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ACC 410 Week 9 Quiz 7

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ACC 410 Week 9 Quiz 7

Chapter 12

Not-for-Profit Organizations

 

 

TRUE/FALSE (CHAPTER 12)

 

  1. FASB Statement No. 117 directs that revenues and expenses be reported in a statement of financial position.

 

  1. In the statement of activities, FASB Statement No. 117 requires revenues to be reported as increases in one of the three categories of net assets, depending on donor-imposed restrictions; however, all expenses should be reported as decreases in unrestricted net assets.

 

  1. Restricted contributions may be reported as unrestricted if the restriction has been met in the same period as the contribution is made.

 

  1. FASB Statement No. 95 requires not-for-profits to use the direct method in their statements of cash flows.

 

  1. In accounting for investments, not-for-profits, like businesses, must report their investments at fair value and classify the investments as either trading, available-for-sale, or held-to-maturity.

 

  1. FASB Statement No. 93 makes the recognition of depreciation on plant and equipment assets optional at the discretion of the not-for-profit.

 

 

  1. Temporarily restricted funds related to plant and equipment generally account only for resources restricted to their purchase or construction, not for the plant and equipment itself, which are typically reported in the unrestricted fund.

 

 

 


MULTIPLE CHOICE (CHAPTER 12)

 

  1. The basis of accounting used by not-for-profit organizations in their external financial reports is
    1. Industry-specific basis of accounting.
    2. Cash basis of accounting.
    3. Modified accrual basis of accounting.
    4. Accrual basis of accounting.

 

  1. FASB require the balance sheets of not-for-profits to display
  2. Net assets in four separate categories—unrestricted, temporarily restricted, permanently restricted, and restricted by creditors.
  3. Three separate funds—unrestricted, temporarily restricted, and permanently restricted net assets.
  4. Six totals—total assets, total liabilities, total net assets, total unrestricted net assets, total temporarily restricted net assets, and total permanently restricted net assets.
  5. Unrestricted, temporarily restricted, and permanently restricted retained earnings.

 

  1. FASB requires external financial reports to provide information about
    1. Donor-imposed restrictions on resources.
    2. All restrictions on resources.
    3. Donor and creditor restrictions on resources.
    4. None of the above.

 

  1. Expenses incurred by not-for-profit organizations should be reported as
    1. Decreases in one of the three categories of net assets.
    2. Decreases in unrestricted net assets.
    3. Decreases in temporarily restricted net assets.
    4. Decreases in permanently restricted net assets.

 

  1. Revenues of a not-for-profit organization should be reported as
    1. Increases in one of the three categories of net assets.
    2. Increases in unrestricted net assets.
    3. Increases in temporarily restricted net assets.
    4. Increases in permanently restricted net assets.

 

  1. Restricted gifts to not-for-profit organizations
    1. Must always be shown as an increase in restricted net assets.
    2. Must always be shown as an increase in unrestricted net assets.
    3. May be shown as an increase in unrestricted net assets if the restriction is met in the same period.
    4. May be shown as an increase in unrestricted net assets at the discretion of management.

 

  1. The account title “Resources Released from Restriction” is reported by a ‘restricted fund’ as a
  2. Revenue account.
  3. Contra-revenue account.
  4. Expense account.
  5. Contra-expense account.

 

 

  1. The account title “Resources Released from Restriction” is reported by an unrestricted “fund” as a
    1. Revenue account.
    2. Contra-revenue account.
    3. Expense account.
    4. Contra-expense account.

 

  1. FASB requires that all not-for-profit organizations report expenses
    1. By object.
    2. By function.
    3. By natural classification.
    4. By budget code.

 

  1. The National Association for the Preservation of Wildlife received $10,000 from a benefactor to support the overall objective of the organization. This amount will be recognized as revenue
  2. In the period received.
  3. In the period spent.
  4. Never, because it is not earned.
  5. In the period it becomes susceptible to accrual.

 

  1. Not-for-profit organizations report their cash flows in which of the following categories?
    1. Operating, noncapital financing, capital financing, investing.
    2. Operating, noncapital financing, investing.
    3. Operating, capital financing, investing.
    4. Operating, financing, investing.

 

  1. Not-for-profit organizations should report contributions restricted for long-term purposes in which of the following cash flows categories?
    1. Operating
    2. Capital financing.

 

  1. Not-for-profit organizations should report interest and dividends earned and restricted for long-term purposes in which of the following cash flows categories?
    1. Operating
    2. Capital financing.

 

  1. The characteristic that most clearly distinguishes a contribution from an exchange transaction is which of the following?
  2. Cash is always received.
  3. An exchange transaction is a reciprocal transfer of resources.
  4. An exchange transaction is a nonreciprocal transfer of assets.
  5. There are always restrictions attached to use of the assets received as a result of a contribution.

