Chapter 21 Accounting for Non Profit Organizations

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. b. c. d.

LO2 3.

It must have It must only A government A government

a positive fund balance. operate on US soil. can void tax regulations for the entity. can unilaterally dissolve the entity.

A non-governmental not-for-profit unit is subject to I. GASB. II. FASB.

LO3 4.

a. I. only. b. II. only. c. A combination of I and II depending on the entity’s purpose. d. Neither I or II 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. b. c. d.

net, gross gross, net gross, gross net, net

©2009 Pearson Education, Inc. publishing as Prentice Hall 21-1

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, nonreciprocal transfer, is called a(n) a. b. c. d.

LO3 7.

Unconditional promises to give that include promises of payments due in future periods (next year or later) are reported as a. b. c. d.

LO3 8.

unrestricted revenues. a memorandum, until the year of the promised payment. deferred revenues until payment is received. restricted revenues.

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. b. c. d.

LO4 9.

unconditional promise to give. contribution. conditional promise to give. residual equity transfer.

a special purpose contribution. an exchange transaction. an agency transaction. a conditional promise to give.

Voluntary health and welfare organizations must report expenses classified by a. b. c. d.

Restriction. function and natural classification. restriction and natural classification. restriction, function and natural classification.


LO4 10.

Which one of the following statements is not required for voluntary health and welfare organizations? a. b. c. d.

LO4 11.

statement statement statement statement

of of of of

financial position. activities. functional expenses. changes in net assets.

Voluntary health and welfare organizations classify fundraising costs as a. b. c. d.

LO4 12.

A A A A

costs of services sold. program services. functional expenses. supporting services.

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. b. c. d.

LO5 14.

As As As As

a restricted revenue. an unrestricted contribution. both an unrestricted revenue and as an expense. a pro bono activity.

Hospital premium fees are a. b. c. d.

charity care services. only earned to the extent of the services provided. refundable to the subscriber if services are unused. revenues earned even if the standard charge is above or below the fee.


LO5 15.

Hospital courtesy allowances are a. b. c. d.

LO5 16.

Activities treated as deductions from gross revenues (contrarevenue accounts) in not-for-profit hospitals and other health care organizations include(s) a. b. c. d.

LO6 17.

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

Not-for-profit college and university student unions, dormitories, and residence halls are considered a. b. c. d.

LO6 19.

charity care services. courtesy allowances. estimated bad debts. all of the above.

Which of the following is (are) treated as expense(s) by notfor-profit colleges and universities? a. b. c. d.

LO6 18.

charity care services. revenue deductions. Expenses. revenues earned even if the standard charge is above or below the allowance.

educational and general services. auxiliary enterprises. independent operations. restricted enterprises.

An alumnus made a donation of adjoining land to a university. The university would record the gift as a. b. c. d.

an endowment asset. a restricted revenue. an unrestricted revenue. an exchange transaction.


LO6 20.

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

a bequest. an agency transaction. unrestricted revenue. 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.................. Unrestricted Support - Membership Dues................ Unrestricted Revenues - Investment Income............. Temporarily restricted gain on sale of investments. . . . Expenses - Research................................... Expenses - Fund Raising............................... Expenses - Management and General..................... Restricted Support - Contributions.................... Restricted Revenues - Investment Income............... Permanently Restricted Support - Contributions........ Unrestricted Net Assets, January 1, 2005.............. Temporarily Restricted Net Assets, January 1, 2005. . . . Permanently Restricted Net Assets, January 1, 2005. . . .

$5,000,000 600,000 96,000 9,000 3,200,000 700,000 300,000 600,000 50,000 60,000 500,000 6,000,000 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. following information is available about the operations.

The

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. following information is available about the operations.

The

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........................... Membership dues......................... Investment Income....................... Total revenues and gains............. Net assets released from restrictions Increase in unrestricted net assets Expenses: Program Services: Research................................ Supporting Services: Management and General.................. Fund Raising............................ Total Supporting Services............ Total Expenses....................... Net increase in unrestricted net assets

$5,000,000 600,000 96,000 5,696,000 1,300,000 6,996,000

3,200,000 300,000 700,000

1,000,000 4,200,000 2,796,000

Changes in Temporarily Restricted Net Assets Contributions........................... Investment Income....................... Gain on Sale of investments............. Net assets released from restriction.... Decrease in temporarily restricted net assets

600,000 50,000 9,000 (1,300,000) ( 641,000)

Changes in Permanently Restricted Net Assets Contributions........................... Increase in permanently restricted net assets

60,000 60,000

Increase in net assets..................... Net assets, January 1, 2005................ Net assets, December 31,2005...............

2,215,000 6,550,000 $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........................... Membership dues......................... Investment Income....................... Total revenues and gains............. Net assets released from restrictions Increase in unrestricted net assets Expenses: Program Services: Research................................ Supporting Services: Management and General.................. Fund Raising............................ Total Supporting Services............ Total Expenses....................... Net increase in unrestricted net assets Changes in Temporarily Restricted Net Assets Contributions........................... Investment Income....................... Gain on Sale of investments............. Net assets released from restriction.... Decrease in temporarily restricted net assets Changes in Permanently Restricted Net Assets Contributions........................... Increase in permanently restricted net assets Increase in net assets..................... Net assets, July 1, 2005................... Net assets, June 30,2006...................

$3,000,000 700,000 76,000 3,776,000 800,000 4,576,000

2,200,000 500,000 400,000

900,000 3,100,000 1,476,000 600,000 40,000 19,000 (800,000) (141,000) 70,000 70,000 1,405,000 2,610,000 $4,015,000


Exercise 3 1. Temporarily restricted net assets reclassifications out............ Unrestricted net assets reclassifications in..............

