Exam Item 19-1 (True or False)



Chapter 21 Test Bank

ACCOUNTING FOR NOT-FOR-PROFIT ORGANIZATIONS

Multiple Choice Questions

LO1

|1. | |A not-for-profit entity has all of the following characteristics except that it will |

| | | | |

| | |a. |operate for purposes other than to provide goods or service at a profit. |

| | |b. |have a positive fund balance. |

| | |c. |not possess ownership interests like a corporation. |

| | |d. |receive significant contributions from providers who do not expect returns. |

LO2

|2. | |A governmental not-for-profit entity has which of the following characteristics? |

| | | | |

| | |a. |It must have a positive fund balance. |

| | |b. |It must only operate on US soil. |

| | |c. |A government can void tax regulations for the entity. |

| | |d. |A government can unilaterally dissolve the entity. |

LO2

|3. | |A non-governmental not-for-profit unit is subject to |

| | | |

| | |I. GASB. |

| | |II. FASB. |

| | | | |

| | |a. |I. only. |

| | |b. |II. only. |

| | |c. |A combination of I and II depending on the entity’s purpose. |

| | |d. |Neither I or II |

LO3

|4. | |In accounting for private, not-for-profit organizations, revenues and expenses are reported at _________ amounts and most |

| | |gains and losses are reported at ___________ amounts. |

| | | | |

| | |a. |net, gross |

| | |b. |gross, net |

| | |c. |gross, gross |

| | |d. |net, net |

LO3

|5. | |When the temporary-use restriction on a charitable donation is satisfied, which of the following is not reported? |

| | | | |

| | |a. |Net assets released from restrictions in changes in temporarily restricted net assets. |

| | |b. |Net assets released from restrictions on the statement of cash flows. |

| | |c. |Expenses as changes in unrestricted net assets. |

| | |d. |Net assets released from restrictions in changes in unrestricted net assets. |

LO3

|6. | |Under FASB not-for-profit accounting guidance, an unconditional |

| | |transfer of cash or other assets to an entity, or a settlement or cancellation of its liabilities in a voluntary, |

| | |non-reciprocal transfer, is called a(n) |

| | | | |

| | |a. |unconditional promise to give. |

| | |b. |contribution. |

| | |c. |conditional promise to give. |

| | |d. |residual equity transfer. |

LO3

|7. | |Unconditional promises to give that include promises of payments due in future periods (next year or later) are reported as |

| | | | |

| | |a. |unrestricted revenues. |

| | |b. |a memorandum, until the year of the promised payment. |

| | |c. |deferred revenues until payment is received. |

| | |d. |restricted revenues. |

LO3

|8. | |A gift-in-kind, for which there is little or no discretion on disposition, should be accounted for by a not-for-profit entity |

| | |as |

| | | | |

| | |a. |a special purpose contribution. |

| | |b. |an exchange transaction. |

| | |c. |an agency transaction. |

| | |d. |a conditional promise to give. |

LO4

|9. | |Voluntary health and welfare organizations must report expenses classified by |

| | | | |

| | |a. |Restriction. |

| | |b. |function and natural classification. |

| | |c. |restriction and natural classification. |

| | |d. |restriction, function and natural classification. |

LO4

|10. | |Which one of the following statements is not required for voluntary health and welfare organizations? |

| | | | |

| | |a. |A statement of financial position. |

| | |b. |A statement of activities. |

| | |c. |A statement of functional expenses. |

| | |d. |A statement of changes in net assets. |

LO4

|11. | |Voluntary health and welfare organizations classify fund-raising costs as |

| | | | |

| | |a. |costs of services sold. |

| | |b. |program services. |

| | |c. |functional expenses. |

| | |d. |supporting services. |

LO4

|12. | |Voluntary health and welfare organizations |

| | | | |

| | |a. |may report fund accounts as supplementary according to FASB Statement No. 117 specifications. |

| | |b. |are required to report unrestricted and restricted net assets according to fund accounting principles. |

| | |c. |must report fund accounts if management uses them for internal reporting. |

| | |d. |are restricted from reporting fund accounting. |

LO4

|13. | |A law firm develops the service contracts for a voluntary health and welfare organization. How will this action be recorded |

| | |by the voluntary health and welfare organization? |

| | | | |

| | |a. |As a restricted revenue. |

| | |b. |As an unrestricted contribution. |

| | |c. |As both an unrestricted revenue and as an expense. |

| | |d. |As a pro bono activity. |

LO5

|14. | |Hospital premium fees are |

| | | | |

| | |a. |charity care services. |

| | |b. |only earned to the extent of the services provided. |

| | |c. |refundable to the subscriber if services are unused. |

| | |d. |revenues earned even if the standard charge is above or below the fee. |