 

 

  1. Revenue from an exchange transaction may be classified as an increase in which class of net assets?
  2. Unrestricted net assets.
  3. Temporarily restricted net assets.
  4. Permanently restricted net assets.
  5. Any of the above.

 

  1. During the annual fundraising drive, the Cancer Society raised $900,000 in pledges of financial support for their general operations. By the fiscal year-end, the Society had collected $600,000 of the pledges.  The Society estimates that 10% of the remaining pledges will be uncollectible.  The NET amount of revenue the Society should recognize during the current year from this pledge drive is
  2. $900,000.
  3. $870,000.
  4. $810,000.
  5. $600,000.

 

Use the following information to answer Questions 17 through 20.

United Charities’ annual fund raising drive in 2010 raised pledges of $1,200,000 of which $800,000 were collected in 2010 and $200,000 were collected in 2011.  United Charities estimates $150,000 of the remaining pledges will never be collected.

 

  1. The increase in unrestricted net assets in 2010 as a result of the fund raising drive is
  2. $1,200,000.
  3. $1,050,000.
  4. $800,000.
  5. $250,000.

 

  1. The increase in temporarily restricted net assets in 2010 as a result of the fundraising drive is
  2. $1,200,000.
  3. $1,050,000.
  4. $800,000.
  5. $250,000.

 

  1. In 2011, the change in temporarily restricted net assets is
    1. $0
    2. $200,000 decrease.
    3. $200,000 increase.
    4. $1,000,000 decrease.

 

  1. In 2011, the change in unrestricted net assets is
    1. $0
    2. $200,000 increase.
    3. $200,000 decrease.
    4. $1,000,000 increase.

 

 

  • In a prior year, United Charities received a $125,000 gift to be used to acquire vans to provide transportation for physically challenged adults. During the current year, United acquired two vans at a cost of $75,000 each. The appropriate entry(ies) to record the acquisition should be
  1. a) UNRESTRICTED FUND

Resources released from restriction     $125,00

Cash                                                                $125,000

RESTRICTED FUND

Fixed assets                                         $150,000

Cash                                                                $  25,000

Resources released from restriction                 $125,000

  1. b) RESTRICTED FUND

Resources released from restriction     $ 125,000

Cash                                                                $125,000

UNRESTRICTED FUND

Fixed assets                                         $150,000

Resources released from restriction                 $125,000

Cash                                                                $  25,000

  1. c) UNRESTRICTED FUND

Fixed assets                                         $150,000

Cash                                                                $150,000

  1. d) RESTRICTED FUND

Fixed assets                                         $150,000

Cash                                                                $150,000

 

  1. In the current year National Pet Charities, which uses fund-type accounting to maintain its books and records, received a $30,000 contribution to help educate people on responsible pet ownership. During the current year, the entry to record this donation is
    1. UNRESTRICTED FUND. No entry.

RESTRICTED FUND.  Debit Cash $30,000; Credit Revenues $30,000.

  1. UNRESTRICTED FUND. No entry.

RESTRICTED FUND.  Debit Cash $30,000; Credit Net assets $30,000.

  1. UNRESTICTED FUND. Debit Cash $30,000; Credit Revenues $30,000.

RESTRICTED FUND.  No entry.

  1. UNRESTRICTED FUND. Debit Cash $30,000; Credit Net assets $30,000.

RESTRICTED FUND.  No entry.

 

  1. During the current year a not-for-profit entity received a contribution of $100,000 to use for scholarships. In the current year the entity had already budgeted $400,000 for scholarships.  During the current year, the entity disbursed $350,000 for scholarships.  The amount the entity can consider as ‘released from restriction’ in the current year is
    1. $0.
    2. $100,000.
    3. $350,000.
    4. $400,000.

 

 

  1. Grace Church, a not-for-profit entity, operates a school in connection with the Church. This year members of the Church decided to construct a new wing on the school with six classrooms.  The Church hired an architect and a construction supervisor.  The bulk of the labor for construction was donated by Church members who were willing workers but not necessarily skilled carpenters.  Materials for the construction cost $600,000 and the paid labor was $200,000.  The fair value of the completed building is $2 million.  When the building is completed what should be the balance in the asset account “Building” and the account “Contributed Revenue”?
  2. Building $800,000; Contributed Revenue $0.
  3. Building $800,000; Contributed Revenue $1,200,000.
  4. Building $2 million; Contributed Revenue $1,200,000.
  5. Building $2 million; Contributed Revenue $0.

