Question 1

A voluntary health and welfare organization developed and printed informational materials that were intended to both educate the public about how its resources are used to help people in need and to also appeal to the public for much needed support.In this situation,the cost of the informational materials should be:
A)accounted for as fund-raising expense.
B)allocated to expenses for program services.
C)allocated between expenses for program services and fund-raising expense.
D)accounted for as management and general expense.

Accepted Answer

The cost of the informational materials should be allocated between expenses for program services and fund-raising expense because the materials have a dual purpose of educating the public about the organization's mission and services (program services) and appealing for support (fund-raising).

Question 2

The disclosure,"net assets released from restrictions," is reported on which of the following financial statements for a voluntary health and welfare organization?
I.The statement of cash flows.
II.The statement of activities.
A)I only
B)II only
C)Both I and II
D)Neither I nor II

Accepted Answer

The disclosure "net assets released from restrictions" is reported on the statement of activities for a voluntary health and welfare organization. This disclosure shows the amount of donor-restricted net assets that were released from donor restrictions during the fiscal year, which then become available for use by the organization for general operating purposes. This information is not reported on the statement of cash flows.

Question 3

A voluntary health and welfare organization received $200,000 of pledges from donors on February 15,20X9.The donors did not place either time or use restrictions on the amount pledged.The governing board estimated that 10 percent of the pledges would be uncollectible.During the remainder of fiscal 20X9,cash received from pledges amounted to $184,000.For the year ended June 30,20X9,what amount should the voluntary health and welfare organization report as Contributions-Unrestricted?
A)$0
B)$200,000
C)$184,000
D)$180,000

Accepted Answer

The organization received $200,000 of pledges from donors on February 15, 20X9. Since the donors did not place any restrictions on the pledges, the entire amount is considered Contributions-Unrestricted. However, the governing board estimated that 10% of the pledges would be uncollectible, which means that $20,000 ($200,000 x 10%) would not be collected. Therefore, the total amount of Contributions-Unrestricted is $180,000 ($200,000 - $20,000). During the remainder of fiscal 20X9, the organization received $184,000 cash from the pledges, which is less than the total amount pledged. Therefore, the amount of Contributions-Unrestricted that should be reported for the year ended June 30, 20X9 is $184,000.

Question 4

A voluntary health and welfare organization reports pledges receivable on its statement of financial position at the present value of the future cash collections.How is the increase in the present value of the pledges receivable,which is due to the passage of time,reported on the voluntary health and welfare organization's statement of activities?
A)As interest income-temporarily restricted.
B)As an increase in pledges receivable-temporarily restricted.
C)As an increase in contributions-temporarily restricted.
D)As an increase in deferred revenue-temporarily restricted.

Accepted Answer

The answer of A voluntary health and welfare organization reports...

Question 5

On the statement of functional expenses prepared for a voluntary health and welfare organization,depreciation expense is allocated to:
I.expenses for program services.
II.expenses for supporting services.
A)I only
B)II only
C)Both I and II
D)Neither I nor II

Accepted Answer

Depreciation expense is allocated to both program services and supporting services in a voluntary health and welfare organization's statement of functional expenses. This allocation reflects the use of assets in both direct program activities and activities that support these programs, such as management and fundraising.

Question 6

The transactions listed in the following questions occurred in a private,not-for-profit hospital during 20X8.For each transaction,indicate its effect on the hospital's statement of operations for the year ended December 31,20X8.
-Transaction: Endowment income was earned.The donor placed no restrictions on the investment earnings.
Effect on Statement of Operations:
A)Increases operating income.
B)Decreases operating income.
C)The transaction is reported on the statement of operations,but there is no effect on operating income.
D)The transaction is not reported on the statement of operations.

Accepted Answer

Endowment income earned with no restrictions on investment earnings is considered unrestricted revenue and therefore increases operating income on the statement of operations.

Question 7

A donor agrees to contribute $5,000 per year at the end of each of the next five years to a voluntary health and welfare organization.The donor did not place any use restrictions on the amount pledged.The stream of the payments is discounted at 6 percent.The first payment of $5,000 is received at the end of the first year.The present value factor for a five-payment annuity due on June 30,20X9,at 6 percent is 4.2124.The present value factor for a four-payment annuity due on June 30,20X9,at 6 percent is 3.4651.
-Based on the preceding information,the journal entry to recognize present value at the time the pledge is received includes:
A)a credit to Pledges Receivable-Temporarily Restricted for $25,000.
B)a debit to Contributions-Temporarily Restricted for $21,062.
C)a debit to Pledges Receivable-Temporarily Restricted for $21,062.
D)a credit to Contributions-Temporarily Restricted for $25,000.

