Homework 6

 

1. On a nongovernmental, not-for-profit entity’s statements of activities. which of the following amounts should not be netted together under any circumstances?

Revenues and expenditures from the sale of used equipment.

I Revenues and expenditures from an annual fundraising event representing a major source of revenue.

Investment income, custodial fees, and other advisory expenditures.

Gains and losses from exchange rates or other foreign currency translations.

 

2. First Commercial Bank received a cash contribution to establish an irrevocable charitable trust for the sole benefit of the Olde Towne Museum, a not-for-profit organization. The terms of the trust name First Commercial as the trustee, require distribution of income earned on the trust each year for three years, and, at the end of the three-year period, require distribution of the principal to the museum. The museum would account for this transaction as follows:

Museum would not recognize the asset in the year the trust was established, but would recognize distributed earnings each year as earnings without donor restrictions.

Museum would recognize an equity interest in the assets of the trust at fair value as a contribution with donor restrictions.

Museum would recognize a beneficial interest in the assets of the trust at fair value as a contribution with donor restrictions.

Museum would recognize the asset as a conditional net asset with donor restrictions subject to the terms of the trust.

 

3. Applebee Farms, a not-for-profit organization, has received the following support during its fiscal year ended June 30, Year 1:

• A contribution Of $300,000 stipulating that the gift is to be used for research.
• A pledge from a long-time benefactor for 250,000 intended for the support of the mission of Applebee Farms. The pledge was collected August 13, Year 1.
• A contribution of $50,000 along with a pledge for an additional $150,000 to be used for programming consistent with the organization’s mission only upon completion of a new research facility. The research facility was 80 percent complete at fiscal year end.

In its June 30, Year 1 financial statements, Applebee Farms would report:

Revenue Without                            Revenue With

Donor Restrictions                          Donor Restrictions

$40,000                                             $700,000

$0                                                        $550,000

$250,000                                           $350,000

$300,000                                           $450,000

 

4. A storm damaged the roof of a nongovernmental, not-for-profit organization’s building. A professional roofer repaired the roof at no charge. How should the roof repairs be recognized in the statement of activities?

As an increase in expenses and an increase in contributions from donated services.

As an increase in the building account and an increase in net assets without donor restrictions.

As an increase in fixed assets and an increase in contributions from donated services.

No recognition is required in the financial statements, but a note disclosure is required.

 

5. Which Of the following normally would be included in other operating revenues of a hospital?

Revenue from educational programs                       Gifts without donor restrictions

No                                                                                     No

No                                                                                     Yes

Yes                                                                                    No

Yes                                                                                    Yes

 

5. Altruistic university, a not-for-profit research university, conducts cancer research as part of its normal ongoing activities and regularly receives contributions to support these efforts. Experimental Pharmaceuticals Corporation, a large for profit corporation that markets drugs for cancer treatment, provides resources to Altruistic University to perform clinical trial research on an experimental drug to treat cancer. Resources are provided on the condition that Altruistic University comply with strict specifications governing the manner in which the research is conducted and the frequency and the character of outcome reports. Altruistic University should account for the resources provided by Experimental Pharmaceuticals as:

A contribution that increases board-designated restricted net assets (for future research expenditures).

A contribution that increases net assets with donor restrictions and is reclassified as an increase to net assets without donor restrictions upon satisfaction of research and reporting restrictions.

A contribution that increases net assets without donor restrictions provided the restrictions are met in the current year and the university uniformly applies this method of recognition to all similar transactions.

An exchange transaction hat increases net assets without donor restrictions.

 

6. Terry, an auditor, is performing test work for a not-for-profit hospital. Listed below are components of the statement of activities:

Revenue relating to charity care                                                                                                          $100,000

Bad debt expense associated with accounts assessed for collectibility                                     70,000                 

Net assets released from restrictions used for operations                                                           50,000

Other revenue                                                                                                                                          80,000

Patient service revenue (includes revenue related to charity care)                                           500,000

 

7. What amount would be reported as revenues, gains, and other support without donor restrictions on the statement of activities?

$460,000

$530,000

$580,000

$630,000

 

8. The League, a not-for-profit organization, received the following pledges:

Without donor restrictions                                                       $200,000

With donor restrictions for capital additions                       150,000

All pledges are legally enforceable: however. the League’s experience indicates that 10 percent of all pledges prove to be uncollectible. What amount should the League report as pledges receivable, net of any required allowance account?

