Deck 9: Reporting for Not-For-Profit Organizations

Question 1

Under fund accounting:________.

A)Net assets and net income are segregated based on the activity or the nature of the activity.
B)Only one account is used to account for all the funds of a not-for-profit organization together.
C)Common funds used under fund accounting are the deferral fund and restricted fund.
D)Note disclosure describing the nature of the funds segregated is not required.

Answer 1

A

Question 2

Not-for-profit revenue recognition criteria mirror those of profit oriented entities except for contributions.

Answer 2

True

Question 3

The deferral method of accounting generally results in a higher level of revenue than the restricted fund method only if capital asset amortization is involved.

Answer 3

False

Question 4

When consolidated financial statements are prepared for a not-for-profit organization using fund accounting, these statements should show ________.

A)separate statements of operations and consolidated statement of financial position.
B)consolidated statements of operations and consolidated statement of financial position.
C)separate statements of operations and separate statements of financial position.
D)consolidated statement of operations and separate statements of financial position.

Question 5

Under the deferral method, restricted contributions are recorded as revenue in the same period as the related expense is recorded.

Question 6

A local antique shop pledged 10% of its sales on July 1 to Fresh Start, a not-for-profit organization. How should Fresh Start treat this pledge?

A)Accrue the pledge only if there is reasonable assurance that the antique shop will pay.
B)Accrue the pledge when it is made.
C)Recognize the pledge when it is collected.
D)Accrue the pledge only if the amount can be reasonably estimated.

Question 7

Not for profit organizations cannot be incorporated.

Question 8

When budgetary control accounts are first set up, actual revenues are debited and actual expenditures are credited.

Question 9

A not-for-profit organization may disaggregate its financial statements into funds based on legal, contractual or voluntary actions of the entity.

Question 10

Regarding capital assets, large not-for-profit organizations are required to ________.

A)capitalize and amortize capital assets.
B)only disclose the capital assets in the notes to the financial statements.
C)immediately write-off capital assets.
D)capitalize, but not amortize capital assets.

Question 11

Not-for profit organizations require additional disclosure with respect to strategic investments, related party transactions, and allocated expenses.

Question 12

Contributions are considered revenue to the not-for-profit entity.

Question 13

When consolidated financial statements are prepared for a not-for-profit organization using fund accounting, these statements should show only consolidated statements of operations and consolidated statement of financial position.

Question 14

Endowment contributions are recognized as revenue under the deferral method and as a direct increase to net assets under the restricted fund method.

Question 15

Which of the following would result in higher income under the restricted fund basis as compared to the deferral method for a not-for-profit organization in its first year of operations?

A)When unrestricted cash donations are received.
B)When funds are expended on capital assets.
C)Where pledges are received for a building to be constructed in a future year.
D)When cash donations are received for land to be purchased in a future year.

Question 16

A restricted fund is a segregation of funds which are externally or internally restricted for a particular purpose.

Question 17

Fighting Back, a not-for-profit organization, has a 51% economic interest in Clothing Care, another not-for-profit organization. The organizations operate independently, have no directors in common, and have no transactions with each other. For financial reporting purposes, how should Fighting Back account for its interest in Clothing Care?

A)Note disclosure only.
B)Consolidation.
C)The equity method.
D)Either consolidation or note disclosure

Question 18

In a not-for-profit organization, donated capital assets are recorded at fair market value.

Question 19

Recording the value of donated goods and services could result in inflated earnings.

Question 20

Not-for-profit organizations basically follow the same criteria as profit-oriented companies with respect to the recognition and measurement of tangible capital assets and intangibles.

Question 21

In a not-for-profit organization, donated capital assets are recorded at what value?

A)Estimated net realizable value.
B)The donor's net book value.
C)Fair market value.
D)Replacement or reproduction cost.

Question 22

What type of not-for-profit organization may be allowed to use the restricted fund method?