LO5

|15. | |Hospital courtesy allowances are |

| | | | |

| | |a. |charity care services. |

| | |b. |revenue deductions. |

| | |c. |Expenses. |

| | |d. |revenues earned even if the standard charge is above or below the allowance. |

LO5

|16. | |Activities treated as deductions from gross revenues (contra- revenue accounts) in not-for-profit hospitals and other health |

| | |care organizations include(s) |

| | | | |

| | |a. |charity care services. |

| | |b. |courtesy allowances. |

| | |c. |estimated bad debts. |

| | |d. |all of the above. |

LO6

|17. | |Which of the following is (are) treated as expense(s) by not-for-profit colleges and universities? |

| | | | |

| | |a. |tuition waivers and student aid. |

| | |b. |tuition waivers and estimated bad debts. |

| | |c. |estimated bad debts and student aid. |

| | |d. |tuition waivers, student aid and estimated bad debts. |

LO6

|18. | |Not-for-profit college and university student unions, dormitories, and residence halls are considered |

| | | | |

| | |a. |educational and general services. |

| | |b. |auxiliary enterprises. |

| | |c. |independent operations. |

| | |d. |restricted enterprises. |

LO6

|19. | |An alumnus made a donation of adjoining land to a university. The university would record the gift as |

| | | | |

| | |a. |an endowment asset. |

| | |b. |a restricted revenue. |

| | |c. |an unrestricted revenue. |

| | |d. |an exchange transaction. |

LO6

|20. | |In a not-for-profit university, the federal grant funds given directly to students are an example of |

| | | | |

| | |a. |a bequest. |

| | |b. |an agency transaction. |

| | |c. |unrestricted revenue. |

| | |d. |a restricted contribution. |

LO3

Exercise 1

The following information was taken from the accounts and records of the Astronomy Foundation, a private, not-for-profit organization. All balances are as of December 31, 2005, unless otherwise noted.

Unrestricted Support - Contributions $5,000,000

Unrestricted Support - Membership Dues 600,000

Unrestricted Revenues - Investment Income 96,000

Temporarily restricted gain on sale of investments 9,000

Expenses - Research 3,200,000

Expenses - Fund Raising 700,000

Expenses - Management and General 300,000

Restricted Support - Contributions 600,000

Restricted Revenues - Investment Income 50,000

Permanently Restricted Support - Contributions 60,000

Unrestricted Net Assets, January 1, 2005 500,000

Temporarily Restricted Net Assets, January 1, 2005 6,000,000

Permanently Restricted Net Assets, January 1, 2005 50,000

The unrestricted support from contributions was received in cash during the year. The expenses included $1,300,000 payable from donor -restricted resources.

Required:

Prepare Astronomy's statement of activities for the year ended December 31, 2005.

LO3

Exercise 2

The following information was taken from the accounts and records of the Archive Foundation, a private, not-for-profit organization. All balances are as of June 30, 2006, unless otherwise noted.

Unrestricted Support - Contributions $3,000,000

Unrestricted Support - Membership Dues 700,000

Unrestricted Revenues - Investment Income 76,000

Temporarily restricted gain on sale of investments 19,000

Expenses - Research 2,200,000

Expenses - Fund Raising 400,000

Expenses - Management and General 500,000

Restricted Support - Contributions 600,000

Restricted Revenues - Investment Income 40,000

Permanently Restricted Support - Contributions 70,000

Unrestricted Net Assets, July 1, 2005 450,000

Temporarily Restricted Net Assets, July 1, 2005 2,100,000

Permanently Restricted Net Assets, July 1, 2005 60,000

The unrestricted support from contributions was received in cash during the year. The expenses included $800,000 payable from donor - restricted resources.

Required:

Prepare Archive's statement of activities for the fiscal year ended June 30, 2006.

LO4

Exercise 3

Food for the Golden Years is a private, not-for-profit organization that provides free meals for the post-65 age group in the suburbs of a large city. Record the following transactions in the accounts of Food for the Golden Years. The following transactions affected the accounts of Food for the Golden Years.

