Question 1

Government (public) colleges and universities must adhere to the FASB pronouncements.

Accepted Answer

Government (public) colleges and universities must adhere to the GASB (Governmental Accounting Standards Board) pronouncements, not FASB (Financial Accounting Standards Board) pronouncements, which are for private sector organizations.

Question 2

FASB requires that revenue at private not-for-profit colleges and universities be separated into two categories, restricted and non-restricted, as defined by the Board of Regents.

Accepted Answer

FASB (Financial Accounting Standards Board) requires that revenue at private not-for-profit colleges and universities be classified as either restricted or unrestricted, but this classification is based on donor-imposed restrictions, not definitions by the Board of Regents.

Question 3

Investments of a public college must be reported at amortized cost.

Accepted Answer

Public colleges, like other public entities, typically follow governmental accounting standards, which may require investments to be reported at fair value rather than amortized cost. The specific reporting requirements can depend on the nature of the investment and applicable accounting standards.

Question 4

The single largest source of revenues for not-for-profit universities is tuition and fees.

Accepted Answer

Tuition and fees are typically the largest source of revenue for not-for-profit universities, as they rely heavily on these payments to fund their operations, unlike for-profit institutions that may have additional revenue streams.

Question 5

Dormitories and bookstores are examples of auxiliary enterprises (business-type activities) engaged in by both private and public universities.

Accepted Answer

Auxiliary enterprises are essentially non-primary operations that support the institution's main activities, and both dormitories and bookstores fit this description as they provide services to students but are not directly related to the primary mission of teaching and research.

Question 6

There is consistency in the classification of operating and non-operating activities on the statement of activities of not-for-profit colleges and university.

Accepted Answer

The classification of operating and non-operating activities on the statement of activities for not-for-profit colleges and universities can vary significantly due to differences in accounting policies and interpretations of what constitutes operating versus non-operating activities. This can lead to inconsistencies in how these activities are reported across different institutions.

Question 7

Private colleges and universities should account for all grants on the accrual basis as exchange transactions.

Accepted Answer

Private colleges and universities should account for grants based on the substance of the transaction, which can be either as exchange transactions or as non-exchange transactions (contributions), depending on the terms and conditions of the grants.

Question 8

In January 2017, Granite Hills State University received a $500,000 government grant to be used to finance a study to determine the effects of the federal stimulus bill on the regional economy. During 2017, expenditures of $125,000 were incurred and paid on the research project.
REQUIRED:
1. Record these transactions in the accounts of Granite Hills State University, and explain how the effects of the transactions should be reported in the college's financial statements.
2. Repeat requirement (1) under the assumption that the grant was to finance plant expansion.

Accepted Answer

The answer of In January 2017, Granite Hills State University...

Question 9

In January 2016, the Free Cancer Foundation accepted an endowment of $500,000, the income from which is restricted to promoting research related to recovery from cancer. All gains, whether realized or unrealized are available for distribution. During 2016 the market value of endowment's investment portfolio increased to $520,000. Accordingly, at year-end $20,000 was credited to a unrestricted expendable fund. During 2017 the market value of the portfolio decreased to $480,000 and the foundation spent $12,000 on qualifying projects.
Owing to these events and transactions, compute:
REQUIRED:
What should be the reported net asset balance of the following categories during 2017 (assuming a zero beginning balance in unrestricted net assets):
1. Donor restricted
2. Unrestricted

Accepted Answer

The answer of In January 2016, the Free Cancer Foundation...

Question 10

When a semester starts and ends in different fiscal years, FASB standards require not-for-profit colleges to apportion tuition and fees between the two years.

Accepted Answer

The answer of When a semester starts and ends in...

Question 11

Private colleges that receive federal grants are required to apply government accounting standards set by the GASB.

Accepted Answer

Private colleges that receive federal grants are generally required to follow the accounting standards set by the Financial Accounting Standards Board (FASB), not the Governmental Accounting Standards Board (GASB), which applies to government entities.

Question 12

In a public university setting, general administration and sponsored research are examples of revenues classified by source.

Accepted Answer

General administration and sponsored research are examples of functional classifications of expenses, not revenue sources. Revenue classifications typically include tuition and fees, government appropriations, and donations.

Question 13

Tuition revenue should be reported net of tuition discounts and scholarships.

Accepted Answer

Tuition revenue is reported net of tuition discounts and scholarships because these amounts are not actually received by the institution; they reduce the gross tuition revenue to reflect the actual revenue earned.