20,000 20,000

2. Pledges receivable...................... Cash ................................. Allowance for uncollectible pledges. . Unrestricted support - contributions.

40,000 25,000

3. Expenses - meals program - supplies..... Inventory of supplies................ Unrestricted contributions donated supplies..................

101,500

4. Expenses - management and general....... Expenses - meals program - supplies..... Expenses - meals program - rental....... Cash.................................

15,000 45,000 2,500

5. Pledges receivable...................... Temporarily restricted support contributions.....................

250,000

2,000 63,000 1,500 100,000

62,500

250,000

Exercise 4 1. Temporarily restricted net assets reclassifications out................... Unrestricted net assets reclassifications in.................

40,000 40,000

2. Pledges receivable...................... Cash ................................. Allowance for uncollectible pledges. . Unrestricted support - contributions.

400,000 200,000

3. Cash.................................... Unrestricted revenues - sales........

16,000

4. Expenses - management and general....... Expenses - supplies..................... Expenses - rental....................... Expenses - utilities.................... Cash.................................

110,000 10,000 60,000 12,000

5. Marketable securities................... Temporarily restricted support contributions........................

520,000


8,000 584,000 16,000

192,000

520,000

Exercise 5 1.

Accounts receivable..................... Patient service revenues-unrestricted

4,000,000

Patient service revenues - unrestricted. Contractual adjustments................. Courtesy discounts...................... Expenses - provision for bad debts...... Accounts receivable.................. Allowance for uncollectibles.........

125,000 350,000 10,000 150,000

Cash.................................... Premium revenue - unrestricted.......

125,000

Supplies inventory...................... Accounts payable.....................

40,000

Accounts payable........................ Cash.................................

36,000

Cash.................................... Temporarily restricted support.......

1,100,000

6. Construction in progress................ Cash.................................

275,000

2.

3.

4,000,000

485,000 150,000

125,000

4.

5.

Temporarily restricted net assets reclassifications out................... Unrestricted net assets reclassifications in................

40,000 36,000

1,100,000 275,000

275,000


275,000

Exercise 6 1.

Accounts receivable..................... Patient service revenues-unrestricted

4,500,000

Patient service revenues - unrestricted. Contractual adjustments................. Courtesy discounts...................... Accounts receivable..................

165,000 400,000 14,000

3. Marketable securities................... Temporarily restricted support.......

115,000

4. Cash.................................... Marketable securities................ Temporarily restricted support investment income....................

124,000

Equipment............................... Cash.................................

138,000

2.

Temporarily restricted net assets reclassifications out................... Unrestricted net assets reclassifications in.................

4,500,000

579,000 115,000 115,000 9,000 138,000

124,000 124,000

5. Cash.................................... Other operating revenue unrestricted .......................

191,000

6. Nursing service expense................. General services expense................ Cash.................................

1,000,000 500,000

191,000

1,500,000

Exercise 7 1. Accounts receivable..................... Revenues - educational and general...

10,000,000

Tuition reduction - scholarships........ Expenses - bad debts.................... Accounts receivable.................. Allowance for uncollectible accounts.

800,000 400,000

10,000,000

Cash.................................... Accounts receivable.................. ©2009 Pearson Education, Inc. publishing as Prentice Hall 21-18

800,000 400,000 8,500,000 8,500,000

2. Cash.................................... Revenues - auxiliary enterprises.....

1,000,000

Expenses - educational and general ..... Expenses - auxiliary enterprises....... Cash.................................

4,800,000 200,000

Cash.................................... Grant funds held for students........

500,000

Grant funds held for students........... Cash.................................

500,000

Cash ................................. Contributions receivable................ Unrestricted revenues - contributions Temporarily restricted revenues contributions....................

250,000 25,000

Equipment............................... Cash.................................

35,000

1,000,000

3.

4.

5,000,000

500,000 500,000

5.

6.


200,000 75,000

35,000 35,000


35,000

Exercise 8 Cash.................................... 2,000,000 Temporarily restricted revenues-research

2,000,000

Expenses - research..................... Cash/Payables........................

1,150,000


1,150,000

1,150,000 1,150,000

Cash.................................... Permanently restricted revenues endowment contribution...............

1,000,000

Cash.................................... Temporarily restricted revenues endowment income.....................

50,000

Expenses-research....................... Cash/Payables........................

44,000


1,000,000

50,000 44,000

44,000 44,000

Exercise 9 1. Cash ................................. Bonds payable........................

9,000,000

2. Cash.................................... Temporarily restricted revenues Contributions.......................

2,500,000

3. Building................................ Cash.................................

10,500,000


9,000,000

2,500,000 10,500,000

10,500,000 10,500,000

4. Expenses - interest..................... Cash.................................

720,000

5. Expenses – depreciation.................

525,000


720,000

Accumulated depreciation.............

525,000

Exercise 10 Cash.................................... Temporarily restricted revenues-stadium

500,000

Buildings - stadium..................... Cash.................................

650,000


500,000

650,000 650,000 650,000

Expenses - depreciation................. Accumulated depreciation.............

51,000

Cash.................................... Permanently restricted revenues endowment contribution...............

2,500,000

Cash.................................... Temporarily restricted revenues endowment income.....................

201,000

Expenses - student aid.................. Cash.................................

299,000


51,000

2,500,000

201,000

299,000

299,000


299,000

Chapter 21 Accounting for Non Profit Organizations

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