Question 1

Under the FASB Codification a $5 million endowment that cannot be spent for 50 years should be classified as net assets with donor restrictions.

Accepted Answer

According to FASB Codification, funds or endowments that have donor-imposed restrictions, such as a restriction on their use for a specific purpose or a specific time period, should be classified as net assets with donor restrictions. Therefore, a $5 million endowment that cannot be spent for 50 years would fall under this category.

Question 2

According to the FASB Codification, which of the following is a condition that must be met for contributed services to a not-for-profit organization (NFP) to be recorded as both a contribution and as an expense?

Accepted Answer

For contributed services to a not-for-profit organization to be recorded as both a contribution and an expense, the services must require specialized skills, be provided by individuals possessing those skills, and typically need to be purchased if not provided by donation. This is why option B is correct. Options A and C describe scenarios where contributed services might be recognized, but they do not encompass the full criteria required for recognition as both a contribution and an expense. Option D is incorrect because it suggests all conditions must be met, which is not accurate according to the FASB Codification.

Question 3

Under FASB standards how would a not-for-profit organization recognize a conditional pledge?

Accepted Answer

Under FASB standards, a not-for-profit organization would not recognize a conditional pledge until the conditions on which the pledge is based are substantially met. This is because conditional pledges are considered uncertain until those conditions are fulfilled, and thus, they do not meet the criteria for recognition as receivables or revenue.

Question 4

An organization that can directly issue debt paying interest exempt from federal taxation may be a governmental not-for-profit or a nongovernmental not-for-profit.

Accepted Answer

Both governmental and not-for-profit organizations can issue tax-exempt debt, which means the interest income generated from the debt is not subject to federal income tax.

Question 5

The FASB requires investments in equity securities that have a readily determinable market value of a not-for-profit organization be reported at:

Accepted Answer

The FASB requires that investments in equity securities with readily determinable market values of a not-for-profit organization be reported at fair value. This means that the securities will be recorded at their current market value on the balance sheet.

Question 6

The FASB requires that if a financial intermediary has variance power it recognize a donation as a contribution payable on its financial statements.

Accepted Answer

The Financial Accounting Standards Board (FASB) does not specifically require financial intermediaries to recognize a donation as a contribution payable based solely on having variance power. The recognition of contributions and liabilities is determined by the substance of the transaction and the entity's control over the donated assets, among other factors, according to FASB standards.

Question 7

The FASB requires the statement of financial position prepared by a not-for-profit organization to report net assets in three categories: net assets without donor restrictions, net investment in capital assets, and net assets with donor restrictions.

Accepted Answer

The FASB requires the statement of financial position for a not-for-profit organization to report net assets in two categories: net assets without donor restrictions and net assets with donor restrictions. The category "net investment in capital assets" is not a separate category for reporting net assets under FASB standards.

Question 8

The GASB provides guidance on generally accepted accounting principles for governmental not-for-profit organizations.

Accepted Answer

The Governmental Accounting Standards Board (GASB) sets accounting and financial reporting standards for state and local governments in the United States, including not-for-profit organizations.

Question 9

Which of the following characteristics of not-for-profit organizations (NFPs) can be used to distinguish a nongovernmental from a governmental NFP?

Accepted Answer

The ability to impose taxes on citizens is a characteristic that only governmental NFPs have. Contributions by resource providers who do not expect a return on investment and absence of ownership interests are characteristics shared by both governmental and nongovernmental NFPs.

Question 10

An example of an increase in net assets for a not-for-profit organization that would be labeled revenue rather than support is:

Accepted Answer

Investment income is earned by the organization and is considered a revenue rather than support because it is not restricted to a specific program or purpose. It increases the organization's net assets just like any other revenue earned through normal operations. The other choices, such as an unconditional promise to give or a restricted gift, would be considered support because they are specific donations that are intended to support a particular program or purpose. The same goes for an allocation of funds from the local United Way organization, which is often given for a particular project or program.

Question 11

Organizations that have the power to enact and enforce a tax levy are nongovernmental not-for-profits.

Accepted Answer

Organizations that have the power to enact and enforce a tax levy are typically governmental entities, such as local or state governments. Not-for-profit organizations do not typically have this power.

Question 12

Fixed-term endowments and board-designated endowments are classified as net assets with donor restrictions according to the FASB.

Accepted Answer

Fixed-term endowments are classified as net assets with donor restrictions, but board-designated endowments are classified as net assets without donor restrictions because the board can choose to undesignate these funds at their discretion.

Question 13

Goodwill created because a not-for-profit organization obtains control of another organization is always recorded as an asset.

Accepted Answer

Goodwill in not-for-profit organizations is not typically recognized as an asset when control of another organization is obtained. Instead, the focus is on recording the fair value of identifiable net assets acquired.

Question 14

The FASB states that if a not-for-profit has a controlling financial interest in a for-profit it should consolidate the for-profit over which it has a controlling financial interest into its financial statements.

Accepted Answer

The FASB does require consolidation of a for-profit over which a not-for-profit has a controlling financial interest into the not-for-profit's financial statements. This is in accordance with ASC 958-810-25-2.

Question 15

Under the FASB Codification the costs incurred for a joint activity may be allocated between fund-raising expenses and program expenses if the criteria of purpose, audience, and content are met.

Accepted Answer

This statement is true according to FASB Codification. If the criteria of purpose, audience, and content are met, joint activity costs can be allocated between fund-raising expenses and program expenses.

Question 16

Long-term unconditional pledges (those that will not be collected within a year) are generally reported at fair value.

Accepted Answer

According to GAAP (Generally Accepted Accounting Principles), long-term unconditional pledges are generally reported at fair value. This is because these pledges are not expected to be collected within a year and their value may change over time. Reporting them at fair value ensures that the financial statements accurately reflect the current value of the pledges.

Question 17

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

Accepted Answer

The FASB Codification is the single, authoritative source for all U.S. GAAP, including for nongovernmental, not-for-profit organizations, clearly establishing the FASB's responsibility in this area.

Question 18

Similar to the GASB, the FASB requires not-for-profit entities to prepare the statement of cash flows using the direct method.

Accepted Answer

The FASB allows not-for-profit entities to prepare the statement of cash flows using either the direct or indirect method, whereas GASB requires the direct method for governmental entities.

Question 19

The FASB Codification requires the following financial statements for all not-for-profit organizations:

Accepted Answer

The FASB Codification specifies that not-for-profit organizations must prepare a statement of financial position, a statement of activities, and a statement of cash flows. These statements provide a comprehensive overview of the organization's financial status, activities, and cash flow.

Question 20

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

Accepted Answer

Fund accounting can provide a good mechanism for facilitating reporting to donors, as it allows for separate tracking of funds received and how they are used. While the two classes of net assets have replaced fund accounting for external reporting purposes in accordance with FASB, NFPs may still use fund accounting for internal purposes.

Quiz 14: Accounting for Not-for-Profit Organizations