Question 1

Good Faith Hospital,operated by a religious organization,billed patients $4,000,000 for services rendered during the year ended June 30,2009.The hospital realized cash of $3,500,000 from the patient billings because of the following reductions: (1)contractual adjustments of $140,000 granted to private insurance companies and to the federal government;and
(2)uncollectible accounts receivable of $360,000.
On the statement of operations prepared for the year ended June 30,2009,Good Faith Hospital should report net patient service revenue of:
A)$3,500,000.
B)$3,860,000.
C)$4,000,000.
D)$3,640,000.

Accepted Answer

Net patient service revenue is calculated as the total patient billings minus any reductions such as contractual adjustments and uncollectible accounts receivable.

Therefore, net patient service revenue for Good Faith Hospital would be:

$4,000,000 - $140,000 - $360,000 = $3,500,000

Thus, the hospital should report net patient service revenue of $3,500,000 on its statement of operations.

Question 2

A private,not-for-profit hospital received a contribution of $40,000 on June 15,2008.The donor restricted the contribution to funding research activities currently being performed by the hospital.For the year ended December 31,2008,the hospital spent $30,000 of the contribution on research activities.The hospital expended the remaining $10,000 on research activities in January of 2009.
-Refer to the above information.On the statement of cash flows prepared for the year ended December 31,2008,the events described would increase net cash flows provided by
A)operating activities by $40,000.
B)financing activities by $40,000.
C)financing activities by $10,000.
D)operating activities by $10,000.

Accepted Answer

The receipt of the contribution is a non-operating activity and would not affect net cash flows from operating activities. The contribution was restricted to funding research activities, which is a component of operating activities. Therefore, the $30,000 spent on research activities in 2008 would decrease net cash flows from operating activities. However, the remaining $10,000 spent on research activities in January of 2009 would be included in the calculation of net cash flows from operating activities for that year. Thus, the events described would increase net cash flows provided by operating activities by $10,000 only.

Question 3

In a private,not-for-profit hospital,which fund would record cash and investments which have been restricted by the governing board for acquisitions of equipment and construction of a new hospital addition?
A)The plant replacement and expansion fund.
B)The specific purpose fund.
C)The endowment fund.
D)The general fund.

Accepted Answer

The answer of In a private,not-for-profit hospital,which fund would record...

Question 4

In accordance with FASB 116,contributions of services are recognized as increases in unrestricted net assets by a private,not for profit entity if which of the following criteria are satisfied? I.The services received create or enhance nonfinancial assets.
II)The services require specialized skills,are provided by individuals possessing those skills,and would typically need to be purchased if not provided by donations.
III)The services will be performed within the current fiscal year.
A)I or II.
B)I or III.
C)II or III.
D)I,II,III.

Accepted Answer

According to FASB 116, contributions of services are recognized as increases in unrestricted net assets by a private, not-for-profit entity if either criterion I (the services received create or enhance nonfinancial assets) or criterion II (the services require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donations) are satisfied. Criterion III (the services will be performed within the current fiscal year) is not a necessary condition for the recognition of contributions of services. Therefore, the correct answer is A (I or II).

Question 5

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 disclosure represents the amount of restricted funds that have been released and are now available for the organization to use for general operating purposes. It is not reported on the statement of cash flows. Therefore, the correct option is B.

Question 6

During the fiscal year ended June 30,2009,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 30,2009,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 30,2009,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 answer of During the fiscal year ended June 30,2009,Global...

Question 7

A private,not-for-profit hospital received a contribution of $40,000 on June 15,2008.The donor restricted the contribution to funding research activities currently being performed by the hospital.For the year ended December 31,2008,the hospital spent $30,000 of the contribution on research activities.The hospital expended the remaining $10,000 on research activities in January of 2009.
-Refer to the above information.On the statement of operations prepared for the year ended December 31,2008,the events described would:
A)increase operating income by $30,000.
B)have no effect on operating income.
C)increase unrestricted net assets by $30,000.
D)decrease unrestricted net assets by $30,000.

Accepted Answer

The contribution was restricted for research activities, so it cannot be considered as part of operating income. Therefore, the expenditure of $30,000 on research activities would be included as an expense in the statement of operations, but it would not affect operating income.

