Question 1

A statement of changes in net assets in the financial statements of a not-for-profit organization corresponds most closely to which of the following in the financial statements of a profit-oriented business which reports under IFRS?

Accepted Answer

The answer of A statement of changes in net assets...

Question 2

Prepare the necessary journal entries to record these transactions assuming that the deferral method of accounting for contributions is used.

Accepted Answer

The answer of Prepare the necessary journal entries to record...

Question 3

The Rift Valley Minor Hockey Association was established in the village of Rift Valley in early 2015. It was established to promote hockey in the village and surrounding territory. With the support of the provincial government, local business people and many individuals, the association raised sufficient funds to build an indoor hockey arena and also established an endowment fund to cover maintenance costs. The association is required by the provincial government to prepare financial statements in accordance with generally accepted accounting principles.
The board has decided that its year end will be June 30 and that capital assets will be capitalized and amortized over their expected useful lives. They have decided not to use the restricted fund method of accounting but will account for restricted donations using the deferred contribution method of accounting. The first set of financial statements will cover the eighteen month period from the establishment of the association to June 30, 2016.
From the bank statements, you determine the following: \(\begin{array}{|l|l|l|}
\hline\text { Cash receipts: }\
\hline \text { Government grant for operating purposes } & \$ 60,000 & \
\hline \text { Government grant for construction of the arena } & 400,000 & \
\hline \text { Corporate donations for the construction of the arena } & 520,000 & \
\hline \text { Minor hockey player registration fees } & 70,000 & \
\hline \text { Endowment fund contributions } & 100,000 & \
\hline \text { Ice rental and concession revenue } & 90,000 & \
\hline \text { Interest income rec eived } & 6,000 & \$ 1,246,000 \
\hline\
\hline\text { Payments: }\
\hline \text { Cost of construction of arena } & \$ 920,000 & \
\hline \text { Operating expenses - minor hockey program } & 90,000 & \
\hline \text { Purchases of inventory for the concession } & 60,000 & \
\hline \text { Other operating costs } & 50,000 & \
\hline \text { Investment of endowment fund contributions } & 100,000 & \
\hline \text { Maintenance costs } & 3,000 & 1,223,000 \
\hline & & \
\hline \text { Bank balance, June } 30,2016 & & \$ 23,000 \
\hline
\end{array}\) Additional information:
1. The new arena was completed and officially opened on Canada Day (July 1) of 2015. It has an estimated forty year life with no residual value.
2. A long-term resident of Rift Valley donated the land upon which the arena was constructed. The land was valued at $120,000 and the association issued a receipt in that amount. Another resident donated ice-making and ice-cleaning equipment to the association. The equipment has an estimated useful life of six years and no residual value and was estimated to have a value of $66,000 when donated.
3. The endowment contribution was received at the opening celebration and was invested for one year at 5% interest. The terms of the endowment were that the income earned from its investment could be used only for maintenance costs for the arena. $3,000 of such costs were incurred and paid for in May 2016. (The other $1,000 in interest income was earned on the balances in the bank account.)
4. The government had agreed to provide funding of $10,000 per month for the eight months of the minor hockey season (September 1 to April 30 each year). The amount was payable at $7,500 per month during the season and the final $20,000 upon submission of the annual financial statements to the government.
5. Registration fees for minor hockey players cover the season from September to April. $10,000 of the fees received were payments in advance for the 2016-2017 season.
6. An inventory count was taken at the concession stand at the end of June 2016 and the inventory on hand was valued at $6,000 (lower of cost or realizable value). The concession stand sold snacks and drinks during minor hockey games and other events.
7. At June 30, 2016, unpaid invoices were $3,000 for concession purchases, $2,000 for hockey clinics held and $1,000 for miscellaneous other costs.
-Prepare a statement of financial position for the Rift Valley Minor Hockey Association as at June 30, 2016.

Accepted Answer

The answer of The Rift Valley Minor Hockey Association was...

