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Chapter 12: Accounting for Not-for-Profit Organizations
Multiple Choice
1. For not-for-profit entities, external financial reporting focuses on:a. individual fundsb. fund groupsc. the organization as a wholed. major funds
Answer: c
2. When a not-for-profit entity's funds are classified as restricted, who has imposed the restrictions?a. the entity's board of trusteesb. donorsc. the bondholdersd. government regulators
Answer: b
3. Under which of the following circumstances would a not-for-profit organization's net assets be classified as temporarily restricted?a. donors impose stipulations on the use of resources that expire with the passage of time
or that can be fulfilled by actions of the organizationb. donors stipulate that resources must be held intact in perpetuity, but that the income
from the gift may be used for any purpose desired by the organization's trustees c. the entity's board of directors requires that unrestricted resources be set aside for a
specific purposed. the bank lending money to the organization requires a percentage of maximum debt
service to be set aside in a sinking fund
Answer: a
4. In which classification of net assets are expenses reported?a. only in unrestricted net assetsb. only in temporarily restricted net assetsc. either in unrestricted or temporarily restricted net assetsd. either in unrestricted, temporarily restricted, or permanently restricted net assets
Answer: a
5. The FASB requires not-for-profits to report net assets and resource inflows and outflows in which categories?a. Current and noncurrentb. Unrestricted, temporarily restricted, or permanently restricted depending on the
existence and nature of donor restrictionsc. Unrestricted, temporarily restricted, or permanently restricted depending on the
existence and nature of donor and creditor restrictionsd. Unrestricted, temporarily restricted, or permanently restricted depending on the
existence and nature of creditor, donor, and supplier restrictions
Answer: b
6. A not-for-profit organization receives $3,400,000 of pledges in its annual telethon. When should the organization recognize contribution revenue?a. when cash is receivedb. when the pledges are received, provided they are in written form c. when the pledges are received, less an appropriate allowance for uncollectible pledgesd. when the pledges are received, provided the entity classifies the pledges as unrestricted
Answer: c
7. A not-for-profit organization enters into an agreement with a local bank to provide it with a letter of credit for a building project. The bank requires the organization to put aside 10% of pledges collected for the building project in a separate account as a good faith deposit for the line of credit. At year-end, the organization has $255,000 in this separate account. How should the $255,000 of net assets be classified?a. As unrestricted net assets because the restriction is from a creditor relationshipb. As temporarily restricted net assets until the money is used on the building projectc. As temporarily restricted net assets until the line of credit is repaid and the separate
account closed.d. As restricted net assets
Answer: b
8. Ken Labich promises to give a not-for-profit university $2 million for a new library, but only if the university is able to raise an equal amount in cash from other donors. When should the university recognize Ken’s promise as revenue?a. when it receives Ken’s promiseb. when it receives Ken’s promise, provided it also fully discloses (in notes to the
financial statements) the conditions set forth in Roger's promise regarding other contributions
c. gradually; that is, each time it receives cash from another donor, the entity would recognize a portion of Ken’s promise as revenue
d. when the conditions imposed by Ken are substantially met; that is, when it receives approximately $2 million in cash from other donors
Answer: d
9. Ruth Richter gives a not-for-profit entity $25,000 in cash. She tells the entity that it may use the gift for particular research project but only after it receives at least $20,000 cash from other donors to help complete the project. If the entity fails to raise the additional $20,000, it must return Ruth’s gift. What account should the entity credit when it receives Ruth’s gift?a. Unrestricted support - contributionsb. Temporarily restricted support - contributionsc. Refundable advance (deferred revenue)d. Allowance for uncollectible contributions
Answer: c
10. The Turtle Island Singers receive three gifts during the year 2012: (a) $3,000, which may be used for any purpose at any time; (b) $5,000, which must be used for a special concert in a nursing home; and (c) $1,000, which may be used for any purpose, but only in the year 2013. When it receives the gifts, how should the entity classify them:a. $3,000 as unrestricted revenue and $6,000 as temporarily restricted revenueb. $4,000 as unrestricted revenue and $5,000 as temporarily restricted revenuec. $8,000 as unrestricted revenue and $1,000 as temporarily restricted revenued. $9,000 as unrestricted revenue
Answer: a
11. In response to a fund-raising campaign, an electric utility provides free electricity to a not-for-profit entity. How should the not-for-profit entity report this gift in its statement of activities?a. It should not be reported in the statement.b. It should not be reported on the face of the statement, but should be disclosed in the
notes.c. It should be reported at its fair value as a revenue and as an expense.d. The entity may choose either to not report it or to report it at fair value as a revenue
and as an expense.