 

  1. Mary’s Extended Care Center, a not-for-profit entity, enjoys the services of a group of high school age people who each agree to work three afternoons a week for three hours each afternoon performing a variety of patient-related services such as writing letters for those who are unable to do so, delivering mail to the patient rooms, and pushing wheel-chair patients across the grounds. The services rendered by these young people enhance the quality of life for the residents.  They could not be provided if they were not donated because there are not enough resources to do so.  The past year the young people donated 5000 hours in total.  The services would have cost $6.00 per hour if they had been purchased but they were worth $10 an hour to St. Mary’s.  What is the amount of contributed revenue that should be recognized by St. Mary’s related to these services?
  2. $50,000.
  3. $30,000
  4. $0.
  5. Cannot determine.

 

  1. Simplex Games, a not-for-profit entity organized to provide athletic competition opportunities for high school students, utilizes a number of volunteers in carrying out its mission. At the 2011 Games 50 volunteers provided a total of 1000 hours of service performing tasks such as picking up litter and delivering water to the athletes.  A local CPA firm donates its services to prepare the annual tax return and other federal and state required paperwork which must be filed to maintain its status as a tax-exempt organization.  During 2011 the CPA firm provided 50 hours of service.  If purchased, the CPA services would have cost $60 per hour and the game workers would have cost $6 per hour.  How much contributed service revenue should Simplex Games recognize in 2011?
  2. $9,000.
  3. $6,000.
  4. $3,000.
  5. $0.

 

  1. A not-for-profit Art Museum that has elected not to capitalize its art collection receives a donation of a rare piece of Tlinket Indian art. The donor paid $8,000 for the piece several years ago.  Today the piece has an estimated fair value of $50,000.  What entry should the Art Museum make upon receipt of this donation?
  2. Debit Collection items $50,000; Credit Donated revenue $50,000.
  3. Debit Collection items $8,000; Credit Donated revenue $8,000.
  4. Debit Collection items $50,000; Credit Unrestricted net assets $50,000.
  5. No entry required.

 

 

  1. Greene County Historical museum, a not-for-profit entity that capitalizes its collection items, received a gift of several Civil War artifacts to be used for display and research. The donor found these items while cleaning out the closet of an old house.  The fair value is hard to estimate but a dealer in these types of artifacts estimates their value at $2,000.  The entry to record this donation is
  2. Debit Collection expense, $2,000; Credit Contributions revenue $2,000.
  3. Debit Collection items $2,000; Credit Contributions revenue $2,000.
  4. No entry is required because the cost to the donor was $0.
  5. No entry required because the value of the items is estimated.

 

  1. Native Art Museum, a not-for-profit entity that elects not to capitalize its collection items, purchased for $10,000 a wonderful totem pole for display near the door of the Museum. As a result of this transaction, which of the following entries should be made?
  2. Debit Collection items $10,000; Credit Cash $10,000.
  3. Debit Collection expense $10,000; Credit Cash $10,000.
  4. Debit Unrestricted net assets $10,000; Credit Cash $10,000.
  5. No entry is required.

 

  1. The Nature Conservatory, a not-for-profit entity, engaged in a fundraising drive to raise money to buy land to provide a habitat for the endangered Sleepy Eagle. A donor pledged $1 million to the project provided that the Nature Conservatory was able to raise an additional $1.5 million from other sources.  What entry should the Nature Conservatory make at the time of the $1 million pledge?
  2. Debit Pledge receivable $1 million; Credit Unrestricted revenue $1 million.
  3. Debit Pledges receivable $1 million; Credit Temporarily restricted revenue $1 million.
  4. Debit Pledges receivable $1 million; Credit Temporarily restricted net assets $1 million.
  5. No entry is made at the time of the pledge.

 

  1. When should a not-for-profit entity recognize pledge revenue that is contingent upon raising a matching amount?
  2. When the pledge is made.
  3. When the cash is received.
  4. When the matching funds have been raised.
  5. When the project is completed.

 

  1. A donor pledges $100,000 to the Shakespeare Foundation to be used only to support the summer Shakespeare Theater—an event that has been held every summer for 38 years. This is an example of a
  2. Conditional Contribution.
  3. Unconditional contribution.
  4. Restricted contribution.
  5. Unrestricted contribution.

 

  1. United Charities accepted a contribution from a donor and agreed to transfer the assets to Aid for Friends, a not-for-profit that provides temporary shelter to the homeless. United Charities should debit cash or other assets and credit
    1. Unrestricted revenue.
    2. Temporarily restricted revenue.
    3. Liability to Aid for Friends.
    4. United Charities should not make an entry.

 

  1. Music Lovers Foundation, a not-for-profit governed by an independent board, was founded to support the Northern State University Choir until such time as the state legislature shall adequately fund the choir. When the Choir is adequately funded by appropriation the Foundation may direct resources to other music projects that it deems acceptable.  When Music Lovers accepts a contribution from a donor it should debit cash and/or other assets and credit
    1. Unrestricted revenue.
    2. Temporarily restricted revenue.
    3. It should not make an entry.

