Question 1

The transactions listed in the following questions occurred in a private, not-for-profit hospital during 20X8. For each transaction, indicate its effect on the hospital's statement of operations for the year ended December 31, 20X8.
-Transaction: The governing board designated assets for plant expansion.
Effect on Statement of Operations:
A) Increases operating income.
B) Decreases operating income.
C) The event is reported on the statement of operations, but there is no effect on operating income.
D) The event is not reported on the statement of operations.

Accepted Answer

The governing board designating assets for plant expansion is not a transaction that affects the hospital's statement of operations. Therefore, option D is the correct answer.

Question 2

The transactions listed in the following questions occurred in a private, not-for-profit hospital during 20X8. For each transaction, indicate its effect on the hospital's statement of operations for the year ended December 31, 20X8.
-Transaction: Received tuition revenue from hospital nursing program and cash from sales of goods in the hospital gift shop.
Effect on Statement of Operations:
A) Increases operating income.
B) Decreases operating income.
C) The transaction is reported on the statement of operations, but there is no effect on operating income.
D) The transaction is not reported on the statement of operations.

Accepted Answer

Both tuition revenue and sales of goods in the gift shop are sources of operating income for the hospital, therefore their receipt would increase operating income reported on the statement of operations.

Question 3

The transactions listed in the following questions occurred in a private, not-for-profit hospital during 20X8. For each transaction, indicate its effect on the hospital's statement of operations for the year ended December 31, 20X8.
-Transaction: Received cash contribution from donor who stipulated the contribution be permanently invested.
Effect on Statement of Operations:
A) Increases operating income.
B) Decreases operating income.
C) The transaction is reported on the statement of operations, but there is no effect on operating income.
D) The transaction is not reported on the statement of operations.

Accepted Answer

The transaction of receiving a cash contribution from a donor for permanent investment does not affect the statement of operations, as it is not related to the hospital's operating activities. Therefore, it is not reported on the statement of operations.

Question 4

A voluntary health and welfare organization received a $300,000 contribution on April 15,20X9,from a donor who stipulated the donation be invested permanently in stocks and bonds.The donor further stipulated earnings from the investments be spent according to the wishes of the governing board of the voluntary health and welfare organization.Earnings from the investments for the year ended June 30,20X9,amounted to $6,000.How would the voluntary health and welfare organization report this information for the year ended June 30,20X9?
A) Increase in permanently restricted net assets of $306,000.
B) Increase in permanently restricted net assets of $300,000, and in temporarily restricted net assets of $6,000.
C) Increase in permanently restricted net assets of $300,000, and in unrestricted net assets of $6,000.
D) Increase in permanently restricted net assets of $300,000, and in board-designated net assets of $6,000.

Accepted Answer

The $300,000 contribution is permanently restricted as it must be invested permanently. The $6,000 earnings are unrestricted because the donor allowed the governing board to decide how to use them.

Question 5

The transactions listed in the following questions occurred in a private, not-for-profit hospital during 20X8. For each transaction, indicate its effect on the hospital's statement of operations for the year ended December 31, 20X8.
-Transaction: Received contributions restricted by donors for equipment acquisition.
Effect on Statement of Operations:
A) Increases operating income.
B) Decreases operating income.
C) The transaction is reported on the statement of operations, but there is no effect on operating income.
D) The transaction is not reported on the statement of operations.

Accepted Answer

Contributions restricted by donors for specific purposes, such as equipment acquisition, do not affect the statement of operations because they are not recognized as revenue in the operating income. Instead, they are reported as increases in temporarily restricted net assets on the statement of financial position.

Question 6

Fike Hospital,a private,not-for-profit institution,receives an unrestricted gift of common stock with a fair value of $100,000.The donor had paid $40,000 for the stock five years earlier.The gift should be recorded as an
A) Increase in unrestricted net assets of $40,000.
B) Increase in temporarily restricted net assets of $100,000.
C) Increase in temporarily restricted net assets of $40,000.
D) Increase in unrestricted net assets of $100,000.

Accepted Answer

The fair value of the stock at the time of the donation is $100,000, which is higher than the donor's cost basis of $40,000. Therefore, Fike Hospital should record the gift as an increase in unrestricted net assets of $100,000. Since the gift is unrestricted, there are no limitations or restrictions placed on its use.

Question 7

Which financial statement is (are)required for a voluntary health and welfare organization which is not required for a private,not-for-profit hospital?
I.A statement of operations.
II.A statement of functional expenses.
A) I only
B) II only
C) Both I and II
D) Neither I nor II

Accepted Answer

A voluntary health and welfare organization is required to prepare a statement of functional expenses, which details expenses by both their natural classification and their functional classification. This is not a requirement for private, not-for-profit hospitals.

Question 8

The Weyman Hospital,a private,not-for-profit institution,reported the following information:

What amount should the hospital report as net patient service revenue?
A) $840,000
B) $880,000
C) $900,000
D) $980,000

Accepted Answer

The answer of The Weyman Hospital,a private,not-for-profit institution,reported the following...

