Question 1

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. What will the net asset balance in the restricted fund be at the end of the year if the organization uses the restricted fund method for reporting and had a fund for this project?

Accepted Answer

Under the restricted fund method, the net asset balance in the restricted fund at the end of the year would be the remaining amount of the contribution that has not yet been spent. Since $14,000 has been spent, the remaining balance is $6,000.

Question 2

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. How much donation revenue should the not-for-profit organization recognize in the current year, if the organization uses the restricted fund method for reporting and had a fund for this project?

Accepted Answer

Under the restricted fund method, the entire amount of the restricted contribution ($20,000) is recognized as revenue in the year it is received, regardless of when the funds are spent.

Question 3

When a not-for-profit organization uses the deferred contribution method of revenue recognition and receives a donation restricted to the purchase of land, when should the donation be recognized as revenue?

Accepted Answer

The answer of When a not-for-profit organization uses the deferred...

Question 4

A capital asset (equipment) with a fair value of $1,500,000 and a remaining useful life of ten years and land with a fair value of $2,000,000 is donated to a not-for-profit organization. The organization will use the equipment in its operations. Prepare the journal entries (including amortization) if the organization uses the: a) the deferral method for contributions. b) the restricted fund method with a capital fund The machinery has a ten year useful life.

Accepted Answer

The answer of A capital asset (equipment) with a fair...

Question 5

A statement of changes in net assets in the financial statements of a not-for-profit organization corresponds most closely to which of the following in the financial statements of a profit- oriented business which reports under IFRS?

Accepted Answer

The answer of A statement of changes in net assets...

Question 6

The following are selected transactions for HELP-ON-US, an NFPO for 2014. On January 1, the organization purchased fixed assets at a cost of $10,000. The assets were estimated to have a useful life of 5 years with no residual value. Straight-line amortization is used. Assuming that the assets were purchased from unrestricted fund sources, prepare the required journal entries for 2014, indicating the fund or funds to be used.

Accepted Answer

The answer of The following are selected transactions for HELP-ON-US,...

Question 7

On January 1, 2013, some residents of the community of Kiterup,
B.C., formed the Kiterup Winter Sports Association (KWSA) which was organized as a not-for-profit organization which has as its purposes encouraging participation in outdoor winter sports. In its first year, the board decided to restrict its activities to ice skating and skiing.
Initial funding was provided by a wealthy individual who made an endowment contribution of
$200,000 which was invested in bonds and generated income during the year of $8,000. The donor placed no restrictions on the use of the income produced by the investment of the endowment contribution which were to be divided evenly between all programs undertaken by the Association.
During the year donations of $750,000 were received and a further $150,000 of pledges was outstanding of which the board estimated $130,000 would be collected. It was agreed that such donations, all of which were unrestricted, would be divided evenly between the skating and skiing programs. As a practical matter, donations not yet received at year-end were considered to be restricted for use in the following year. A special fund drive was undertaken to raise money to provide skates to needy youngsters and skiing equipment to needy senior citizens. During the year $25,000 was received in contributions for skates and $15,000 for contributions towards purchasing skis.
During the year ended December 31, 2013, the organization incurred the following costs.
  
At December 31, 2013, the only outstanding payables were for $30,000 relating to the skiing program (the costs are included in the table above). The ice skates and skiing equipment were paid for out of the funds raised by the special fund drive and were expensed as acquired. KWSA does not use fund accounting but uses the deferred contribution method to account for
restricted donations and uses programmatic reporting to report the results of its activities.
Prepare journal entries to record the transactions of the Kiterup Winter Sports Association for the year ended June 30, 2013. Closing entries are not required.

Accepted Answer

The answer of On January 1, 2013, some residents of...

Question 8

What reporting choices are given to Canadian non-governmental and not-for-profit organizations?

Accepted Answer

Canadian non-governmental and not-for-profit organizations may report under the Accounting Standards for Private Enterprises modified by the standards found in Part III of the CICA Handbook.

Question 9

The following are selected transactions for HELP-ON-US, an NFPO for 2014. On January 1, the organization purchased fixed assets at a cost of $10,000. The assets were estimated to have a useful life of 5 years with no residual value. Straight-line amortization is used. Prepare journal entries for these transactions, using the deferred contribution method, assuming that the assets were purchased using restricted funds in the amount of $11,000.

Accepted Answer

The answer of The following are selected transactions for HELP-ON-US,...

Question 10

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. What should be the balance in the deferred contribution account at the end of the year, if the organization uses the deferred contribution method of reporting?

Accepted Answer

Under the deferred contribution method, contributions are recognized as revenue when the related expenses are incurred. Since $14,000 has been spent, $6,000 remains as a deferred contribution to be recognized when spent.

Question 11

Describe what fund accounting is and why is it used for not-for-profit organizations.

Accepted Answer

The answer of Describe what fund accounting is and why...

Question 12

How should outstanding commitments best be presented in the financial statements of non- for-profit organizations that use encumbrance accounting?

Accepted Answer

Encumbrances and estimated commitments are not recognized as liabilities or assets in the financial statements of non-profit organizations. Instead, if they are material, they should be disclosed in the notes to the financial statements.

