Professional Documents
Culture Documents
T11 Not For Profit Organizations
T11 Not For Profit Organizations
d. Statements of financial position as of the beginning and end of the reporting period,
comparative statements of cash flows, and comparative statements of activities.
6
For which of the following assets held by a religious organization should depreciation be
recognized in the organizations general-purpose external financial statements?
a. The house of worship.
c. A nationally recognized historical treasure.
b. A priceless painting.
d. Land used for a building site.
Gleim
Gleim
Typical users of financial reports of nonbusiness organizations include which of the following?
a. Resource providers.
c. Governing and oversight bodies.
b. Constituents.
d. All of the answers are correct.
Gleim
Not-for-Profit Organizations
5
. SFAS 117, Financial Statements of Not-for-Profit Organizations, establishes standards for
general-purpose external financial statements issued by not-for-profit organizations. A
complete set of financial statements should include
a. Statements of financial position as of the beginning and end of the reporting period, a
statement of cash flows, and a statement of activities.
b. A statement of financial position as of the end of the reporting period, a statement of cash
flows prepared on the direct basis, and a statement of activities.
c. A statement of financial position as of the end of the reporting period, a statement of cash
flows, and a statement of activities.
Gleim
10
. The Addams family lost its home in a fire. On December 25, 2001, a philanthropist sent
money to the Benevolent Society to purchase furniture for the Addams family. The resource
provider did not explicitly grant the Society the unilateral power to redirect the use of the
assets. During January 2002, the Society purchased this furniture for the Addams family. The
Society, a not-for-profit organization, should report the receipt of the money in its 2001
financial statements as a(n)
a. Unrestricted contribution.
c. Permanently restricted contribution.
b. Temporarily restricted contribution
d. Liability.
AICPA 0595 TMG-58
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. According to SFAS 116, Accounting for Contributions Received and Contributions Made, what
classification(s), if any, should be used by not-for-profit organizations to report receipts of
contributions?
Gleim
a.
b.
c.
d.
Unrestricted Support
No
No
Yes
Yes
Restricted Support
No
Yes
No
Yes
. Three presentations in the lecture series were held in 2001. The speaker fees for the three
presentations amounted to $90,000. The not-for-profit organization used the $50,000 dividend
income to cover part of the total fees. Because the board of directors did not wish to sell part
of the investments, the organization used $40,000 in unrestricted resources to pay the
remainder of the speaker fees. In the 2001 statement of activity, the $50,000 of dividend
income should be recorded as an increase in
a. Unrestricted net assets.
b. Temporarily restricted net assets.
c. Permanently restricted net assets.
d. Either unrestricted or temporarily restricted net assets.
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. SFAS 116 requires not-for-profit organizations to recognize a conditional promise to give when
a. The promise is received.
b. The promise is received in writing.
c. The conditions are met.
d. It is reasonably possible that the conditions will be met.
Gleim
14
. Napro Charities, a not-for-profit agency, receives free electricity on a continuous basis from a
local utility company. The utility companys contribution is made subject to cancellation by the
donor. Napro Charities should account for this contribution as a(n)
a. Unrestricted revenue only.
b. Restricted revenue only.
c. Unrestricted revenue and an expense.
d. Restricted revenue and an expense.
Gleim
. The $2,000,000 gift should be recorded in the 2001 statement of activity as an increase in
a. Unrestricted net assets.
b. Temporarily restricted net assets.
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. The NPOs accounting policy is to record increases in net assets, for which a donor-imposed
restriction is met in the same accounting period as gains and investment income are
recognized, as increases in unrestricted net assets. In the 2001 statement of activity, the
$120,000 unrealized gain should be recognized as
a. A $40,000 increase in unrestricted net assets and an $80,000 increase in temporarily
restricted net assets.
b. A $120,000 increase in unrestricted net assets.
c. A $120,000 increase in temporarily restricted net assets.
d. A $120,000 increase in permanently restricted net assets.
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. If the lecture series were not scheduled to begin until 2002, the $50,000 dividend income
would be recorded in the 2001 statement of activity as an increase in
a. Unrestricted net assets.
b. Temporarily restricted net assets.
c. Permanently restricted net assets.
d. Either unrestricted or temporarily restricted net assets.
