# Accounting for Governmental Study Set 1

Business

## Quiz 10 :Accounting for Private Not-For-Profit Organizations

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For the following transactions and events, indicate what effect each will have on the three classes of net assets using this format. Put an X in the appropriate column. If the net assets are unaffected, leave the column blank. Ex1: Received a pledge from a donor to provide $1,000 a year to support summer educational programs to be held each July for five years. Ex2: A time restriction on cash received in a prior year expired in the current period. 1. The governing board approved a capital fund-raising campaign in support of a new building. In addition, the board set aside$100,000 of unrestricted resources for the new building. 2. A capital campaign in support of a new building brought in pledges of $150,000. 3. Cash collections on the pledges described in (2) totaled$97,000 in the current year. 4. $25,000 was expended from the capital campaign on architects' fees. The organization records all fixed assets in the unrestricted class of net assets. 5. Operating revenues (admission fees and gift shop sales) amounted to$80,000. 6. Salaries, utilities, and operating supplies totaled $76,000. 7. Depreciation on plant and equipment amounted to$25,000. 8. Volunteers staffing the gift shop contributed 500 hours. The services did not require specialized skills but are estimated at a value of $8.50 per hour. 9. Securities valued at$100,000 are received for permanent endowment. Income earned on the endowment is to be used to sponsor visiting speakers. 10. Interest and dividends received on the endowment totaled $2,000. 11. An individual makes a pledge on December 31, promising to donate$100,000 on the condition that the not-for-profit organization can raise matching pledges before July of the next year.
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Designate whether each transaction results in an increase or decrease in Unrestricted or Restricted Net Assets.
1. A pledge increases temporarily restricted net assets.
2. The collection on the pledge has already been accounted for.
3. The expenditure from the capital campaign decreases the temporarily restricted net assets and is transferred to unrestricted net assets.
4. Since no restrictions are placed on how interest income can be used, the interest is placed in unrestricted net assets.
5. Operating revenues are unrestricted net assets.
6. Salaries, utilities, and operating supplies are paid from unrestricted net assets.
7. Depreciation decreases unrestricted net assets.
8. Because the volunteer services do not require specialized skills, they are not recorded.
9. Because the securities are received for permanent endowment, they are recorded in permanently restricted net assets.
10. Interest and dividends received on the endowment will be used to sponsor visiting speakers and are placed in temporarily restricted net assets.
11. This conditional pledge is not recorded until the matching pledges are raised.

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Consider FASB standards for mergers and acquisitions by not-for-profit organizations. Answer the following questions: a. What is the difference between a merger and an acquisition b. What is the principal difference in the accounting treatment of assets and liabilities under mergers and acquisitions c. Under what circumstances may a not-for-profit organization record goodwill
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A.A merger is a transaction in which the governing bodies of two or more not-for-profit entities relinquish control of those entities to create a new not-for-profit entity.  To qualify as a new entity, the combined entity must have a newly formed governing body.   An acquisition occurs when a not-for-profit obtains control of another not-for-profit or a business in a transaction not meeting the definition of a merger.
B.In a merger, the new entity uses the carryover method.  Under the carryover method the entity does not recognize additional assets (intangibles) or changes in the fair value of recognized assets and liabilities.  The asset and liability book balances are "carried over" to the new reporting entity.  In an acquisition, the entity records the acquired assets and liabilities at their fair values, not at the acquired entity's book values.
