Question 1

Similarity in the characteristics of nongovernmental not-for-profit (NFP) organizations and governmental NFP organizations can make it difficult to determine whether the NFP is nongovernmental or governmental in nature.

Accepted Answer

This statement is true because both types of NFP organizations share similarities in their characteristics, such as their focus on social welfare and their reliance on donations and grants for funding. However, there are also differences between the two types of NFP organizations, such as the source of their funding and their level of governmental oversight, that can help determine their nature.

Question 2

Under current accounting and reporting standards, nongovernmental not-for-profit organizations must utilize the fund accounting structure set forth in the AICPA Audit and Accounting Guide Not-for-Profit Entities.

Accepted Answer

Nongovernmental not-for-profit organizations are not required to use the fund accounting structure; they follow the Financial Accounting Standards Board (FASB) guidance, which allows for a more flexible reporting approach that does not mandate fund accounting.

Question 3

GAAP for nongovernmental not-for-profit organizations is set by the FASB and the AICPA.

Accepted Answer

The Financial Accounting Standards Board (FASB) is the primary body that sets GAAP for nongovernmental not-for-profit organizations, not the AICPA.

Question 4

The FASB requires not-for-profit organizations to report expenses by nature and function in the notes to the financial statements.

Accepted Answer

The answer of The FASB requires not-for-profit organizations to report...

Question 5

Examples of organizations that can be either governmental or nongovernmental include colleges and universities, hospitals, and museums.

Accepted Answer

Colleges and universities, hospitals, and museums can be either governmental or nongovernmental entities.

Question 6

Under FASB standards, expenses of a not-for-profit organization can only be shown as reductions of net assets without donor restrictions.

Accepted Answer

According to FASB standards, expenses of a not-for-profit organization can only be shown as reductions of net assets without donor restrictions. Expenses cannot be shown as reductions of net assets with donor restrictions.

Question 7

The FASB requires that support from special events, if related to the central ongoing and major activities of the organization, and related direct costs, be reported at their gross amounts in the statement of activities.

Accepted Answer

This is true according to FASB ASC 958-720-45-4.

Question 8

The FASB requires that the purchase of equity securities be initially recorded at the acquisition price and the purchase of debt securities be initially recorded at fair value.

Accepted Answer

Both equity and debt securities are initially recorded at their acquisition cost, which includes the purchase price plus any direct acquisition costs.

Question 9

The FASB generally requires that not-for-profit organizations record unconditional pledges as support (contributions) only when received in cash.

Accepted Answer

The FASB allows not-for-profit organizations to record unconditional pledges as support (contributions) when they are "pledged with a reasonable expectation of being collected" even if they have not yet been received in cash. However, the organization must disclose information about the unfulfilled pledges in the footnotes of their financial statements.

Question 10

The FASB requires not-for-profit to prepare a statement of cash flow.

Accepted Answer

The Financial Accounting Standards Board (FASB) does require not-for-profit organizations to prepare a statement of cash flows as part of their financial statements.

Question 11

Donor-imposed restrictions must be clearly reflected in financial statements of not-for-profit organizations reporting under the FASB.

Accepted Answer

Donor-imposed restrictions must be clearly disclosed in financial statements of not-for-profit organizations reporting under the FASB. This requirement is outlined in FASB Accounting Standards Codification Topic 958.

Question 12

Board-designated net assets are net assets with donor restrictions the board sets aide for a specific purpose.

Accepted Answer

Board-designated net assets are actually net assets without donor restrictions that the board of an organization decides to use for a specific purpose, not assets already restricted by donors.

Question 13

Not-for-profits are required to report expense amounts by natural classification and functional classification.

Accepted Answer

Not-for-profits are required to report expenses based on both natural classification (such as salaries, supplies, rent, utilities) and functional classification (such as program services, fundraising, management and general). This is in accordance with the Financial Accounting Standards Board (FASB) regulations for not-for-profit organizations.

Question 14

Cash received by a nongovernmental not-for-profit organization in year 1 that the donor stipulates is to cover operating expenses of the following year should be recognized as an increase in net assets with donor restrictions in year 1 and as net assets released from restrictions in year 2.

Accepted Answer

Cash received with donor restrictions should be initially recognized as an increase in net assets with donor restrictions, and then recognized as net assets released from restrictions when the restrictions are fulfilled (in this case, in year 2 when the operating expenses are incurred).

Question 15

Supporting services expenses include fund-raising and management and general expenses that are not directly attributable to specific programs.

Accepted Answer

Supporting services expenses refer to fund-raising and management and general expenses that are not directly related to specific programs.

Question 16

Contributions received in a prior period and restricted by the donor for construction of a building were reported as increases to net assets with donor restrictions in the period received. When the building is constructed in a subsequent period a not-for-profit would report contributions for the amount released from restrictions.

Accepted Answer

Contributions restricted for the construction of a building should be reported as liabilities until the building is constructed. Once the building is constructed, the restricted funds should be released and reported as an increase to net assets with donor restrictions. Therefore, the contributions should not have been reported as increases to net assets in the prior period.

Question 17

According to the FASB Codification, donated materials are generally not recognized as contributions by a not-for-profit organization.

Accepted Answer

According to the FASB Codification, donated materials are recognized as contributions by a not-for-profit organization if they are material in amount or significance to the organization's operations.

Question 18

The FASB states that donated services should be recorded as contributions by a not-for-profit organization if they meet the recognition criteria and are material.

Accepted Answer

According to FASB guidelines, donated services should be recorded as contributions by a not-for-profit organization if they meet the recognition criteria and are material.

Question 19

Museums and religious organizations reporting in accordance with FASB must capitalize and report assets such as works of art, historical treasures, and similar collectible items if they are held for public inspection.

Accepted Answer

Museums and religious organizations are not required to capitalize or report works of art, historical treasures, and similar assets if these items are protected, kept unencumbered, cared for, and preserved, and if the organization has a policy that requires the proceeds from sales of collection items to be used to acquire other items for collections.

Question 20

Under FASB standards the statement of activities for a not-for-profit organization is required to be separated into operating and nonoperating activity.

Accepted Answer

Under FASB standards, the statement of activities for a not-for-profit organization is not specifically required to separate activities into operating and nonoperating categories. The FASB focuses on the presentation of net assets and changes therein, categorized by donor restrictions, rather than mandating a separation of operating and nonoperating activities.

Quiz 14: Accounting for Not-for-Profit Organizations