Question 1

Entities that are tax-exempt under IRS Section 501(c)(3)are permitted to endorse political candidates or attempt to influence legislation.

Accepted Answer

Entities that are tax-exempt under IRS Section 501(c)(3) are prohibited from endorsing political candidates or attempting to influence legislation. This is known as the "Johnson Amendment," which was enacted in 1954. Violation of this prohibition can result in loss of tax-exempt status.

Question 2

The program expense ratio is calculated as follows:
 Total expenses / (Program service expenses + supporting service expenses).

Accepted Answer

The program expense ratio is calculated as program service expenses divided by total expenses.

Question 3

Section 501(c)(3),exempt organizations are prohibited from supporting political candidates or campaigning to influence legislation.

Accepted Answer

Section 501(c)(3) organizations are tax-exempt charitable organizations, and they are prohibited from endorsing political candidates or engaging in political campaigning to influence legislation as it would violate their tax-exempt status.

Question 4

Fund-raising efficiency is a measure of performance that expresses how much an organization spends in raising a dollar of donations.

Accepted Answer

Fund-raising efficiency is commonly used as a metric to evaluate the effectiveness of a non-profit organization's fundraising efforts. It determines how much an organization spends on fundraising activities for each dollar it raises.

Question 5

The program expense ratio is calculated as Program service expenses / Total expenses.

Accepted Answer

The formula for calculating the program expense ratio is Program service expenses divided by Total expenses.

Question 6

The program expense ratio is calculated as (Program service expenses + supporting service expenses)/ Total expenses.

Accepted Answer

The program expense ratio is calculated as program service expenses divided by total expenses. Supporting service expenses are not included in numerator of the ratio calculation.

Question 7

Bonds which carry the full faith and credit of a government are called revenue bonds.

Accepted Answer

Bonds which carry the full faith and credit of a government are called general obligation bonds. Revenue bonds are issued to finance specific revenue-generating projects or facilities and are backed by the revenue they generate, rather than the full faith and credit of the government.

Question 8

According to GASB,Service Efforts and Accomplishments Reporting is to provide more complete information about a governmental entity's performance.

Accepted Answer

GASB requires Service Efforts and Accomplishments (SEA) reporting in order to provide more comprehensive information regarding the performance of governmental entities. SEA reporting measures the outputs, outcomes, cost, and quality of services provided by the entity, in order to provide meaningful information to stakeholders.

Question 9

The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to administrative expenses.

Accepted Answer

The program expense ratio is calculated by dividing program expenses by total expenses. Shifting costs from fund-raising to administrative expenses would increase administrative expenses, thus increasing the denominator of the ratio and potentially decreasing the program expense ratio.

Question 10

When computing Unrelated Business Income Tax,charities are permitted to deduct ordinary and necessary business related expenses and the first $1,000 of income is not taxed.

Accepted Answer

Charities are indeed permitted to deduct ordinary and necessary business related expenses and the first $1,000 of income is not taxed when computing Unrelated Business Income Tax.

Question 11

The three major user groups identified by the GASB are (1)citizen groups,(2)legislative and oversight officials,and (3)investors and creditors.

Accepted Answer

The GASB has identified these three major user groups for financial reporting: citizen groups, legislative and oversight officials, and investors and creditors.

Question 12

Tax-exempt organizations are required to file Form 990 by the 15th day of the 9th month following the organization's taxable year.

Accepted Answer

Tax-exempt organizations are required to file Form 990 by the 15th day of the 5th month following the end of their taxable year.

Question 13

Tax-exempt entities are not allowed to make contributions to political campaigns or they may lose their tax-exempt status.

Accepted Answer

This is known as the Johnson Amendment, which prohibits 501(c)(3) organizations from participating or intervening in any political campaign on behalf of, or in opposition to, any candidate for public office. Failure to comply with this rule could result in the loss of the organization's tax-exempt status.

Question 14

A tax-exempt organization must pay income taxes on income generated from trade or business activities unrelated to the entity's tax-exempt purposes.

Accepted Answer

This is known as unrelated business income and is subject to taxation to ensure that tax-exempt organizations do not have an unfair advantage over for-profit businesses operating in the same market.

Question 15

Bonds which carry the full faith and credit of a government are called general obligation bonds.

Accepted Answer

General obligation bonds are backed by the government's ability to tax and its promise to repay the bondholders, making them a low-risk investment.

Question 16

To apply for tax-exempt status,an organization must complete an IRS Form 1023.

Accepted Answer

This is correct according to the IRS guidelines. An organization must complete Form 1023 to apply for tax-exempt status.

Question 17

Debt service coverage can only be directly measured from proprietary fund statements.

Accepted Answer

Debt service coverage is a measure of a government's ability to meet its debt obligations. It is calculated by dividing the government's annual debt service payments by its annual operating revenues. Debt service coverage can only be directly measured from proprietary fund statements because proprietary funds are used to account for activities that are similar to those of private businesses.

Question 18

Service Efforts and Accomplishments Reporting is best completed by using a variety of measures,which are reported consistently.

Accepted Answer

Using a variety of measures and reporting consistently will provide a more comprehensive and accurate picture of service efforts and accomplishments. This helps ensure that the reporting is reliable and can be used to inform decision-making and performance management.

Question 19

The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to program expenses.

Accepted Answer

The program expense ratio is calculated as total program expenses divided by total expenses. Therefore, if fund-raising expenses decrease (while program expenses remain the same), the program expense ratio will improve. This can be seen as the organization is spending a higher percentage of its expenses on programs and a lower percentage on fund-raising.

Question 20

Supporting expenses are included in the numerator of the program expense ratio.

Accepted Answer

The program expense ratio is calculated as program service expenses divided by total expenses. Supporting service expenses are not included in the numerator of the ratio calculation.

Quiz 13: Auditing, Tax-Exempt Organizations, and Evaluating Performance