Question 1

Which of the following is NOT a requirement for a not-for-profit organization to record donated materials and services?

Accepted Answer

The deferral method is one way to account for contributions, but it is not a requirement for a not-for-profit organization to record donated materials and services. The other options (A, C, and D) are all requirements for proper recording of donated materials and services. The fair value must be determined, the materials or services must be something the organization would normally use in its operations, and the organization must have had the intention to purchase the goods or services if they had not been donated.

Question 2

NFPOs receive different types of contributions. Which of the following is a contribution with a restriction that the contribution cannot be spent, but must be maintained permanently?

Accepted Answer

An endowment contribution is a contribution with a restriction that the contribution cannot be spent, but must be maintained permanently.

Question 3

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. How much donation revenue should the not-for-profit organization recognize in the current year, if the organization uses the restricted fund method for reporting and had a fund for this project?

Accepted Answer

Under the restricted fund method, the full amount of the restricted contribution ($20,000) is recognized as revenue in the year it is received, regardless of when the funds are actually spent.

Question 4

Which of the following is NOT among the choices available to a not-for-profit organization with two-year average annual revenues of less than $500,000?

Accepted Answer

A not-for-profit organization with two-year average annual revenues of less than $500,000 can either capitalize and amortize capital assets, capitalize and not amortize capital assets, or expense capital assets when acquired. However, making no entries when capital assets are acquired is not an option as it would violate generally accepted accounting principles.

Question 5

If a not-for-profit organization uses the restricted fund method of reporting and has a capital fund, how should a donation of cash restricted to the purchase of land be reported?

Accepted Answer

When a not-for-profit organization receives a donation of cash specifically restricted for the purchase of land, and it uses the restricted fund method of reporting, the donation should be reported as revenue in the capital fund. This is because the capital fund is used to track resources that are restricted for capital purposes, such as purchasing land.

Question 6

If a not-for-profit organization uses the restricted fund method of reporting and has an endowment fund, how should an endowment contribution be reported?

Accepted Answer

The answer of If a not-for-profit organization uses the restricted...

Question 7

If a not-for-profit organization has revenues in excess of $500,000, how must it report its capital assets?

Accepted Answer

The answer of If a not-for-profit organization has revenues in...

Question 8

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. What should be the balance in the deferred contribution account at the end of the year, if the organization uses the deferred contribution method of reporting?

Accepted Answer

The deferred contribution method requires the full amount of the restricted contribution to be recognized as revenue in the year received, but the amount that has not been spent on the specific project needs to be separately reported as a liability. Therefore, the balance in the deferred contribution account at the end of the year should be $6,000 ($20,000 - $14,000).

Question 9

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. What will the net asset balance in the restricted fund be at the end of the year if the organization uses the restricted fund method for reporting and had a fund for this project?

Accepted Answer

Since the organization uses the restricted fund method, the $20,000 contribution is recorded as a liability until it is used for the specific project. When $14,000 is spent on the project, the liability is reduced by $14,000, leaving a balance of $6,000. Therefore, the net asset balance in the restricted fund at the end of the year is $6,000.

Question 10

Net assets could be broken down into any of the following categories EXCEPT:

Accepted Answer

Net assets can be broken down into three categories: unrestricted net assets, net assets maintained permanently in endowments, and internally and externally restricted net assets. Net assets invested in operations is not a separate category but rather fall under one of the three main categories.

Question 11

Which of the following is NOT a type of contribution as identified by the Handbook?

Accepted Answer

The Handbook identifies three types of contributions: restricted, endowment, and unrestricted. The option "donated" is not a type of contribution but is rather a past tense verb form of the word "donate."

Question 12

How should that portion of investment income earned from the investment of endowment contributions that is required to be used to maintain the purchasing power of the endowment be accounted for if the not-for-profit organization uses the restricted fund method of reporting and has an endowment fund?

Accepted Answer

The answer of How should that portion of investment income...

Question 13

Where should be endowment contributions presented in the financial statements of a not-for-profit organization under the deferral method?

Accepted Answer

Under the deferral method, endowment contributions are temporarily restricted until the earnings from the endowment are expended. Therefore, these contributions should be reflected in the statement of changes in net assets as an increase in temporarily restricted net assets. Once the earnings are expended, the related expenses will be recorded and the temporarily restricted net assets will be released to unrestricted net assets.

Question 14

A not-for-profit organization is required to record the donation of capital assets at:

Accepted Answer

Donations of capital assets to not-for-profit organizations are recorded at their fair value on the date of the donation. This approach provides a relevant and reliable measure of the value of the assets received.

Question 15

Assuming a not-for-profit organization used the restricted fund method and had separate funds for the purpose for which donations were intended, how should investment income earned on donation revenue be accounted for if the donation revenue was a restricted contribution but there was no restriction placed on the use of the investment income?

Accepted Answer

Investment income earned on donation revenue that was restricted, but without restrictions on the use of the investment income itself, should be accounted for in the general fund. This is because the restrictions do not apply to the income generated from the donations, allowing the organization to use this income for general purposes.

Question 16

How should investment income earned from the investment of endowment contributions be accounted for if the not-for-profit organization uses the restricted fund method of accounting and the use of the investment income is restricted to a specific purpose for which the not-for-profit organization has a restricted fund?

Accepted Answer

Investment income earned from the investment of endowment contributions should be accounted for as investment income in the specific restricted fund if the not-for-profit organization uses the restricted fund method of accounting and the use of the investment income is restricted to a specific purpose for which the not-for-profit organization has a restricted fund.

Question 17

How should investment income earned from the investment of endowment contributions be accounted for if the not-for-profit organization uses the deferral method of accounting for contributions and the use of the investment income is restricted to a specific purpose?

Accepted Answer

Under the deferral method of accounting for contributions, when investment income is earned from the investment of endowment contributions and its use is restricted to a specific purpose, it is accounted for as a deferred contribution. This is because the income is not available for unrestricted use and is earmarked for future purposes as specified by the donor or the terms of the endowment.

Question 18

How should that portion of investment income earned from the investment of endowment contributions that is required to be used to maintain the purchasing power of the endowment be accounted for, if the not-for-profit organization uses the deferred contribution method of accounting?

Accepted Answer

The portion of investment income earned from the investment of endowment contributions that is required to maintain the purchasing power of the endowment is considered a direct increase in net assets. This is because the endowment contributions have already been recognized as revenue and recorded as net assets, and the investment income is simply being used to ensure that the purchasing power of the endowment is maintained over time. As such, it is not considered a deferred contribution or donation revenue.

Question 19

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. How much donation revenue should the not-for-profit organization recognize in the current year, if the organization uses the deferral method of reporting?

Accepted Answer

With the deferral method, revenue is recognized as the restrictions are lifted, meaning as expenses are incurred towards the specific project. Since $14,000 has already been spent towards the project, the organization can recognize $14,000 of donation revenue in the current year. The remaining $6,000 will be recognized in the following year when the project is completed.

Question 20

An NFPO may exercise significant influence over the strategic operating, investing, and financing activities of another NFPO. Which of the following is NOT a factor in determining significant influence?

Accepted Answer

The percentage of share ownership is a factor in determining control, not significant influence. The other three factors - ability to place members on the board, substantial transactions, and sharing of senior personnel - are all indicators of significant influence.

Quiz 12: Accounting for Not-For-Profit and Public Sector Organizations