Question 8

FASB 117 requires that an "other not-for-profit entity" (ONPO)provide three financial statements.Which of the following is NOT one among them?
A)A statement of functional expenses
B)A statement of financial position
C)A statement of activities
D)A statement of cash flows

Accepted Answer

A statement of functional expenses is not required by FASB 117 for an "other not-for-profit entity" (ONPO).

Question 9

A voluntary health and welfare organization received unrestricted cash donations of $20,000 from donors who attended a dinner held for the benefit of the organization.The costs of the dinner,including room rental,and other expenses,amounted to $7,000.On the statement of activities prepared for the voluntary health and welfare organization,the expenses of the dinner should be:
A)reported as management and general expenses.
B)netted against the $20,000 of contribution revenue.
C)reported as fund raising costs.
D)reported as programmatic expenses.

Accepted Answer

The expenses of the dinner, including room rental and other costs, should be reported as fund raising costs since the purpose of the dinner was to raise funds for the organization. This would result in a net contribution revenue of $13,000 ($20,000 - $7,000).

Question 10

The governing board of a hospital operated by a religious organization designated $3,000,000 of cash to be used for plant expansion.The cash was invested in stocks and bonds which earned $250,000 of dividend and interest income.The income from investments should be reported on the hospital's statement of operations as an increase in:
A)temporarily restricted net assets.
B)operating income.
C)either temporarily restricted net assets or unrestricted net assets,depending upon the nature of the governing board's restrictions.
D)fund balance in the general fund.

Accepted Answer

The income earned from investments should be reported as operating income because it is generated from the hospital's normal operations of investing funds. The fact that the funds were designated for plant expansion does not change their character as operating funds. Temporarily restricted net assets are funds that have donor-imposed restrictions that limit their use until certain conditions are met. The funds in this scenario do not have donor-imposed restrictions. Unrestricted net assets are funds that do not have any restrictions on their use, which is also not the case in this scenario as the funds are designated for a specific purpose. The fund balance in the general fund is a term used in governmental accounting and not applicable in this scenario.

Question 11

A voluntary health and welfare organization received a $300,000 contribution on April 15,2009,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 30,2009,amounted to $6,000.How would the voluntary health and welfare organization report this information for the year ended June 30,2009?
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 per the donor's stipulation. The $6,000 earnings are unrestricted because the donor allowed the governing board to decide how to use them.

Question 12

A private,not-for-profit hospital received a donation of medicine from the XYZ Pharmaceutical Company on March 15,2009.The cost of the medicine to the company was $66,000,and its market value was $110,000.Twenty percent of the medicine was used by the hospital during the year ended June 30,2009.On the hospital's statement of operations for the year ended June 30,2009,the contribution of medicine would increase operating revenues by
A)$66,000.
B)$110,000.
C)$52,800.
D)$88,000.

Accepted Answer

The contribution of medicine should be recorded at its market value, which is $110,000. The entire donation is recognized as revenue, not just the portion used.

Question 13

A private,not-for-profit hospital expended $35,000 of temporarily restricted assets to acquire equipment.What account should be debited in the hospital's plant replacement and expansion fund as a result of the acquisition of the equipment?
A)Net Assets Released-Plant Acquisition.
B)Fund balance Released-Plant Acquisition.
C)Equipment.
D)Contribution Revenue Released-Plant Acquisition.

Accepted Answer

When temporarily restricted assets are expended for a specific purpose, such as the acquisition of equipment, the net assets released account is debited. In this case, the debiting of Net Assets Released-Plant Acquisition would recognize the release of the restrictions on the assets and the acquisition of the equipment.

Question 14

A voluntary health and welfare organization developed and printed informational materials which were intended to both educate the public about how its resources are used to help people in need and to also appeal to the public for much needed support.In this situation,the cost of the informational materials should be
A)accounted for as fund-raising expense.
B)allocated to expenses for program services.
C)allocated between expenses for program services and fund-raising expense.
D)accounted for as management and general expense.

Accepted Answer

The cost of the informational materials should be allocated between expenses for program services and fund-raising expense because they serve both purposes. The materials educate the public about the organization's resources, which are related to its program services. At the same time, they appeal to the public for support, which is a fundraising activity. Therefore, it is appropriate to allocate the cost between program services and fundraising expenses.

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 30,2009,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)$4212.
D)$787.

