ACCT350, Assignment 7c&d, College/University Accounting
A. Complete the following from the back of the Ch. 7:
Exercise #2 (questions 1-6 only)
Exercise #6 and #7
Problems #8 and #11
B. It can be very educational to review the audited financial statements of a NFP. What better NFP
to look at than home-sweet-home . . . WWU. Not only will we learn about the complexities of
university accounting, but we will learn that NFPs operate in an environment every bit as competitive
and challenging as the for-profit environment.
The questions below pertain to the latest audited financial statements for WWU, which may be
obtained by:
 Going to the WWU network drive at the following address: K:\CLASS\Acct\350\ and look
for WWU 2014-2015 Audited Financial Statements.
 Checking your WWU email address for an attachment
 Please note: Financial Administration has kindly shared the audited financial statement for
use in our class as an illustration. Because this is proprietary information, please do not send
the financial statements far and wide to all your friends, enemies, in-laws, and outlaws.
1. (A) Who were the auditors?
(B) In their opinion, were the financial statements fairly stated, in all material respects?
(C) What report, other than the one on the financial statements, does the government require
the auditors to issue? (See end of audit report).
(D) Approximately how many months after the June 30 fiscal year end did it take for the audit
report to be issued?
2. (A) What are the names of the three financial statements prepared by WWU?
(B) Is WWU required to prepare a Statement of Functional Expenses? If not, which type of
NFPs are? How might this requirement change?
Balance Sheets (Statements of Financial Position)
3. On the Balance Sheet for the latest year, what are the three largest asset lines listed? Two
largest liabilities?
4. Calculate WWU’s total debt ratio for both years (total liabilities divided by total assets). The
peer group for universities is about 40%. Comment on WWU’s debt level.
5. Review the asset section of the balance sheet. What appears to be the main reasons that total
assets increased between the two years?
6. (A) Did net assets increase or decrease between the two years? Is this good or bad?
(B) Refer to Note 19 on p. 31-32 to obtain detail of the net assets. What percent of total net
assets is available for operations? Do you think this should be required disclosure for all
NFPs?
(C) What is another name for Unrestricted Endowment Funds?
(D) Temporarily restricted net assets include funds received for educational purposes, asset
maintenance, debt service, and split-interest funds. Do the restrictions on these funds appear
to be purpose or time restrictions?
(E) Permanently restricted net assets include student loan funds. Are these revolving or nonrevolving?
(F) How much true endowment does WWU have for the latest year?
(G) What does “split-interest agreement funds restricted for endowments” mean?
Statement of Activities
7. (A) Based on the Stmt of Activities, did WWU have a good year financially in its latest fiscal
year? Why or why not?
(B) Which of the two years presented was a better year? How can you tell?
8. (A) Calculate the percentage change in Total “Tuition and Fees” and also in “Student
Financial Aid and Scholarships” between the two years. What is your conclusion?
9. During the latest fiscal year, we had enrollment of approximately 1887 students. Calculate
the average tuition/fees and financial aid/scholarship per student. Do these figures seem
reasonable?
10. (A) For each of the last two years, calculate the percent of tuition & fee income that is
distributed in student financial aid and scholarships. This is referred to as the tuition discount
rate.
(B) Review the article at the end of this assignment. What was the national average tuition
discount rate in 2014 for freshman and for all undergraduates?
(C) What has been the trend in the average national tuition discount rates? Why has this
trend occurred?
(D) Over the last decade, WWU substantially increased its tuition discount rate. This is very
controversial. Would you rather that WWU charged higher tuition, and then gave out more
need or merit based scholarships, or the other way around? Why?
(E) Who are the winners and losers with high need or merit based tuition discount rates?
11. (A) For the most recent year, after tuition and fees, what are the next three largest sources of
revenue?
(B) Distinguish between sales and services and auxiliary sales and services. (See instructor
notes.)
12. (A) For the latest year, what amount of net assets were released from restrictions?
(B) After reviewing Note 19 on p. 31, speculate about the nature of restrictions released.
13. (A) For the most recent year, which four expense programs/functions appear the largest? In a
sentence, describe what each of these functions involves? (See instructor notes).
