30

Which of the following is true regarding the Financial Accounting Standards Board requirements for a not-for-profit entity's accounting and financial reporting?

A)Both fund accounting and reporting by net asset classification are required.
B)Neither fund accounting nor reporting by net asset classification are required.
C)Fund accounting is required,but reporting by net asset classification is not required.
D)Fund accounting is not required,but reporting by net asset classification is required.

Question 31

Not-for-profit colleges and universities are required to follow the accounting standards of which standard-setting body?

A)FASB
B)GASB
C)GASAC
D)FASAB

Question 32

A not-for-profit secondary school sends a 8-page brochure to the parents and alumni of the school.The brochure describes the school's programs and discusses the achievements of some of its graduates.Five pages list the names of all contributors during the previous year and the last page contains an appeal for funds.How should the organization report the expense of printing and mailing the brochure?

A)All costs should be reported as program expenses.
B)All costs should be reported as fund-raising expenses.
C)The costs should be allocated between program and fund-raising expenses,using appropriate cost accounting techniques.
D)All costs should be reported under a single caption "Program and fund-raising expenses."

Question 33

On March 1,2012,a not-for-profit organization received a donation of securities worth $4,500.When it prepared its financial statements at December 31,2012,the securities had a fair value of $5,200.When it sold the securities on June 30,2013,it received $4,600.The entity's accounting procedures call for reporting all unrealized and realized gains and losses in a single account.How should it report its gains and losses in 2012 and 2013?

A)no change in 2012;a gain of $100 in 2013
B)a gain of $100 in 2012;no change in 2013
C)a gain of $700 in 2012;a loss of $600 in 2013
D)no change in 2012;a loss of $600 in 2013

Question 34

A not-for-profit university uses fund accounting.It maintains a Loan Fund to account for its extensive program of financial assistance to students.The Loan Funds are derived from many sources,including both donations and amounts set aside by the university's governing board.When it prepares its statement of financial position,how should the university classify the net assets of the Loan Fund?

A)All net assets should be classified as temporarily restricted.
B)All net assets should be classified as permanently restricted.
C)Net assets should be classified as either temporarily or permanently restricted,depending on the restrictions imposed by the governing board and the donors.
D)Net assets set aside by the governing board should be classified as unrestricted,and net assets from donations should be classified as temporarily or permanently restricted,depending on the nature of the donor-imposed restrictions.

Question 35

A not-for-profit museum holds a valuable collection of art works.On reviewing the museum's financial statements,a new trustee notices that the statement of financial position contains no line item for inventory of art works.He is told by the accountant that the museum has never taken an inventory because "it would cost too much." What are the accounting requirements regarding capitalization of the art works?

A)All collections of art works must be capitalized,regardless of the circumstances.
B)Collections of art works are not required to be capitalized under any circumstances.
C)If collections of art works meet certain criteria (such as being protected and preserved),they must be capitalized.
D)If collections of art works meet certain criteria (such as being protected and preserved),the museum has an option either to capitalize or not capitalize them.

Question 36

A not-for-profit entity receives equipment having a fair value of $50,000 as a gift.How should the gift be reported in the entity's financial statements?

A)as an asset and as an increase in permanently restricted net assets
B)as an asset and as an increase in unrestricted net assets
C)as a footnote only,because gifts of equipment are not be reported on the face of financial statements
D)as an asset and as an increase in temporarily restricted net assets

Question 37

A not-for-profit organization uses fund accounting.Which of the following transactions is likely to be accounted for in a Restricted Current Fund?

A)a donation of $10,000 that may be used for any purpose designated by the trustees
B)a donation of $50,000 that must be used to purchase a new building
C)a donation of $500,000 that must be kept intact in perpetuity
D)a grant of $30,000 that must be used to operate a day-care center for one year

Question 38

A not-for-profit entity that conducts numerous programs receives investments as a donation.The donor,in a letter accompanying the donation,states that the principal of the donation must be maintained intact permanently,and that the income from the investment must be used to finance research in kidney disease.If the entity receives income of $8,000 from these investments,how should be income be reported?

A)as an increase in unrestricted net assets
B)as an increase in temporarily restricted net assets
C)as an increase in permanently restricted net assets
D)as an increase in any of the net asset classifications directed by the entity's trustees

Question 39

A not-for-profit university uses fund accounting.The university's governing board decides to set aside $500,000 in a separate fund called the Student Performance Quasi-Endowment Fund,the income of which will be used to finance a long-term study on the career paths of the university's graduates.In which net asset classification of the university's statement of financial position should this fund be reported?

A)Unrestricted
B)Temporarily restricted
C)Permanently restricted
D)Endowment funds

Question 40

A not-for-profit entity receives a donation of 100 shares of securities listed on the American Stock Exchange.As a general rule,when it prepares its statement of financial position at year-end,the entity must report the securities at:

A)their fair value at time of donation
B)their fair value at date of the statement of financial position
C)the lower of their fair value at date of donation or their fair value at date of the statement of financial position
D)the lower of the cost to the donor or the fair value at date of the statement of financial position.

Question 41

Socialite Lisa King establishes a $4 million irrevocable charitable remainder trust providing a beneficial interest to the Clinton Metropolitan Opera.A percentage of the fair value of the trust's assets go to her husband during his lifetime.The Opera will receive the remaining assets at her husband's death.Mrs.King also specifies that the only the revenue from investing the assets may be used to support the Opera's programs.The Opera estimates that the present value of the estimated future benefits it will receive from the trust is $1.5 million.How should the Opera report this arrangement when it learns of the trust?

A)It should record nothing now.It should record the fair value of the assets only after Mr.King dies
B)It should record a $4 million receivable,$1.5 million in permanently restricted support,and $2.5 million long-term payable to Mr.King.
C)It should disclose the anticipated $1.5 million contribution in the notes to its financial statements.
D)It should record $1.5 million as contributions receivable and as permanently restricted support

Question 42

Which of the following best describes standards for reporting expenses by function (such as instruction and research)or by natural classification (such as salaries and supplies)in the statement of activities prepared by colleges and universities?

A)all expenses must be reported by function on the face of the statement.
B)all expenses must be reported by natural classification on the face of the statement.
C)they may report by either method on the face of the statements;if they report by natural classification on the face,they must report functional expenses in the notes.
D)colleges and universities may report by either method on the face of the statement.

Question 43

The National Kidney Foundation,a voluntary health and welfare organization,is required by GAAP to present an additional operating statement-a statement of functional expenses.What will this statement present?

A)All expenses by function
B)All expenses by function and then by natural or object classification
C)All expenses by function then by funding source,including unrestricted and temporarily restricted.
D)All expenses by natural or object classification