Answer: c
12. A group of citizens donate their time to construct a building to provide shelter for the homeless, to be run by a not-for-profit entity. In this situation, what is the applicable accounting rule for recognizing the fair value of the services on the face of the financial statements? a. donations that take a form other than cash should not be recognized.b. the fair value of contributed services should not be recognized unless the services
require specialized skills, are provided by individuals who have those skills, and which the entity would need to be purchased if not donated.
c. contributed services should be recognized at the fair value of the assets they create.d. donations should be recognized on the face of financial statements only for cash,
securities, and other tangible assets; all other donations should be described in the notes.
Answer: b
13. A not-for-profit entity conducts a special fund-raising campaign at the end of fiscal year 2012, intended to raise funds for general operations that take place during fiscal year 2013. It receives pledges totaling $200,000. Based on past experience, the entity expects to receive $150,000 in cash. How should the entity report these events?a. recognize the entire amount pledged as unrestricted contribution revenue in 2012b. recognize the amount pledged (net of a $50,000 allowance for estimated
uncollectibles) as unrestricted contribution revenue in 2012c. recognize the amount pledged (net of a $50,000 allowance for estimated
uncollectibles) as temporarily restricted contribution revenue in 2012; and report the 2013 expenses as changes in temporarily restricted net assets in 2013
d. recognize the amount pledged (net of a $50,000 allowance for estimated uncollectibles) as temporarily restricted contribution revenue in 2012; and reclassify the net assets as unrestricted at the beginning of 2013
Answer: d
14. Matt Shaw buys 100 shares of common stock for $8,000 in January. The value of the stock fluctuates in a narrow range (averaging $8,700) throughout the year. In November, when it has a value of $9,500, he donates it to a not-for-profit entity. On December 31, the stock has a fair value of $8,200. At what amount should the entity value the stock on its December 31 statement of financial position?a. $8,000b. $8,200c. $8,700d. $9,500
Answer: b
15. According to the Financial Accounting Standards Board, the distinguishing characteristics of not-for-profit organizations (NFPOs) do not include which of the following?a. NFPOs can issue debt on which the interest is exempt from federal taxationb. NFPOs receive significant contributions from resource providers who do
not receive proportionate value in returnc. NFPOs operate for purposes other than to provide goods and/or services at a profitd. NFPOs do not have defined ownership interests that can be sold or
transferred
Answer: a
16. Steve Watson, a local certified public accountant (CPA), donates a significant amount of his spare time to Beth’s Gallery, a not-for-profit museum. He donates 50 hours to audit the books and 80 hours selling products at the museum store. He charges his regular clients $200 an hour as a CPA. How should the Gallery report Mr. Watson’s donation of time?a. report $26,000 (130 hours @ $200) as contribution revenue and expenseb. report $0 as contribution revenue and expense, and describe Mr. Watson’s services to
the museum in a note to the statementsc. report $10,000 (50 hours @ $200) as contribution revenue and expense; also, disclose
in a note to the statements the fair value of selling services provided by Watson and others
d. report $10,000 (50 hours @ $200) plus the fair value of the selling services provided by Watson and others
Answer: c
17. Which of the following financial statements is not required to be prepared by not-for-profit organizations?a. statement of financial positionb. statement of donations and contributions receivedc. statement of cash flowsd. statement of activities
Answer: b
18. Showing the amount and nature of donor-imposed restrictions on the statement of net assets helps financial statement readers to assess a not-for-profit organization'sa. corporate responsibilityb. budgetary compliancec. financial flexibilityd. liquidity
Answer: c
19. A not-for-profit organization receives a pledge from a donor in fiscal 2013. The terms of the pledge are such that the organization will receive a large contribution in fiscal 2015. At what value should the pledge be reported in the organization's 2013 statement of financial position?a. face or nominal valueb. compound valuec. marginal valued. present value
Answer: d
20. Which of the following characteristics of a brochure prepared by an NFPO is not relevant to whether the cost of the brochure can be allocated between program and fund-raising functions?a. page countb. contentc. purposed. audience
Answer: a
21. The Bob Buckham Senior Center, a not-for-profit entity, serves a hot meal to senior citizens every Friday evening. All the food is donated by a local supermarket. All the food preparation and serving is done by local volunteers. If the Center had to pay for the food, it would need to spend $10,000 a year. If it had to pay for the food preparation and service, it would need to spend $12,000 a year. How should it report these contributions in its financial statements?
