Question 1

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

Accepted Answer

Endowment contributions are presented in the statement of changes in net assets as they represent contributions that increase the net assets of the organization.

Question 2

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 should be accounted for as a direct increase in net assets, regardless of the accounting method used for deferred contributions. This is because this portion of investment income is considered a part of the original endowment contribution and is not available for spending by the organization. Therefore, it should be recognized as an increase in the permanently restricted net assets category.

Question 3

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 4

A government department uses an encumbrance system to keep tabs on spending. On July 1, 2013, a department employee issued a purchase order for cleaning supplies estimated to cost $500. The supplies were delivered promptly, and invoiced at $450. What would be the journal entry to record the payment of the invoice?

Accepted Answer

The answer of A government department uses an encumbrance system...

Question 5

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 6

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

Accepted Answer

Net assets are typically categorized into net assets invested in capital assets, net assets maintained permanently in endowments, and unrestricted net assets. "Net assets invested in operations" is not a standard category.

Question 7

If a not-for-profit organization that has had annual revenues above $500,000 for a number of years, subsequently has revenues (for two years or more) significantly lower than $500,000, how must it report its Capital Assets?

Accepted Answer

Regardless of changes in revenue, a not-for-profit organization must continue to capitalize and amortize its capital assets in accordance with generally accepted accounting principles (GAAP). Changes in revenue do not affect how the organization reports its capital assets.

Question 8

A government department uses an encumbrance system to keep tabs on spending. On July 1, 2013, a department employee issued a purchase order for cleaning supplies estimated to cost $500. The supplies were delivered promptly, and invoiced at $450. What would be the journal entry to record the Purchase Order?

Accepted Answer

The answer of A government department uses an encumbrance system...

Question 9

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 10

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

Accepted Answer

The answer of A not-for-profit organization is required to record...

Question 11

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

Not-for-profit organizations are required to follow generally accepted accounting principles (GAAP), which include capitalizing and amortizing capital assets or expensing them when acquired. Making no entries when capital assets are acquired is not a valid accounting option.

Question 12

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

Accepted Answer

The answer of How should investment income earned from the...

Question 13

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 investment income is restricted to a specific purpose for which the organization has a restricted fund. This is because the restricted fund is created to support a specific purpose, and the investment income earned on the endowment contributions is restricted to be used only for that purpose. As a result, the investment income should be accounted for as part of the specific restricted fund.

Question 14

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. "Donated" is not a type of contribution, but rather a verb used to describe the act of making a contribution.

Question 15

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 deferred contribution method of reporting?

Accepted Answer

Under the deferred contribution method, the organization only recognizes donation revenue when the restriction is fulfilled. Since $14,000 has been spent towards the project, that portion of the restriction has been fulfilled and should be recognized as revenue in the current year. Therefore, the organization should recognize $14,000 of revenue in the current year. The remaining $6,000 will be recognized as revenue in the following year when the project is completed.

Question 16

How should investment income earned on donation revenue be accounted for if the donation revenue was a restricted contribution and the not-for-profit organization used the restricted fund method and had a fund for the purpose for which the donation was intended?

Accepted Answer

Investment income earned on donation revenue should be recorded in the restricted fund as it is related to the purpose for which the donation was intended. The restricted fund method involves segregating and reporting on resources that have been restricted by donors for a specific purpose, and the investment income earned on those resources should also be reported within that same fund.

Question 17

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

Accepted Answer

While A, C, and D are all requirements for a not-for-profit organization to record donated materials and services, using the deferred contribution method of revenue recognition is not a requirement. However, if the organization does choose to use this method, it must meet the criteria set forth in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 958.

Question 18

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

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

Question 19

If a not-for-profit organization that usually has had annual revenues well below $500,000, subsequently has (for two years or more) revenues significantly higher than $500,000, how must it report its Capital Assets?

Accepted Answer

Once a not-for-profit organization has significantly higher revenues than $500,000 for two years or more, it must follow Generally Accepted Accounting Principles (GAAP) for reporting capital assets. This includes capitalizing and amortizing these assets on a prospective basis, as opposed to continuing with the same policy or retroactively capitalizing and amortizing. Therefore, the correct choice is C.

Question 20

A government department uses an encumbrance system to keep tabs on spending. On July 1, 2013, a department employee issued a purchase order for cleaning supplies estimated to cost $500. The supplies were delivered promptly, and invoiced at $450. What would be the balance in the encumbrances account after payment of the invoice?

Accepted Answer

The encumbrance account is reduced by the estimated amount ($500) when the purchase order is issued and then adjusted to the actual invoice amount ($450) upon delivery. After payment, the encumbrance is cleared, resulting in a nil balance.

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

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

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?

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

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?

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

If a not-for-profit organization that has had annual revenues above $500,000 for a number of years, subsequently has revenues (for two years or more) significantly lower than $500,000, how must it report its Capital Assets?

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

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?

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

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

How should investment income earned on donation revenue be accounted for if the donation revenue was a restricted contribution and the not-for-profit organization used the restricted fund method and had a fund for the purpose for which the donation was intended?

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

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?

If a not-for-profit organization that usually has had annual revenues well below $500,000, subsequently has (for two years or more) revenues significantly higher than $500,000, how must it report its Capital Assets?