Question 4

On January 1, 2016, some residents of the community of Kiterup, B.C., formed the Kiterup Winter Sports Association (KWSA) which was organized as a not-for-profit organization which has as its purposes encouraging participation in outdoor winter sports. In its first year, the board decided to restrict its activities to ice skating and skiing.
Initial funding was provided by a wealthy individual who made an endowment contribution of $200,000 which was invested in bonds and generated income during the year of $8,000. The donor placed no restrictions on the use of the income produced by the investment of the endowment contribution which were to be divided evenly between all programs undertaken by the Association.
During the year donations of $750,000 were received and a further $150,000 of pledges was outstanding of which the board estimated $130,000 would be collected. It was agreed that such donations, all of which were unrestricted, would be divided evenly between the skating and skiing programs. As a practical matter, donations not yet received at year-end were considered to be restricted for use in the following year. A special fund drive was undertaken to raise money to provide skates to needy youngsters and skiing equipment to needy senior citizens. During the year $25,000 was received in contributions for skates and $15,000 for contributions towards purchasing skis.
During the year ended December 31, 2016, the organization incurred the following costs. $\begin{array}{|l|l|}
\hline& \text {Ice Skating}\

\hline& \text {Program}\
\hline \text { Wages and salaries } & \$ 193,000 \
\hline \text { Ice skates } & 8,000 \
\hline \text { Skiing equipment } & 58,000 \
\hline \text { Other equipment and supplies } & 43,000 \
\hline \text { Transportation } & 15,000 \
\hline \text { Rent } & 35,000 \
\hline \text { Other expenses } & \$ 352,000 \
\hline
\end{array}$
 At December 31, 2016, the only outstanding payables were for $30,000 relating to the skiing program (the costs are included in the table above). The ice skates and skiing equipment were paid for out of the funds raised by the special fund drive and were expensed as acquired.
KWSA does not use fund accounting but uses the deferred contribution method to account for restricted donations and uses programmatic reporting to report the results of its activities.
-Prepare journal entries to record the transactions of the Kiterup Winter Sports Association for the year ended June 30, 2016. Closing entries are not required.

Accepted Answer

The answer of On January 1, 2016, some residents of...

Question 5

XYZ is a local charity that commenced operations on January 1, 2017. XYZ uses an encumbrance system to manage costs. For the following partial data provided, prepare the journal entry to record that transaction. In addition, specify which fund or funds must be used to record the entry.
a) Revenue deferred earlier in the year in the amount of $5,000 was recognized.
b) Pledges receivable in the amount of $10,000 were collected in full.
c) Accounts payable and wages payable amounting to $10,000 and $5,000 were paid.
d) Government grants amounted to $50,000, half of which was received. The balance is expected by late 2018. The grants may be applied to any of the organization's programs.
e) Total Wage costs amounted to $60,000 which breaks down as follows: $$\begin{array} { | l | l | } 
\hline \text { Program A } & \$ 40,000 \
\hline \text { Program B } & \$ 10,000 \
\hline \text { Administration } & \$ 10,000 \
\hline
\end{array}$$ 25% of these expenses are still payable at the end of 2017.
f) A wealthy local businessman donated $100,000 to be held in endowment, with the interest earned to be unrestricted.
g) The investments in an endowment fund earned interest in the amount $3,000.
h) Amortization expense for the year amounted to $10,000.

Accepted Answer

The answer of XYZ is a local charity that commenced...

Question 6

Describe what fund accounting is and why is it used for not-for-profit organizations.

Accepted Answer

The answer of Describe what fund accounting is and why...

Question 7

What reporting choices are given to Canadian non-governmental and not-for-profit organizations?

Accepted Answer

Non-governmental and not-for-profit organizations in Canada have the option to report under the Accounting Standards for Private Enterprises (ASPE) modified by the standards found in Part III of the CPA Canada Handbook. This reporting option is designed specifically for not-for-profit organizations and provides guidance on unique accounting issues not covered under ASPE. Therefore, option B is the best choice for Canadian non-governmental and not-for-profit organizations.

Question 8

A not-for-profit organization received unrestricted pledges of $200,000, and believes based on past experience that 95% of them will be paid. What entry should be made to record the pledges?

Accepted Answer

The organization should record the full amount of pledges receivable ($200,000) and recognize donation revenue at the expected collectible amount ($190,000). The difference ($10,000) is recorded as a provision for uncollectible pledges.