Accepted Answer

The present value of the pledge is calculated as follows:

PV = $5,000 x 4.2124 = $21,062

Therefore, at the time the pledge is received, the organization should make the following journal entry:

Debit: Pledges Receivable-Temporarily Restricted for $21,062
Credit: Contributions-Temporarily Restricted for $21,062

Option A and D are incorrect because they do not reflect the correct present value of the pledge. Option B is incorrect because it debits Contributions-Temporarily Restricted, which is not appropriate since the contribution has not yet been received.

Question 8

The transactions listed in the following questions occurred in a private,not-for-profit hospital during 20X8.For each transaction,indicate its effect on the hospital's statement of operations for the year ended December 31,20X8.
-Transaction: Received tuition revenue from hospital nursing program and cash from sales of goods in the hospital gift shop.
Effect on Statement of Operations:
A)Increases operating income.
B)Decreases operating income.
C)The transaction is reported on the statement of operations,but there is no effect on operating income.
D)The transaction is not reported on the statement of operations.

Accepted Answer

Both tuition revenue and sales from the gift shop are sources of operating income for the hospital. Therefore, receiving these amounts would increase operating income on the statement of operations.

Question 9

During the fiscal year ended June 30,20X9,Global Charities,a voluntary health and welfare organization,received unrestricted cash contributions of $500,000 and temporarily restricted cash contributions of $300,000.All of the temporarily restricted contributions were restricted by the donors for equipment acquisitions.During the year ended June 30,20X9,equipment costing $250,000 was acquired with the restricted contributions.As a result of these two contributions,Global Charities' statement of cash flows,prepared for the year ended June 30,20X9,would report an increase in net cash provided by operating activities of:
A)$500,000.
B)$800,000.
C)$750,000.
D)$550,000.

Accepted Answer

The increase in net cash provided by operating activities would be $500,000, which represents the unrestricted cash contributions. Temporarily restricted contributions are not considered operating activities but rather financing or investing activities, depending on how they are used.

Question 10

Which financial statement is (are)required for a voluntary health and welfare organization that is not required for a private,not-for-profit hospital?
I.A statement of operations.
II.A statement of functional expenses.
A)I only
B)II only
C)Both I and II
D)Neither I nor II

Accepted Answer

II. A statement of functional expenses is required for a voluntary health and welfare organization but not for a private, not-for-profit hospital. This statement provides detailed information about the expenses related to each function or program of the organization.

Question 11

The transactions listed in the following questions occurred in a private,not-for-profit hospital during 20X8.For each transaction,indicate its effect on the hospital's statement of operations for the year ended December 31,20X8.
-Transaction: Received cash contribution from donor who stipulated the contribution be permanently invested.
Effect on Statement of Operations:
A)Increases operating income.
B)Decreases operating income.
C)The transaction is reported on the statement of operations,but there is no effect on operating income.
D)The transaction is not reported on the statement of operations.

Accepted Answer

The transaction of receiving cash contribution from a donor who stipulated the contribution be permanently invested has no effect on the statement of operations as it is not an operating activity. Thus, the correct choice is D- the transaction is not reported on the statement of operations.

Question 12

A donor agrees to contribute $5,000 per year at the end of each of the next five years to a voluntary health and welfare organization.The donor did not place any use restrictions on the amount pledged.The stream of the payments is discounted at 6 percent.The first payment of $5,000 is received at the end of the first year.The present value factor for a five-payment annuity due on June 30,20X9,at 6 percent is 4.2124.The present value factor for a four-payment annuity due on June 30,20X9,at 6 percent is 3.4651.
-Based on the preceding information,the increase in present value of the contributions receivable recognized at the end of the first year equals:
A)$5,000.
B)$1,264.
C)$4,212.
D)$787.

Accepted Answer

To calculate the increase in present value of the contributions receivable recognized at the end of the first year, we need to compare the present value of the remaining four payments at the end of the first year (when only the first payment of $5,000 has been received) to the present value of the remaining three payments at the end of the first year (when no payments have been received yet).

