Deck 12: Not-For-Profit Organizations

Question 1

Whether a not-for-profit's resources are classified as restricted or unrestricted depends on the presence or absence of donor stipulations.

Answer 1

True

Question 2

The FASB requires external financial reports to provide information about

A)Donor-imposed restrictions on resources.
B)All restrictions on resources.
C)Donor and creditor restrictions on resources.
D)None of the above.

Answer 2

A

Question 3

All not-for-profit organizations, including city-owned museums and two-year community colleges, must adhere to FASB accounting and financial reporting standards.

Answer 3

False

Question 4

In accounting for investments, not-for-profits, like businesses, must report their investments at fair value and classify the investments as trading, or available-for-sale, or held-to-maturity.

Question 5

Revenues of a not-for-profit organization should be reported as

A)Increases in one of the three categories of net assets.
B)Increases in unrestricted net assets.
C)Increases in temporarily restricted net assets.
D)Increases in permanently restricted net assets.

Question 6

FASB Statement No.93 makes the recognition of depreciation on plant and equipment assets optional at the discretion of the not-for-profit.

Question 7

Traditional financial ratios, such as measures of liquidity and debt burden, are seldom useful for assessing the fiscal health of not-for-profits.

Question 8

FASB Statement No.117 directs that revenues and expenses be reported in a statement of financial position.

Question 9

Expenses incurred by not-for-profit organizations should be reported as

A)Decreases in one of the three categories of net assets.
B)Decreases in unrestricted net assets.
C)Decreases in temporarily restricted net assets.
D)Decreases in permanently restricted net assets.

Question 10

FASB standards require not-for-profit organizations to classify their resources into three categories: unrestricted, temporarily restricted, and permanently restricted.

Question 11

Temporarily restricted funds related to plant and equipment generally account only for resources restricted to their purchase or construction, not for the plant and equipment itself, which are typically reported in the unrestricted fund.

Question 12

The basis of accounting used by not-for-profit organizations in their external financial reports is

A)Industry-specific basis of accounting.
B)Cash basis of accounting.
C)Modified accrual basis of accounting.
D)Accrual basis of accounting.

Question 13

Not-for-profits generally should not recognize as revenues contributions that they have agreed to pass along to other specific beneficiaries.

Question 14

Restricted contributions may be reported as unrestricted if the restriction has been met in the same period as the contribution is made.

Question 15

Unlike governments, not-for-profits should not recognize contributions of art collections as revenue unless they capitalize them.

Question 16

Expenses should be classified as unrestricted or temporarily restricted, consistent with the classification of the resources used to finance them.

Question 17

FASB Statement No.95 requires not-for-profits to use the direct method in their statements of cash flows.

Question 18

The primary source of authoritative accounting and financial reporting guidance for a private college is the AICPA.

Question 19

In the statement of activities, FASB Statement No.117 requires revenues to be reported as increases in one of the three categories of net assets, depending on donor-imposed restrictions; however, all expenses should be reported as decreases in unrestricted net assets.

Question 20

The FASB requires the balance sheets of not-for-profits to display

A)Net assets in four separate categories-unrestricted, temporarily restricted, permanently restricted, and restricted by creditors.
B)Three separate funds-unrestricted, temporarily restricted, and permanently restricted net assets.
C)Six totals-total assets, total liabilities, total net assets, total unrestricted net assets, total temporarily restricted net assets, and total permanently restricted net assets.
D)Unrestricted, temporarily restricted, and permanently restricted retained earnings.

Question 21

Not-for-profit organizations should report interest and dividends earned and restricted for long-term purposes in which of the following cash flows categories?

A)Operating
B)Financing.
C)Capital financing.
D)Investing.

Question 22

In the current year National Pet Charities, which uses fund-type accounting to maintain its books and records, received a $30,000 contribution to help educate people on responsible pet ownership.During the current year, the entry to record this donation is

A)UNRESTRICTED FUND.No entry. RESTRICTED FUND.Debit Cash $30,000; Credit Revenues $30,000.
B)UNRESTRICTED FUND.No entry. RESTRICTED FUND.Debit Cash $30,000; Credit Net assets $30,000.
C)UNRESTICTED FUND.Debit Cash $30,000; Credit Revenues $30,000. RESTRICTED FUND.No entry.
D)UNRESTRICTED FUND.Debit Cash $30,000; Credit Net assets $30,000. RESTRICTED FUND.No entry.