$135,000

$180,000

$315,000

$350,000

 

9. Whitestone, a nongovernmental not-for-profit organization. received a contribution in December, Year 1. The donor restricted use of the contribution until March. Year 2. How should Whitestone record the contribution?

Footnote the contribution in Year 1 and record as income when it becomes available in Year 2.

No entry required in Year 1 and record as income in Year 2 when it becomes available

Report as income in Year 1.

Report as deferred income in Year 1.

 

 

 

10. On December 31, Year 1, SC Community Center, a nonprofit organization, acquired a building with a fair value of $500,000 by signing a mortgage note payable to SC County. The note requires no payments to be made for 30 years and is interest free. The present value of the loan. at the market interest rate, is $15,000. Furthermore. in the past as long as an organization (in this case the Community Center) has continued to fulfill its stated purpose, SC County has forgiven loans of this nature. The Community Center has been in existence for 40 years, is well-respected in the community and is strong financially.

What is the correct accounting treatment of this transaction on the books of SC Community Center?

Mortgage payable of $15,000.

Mortgage payable of $500,000.

Income with donor restrictions of $15,000.

Income with donor restrictions of $500,000.

 

11. A storm damaged the roof of a new building owned by K-9 Shelters, a not-for-profit organization. A supporter of K-9, a professional roofer, made required minor repairs to the roof at no charge. In KOs statement of activities. the damage and repair of the roof should:

Be reported by note disclosure only.

Be reported as an increase in both expenses and contributions.

Be reported as an increase in both net assets and contributions.

Not be reported

 

12. During the current year, a voluntary health and welfare organization receives a total of $300,000 pledges without donor restrictions. Of this amount, $100,000 has been designated by donors for use next year to support operations. If the organization collected $200,000 of the total pledge and 15 percent of the pledges are expected to be uncollectible, amount of support without donor restrictions should the organization recognize in its current year financial statements?

$300,000

$270,000

$200,000

$170,000

 

13. State University assessed its students’ tuition and fees totaling $50,000,000 for the year ended June 30. However, its net cash collections were only $42,000,000 as a result of the following reductions

Scholarship, tuition remission, and fellowship                    $6,500,000

Tuition refunds                                                                             1,500,000

In this situation, revenue without donor restrictions from tuition and fees for the year ended June 30 for State University will be reported at:

$50,000,000

$42,000,000

$48,500,000

$43,500,000

 

14. A not-for-profit organization is exempt from reporting which of the following contributed services as revenue?

A CPA prepares the organization’s tax return.

A special education teacher tutors children with learning disabilities.

A carpenter builds shelves for the office.

An attorney solicits contributions on behalf of the organization.

 

15. The Jones family lost its home in a fire. On December 25, Year 1, a philanthropist sent money to the Amer Benevolent Society, a private not-for-profit organization, to purchase furniture for the Jones family. During January Year 2. Amer purchased this furniture for the Jones family. How should Amer report the receipt of the money in its Year 1 financial statements?

As a contribution without donor restrictions.

As a contribution with donor restrictions.

As an increase to board-designated net assets (for future expenditures)

As a liability.

 

16. How should a nongovernmental not-for-profit organization report depreciation expense in its statement of activities?

It should not be included.

it should be included as a decrease in net assets without donor restrictions.

It should be included as an increase in net assets with donor restrictions.

It should be reclassified from net assets without donor restrictions to net assets with donor restrictions, depending on

donor-imposed restrictions on the assets.

 

17. Lea Meditators, a not-for-profit religious organization. suffered damages when a storm broke glass windows in Lea’s building. A member of Lea’s congregation, a professional glazier, replaced the windows at no charge. In Lea’s statement of activities, the breakage and replacement of the windows should:

Not be reported

Be reported by note disclosure only.

Be reported as an increase in both expenses and contributions.

Be reported as an increase in both net assets and contributions.

 

18. In April of Year 1, Delta Hospital purchased medicines from Field Pharmaceutical Co. at a cost of S5,000. However, Field notified Delta that the invoice was being canceled and that the medicines were being donated to Delta. Delta should record this donation of medicines as:

A memorandum entry only.

A $5,000 credit to nonoperating expenses.

A $5,000 credit to operating expenses.

Other operating revenue.

 

19. Super Seniors is a not-for-profit organization that provides services to senior citizens. Super employs a full-time staff of 10 people at an annual cost of $150,000. In addition. two volunteers work as part-time secretaries replacing last year’s fun-time secretary who earned $10,000. Services performed by other volunteers for special events had an estimated value of $15,000. These volunteers were employees of local businesses and they received small-value items for their participation. What amount should

Super report for salary and wage expenses related to the above items?