Food Food preparation and servicea. Disclose in the notes Disclose in the notesb. Disclose in the notes Report $12,000 revenue and expensec. Report $10,000 revenue and expense Disclose in the notesd. Report $10,000 revenue and expense Report $12,000 revenue and expense
Answer: c
22. Not-for-profit colleges and universities are required to follow the accounting standards of which standard-setting body?a. FASBb. GASBc. GASACd. FASAB
Answer: a
23. A not-for-profit arts organization receives a $300,000 gift from a donor who specifies that the gift must be maintained in perpetuity and that the income from the gift is to be used only to take disabled persons to the theater. How should the entity report the $300,000 gift in the net asset section of its statement of financial position?a. as unrestricted b. as temporarily restricted c. as permanently restrictedd. as restricted for programs for the disabled
Answer: c
24. A not-for-profit arts organization receives a $300,000 gift from a donor who specifies that the gift must be maintained in perpetuity, and the income from the gift is to be used only to take disabled persons to the theater. The entity derives $20,000 from investing the gift, but has not spent it by year-end. How should the entity report the $20,000 of resources in the net asset section of its statement of financial position?a. as unrestricted b. as temporarily restrictedc. as permanently restrictedd. as permanently restricted, with a note describing how the resources will be used
Answer: b
25. A not-for-profit museum holds a valuable collection of art works. On reviewing the museum's financial statements, a new trustee notices that the statement of financial position contains no line item for inventory of art works. He is told by the accountant that the museum has never taken an inventory because "it would cost too much." What are the accounting requirements regarding capitalization of the art works?a. All collections of art works must be capitalized, regardless of the circumstances.b. Collections of art works are not required to be capitalized under any circumstances.c. If collections of art works meet certain criteria (such as being protected and preserved),
they must be capitalized.d. If collections of art works meet certain criteria (such as being protected and preserved),
the museum has an option either to capitalize or not capitalize them.
Answer: d
26. A not-for-profit museum holds a collection of historical treasures. It manages the treasures in a manner that meets all three criteria permitting the option to either capitalize the collection or not. The museum has chosen not to capitalize its collection. It then receives a donation of several items that it intends to sell to help meet operating expenses. How should the museum account for the donated items?a. It must recognize the fair value of the donated items as revenues or gains and assets
when it receives the donation.b. It has an option either to recognize or not to recognize the fair value of the donated
items as revenues or gains when it receives the donation.c. It may not recognize a revenue or gain until it sells the donated items.d. It must disclose the donation in the notes to the financial statements, but it may not
recognize a revenue or gain until it sells the donated items.
Answer: a
27. A not-for-profit entity receives a donation of 100 shares of securities listed on the American Stock Exchange. As a general rule, when it prepares its statement of financial position at year-end, the entity must report the securities at:a. their fair value at time of donationb. their fair value at date of the statement of financial positionc. the lower of their fair value at date of donation or their fair value at date of the
statement of financial positiond. the lower of the cost to the donor or the fair value at date of the statement of financial
position.
Answer: b
28. A not-for-profit museum owns a building and a large collection of art works. Both the building and the art works are capitalized on the entity's statement of financial position. What is the general rule regarding depreciation of the building and the art works?a. The building must be depreciated, but the art works cannot be depreciated.b. Both the building and the art works must be depreciated.c. Neither the building nor the art works can be depreciated.d. The building must be depreciated, but the art works need not be depreciated if the
collection meets the three criteria established by the FASB.