1. Unrestricted cash gifts that were received last year, but designated for use in the current year, totaled $20,000.

2. Unrestricted pledges of $40,000 were received. Five percent of the pledges typically prove uncollectible. Additional cash contributions during the year totaled $25,000.

3. Donations of food totaled $100,000. The inventory of food on hand decreased by $1,500 during the year.

4. The following expenses were incurred: Salary of director, $15,000; facility rental for the meals program, $2,500; and purchases of food, $45,000.

5. Pledges of $250,000 were received during the year. The pledges were restricted for use in purchasing new delivery vans. All of these pledges are expected to be collected in the next fiscal year.

Required:

Make journal entries for the aforementioned transactions.

LO4

Exercise 4

The Rehabilitation Clinic is a private, not-for-profit organization that provides free rehabilitation health services for the uninsured. The following transactions occurred for the Rehabilitation Clinic.

1. Unrestricted cash gifts that were received last year, but designated for use in the current year, totaled $40,000.

2. Unrestricted pledges of $400,000 were received. Two percent of the pledges typically prove uncollectible. Additional cash contributions during the year totaled $200,000.

3. Gifts in kind were received that were sold at a silent auction for $16,000. The fair value of the donated gifts in kind could not be reasonably determined.

4. Expenses were incurred as follows: Salary of doctor, $110,000; facility rental for the clinic program, $60,000; purchases of supplies, $10,000; and utility costs, $12,000.

5. Marketable securities with a fair value of $520,000 were received

with a stipulation that the clinic use the funds to purchase a suitable property for the clinic.

Required:

Make journal entries for the aforementioned transactions.

LO5

Exercise 5

Little Town Hospital is a private, not-for-profit hospital. The following information is available about the operations.

1. Gross patient services charges totaled $4,000,000.

2. Included in the above revenues are: charity services, $125,000; contractual adjustments, $350,000; courtesy allowances, $10,000; and estimated uncollectible amounts, $150,000.

3. Premium fees receipts were $125,000.

4. Purchased $40,000 of hospital supplies on account, with payments on that account, $36,000.

5. Received cash donations for a new hospital wing of $1,100,000.

6. Paid contractor $275,000 for billed costs toward the new hospital wing.

Required:

Make journal entries for the aforementioned transactions.

LO5

Exercise 6

Remote Reconstructive is a private, not-for-profit hospital. The following information is available about the operations.

1. Gross patient services charges totaled $4,500,000.

2. Included in the above revenues are: charity services, $165,000; contractual adjustments, $400,000; and courtesy allowances, $14,000.

3. Received marketable securities valued at $115,000 for the purchase of new diagnostic equipment.

4. The marketable securities were sold for $124,000 and diagnostic equipment was purchased at a cost of $138,000.

5. Revenue from the hospital gift shop was $31,000 and from the cafeteria revenues were $160,000.

6. Incurred and paid nursing service costs of $1,000,000 and general service costs of $500,000.

Required:

Make journal entries for the aforementioned transactions.

LO6

Exercise 7

Prepare journal entries to record the following transactions for a private, not-for-profit university.

1. Tuition and fees assessed total $10,000,000, 85% of which was collected by year-end; tuition scholarships were granted for $800,000, and $400,000 was expected to be uncollectible.

2. Revenues collected from sales and services by the university bookstore were $1,000,000.

3. Salaries and wages were $5,000,000, $200,000 of which was for employees of the university bookstore.

4. Financial aid funds of $500,000 were received from the Pell Grant program; the funds were then disbursed to the appropriate students.

5. Contributions of $250,000 were received; $50,000 was restricted for the athletic department and $200,000 was unrestricted. An additional $25,000 was pledged to the athletic department by the alumni.

6. Athletic equipment was purchased with $35,000 previously set aside for that purpose.

LO6

Exercise 8

A private, not-for-profit university received donations of $2,000,000 in 2005 that were restricted to certain research projects on zero gravity material science. The university incurred $1,150,000 of expenses on this research in 2005.

In 2005, an alumnus contributed a $1,000,000 endowment for genetic research with all endowment income restricted for that purpose. Income totaled $50,000 for the year and zero gravity research expenses were $44,000.

Required:

Prepare the appropriate journal entries for the university.

LO6

Exercise 9

The following information is available about the operations for a private, not-for-profit university.

1. The university sold $9,000,000 of 8% bonds to finance the construction of a new building for the business school. The bonds were sold on January 1 and pay interest on December 31 of each year. The bonds were sold at par and mature in 20 years.