Question 23

The account titled "Resources released from restriction" is reported by a "restricted fund" as a

A)Revenue account.
B)Contra-revenue account.
C)Expense account.
D)Contra-expense account.

Question 24

Not-for-profit organizations should report contributions restricted for long-term purposes in which of the following cash flows categories?

A)Operating
B)Financing.
C)Capital financing.
D)Investing.

Question 25

The increase in unrestricted net assets in 2016 as a result of the fund-raising drive is

A)$1,200,000.
B)$1,050,000.
C)$800,000.
D)$250,000.

Question 26

Revenue from an exchange transaction may be classified as an increase in which class of net assets?

A)Unrestricted net assets.
B)Temporarily restricted net assets.
C)Permanently restricted net assets.
D)Any of the above.

Question 27

The increase in temporarily restricted net assets in 2016 as a result of the fund-raising drive is

A)$1,200,000.
B)$1,050,000.
C)$800,000.
D)$250,000.

Question 28

In 2017, the change in temporarily restricted net assets is

A)$0
B)$200,000 decrease.
C)$200,000 increase.
D)$1,000,000 decrease.

Question 29

The National Association for the Preservation of Wildlife received $10,000 from a benefactor to support the overall objective of the organization.This amount will be recognized as revenue

A)In the period received.
B)In the period spent.
C)Never, because it is not earned.
D)In the period it becomes susceptible to accrual.

Question 30

Which of the following characteristics most clearly distinguishes an exchange transaction from a contribution?

A)A contribution is always in cash.
B)An exchange transaction is a reciprocal transfer of resources.
C)An exchange transaction is a nonreciprocal transfer of assets.
D)Contributions of assets always have restrictions attached as to their use.

Question 31

In the current year a not-for-profit entity received a contribution of $100,000 to use for scholarships.The entity had budgeted $400,000 for scholarships in the current year and it disbursed $350,000 for scholarships.The amount the entity can consider as 'released from restriction' in the current year is

A)$0.
B)$100,000.
C)$350,000.
D)$400,000.

Question 32

During the annual fund-raising drive, the Cancer Society raised $900,000 in pledges of financial support for general operations.By fiscal year-end, the society had collected $600,000 of the pledges.The society estimates that 10% of the remaining pledges will be uncollectible.The NET amount of revenue the society should recognize during the current year from this pledge drive is

A)$900,000.
B)$870,000.
C)$810,000.
D)$600,000.
Use the following information to answer Questions 17 through 20.
United Charities' annual fund-raising drive in 2016 raised pledges of $1,200,000 of which $800,000 were collected in 2016 and $200,000 were collected in 2017.United Charities estimates $150,000 of the remaining pledges will never be collected.

Question 33

Restricted gifts to not-for-profit organizations

A)Must always be shown as an increase in restricted net assets.
B)Must always be shown as an increase in unrestricted net assets.
C)May be shown as an increase in unrestricted net assets if the restriction is met in the same period.
D)May be shown as an increase in unrestricted net assets at the discretion of management.

Question 34

Grace Church, a not-for-profit entity, operates a school in connection with the church.This year members of the church decided to construct a new wing on the school with six classrooms.The church hired an architect and a construction supervisor.The bulk of the labor for construction was donated by church members who were willing workers but not necessarily skilled carpenters.Materials for the construction cost $600,000 and the paid labor was $200,000.The fair value of the completed building is $2 million.When the building is completed what should be the balance in the asset account "Building" and the account "Contributed revenue"?

A)Building $800,000; Contributed Revenue $0.
B)Building $800,000; Contributed Revenue $1,200,000.
C)Building $2 million; Contributed Revenue $1,200,000.
D)Building $2 million; Contributed Revenue $0.