Answer: d
29. On March 1, 2012, a not-for-profit organization received a donation of securities worth $4,500. When it prepared its financial statements at December 31, 2012, the securities had a fair value of $5,200. When it sold the securities on June 30, 2013, it received $4,600. The entity's accounting procedures call for reporting all unrealized and realized gains and losses in a single account. How should it report its gains and losses in 2012 and 2013?a. no change in 2012; a gain of $100 in 2013b. a gain of $100 in 2012; no change in 2013c. a gain of $700 in 2012; a loss of $600 in 2013d. no change in 2012; a loss of $600 in 2013
Answer: c
30. In not-for-profit accounting, under what circumstances does a reclassification occur?a. Temporarily restricted net assets are released from time or purpose restrictions.b. Unrestricted net assets are reclassified to temporarily restricted net assets.c. Resources of the current unrestricted fund are transferred to the land, building and
equipment fund.d. A pledge previously classified as a "conditional promise" becomes "unconditional."
Answer: a
31. A donor had previously donated $2,000 to a not-for-profit entity, stipulating that the gift must be used to finance the annual Fall Harvest festival. The festival is held and the gift is used for the stipulated purpose. Which of the following best describes the effect of the journal entries needed to record the expense resulting from use of the gift?a. An expense is reported in the temporarily restricted column of the statement of
activities.b. An expense is reported in the temporarily restricted column of the statement of
activities, temporarily restricted net assets are increased, and unrestricted net assets are decreased.
c. An expense is reported in the unrestricted column of the statement of activities.d. An expense is reported in the unrestricted column of the statement of activities,
unrestricted net assets are increased, and temporarily restricted net assets are decreased.
Answer: d
32. A not-for-profit organization uses fund accounting. Which of the following transactions is likely to be accounted for in a Restricted Current Fund?a. a donation of $10,000 that may be used for any purpose designated by the trusteesb. a donation of $50,000 that must be used to purchase a new buildingc. a donation of $500,000 that must be kept intact in perpetuityd. a grant of $30,000 that must be used to operate a day-care center for one year
Answer: d
33. A not-for-profit university uses fund accounting. The university's governing board decides to set aside $500,000 in a separate fund called the Student Performance Quasi-Endowment Fund, the income of which will be used to finance a long-term study on the career paths of the university's graduates. In which net asset classification of the university's statement of financial position should this fund be reported?a. Unrestrictedb. Temporarily restrictedc. Permanently restrictedd. Endowment funds
Answer: a
34. A not-for-profit university uses fund accounting. It maintains a Loan Fund to account for its extensive program of financial assistance to students. The Loan Funds are derived from many sources, including both donations and amounts set aside by the university's governing board. When it prepares its statement of financial position, how should the university classify the net assets of the Loan Fund?a. All net assets should be classified as temporarily restricted.b. All net assets should be classified as permanently restricted.c. Net assets should be classified as either temporarily or permanently restricted,
depending on the restrictions imposed by the governing board and the donors.d. Net assets set aside by the governing board should be classified as unrestricted, and net
assets from donations should be classified as temporarily or permanently restricted, depending on the nature of the donor-imposed restrictions.
Answer: d
35. Say No To Meth, a not-for-profit entity devoted to informing the public about the hazards of methamphetamine, sends out brochures to a large number of doctors, urging that the brochures be placed in the doctors' waiting rooms. The four-page brochure contains a description of the addictive and destructive nature of the drug, but half of the last page contains an appeal for funds, in relatively large type. How should the entity report the $30,000 expense of preparing, printing, and mailing the brochure in its statement of activities?a. The entire $30,000 must be reported as a fund-raising expense.b. The entire $30,000 must be reported as a program expense.c. The $30,000 should be allocated between fund-raising and program expenses, using
appropriate cost accounting techniques.d. The $30,000 should be reported under the caption "Program and fund-raising
expenses."