C.Goodwill may only be recorded in acquisitions, not mergers.  However, the recording of goodwill is dependent on the type of not-for-profit organizations. Not-for-profit entities that derive their revenues from business-like activities are required to measure and report goodwill as an asset in the same manner as businesses.  However, entities that derive their revenues primarily from contributions are to charge (i.e. expense) the amount that represents goodwill in the Statement of Activities for the period which includes the date of acquisition

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The Association of Women in Government established an Educational Foundation to raise money to support scholarship and other education initiatives. The Educational Foundation is a private not-for-profit. Members of the Association of Women in Government periodically make donations to the Educational Foundation. With the exception of the gift described below, these are unrestricted. In December 2014, a donor established a permanent endowment with an initial payment of $100,000 and a pledge to provide$10,000 per year for 3 years, beginning in December 2015. At the time, the pledge was recorded at the present value ($27,232), discounted at 5 percent. Earnings of the endowment (interest and investment gains) are derived from investment in AAA-rated corporate bonds and are restricted for the payment of scholarships. At the end of 2014, the organization had the following account balances: The following took place during 2015: 1. The Educational Foundation has no employees. Administrative costs are limited to supplies, postage, and photocopying. Postage and photocopying expenses (paid in cash) totaled$2,200 for the year. The Foundation purchased supplies of $1,900 on account and made payments of$1,200. Unused supplies at year-end totaled $450. 2. Unrestricted donations received totaled$9,600. 3. Interest received on the bonds totaled $7,800, which included amounts receivable at the end of 2014. Accrued interest receivable at December 31, 2015, totaled$850. 4. The fair value of the bonds at year-end was determined to be $101,600. Income, including increases in the value of endowment investments, may be used for scholarships in the year earned. 5. The donor who established the permanent endowment made the scheduled payment of$10,000 at the end of 2015. ( Hint: First record the increase in the present value of the pledge and then record the receipt of the $10,000.) 6. New scholarships were awarded in the amount of$20,000. Payments of scholarships (including those amounts accrued at the end of the previous year) totaled $22,000 during the year. Consistent with FASB standards, scholarships are assumed to be awarded first from resources provided from restricted revenues. ( Hint: add beginning temporarily restricted net assets to endowment earnings to determine the amount to reclassify from temporarily restricted net assets.) Using the information above and the Excel template provided: a. Prepare journal entries and post entries to the T-accounts. b. Prepare closing entries. c. Prepare a Statement of Activities, Statement of Financial Position, and Statement of Cash Flows for the year ending December 31, 2015. Free Essay Answer: Answer: Record Journal entries: In the problem journal entries are required in the book of an Government educational Foundation. These entries are passed on the basis of guidelines of FASB. Journals are shown below- Debit and Credit Rules: • Debiting will increase the expense and asset accounts and, crediting will decrease them. • Crediting will increase the Revenues, liabilities, and equity accounts, and debiting will decrease them. Analysis: (a) Expense of postage is debited. Since money is going out cash is credited. (b) Supplies purchased initially on credit. Therefore at the time of purchase, stock (current asset) is debited and accounts payable (liability) is credited. (c) Out of total purchase of$1,900, $1,200 payment is made in cash. Thus$700 is due for payment.
(d) Year end supplies stock is $450. Initial stock was$400. Thus $400+$1,900-$450 =$1,850 is used in production. It is a part of cost of production. It is debited and supplies are credited.

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The Grant Wood Arts Association had the following trial balance as of January 1, 2015, the first day of the year: During the year ended December 31, the following transactions occurred: 1. Cash contributions during the year included ( a ) unrestricted, $1,950,000; ( b ) restricted for neighborhood productions,$500,000; ( c ) restricted by the donor for endowment purposes, $1,000,000; and ( d ) restricted by the donor for equipment purchases,$450,000. 2. Additional unrestricted cash receipts included ( a ) admission charges, $250,000; ( b ) interest income,$200,000; and ( c ) tuition, $550,000, and ( d )$100,000 borrowed from the bank for working capital purposes. 3. Donors made pledges late in 2015 in a pledge drive that indicated the funds were to be used next year; the amount was $400,000. 4. A multiyear pledge (temporarily restricted) was made at the end of the year by a private foundation. The foundation pledged$100,000 per year for the next five years (at the end of the year) for unrestricted purposes. The applicable discount rate is 6 percent, and the present value of the pledge is $421,236. 5. Expenses of$200,000 in funds restricted for neighborhood productions were recorded in accounts payable and paid. 6. The Arts Association had $300,000 in pledges in 2014 that were intended by the donors to be expended in 2015 for unrestricted purposes. The cash was received in 2015. 7.$400,000 in cash restricted for equipment purchases was expended. The Arts Association records all fixed assets in the Unrestricted class of net assets. 8. In addition to the $200,000 in transaction 5, expenses incurred through Accounts Payable and Depreciation amounted to: 9. Cash of$2,800,000 was paid on accounts payable during the year. 10. At year-end, temporary investments were purchased with cash as follows: ( a ) unrestricted, $750,000; and ( b ) temporarily restricted,$300,000. In addition, investments in the amount of $1,000,000 were purchased with permanently restricted cash. 11. At year-end, the recorded value of temporary investments was the same as fair value. However, the fair value of the investments recorded as permanently restricted amounted to$4,200,000. Gains and losses of permanent endowments are required by the donor to be maintained in the endowment. 12. Interest, an administrative expense, is accrued on the outstanding bank note in the amount of $4,000. Required: a. Prepare journal entries to reflect the transactions. Prepare closing entries. b. Prepare a Statement of Activities for the Arts Association for the year ending December 31, 2015. c. Prepare a Statement of Financial Position for the Arts Association as of December 31, 2015. Use the format in the text; combine assets but show net assets by class. d. Prepare a Statement of Cash Flows for the Arts Association for the year ending December 31, 2015. Use the direct method. Assume the temporary investments are not cash equivalents. ( Hint: The$450,000 for plant expansion in transaction 1 is a financing transaction.)
