Question 1

A private NFP organization makes a cash payment for interest on its long-term loans. On the organization's statement of cash flows, the payment appears in which section?

Accepted Answer

Interest payments, even for a private not-for-profit organization, are considered operating activities because they relate to the entity's primary revenue-producing activities and are necessary for its day-to-day functions.

Question 2

A private NFP organization accepts a donation of securities, with no donor restrictions, and immediately sells the securities. The proceeds appear in which section of the organization's statement of cash flows?

Accepted Answer

The proceeds from selling donated securities, with no donor restrictions, are considered part of the organization's operating activities, as they are part of its regular activities of receiving and utilizing donations.

Question 3

If a private NFP organization uses the direct method to report the operating section of its statement of cash flows,

Accepted Answer

The answer of If a private NFP organization uses the...

Question 4

A private NFP's statement of cash flows presents cash from operating activities using the indirect method. In the reconciliation of the change in net assets to cash from operating activities, which item is added?

Accepted Answer

The correct answer is C) Reduction in contributions receivable. When using the indirect method to present cash from operating activities, a reduction in contributions receivable is added back to the change in net assets. This adjustment is made because it represents an increase in cash flows, as the organization has collected more contributions receivable, thus increasing its cash, even though it does not affect the net assets directly in the period the contributions were initially recognized.

Question 5

A private NFP's statement of cash flows presents cash from operating activities using the indirect method. In the reconciliation of the change in net assets to cash from operating activities, which item is subtracted?

Accepted Answer

Contributions of nonfinancial services are subtracted because they do not involve cash inflows or outflows and need to be adjusted out of the net assets to reconcile to cash from operating activities.

Question 6

Private NFP organizations are required to provide liquidity disclosures on

Accepted Answer

Private NFP organizations must disclose the availability of financial assets to pay for general expenditures during the next year, as it provides insight into their liquidity and financial health.

Question 7

Donations are received by an NFP organization. The organization's Board of Directors decides to set aside the money to pay for new computers and software. The donations are reported as:

Accepted Answer

The donations are reported as contributions increasing net assets without donor restrictions because the decision to set aside the money for new computers and software was made by the organization's Board of Directors, not by the donors. This means there are no donor-imposed restrictions on how the funds are used.

Question 8

A contractor contributes services valued at $40,000 to build a new building for a private NFP organization. The net effect of this contribution in the organization's statement of activities is:

Accepted Answer

The contribution of services valued at $40,000 by a contractor to a private not-for-profit (NFP) organization is recognized as an increase in contributions and an increase in expenses (if the services create or enhance nonfinancial assets or require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation). However, since there is no mention of donor restrictions, it is treated as an increase in net assets without donor restrictions. This reflects both the value of the contributed services as revenue and the corresponding expense, resulting in no net effect on the overall change in net assets, but it does increase the net assets without donor restrictions.

Question 9

A CPA contributes services valued at $3,000 to provide financial services to a private NFP organization. The net effect of this contribution in the organization's statement of activities is:

Accepted Answer

The answer of A CPA contributes services valued at $3,000...

Question 10

Students and faculty volunteer their time to the activities of Beta Alpha Psi. The fair value of their services is $25,000. How is this information reported Beta Alpha Psi's statement of activities?

Accepted Answer

The answer of Students and faculty volunteer their time to...

Question 11

College students provide services during their winter and spring breaks, building houses for Habitat for Humanity. Their services are valued at $50,000. How is this information reported in Habitat for Humanity's statement of activities?

Accepted Answer

The services provided by college students are volunteer services and are not recognized in the financial statements unless they create or enhance non-financial assets or require specialized skills, which is not the case here.

Question 12

The American Museum of Natural History makes the following statement in the footnotes to its annual report: "Hundreds of volunteers, including members of the Museum's Board of Trustees, have made significant contributions of time in furtherance of the Museum's mission." How does the Museum most likely report these contributions in its financial statements?

Accepted Answer

Volunteer services are typically not reported in financial statements unless they create or enhance non-financial assets or require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. The statement does not specify that these conditions are met, so the contributions are likely not reported.

Question 13

An NFP organization receives supplies from a donor. At what amount is the donation reported in contribution revenue?

Accepted Answer

The donation is reported at the fair value at the date of donation. This is because non-profit organizations recognize donations of goods and services at their fair value on the date the donation is received, allowing for an accurate reflection of the contribution in their financial statements.

Question 14

The National Red Cross reports a balance of $100 million in net assets with donor restrictions on its statement of financial position, labeled "Disaster Services." What is the interpretation of this amount?

Accepted Answer

This amount represents funds that have been donated specifically for disaster services but have not yet been utilized by the end of the fiscal year, indicating they are restricted by donors for this purpose.

Question 15

Make-A-Wish Foundation accepts $40,000 in donations that are donor designated to specific wish granting activities. When the resources are spent for this purpose, the statement of activities will report:

Accepted Answer

When a nonprofit organization receives donations that are restricted by donors for specific purposes, these funds are initially recorded as an increase in net assets with donor restrictions. Once the organization spends these funds for their designated purpose, it must report the expenses and also recognize the release of net assets from restrictions. This is done by decreasing net assets with donor restrictions and increasing net assets without donor restrictions for the amount spent, reflecting that the funds have been used as intended and are no longer restricted. Therefore, the correct answer involves recognizing both the release of net assets (as a decrease in net assets with donor restrictions and an increase in net assets without donor restrictions) and the expenses incurred (as a decrease in net assets without donor restrictions).

Question 16

During the year, a not-for-profit organization receives cash contributions of $1,000,000 that are donor-restricted for constructing a new office building. As of year-end, $800,000 of these contributions have been used for building construction, and the organization holds the remaining balance in cash. The reporting of this information includes all of the following except:

Accepted Answer

Cash that is donor-restricted for construction is reported as restricted cash, separately from cash and other assets available for current use.

Question 17

On its statement of financial position, the Red Cross reports over $118 million of net assets with donor restrictions, labeled "international relief and development services." Which statement below best describes this $118 million balance?

Accepted Answer

The $118 million represents the total unspent amounts contributed as of year-end that are specifically designated by donors for international relief and development services, indicating these funds are restricted for that purpose and have not yet been used.

Question 18

A corporate donor promises to contribute $1 million to an NFP organization, payable in installments over the next 10 years. If the NFP records the promise at its present value, what is the most appropriate discount rate?

Accepted Answer

The most appropriate discount rate for recording the promise at its present value is the rate at which the NFP (Not-for-Profit) organization can obtain loans. This rate reflects the NFP's cost of borrowing and is the most relevant rate for discounting future cash flows to their present value.

Question 19

Make-A-Wish Foundation reports contributions receivable on its balance sheet, expected to be collected within the next year. How is this receivable valued in the Foundation's statement of financial position?

Accepted Answer

Contributions receivable are reported at their gross amounts, adjusted for an estimate of uncollectible amounts. This reflects the expectation of the actual amount to be received, taking into account any contributions that may not be collected.

Question 20

An increase in the present value of reported promises of contributions:

Accepted Answer

An increase in the present value of reported promises of contributions increases net assets with donor restrictions because these contributions are often earmarked by donors for specific purposes, thus restricting their use until the conditions specified by the donor are met.

Quiz 13: Private Not-For-Profit Organizations