Question 35

St.Mary's Extended Care Center, a not-for-profit entity, enjoys the services of a group of high-school-age people who each agree to work three afternoons a week for three hours each afternoon performing a variety of patient-related services, such as writing letters for those who are unable to do so, delivering mail to the patient rooms, and pushing wheel-chair patients across the grounds.The services rendered by these young people enhance the quality of life for the residents.They could not be provided if they were not donated because there are not enough resources to do so.The past year the young people donated 5,000 hours in total.The services would have cost $6.00 per hour if they had been purchased but they were worth $10 an hour to St.Mary's.What is the amount of contributed revenue that should be recognized by St.Mary's related to these services?

A)$50,000.
B)$30,000
C)$0.
D)Cannot determine.

Question 36

The account titled "Resources released from restriction" is reported by an "unrestricted fund" as a

A)Revenue account.
B)Contra-revenue account.
C)Expense account.
D)Contra-expense account.

Question 37

In a prior year, United Charities received a $125,000 gift to be used to acquire vans to provide transportation for physically challenged adults.During the current year, United acquired two vans at a cost of $75,000 each.The appropriate entry(ies)to record the acquisition is

Question 38

Not-for-profit organizations report their cash flows in which of the following categories?

A)Operating, noncapital financing, capital financing, investing.
B)Operating, noncapital financing, investing.
C)Operating, capital financing, investing.
D)Operating, financing, investing.

Question 39

In 2017, the change in unrestricted net assets is

A)$0
B)$200,000 increase.
C)$200,000 decrease.
D)$1,000,000 increase.

Question 40

The FASB requires that all not-for-profit organizations report expenses

A)By object.
B)By function.
C)By natural classification.
D)By budget code.

Question 41

Which of the following entities should recognize depreciation expense on its operating statement?

A)Not-for-profit university.
B)Not-for-profit foundation.
C)Not-for-profit hospital.
D)All of the above.

Question 42

During the year, a not-for-profit entity received $30,000 in dividends and $24,000 in interest on its investment portfolio.The entity also accrued $6,000 in interest on the portfolio.The increase in fair value of the portfolio during the year was $8,000.How much should the entity report as investment earnings during the year?

A)$62,000.
B)$54,000.
C)$8,000.
D)$0.

Question 43

"Net assets released from restriction" for a not-for-profit organization is comparable to which of the following for a government?

A)Other financing sources (uses)-Nonreciprocal transfer
B)Expenditures
C)Expenses
D)Unassigned fund balance

Question 44

A donor pledges $100,000 to the Shakespeare Foundation to be used only to support the summer Shakespeare Theater-an event that has been held every summer for 38 years.This is an example of a

A)Conditional Contribution.
B)Unconditional contribution.
C)Restricted contribution.
D)Unrestricted contribution.

Question 45

For each of the cases below, state whether the contributed services would be recognized and, if so, how much would be recognized and how it would be recognized.Explain your answer in terms of the existing standards.Also explain why, in your opinion, the standards permit or prohibit recognition of this particular type of contribution.
a.A church votes to construct a new educational wing on its existing facility.The church will hire an architect to design the new wing and a construction supervisor to oversee the construction.Church members will provide most of the labor for the construction.Labor donated by members who have construction experience or who are considered professional craftsmen at the prevailing wage for their trade or craft is $500,000.Labor donated by persons possessing non-building specialized skills (doctors, teachers, lawyers, etc.)at their prevailing wage rates is $700,000.Labor donated by non-professionals measured at the minimum wage is $300,000.The appraised value of the building when completed is $3 million.The architect was paid $700,000, the construction supervisor was paid $50,000 and the materials purchased for use in the building cost $1 million.
b.An investment advisor, a member of the board of No Fleas Please, a not-for-profit animal care organization, provides pro bono investment advice to NFP.NFP does not have a particularly large investment portfolio and, without the advice of the board member, NFP probably would invest its idle cash in certificates of deposit at an insured commercial bank to protect itself against loss of principal.If the investment advisor had provided similar services to his customers he would have charged $2,000.
c.Members of a religious order provide professional nursing services for a healthcare facility that is run by their order.The members are not compensated but their order provides lodging, food, and other necessities, the cost of which is paid by the healthcare entity and classified as nursing services expense.At the end of the year the balance in the nursing services expense account is $3 million.The value of the nursing services provided, measured at the prevailing wage for nurses, is $5 million.