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Presented below is a partially completed Statement of Activities for a homeless shelter. Complete the Statement of Activities by filling in the amounts that would appear in each of the shaded areas. (Include zero amounts.)
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Jefferson Animal Rescue is a private not-for-profit clinic and shelter for abandoned domesticated animals, chiefly dogs and cats. At the end of 2014, the organization had the following account balances: The following took place during 2015: 1. Additional supplies were purchased on account in the amount of $17,020. 2. Unconditional (and unrestricted) pledges of support were received totaling$95,000. In light of a declining economy, 3 percent is expected to be uncollectible. The remainder is expected to be collected in 2015. 3. Supplies used for animal care amounted to $16,700. 4. Payments made on accounts payable amounted to$17,725. 5. Cash collected from pledges totaled $94,500. 6. Salaries were paid in the amount of$47,000. Included in this amount is the accrued wages payable at the end of 2014. (The portion of wages expense attributable to administrative expense is $15,000 and fund-raising expense is$2,000. The remainder is for animal care.) 7. Jefferson Animal Rescue entered an agreement with KDAC, Channel 7 News, to find more homes for shelter pets. This special adoption program highlights a shelter animal in need of a home on the evening news the first Thursday of each month. The program was initially funded by a restricted gift. During 2015, Jefferson Animal Rescue paid $1,800 ($150 per month) for the production of the monthly videos. In December 2015, the original donor unconditionally pledged to support the project for an additional 20 months by promising to pay $3,000 in January 2016 (all of this is expected to be collectible). 8. The shelter's building was partially financed by a bank note with an annual interest rate of 6 percent. Interest totaling$1,500 was paid during 2015. Interest is displayed as Other Changes in the Statement of Activities. 9. Animal medical equipment was purchased during the year in the amount of $5,550. Funding came from a special capital campaign conducted in 2014. Additional information includes: 10. Depreciation for the year amounted to$6,000. (The portion of depreciation expense attributable to administrative is $2,000, and the remainder is related to animal care.) 11. Unpaid wages relating to the final week of the year totaled$686 (all animal care). Using the information above and the Excel template provided: a. Prepare journal entries and post entries to the T-accounts. b. Prepare closing entries. c. Prepare a Statement of Activities, Statement of Financial Position, and Statement of Cash Flows for the year ending December 31, 2015.
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Consider FASB standards for reporting by private not-for-profit organizations and answer the following: a. What are the financial reports required of all not-for-profits What additional report is required for voluntary health and welfare organizations b. List the three classes of net assets. c. Outline the accounting required for property, plant, and equipment. Include accounting for plant acquired with both unrestricted and restricted revenues. d. Outline accounting and reporting for investments.
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On January 1, the Voluntary Action Agency received a cash contribution of $250,000 restricted to the purchase of buses to be used in transporting senior citizens. On January 2 of that same year, buses were purchased with the$250,000 cash. The buses are expected to be used for five years and have no salvage value at the end of that time. 1. Record the journal entries on January 1, January 2, and December 31 for the receipt of cash, the purchase of buses, and one year's depreciation, assuming that plant assets are recorded as unrestricted assets at the time of purchase. 2. Record the journal entries on January 1, January 2, and December 31 for the receipt of cash, the purchase of buses, and one year's depreciation, assuming that plant assets purchased with restricted resources are recorded as temporarily restricted assets at the time of purchase and reclassified in accord with the depreciation schedule. 3. Compute the amount that would be included in net assets (after closing the books on December 31) for ( a ) unrestricted net assets and ( b ) temporarily restricted net assets under requirements 1 and 2. What incentives might exist for the Voluntary Action Agency to choose either alternative
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The Ombudsman Foundation is a private not-for-profit organization providing training in dispute resolution and conflict management. The Foundation had the following preclosing trial balance at December 31, 2015, the end of its fiscal year: a. Prepare closing entries for the year-end, using separate entries for each net asset classification. b. Prepare a Statement of Activities for the year ended December 31, 2015. c. Prepare a Statement of Financial Position as of December 31, 2015. Use a clas sified approach, providing separate totals for current and noncurrent items.