$150,000

$160,000

$165,000

$175,000

 

20. Which of the following should normally be considered ongoing or central transactions for a not-for-profit hospital?
21. Room and board fees from patients.
22. Recovery room fees.

Neither I nor ll.

Both I and II.

Il Only.

I only.

 

21. Potterville Charities is staging its annual fund raising appeal. The organization views this as a major ongoing activity that serves to fund the mission of the organization. In exchange for a $500 donation, contributors receive a hand embossed flowerpot valued at S15. Potterville Charities will recognize contributions for each such donation in the amount of:

$500

$485

$15

$0

 

21. The Marble Foundation Inc., a not-for-profit organization. is financially interrelated with its beneficiary organization. Boulder University. Receipts of the Marble Foundation would be displayed/ disclosed in the Boulder University financial statements as:

A note disclosure.

An equity transaction within the net asset classification on the balance sheet

A change in the university’s interest in the foundation on the statement of activities.

An increase and decrease in donor-restricted conditional support.

 

22. The Turtle Society, a nongovernmental not-for-profit organization, receives numerous contributed hours from volunteers during its busy season. Chris, a clerk at the local tax collector’s office, volunteered ten hours per week for 24 weeks transferring turtle food from the port to the turtle shelter. This task typically is handled the normal course of business at no charge to the Society and, consequently, no resources have been budgeted for service, but Chris’ help has been accepted. His rate of pay at the tax office is $10 per hour, and the prevailing wage rate for laborers is $6.50 per hour. What amount of contribution revenue should Turtle Society record for this service?

$0

$840

$1,560

$2,400

 

23. State University received two contributions during the year that must be used to provide scholarships. Contribution A for $10,000 was collected during the year, and $8,000 was spent on scholarships. Contribution B is a pledge for $30,000 to be received next fiscal year. What amount of contribution revenue should the university report in its statement of activities?

$8,000

$10,000

$38,000

$40,000

 

24. Midtown Church received a donation of marketable equity securities from a church member The securities had appreciated in value after they were purchased by the donor, and they continued to appreciate through the end of Midtown’s fiscal year. At what amount should Midtown report its investment in marketable equity securities in its year-end balance sheet?

Donor’s cost

Market value at the date of receipt.

Market value at the balance sheet date.

Market value at either the date of receipt or the balance-sheet date.

 

 

 

25. A nongovemmental not-for-profit animal shelter receives contributed services from the following individuals valued at their normal billing rate:

Veterinarian provides volunteer animal care                                      $8,000

Board member (a CPA) volunteers to prepare books for audit      4,500

Registered nurse volunteers as an extra receptionist                       3,000

Teacher provides volunteer dog walking                                              2,000

What amount should the shelter record as contribution revenue?

$8,000

$11,000

$12,500

$14,500

 

26. Oz, a non-governmental not-for-profit organization, received S50,000 from Ame Company to sponsor a play given by Oz at the local theater. Oz gave Ame 25 tickets, which generally cost SIOO each. Ame received no other benefits. What amount of ticket sales revenue should Oz record?

$0

$2,5000

$47,000

$50,000

 

27. For the fall semester of Year 1, Ames university assessed its students for tuition and fees. The net amount realized

was only $2,500,000 because scholarships of $400,000 were granted to students, and tuition remissions of $100,000 were allowed to faculty members’ children attending Ames. What amount should Ames report for the period as gross revenues from tuition and fees?

$2,500,000

$2,600,000

$2,900,000

$3,000,000

 

28. A not-for-profit organization receives $150 from a donor. The donor receives two tickets to a theater show and an

acknowledgment in the theater program. The tickets have a fair value of $100. What amount is recorded as contribution revenue?

$0

$50

$100

$150

 

29. In the balance sheet of a not-for-profit hospital, marketable equity securities should be reported at:

Fair value with gains and losses reported in the statement of activities.

Fair value with gains and losses reported as a component of net assets.

The lower of aggregate cost or market in separate portfolios for current and non-current assets.

Cost, with no valuation for declines in market value, and in separate portfolios for assets without donor restrictions and

assets with donor restrictions.

 

30. Azim Services, a nongovernmental, not-for-profit organization, received dues of $100 from its members. Azim provided its members with a newsletter that had a $25 value. All other services were valued at $10 per member. What is the amount of contribution made to Azim by each member?