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. If the lecture series were not scheduled to begin until 2002, the $120,000 unrealized gain
should be recorded in the 2002 statement of activity as an increase in
a. Unrestricted net assets.
b. Temporarily restricted net assets.
c. Permanently restricted net assets.
d. Either unrestricted or temporarily restricted net assets.
20
. Following the destruction of its house of worship by fire, a religious organization held a
rebuilding party. Part of the labor was donated by professional carpenters. The remainder
was donated by members of the organization. Capitalization is required for the value of the
services provided by
a. The professional carpenters only.
b. The members only.
c. The professional carpenters and the members.
d. Neither the professional carpenters nor the members.
Gleim
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. Eleemosynary Institution (EI) received a donation of equity securities with readily determinable
fair values. The securities had appreciated in value after they were purchase by the donor,
and they continued to appreciate through the end of EIs fiscal year. At what amount should EI
report its investment in donated securities in its year-end balance sheet?
a. Donors cost.
b. Fair value at the date of receipt.
c. Fair value at the balance sheet date.
d. Fair value at either the date of receipt or the balance sheet date.
AICPA 0593 II-38
. Maple Church has cash available for investments from contributions with different restrictions.
Maples policy is to maximize its financial resources. How may Maple pool its investments?
a. Maple may not pool its investments.
b. Maple may pool all investments but must equitably allocate realized and unrealized gains
and loses among participants.
c. Maple may pool only unrestricted investments but must equitably allocate realized and
unrealized gains and losses among participating funds.
d. Maple may pool only restricted investments but must equitably allocate realized and
unrealized gains and losses among participating funds.
AICPA 0593 II-40
. Which of the following should normally be considered ongoing or central transactions for a notfor-profit hospital?
I. Room and board fees from patients.
II. Recovery room fees.
a. Neither I nor II.
c. II only.
b. Both I and II.
d. I only.
AICPA 1195 TMG-75
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. Valleys community hospital normally includes proceeds from the sale of cafeteria meals in
a. Deductions from dietary service expenses.
b. Ancillary service revenues.
c. Patient service revenues.
d. Other revenues.
AICPA 0594 TMG-60
. In health care accounting, restricted net assets are
a. Not available unless the directors remove the restrictions.
b. Restricted as to use only for board-designated purposes.
c. Not available for current operating use; however, the income generated is available for
current operating use.
AICPA 0593 II-29
d. Restricted as to use by the donor, grantor, or other source of the resources.
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. In April 2001, Delta Hospital purchased medicines from Field Pharmaceutical Co. at a cost of
$5,000. 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. A memorandum entry only.
b. A $5,000 credit to nonoperating expenses.
c. A $5,000 credit to operating expenses.
d. Other operating revenue of $5,000.
AICPA 0595 TMG-60
31
. Which of the following normally would be included in the health care revenues of a hospital?
AICPA 1194 TMG-28
a.
b.
c.
d.
Revenues from Educational Programs
No
No
Yes
Yes
Unrestricted Gifts
No
Yes
No
Yes
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. REQUIRED: The statement not ordinarily considered a major characteristic of nonbusiness organizations.
DISCUSSION: (C) SFAC 4, Objectives of Financial Reporting by Nonbusiness Organizations, states that the objectives
of financial reporting are derived from the common interests of those who provide the resources to nonbusiness
organizations. Such organizations ordinarily have no single indicator of performance comparable to a business
enterprises profit. Thus, nonbusiness organization performance is usually evaluated in terms of management
stewardship.
Answers (A), (B), and (D) are incorrect because SFAC 4 specifically gives each as a distinguishing characteristic of
nonbusiness organizations.
. REQUIRED: The statements included in a complete set of financial statements of not-for-profit organizations.
DISCUSSION: (C) SFAS 117 states that a complete set of financial statements of a not-for-profit organizations shall
include a statement of financial position as of the end of the reporting period, a statement of activities and a statement of
cash flows for the reporting period, and accompanying notes to financial statements.
Answer (A) is incorrect because the statement of financial position should be as of the end of the reporting period.