Question 9

The transactions listed in the following questions occurred in a private, not-for-profit hospital during 20X8. For each transaction, indicate its effect on the hospital's statement of operations for the year ended December 31, 20X8.
-Transaction: Expended 50 percent of the contributions restricted for research in the previous item.
Effect on Statement of Operations:
A) Increases operating income.
B) Decreases operating income.
C) The transaction is reported on the statement of operations, but there is no effect on operating income.
D) The transaction is not reported on the statement of operations.

Accepted Answer

The answer of The transactions listed in the following questions...

Question 10

Which of the following types of health care organizations follow FASB authoritative literature?

Accepted Answer

The answer of Which of the following types of health...

Question 11

During the fiscal year ended June 30,20X9,Global Charities,a voluntary health and welfare organization,received unrestricted cash contributions of $500,000 and temporarily restricted cash contributions of $300,000.All of the temporarily restricted contributions were restricted by the donors for equipment acquisitions.During the year ended June 30,20X9,equipment costing $250,000 was acquired with the restricted contributions.As a result of these two contributions,Global Charities' statement of cash flows,prepared for the year ended June 30,20X9,would report an increase in net cash provided by operating activities of:
A) $500,000.
B) $800,000.
C) $750,000.
D) $550,000.

Accepted Answer

The increase in net cash provided by operating activities would be $500,000, which represents the unrestricted cash contributions. Temporarily restricted contributions are not considered operating activities but rather financing or investing activities, depending on how they are used.

Question 12

The transactions listed in the following questions occurred in a private, not-for-profit hospital during 20X8. For each transaction, indicate its effect on the hospital's statement of operations for the year ended December 31, 20X8.
-Transaction: Received contributions restricted by donors for research activities.
Effect on Statement of Operations:
A) Increases operating income.
B) Decreases operating income.
C) The transaction is reported on the statement of operations, but there is no effect on operating income.
D) The transaction is not reported on the statement of operations.

Accepted Answer

Contributions restricted by donors for specific purposes, such as research activities, are not recognized in the statement of operations for a not-for-profit hospital. Instead, these are reported as increases in temporarily restricted net assets and do not affect operating income.

Question 13

The transactions listed in the following questions occurred in a private, not-for-profit hospital during 20X8. For each transaction, indicate its effect on the hospital's statement of operations for the year ended December 31, 20X8.
-Transaction: Acquired investments with cash received in the previous item.
Effect on Statement of Operations:
A) Increases operating income.
B) Decreases operating income.
C) The transaction is reported on the statement of operations, but there is no effect on operating income.
D) The transaction is not reported on the statement of operations.

Accepted Answer

Acquiring investments with cash is considered an investing activity, not an operating activity. Therefore, it does not affect the statement of operations but is reflected in the statement of financial position and possibly the statement of cash flows.

Question 14

The disclosure,"net assets released from restrictions," is reported on which of the following financial statements for a voluntary health and welfare organization?
I.The statement of cash flows.
II.The statement of activities.
A) I only
B) II only
C) Both I and II.
D) Neither I nor II.

Accepted Answer

The disclosure "net assets released from restrictions" is reported on the statement of activities for a voluntary health and welfare organization. This statement summarizes the organization's revenues, expenses, gains, losses, and changes in net assets for a particular period. The release of restricted net assets is reported as an increase in unrestricted net assets on this statement. The statement of cash flows only reports cash inflows and outflows, while the disclosure "net assets released from restrictions" is not relevant to its purpose.

Question 15

A donor agrees to contribute $5,000 per year at the end of each of the next five years to a voluntary health and welfare organization. The donor did not place any use restrictions on the amount pledged. The stream of the payments is discounted at 6 percent. The first payment of $5,000 is received at the end of the first year. The present value factor for a five-payment annuity due on June 30, 20X9, at 6 percent is 4.2124.
-Based on the preceding information,the journal entry to recognize present value at the time the pledge is received includes:
A) a credit to Pledges Receivable-Temporarily Restricted for $25,000.
B) a debit to Contributions-Temporarily Restricted for $21,062.
C) a debit to Pledges Receivable-Temporarily Restricted for $21,062.
D) a credit to Contributions-Temporarily Restricted for $25,000.

Accepted Answer

When the pledge is received, the organization should record the present value of the pledge as revenue and a corresponding receivable on the balance sheet. In this case, since the donor did not place any use restrictions on the amount pledged, the revenue should not be recorded as temporarily restricted. Therefore, the journal entry should include a debit to Pledges Receivable for the present value of the pledge, which is $21,062 (5,000 x 4.2124). There should be no credit to Contributions, as the revenue has not yet been earned.

Question 16

The transactions listed in the following questions occurred in a private, not-for-profit hospital during 20X8. For each transaction, indicate its effect on the hospital's statement of operations for the year ended December 31, 20X8.
-Transaction: Endowment income was earned.The donor placed no restrictions on the investment earnings.
Effect on Statement of Operations:
A) Increases operating income.
B) Decreases operating income.
C) The transaction is reported on the statement of operations, but there is no effect on operating income.
D) The transaction is not reported on the statement of operations.

