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.
a. I. only.
b. II. only.
c. A combination of I and II depending on the entity’s
purpose.
d. Neither I or II
LO3
4.
In accounting for private, not-for-profit organizations,
revenues and expenses are reported at _________ amounts and
most gains and losses are reported at ___________ amounts.
a.
b.
c.
d.
net, gross
gross, net
gross, gross
net, net
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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.
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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.
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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.
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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.
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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.
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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 ..................
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, July 1, 2005 .................
Temporarily Restricted Net Assets, July 1, 2005 .......
Permanently Restricted Net Assets, July 1, 2005 .......
$3,000,000
700,000
76,000
19,000
2,200,000
400,000
500,000
600,000
40,000
70,000
450,000
2,100,000
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.
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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.
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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.
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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.
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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.
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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.
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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
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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
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
$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 Permanently Restricted Net Assets
Contributions ..........................
Increase in permanently restricted net assets
Increase in net assets .....................
Net assets, January 1, 2005 ................
Net assets, December 31,2005 ...............
600,000
50,000
9,000
(1,300,000)
641,000)
60,000
60,000
2,215,000
6,550,000
$8,765,000
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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
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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
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520,000
Exercise 5
1.
Accounts receivable ....................
Patient service revenues-unrestricted
4,000,000
4,000,000
2.
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
485,000
150,000
3.
125,000
4.
40,000
36,000
5.
Cash ....................................
Temporarily restricted support ......
6. Construction in progress ................
Cash ................................
Temporarily restricted net assets reclassifications out ..................
Unrestricted net assets reclassifications in ................
1,100,000
1,100,000
275,000
275,000
275,000
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275,000
Exercise 6
1.
Accounts receivable ....................
Patient service revenues-unrestricted
4,500,000
4,500,000
2.
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
Temporarily restricted net assets reclassifications out ...................
Unrestricted net assets reclassifications in .................
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
1,500,000
191,000
Exercise 7
1.
Accounts receivable .....................
Revenues - educational and general ..
Tuition reduction - scholarships ........
Expenses - bad debts ...................
Accounts receivable .................
Allowance for uncollectible accounts
10,000,000
10,000,000
800,000
400,000
Cash ....................................
Accounts receivable .................
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800,000
400,000
8,500,000
8,500,000
2.
Cash ....................................
Revenues - auxiliary enterprises ....
1,000,000
1,000,000
3.
Expenses - educational and general .....
Expenses - auxiliary enterprises ........
Cash ................................
4,800,000
200,000
5,000,000
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
4.
500,000
500,000
5.
200,000
75,000
6.
Temporarily restricted net assets reclassifications out ............... ....
Unrestricted net assets reclassifications in ................
35,000
35,000
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35,000
Exercise 8
Cash ...................................
Temporarily restricted revenues-research
2,000,000
2,000,000
Expenses - research ....................
Cash/Payables. ......................
1,150,000
Temporarily restricted net assets reclassifications out ..................
Unrestricted net assets reclassifications in ................
Cash ...................................
Permanently restricted revenues endowment contribution ..............
1,150,000
1,150,000
1,150,000
1,000,000
1,000,000
Cash ...................................
Temporarily restricted revenues endowment income ....................
50,000
Expenses-research ......................
Cash/Payables. ......................
44,000
Temporarily restricted net assets reclassifications out ..................
Unrestricted net assets reclassifications in ................
50,000
44,000
44,000
44,000
Exercise 9
1. Cash
.................................
Bonds payable ........................
9,000,000
9,000,000
2. Cash ....................................
Temporarily restricted revenues Contributions .......................
2,500,000
3. Building ................................
Cash .................................
Temporarily restricted net assets reclassifications out ...................
Unrestricted net assets reclassifications in .................
2,500,000
10,500,000
10,500,000
10,500,000
10,500,000
4. Expenses - interest .....................
Cash .................................
720,000
5. Expenses – depreciation .................
Accumulated depreciation .............
525,000
720,000
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525,000
Exercise 10
Cash ...................................
Temporarily restricted revenues-stadium
500,000
Buildings - stadium ....................
Cash. ...............................
650,000
Temporarily restricted net assets reclassifications out ..................
Unrestricted net assets reclassifications in ................
Expenses - depreciation .................
Accumulated depreciation .............
Cash ...................................
Permanently restricted revenues endowment contribution ..............
500,000
650,000
650,000
650,000
51,000
51,000
2,500,000
2,500,000
Cash ...................................
Temporarily restricted revenues endowment income ....................
201,000
Expenses - student aid .................
Cash. ...............................
299,000
Temporarily restricted net assets reclassifications out ..................
Unrestricted net assets reclassifications in ................
201,000
299,000
299,000
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299,000