Question 1

Care Foundation is a voluntary health and welfare organization funded by contributions from the general public.In its Statement of Activities,the annual provision for depreciation should:

Accepted Answer

The annual provision for depreciation is an expense incurred by the organization in maintaining its assets, and therefore it should be included as an element of expense in the Statement of Activities.

Question 2

Care Foundation is a voluntary health and welfare organization funded by contributions from the general public.Care sold equipment for $30,000 which cost $40,000 and had a book value of $25,000 at the time of sale.In recording the sale,Care should:

Accepted Answer

When an asset is sold for more than its book value (cost less accumulated depreciation), a gain is realized. In this case, the equipment had a book value of $25,000, but was sold for $30,000, resulting in a gain of $5,000. Therefore, Care should record a gain of $5,000 in the accounting records. Choice A is incorrect because "temporarily restricted revenue" would only be applicable if the donor had specified restrictions on the use of the funds. Choice C is incorrect because a loss would only occur if the asset was sold for less than its book value. Choice D is incorrect because an accounting record must be made to account for the sale.

Question 3

Which of the following contributed services would probably not be recognized as contribution revenue?

Accepted Answer

Handing out informational booklets does not constitute a significant contribution of services and would not be recognized as contribution revenue. The other options involve professionals donating their time and expertise and would likely be recognized as contribution revenue.

Question 4

Lisa informed her church that she had named the church in her will and later provided a written copy of the will to the church.At what point should the church record the contribution?

Accepted Answer

The church would record the contribution after the will has been declared valid. Prior to that time, it is an intention to give.

Question 5

An unconditional pledge of support is properly recorded as Temporarily Restricted Revenue at the time of the pledge. Changes in the present value of the receivable resulting from the passage of time is reported as:

Accepted Answer

The answer of An unconditional pledge of support is properly...

Question 6

In which of the following categories may Investment Income be reported by Not-for-Profit organizations:
I. Unrestricted net asset
II. Temporarily restricted net asset
III.Permanently restricted net asset

Accepted Answer

The answer of In which of the following categories may...

Question 7

Uptown Church received a donation of marketable equity securities from a church member.In reviewing the financial press,it is determined that the securities had appreciated during the year.At what amount should Uptown report its marketable equity securities in the year-end balance sheet?

Accepted Answer

According to the accounting principle of fair value, marketable equity securities should be reported at their market value at the balance sheet date. This ensures that the financial statements accurately reflect the current value of the securities and provides relevant and reliable information for decision-making. Option A and B are incorrect because they do not reflect the current market value of the securities, and option D is incorrect because the lower of the three values does not always provide relevant and reliable information.

Question 8

Which of the following is true of a Statement of Cash Flows for a private sector,private not-for-profit organization?

Accepted Answer

The Statement of Cash Flows for a private not-for-profit organization must include a reconciliation between total change in net assets and cash flows from operating activities if the direct method is used. The other options listed are not applicable to private not-for-profit organizations.

Question 9

A skilled carpenter repaired the roof of the administrative building for a private not-for-profit free of charge. The not-for-profit would have had to pay $2,000 for this service if not donated.What entry should the not-for-profit make?

Accepted Answer

The not-for-profit received a service as a donation, which should be recognized as contribution revenue in the financial statements. At the same time, the value of the donated service should be recognized as supporting service expense. This treatment conforms to the accounting principle of matching expenses with revenues.

Choice A is incorrect because even though no cash transactions occurred, the not-for-profit still received a valuable service that should be recognized in the financial statements.

Choice C is incorrect because capital expenditures are typically associated with fixed assets, such as equipment, and not with repairs and maintenance of existing assets.

Choice D is incorrect because the donated service did not increase the carrying value or improve the functionality of the building, which is required for capitalization of expenditures.

Question 10

Henry Highbrow promises to donate $25,000 to his church toward the purchase of a new piano if the church is able to raise matching funds of $25,000 from other contributors. At what point should the church record revenue?

Accepted Answer

Revenue should be recognized when the matching funds are raised, as the condition for Henry's donation has been met. Until then, the revenue should be classified as a pledge or a contingent liability. Only when the matching funds are raised does the revenue become unconditional, and therefore, revenue should be recognized at that point.

Question 11

Which of the following pledges of support would not be recognized in the year the pledge was made?

Accepted Answer

Conditional promises to give are not recognized as revenues until the conditions are met. No revenue would be recorded on a pledge with no restrictions until the matching pledges were received.

Question 12

Which of the following is a legitimate reason for a private not-for-profit organization to have a surplus (increase in net assets)?

Accepted Answer

All of the listed options are legitimate reasons for a private not-for-profit organization to have a surplus. Establishing working capital allows the organization to have a cushion for future financial needs, retiring debt reduces financial liabilities and can improve credit ratings, and expanding or replacing physical facilities can improve services provided by the organization.

Question 13

What financial ratio is most commonly used to evaluate charitable organizations?

Accepted Answer

The program expenses to total expenses ratio is the most commonly used financial ratio to evaluate charitable organizations as it reflects the percentage of funds that a charity is dedicating to their mission and programs relative to their overall expenses. A higher program expenses to total expenses ratio generally indicates that a charity is effectively utilizing their resources to further their mission.

Question 14

A donor gave $60,000 to a nongovernmental,not-for-profit charity with instructions that the funds be transferred to Sam Smith,an individual who lost his home in a fire.The not-for-profit would:

Accepted Answer

Generally, if the not-for-profit organization agrees to transfer the assets to a specified beneficiary, the organization is deemed to be an agent and a liability is recorded. The journal entry would be to debit cash and credit a liability.

Question 15

Which of the following organizations does not follow the AICPA's Not-for-Profit Guide?

Accepted Answer

City libraries are typically government entities and follow governmental accounting standards, not the AICPA's Not-for-Profit Guide.

Question 16

Which of the following factors,if present,would indicate that a transaction is not a contribution?

Accepted Answer

A contribution is a nonreciprocal transfer of resources, meaning there is no exchange of value. If the resource provider received value in exchange, then it is not considered a contribution. Options B, C, and D are not relevant factors that determine whether or not a transaction is a contribution.

Question 17

A donor gave equipment valued at $60,000 at the beginning of 2015 to a private not-for-profit organization. The equipment had a 10-year life and depreciation of $6,000 was charged during 2015. At the end of the year,the net assets to be reported in unrestricted net assets related to this equipment would be:

Accepted Answer

The net assets to be reported in unrestricted net assets related to this equipment would either be $54,000 or $0, depending upon the policy of the organization. If the organization has a policy of not including donated assets in its financial statements, then the net assets to be reported would be $0. On the other hand, if the organization has a policy of including donated assets in its financial statements, then the net assets to be reported would be $54,000 ($60,000 - $6,000).

Question 18

Under FASB Statement 117,reclassifications of net assets are not made:

Accepted Answer

Reclassifications of net assets are not made for permanently restricted net assets under FASB Statement 117.

Question 19

A donor made a gift of cash to a private not-for-profit organization in 2015 with an expressed purpose restriction. All the funds were expended in 2015. The organization must:

Accepted Answer

The answer of A donor made a gift of cash...

Question 20

A private not-for-profit organization received a gift of $640,000 with purpose restrictions in 2014. In 2015 funds were expended for the purpose outlined in the gift,however,it was not possible to determine whether the restricted funds or unrestricted funds were used. The presumption should be:

Accepted Answer

The presumption should be that the restricted funds would have been used first, as the organization must ensure that the purpose of the gift is fulfilled before using any unrestricted funds.

Quiz 10: Accounting for Private Not-For-Profit Organizations