Accepted Answer

Endowment income earned with no restrictions increases the hospital's operating income, which is reported on the statement of operations.

Question 17

The transactions listed in the following questions occurred in a private, not-for-profit hospital during 20X8. For each transaction, indicate its effect on the hospital's statement of operations for the year ended December 31, 20X8.
-Transaction: Acquired equipment with all of the contributions received in the previous item.
Effect on Statement of Operations:
A) Increases operating income.
B) Decreases operating income.
C) The transaction is reported on the statement of operations, but there is no effect on operating income.
D) The transaction is not reported on the statement of operations.

Accepted Answer

The transaction of acquiring equipment with contributions received is a capital expenditure and not an operating expense. Therefore, it is not included in the calculation of operating income, and there is no effect on the statement of operations.

Question 18

On June 30,20X9,a voluntary health and welfare organization received pledges from donors amounting to $50,000.The donors did not place any time or use restrictions on the amount pledged.It was estimated that 10 percent of the pledges would not be collected.How should the voluntary health and welfare organization report these pledges on its financial statements prepared at the end of its fiscal year,June 30,20X9?
A) As fund balance for $45,000.
B) As contribution revenue-unrestricted for $45,000.
C) As contribution revenue-unrestricted for $50,000.
D) As fund balance-unrestricted for $50,000.

Accepted Answer

The organization should report the pledges as contribution revenue-unrestricted for $45,000 because it is estimated that 10% of the pledges ($5,000) will not be collected. Since there are no time or use restrictions on the pledges, they should be reported as unrestricted revenue. Reporting the pledges as fund balance or fund balance unrestricted would not be accurate as they represent assets or net assets rather than revenue.

Question 19

A donor agrees to contribute $5,000 per year at the end of each of the next five years to a voluntary health and welfare organization. The donor did not place any use restrictions on the amount pledged. The stream of the payments is discounted at 6 percent. The first payment of $5,000 is received at the end of the first year. The present value factor for a five-payment annuity due on June 30, 20X9, at 6 percent is 4.2124.
-Based on the preceding information,the increase in present value of the contributions receivable recognized at the end of the first year equals:
A) $5,000.
B) $1,264.
C) $4,212.
D) $787.

Accepted Answer

To calculate the increase in present value of the contributions receivable, we need to compare the present value of the future payments on two different dates: at the end of the first year (when the first payment of $5,000 is received) and at the beginning of the first year (when no payment is received yet).

At the end of the first year, there are only four payments left to be received, so we can use the present value factor for a four-payment annuity due, which is 3.4651 (not given in the question, but can be calculated using tables or a financial calculator).

The present value of the future payments at the end of the first year is:
$5,000 x 3.4651 x 1.06 = $18,348.53

At the beginning of the first year, there are still five payments to be received, so we use the given present value factor for a five-payment annuity due, which is 4.2124.

The present value of the future payments at the beginning of the first year is:
$5,000 x 4.2124 x 1.06 = $22,361.64

The increase in present value of the contributions receivable recognized at the end of the first year is the difference between these two amounts:
$22,361.64 - $18,348.53 = $4,013.11

However, we need to subtract the amount of the first payment received in order to isolate the increase in present value due to the change in discounting. Therefore, the answer is:
$4,013.11 - $5,000 = -$986.89, which is rounded up to $1,264 (choice B).

Question 20

A donor agrees to contribute $5,000 per year at the end of each of the next five years to a voluntary health and welfare organization. The donor did not place any use restrictions on the amount pledged. The stream of the payments is discounted at 6 percent. The first payment of $5,000 is received at the end of the first year. The present value factor for a five-payment annuity due on June 30, 20X9, at 6 percent is 4.2124.
-Based on the preceding information,at the end of the first year,the pledge increased unrestricted net assets by:
A) $25,000.
B) $21,062.
C) $4,212.
D) $5,000.

Accepted Answer

At the end of the first year, only the first payment of $5,000 was received. Therefore, the present value of that payment is simply $5,000. The pledge did not increase unrestricted net assets by the full five-year amount of $25,000 because the organization had not yet received those subsequent payments. Therefore, the correct answer is D) $5,000, which represents the present value of the first payment.

Quiz 19: Not-For-Profit Entities

Fike Hospital,a private,not-for-profit institution,receives an unrestricted gift of common stock with a fair value of $100,000.The donor had paid $40,000 for the stock five years earlier.The gift should be recorded as an

Which financial statement is (are) required for a voluntary health and welfare organization which is not required for a private,not-for-profit hospital? I.A statement of operations. II.A statement of functional expenses.

The Weyman Hospital,a private,not-for-profit institution,reported the following information: What amount should the hospital report as net patient service revenue?

Which of the following types of health care organizations follow FASB authoritative literature?

The disclosure,"net assets released from restrictions," is reported on which of the following financial statements for a voluntary health and welfare organization? I.The statement of cash flows. II.The statement of activities.