$10

$25

$65

$100

 

31. Quentin University is organized as a not-for-profit organization. The university reaches out to its alumni each year in a mass telephonic fund raising appeal that includes scripted dinner hour calls appealing for ongoing support In Year 1, the university used untrained student volunteers to make the calls. In Year 2, an alumnus who owns a successful telemarketing company offers to perform the task. The university accepts the offer and provides the alumnus with the script along with appropriate phone numbers and contribution accounting forms. Based on the usual and customary charges used in his business, the alumnus anticipates that the value of these services is $10,000. For each year, contributed revenue associated with this transaction would be:

Year 1                  Year 2

$0                          $10,000

$10,000               $10,000

$10,000               $0

$0                          $0

 

32. Which of the following assets of a nongovernmental not-for-profit charitable organization must be depreciated?

A freezer costing $150,000 for storing food for the soup kitchen.

Building costs of $500,000 for construction in progress for senior citizen housing.

Land valued at $1 million being used as the site of the new senior citizen home.

A bulk purchase of S20,000 of linens for its nursing home.

 

33. Pica a nongovernmental not-for-profit organization. received unconditional promises of $100,000 expected to be collected within one year. Pica received $10,000 prior to year-end. Pica anticipates collecting 90 percent of the contributions and has a June 30 fiscal year-end. mat amount should Pica record as contribution revenue as of June 30?

$10,000

$80,000

$90,000

$100,000

 

34. A portfolio of equity securities that are traded on a national exchange is donated to a private, not-for-profit college as an endowment fund. How should the equity portfolio be valued in the college’s year-end financial statements three years aner the donation?

Using the donor’s original cost basis.

Using the fair value at the time of donation.

Using fair value at the date of the financial statements.

Using the lower of fair value at donation and fair value at the date of the financial statements.

 

35. In a Statement of Activities of the People’s Environmental Protection Association, a voluntary community organization, depreciation expense should:

Not be included.

Be included as an element of support

Be included as an element of other changes in fund balances.

Be included as an element of expense.

 

 

 

 

 

36. Ragg Coalition. a nongovernmental not-for-profit organization. received a gift of Treasury bills. The cost to the donor vas $20,000. with an additional $500 for brokerage fees that were paid by the donor prior to the transfer of the Treasury bills. The Treasury bills had a fair value of $15,000 at the time of the transfer. At what amount should Ragg report the Treasury bills in its statement of financial position?

$15,000

$15,500

$20,000

$20,500

 

37. On January 1, Read, a nongovernmental not-for-profit organization, received 20,000 and an unconditional pledge of $20,000 for each of the next four calendar years to be paid on the first day of each year. The present value of an ordinary annuity for tour years at a constant interest rate of 8 percent is 3.312. What amount of net assets donor restrictions is reported in the year the pledge was received?

$66,240

$80,000

$86,240

$100,000

 

38. Belle, a nongovernmental not-for-profit organization, received funds during its annual campaign that were specifically pledged by the donor to another nongovernmental not-for-profit health organization. How should Belle record these funds?

Increase in assets and increase in liabilities.

Increase in assets and increase in revenue.

Increase in assets and increase in deferred revenue.

Decrease in assets and decrease in fund balance.

 

39. How should a nongovernmental not-for-profit organization classify gains and losses on investments purchased with endowment assets with donor restrictions?

Gains may not be netted against losses in the statement of activities.

Gains and losses can only be reported net of expenses in the statement of activities.

Unless explicitly restricted by donor or law, gains and losses should be reported in the statement of activities as increases or decreases in net assets without donor restrictions.

Unless explicitly restricted by donor or law. gains and losses should be reported in the statement of activities asincreases

or decreases in board-designated net assets without donor restrictions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scroll down to complete all parts of this task.

Indicate the manner in which the Goodworks not-for-profit is affected by the transactions listed below

 

For each transaction of the Goodworks not-for-profit listed below, click in the associated cell and select the

appropriate description of the manner in which the transaction affects the Goodworks not-for-profit’s financial

statement Choose on”/ one description per transaction. A description may be used once, more than once or not at

ell Assume all transactions are materiel.