Answer (B) is incorrect because SFAS 117 does not specify how the statement of cash flows is to be prepared. Answer
(D) is incorrect because the statement of financial position should be as of the end of the reporting period, and
comparative statements are not required.
. REQUIRED: The classes of net assets reported in a statement of financial position of a not-for-profit organization.
DISCUSSION: (A) SFAS 117, Financial Statements of Not-for-Profit Organizations, requires a not-for-profit organization
to report amounts for all three classes: permanently restricted net assets, temporarily restricted net assets, and
unrestricted net assets. Information regarding the nature and amounts of permanently or temporarily restricted net
assets should be provided by reporting amounts on the face of the statement or by including details in the notes to
financial statements.
Answers (B), (C), and (D) are incorrect because a not-for-profit organization should report amounts for all three classes.
. REQUIRED: The asset held by a nonprofit organization for which depreciation should be recognized.
DISCUSSION: (A) SFAS 93, Recognition of Depreciation by Not-for-Profit Organizations, requires all nonprofit
organization to recognize the cost of using up long-lived tangible assets (depreciation) in their general purpose external
financial statements. Hence, a building used for religious activity is ordinarily depreciable.
Answers (B) and (C) are incorrect because depreciation does not have to be recognized for certain works of art and
historical treasures whose economic benefit or service potential is used up so slowly that their estimated useful lives are
extraordinarily long. Answer (D) is incorrect because land is normally not depreciated by any organization.
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. REQUIRED: The reporting of a transfer to an NPO with a direction that the assets be used to aid a specific
beneficiary.
DISCUSSION: (D) SFAS 136, Transfer of Assets to a Not-for-Profit Organization or Charitable Trust that Raises or
Holds Contributions for Others, applies when a donor makes a contribution to a recipient entity that agrees either to user
the assets for the benefit of another entity designated by the donor or to transfer the assets of the beneficiary. The
recipient entity should recognize the receipt of the assets as a contribution if the donor explicitly grants the entity
variance power to redirect the use of the assets or if the recipient and the beneficiary are financially interrelated.
However, if neither of these conditions applies, the recipient entity should recognize the fair value of the assets as a
liability/
Answers (A), (B), and (C) are incorrect because the recipient has not been granted variance power, and the recipient
and beneficiary are not financially interrelated organizations. Thus, the transfer should be accounted for as a liability.
11
. REQUIRED: The circumstances under which a contribution of artifacts to be sold need not be recognized.
DISCUSSION: (B) Contributions of such items as art works and historical treasures need not be capitalized and
recognized as revenues if they are added to collections that are (1) subject to a policy that requires the proceeds of sale
of collection items to be used to acquire another collection items; (2) protected, kept unencumbered, cared for, and
preserved; and (3) held for public exhibition, education, or research for public service purposes rather than financial gain
(SFAS 116).
Answers (A), (C), and (D) are incorrect because, if the proceeds are used to support general museum activities, repair
existing collections, or purchase buildings to house collections, the contribution must be recognized.
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Answers (A), (B), and (C) are incorrect because not-for-profit organizations must record contributions as unrestricted
support or restricted support.
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. REQUIRED: The amount at which a contribution of electricity should be recorded by the donee.
DISCUSSION: (C) SFAS 116 defines a contribution of utilities, such as electricity, as a contribution of other assets, not a
contribution of services. A simultaneous receipt and use of utilities should be recognized as both an unrestricted
revenue and an expense in the period of receipt and use. The revenue and expense should be measured at estimated
fair value. This estimate can be obtained from the rate schedule used by the utility company to determine rates charged
to a similar customer.
Answers (A), (B), and (D) are incorrect because the simultaneous receipt and use of electricity should be recorded as an
unrestricted revenue and an expense in the period of receipt and use.
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. REQUIRED: The classification of expended dividend income generated from investments held in perpetuity.