Question 46

Native Art Museum, a not-for-profit entity that elects not to capitalize its collection items, purchased for $10,000 a wonderful totem pole for display near the door of the museum.As a result of this transaction, which of the following entries should be made?

A)Debit Collection items $10,000; Credit Cash $10,000.
B)Debit Collection expense $10,000; Credit Cash $10,000.
C)Debit Unrestricted net assets $10,000; Credit Cash $10,000.
D)No entry is required.

Question 47

Open Air Conservatory, a not-for-profit entity, held a fund-raising drive to raise money to buy land to provide a habitat for the endangered Sleepy Eagle.A donor pledged $1 million to the project provided that Open Air Conservatory was able to raise an additional $1.5 million from other sources.What entry should Open Air Conservatory make at the time of the $1 million pledge?

A)Debit Pledge receivable $1 million; Credit Unrestricted revenue $1 million.
B)Debit Pledges receivable $1 million; Credit Temporarily restricted revenue $1 million.
C)Debit Pledges receivable $1 million; Credit Temporarily restricted net assets $1 million.
D)No entry is made at the time of the pledge.

Question 48

According to AICPA guidance, a not-for-profit organization (X)is required to consolidate a related not-for-profit organization (Y)in its financial statements when

A)The relationship results from a merger of X and Y.
B)X has a controlling financial interest in Y through direct or indirect ownership of a majority voting interest.
C)X can control Y through a contract or affiliation agreement, even though X does not have a majority ownership or voting interest.
D)Any of the above.

Question 49

The Midwest Circulatory Diseases Society placed an advertisement in prominent publications in the region.The advertisement provided information about symptoms of the diseases and offered practical advice for controlling their immediate effects.The society's accountants estimate that about 75 percent of the advertising copy was devoted to information about the disease and the remainder was an appeal for funds.The advertisement cost $20,000.Using the physical units method of separating joint costs, how much of the cost of the advertisement should be reported as program costs?

A)$20,000.
B)$15,000.
C)$10,000.
D)$5,000.

Question 50

How should receipt of the grant be recorded?

A)Debit Cash; Credit Revenue from contributions (unrestricted fund)
B)Debit Cash; Credit Revenue from contributions (temporarily restricted fund)
C)Debit Cash; Credit Revenue from contributions (permanently restricted fund)
D)No entry required until the grant funds are spent.

Question 51

Music Lovers Foundation, a not-for-profit governed by an independent board, was founded to support the Northern State University Choir until such time as the state legislature adequately funds the choir.When the choir is adequately funded by appropriation, the Foundation may direct resources to other music projects that it deems acceptable.When Music Lovers accepts a contribution from a donor it should debit cash and/or other assets and credit

A)Unrestricted revenue.
B)Temporarily restricted revenue.
C)Liability.
D)It should not make an entry.

Question 52

A not-for-profit would include which of the following financial statements in its basic financial statements?

A)Statement of financial position and statement of activities.
B)Statement of financial position, statement of activities, and statement of cash flows.
C)Statement of financial position, statement of activities, statement of cash flows, and statement of functional expenses.
D)Statement of financial position, statement of activities, and statement of functional expenses.
Use the following information to answer Questions 40 and 41.
In Year 1, the Expert Gardeners Group receives a $60,000 grant to promote its "Grow-Ur-Own" green vegetables program among Desert City residents.In Year 2, the group spends the grant funds for the stipulated purpose.

Question 53

A not-for-profit art museum that has elected not to capitalize its art collection receives a donation of a rare piece of Tlinket Indian art.The donor paid $8,000 for the piece several years ago.Today the piece has an estimated fair value of $50,000.What entry should the art museum make upon receipt of this donation?

A)Debit Collection items $50,000; Credit Donated revenue $50,000.
B)Debit Collection items $8,000; Credit Donated revenue $8,000.
C)Debit Collection items $50,000; Credit Unrestricted net assets $50,000.
D)No entry required.