Question 14

Roberta College is a not-for-profit entity.
REQUIRED:
Record the following transactions for the fiscal year ended June 30, 2017.
That year…
a. Tuition revenue for the fall semester 2016 (August - December) was $4 million; tuition for the Spring semester 2017 (January - May) was $3.8 million; tuition for the summer semester 2017 (June 1-August 15) was $2 million. All tuition was received in cash.
b. Faculty salaries for the fall semester were $3 million; for the spring semester, $2.9 million; and for the summer semester, $0.6 million. All salaries are paid at the end of the month earned. Salaries earned in summer are June $0.3 million, July $0.2 million, and August $0.1 million.
c. During June, $3.2 million of tuition applicable to the fall 2017 semester was received in cash.
d. During the year a wealthy benefactor pledged $1 million to the university for the fund-raising campaign to renovate the oldest building on the campus. The benefactor will deliver the cash when renovation is substantially complete.
e. Fixed assets of the university have a historical cost of $120 million, an estimated salvage value of $20 million, and an estimated useful life of 40 years.
f. During the year the university's college of business received notice of a $100,000 grant from the federal government to conduct a research project on the effect of different budgeting techniques on the performance of government employees. During the year the university spent $8,000 on printing questionnaires and $12,000 on faculty salaries for activities directly related to the grant. By year-end the university had not received any cash from the federal government.

Accepted Answer

The answer of Roberta College is a not-for-profit entity.
REQUIRED:
Record the...

Question 15

Betterman College, a not-for-profit institution, engaged in the following transactions during its fiscal year ending June 30, 2017.
REQUIRED:
Prepare appropriate journal entries, indicating the types of funds (by restrictiveness) in which they would be recorded.
1. The college collected $64,800,000 in student tuition. Of this amount $4,500,000 was applicable to the summer semester, which ran from June 1 to August 30, and $300,000 was applicable to the fall semester that began the following September.
2. The college received a contribution of $2,000,000 in stocks and bonds to establish an endowed chair in chemistry. Income from the chair must be used to supplement the salary of a professor of chemistry.
3. During the year, the chemistry chair endowment earned interest and dividends of $70,000, all of which was used to supplement the salary of the chair holder.
4. The market value of the investments of the chemistry chair endowment declined by $60,000.
5. Using funds restricted for this purpose, the college purchased $300,000 of equipment for intercollegiate athletics. Intercollegiate athletics is accounted for as an auxiliary enterprise. The college charged depreciation of $60,000.
6. The annual alumni campaign yielded $2,800,000 in pledges. The college estimated that 2 percent would be uncollectible. During the year the college collected $2,400,000 on the pledges.

Accepted Answer

The answer of Betterman College, a not-for-profit institution, engaged in...

Question 16

Public colleges and universities have the option to report as a single purpose government engaging in business-like activities, including reporting on a full accrual basis.

Accepted Answer

Public colleges and universities have the option to report as a single purpose government engaging in business-like activities, and they can choose to report on a full accrual basis as part of their financial reporting. This allows them to present their financial statements in a manner similar to private sector businesses, reflecting all their assets and liabilities, including long-term debts and infrastructure assets.

Question 17

ASU 2016-14 requires that all colleges and universities report both revenues and expenses by function.

Accepted Answer

ASU 2016-14 requires not-for-profit entities, including colleges and universities, to report expenses by both their natural and functional classifications, but it does not require revenues to be reported by function.

Question 18

Private not-for-profit colleges and universities are subject to the same FASB standards, including ASU 2016-14, as other not-for-profit entities.

Accepted Answer

Private not-for-profit colleges and universities, like other not-for-profit entities, are required to follow Financial Accounting Standards Board (FASB) standards, including Accounting Standards Update (ASU) 2016-14, which addresses financial statement presentation for not-for-profit entities.

Question 19

In accounting for colleges and universities, related entities should either be disclosed in the Notes to the Financial Statements or reported as component entities, depending on the degree of control and economic interest.

Accepted Answer

In accounting for colleges and universities, the relationship with related entities is significant for financial reporting. Entities that are closely related to the college or university, where there is a degree of control or significant economic interest, should either be disclosed in the Notes to the Financial Statements for transparency or reported as component entities if the relationship is such that the entity's financial activities are intertwined with those of the college or university. This ensures users of the financial statements have a complete picture of the financial position and operations of the institution.

Question 20

GASB requires that tuition revenues be reported net of any uncollectible amount.

Accepted Answer

GASB (Governmental Accounting Standards Board) requires that tuition revenues be reported net of any estimated uncollectible amounts to reflect the actual expected revenue.

Quiz 13: Colleges and Universities