 

 

  1. The Save the Animals Foundation received a gift of $500,000 from a donor who wanted the gift used to acquire habitat for endangered snails. The money may be invested but all earnings are restricted to habitat acquisition.  During the year the entire gift was invested in corporate securities.  At year-end, the securities had a value of $501,000.  The appropriate way to recognize the change in fair value is
  2. Debit Investments $1,000; Credit Unrestricted revenue $1,000.
  3. Debit Investments $1,000; Credit Temporarily restricted revenue $1,000.
  4. Debit Investments $1,000; Credit Permanently restricted revenue $1,000.
  5. No entry should be made until the securities are sold.

 

 

  1. During the year, a not-for-profit entity received $30,000 in dividends and $24,000 in interest on its investment portfolio. The entity also accrued $6,000 in interest on the portfolio.  The increase in fair value of the portfolio during the year was $8,000.  How much should the entity report for investment earnings during the year?
  2. $62,000.
  3. $54,000.
  4. $8,000.
  5. $0.

 

 

  1. The Friends of the Library (FOL), a not-for-profit entity, received a gift restricted to acquisition of a special piece of the equipment used to restore books. Late last year FOL acquired the machine at a total cost of $19,000.  The machine is estimated to have a useful life of eight years and a salvage value of $3,000.  In what fund should FOL make the entry to record the depreciation for the current year?
  2. Unrestricted fund.
  3. Temporarily restricted fund.
  4. Permanently restricted fund.
  5. FOL should not recognize depreciation.

 

 

  1. Which of the following entities should recognize depreciation expense on its operating statement?
  2. Not-for-profit university.
  3. Not-for-profit foundation.
  4. Not-for-profit hospital.
  5. All of the above.

 

 

  1. A not-for-profit would include which of the following financial statements in its Basic Financial Statements?
  2. Statement of Financial Position and Statement of Activities.
  3. Statement of Financial Position, Statement of Activities, and Cash Flow Statement.
  4. Statement of Financial Position, Statement of Activities, Cash Flow Statement, and a Statement of Functional Expenses.
  5. Statement of Financial Position, Statement of Activities, and a Statement of Functional Expenses.

 

 


PROBLEMS (CHAPTER 12)

 

  1. United Charities, a not-for-profit entity, supports activities for lower-income families. They have regularly engaged in activities such as providing transportation for physically challenged individuals, providing shelters for the temporarily homeless, providing congregate meals for the homeless, and providing shelters for abused women and children. Record the following transactions.  Your account titles should clearly indicate to which class of net assets the entry will be closed or the fund in which the entry is being made.  If no entry is required, write “No entry required.”

 

  1. United Charities engaged in a fund-raising campaign that resulted in pledges of $600,000 to support activities of the current year. During the year, United collected $450,000 on these pledges.

 

  1. A local citizen pledged $50,000 to purchase and equip a van to provide transportation for physically challenged individuals. This citizen has donated regularly and there is no reason to believe that this pledge will not be collectible.

 

  1. In prior years, an advocacy group for abused women donated $10,000 to be used to furnish a “safe-house” for abused women and children. During the current year renovation of the safe house was completed and furniture was acquired at a total cost of $25,000.

 

  1. A wealthy benefactor pledged $100,000 to United if United successfully raises a matching amount in a capital asset fund-raising drive being conducted over a 12-month period.

 

  1. $60,000 cash is received from a donor who specifies that the money must be spent to provide educational activities for children who will be living in the “safe-house.” It will be next year before the “safe-house” has its first residents.

 

  1. A local attorney has agreed to provide legal services to United on a pro bona basis. During the current period the attorney provided services for which she would have billed $1,500.

 

  1. Several older housewives provide services at the United Charities congregate meal setting facility. These women work in the kitchen serving meals and cleaning up the kitchen.  If these services were not donated they would have had to purchase them. The value of these services at the prevailing wage rate for similar employees would have amounted to $50,000 for the current year.

 

  1. Fixed assets belonging to United Charities had an original cost of $370,000, an estimated salvage value of $70,000, and an estimated useful life of 20 years. Record depreciation if applicable.

 

  1. $90,000 is received from a donor who specifies that $30,000 is for use by United Charities and $60,000 is to be used by Zimbabwe Charities, United’s sister organization in Africa.

 

  1. The Heritage Art Museum, a not-for-profit entity specializing in art items created by natives of the Pacific Northwest, has a December 31 fiscal year-end. The Museum has a policy of NOT capitalizing collection items.  Your entry should clearly indicate to which class of net assets the account would be closed, or in which fund the entry is being made. If no entry is required, write “No entry required.”

 

  1. a) During the current year the Museum received admissions fees in cash $500,000.