2. The university received $2,500,000 in alumni donations for the new business school building.

3. The building was constructed at a total cost of $10,500,000 and the contractor was paid in full.

4. Interest was paid on the bonds.

5. Depreciation on the new building was $525,000.

Required:

Prepare the appropriate journal entries for the university.

LO6

Exercise 10

A private, not-for-profit university received donations of $500,000 in 2005 that were restricted to capital improvements of the football stadium. The university spent $650,000 on capital improvements for the stadium in 2005 and recorded depreciation of $51,000.

In 2005, an alumnus contributed a $2,500,000 endowment for football scholarships with all endowment income restricted for that purpose. Income totaled $201,000 for the year and scholarship awards were $299,000.

Required:

Prepare the appropriate journal entries for the university.

SOLUTIONS

Multiple Choice Questions

| 1. |b | |

| 2. |d | |

| 3. |b | |

| 4. |b | |

| 5. |b | |

| 6. |b | |

| 7. |d | |

| 8. |c | |

| 9. |b | |

|10. |d | |

|11. |d | |

|12. |d | |

|13. |c | |

|14. |d | |

|15. |b | |

|16. |b | |

|17. |c | |

|18. |b | |

|19. |c | |

|20. |b | |

Exercise 1

Astronomy Foundation

Statement of Activities

For the Year Ended December 31, 2005

Changes in Unrestricted Net Assets

Revenues and Gains

Contributions $5,000,000

Membership dues 600,000

Investment Income 96,000

Total revenues and gains 5,696,000

Net assets released from restrictions 1,300,000

Increase in unrestricted net assets 6,996,000

Expenses:

Program Services:

Research 3,200,000

Supporting Services:

Management and General 300,000

Fund Raising 700,000

Total Supporting Services 1,000,000

Total Expenses 4,200,000

Net increase in unrestricted net assets 2,796,000

Changes in Temporarily Restricted Net Assets

Contributions 600,000

Investment Income 50,000

Gain on Sale of investments 9,000

Net assets released from restriction (1,300,000)

Decrease in temporarily restricted net assets ( 641,000)

Changes in Permanently Restricted Net Assets

Contributions 60,000

Increase in permanently restricted net assets 60,000

Increase in net assets 2,215,000

Net assets, January 1, 2005 6,550,000

Net assets, December 31,2005 $8,765,000

Exercise 2

Archive Foundation

Statement of Activities

For the Year Ended June 30, 2006

Changes in Unrestricted Net Assets

Revenues and Gains

Contributions $3,000,000

Membership dues 700,000

Investment Income 76,000

Total revenues and gains 3,776,000

Net assets released from restrictions 800,000

Increase in unrestricted net assets 4,576,000

Expenses:

Program Services:

Research 2,200,000

Supporting Services:

Management and General 500,000

Fund Raising 400,000

Total Supporting Services 900,000

Total Expenses 3,100,000

Net increase in unrestricted net assets 1,476,000

Changes in Temporarily Restricted Net Assets

Contributions 600,000

Investment Income 40,000

Gain on Sale of investments 19,000

Net assets released from restriction (800,000)

Decrease in temporarily restricted net assets (141,000)

Changes in Permanently Restricted Net Assets

Contributions 70,000

Increase in permanently restricted net assets 70,000

Increase in net assets 1,405,000

Net assets, July 1, 2005 2,610,000

Net assets, June 30,2006 $4,015,000

Exercise 3

1. Temporarily restricted net assets -

reclassifications out 20,000

Unrestricted net assets -

reclassifications in 20,000

2. Pledges receivable 40,000

Cash 25,000

Allowance for uncollectible pledges 2,000

Unrestricted support - contributions 63,000

3. Expenses - meals program - supplies 101,500

Inventory of supplies 1,500

Unrestricted contributions -

donated supplies 100,000

4. Expenses - management and general 15,000

Expenses - meals program - supplies 45,000

Expenses - meals program - rental 2,500

Cash 62,500

5. Pledges receivable 250,000

Temporarily restricted support -

contributions 250,000

Exercise 4

1. Temporarily restricted net assets -

reclassifications out 40,000

Unrestricted net assets -

reclassifications in 40,000

2. Pledges receivable 400,000

Cash 200,000

Allowance for uncollectible pledges 8,000

Unrestricted support - contributions 584,000

3. Cash 16,000

Unrestricted revenues - sales 16,000

4. Expenses - management and general 110,000

Expenses - supplies 10,000

Expenses - rental 60,000

Expenses - utilities 12,000

Cash 192,000

5. Marketable securities 520,000

Temporarily restricted support -

contributions 520,000

Exercise 5

1.