Using the present value factor for a five-payment annuity due, we can calculate the present value of the remaining four payments at the end of the first year:
$5,000 x 4.2124 = $21,062

Using the present value factor for a four-payment annuity due, we can calculate the present value of the remaining three payments at the end of the first year:
$5,000 x 3.4651 = $17,326

The increase in present value is the difference between these two amounts:
$21,062 - $17,326 = $3,736

However, we are only concerned with the increase in present value between the end of the first year and the beginning of the first year (i.e., before any payments have been received). Therefore, we need to subtract the present value of the first payment ($5,000) from this amount:
$3,736 - $5,000 = -$1,264

The negative sign indicates a decrease in present value, not an increase. Therefore, the correct answer is B) $1,264, which represents the decrease in present value of the pledge receivable recognized at the end of the first year.

Question 13

On June 30,20X9,a voluntary health and welfare organization received pledges from donors amounting to $50,000.The donors did not place any time or use restrictions on the amount pledged.It was estimated that 10 percent of the pledges would not be collected.How should the voluntary health and welfare organization report these pledges on its financial statements prepared at the end of its fiscal year,June 30,20X9?
A)As fund balance for $45,000.
B)As contribution revenue without donor restrictions for $45,000.
C)As contribution revenue without donor restrictions for $50,000.
D)As fund balance without donor restrictions for $50,000.

Accepted Answer

The voluntary health and welfare organization should report the pledges as contribution revenue without donor restrictions for $45,000. This is because the organization does not have any restrictions placed on the amount pledged, and the estimated uncollectible amount of 10% indicates that there is some uncertainty in the collection of the full amount. Therefore, the organization should only recognize the amount expected to be collected, which is $45,000. Reporting the pledges as fund balance would be incorrect, as fund balance is a residual category and should only include amounts that have already been collected and are available for use. Reporting the pledges for the full $50,000 would also be incorrect, as this amount includes the estimated uncollectible amount.

Question 14

Local Services,a voluntary health and welfare organization had the following classes of net assets on July 1,20X8,the beginning of its fiscal year:
  During the year ended June 30,20X9,the following events occurred:
(1)It purchased equipment,costing $100,000,with contributions restricted for this purpose.The contributions had been received from donors during June of 20X8.
(2)It received $130,000 of cash donations which were restricted for research activities.During the year ended June 30,20X9,$90,000 of the contributions were expended on research.
(3)It sold investments classified in the net assets with donor restrictions class for a loss of $40,000.Dividends and interest income earned on the investments amounted to $70,000.There were no restrictions on how investment income was to be used.
(4)It received cash contributions of $200,000 from donors who did not place either time or use restrictions upon their donations.
(5)Expenses,excluding depreciation expense,for program services and supporting services incurred during the year ended June 30,20X9,amounted to $260,000.
(6)Depreciation expense for the year ended June 30,20X9,was $80,000.
-Refer to the above information.At June 30,20X9,the amount of net assets with donor restrictions reported on the statement of financial position would be:
A)$1,070,000.
B)$1,030,000.
C)$1,000,000.
D)$960,000.

Accepted Answer

The answer of Local Services,a voluntary health and welfare organization...

Question 15

A voluntary health and welfare organization received unrestricted cash donations of $20,000 from donors who attended a dinner held for the benefit of the organization.The costs of the dinner,including room rental,and other expenses,amounted to $7,000.On the statement of activities prepared for the voluntary health and welfare organization,the expenses of the dinner should be:
A)reported as management and general expenses.
B)netted against the $20,000 of contribution revenue.
C)reported as fundraising costs.
D)reported as programmatic expenses.

Accepted Answer

The costs of the dinner should be reported as fundraising costs since it was held for the benefit of the organization and was meant to raise funds.

Question 16

A donor agrees to contribute $5,000 per year at the end of each of the next five years to a voluntary health and welfare organization.The donor did not place any use restrictions on the amount pledged.The stream of the payments is discounted at 6 percent.The first payment of $5,000 is received at the end of the first year.The present value factor for a five-payment annuity due on June 30,20X9,at 6 percent is 4.2124.The present value factor for a four-payment annuity due on June 30,20X9,at 6 percent is 3.4651.
-Based on the preceding information,at the end of the first year,the pledge increased net assets without donor restrictions by:
A)$25,000.
B)$21,062.
C)$4,212.
D)$5,000.

Accepted Answer

At the end of the first year, the organization received the first payment of $5,000. Since the donor did not place any use restrictions on the amount pledged, the organization can recognize the entire amount as increase in net assets without donor restrictions. Therefore, the choice that represents the increase in net assets without donor restrictions at the end of the first year is option D, $5,000.