Answer: c
36. A not-for-profit secondary school sends a 8-page brochure to the parents and alumni of the school. The brochure describes the school's programs and discusses the achievements of some of its graduates. Five pages list the names of all contributors during the previous year and the last page contains an appeal for funds. How should the organization report the expense of printing and mailing the brochure?a. All costs should be reported as program expenses.b. All costs should be reported as fund-raising expenses.c. The costs should be allocated between program and fund-raising expenses, using
appropriate cost accounting techniques.d. All costs should be reported under a single caption "Program and fund-raising
expenses."
Answer: b
36. A not-for-profit entity that conducts numerous programs receives investments as a donation. The donor, in a letter accompanying the donation, states that the principal of the donation must be maintained intact permanently, and that the income from the investment must be used to finance research in kidney disease. If the entity receives income of $8,000 from these investments, how should be income be reported?a. as an increase in unrestricted net assetsb. as an increase in temporarily restricted net assetsc. as an increase in permanently restricted net assetsd. as an increase in any of the net asset classifications directed by the entity's trustees
Answer: b
37. A not-for-profit entity receives equipment having a fair value of $50,000 as a gift. How should the gift be reported in the entity's financial statements?a. as an asset and as an increase in permanently restricted net assetsb. as an asset and as an increase in unrestricted net assetsc. as a footnote only, because gifts of equipment are not be reported on the face of
financial statementsd. as an asset and as an increase in temporarily restricted net assets
Answer: b
38. Which of the following is true regarding the Financial Accounting Standards Board requirements for a not-for-profit entity's accounting and financial reporting?a. Both fund accounting and reporting by net asset classification are required.b. Neither fund accounting nor reporting by net asset classification are required.c. Fund accounting is required, but reporting by net asset classification is not required.d. Fund accounting is not required, but reporting by net asset classification is required.
Answer: d
39. Which of the following is an example of a mandatory transfer in college and university accounting?a. a transfer to a Plant Fund to set aside amounts that will be used to pay debt service in
accordance with a clause in a bond agreementb. a transfer to a Plant Fund based on a decision by the Board of Trustees to build a new
school of engineeringc. a transfer to a Plant Fund based on a decision by management to build new box seats in
the football stadium for major donorsd. a reclassification from temporarily restricted to unrestricted net assets
Answer: a
40. Which of the following best describes standards for reporting expenses by function (such as instruction and research) or by natural classification (such as salaries and supplies) in the statement of activities prepared by colleges and universities?a. all expenses must be reported by function on the face of the statement.b. all expenses must be reported by natural classification on the face of the statement.c. they may report by either method on the face of the statements; if they report by
natural classification on the face, they must report functional expenses in the notes.d. colleges and universities may report by either method on the face of the statement.
Answer: c
41. The National Kidney Foundation, a voluntary health and welfare organization, is required by GAAP to present an additional operating statement—a statement of functional expenses. What will this statement present?a. All expenses by functionb. All expenses by function and then by natural or object classificationc. All expenses by function then by funding source, including unrestricted and
temporarily restricted. d. All expenses by natural or object classification
Answer: b
42. Socialite Lisa King establishes a $4 million irrevocable charitable remainder trust providing a beneficial interest to the Clinton Metropolitan Opera. A percentage of the fair value of the trust’s assets go to her husband during his lifetime. The Opera will receive the remaining assets at her husband’s death. Mrs. King also specifies that the only the revenue from investing the assets may be used to support the Opera’s programs. The Opera estimates that the present value of the estimated future benefits it will receive from the trust is $1.5 million. How should the Opera report this arrangement when it learns of the trust?a. It should record nothing now. It should record the fair value of the assets only after
Mr. King diesb. It should record a $4 million receivable, $1.5 million in permanently restricted support,
and $2.5 million long-term payable to Mr. King.c. It should disclose the anticipated $1.5 million contribution in the notes to its financial
statements. d. It should record $1.5 million as contributions receivable and as permanently restricted
support
Answer: d
Problems
43. (Identifying the net asset classifications and funds used for transactions by NFPOs)The following transactions pertain to the activities of the Whitt Shakespeare Company (WSC), a not-for-profit entity. For each transaction, state which classification of net assets is affected: unrestricted, temporarily restricted, or permanently restricted. In addition, state the fund in which the transaction would be recorded, if the entity were using fund accounting. (Transactions may require more than one net asset classification and more than one fund.)a. WSC receives a cash donation of $5,000, which must be used for a specific
performance to be attended only by disadvantaged youths.b. WSC gives the performance referred to in transaction a. c. WSC conducts its annual fund-raising campaign at the beginning of the year and raises
$50,000 to help meet its regular program and other expenses.d. The state council on the arts gives WSC a grant of $20,000, to be used only for specific
performances for senior citizens who reside in government-supported housing.e. Cort Beynon donates $16,000, stipulating that, starting next year, the
resources should be used to help meet its regular program and administrative expenses, at the rate of $4,000 a year.