 

  1. b) Citizens of the local community are encouraged to participate in a program called “Friends of the Museum.” For a yearly contribution of $25 per family, a family is entitled to free admission to the Museum during the calendar year.  A “Friend of the Museum” also receives a monthly one-page newsletter announcing upcoming events.  At year-end, there were 1000 members in the “Friends of the Museum.”

 

  1. c) During the current year the Museum incurred salary expense of $1 million of which $40,000 remains unpaid at year-end.

 

  1. d) During the year the Museum incurred operating expenses of $450,000 of which $30,000 remains unpaid at year-end. Of the $450,000, $50,000 was used to buy supplies of which $20,000 remains on hand at year-end.

 

  1. e) Office equipment owned by the Museum has a historical cost of $140,000, salvage value of $20,000 and can be depreciated over 8 years on the straight-line basis.

 

  1. f) During the year the Museum conducted a fund-raising drive to raise money to acquire new art items for the Museum. The Museum received pledges of $200,000 of which the Museum had collected $160,000 by year-end and expected to ultimately collect another $20,000.

 

  1. g) The Museum had a small portfolio of investments in equity securities.. At the beginning of the year the portfolio had a fair value of $60,000.  During the year the Museum collected $3,000 in dividends on the securities.  At year-end the portfolio had a market value of $62,000.

 

  1. h) During the year a citizen died and willed his wonderful collection of native art to the Museum. The appraised value of the collection was $600,000.

 

  1. i) To balance its collection, the Museum sold two of its collection items for $250,000, which approximates fair value. These items had a historical cost to the Museum of $10,000.

 

  1. j) The proceeds of the sale were used to acquire two new items at a cost of $310,000.

 

 

 

 

 

 

 

 

 

  1. Save the Children Foundation has the following types of cash receipts and disbursements during its current fiscal year. Indicate in which categories each of these flows would be reported in the Foundation’s statement of cash flows.

 

  1. Unrestricted contributions
  2. Sales of handmade crafts
  3. Contributions restricted to capital asset acquisition
  4. Contributions to endowments
  5. Investment earnings on endowments, not required to be added to the endowment
  6. Salaries
  7. Interest paid on short-term loan
  8. Capital asset purchases
  9. Investments sold
  10. Short-term loan proceeds
  11. Contributions made to other organizations
  12. Capital lease payments.

 

 

 

  1. In June 2010, the wealthy parents of a college sophomore pledge to donate $1.5 million to the college she attends, making payments of $.5 million at the end of each of her remaining years at the school until her expected graduation in 2013. Assuming the college does not use separate funds to track restricted resources, prepare the entries required, if any, to recognize the pledge in 2010.  The college applies a discount rate of 3%.  Based on that rate, the present value of $1 for three periods is $2.82861.  What entries, if any, would be required to record the receipt of the first $.5 million at the end of year 1?

 

 

  1. In December 2010, Technology University received a $2 million grant from the National Hockey Association to develop an effective neck brace to prevent injuries in its non-goalie hockey players. The NHA grant was intended to cover $1.5 million of direct costs and $0.5 million in overhead costs.  The grant stipulated that the NHA would be the sole beneficiary of the research.  Technology carried out the research in 2011.  As estimated, direct costs were $1.5 million.

 

REQUIRED:

 

  1. What accounting entries, if any, should Technology make when notified of the grant?
  2. What accounting entries, if any, should Technology make in 2011? (Be sure to indicate in which funds the entries would be recorded.)
  3. Would your answer be different if the research were made available to the general public, and not just the NHA?
  4. Would your answer be different if the NHA indicated it would not make any payments on the research until Technology delivers the final research product?

 

 

 

ESSAYS (CHAPTER 12)

 

  1. For each of the cases below state whether the contributed services would be recognized, how much would be recognized, and how it would be recognized. Explain your answer in terms of the existing standard.  Also explain why, in your opinion, the standard permits/prohibits recognition of this particular type of contribution.

 

  1. A church votes to construct a new educational wing on its existing facility. The church will hire an architect to design the new wing and a construction supervisor to oversee the construction.  Church members will provide most of the labor for the construction.   Labor donated by members who have construction experience or who are considered professional craftsmen at the prevailing wage for their trade or craft is $500,000.  Labor donated by persons possessing non-building specialized skills (doctors, teachers, lawyers, etc.) at their prevailing wage rates is $700,000.  Labor donated by non-professionals measured at the minimum wage is $300,000.  The appraised value of the building when completed is $3 million.  The architect was paid $700,000, the construction supervisor was paid $50,000 and the materials purchased for use in the building cost $1 million.