 

	A	B
1	Transactions	Financial Statements
2	Goodworks board designates $1,000,000 to purchase Investments whose income will be used for capital improvements.	No required reportable event
3	Income from designated investments which was not previously accrued is received.	Increase in revenues, gains, and other support without donor restrictions
4	A benefactor provided funds for building expansion.	Increase in net assets with donor restrictions
5	Funds donated for the building expansion are used to purchase a building in a manner that satisfies the benefactor in the fiscal period following the period the funds were received.	Increase in revenues, gains, and other support without donor restrictions
6	An accounting firm prepares Goodworks’ annual financial statements without charge to Goodworks.	Increase in revenues, gains, and other support without donor restrictions
7	Goodworks received investments subject to the donor’s requirement that investment income be used to pay for services consistent with the mission.	Increase in net assets with donor restrictions

 

Row 2:  No required reportable event

The designation by Goodworks board of directors does not affect the classification of the asset as without donor restrictions. Only an external donor’s stipulation can cause an asset to be classified as with donor restrictions.

 

Row 3:  Increase in revenues, gains, and other support without donor restrictions

Since the revenue is derived from investments which are set aside or designated by the board of directors for a specific use without donor restrictions the revenue from these investments is also available for use at the board’s discretion. Therefore, the transaction represents an increase in revenue gains and other support without donor restrictions.

 

Row 4:  Increase in net assets with donor restrictions

In the period in which the contribution for plant expansion is received, it is reflected as an increase in net assets with donor restrictions on the statement of activities.

 

Row 5:  Increase in revenues, gains, and other support without donor restrictions

When the funds received for building expansion are used to acquire a building, the statement of activities reelects an increase in total revenues, gains, and other support without donor restrictions (satisfaction of equipment acquisition restriction). As well as a decrease in net assets with donor restrictions (net assets released from restriction).

 

Row 6:  Increase in revenues, gains, and other support without donor restrictions

A not-for-profit organization may record the fair value of donated services if the following conditions are met:

 

• The services creates or enhances nonfinancial assets.
• The service requires specialized skills provided by individual possessing those skills and would typically need to be purchased if not provided by donation.

 

Both conditions are met since CPA services require specialized skills that would have been purchased if the services were not donated.

 

Row 7:  Increase in net assets with donor restrictions

The investment creates an endowment in which the principal donation is to be left intact and the earnings are to be used for a purpose designated by the donor. The financial impact of the donation is to increase net assets with donor

 

Jsing the Information provided in the exhibit, determine the amount to be reported in the financial statements for

each element listed for the year ended December 31, Year 2.

	A	B
1	Contributions – with donor restrictions	$89,000
2	Investment income – debt securities	$6,500
3	Program expenses	$115,000
4	General fund-raising expense (excludes special events)	$2,750
5	Income on long-term investments – without donor restrictions	$0
6	Contributed voluntary services	$0

 

Row 1:  $89,000

Contributions – with donor restrictions is equal to the FV of the gift at the time of the contribution. The fair value at the time of receipt is correct.

 

Row 2:  $6,500

Investment income represents a combination of both interest earned as well as changes in market value.

 

Interest earned                                $9,500

FV at time of receipt                      (89,000)

FV at year-end                                 86,000

Earnings less change in value      $6,500

 

Row 3:  $115,000

Community Service, Inc. will classify expenses as program expenses and supporting expenses. Support will be further analyzed as either administration or fund-raising. The candidate is required to classify various expenses given in the problem and to arrive at program expense as follows:

 

Donated reading material                                                                         $7,500

Instructor salaries                                                                                       25,000

Director of Community Activities                                                            60,000

Subtotal                                                                                                         92,500

Building rental – Amount allocable to programs ($30,000 × 75%)  22,500

Total                                                                                                               $115,000

 

In arriving at this answer, candidates are required to ignore the value of volunteer services, properly classify the expenses associated with specific fund raising appeals as general administration (in keeping with the policy described in the situation), distinguish between administrative and fund-raising expenses listed as “Other cash operating expenses”, properly classify interest expenses as administrative expense and recognize that principal liquidations are irrelevant to expense classifications for purposes of not-for-profit financial statements.

 

Row 4:  $2,750

General fund-raising expenses. Community services will classify expenses associated with printing and mailing pledge cards as general fund-raising expense.

 

Row 5:  $0

Income on long-term investments – without donor restrictions. Community Services has no long-term investments – without donor restrictions according to the situation. No income would be recognized.

 

Row 6:  $0

Community Services received donated hours from concerned citizens to serve meals to the homeless. The skill levels required for this task failed to meet revenue recognition criteria (SOME). Community Services need not recognize any revenue for contributed voluntary services of the type described.