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

It can be difficult to differentiate NFPs since both types of NFP organizations share similar characteristics (e.g., no profit motive, no defined ownership, benefits received may not be comparable to resources provided). The AICPA in its not-for-profit accounting and auditing guide does provide additional guidance to auditors to help with the determination of whether an NFP is a governmental or nongovernmental entity.

Question 2

Contributions received in a prior period and restricted by the donor for construction of a building were reported as increases to "temporarily restricted net assets" in the period received.When the building is constructed in a subsequent period an NFP would report "contributions" for the amount released from restrictions.

Accepted Answer

The cost of the constructed building would be reported in the statement of activities as "net assets released from temporary restrictions", rather than again as "contributions". If it is the NFP's policy to consider all building and equipment acquisitions as temporarily restricted, then the restriction will be released over time as depreciation is recorded.

Question 3

Expense amounts by natural classification can be determined from the statement of functional expenses,as can the expense amounts for program services and supporting services categories.

Accepted Answer

The statement of functional expenses provides totals both for natural expense classifications (object- of-expenses) and program services and supporting services classifications, although the statement is only required for VHWOs.

Question 4

Investments should be initially recorded by a not-for-profit organization at cost,or in the case of donated investments at fair value as of the date of the donation.

Accepted Answer

Purchased investments are recorded at the purchase price (or cost); whereas, donated investments are recorded at fair value at the date of donation (ASC 958-320).

Question 5

Not-for-profits are required to prepare a statement of cash flows.

Accepted Answer

A statement of cash flows is one of the basic financial statements required by FASB for all nongovernmental not-for-profit organizations and by GASB for governmental not-for-profit organizations that use proprietary fund accounting.

Question 6

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

Accepted Answer

This is the classification scheme illustrated and discussed in Chapter 13.

Question 7

Museums and religious organizations must capitalize and report in their balance sheets assets such as works of art,historical treasures,historical archives,and similar collectible items if they are held for public inspection.

Accepted Answer

Current standards do not require balance sheet reporting of such collectible items that are held for public inspection since the conventional wisdom is that reporting a dollar value would not provide useful information to the readers of financial statements. NFPs can choose nonrecognition but only if the items are added to collections and meet FASB conditions explained in Chapter 13 under the heading "Collection Items", for example, when collections are being held in the public interest rather than to achieve a financial gain from trading the collectible items.

Question 8

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

Accepted Answer

Most NFPs are nongovernmental in nature and are therefore subject to the FASB standards on contributions and on financial statement display. The FASB neither requires nor precludes the use of fund accounting; however, many NFPs continue to voluntarily use fund accounting for internal management and accountability for restricted purposes, such as grants. The AICPA Audit and Accounting Guide on NFPs provides guidance for optional fund accounting.

Question 9

A statement of functional expenses is not required of all voluntary health and welfare organizations.

Accepted Answer

Other nongovernmental NFPs should show expenses by function, but do not need to prepare a statement of functional expenses.

Question 10

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

Accepted Answer

The FASB Codification 105 indicates that only FASB has the authority to establish GAAP for nongovernmental not-for-profits.

Question 11

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

FASB allows considerable flexibility in the format of the statement of activities. As such, it allows but does not require the reporting of operating and nonoperating activity. GASB does require that governmental not-for-profit entities following a business-type reporting model identify operating and nonoperating activity on their operating statements.

Question 12

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

Accepted Answer

Assuming the pledge is measurable, the FASB requires that an unconditional pledge be recorded as a contribution in the year the pledge is made.

Question 13

Hospitals,colleges and universities,voluntary health and welfare organizations,and other not-for-profit organizations all follow the same standards for recognition of revenues and expenses.

Accepted Answer

Each of these organizations may have different standards for revenue and expense recognition, particularly if they are governmentally owned or affiliated. In fact, some public colleges and universities recognize expenditures, not expenses. It is true, however, that all nongovernmental entities of these types, those subject to FASB jurisdiction, report support, revenues, and expenses on a similar basis for external financial reporting purposes.

Question 14

Donated materials are generally not recognized as contributions by a not-for-profit organization.

Accepted Answer

Donated materials should be recognized at fair value with the debit to a noncash asset account or an expense account (if the materials are used immediately) with a related credit to contributions. Both FASB and GASB standards allow for recognition of donated materials.

Question 15

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 rather than reporting the special events support net of direct costs.

Accepted Answer

However, netting direct costs against special events support is permitted if the special events are of a peripheral or incidental nature.

Question 16

Which of the following characteristics of not-for-profit organizations (NFPs)can be used to distinguish a nongovernmental from a governmental NFP?

Accepted Answer

The ability to impose taxes on citizens is a characteristic unique to governmental NFPs and is not present in nongovernmental NFPs. Contributions by resource providers who do not expect a return on investment and absence of ownership interests are characteristics common to both governmental and nongovernmental NFPs.

Question 17

A voluntary health and welfare organization (VHWO)is a type of NFP that depends primarily on
charges for services as a source of revenue,rather than on contributions from the public at large.

Accepted Answer

A VHWO depends primarily on contributions from the public at large. Generally, a VHWO provides services for no fee, or a nominal fee.

Question 18

Cash received by a nongovernmental NFP in year 1 that the donor stipulates is to cover operating expenses of the following year should be recognized as an "increase in temporarily restricted net assets" in year 1 and as "net assets released from restrictions" in year 2.

Accepted Answer

This approach results in matching the operating resources (net assets released from restrictions) and the related expenses that both affect unrestricted net assets in the same fiscal year, year 2. The contribution is reported in the statement of activities for year 1, under the caption "changes in temporarily restricted net assets". Year 2 will show a decrease in temporarily restricted net assets and an increase in unrestricted net assets in equal amounts.

Question 19

Donated services should be recorded as contributions by a nongovernmental,not-for-profit organization if material,and if they meet the recognition criteria set out by FASB.

Accepted Answer

Donated services that meet the FASB recognition criteria would be recorded with a debit to a nonfinancial asset or expense and a related credit to contributions.

Question 20

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

Accepted Answer

Not-for-profit organizations that prepare financial statements in conformity with FASB standards are required to report net assets in three categories: unrestricted, temporarily restricted, and permanently restricted. GASB standards require that donor imposed restrictions be reflected in the restricted net position category.

Quiz 13: Accounting for Not-For-Profit Organizations