 

  1. An investment advisor, a member of the Board of a not-for-profit entity, provides pro bona investment advice to the NFP. The NFP does not have a particularly large investment portfolio and without the advice of the Board member the NFP would probably invest its idle cash in certificates of deposits at an insured commercial bank to protect itself against loss of its principal.  If the investment advisor had provided similar services to his customers he would have charged $2,000.

 

  1. Members of a religious order provide professional nursing services for a healthcare facility that is run by their order. The members are not compensated but their order provides lodging, food, and other necessities.  The cost of the lodging, food, etc., is paid by the healthcare entity and classified as Nursing Service Expense.  At the end of the year the balance in the Nursing Service Expense account is $3 million.  The value of the nursing services provided, measured at the prevailing wage for nurses, is $5 million.

 

  1. A generous benefactor pledges $1 million to The R. J. Smith Foundation, a not-for-profit entity that promotes the arts. The gift is to be used to provide scholarships for talented musicians at a music camp operated by the Foundation.  The gift was given in August 2010 to support the Summer 2011 music program.  The Foundation Director argues that the gift is a conditional restricted gift and therefore cannot be recognized as revenue in 2010.  The accountant argues that the gift is an unconditional restricted gift and must be recognized in the current year.  What is the basis for the Director’s argument?  What is the basis for the accountant’s argument?  In your answer provide an explanation of the terms conditional, unconditional, restricted and unrestricted.

 

  1. Alpha Hospital is a recipient of Hill-Burton funds and must provide some hospital care for which it will not be compensated. During the current year, Alpha Hospital provided $1 million in charity care.  What is the current financial reporting requirement for charity care?  Do you agree or disagree with the current financial reporting requirement?  Why or why not?  If you do not agree, how do you think charity care should be reported?  If you agree with the current standards, what alternative reporting requirements do you believe would be proposed by those who do not agree with the current standards?

 

Chapter 13

Colleges and Universities

 

 

TRUE/FALSE (CHAPTER 13)

 

  1. Government (public) colleges and universities must adhere to the FASB pronouncements.

 

  1. Private not-for-profit colleges and universities are subject to the same FASB standards as other not-for-profit entities.

 

  1. Most colleges and universities classify revenues by source and expenses by function.

 

  1. GASB requires that revenues be classified into three categories of restrictiveness based on donor specification.

 

  1. In a public university setting, general administration and sponsored research are examples of revenues classified by source.

 

  1. Long lived assets held by public universities are carried at cost, or fair value if donated.

 

  1. Investments of a public college must be reported at fair value.

 

  1. Tuition revenue should be reported net of tuition discounts and scholarships.

 

  1. In accounting for colleges and universities, related entities should either be disclosed in the Notes to the Financial Statements or reported as component entities, depending on the degree of control and economic interest.

 

  1. Under GASB 39, colleges and universities are required to bring their affiliated medical organizations into their financial reports.

 

 

 

MULTIPLE CHOICE (CHAPTER 13)

 

  1. Financial statements for Smith College, a church-supported college, should be prepared according to standards set by
  2. Smith may choose any of the above.

 

  1. For a not-for-profit college or university, which of the following categories of net assets is NOT appropriate in its external financial statements?
    1. Unrestricted net assets.
    2. Temporarily restricted net assets.
    3. Permanently restricted net assets.
    4. All of the above are appropriate.

 

  1. Katerah College, a private college, received a $1 million donation. The donor specified that the principal of her gift could never be used for program activities but the earnings on the principal must be used to provide scholarships to academically qualified students in the business school.  The $1 million gift would increase which of the following categories of net assets?
  1. Unrestricted net assets.
  2. Temporarily restricted net assets.
  3. Permanently restricted net assets.
  4. Either (b) and (c).

 

  1. During the current year, Kayla University received a $50,000 gift from an alumna who specified that it must be used to pay travel costs for faculty to attend health care conferences in foreign countries. During the year the university spent $8,000 to support travel to a health care conference in Italy.  The $8,000 disbursement will cause a NET decrease in which class of net assets?
  2. Unrestricted net assets.
  3. Temporarily restricted net assets.
  4. Permanently restricted net assets.
  5. Cannot be determined.

 


Use the following information for Questions 5 and 6.

 

Lane College Foundation is governed by a board, some members of which are appointed by the President of Lane College and some of which are elected by the alumni. It was created to solicit and accept donations on behalf of Lane College, a private not-for-profit college.  Lane College and its Foundation are deemed to be financially interrelated.  All funds collected by the Foundation must be used to support activities of Lane College.  The Foundation Board can select which activities of Lane College it supports.  Lane Foundation received a $1 million bequest from the estate of a 1940 graduate.

 

  1. At the time the Foundation receives the donation, the Foundation should debit Cash for $1 million and credit what account for $1 million?
  2. Unrestricted revenue.
  3. Temporarily restricted revenue.
  4. No entry should be made by the Foundation.