Accounts receivable 4,000,000

Patient service revenues-unrestricted 4,000,000

2.

Patient service revenues - unrestricted 125,000

Contractual adjustments 350,000

Courtesy discounts 10,000

Expenses - provision for bad debts 150,000

Accounts receivable 485,000

Allowance for uncollectibles 150,000

3.

Cash 125,000

Premium revenue - unrestricted 125,000

4.

Supplies inventory 40,000

Accounts payable 40,000

Accounts payable 36,000

Cash 36,000

5.

Cash 1,100,000

Temporarily restricted support 1,100,000

6. Construction in progress 275,000

Cash 275,000

Temporarily restricted net assets -

reclassifications out 275,000

Unrestricted net assets -

reclassifications in 275,000

Exercise 6

1.

Accounts receivable 4,500,000

Patient service revenues-unrestricted 4,500,000

2.

Patient service revenues - unrestricted 165,000

Contractual adjustments 400,000

Courtesy discounts 14,000

Accounts receivable 579,000

3. Marketable securities 115,000

Temporarily restricted support 115,000

4. Cash 124,000

Marketable securities 115,000

Temporarily restricted support -

investment income 9,000

Equipment 138,000

Cash 138,000

Temporarily restricted net assets -

reclassifications out 124,000

Unrestricted net assets -

reclassifications in 124,000

5. Cash 191,000

Other operating revenue -

unrestricted 191,000

6. Nursing service expense 1,000,000

General services expense 500,000

Cash 1,500,000

Exercise 7

1.

Accounts receivable 10,000,000

Revenues - educational and general 10,000,000

Tuition reduction - scholarships 800,000

Expenses - bad debts 400,000

Accounts receivable 800,000

Allowance for uncollectible accounts 400,000

Cash 8,500,000

Accounts receivable 8,500,000

2.

Cash 1,000,000

Revenues - auxiliary enterprises 1,000,000

3.

Expenses - educational and general 4,800,000

Expenses - auxiliary enterprises 200,000

Cash 5,000,000

4.

Cash 500,000

Grant funds held for students 500,000

Grant funds held for students 500,000

Cash 500,000

5.

Cash 250,000

Contributions receivable 25,000

Unrestricted revenues - contributions 200,000

Temporarily restricted revenues -

contributions 75,000

6.

Equipment 35,000

Cash 35,000

Temporarily restricted net assets -

reclassifications out .... 35,000

Unrestricted net assets -

reclassifications in 35,000

Exercise 8

Cash 2,000,000

Temporarily restricted revenues-research 2,000,000

Expenses - research 1,150,000

Cash/Payables. 1,150,000

Temporarily restricted net assets -

reclassifications out 1,150,000

Unrestricted net assets -

reclassifications in 1,150,000

Cash 1,000,000

Permanently restricted revenues -

endowment contribution 1,000,000

Cash 50,000

Temporarily restricted revenues -

endowment income 50,000

Expenses-research 44,000

Cash/Payables. 44,000

Temporarily restricted net assets -

reclassifications out 44,000

Unrestricted net assets -

reclassifications in 44,000

Exercise 9

1. Cash 9,000,000

Bonds payable 9,000,000

2. Cash 2,500,000

Temporarily restricted revenues -

Contributions 2,500,000

3. Building 10,500,000

Cash 10,500,000

Temporarily restricted net assets -

reclassifications out 10,500,000

Unrestricted net assets -

reclassifications in 10,500,000

4. Expenses - interest 720,000

Cash 720,000

5. Expenses – depreciation 525,000

Accumulated depreciation 525,000

Exercise 10

Cash 500,000

Temporarily restricted revenues-stadium 500,000

Buildings - stadium 650,000

Cash. 650,000

Temporarily restricted net assets -

reclassifications out 650,000

Unrestricted net assets -

reclassifications in 650,000

Expenses - depreciation 51,000

Accumulated depreciation 51,000

Cash 2,500,000

Permanently restricted revenues -

endowment contribution 2,500,000

Cash 201,000

Temporarily restricted revenues -

endowment income 201,000

Expenses - student aid 299,000

Cash. 299,000

Temporarily restricted net assets -

reclassifications out 299,000

Unrestricted net assets -

reclassifications in 299,000

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