(B) Is WWU a research-based university? How can you tell? Is this good or bad for
students?
14. For the latest year, does income from auxiliary sales and services exceed related expenses? Is
this good or bad for students?
Statement of Cash Flows
15. (A) T or F: Based on cash flows from operations, it would appear that cash received from
student tuition and fees does not even cover the cost of payments to WWU employees
(employee compensation and benefits).
(B) If inflation were 3%, and WWU announced a COLA of 3%, would you expect tuition
rates to go up by at least 3%? Why or why not?
(C) Inflation rates for the cost of higher-education has skyrocketed. Since 1978, tuition/fees
have increased by 1225%, while the CPI has increased by only 279%. What do you suspect
has caused the high increases in tuition/fees?
16. Cash increased during the latest year. In a sentence, describe why? (You only need to look at
the three sub-totals on the statement.)
17. Which section of the cash flow statement should contain cash received from donors that is
restricted for long-term purposes? Why is this recorded in this section?
18. Is the cash flow pattern for the latest year healthy? Explain.
Notes to the Financial Statements
19. T or F: According to Note 1, the university has adopted the applicable standards of the FASB.
20. How does WWU define unrestricted net assets? Does it use the special rule about recording
TR net assets as unrestricted if restrictions are satisfied in the same fiscal year?
21. T or F: According to Note 1, WWU no longer uses fund accounting.
22. T or F: According to Note 1, WWU records an actuarial liability for its annuity and life
income agreements that is determined based on IRS life-expectancy tables.
23. T or F: According to Note 1, WWU’s capitalization cutoff is at $10,000.
24. T or F: According to Note 1, WWU is a 501(c)(3) organization exempt from income tax and
contributions to WWU are deductible by donors for federal income tax purposes. (Can you think of
a way to make your tuition payments charitable contributions?)
25. T or F: According to Note 3, WWU estimates that about 17% of its accounts receivable will
not be collected for the latest fiscal year.
26. T or F: According to Note 3, most of the allowance for uncollectible receivables relates to
student accounts.
27. T or F: According to Note 4, WWU invests more in stocks than bonds.
28. T or F: According to Note 4, annuity funds hold the most investments.
29. T or F: According to Note 4, investment return in 2015 was better than in 2014.
30. T or F: According to Note 5, WWU has not yet adopted UPMIFA.
31. T or F: According to Note 5, total quasi-endowments exceeds donor-restricted endowments.
32. T or F: According to Note 5, WWU estimates its endowment investments to return at least
8% over the long-term, of which only half will be spent, in order to maintain the earnings
power of the endowment against inflation.
33. T or F: According to Note 5, the endowment return over the last decade has averaged 6.6%.
34. T or F: According to Note 6, at the end of the latest year, WWU estimates that it will not
collect about 18% of institutional student loans. (FYI: WWU has a relatively low default
rates on federal student loans).
35. T or F: According to Note 6, at the end of the latest year, WWU estimates that it will not
collect a majority of the institutional student loans that are more than 3-months past due.
36. T or F: According to Note 8, payments to annuitants exceeded the investment return.
37. T or F: According to Note 10, about 49% of WWU’s total plant facilities is depreciated at the
end of the most recent year (excluding projects in progress).
38. T or F: According to Note 12, WWU incurred more interest expense in FYE 2015 than in
FYE 2014.
39. T or F: According to Note 17, WWU switched from a defined contribution to a defined
benefit plan at the turn of the century.
40. T or F: According to Note 20, WWU received a gift of professional services valued at
$12,500.
41. T or F: According to Note 21, WWU received an operating subsidy of $4.3 million in the
latest year. Assuming a 4% endowment spending rate, this would be equivalent to having an
off-balance sheet endowment worth almost $108 million.
42. T or F: According to Note 22, WWU allocated over one-third of allocable costs (operating,
maintenance & plant) to instructional expenses.
43. T or F: According to Note 23, the cost of employees makes up well over half of total
expenses.
44. According to Note 24, why did WWU reclassify temporarily restricted funds as permanently
restricted funds?
Discounting Grows Again
The rate at which private colleges discounted their tuition crept ever closer to 50 percent,
drawing warnings about unsustainability.
