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20 Cards in this Set

  • Front
  • Back
Nongovernmental not-for-profit organizations (NPO) should follow generally accepted accounting principles promulgated by which standards-setting body?
A) Financial Accounting Standards Board.
B) American Institute of Certified Public Accountants.
C) Government Accountability Office.
D) Governmental Accounting Standards Board.
A) Financial Accounting Standards Board.

Pages 580-582 describe not-for-profit organizations that are nongovernmental, the majority of NPOs, and those that are governmental. Choice A is correct because non-governmental not-for-profit organizations should follow FASB standards. If an NPO meets the criteria for being governmental in nature, it should follow standards issued by the Governmental Accounting Standards Board. Choices B and C are not correct because these bodies primarily issue auditing standards, not generally accepted accounting principles (GAAP).
The required set of financial statements for all not-for-profit organizations includes each of the following statements except:

A) Statement of cash flows.
B) Statement of activities.
C) Statement of functional expenses.
D) Statement of financial position.
C) Statement of functional expenses.

Only voluntary health and welfare organizations are required to present a statement of functional expenses. Choices A, B, and D are required statements for all not-for-profit organizations if they prepare financial statements in accordance with generally accepted accounting principles.
Which of the following statements best describes the financial statement presentation required by SFAS No. 117 Financial Statements of Not-for-Profit Organizations?

A) NPOs may no longer present fund-based financial information.
B) NPOs are required to present an entity-wide set of financial statements that reports on the balances of and changes in unrestricted, temporarily restricted, and permanently restricted net assets.
C) NPOs are required to present entity-wide financial statements in addition to fund based financial statements.
D) NPOs may choose between entity-wide and fund based financial statements.
B) NPOs are required to present an entity-wide set of financial statements that reports on the balances of and changes in unrestricted, temporarily restricted, and permanently restricted net assets.

SFAS No. 117 introduced the requirement that financial statements must report on the entity as a whole. NPOs may find it beneficial to use funds to account for restricted resources, and if so, they may use these only for internal purposes or include fund information as supplementary information after the notes to the financial statements.
A contribution from a donor who requires that the original (principal) amount of the assets remain intact but allows all earnings from the assets to be spent at the discretion of the organization should be accounted for as an:

A) Increase to unrestricted net assets.
B) Increase to temporarily restricted net assets.
C) Increase to permanently restricted net assets
D) D Increase to both permanently restricted net assets and unrestricted net assets.
C) Increase to permanently restricted net assets

The contribution will increase permanently restricted net assets as it will be treated as an endowment. Therefore, choices A and B are not correct. Choice D may appear correct but the transaction that relates to the contribution itself only affects permanently restricted net assets. As they occur, earnings will increase unrestricted net assets.
The board of directors of Mason Counseling Services, a not-for-profit organization, approved the earmarking of $200,000 to upgrade facilities over the next three years. The $200,000 of assets set aside for this purpose should be reported in which category of net assets?

A) Unrestricted net assets.
B) Temporarily restricted net assets.
C) Permanently restricted net assets.
D) Either A or B, depending on whether the board requires the $200,000 to be invested separately from other investments.
A) Unrestricted net assets.

Assets set aside by the board of directors are classified as board-designated net assets, which is still part of unrestricted net assets. Only external donors can impose restrictions on how or when contributions will be used. Thus, Choice A is the only correct answer.
During the past year, registered nurses volunteered numerous hours at the Community Health Assistance Agency, a nongovernmental NPO, providing immunizations to infants and children from disadvantaged families and poor elderly citizens, as well as other health-related services. Otherwise, it would have been necessary for the agency to hire registered nurses to perform these tasks. The journal entry to record these volunteer services will include?

A) No journal entry is required for contributed services.
B) A debit to program expenses.
C) A credit to contributed revenues.
D) Both B and C.
D) Both B and C.