A)Any NFP that has at least one internally restricted fund.
B)Any NFP organization.
C)Any NFP that has at least one externally restricted fund.
D)Any NFP that has a general fund for unrestricted contributions.

Question 23

The primary objective of using an encumbrance system is to keep track of an organization's ________.

A)purchase of goods and services.
B)purchase of capital assets.
C)expenditures.
D)commitments made for the acquisition of goods and services.

Question 24

Which of the following statements regarding specific not-for-profit transactions is FALSE?

A)Not-for profit organizations generally have the option of determining a fair value at the day of receipt or recording it at a nominal value if it is materials or services
B)Not-for-profit organizations reflect capital assets and intangibles at the book value at the transaction date.
C)Not-for-profit organizations determine control based on its ability to control the board of directors of the other entity.
D)Not-for profit organizations require additional disclosure with respect to strategic investments, related party transactions, and allocated expenses.

Question 25

Which of the following statements regarding fund accounting is FALSE?

A)Not for profit organizations must use the restricted fund method to record contributions.
B)Under the deferral method, restricted contributions are recorded as revenue in the same period as the related expense is recorded.
C)Under the restricted fund method, the not-for-profit organization creates, at least, a general fund and an endowment fund.
D)Under the restricted fund method, contributions to the restricted funds are considered revenues to those funds. Unrestricted contributions are revenues to the general fund.

Question 26

The air ambulance department for a provincial government uses an encumbrance system. On October 15, 2013, the department manager issues a purchase order for $20,000 for propellers. The propellers were delivered on October 31, 2013, with an invoice for $18,700. What should be recorded on October 15, 2013?

A)An accounts payable for $18,700.
B)An encumbrance for $20,000.
C)An encumbrance for $18,700.
D)An accounts payable $20,000.

Question 27

Which of the following statements related to the accounting for donated goods and services for a not-for-profit organization is TRUE?

A)Recording the value of donated goods and services could result in inflated earnings.
B)Recording the value of donated goods and services enhances stewardship reporting.
C)Recording the value of donated goods and services could be useful in evaluating management performance.
D)Recording the value of donated goods and services is required by the CICA Handbook.

Question 28

With respect to the endowment fund, which of the following statements is TRUE?

A)Endowment contributions are recognized as a direct increase to net assets under the deferral method and as revenue to the endowment fund under the restricted fund method.
B)Endowment contributions are treated the same way under both the deferral method and the restricted fund method.
C)Endowment contributions are recognized as revenue under the deferral method and as revenue in a restricted fund under the restricted fund method.
D)Endowment contributions are recognized as revenue under the deferral method and as a direct increase to net assets under the restricted fund method.

Question 29

Which of the following reporting objectives for not-for-profit organizations allows the users to determine whether restricted funds were spent in accordance with the intended purpose?

A)Stewardship.
B)Cash flow prediction.
C)Performance evaluation.
D)Measuring the cost of services rendered.

Question 30

A not-for-profit organization is NOT required to capitalize and amortize its capital assets if the organization ________.

A)has assets that total less than $500,000.
B)has an annual change to net assets of less than $500,000.
C)has less than 50 full-time employees.
D)has a two-year average annual revenues of less than $500,000.

Question 31

The reader of the financial statements of a not-for-profit organization needs to be able to Review section if:

A)They have made a profit for the period.
B)The return on investments is positive.
C)Its mission has been fulfilled in the most cost efficient way.
D)All of the above.

Question 32

During the year, a not-for-profit art gallery acquired a number of pieces for its collection. Which of the following choices for reporting the acquisitions is NOT in accordance with the CICA Handbook?

A)Immediate write-off.
B)Capitalize, but do not depreciate.
C)Capitalize and depreciate.
D)Note disclosure only.

Question 33

The Helping Hand Society, a not-for-profit organization, owns 25% of the shares of Dawson's Diner, a for-profit organization. Three of the ten-person board of directors of Dawson's Diner are also directors of the Helping Hand Society. How should the Helping Hand Society account for its investment in Dawson's Diner?

