Question 1

Sayer University,a not-for-profit university,earned $750,000 from bookstore revenue and spent $250,000 for faculty research in 20X8.The $250,000 for faculty research came from a $400,000 research grant received in the previous year.What is the effect of these events on net assets without donor restrictions in 20X8?

Accepted Answer

The bookstore revenue of $750,000 increases the net assets without donor restrictions by that amount. The faculty research expenditure of $250,000 reduces the net assets without donor restrictions by that amount. However, since the $250,000 expenditure was funded by the $400,000 research grant from the previous year, the net effect on the net assets without donor restrictions for 20X8 is an increase of $750,000.

Question 2

Good Care Hospital,which is operated by a religious organization,received contributions of $1,000,000 from donors who stipulated that the cash be used to construct an addition to the hospital.As of the balance sheet date,none of the contributions had been expended for construction.On the hospital's balance sheet,the cash contributions would be disclosed in which of the following classes of net assets?

Accepted Answer

The correct answer is A) Net assets with donor restrictions because the donors specified that the contributions must be used for a specific purpose (construction of an addition to the hospital), which restricts how the hospital can use these funds.

Question 3

A private,not-for-profit hospital received a donation of medicine from the XYZ Pharmaceutical Company on March 15,20X9.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 30,20X9.On the hospital's statement of operations for the year ended June 30,20X9,the contribution of medicine would increase operating revenues by:

Accepted Answer

The correct answer is the market value of the donation at the time it was received, which is $110,000. Non-profit accounting standards require recording donations at their fair market value at the time of receipt.

Question 4

A private,not-for-profit hospital received a cash contribution of $100,000 from Samantha Hicks on November 14,20X8.Ms.Hicks specified the money be used to acquire equipment.On December 31,20X8,the hospital had not expended any of Ms.Hicks' contribution.On the statement of changes in net assets for the year ended December 31,20X8,the hospital should report the contribution as a $100,000 increase in:

Accepted Answer

The contribution of $100,000 is a restricted donation, as Ms. Hicks specified that the money should be used to acquire equipment. Therefore, the hospital should report this as an increase in net assets with donor restrictions on the statement of changes in net assets for the year ended December 31,20X8. The fact that the hospital has not yet expended any of the contribution does not affect how it should be reported.

Question 5

The restricted funds of a not-for-profit hospital are often termed "______" funds because they must hold the restricted assets and transfer expendable resources to the general fund for expenditure.

Accepted Answer

Restricted funds are often termed "holding" funds because they hold the restricted assets until they are transferred to the general fund for expenditure.

Question 6

Bridger Hospital,which is operated by a religious organization,provides charity care for the indigent living in the region served by the hospital.How should Bridger report the amount of its charity care on its financial statements?

Accepted Answer

Charity care provided by hospitals, especially those operated by religious organizations, does not generate revenue and therefore is not reported as revenue on the financial statements. Instead, the amount of charity care is disclosed in the notes to the financial statements to provide transparency and information about the hospital's community support and financial assistance activities. This approach ensures that the financial statements accurately reflect the hospital's operations without inflating revenue figures with non-revenue-generating activities.

Question 7

Unrestricted current funds of a private university designated by the governing board for a specific future purpose should be reported as part of:

Accepted Answer

Unrestricted current funds designated by the governing board for a specific future purpose are reported as part of net assets without donor restrictions, as they are internally designated and not restricted by external donors.

Question 8

A private,not-for-profit hospital uses a fund structure that includes a general fund and donor restricted funds.Contributions received from donors for research to be conducted by the hospital should be accounted for in the:

Accepted Answer

Donor-restricted funds are funds that are restricted for specific purposes by the donor. Therefore, contributions received from donors for research to be conducted by the hospital should be accounted for in a specific purpose fund. This fund is used to account for contributions that are restricted for specific purposes, such as research, education, and other similar activities.

Question 9

A private,not-for-profit hospital received contributions of $50,000 from donors on June 15,20X9.The donors stipulated that their contributions be used to purchase equipment for the hospital.As of June 30,20X9,the end of the hospital's fiscal year,$12,000 of the contributions had been spent on equipment acquisitions.In the hospital's general fund,what account would be credited to recognize the release of the restrictions on the temporarily restricted contributions used to acquire equipment?

Accepted Answer

Net assets released from equipment acquisition restriction is the account that would be credited to recognize the release of the restrictions on the temporarily restricted contributions used to acquire equipment. This is because when the equipment is acquired, the restrictions on the contributions are released, and the net assets in the temporarily restricted account become available for general use. The other options are not applicable in this scenario.

Question 10

A not-for-profit private college in Virginia created a separate foundation responsible for obtaining financial support from alumni and others.Foundation assets are used for the benefit of the college.Donations made to the foundation and subsequently transferred to the college should be:

Accepted Answer

The foundation recognizes the donations as revenues when received. When the foundation transfers the donations to the college, it recognizes the transfer as an expense, reflecting the outflow of resources for the benefit of the college.