 

  1. At the time the Foundation receives the donation, Lane College should debit Asset $1 million and Credit what account for $1 million?
    1. Unrestricted revenue.
    2. Temporarily restricted revenue.
    3. No entry should be made by Lane College.

 

  1. Sheridan Public School Foundation had available temporarily restricted gifts in excess of $200,000. The Foundation decided to invest this money temporarily until it needs the funds for the restricted purpose.  The donors had made no specific stipulations regarding investment earnings but the Foundation board had voted to use the earnings on the projects for which the gift had originally been restricted.  At year-end, the securities had a fair value of $200,500.  The appropriate way to recognize the change in fair value is
  1. Debit Investment $500; Credit Unrestricted Revenue $500.
  2. Debit Investment $500; Credit Temporarily Restricted Revenue $500.
  3. Debit Investment $500; Credit Permanently Restricted Revenue $500.
  4. No entry should be made until the securities are sold.

 

  1. An accountant has encountered a perplexing financial reporting issue related to the private college for which he is preparing financial statements. The issue is not specifically addressed by FASB Statements.   To what standards would the accountant first look for guidance?
  2. GASB Statements.
  3. AICPA accounting and auditing guide, Not-for-Profit Organizations.
  4. AICPA accounting and auditing guide, Audits of Colleges and Universities and/or AICPA SOP 74-8, Financial Accounting and Financial Reporting by Colleges and Universities.
  5. College textbooks.

 

  1. Current operating expenses of a public college may be classified by which of the following?
  2. Object classes
  3. Organizational Units
  4. Program functions
  5. All of the above
  6. Only B & C

 

  1. Which of the following criteria must be met for a public university to report affiliated organizations as component units?
  2. The university is entitled to access those resources
  3. The economic resources are significant to the component

III. The economic resources received or held are almost entirely for the direct benefit of the university

  1. I only
  2. I & II only
  3. III only
  4. II only
  5. I, II, & III

 

  1. Although it no longer applies to external financial reporting, AICPA 1973 Audit and Accounting Guide for Colleges and Universities provides which of the following in the fund structure
  2. Plant funds
  3. Loan funds
  4. Annuity funds
  5. All of the above

 

  1. In June 2012, a public university bills and collects $45 million in tuition for the summer semester that runs from June 1 through July 15. In addition, in May and June it bills $300 million for the fall semester that runs from September 1 through December 15. Of this amount it collects only $120 million (expecting to collect the balance prior to September 1). In its statement of revenues and expenses for its year ending June 30, 2012 it should recognize as tuition revenue
  2. a) $30 million
  3. b) $45 million
  4. c) $150 million
  5. d) $165 million

 

  1. A not-for-profit university operates its college book-store as an auxiliary enterprise. During the year the store has revenues of $30 million and expenses of $27 million. In its statement of activities the university should report
  2. a) operating revenues of $3 million
  3. b) operating revenues of $30 million
  4. c) nonoperating revenues of $3 million
  5. d) nonoperating revenues of $30 million
  6. In 2011, a government university was awarded a federal reimbursement grant of $18 million to carry out research. Of this, $12 million was intended to cover direct costs and $6 million to cover overhead. In a particular year, the university incurred $4 million in allowable direct costs and received $3.4 million from the federal government. It expected to incur the remaining costs and collect the remaining balance in 2012. For 2011 it should recognize revenues from the grant of
  7. a) $3.4 million
  8. b) $4.0 million
  9. c) $6.0 million
  10. d) $18.0 million

 

  1. A not-for-profit university maintained as endowment of $800,000, the income of which was restricted for an annual conference on international relations. In a particular year, the market value of the endowment increased by $80,000. The university held a conference on international relations at a cost of $86,000. The university should report
  2. a) no revenue and unrestricted expenses of $86,000
  3. b) unrestricted revenues of $80,000 and unrestricted expenses of $86,000
  4. c) temporarily restricted revenues of $80,000, temporarily restricted expenses of $80,000 and unrestricted expenses of $6,000
  5. d) permanently restricted revenues of $80,000 and unrestricted expenses of $86,000

 

  1. A public university had tuition and fees for the year ended June 30, 2012, in the amount of $27,000,000 Scholarships, for which no services were required, amounted to $2,100,000. Graduate assistantships, for which services were required, amounted to $1,950,000. The amount to be reported by the university as net tuition and fee revenue would be
  2. a) $27,000,000
  3. b) $25,050,000
  4. c) $24,900,000
  5. d) $22,950,000

 

  1. During the year, Dakota University’s board of trustees established a $500,000 fund to be retained and invested for scholarship grants. The fund earned $30,000, which had not been distributed by December 31. What amount should Dakota report in a Board designated (quasi) endowment fund’s net assets at December 31?
  2. a) $0
  3. b) $30,000
  4. c) $500,000
  5. d) $530,000

 

 

  1. During the year, Ottawa College received the following:
    • An unrestricted 280,000 pledge to be paid the following year
    • A $140,000 cash gift restricted for study-abroad scholarships
    • A notice from a recent business school graduate that he has named the college as a beneficiary of $60,000 in his will

What amount of contribution revenue should LeBlanc College report in its statement of activities?