Question 9

Prepare the necessary journal entries to record these transactions assuming that the restricted fund method of accounting for contributions is used and the organization has a general fund, a capital fund and an endowment fund.

Accepted Answer

The answer of Prepare the necessary journal entries to record...

Question 10

Assuming that the assets were purchased from unrestricted fund sources, prepare the required journal entries for 2017, indicating the fund or funds to be used.

Accepted Answer

The answer of Assuming that the assets were purchased from...

Question 11

On January 1, 2016, some residents of the community of Kiterup, B.C., formed the Kiterup Winter Sports Association (KWSA) which was organized as a not-for-profit organization which has as its purposes encouraging participation in outdoor winter sports. In its first year, the board decided to restrict its activities to ice skating and skiing.
Initial funding was provided by a wealthy individual who made an endowment contribution of $200,000 which was invested in bonds and generated income during the year of $8,000. The donor placed no restrictions on the use of the income produced by the investment of the endowment contribution which were to be divided evenly between all programs undertaken by the Association.
During the year donations of $750,000 were received and a further $150,000 of pledges was outstanding of which the board estimated $130,000 would be collected. It was agreed that such donations, all of which were unrestricted, would be divided evenly between the skating and skiing programs. As a practical matter, donations not yet received at year-end were considered to be restricted for use in the following year. A special fund drive was undertaken to raise money to provide skates to needy youngsters and skiing equipment to needy senior citizens. During the year $25,000 was received in contributions for skates and $15,000 for contributions towards purchasing skis.
During the year ended December 31, 2016, the organization incurred the following costs. $\begin{array}{|l|l|}
\hline& \text {Ice Skating}\

\hline& \text {Program}\
\hline \text { Wages and salaries } & \$ 193,000 \
\hline \text { Ice skates } & 8,000 \
\hline \text { Skiing equipment } & 58,000 \
\hline \text { Other equipment and supplies } & 43,000 \
\hline \text { Transportation } & 15,000 \
\hline \text { Rent } & 35,000 \
\hline \text { Other expenses } & \$ 352,000 \
\hline
\end{array}$
 At December 31, 2016, the only outstanding payables were for $30,000 relating to the skiing program (the costs are included in the table above). The ice skates and skiing equipment were paid for out of the funds raised by the special fund drive and were expensed as acquired.
KWSA does not use fund accounting but uses the deferred contribution method to account for restricted donations and uses programmatic reporting to report the results of its activities.
-Prepare a statement of operations for the Kiterup Winter Sports Association for the year ended December 31, 2016.

Accepted Answer

The answer of On January 1, 2016, some residents of...