f. Jace Beynon donates $20,000, to be placed in a fund that will be maintained in perpetuity.
Answer:Net Asset
Classification Fund(s)a. Temporarily restricted Restricted Currentb. Temporarily restricted Restricted Current and Unrestricted Currentc. Unrestricted Unrestricted Currentd. Unrestricted Restricted Currente. Temporarily restricted Restricted Currentf. Permanently restricted Endowment
Notes Transaction b. requires a reclassification entry Transaction d. requires an unrestricted net asset classification because the
restriction as to use is imposed by contract, rather than donor. However, NFPOs may account for such grants in Restricted funds, as discussed on page 461.
44. (Identifying the net asset classifications and funds used for transactions by NFP colleges)
The following transactions occurred at a not-for-profit university. For each transactions, state the appropriate net asset classification and the fund used. (Transactions may require more than one net asset classification and more than one fund.)a. The university paid its regular salaries for instruction and general administration.b. The university bookstore, an auxiliary enterprise, paid its bi-weekly payroll.c. The university sold bonds to finance construction of a new academic building.d. The university made a transfer of funds to pay for the first year's debt service on the
bonds issued in transaction c.e. The university received a gift of $1,000,000, to be held in perpetuity, with
the income to be used for any purpose approved by the university trustees.f. The university trustees set aside $300,000 in a special loan fund to finance
tuition loans to low-income students.Answer:
Net AssetClassification Fund(s)
a. Unrestricted Unrestricted Current b. Unrestricted Unrestricted Current
c. Unrestricted Plantd. Unrestricted Unrestricted Current and Plante. Permanently restricted Permanent Endowmentf. Unrestricted Unrestricted Current and Special Loan Fund
Note The income from the gift in e. would be classified as Unrestricted and be recorded in the Unrestricted Current Fund
45 (Journal entries to record transactions)
Prepare journal entries to record the following transactions of Weatherford Teen Foundation, Inc. (WTFI), a not-for-profit entity that provides counseling, training, and other programs for young people. WTFI accounts for all transactions in a single fund, recording them so as to identify the three classes of net assets (unrestricted, temporarily restricted, and permanently restricted) required for financial reporting. (WTFI initially records all donations with program restrictions as temporarily restricted until used for the intended purpose.)a. WTFI receives pledges of $150,000 to help finance its activities for the year. WTFI
expects that it will ultimately receive 90% of these pledges in cash.b. During the year, WTFI receives cash of $130,000 against the pledges and writes off
$10,000 of the pledges as uncollectible.c. WTFI incurs the following program expenses, financed by its unrestricted
revenues:(1) Counseling programs, $40,000(2) Training programs, $50,000
d. WTFI has a contract with the county in which it is located to administer a youth recreation program. It incurs $20,000 of expenses under the program, and sends an invoice to the county for that amount.
e. Carole Burgess donates $5,000, stipulating that WTFI must use her gift to obtain the services of a well-known country singer for a special concert.
f. WTFI gives the concert referred to in e. WTFI pays $5,000 to the country singer, and charges the expense to Recreation programs.
g. David Bean, a local attorney, donates 10 hours of his time to WTFI drawing up legal contracts. Mr. Bean also donates 20 hours coaching softball for the youths. He normally charges $200 an hour for his legal services. WTFI would have hired an attorney and a coach to do this work if Mr. Bean had not volunteered his time.
h. Mary Catlett donates common stock to WTFI, stipulating that the stock must be used during WTFI’s next fiscal year for any programs WTFI wishes to undertake. At the time of the gift, the stock has a fair value of $10,000.
i. When WTFI closes its books at year-end, the stock gift from Ms. Catlett has a fair value of $11,000.