Question 54

The Save the Animals Foundation received a gift of $500,000 from a donor who wanted the gift used to acquire habitat for endangered snails.The money may be invested but all earnings are restricted to habitat acquisition.During the year the entire gift was invested in corporate securities.At year-end, the securities had a value of $501,000.The appropriate way to recognize the change in fair value is

A)Debit Investments $1,000; Credit Unrestricted revenue $1,000.
B)Debit Investments $1,000; Credit Temporarily restricted revenue $1,000.
C)Debit Investments $1,000; Credit Permanently restricted revenue $1,000.
D)No entry should be made until the securities are sold.

Question 55

The Friends of the Library (FOL), a not-for-profit entity, received a gift restricted to the acquisition of a special piece of equipment used to restore books.Late last year FOL acquired the machine at a total cost of $19,000.The machine is estimated to have a useful life of eight years and a salvage value of $3,000.In what fund should FOL make the entry to record the depreciation for the current year?

A)Unrestricted fund.
B)Temporarily restricted fund.
C)Permanently restricted fund.
D)FOL should not recognize depreciation.

Question 56

Nelson County Historical museum, a not-for-profit entity that capitalizes its collection items, received a gift of several Civil War artifacts to be used for display and research.The donor found these items while cleaning out the closet of an old house.The fair value is hard to estimate but a dealer in these types of artifacts estimates their value at $2,000.The entry to record this donation is

A)Debit Collection expense, $2,000; Credit Contributions revenue $2,000.
B)Debit Collection items $2,000; Credit Contributions revenue $2,000.
C)No entry is required because the cost to the donor was $0.
D)No entry required because the value of the items is estimated.

Question 57

When should a not-for-profit entity recognize pledge revenue that is contingent upon raising a matching amount?

A)When the pledge is made.
B)When the cash is received.
C)When the matching funds have been raised.
D)When the project is completed.

Question 58

Simplex Games, a not-for-profit entity organized to provide athletic competition opportunities for high school students, utilizes a number of volunteers in carrying out its mission.At the 2017 Games 50 volunteers provided a total of 1,000 hours of service performing tasks such as picking up litter and delivering water to the athletes.A local CPA firm donates its services to prepare the annual tax return and other federal and state required paperwork which must be filed to maintain its status as a tax-exempt organization.During 2017 the CPA firm provided 50 hours of service.If purchased, the CPA services would have cost $60 per hour and the game workers would have cost $6 per hour.How much contributed service revenue should Simplex Games recognize in 2017?

A)$9,000.
B)$6,000.
C)$3,000.
D)$0.

Question 59

United Charities accepted a contribution from a donor and agreed to transfer the assets to Aid for Friends, a not-for-profit that provides temporary shelter to the homeless.United Charities should debit cash or other assets and credit

A)Unrestricted revenue.
B)Temporarily restricted revenue.
C)Liability to Aid for Friends.
D)United Charities should not make an entry.

Question 60

In a not-for-profit organization, wages and salaries should be recorded

A)As expenses in either a temporarily restricted or an unrestricted fund, depending on the source of the resources.
B)As expenses in a temporarily restricted fund.
C)As expenses in an unrestricted fund.
D)As expenses in an unrestricted fund, with a credit to net assets released from restrictions.

Question 61

Per FASB standards, not-for-profits must classify their net assets into three classes.What is the basis for distinguishing the three classes? What is the rationale for this basis? How is each class defined?

Question 62

A generous benefactor pledges $1 million to The R.J.Smith Foundation, a not-for-profit entity that promotes the arts.The gift is to be used to provide scholarships for talented musicians at a music camp operated by the Foundation.The gift was given in August 2013 to support the Summer 2014 music program.The foundation director argues that the gift is a conditional restricted gift and therefore cannot be recognized as revenue in 2013.The accountant argues that the gift is an unconditional restricted gift and must be recognized in the current year.What is the basis for the director's argument? What is the basis for the accountant's argument? In your answer provide an explanation of the terms conditional, unconditional, restricted and unrestricted.

Question 63

What is a charitable remainder trust? How should it be accounted for?