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On January 1, 2015, a foundation made a pledge to pay $30,000 per year at the end of each of the next five years to the Cancer Research Center, a nonprofit voluntary health and welfare organization as a salary supplement for a well-known researcher. On December 31, 2015, the first payment of$30,000 was received and paid to the researcher. 1. On the books of the Cancer Research Center, record the pledge on January 1 in the temporarily restricted asset class, assuming the appropriate discount rate is 5 percent on an annual basis. The appropriate discount factor is 4.33. 2. Record the increase in the present value of the receivable in the temporarily restricted net asset class as of December 31. 3. Record the receipt of the first $30,000 on December 31 and the payment to the researcher. Indicate in which asset class (unrestricted, temporarily restricted) each account is recorded. Essay Answer: Tags Choose question tag Consider FASB standards for accounting for contributions and answer the following: a. Outline revenue recognition criteria for resources restricted for (1) time and (2) purpose. b. Describe the difference in accounting for contributions with a condition and a restriction. c. Outline the requirements for recognizing contributed services as revenue. d. Outline accounting for multiyear pledges. Essay Answer: Tags Choose question tag The Evangelical Private School follows FASB standards of accounting and reporting. Record journal entries for the following transactions during the year ended June 30, 2015. 1. Cash contributions were received as follows: ( a )$1,312,000 for any purpose desired by the school, ( b ) $495,000 for salary supplements for school faculty, ( c )$300,000 to be used during the next fiscal year in any manner desired by the school, ( d ) $600,000 for the construction of a new auditorium, and ( e )$400,000 to be invested permanently, with the income to be used as desired by the school. The school's policy is to record all restricted gifts as temporarily restricted and then reclassify when the restriction is lifted. 2. The school expended $400,000 of the$1,312,000 mentioned in 1( a ) for school furniture. Record the plant as unrestricted. 3. The school expended the $475,000 for salary supplements as directed by the donor in 1( b ). 4. The$300,000 in 1( c ) was retained for use next year, as directed by the donor. 5. $725,000 was expended for the construction of the new auditorium. School policy is to record all plant as unrestricted. 6. The$400,000 mentioned in 1( e ) was invested permanently, as directed by the donor, and in the year ended June 30, 2015, the school received interest of $11,500, none of which was expended. Essay Answer: Tags Choose question tag The Folpe Museum Association, a nonprofit organization, had the following transactions for the year ended December 31, 2015. 1. Cash contributions to the Association for the year included ( a ) unrestricted,$1,100,000; ( b ) restricted for traveling displays, $250,000; ( c ) restricted by the donor for endowment purposes,$1,400,000; and ( d ) restricted by the donor for museum security equipment, $450,000. 2. Additional unrestricted cash receipts included ( a ) admission charges,$375,000; ( b ) interest income, $210,000; and ( c ) tuition for museum school,$60,000. 3. Donors made pledges in 2015 in a pledge drive specifically for funds to be used in 2016. The amount was $400,000. 4. A multiyear pledge (temporarily restricted) was made at the end of the year by a private foundation. The foundation pledged$50,000 per year for the next five years (at the end of each year). The present value (rounded) of those future payments is $211,000, using a 6 percent discount rate. 5. Expenses associated with the traveling display program amounted to$225,000 and were paid in cash before year-end. 6. The Museum collected pledges receivable from the previous year of $135,000. Although not restricted in purpose, the revenue (last year) had been classified as time restricted because collection was not scheduled until 2015. 7. The Museum purchased security equipment for$575,000 (cash). The Museum Association records all equipment in the unrestricted class of net assets. 8. In addition to the amount expended in transaction 5, expenses (paid in cash) amounted to ( a ) museum displays, $1,300,000; ( b ) museum school,$90,000; ( c ) management and general, $350,000; ( d ) fundraising,$250,000; and ( e ) membership development, $145,000. 9. Depreciation on museum fixed assets amounted to: ( a )$40,000 for museum displays, ( b ) $7,000 for museum school, ( c )$12,000 for management and general, ( d ) $4,000 for fund-raising, and ( e )$4,000 for membership development. Required: a. Prepare journal entries to record these transactions, including closing entries. Prepare a Statement of Activities for the Folpe Museum Association for the year ended December 31, 2015. Use the format in the text. The beginning net asset balances were unrestricted, $412,000; temporarily (time) restricted,$150,000; and permanently restricted, \$3,500,000. b. The Museum School program expenses are substantially larger than its revenues. Do you recommend that the program be discontinued
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Obtain a copy of the annual report of a private not-for-profit organization. Answer the following questions from the report (if obtaining a report online, use the site search or the "about us" button to locate the annual report). For examples, try the following: a. What financial statements are presented b. How are the contribution revenues recognized c. Does the organization have temporarily restricted net assets What is the nature of the restrictions d. Does the organization have permanently restricted net assets e. Compute the ratio of program expenses to total expenses.
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