Answer:a. Contributions receivable 150,000
Allowance for uncollectible contributions 15,000 Unrestricted support - contributions 135,000
b. Cash 130,000Allowance for uncollectible contributions 10,000
Contributions receivable 140,000
c. Expenses - counseling programs 40,000Expenses - training programs 50,000
Cash 90,000
d. Expenses - recreation program 20,000Cash 20,000
Accounts receivable 20,000Unrestricted revenues 20,000
e. Cash 5,000Temporarily restricted support - contributions 5,000
f. Expenses - recreation programs 5,000Unrestricted asset reclassification. in--satisfaction of program restrictions 5,000
Temporarily restricted asset reclassification out-- satisfaction of program restrictions 5,000
Cash 5,000
g. Expenses - administration 2,000Unrestricted support - donated services 2,000
Note – Mr. Bean’s services as a coach should not be recorded
h. Investments 10,000Temporarily restricted support - contributions 10,000
i. Investments 1,000Temporarily restricted gains - net unrealized and realized investment gains and losses 1,000
46. (Journal entries involving net asset reclassifications)
Prepare journal entries to record the following transactions of Parker County Outreach (PCO), a not-for-profit entity providing basic services to the poor. Also, show the fund in which the entry is recorded. PCO uses an unrestricted current fund (UCF) and a restricted current fund (RCF). In accordance with its accounting policy, donations with either time or program restrictions are recorded in the RCF. All expenses, however, are recorded in the UCF. PCO has a December 31 year end.a. During December, 2012, PCO conducts a fund-raising campaign. Its
campaign literature states that all funds will be used in 2013. PCO receives pledges totaling $200,000 in December. Past experience indicates it will collect only 80% of the pledges.
b. On December 15, PCO receives a $10,000 donation from Gary Harmer, who says that his donation must be used only to provide meals for the elderly poor.
c. On January 2, 2013, PCO makes journal entries to record the satisfaction of the time restriction resulting from the fund-raising campaign in transaction a.
d. During January, 2013, PCO provides meals for the poor at a cost of $8,000, partially fulfilling the program restriction contained in the Gary Harmer donation.
Answer:a. RCF
Contributions receivable 200,000Allowance for uncollectible contributions 40,000Temporarily restricted support - contributions 160,000
b. RCFCash 10,000
Temporarily restricted support - contributions 10,000
c. RCFTemporarily restricted asset reclassification out--
satisfaction of time restrictions 160,000Allowance for uncollectible contributions 40,000
Contributions receivable 200,000
UCFContributions receivable 200,000
Allowance for uncollectible contributions 40,000Unrestricted asset reclassification in--
satisfaction of time restrictions 160,000
d. RCFTemporarily restricted asset reclassification out--
satisfaction of program restrictions 8,000Cash 8,000
UCFExpenses - meals program 8,000
Unrestricted asset reclassification in--satisfaction of program restrictions 8,000
47. (Discussion problem - contributions to collections)
Art on Wheels is a newly-formed not-for-profit corporation. Its purpose is to promulgate public appreciation of 19th century American artists. It plans to solicit works of art from donors and to display them both in a museum and in a specially constructed bus that will travel throughout the country. It establishes a written policy to collect works of art, exhibit them, and protect them from harm. Its policy also calls for selling donated works of art that do not meet its stated objective of enhancing appreciation of 19th century American artists. Proceeds from those sales will be used either to purchase works that meet its objectives or, when necessary, to defray the expenses of displaying the works.
Required: Discuss the accounting requirements (including available options) for (a) recognizing revenues and assets resulting from donations of works of art, and (b) depreciation of art works.