  1. a) $140,000
  2. b) $200,000
  3. c) $420,000
  4. d) $480,000

 

  1. Richards College is a not-for-profit college. Record the following transactions for Richards College.  The College has a June 30, 2011 fiscal year.

 

  1. Tuition revenue for the Fall semester 2010 (August – December) was $4 million; tuition for the Spring semester 2011 (January – May) was $3.8 million; tuition for the Summer semester 2011 (June 1-August 15) was $2 million. All tuition was received in cash.

 

  1. Faculty salaries for the Fall semester were $3 million; for the Spring semester, $2.9 million; for the Summer semester were $.6 million. All salaries are paid at the end of the month earned.  Salaries earned in summer are June $0.3 million, July $0.2 and August $0.1 million.

 

  1. During June, $3.2 million of tuition applicable to the Fall 2011 was received in cash.

 

  1. During the year a wealthy benefactor pledged $1 million to the University for the fund-raising campaign to renovate the oldest building on the campus. The benefactor will deliver the cash when renovation is substantially complete.

 

  1. Fixed assets of the University have a historical cost of $120 million, estimated salvage value of $20 million and an estimated useful life of 40 years.

 

  1. During the year the University’s College of Business received notice of a $100,000 grant from the federal government to conduct a research project on the effect of different budgeting techniques on the performance of government employees. During the year the University spent $8,000 on printing questionnaires and $12,000 on faculty salaries for activities directly related to the grant.  By year-end the University had not received any cash from the federal government.

 

 

  1. In January 2010, the Free Cancer Foundation accepted an endowment of $500,000, the income from which is restricted to promoting research related to recovery from cancer. All gains, whether realized or unrealized are available for distribution.  During 2010 the market value of endowment’s investment portfolio increased to $520,000.  Accordingly, at year-end $20,000 was credited to a temporarily restricted expendable fund.  During 2011 the market value of the portfolio decreased to $480,000 and the foundation spent $12,000 on qualifying projects.

 

Owing to these events and transactions, what should be the reported net asset balance of the following categories during 2011 (assuming a zero beginning balance in unrestricted net assets):

 

  1. Permanently restricted
  2. Temporarily restricted
  3. Unrestricted

 

  1. Richman College, a not-for-profit institution, engaged in the following transactions during its fiscal year ending June 30, 2011. Prepare appropriate journal entries, indicating the types of funds (by restrictiveness) in which they would be recorded.
    1. The college collected $64,800,000 in student tuition. Of this amount $4,500,000 was applicable to the summer semester, which ran from June 1 to August 30, and $300,000 was applicable to the fall semester that began the following September.
    2. It received a contribution of $2,000,000 in stocks and bonds to establish an endowed chair in chemistry. Income from the chair must be used to supplement the salary of a professor of chemistry.
    3. During the year, the chemistry chair endowment earned interest and dividends of $70,000, all of which was used to supplement the salary of the chair holder.
    4. The market value of the investments of the chemistry chair endowment declined by $60,000.
    5. Using funds restricted for this purpose, the college purchased $300,000 of equipment for intercollegiate athletics. Intercollegiate athletics is accounted for as an auxiliary enterprise. The college charged depreciation of $60,000.
    6. The annual alumni campaign yielded $2,800,000 in pledges. The college estimated that 2 percent would be uncollectible. During the year the college collected $2,400,000 on the pledges.

 

  1. Flint Hills State University received a $500,000 government grant to be used to finance a study to determine the effects of the federal stimulus bill on the regional economy. During 2011, expenditures of $125,000 were incurred and paid on the research project.
  2. Record these transactions in the accounts of Flint Hills State University, and explain how the effects of the transactions should be reported in the college’s financial statements.
  3. Repeat requirement (1) under the assumption that the grant was finance plant expansion.

 

 

 

ESSAYS (CHAPTER 13)

 

  1. Austin Community College, a government institution, issues stand-alone financial statements. Although the college maintains its accounts on a fund basis, it does not include a combined fund balance sheet or statement of revenues and expenditures in its financial statements.  Can such practice be consistent with generally accepted accounting principles?  Explain, citing specific GASB provisions or pronouncements.

 

  1. What are the key reporting options available to government (public) colleges and universities?

 

  1. How do the three major financial statements of a government (public) college/university differ from a (private) not-for-profit college/university?