Question 13

Buana Fide is a local charity which received the following donations during 2013: • A local radio station donated air time valued at $20,000. If the air time had not been donated, Buana Fide would have purchased it. • An anonymous donor donated land with a fair value of $50,000 as well as machinery valued at $4,000. • During a recent fund-raising campaign, volunteers spend roughly 1,000 hours soliciting donations from the public. The minimum hourly wage rate in Buana Fide's main area of operation is $8.00 per hour. Prepare the necessary journal entries to record these transactions assuming that the restricted fund method of accounting for contributions is used and the organization has a general fund, a capital fund and an endowment fund.

Accepted Answer

The answer of Buana Fide is a local charity which...

Question 14

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. How much donation revenue should the not-for-profit organization recognize in the current year, if the organization uses the restricted fund method of reporting and did not have a fund for this project?

Accepted Answer

With the restricted fund method, revenue is recognized as expenses are incurred from the restricted fund. Since $14,000 has been spent towards the project in the current year, that is the amount of revenue that should be recognized. The remaining $6,000 will be recognized as revenue in the following year when it is spent towards the project. The initial restricted contribution of $20,000 is not recognized as revenue as it is not yet spent towards the project.

Question 15

The following are selected transactions for HELP-ON-US, an NFPO for 2014. On January 1, the organization purchased fixed assets at a cost of $10,000. The assets were estimated to have a useful life of 5 years with no residual value. Straight-line amortization is used. Assuming that the assets were purchased from a restricted fund contribution in the amount of $11,000, prepare the required journal entries for 2014, indicating the fund or funds to be used.

Accepted Answer

The answer of The following are selected transactions for HELP-ON-US,...

Question 16

XYZ is a local charity that commenced operations on January 1, 2014. XYZ uses an encumbrance system to manage costs. For the following partial data provided, prepare the journal entry to record that transaction. In addition, specify which fund or funds must be used to record the entry. a) Revenue deferred earlier in the year in the amount of $5,000 was recognized. b) Pledges receivable in the amount of $10,000 were collected in full. c) Accounts payable and wages payable amounting to $10,000 and $5,000 were paid. d) Government grants amounted to $50,000, half of which was received. The balance is expected by late 2015. The grants may be applied to any of the organization's programs. e) Total Wage costs amounted to $60,000 which breaks down as follows:  25% of these expenses are still payable at the end of 2014. f) A wealthy local businessman donated $100,000 to be held in endowment, with the interest earned to be unrestricted. g) The investments in an endowment fund earned interest in the amount $3,000. h) Amortization expense for the year amounted to $10,000.

Accepted Answer

The answer of XYZ is a local charity that commenced...

Question 17

How should a not-for-profit organization value inventories which are held for distribution at no charge or for a nominal charge or for consumption in the production process of goods which will be distributed at no charge or for a nominal charge?

Accepted Answer

The answer of How should a not-for-profit organization value inventories...

Question 18

The following are selected transactions from Helpers Cooperative which uses the restricted fund method. Helpers has an operating fund, a capital fund and an endowment fund: Pledges amounting to $400,000 were received, of which $80,000 applies to the operations of the following year. It is estimated that 2% of the pledges will be uncollectible. The association purchased office equipment at a cost of $6,000. Pledges of $300,000 were collected, while pledges amounting to $4,000 were written off as uncollectible. A local newspaper agreed to offer Helpers a full-page ad. This had an estimated value of $5,000. Interest and dividends received amounted to $15,000 on endowment fund investments. These earnings are considered unrestricted. Depreciation for the year amounted to $40,000. Required: Prepare journal entries to record the above transactions. Also, indicate which fund will be used for each entry.

Accepted Answer

The answer of The following are selected transactions from Helpers...

Question 19

A not-for-profit organization received unrestricted pledges of $200,000, and believes based on past experience that 95% of them will be paid. What entry should be made to record the pledges?

Accepted Answer

The answer of A not-for-profit organization received unrestricted pledges of...

Question 20

Buana Fide is a local charity which received the following donations during 2013: • A local radio station donated air time valued at $20,000. If the air time had not been donated, Buana Fide would have purchased it. • An anonymous donor donated land with a fair value of $50,000 as well as machinery valued at $4,000. • During a recent fund-raising campaign, volunteers spend roughly 1,000 hours soliciting donations from the public. The minimum hourly wage rate in Buana Fide's main area of operation is $8.00 per hour. Prepare the necessary journal entries to record these transactions assuming that the deferral method of accounting for contributions is used.

Accepted Answer

The answer of Buana Fide is a local charity which...

Quiz 12: Accounting for Not-For-Profit and Public Sector Organizations

When a not-for-profit organization uses the deferred contribution method of revenue recognition and receives a donation restricted to the purchase of land, when should the donation be recognized as revenue?

A statement of changes in net assets in the financial statements of a not-for-profit organization corresponds most closely to which of the following in the financial statements of a profit- oriented business which reports under IFRS?

What reporting choices are given to Canadian non-governmental and not-for-profit organizations?

Describe what fund accounting is and why is it used for not-for-profit organizations.

How should outstanding commitments best be presented in the financial statements of non- for-profit organizations that use encumbrance accounting?

How should a not-for-profit organization value inventories which are held for distribution at no charge or for a nominal charge or for consumption in the production process of goods which will be distributed at no charge or for a nominal charge?

A not-for-profit organization received unrestricted pledges of $200,000, and believes based on past experience that 95% of them will be paid. What entry should be made to record the pledges?