Answer:a. The basic rule regarding donated art works is that they should be
recognized as revenues or gains and capitalized. However, not-for-profit entities have the option not to recognize revenues or gains, provided the donated items are added to collections and the collections meet all of these conditions:1. They are held for public exhibition, education or research in
furtherance of public service;2. They are protected, cared for, and preserved; and3. They are subject to an organizational policy that requires proceeds
from sales of collection items to be used to acquire other items for the collection.
If Art on Wheels chooses not to recognize revenues or gains, and it receives a work that it will not add to its collection but intends to sell for the purpose of defraying operating expenses, then it must recognize revenues or gains on receipt of the work.
b. If Art on Wheels chooses to capitalize its art works, it has another option regarding depreciation. The basic rule is that Art on Wheels need not depreciate provided their service potential is such that they have extraordinarily long lives. Art on Wheels must have verifiable evidence that it has both the technological and financial capacity to preserve the art.
48. (Journal entries using funds)
Inner City Compassion, Inc. (ICC) solicits donations to provide shelter and counseling to abused children and adults. It also sponsors research into the causes of abuse. To account for its activities, ICC uses an unrestricted current fund (UCF), a restricted current fund (RCF), an endowment fund (EF), and a land, building, and equipment fund (LBEF). In accordance with its accounting policies, all program expenses are recorded in the UCF. Make journal entries to record the following transactions, and identify the fund in which the entry is recorded.a. ICC receives cash contributions of $150,000 and pledges of $100,000, to be used for
any purpose approved by the trustees. Based on past experience, the trustees expect to collect 90% of the pledges.
b. ICC receives the following donations in cash, each for certain specific purposes:(1) $25,000, which must be used only for sheltering abused wives;(2) $100,000, the principal of which (and all investment gains or
losses) must be held in perpetuity; and the income must be used only for research purposes; and
(3) $50,000, which must be used (together with any income its investment generates) for acquisition of buildings and equipment.
c. ICC invests the $100,000 contribution from transaction b(2) in equity securities.
d. ICC collects $87,000 in cash from the pledges made in transaction a. and writes off the remaining $13,000 of pledges as uncollectible.
e. ICC spends $30,000 in cash on the youth counseling program.f. ICC spends $20,000 of the donation received in b(1) for sheltering abused
wives.g. At year-end, the $100,000 investment in transaction c. has a fair value of
$104,000.h. E. Falk, a professional psychiatrist, donates 20 days of her time in
counseling youth under an ICC program. Had she not donated time, ICC would have spent $800 a day for these services.
i. K. Schermann sends ICC a letter, stating that he will make a cash donation next year of $25,000, provided ICC raises at least $50,000 in next-year's fund-raising campaign.
j. B. Shaw sends ICC $5,000, stipulating that it must be used for next year's programs.
k. Dividends of $2,000 are received on the investments in transaction c. [See also b(2)]
Answer:a. UCF
Cash 150,000Contributions receivable 100,000
Allowance for uncollectible contributions 10,000 Unrestricted support - contributions 240,000
b. RCFCash 25,000
Temporarily restricted support - contributions 25,000
EFCash 100,000
Permanently restricted support - contributions 100,000
LBEFCash 50,000
Temporarily restricted support - contributions 50,000
c. EFInvestments 100,000
Cash 100,000
d. UCFCash 87,000Allowance for uncollectible contributions 10,000Unrestricted support - contributions 3,000
Contributions receivable 100,000
e. UCFExpenses - youth counseling program 30,000
Cash 30,000
f. RCFTemporarily restricted asset reclassification out--
satisfaction of program restrictions 20,000Cash 20,000
UCFExpenses - abused wife sheltering 20,000
Unrestricted asset reclassification in--satisfaction of program restrictions 20,000
g. EFInvestments 4,000
Permanently restricted gains - net unrealizedand realized investment gains and losses 4,000
h. UCFExpenses - youth counseling programs 16,000
Unrestricted support - donated services 16,000
i. No entry. This is a conditional promise. Disclose facts in notes
j. RCFCash 5,000
Temporarily restricted support - contributions 5,000
k. RCFCash 2,000
Temporarily restricted revenue - investment income 2,000