Question 17

A voluntary health and welfare organization received a $300,000 contribution on April 15,20X9,from a donor who stipulated the donation be invested permanently in stocks and bonds.The donor further stipulated earnings from the investments be spent according to the wishes of the governing board of the voluntary health and welfare organization.Earnings from the investments for the year ended June 30,20X9,amounted to $6,000.How would the voluntary health and welfare organization report this information for the year ended June 30,20X9?
A)Increase in net assets with donor restrictions of $306,000.
B)Increase in net assets with donor restrictions of $306,000,and a footnote disclosure explaining the nature of the restrictions.
C)Increase in net assets with donor restrictions of $300,000,and in net assets without donor restrictions of $6,000.
D)Increase in net assets with donor restrictions of $300,000,and in board-designated net assets of $6,000.

Accepted Answer

The $300,000 contribution is restricted by the donor for permanent investment, so it increases net assets with donor restrictions. The $6,000 earnings are not restricted by the donor and can be used at the discretion of the governing board, so they increase net assets without donor restrictions.

Question 18

The transactions listed in the following questions occurred in a private,not-for-profit hospital during 20X8.For each transaction,indicate its effect on the hospital's statement of operations for the year ended December 31,20X8.
-Transaction: Acquired investments with cash received in the previous item.
Effect on Statement of Operations:
A)Increases operating income.
B)Decreases operating income.
C)The transaction is reported on the statement of operations,but there is no effect on operating income.
D)The transaction is not reported on the statement of operations.

Accepted Answer

Acquiring investments with cash is considered an investing activity, not an operating activity. Therefore, it does not affect the statement of operations but is reflected in the statement of financial position and possibly the statement of cash flows.

Question 19

In accordance with ASC 958,pledges,which are temporarily restricted by donors,are reported as increases in net assets with donor restrictions on the statement of activities of a voluntary health and welfare organization when the:
A)pledges are received in cash.
B)cash received from the pledges is expended in accordance with the donors' wishes.
C)pledges are made by the donors.
D)cash is received from the pledges is transferred to net assets without donor restrictions.

Accepted Answer

Under ASC 958, pledges that are temporarily restricted by donors are recognized as increases in net assets with donor restrictions when the pledges are made, not when the cash is received or expended. This is because the promise to give (the pledge) itself establishes the restriction, and accounting standards require recognition of the revenue at the time the pledge is made, assuming it is unconditional.

Question 20

Local Services,a voluntary health and welfare organization had the following classes of net assets on July 1,20X8,the beginning of its fiscal year:
  During the year ended June 30,20X9,the following events occurred:
(1)It purchased equipment,costing $100,000,with contributions restricted for this purpose.The contributions had been received from donors during June of 20X8.
(2)It received $130,000 of cash donations which were restricted for research activities.During the year ended June 30,20X9,$90,000 of the contributions were expended on research.
(3)It sold investments classified in the net assets with donor restrictions class for a loss of $40,000.Dividends and interest income earned on the investments amounted to $70,000.There were no restrictions on how investment income was to be used.
(4)It received cash contributions of $200,000 from donors who did not place either time or use restrictions upon their donations.
(5)Expenses,excluding depreciation expense,for program services and supporting services incurred during the year ended June 30,20X9,amounted to $260,000.
(6)Depreciation expense for the year ended June 30,20X9,was $80,000.
-Refer to the above information.On the statement of activities for the year ended June 30,20X9,net assets with donor restrictions:
A)increased $130,000.
B)increased $40,000.
C)decreased $100,000.
D)decreased $60,000.

Accepted Answer

The answer of Local Services,a voluntary health and welfare organization...

Quiz 19: Not-For-Profit Entities

The disclosure,"net assets released from restrictions," is reported on which of the following financial statements for a voluntary health and welfare organization? I.The statement of cash flows. II.The statement of activities.

On the statement of functional expenses prepared for a voluntary health and welfare organization,depreciation expense is allocated to: I.expenses for program services. II.expenses for supporting services.

Which financial statement is (are) required for a voluntary health and welfare organization that is not required for a private,not-for-profit hospital? I.A statement of operations. II.A statement of functional expenses.

In accordance with ASC 958,pledges,which are temporarily restricted by donors,are reported as increases in net assets with donor restrictions on the statement of activities of a voluntary health and welfare organization when the: