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. It must have a positive fund balance.

b. It must only operate on US soil.
c. A government can void tax regulations for the entity.
d. A government can unilaterally dissolve the entity.

LO2
3. 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. net, gross
b. gross, net
c. gross, gross
d. 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, non-
reciprocal transfer, is called a(n)

a. unconditional promise to give.

b. contribution.
c. conditional promise to give.
d. residual equity transfer.

LO3
7. Unconditional promises to give that include promises of
payments due in future periods (next year or later) are
reported as

a. unrestricted revenues.
b. a memorandum, until the year of the promised payment.
c. deferred revenues until payment is received.
d. restricted revenues.

LO3
8. 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. a special purpose contribution.

b. an exchange transaction.
c. an agency transaction.
d. a conditional promise to give.
LO4
9. Voluntary health and welfare organizations must report expenses
classified by

a. Restriction.
b. function and natural classification.
c. restriction and natural classification.
d. 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. A statement of financial position.

b. A statement of activities.
c. A statement of functional expenses.
d. A statement of changes in net assets.

LO4
11. Voluntary health and welfare organizations classify fund-
raising costs as

a. costs of services sold.

b. program services.
c. functional expenses.
d. supporting services.

LO4
12. 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. As a restricted revenue.
b. As an unrestricted contribution.
c. As both an unrestricted revenue and as an expense.
d. As a pro bono activity.

LO5
14. Hospital premium fees are

a. charity care services.

b. only earned to the extent of the services provided.
c. refundable to the subscriber if services are unused.
d. revenues earned even if the standard charge is above or
below the fee.

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LO5
15. Hospital courtesy allowances are

a. charity care services.

b. revenue deductions.
c. Expenses.
d. revenues earned even if the standard charge is above or
below the allowance.

LO5
16. Activities treated as deductions from gross revenues (contra-
revenue accounts) in not-for-profit hospitals and other health
care organizations include(s)

a. charity care services.

b. courtesy allowances.
c. estimated bad debts.
d. all of the above.

LO6
17. Which of the following is (are) treated as expense(s) by not-
for-profit colleges and universities?

a. tuition waivers and student aid.

b. tuition waivers and estimated bad debts.
c. estimated bad debts and student aid.
d. tuition waivers, student aid and estimated bad debts.

LO6
18. Not-for-profit college and university student unions,
dormitories, and residence halls are considered

a. educational and general services.

b. auxiliary enterprises.
c. independent operations.
d. restricted enterprises.

LO6
19. An alumnus made a donation of adjoining land to a university.
The university would record the gift as

a. an endowment asset.
b. a restricted revenue.
c. an unrestricted revenue.
d. 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. a bequest.
b. an agency transaction.
c. unrestricted revenue.
d. 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.................. $5,000,000

Unrestricted Support - Membership Dues................ 600,000
Unrestricted Revenues - Investment Income............. 96,000
Temporarily restricted gain on sale of investments. . . . 9,000
Expenses - Research................................... 3,200,000
Expenses - Fund Raising............................... 700,000
Expenses - Management and General..................... 300,000
Restricted Support - Contributions.................... 600,000
Restricted Revenues - Investment Income............... 50,000
Permanently Restricted Support - Contributions........ 60,000
Unrestricted Net Assets, January 1, 2005.............. 500,000
Temporarily Restricted Net Assets, January 1, 2005. . . . 6,000,000
Permanently Restricted Net Assets, January 1, 2005. . . . 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.................. $3,000,000

Unrestricted Support - Membership Dues................ 700,000
Unrestricted Revenues - Investment Income............. 76,000
Temporarily restricted gain on sale of investments. . . . 19,000
Expenses - Research................................... 2,200,000
Expenses - Fund Raising............................... 400,000
Expenses - Management and General..................... 500,000
Restricted Support - Contributions.................... 600,000
Restricted Revenues - Investment Income............... 40,000
Permanently Restricted Support - Contributions........ 70,000
Unrestricted Net Assets, July 1, 2005................. 450,000
Temporarily Restricted Net Assets, July 1, 2005....... 2,100,000
Permanently Restricted Net Assets, July 1, 2005 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. The

following information is available about the operations.

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. The

following information is available about the operations.

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........................... $5,000,000
Membership dues......................... 600,000
Investment Income....................... 96,000
Total revenues and gains............. 5,696,000
Net assets released from restrictions 1,300,000
Increase in unrestricted net assets 6,996,000

Expenses:
Program Services:
Research................................ 3,200,000
Supporting Services:
Management and General.................. 300,000
Fund Raising............................ 700,000
Total Supporting Services............ 1,000,000
Total Expenses....................... 4,200,000
Net increase in unrestricted net assets 2,796,000

Changes in Temporarily Restricted Net Assets

Contributions........................... 600,000
Investment Income....................... 50,000
Gain on Sale of investments............. 9,000
Net assets released from restriction.... (1,300,000)
Decrease in temporarily restricted net assets ( 641,000)

Changes in Permanently Restricted Net Assets

Contributions........................... 60,000
Increase in permanently restricted net assets 60,000

Increase in net assets..................... 2,215,000

Net assets, January 1, 2005................ 6,550,000
Net assets, December 31,2005............... $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........................... $3,000,000
Membership dues......................... 700,000
Investment Income....................... 76,000
Total revenues and gains............. 3,776,000
Net assets released from restrictions 800,000
Increase in unrestricted net assets 4,576,000

Expenses:
Program Services:
Research................................ 2,200,000
Supporting Services:
Management and General.................. 500,000
Fund Raising............................ 400,000
Total Supporting Services............ 900,000
Total Expenses....................... 3,100,000
Net increase in unrestricted net assets 1,476,000

Changes in Temporarily Restricted Net Assets

Contributions........................... 600,000
Investment Income....................... 40,000
Gain on Sale of investments............. 19,000
Net assets released from restriction.... (800,000)
Decrease in temporarily restricted net assets (141,000)
Changes in Permanently Restricted Net Assets
Contributions........................... 70,000
Increase in permanently restricted net assets 70,000

Increase in net assets..................... 1,405,000

Net assets, July 1, 2005................... 2,610,000
Net assets, June 30,2006................... $4,015,000

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Exercise 3

1. Temporarily restricted net assets -

reclassifications out............ 20,000
Unrestricted net assets -
reclassifications in.............. 20,000

2. Pledges receivable...................... 40,000

Cash ................................. 25,000
Allowance for uncollectible pledges. . 2,000
Unrestricted support - contributions. 63,000

3. Expenses - meals program - supplies..... 101,500

Inventory of supplies................ 1,500
Unrestricted contributions -
donated supplies.................. 100,000

4. Expenses - management and general....... 15,000

Expenses - meals program - supplies..... 45,000
Expenses - meals program - rental....... 2,500
Cash................................. 62,500

5. Pledges receivable...................... 250,000

Temporarily restricted support -
contributions..................... 250,000

Exercise 4

1. Temporarily restricted net assets -

reclassifications out................... 40,000
Unrestricted net assets -
reclassifications in................. 40,000

2. Pledges receivable...................... 400,000

Cash ................................. 200,000
Allowance for uncollectible pledges. . 8,000
Unrestricted support - contributions. 584,000

3. Cash.................................... 16,000
Unrestricted revenues - sales........ 16,000

4. Expenses - management and general....... 110,000

Expenses - supplies..................... 10,000
Expenses - rental....................... 60,000
Expenses - utilities.................... 12,000
Cash................................. 192,000

5. Marketable securities................... 520,000

Temporarily restricted support -
contributions........................ 520,000

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Exercise 5

1.
Accounts receivable..................... 4,000,000
Patient service revenues-unrestricted 4,000,000

2.
Patient service revenues - unrestricted. 125,000
Contractual adjustments................. 350,000
Courtesy discounts...................... 10,000
Expenses - provision for bad debts...... 150,000
Accounts receivable.................. 485,000
Allowance for uncollectibles......... 150,000

3.
Cash.................................... 125,000
Premium revenue - unrestricted....... 125,000

4.
Supplies inventory...................... 40,000
Accounts payable..................... 40,000

Accounts payable........................ 36,000

Cash................................. 36,000

5.
Cash.................................... 1,100,000
Temporarily restricted support....... 1,100,000

6. Construction in progress................ 275,000

Cash................................. 275,000

Temporarily restricted net assets -

reclassifications out................... 275,000
Unrestricted net assets -
reclassifications in................ 275,000

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Exercise 6

1.
Accounts receivable..................... 4,500,000
Patient service revenues-unrestricted 4,500,000

2.
Patient service revenues - unrestricted. 165,000
Contractual adjustments................. 400,000
Courtesy discounts...................... 14,000
Accounts receivable.................. 579,000

3. Marketable securities................... 115,000

Temporarily restricted support....... 115,000

4. Cash.................................... 124,000
Marketable securities................ 115,000
Temporarily restricted support -
investment income.................... 9,000

Equipment............................... 138,000
Cash................................. 138,000

Temporarily restricted net assets -

reclassifications out................... 124,000
Unrestricted net assets -
reclassifications in................. 124,000

5. Cash.................................... 191,000
Other operating revenue -
unrestricted ....................... 191,000

6. Nursing service expense................. 1,000,000

General services expense................ 500,000
Cash................................. 1,500,000

Exercise 7

1.
Accounts receivable..................... 10,000,000
Revenues - educational and general... 10,000,000

Tuition reduction - scholarships........ 800,000

Expenses - bad debts.................... 400,000
Accounts receivable.................. 800,000
Allowance for uncollectible accounts. 400,000

Cash.................................... 8,500,000
Accounts receivable.................. 8,500,000

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2.
Cash.................................... 1,000,000
Revenues - auxiliary enterprises..... 1,000,000

3.
Expenses - educational and general ..... 4,800,000
Expenses - auxiliary enterprises....... 200,000
Cash................................. 5,000,000

4.
Cash.................................... 500,000
Grant funds held for students........ 500,000

Grant funds held for students........... 500,000

Cash................................. 500,000

5.
Cash ................................. 250,000
Contributions receivable................ 25,000
Unrestricted revenues - contributions 200,000
Temporarily restricted revenues -
contributions.................... 75,000

6.
Equipment............................... 35,000
Cash................................. 35,000

Temporarily restricted net assets -

reclassifications out................... 35,000
Unrestricted net assets -
reclassifications in................ 35,000

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Exercise 8

Cash.................................... 2,000,000
Temporarily restricted revenues-research 2,000,000

Expenses - research..................... 1,150,000

Cash/Payables........................ 1,150,000

Temporarily restricted net assets -

reclassifications out................... 1,150,000
Unrestricted net assets -
reclassifications in................. 1,150,000

Cash.................................... 1,000,000
Permanently restricted revenues -
endowment contribution............... 1,000,000

Cash.................................... 50,000
Temporarily restricted revenues -
endowment income..................... 50,000

Expenses-research....................... 44,000
Cash/Payables........................ 44,000

Temporarily restricted net assets -

reclassifications out................... 44,000
Unrestricted net assets -
reclassifications in................. 44,000

Exercise 9

1. Cash ................................. 9,000,000

Bonds payable........................ 9,000,000

2. Cash.................................... 2,500,000
Temporarily restricted revenues -
Contributions....................... 2,500,000

3. Building................................ 10,500,000
Cash................................. 10,500,000

Temporarily restricted net assets -

reclassifications out................... 10,500,000
Unrestricted net assets -
reclassifications in................. 10,500,000

4. Expenses - interest..................... 720,000

Cash................................. 720,000

5. Expenses – depreciation................. 525,000

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 Accumulated depreciation............. 525,000

Exercise 10

Cash.................................... 500,000
Temporarily restricted revenues-stadium 500,000

Buildings - stadium..................... 650,000

Cash................................. 650,000

Temporarily restricted net assets -

reclassifications out................... 650,000
Unrestricted net assets -
reclassifications in................ 650,000

Expenses - depreciation................. 51,000

Accumulated depreciation............. 51,000

Cash.................................... 2,500,000
Permanently restricted revenues -
endowment contribution............... 2,500,000

Cash.................................... 201,000
Temporarily restricted revenues -
endowment income..................... 201,000

Expenses - student aid.................. 299,000

Cash................................. 299,000

Temporarily restricted net assets -

reclassifications out................... 299,000
Unrestricted net assets -
reclassifications in................ 299,000

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