The volunteer services described appear to meet the second criterion of SFAS No. 116 for recognition of contributed services: The services "require specialized skills, are provided by individuals possessing those skills, and typically would need to be purchased if not provided by donation." Thus, choice A is incorrect. Since the required journal entry will require a debit to the appropriate program expense account and a credit to contributed services revenue, in equal amounts. Choice D is the correct response.
Expenses are always reported as reductions of:

A) Unrestricted net assets.
B) Unrestricted, temporarily restricted, or permanently restricted net assets.
C) Either unrestricted or temporarily restricted net assets, but never permanently restricted net assets.
D) None of the above.
A) Unrestricted net assets.

A statement of activities presented with three columns showing the different classifications of net assets, as shown on Illustration 14-3 is the best way to see that all expenses reduce unrestricted net assets.
The financial statement that provides the best view of functional and natural (or line-item or object) expenses is the:

A) Statement of activities.
B) Statement of functional expenses.
C) Statement of financial position.
D) Statement of cash flows.
B) Statement of functional expenses.

The purpose of the statement of functional expenses is to report on total expenses presented in two views: functions and natural or line-items. Choice A provides only one view of expenses. Expenses do not appear on Choice C. Payments to employees in the form of salaries and wages may appear on the statement of cash flows but this statement is not designed to report on total functional and natural expenses.
When a donor promises to give assets to a not-for-profit organization, the gift is recorded:
A) When the pledge is fulfilled and the not-for-profit organization receives the cash.
B) At the time any promise is made.
C) At the time an unconditional promise is made.
D) All of the above may be appropriate points at which to recognize a pledge.
C) At the time an unconditional promise is made.

Choice A is incorrect because not-for-profit organizations use the accrual basis of accounting for recognizing revenues and expenses, not the cash basis. Choice B is incorrect because conditional pledges, those that depend on the occurrence of a specified future event to occur, are not recognized until the conditions are substantially met.
The Ridgeway School District Parent-Teacher Association sponsored a bazaar to raise funds for the Special Education Project. Direct costs of $6,000, not considered peripheral or incidental in nature, incurred for this event were paid in cash. The event yielded cash contributions of $20,000. What is (are) the required journal entry(ies)?
Debit cash - 20,000
Credit - Contributions—Temporarily Restricted—Program 20,000
Debit - Direct Costs—Special Education Project 6,000
Credit - Cash 6,000

The discussion of special events, on pages 594 and 595, points out that all special event revenue and direct costs should be reported at their gross amounts. Therefore, choices B and C are incorrect. Choice D is essentially the same as Choice A; however, it is likely that the costs and contributions are separate transactions occurring at different times. In fact, good internal controls suggest that contributions should be deposited when received and not held until all the costs are incurred.
The American Youths for the Future received an endowment of $100,000 to promote voting among young people for future presidential elections. The journal entry to close this contribution account at the end of the year is:
Debit - Contributions—Permanently Restricted - 100,000
Credit - Permanently Restricted Net Assets - 100,000
Contributions of $19,500 received in 2010 but specified by donors for unrestricted use in 2011 were transferred from the temporarily restricted to the unrestricted net asset class in 2011. The journal entry requires to record this transaction in 2011 is:
Debit - Net Assets Released—Expiration of Time Restrictions— Temporarily Restricted - 19,500

Credit - Net Assets Released—Expiration of Time Restrictions—Unrestricted - 19,500
Second Chance Farm, a not-for-profit organization, is fortunate to have several people who regularly volunteer their time to the organization. Which of the following would most likely be recorded as contribution revenue and salary expense because it meets the criteria established in the FASB's SFAS No. 116 for recording donated services?

A) A lawyer on the Farm's board reviews the organization's contracts and receives organically grown produce of the Farm in appreciation of her services.
B) The executive director is a salaried employee.
C) Several local senior citizens serve as greeters. They assist new customers and those who have questions about the Farm's natural and organic products.
D) A local accountant volunteers 10 hours of service a week to record transactions in the information system. His professional services are valued at $75 an hour.
D. The accountant's services should be recognized because he is providing specialized services that would otherwise have had to be purchased. The lawyer's services are within the scope of her voluntary service on the board which is not compensated and not recognized, so Choice A is incorrect. The executive director is a compensated employee and, therefore, cannot contribute time to the organization. Choice C is not correct because the senior citizens do not meet the criteria of "specialized services."
The Winfrow Foundation, a not-for-profit organization whose mission is to eliminate illiteracy, sent literature to local businesses describing the organization and asking for donations. Which of the criteria to establish a bona fide program identified in the AICPA's SOP 98-2 Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund-Raising has not been met?