A)At cost.
B)The equity method.
C)Note disclosure only.
D)Consolidation.

Question 34

Under the deferral method, how should contributions received in the current year but restricted for operating expenses for one or more future periods be reported in the current year?

A)As revenue in the statement of operations.
B)As a direct increase to net assets.
C)As deferred revenue on the balance sheet.
D)As a reduction of operating expenses on the statement of operations.

Question 35

When is it NOT appropriate to use an encumbrance system?

A)When only a small part of expenditures for goods and services are discretionary.
B)When there is a significant lag between purchase orders and the receipt of goods.
C)When reporting is done on a yearly basis.
D)When commitments are made on a decentralized basis.

Question 36

The Xavier family contributed $300,000 to a local university to establish a scholarship fund in the name of their late mother. Scholarships will be provided from the fund earnings. This is BEST described as which kind of contribution?

A)Endowment contribution.
B)Internally restricted contribution.
C)Externally restricted contribution.
D)Unrestricted contribution.

Question 37

When budgetary control accounts are first set up, ________.

A)budgeted revenues are debited and budgeted expenditures are credited.
B)budgeted revenues are credited and budgeted expenditures are debited.
C)actual revenues are credited and actual expenditures are debited.
D)actual revenues are debited and actual expenditures are credited.

Question 38

The Salvation Society, a not-for-profit organization, owns 5% of the shares of the Mobile Meals Inc., a for-profit organization. The two organizations operate independently and have no board members in common. How should the Salvation Society account for its investment in Mobile Meals Inc.?

A)At cost.
B)Note disclosure only.
C)Consolidation.
D)The equity method.

Question 39

Dieter won a lottery and made a $500,000 endowment contribution to his alma mater to provide scholarships. Under the deferral method, in the year of contribution, the university should recognize the contribution as which of the following?

A)Unrestricted revenue.
B)An increase to net assets.
C)Restricted revenue.
D)Deferred revenue.

Question 40

Which of the following statements is FALSE?

A)Not-for-profit organizations may follow IFRS (Part I)or Part III of the CICA handbook.
B)All not-for-profit organizations should apply similar accounting treatments to like transactions when the needs of the users in the private and public sector are aligned.
C)Not-for-profit revenue recognition criteria mirror those of profit-oriented entities except for contributions.
D)A not-for-profit organization may not disaggregate its financial statements into funds based on legal, contractual or voluntary actions of the entity.

Question 41

Alfred House, a not-for-profit organization, received an externally restricted contribution. Alfred House does not have a separate restricted fund for the contribution. Under the restricted fund method, the contribution will be recognized as which of the following?

A)Revenue in the general fund for unrestricted contributions.
B)A direct increase to net assets.
C)Revenue in the endowment fund.
D)Revenue in the general fund using the deferral method.

Question 42

What is Encumbrance Accounting?

Question 43

What are contributions?

Question 44

Ronwell Gates donated $200,000 to Conway University and specified that the principal amount not be spent but be maintained permanently. Interest on the invested funds can be used to award scholarships to those who excel in theoretical physics. How should the $200,000 contribution be presented on Conway University's financial statements?

A)As revenue of the endowment fund.
B)As a direct increase in net assets of the endowment fund.
C)As revenue of the operating fund.
D)As deferred revenue of the operating fund.

Question 45

Kayla made a $150,000 contribution to the Gilliam Society, a not-for-profit organization. Kayla stipulated that his contribution is to be used for the organization's special events program in the next year. How should Gilliam record the contribution at the time of contribution?

A)As contribution revenue.
B)As a prepaid expense.
C)No entry is required.
D)As a deferred contribution.

Question 46

What are the financial statements of a not-for-profit organization?

Question 47

What is a restricted fund?