DISCUSSION: (D) SFAS 117 and 124 require that income from donor-restricted permanent endowments be classified
as an increase in temporarily restricted or permanently restricted net assets if the donor restricts its use. However, if the
donor-imposed restrictions are met in the same reporting period as the gains and investment income are recognized, the
gains and income may be reported as increases in unrestricted net assets, provided that the organization has a similar
policy for reporting contributions received, reports on a consistent basis from period to period, and adequately discloses
its accounting policy. The temporary restriction on the $50,000 of investment income was met by expenditure in 2001,
the year the gain and income were recognized. Thus, the dividend revenue may be classified as an increase in either
unrestricted or temporarily restricted net assets, depending on the NPOs accounting policy.
Answers (A), (B), and (C) are incorrect because investment income may be reported as an increase in either
unrestricted or temporarily restricted net assets in these circumstances.
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REQUIRED: The classification of unexpended dividend income generated from investments held in perpetuity.
DISCUSSION: (B) SFAS 117 requires that gains and investment income from donor-restricted permanent endowments
be classified as increases in temporarily restricted net assets if the donor restricts the use of these resources to a
specific purpose that either expires with the passage of time or can be met by actions of the organization. The
restriction is temporary because it will expire when the income is expended in a future period.
Answers (A), (C), and (D) are incorrect because the donor-imposed restriction is temporary. It will expire when the
income is expended. Moreover, the income cannot be classified as unrestricted because recognition and the expiration
of the restriction do not occur in the same period.
Answers (A), (C), and (D) are incorrect because the donor-imposed restriction is temporary. It will expire when the
income is expended. Moreover, the income cannot be classified as unrestricted because recognition and the expiration
of the restriction do not occur in the same period.
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. REQUIRED: The correct accounting treatment of combined fund-raising and educational materials or program
services costs.
DISCUSSION: (B) When fund-raising costs are combined with program services costs or educational materials, the
total of these combined services should be systematically and rationally allocated between the programs and fundraising.
Answer (A) and (C) are incorrect because costs that do not completely relate to one category should be allocated.
Answer (D) is incorrect because the costs must be allocated to the proper programs to which they relate.
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. REQUIRED: The expense classification for management and general expenses in the statement of activities.
DISCUSSION: (B) Two functional categories of expenses for an NPO are program services and supporting services
expenses. Supporting services expenses, which do not relate to the primary mission of the organization, may be further
subdivided into (1) management and general expenses, (2) fund-raising expenses, and (3) membership development
costs.
Answer (A) is incorrect because a direct reduction of fund balance would be the result of a transfer or a refund to a
donor. Moreover, fund accounting information is not required to be externally reported. Answer (C) is incorrect because
program services expenses related directly to the primary mission of the NPO. Answer (D) is incorrect because only
costs directly related to a certain source of support, such as a special event or estimated uncollectible pledges, may be
offset against revenue.
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. REQUIRED: The item(s), if any, that are ongoing or central transactions for a not-for-profit hospital.
DISCUSSION: Revenue from health care services include inpatient and outpatient services provided directly to patients
for their medical care. The resulting revenues derive from furnishing room and board and nursing services. Health care
service revenues are also earned by the operating room, recovery room, labor and delivery room, and other ancillary
departments that give patient care.
Answers (A), (C), and (D) are incorrect because room and board fees from patients and recovery room fees are ongoing
or central transactions.
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donors restriction is met. Permanently restricted net assets (for example, endowment funds) are those with donor
restrictions that do not expire with the passage of time and cannot be removed by any actions taken by the entity.
Answer (A) is incorrect because donor restrictions are not removable by the board. Temporary restrictions expire by
passage of time or by actions by the entity consistent with the donors restrictions. Answer (B) is incorrect because
board-designated restrictions are board-removable. Answer (C) is incorrect because income generated by restricted net
assets can be restricted for specific purposes.
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. REQUIRED: The true statement about external reporting by a health care organization.
DISCUSSION: (B) The basic financial statements of a health are organization include a balance sheet, a statement of
operations, a statement of changes in equity or net assets, and a statement of cash flows.
Answer (A) is incorrect because fund accounting may be used for internal purposes but is not required or encouraged
for external reporting. Answer (C) is incorrect because the statement of changes in equity or net assts may be
combined with the statement of operations. Answer (D) is incorrect because the statement of operations all HCOs,
including NPOs, should report a performance indicator and other changes in net assets.