A) Audience.
B) Purpose.
C) Content.
D) None of the above SOP 98-2 criteria are met.
D) None of the above SOP 98-2 criteria are met.

Based on the small amount of information in the problem, it appears none of the criteria have been met. The purpose criterion is not met by merely distributing literature; the activity would have to accomplish a program purpose other than "educating the public." The audience selected seems to be primarily those who can contribute financially rather than advance the goals of the organization. The content of the literature does not indicate that there is a call to action, so this criterion is not met.
A donation of land, building or equipment to a not-for-profit organization is recorded at:

A) Fair value.
B) Estimated cost.
C) Depreciated cost.
D) Original cost to the donor.
A) Fair value.

SFAS No. 116 provides that all donations should be recorded at fair value on the date of the gift, so Choice A is the only correct response.
The Branson Museum of American History, a not-for-profit organization, has a collection of artifacts from the ancient Aztec civilization. Which of the following museum policies is important in determining whether or not to capitalize the collection?

A) Artifacts are protected and cared for so that they will be preserved.
B) Proceeds from the sale of any artifact will be used to acquire other items for the collection.
C) The artifacts are held for public exhibition, education and research purposes, not for financial gain.
D) All of the above.
D) All of the above.

Choices A, B, and C are all identified in SFAS No. 116 as criteria important in determining whether art or historical treasures can be considered a "collection." The organization can then adopt a policy of recognizing collections as assets or not.
Investments of not-for-profit organizations must be reported at:

A) Amortized cost.
B) Fair value.
C) Original cost.
D) Lower of cost or fair value.
B. - Fair value

Choice B is the correct choice since both FASB and GASB standards require that investments be reported at fair value as of the reporting date.
Swenson State Foundation is a legally separate IRC Sec. 501(c)3 organization whose sole purpose is to raise funds for Swenson State University (SSU). Which of the following criteria are important in determining whether SSU should discretely present the foundation's financial information as a component unit of the university?

A) The economic resources received by the foundation that the university is entitled to are significant to the university.
B) The university is entitled to access a majority of the economic resources received by the foundation.
C) The economic resources the foundation holds are almost entirely for the direct benefit of the university.
D) All of the above.
D) All of the above.

Institutionally related foundations, such as the one described in this question, that meet each of the criteria listed in Choices A, B, and C should be discretely presented as a component unit of the public university according to GASB Statement No. 39 Determining Whether Certain Organizations Are Component Units.
Not-for-profit organizations may have control over or be financially interrelated with:

A) Another not-for-profit organization.
B) A related public institution.
C) A for-profit entity.
D) All of the above.
D) All of the above.

There are many ways that a not-for-profit entity can interrelate with any other organization and Choices A, B, and C are some of these
Which of the following factors would indicate that an intermediary recipient NPO is not acting as an agent of one or more beneficiary NPOs?

A) The recipient NPO is required to transfer all contributions to specified unaffiliated beneficiary organizations.
B) The recipient NPO conducts fund drives on behalf of specified unaffiliated beneficiary organizations.
C) The recipient NPO conducts fund drives for financially interrelated organizations and has the power to decide whether or when to direct contributions to one or more of those organizations.
D) All of the above.
C) The recipient NPO conducts fund drives for financially interrelated organizations and has the power to decide whether or when to direct contributions to one or more of those organizations.

Choices A and B describe typical situations in which a recipient NPO is acting in an agent capacity with respect to specified beneficiary organizations. Choice C describes a "captive fund-raiser" organization that has "variance power" to redirect contributions. Such organizations clearly are not acting in an agent capacity.