Question 48

For the 2013 fiscal year, The Benevolent Society, a not-for-profit organization, received $300,000 in unrestricted donations and $175,000 in donations designated specifically for bone marrow research. $200,000 of the unrestricted donations and $100,000 of the restricted donations were expended in 2013 for current operations and bone marrow research, respectively. The Society did not set up a separate fund for the restricted donation. How much of the donations should be reported as revenue in the statement of operations for the 2013 fiscal year?

A)$375,000
B)$400,000
C)$475,000
D)$300,000

Question 49

When is an obligation recorded under an encumbrance system?

A)When a purchase order is issued.
B)When goods or services are received.
C)When payment is made.
D)None of the above.

Question 50

Eat Hearty (EH)is a non-profit organization that has grown to be quite large in the area. EH operates 30 food banks in multiple locations throughout the province and has moved to a decentralized organizational structure. All of the funding is received by the head office and then each location is allocated a fixed amount of funds that can be used over the year for local expenses. Local expenses are at the discretion of the local managers. The Board has decided to change its method of accounting to keep better track of costs at these various locations and better manage the budget. The Board has decided to implement a new budgeting and encumbrance accounting system.
Required:
In October, 2013, EH issued a purchase order for $70,000 to have printed and delivered 100,000 pamphlets to be distributed to households over the next 6 months. In December, 2013, the pamphlets were received along with an invoice for $67,800. Prepare the journal entries to record the journal entries for October and December, 2013 using encumbrance accounting.

Question 51

Under the CICA Handbook, a large not-for-profit museum or art gallery ________.

A)must capitalize the cost of collections.
B)must only disclose the cost of collections in the notes to the financial statements.
C)must expense the cost of collections.
D)may capitalize the cost of collections.

Question 52

A not-for-profit organization provides language training and homework assistance to immigrants. Most of the services are provided by volunteers and all the funds come from public donations. The primary objective in preparing financial statements for this organization is ________.

A)measuring the cost of services rendered.
B)predicting cash flow.
C)management evaluation.
D)stewardship.

Question 53

Discuss the recognition and measurement of tangible capital assets and intangibles in non-for-profit organization.

Question 54

A(n)________________ fund is a type of restricted fund where, even though funds are collected, the principal is not allowed to be spent.

A)Capital.
B)Endowment.
C)Restricted.
D)Unrestricted.

Question 55

Luv Pets (LP)is a NFP that operates an animal shelter and commenced operations in 2013. LP has a December 31 year end. In 2013, the organization received $1.5 million to build a new shelter which was completed in October 2013. The shelter is expected to have a useful life of 40 years. This was financed with $800,000 of private donations and $700,000 of government grants. In addition, $150,000 was provided in government grants on October 1, 2013 to fund two veterinarians for the next twelve months. Two veterinarians were hired October 1, 2013 at an annual salary of $120,000 each. The organization is expected to generate $1,250,000 in annual revenues. During the period October 1 to December 31, LP received donations of $275,000 and paid out operating expenses of $235,000.
Required:
Prepare a partial statement of financial position to capture the above transactions occurring during 2013. LP uses the deferral method and does not have a separate capital fund.

Question 56

Aliberry Research Foundation is a large non-profit organization that funds research into a variety of financial instruments. Annual revenues are in excess of $15 million. It has an endowment fund, a general fund and a capital fund. You have just been appointed treasurer of its Board and the accountant has come to you with a variety of questions. Aliberry received a large endowment of $3 million on January 31, 2013. During the year ended 2013, there was interest earned of $120,000.
Required:
Prepare the journal entries required to record the receipt of the endowment and the interest earned assuming the entity uses the restricted fund method.

Question 57

Which of the following statements is TRUE?

A)The deferral method of accounting generally results in a higher level of revenue than the restricted fund method.
B)The deferral method of accounting generally results in a higher level of revenue than the restricted fund method only if capital asset amortization is involved.
C)The deferral method of accounting generally results in a lower level of revenue than the restricted fund method.
D)The deferral method of accounting results in the same amount of revenue as the restricted fund method.