Question 12

The Rift Valley Minor Hockey Association was established in the village of Rift Valley in early 2015. It was established to promote hockey in the village and surrounding territory. With the support of the provincial government, local business people and many individuals, the association raised sufficient funds to build an indoor hockey arena and also established an endowment fund to cover maintenance costs. The association is required by the provincial government to prepare financial statements in accordance with generally accepted accounting principles.
The board has decided that its year end will be June 30 and that capital assets will be capitalized and amortized over their expected useful lives. They have decided not to use the restricted fund method of accounting but will account for restricted donations using the deferred contribution method of accounting. The first set of financial statements will cover the eighteen month period from the establishment of the association to June 30, 2016.
From the bank statements, you determine the following: \(\begin{array}{|l|l|l|}
\hline\text { Cash receipts: }\
\hline \text { Government grant for operating purposes } & \$ 60,000 & \
\hline \text { Government grant for construction of the arena } & 400,000 & \
\hline \text { Corporate donations for the construction of the arena } & 520,000 & \
\hline \text { Minor hockey player registration fees } & 70,000 & \
\hline \text { Endowment fund contributions } & 100,000 & \
\hline \text { Ice rental and concession revenue } & 90,000 & \
\hline \text { Interest income rec eived } & 6,000 & \$ 1,246,000 \
\hline\
\hline\text { Payments: }\
\hline \text { Cost of construction of arena } & \$ 920,000 & \
\hline \text { Operating expenses - minor hockey program } & 90,000 & \
\hline \text { Purchases of inventory for the concession } & 60,000 & \
\hline \text { Other operating costs } & 50,000 & \
\hline \text { Investment of endowment fund contributions } & 100,000 & \
\hline \text { Maintenance costs } & 3,000 & 1,223,000 \
\hline & & \
\hline \text { Bank balance, June } 30,2016 & & \$ 23,000 \
\hline
\end{array}\) Additional information:
1. The new arena was completed and officially opened on Canada Day (July 1) of 2015. It has an estimated forty year life with no residual value.
2. A long-term resident of Rift Valley donated the land upon which the arena was constructed. The land was valued at $120,000 and the association issued a receipt in that amount. Another resident donated ice-making and ice-cleaning equipment to the association. The equipment has an estimated useful life of six years and no residual value and was estimated to have a value of $66,000 when donated.
3. The endowment contribution was received at the opening celebration and was invested for one year at 5% interest. The terms of the endowment were that the income earned from its investment could be used only for maintenance costs for the arena. $3,000 of such costs were incurred and paid for in May 2016. (The other $1,000 in interest income was earned on the balances in the bank account.)
4. The government had agreed to provide funding of $10,000 per month for the eight months of the minor hockey season (September 1 to April 30 each year). The amount was payable at $7,500 per month during the season and the final $20,000 upon submission of the annual financial statements to the government.
5. Registration fees for minor hockey players cover the season from September to April. $10,000 of the fees received were payments in advance for the 2016-2017 season.
6. An inventory count was taken at the concession stand at the end of June 2016 and the inventory on hand was valued at $6,000 (lower of cost or realizable value). The concession stand sold snacks and drinks during minor hockey games and other events.
7. At June 30, 2016, unpaid invoices were $3,000 for concession purchases, $2,000 for hockey clinics held and $1,000 for miscellaneous other costs.
-Prepare a statement of operations for the Rift Valley Minor Hockey Association for the eighteen month period ended June 30, 2016.

Accepted Answer

The answer of The Rift Valley Minor Hockey Association was...

Question 13

Prepare journal entries for these transactions, using the deferred contribution method, assuming that the assets were purchased using restricted funds in the amount of $11,000.

Accepted Answer

The answer of Prepare journal entries for these transactions, using...

Question 14

On January 1, 2016, some residents of the community of Kiterup, B.C., formed the Kiterup Winter Sports Association (KWSA) which was organized as a not-for-profit organization which has as its purposes encouraging participation in outdoor winter sports. In its first year, the board decided to restrict its activities to ice skating and skiing.
Initial funding was provided by a wealthy individual who made an endowment contribution of $200,000 which was invested in bonds and generated income during the year of $8,000. The donor placed no restrictions on the use of the income produced by the investment of the endowment contribution which were to be divided evenly between all programs undertaken by the Association.
During the year donations of $750,000 were received and a further $150,000 of pledges was outstanding of which the board estimated $130,000 would be collected. It was agreed that such donations, all of which were unrestricted, would be divided evenly between the skating and skiing programs. As a practical matter, donations not yet received at year-end were considered to be restricted for use in the following year. A special fund drive was undertaken to raise money to provide skates to needy youngsters and skiing equipment to needy senior citizens. During the year $25,000 was received in contributions for skates and $15,000 for contributions towards purchasing skis.
During the year ended December 31, 2016, the organization incurred the following costs. $\begin{array}{|l|l|}
\hline& \text {Ice Skating}\

\hline& \text {Program}\
\hline \text { Wages and salaries } & \$ 193,000 \
\hline \text { Ice skates } & 8,000 \
\hline \text { Skiing equipment } & 58,000 \
\hline \text { Other equipment and supplies } & 43,000 \
\hline \text { Transportation } & 15,000 \
\hline \text { Rent } & 35,000 \
\hline \text { Other expenses } & \$ 352,000 \
\hline
\end{array}$
 At December 31, 2016, the only outstanding payables were for $30,000 relating to the skiing program (the costs are included in the table above). The ice skates and skiing equipment were paid for out of the funds raised by the special fund drive and were expensed as acquired.
KWSA does not use fund accounting but uses the deferred contribution method to account for restricted donations and uses programmatic reporting to report the results of its activities.
-Prepare a statement of financial position of the Kiterup Winter Sports Association as at December 31, 2016. Statements for the individual programs are not required.