August 25, 2015
By
Kellie Woodhouse
https://www.insidehighered.com/news/2015/08/25/tuition-discounting-grows-privatecolleges-and-universities
Private colleges and universities continue to raise their tuition discount rates, even as many
institutions struggle with decreasing enrollment and declining revenue despite the practice.
A report from the National Association of College and University Business Officers released
today reveals that tuition discount rates are at an all-time high and many institutions are
using the strategy to a point that, according a top analyst at NACUBO, is "not sustainable."
Private institutions commonly discount their tuition -- using institutional aid (often derived
from tuition revenue) to offer students a discount from the sticker price -- in an effort to
entice students to enroll.
On average, private colleges’ discount rate -- institutional grant dollars as a percentage of
gross tuition and fee revenue -- reached 48 percent for freshmen in 2014, up from 46.4
percent the year before, according to the 2014 Tuition Discounting Study, which surveyed
411 private colleges and universities (public institutions were not included in the survey
because their funding formulas and pricing structure are different than those at private
institutions).
Put another way, institutions awarded about 48 cents in institutional grants to freshmen for
every dollar collected for first-year tuition and fees. The average freshman in 2014
received an institutional grant that covered 54.3 percent of his or her college’s sticker price,
up from 53.1 percent last year.
Much of the aid is going to needy students. NACUBO found that in 2013, about threefourths of institutional aid was awarded to students with financial need.
Colleges feel pressure to increase the tuition discount in part because student demands are
changing. Ever since the financial crisis of 2008, students have a heightened awareness of
the price of college and are looking for as much aid as they can get.
“While the economy has improved, many families are still struggling. In a lot of
communities you’re still seeing, if not job losses, jobs that don’t pay nearly as much as they
did,” said Ken Redd, director of research and policy analysis at NACUBO. “There’s an
increased inability [for needy students to go to college] and an unwillingness to pay even if
you did have the money.”
He continued: “The level of price sensitivity … is very real.” And colleges are trying to
figure out how best to respond to that sensitivity, along with other challenges like
demographic shifts in many U.S. regions that will negatively affect enrollment.
Yet increasing one’s tuition discount rate year after year isn’t necessarily the answer, Redd
said.
Eighty-nine percent of first-time, full-time freshmen received some level of tuition discount,
up from 88 percent the year before. That rate drops to 77 percent when all undergraduates
are considered. Undergraduates as a whole received grants that cover, on average, 48.9
percent of tuition and fees.
Despite the prevalence and growing size of tuition discounts, nearly half of the institutions
surveyed by NACUBO reported declining enrollment from 2013 and 2014. Sixty-three
percent of business officers at institutions experiencing enrollment struggles cite price
sensitivity as a contributor.
And the steep discounts are cutting into revenue: gross tuition price increases largely have
been offset by increased grant aid to students. The majority of grant aid is funded from
tuition and fee revenue. NACUBO found that, on average, 10.8 percent of institutional
grants were funded by endowments.
Net revenue of surveyed institutions is expected to grow just 0.4 percent per student next
year, the report states. This is not a new trend. After adjusting for inflation, tuition revenue
has been flat for the last 13 years.
“The real decline in net tuition revenue suggests to us that tuition discounting, at the levels
they are currently at, is just not sustainable,” Redd said.
Redd added that some colleges -- realizing that overdiscounting tuition may fail to improve,
or even hurt, their financial health -- are trying to leverage other strategies to recruit
students, like freezing tuition, expanding marketing efforts or increasing selectivity. Many
are looking for recurring savings to try to make up for slowing revenue gains.
Yet Redd says change takes time, especially given existing market challenges. Tuition
discounting levels will likely continue to grow in the near future.
“The financial need is still going to be very high, and the competition among schools for
students is still going to be very high, so it wouldn’t surprise me, at least for the next
couple of years, if we would see this trend continue,” he said.
Though the majority of institutions raised their discount rate, some held the line: 31 percent
reduced or maintained their tuition discount rate from 2013 to 2014. Yet that number is
lower than the previous year, when 34.6 percent lowered or held steady their discount
rates.