Question 11

The governing board of Samaritan Hospital,which is operated by a religious organization,designated $500,000 of cash for future expansion of the hospital.On the hospital's balance sheet,the cash designated for future plant expansion would be disclosed in which of the following classes of net assets?

Accepted Answer

The cash designated for future plant expansion by the governing board of Samaritan Hospital, which is operated by a religious organization, would be disclosed in the class of net assets without donor restrictions. This is because the designation was made internally by the organization's governing board, rather than being restricted by an external donor.

Question 12

A private,not-for-profit hospital uses a fund structure that includes a general fund and donor restricted funds.The hospital's revenues from nursing programs and gift shops should be accounted for in the:

Accepted Answer

Revenues from nursing programs and gift shops are operational revenues, which are typically accounted for in the general fund of a not-for-profit hospital. This fund is used for the day-to-day operations of the hospital.

Question 13

A private,not-for-profit hospital received a donation of medicine from the Xengen Pharmaceutical Company on February 13,20X2.The cost of the medicine to the company was $34,000,and its market value was $76,000.Thirty percent of the medicine was used by the hospital during the year ended June 30,20X2.On the hospital's statement of operations for the year ended June 30,20X2,the contribution of medicine would increase operating revenues by:

Accepted Answer

The correct answer is D) $76,000. In accounting for not-for-profit organizations, donated goods such as medicine are recorded at their fair market value at the time of donation. Therefore, the hospital would recognize $76,000 as an increase in operating revenues, which is the market value of the donated medicine.

Question 14

A private,not-for-profit university should prepare which of the following financial statements?
I.Statement of financial position
II.Statement of activities
III.Statement of changes in fund balances
IV.Statement of cash flows
V.Statement of changes in financial position

Accepted Answer

A private, not-for-profit university should prepare a Statement of Financial Position (also known as a balance sheet) to show their assets, liabilities, and net assets.

They should also prepare a Statement of Activities (also known as an income statement) to show their revenues, expenses, and changes in net assets over a specific period.

Lastly, they should prepare a Statement of Cash Flows to show the inflows and outflows of cash during a specific period.

Therefore, choices I, II, and IV are the best choices. The Statement of Changes in Fund Balances and Statement of Changes in Financial Position are not typically used for not-for-profit universities.

Question 15

For the year ended June 30,20X9,a private college received contributions from alumni that were restricted for faculty research stipends to be awarded during the next fiscal year.For the year ended June 30,20X9,these contributions should be disclosed on the statement of activities of the private college as an increase in:

Accepted Answer

Contributions received with donor restrictions, such as those designated for specific purposes like faculty research stipends to be awarded in the future, are reported as an increase in net assets with donor restrictions. This reflects the obligation to use the funds in accordance with the donor's restrictions.

Question 16

A private college received an offer from a CPA who is an alumnus to teach a one-semester advanced accounting course at no cost.ASC 958 prescribes that this contribution of service:

Accepted Answer

ASC 958 requires that contributed services be recognized as revenue and an expense (or asset, if the service creates or enhances a nonfinancial asset) if the services received (a) create or enhance nonfinancial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Teaching an advanced accounting course requires specialized skills and would typically be a service the college would have to purchase if not donated, thus it should be recorded as revenue with an equivalent amount recorded as an expense.

Question 17

Unrestricted gifts and endowment income of a private university are reported as:

Accepted Answer

Unrestricted gifts and endowment income of a private university are reported as revenues without donor restrictions on the statement of activities. This is because the statement of activities reports all revenues and expenses, including those without donor restrictions. The statement of changes in fund balances reports changes in the institution's net assets, but does not classify revenues and expenses by donor restrictions. The statement of current funds revenues, expenditures, and other changes only reports on the current fund and does not include endowment income.

Question 18

In accordance with ASC 958,contributions from donors that are to be permanently invested should be disclosed on the statement of activities of a private university as an increase in:

Accepted Answer

Contributions from donors that are designated to be permanently invested increase net assets with donor restrictions according to ASC 958. This is because these contributions are restricted by donors for long-term purposes, such as endowments, where the principal is to be maintained in perpetuity and only the income or a portion of the fund may be used for the purposes specified by the donor.

Question 19

All restricted funds of private,not-for-profit hospitals account for resources:

Accepted Answer

Restricted funds in private, not-for-profit hospitals are those whose use is restricted by the donor, meaning they can only be used for specific purposes as designated by the donor.

Question 20

On the statement of operations prepared for a private,not-for-profit hospital,patient service revenue earned during the year is reported net of amounts for which of the following items?
I.Contractual adjustments
II.Bad debts expense

Accepted Answer

Patient service revenue earned during the year is reported net of contractual adjustments, which reflect the difference between the amounts the hospital charges for services and the lower amounts it receives from third-party payers, such as insurance companies. In contrast, bad debts expense is a separate expense item that reflects the amount of patient service revenue that is unlikely to be collected due to the inability or unwillingness of patients to pay. Therefore, it is not reported as a reduction of revenue.

Quiz 19: Not-For-Profit Entities