Accepted Answer

The answer of On January 1, 2016, some residents of...

Question 15

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. How much donation revenue should the not-for-profit organization recognize in the current year, if the organization uses the restricted fund method of reporting and did not have a fund for this project?

Accepted Answer

Under the restricted fund method of reporting, revenue is recognized only when the restricted funds are spent on the purpose for which they were donated. In this case, $14,000 of the $20,000 restricted contribution was spent in the current year, so the organization should recognize revenue of $14,000 in the current year. The remaining $6,000 should be recognized as revenue in the next year when it is spent on the project. Therefore, the correct answer choice is B, $14,000.

Question 16

Assuming that the assets were purchased from a restricted fund contribution in the amount of $11,000, prepare the required journal entries for 2017, indicating the fund or funds to be used.

Accepted Answer

The answer of Assuming that the assets were purchased from...

Question 17

How should a not-for-profit organization value inventories which are held for distribution at no charge or for a nominal charge or for consumption in the production process of goods which will be distributed at no charge or for a nominal charge?

Accepted Answer

The answer of How should a not-for-profit organization value inventories...

Question 18

A capital asset (equipment) with a fair value of $1,500,000 and a remaining useful life of ten years and land with a fair value of $2,000,000 is donated to a not-for-profit organization. The organization will use the equipment in its operations.
Prepare the journal entries (including amortization) if the organization uses the:
a) the deferral method for contributions.
b) the restricted fund method with a capital fund
The machinery has a ten year useful life.

Accepted Answer

The answer of A capital asset (equipment) with a fair...

Question 19

The following are selected transactions from Helpers Cooperative which uses the restricted fund method. Helpers has an operating fund, a capital fund and an endowment fund:
Pledges amounting to $400,000 were received, of which $80,000 applies to the operations of the following year. It is estimated that 2% of the pledges will be uncollectible.
The association purchased office equipment at a cost of $6,000.
Pledges of $300,000 were collected, while pledges amounting to $4,000 were written off as uncollectible.
A local newspaper agreed to offer Helpers a full-page ad. This had an estimated value of $5,000.
Interest and dividends received amounted to $15,000 on endowment fund investments. These earnings are considered unrestricted.
Depreciation for the year amounted to $40,000.
Required:
Prepare journal entries to record the above transactions. Also, indicate which fund will be used for each entry.

Accepted Answer

The answer of The following are selected transactions from Helpers...

Question 20

When a not-for-profit organization uses the deferred contribution method of revenue recognition and receives a donation restricted to the purchase of land, when should the donation be recognized as revenue?

Accepted Answer

The answer of When a not-for-profit organization uses the deferred...

Quiz 12: Accounting for Not-For-Profit and Public Sector Organizations

A statement of changes in net assets in the financial statements of a not-for-profit organization corresponds most closely to which of the following in the financial statements of a profit-oriented business which reports under IFRS?

Prepare the necessary journal entries to record these transactions assuming that the deferral method of accounting for contributions is used.

Describe what fund accounting is and why is it used for not-for-profit organizations.

What reporting choices are given to Canadian non-governmental and not-for-profit organizations?

A not-for-profit organization received unrestricted pledges of $200,000, and believes based on past experience that 95% of them will be paid. What entry should be made to record the pledges?

Prepare the necessary journal entries to record these transactions assuming that the restricted fund method of accounting for contributions is used and the organization has a general fund, a capital fund and an endowment fund.

Assuming that the assets were purchased from unrestricted fund sources, prepare the required journal entries for 2017, indicating the fund or funds to be used.

Prepare journal entries for these transactions, using the deferred contribution method, assuming that the assets were purchased using restricted funds in the amount of $11,000.

Assuming that the assets were purchased from a restricted fund contribution in the amount of $11,000, prepare the required journal entries for 2017, indicating the fund or funds to be used.

How should a not-for-profit organization value inventories which are held for distribution at no charge or for a nominal charge or for consumption in the production process of goods which will be distributed at no charge or for a nominal charge?

When a not-for-profit organization uses the deferred contribution method of revenue recognition and receives a donation restricted to the purchase of land, when should the donation be recognized as revenue?