Accepted Answer

To calculate the increase in present value of the contributions receivable recognized at the end of the first year, we need to determine the present value of the remaining four payments at the end of the first year.

Using the present value factor for a five-payment annuity due, we can calculate the present value of the remaining payments:

Present value of remaining payments = $5,000 x 4.2124 - $5,000 = $16,061.20

Therefore, the increase in present value of the contributions receivable recognized at the end of the first year is:

Increase in present value = Present value of remaining payments - Present value of next payment
= $16,061.20 - $5,000
= $11,061.20

However, we are only looking for the increase in present value, so we need to subtract the initial present value of the first payment from this amount:

Increase in present value = $11,061.20 - $9,797.06
= $1,264.14

Therefore, the answer is B) $1,264.

Question 16

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

The answer of Which financial statement is (are)required for a...

Question 17

During the fiscal year ended June 30,2009,a private,not-for-profit hospital acquired equipment costing $75,000,with cash contributed by donors who restricted their contributions for this purpose.On the hospital's statement of cash flows for the year ended June 30,2009,the equipment acquisition should be reported in which of the following sections? I.Operating activities
II)Financing activities
III)Investing activities
A)I
B)II
C)III
D)I,II,III

Accepted Answer

The purchase of equipment is classified as an investing activity on the statement of cash flows, as it involves the acquisition of a long-term asset.

Question 18

A private,not-for-profit hospital received a contribution of $40,000 on June 15,2008.The donor restricted the contribution to funding research activities currently being performed by the hospital.For the year ended December 31,2008,the hospital spent $30,000 of the contribution on research activities.The hospital expended the remaining $10,000 on research activities in January of 2009.
-Refer to the above information.On the statement of changes in net assets prepared for the year ended December 31,2008,the events described would
A)increase temporarily restricted net assets by $10,000.
B)decrease temporarily restricted net assets by $10,000
C)increase unrestricted net assets by $10,000.
D)decrease unrestricted net assets by $10,000.

Accepted Answer

The contribution received is restricted, meaning it cannot be used for general operations or any other purpose besides funding the research activities specified by the donor. Therefore, the $40,000 contribution would increase temporarily restricted net assets by $40,000. When $30,000 is spent on research activities during the year, temporarily restricted net assets would decrease by $30,000. However, since the remaining $10,000 is spent on research activities in January of 2009, it would not affect the year ended December 31, 2008. Therefore, the events described would increase temporarily restricted net assets by $10,000 for the year ended December 31, 2008.

Question 19

On the statement of functional expenses prepared for a voluntary health and welfare organization,depreciation expense is allocated to I.expenses for program services.
II)expenses for supporting services.
A)I only
B)II only
C)Both I and II
D)Neither I nor II

Accepted Answer

Depreciation expense is allocated to both program services and supporting services in a voluntary health and welfare organization's statement of functional expenses. This allocation reflects the use of assets in both direct program activities and activities that support these programs, such as management and fundraising.

Question 20

In 2009,a private not-for-profit hospital received a $200,000 cash contribution to its endowment fund.During the year,hospital administration invested $150,000 of the funds.Which of the following statements regarding the effect of these transactions on the preparation of the hospital's statement of cash flow is true?
A)The $200,000 contribution will appear in the investing activities section of the cash flow statement as a cash inflow.
B)The $200,000 contribution will appear in the financing activities section of the cash flow statement as a cash inflow.
C)The $150,000 investment will appear in the investing activities section of the cash flow statement as a cash inflow.
D)The $150,000 contribution will appear in the financing activities section of the cash flow statement as a cash inflow.

Accepted Answer

The $200,000 contribution to the endowment fund is considered a financing activity because it is a cash inflow related to long-term funding.

Quiz 19: Not-For-Profit Entities

In a private,not-for-profit hospital,which fund would record cash and investments which have been restricted by the governing board for acquisitions of equipment and construction of a new hospital addition?

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.

FASB 117 requires that an "other not-for-profit entity" (ONPO) provide three financial statements.Which of the following is NOT one among them?

A private,not-for-profit hospital expended $35,000 of temporarily restricted assets to acquire equipment.What account should be debited in the hospital's plant replacement and expansion fund as a result of the acquisition of the equipment?

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.

On the statement of functional expenses prepared for a voluntary health and welfare organization,depreciation expense is allocated to I.expenses for program services. II) expenses for supporting services.