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Quiz 7 Chapter 12 and 13
Not-for-Profit Organizations
TRUE/FALSE (CHAPTER 12)
1. The FASB has standard-setting jurisdiction over all private not-for-profits and all government-owned not-for-profits.
2. Private not-for-profit accounting is closer to business than to government accounting.
3. FASB Statement No. 117 directs that revenues and expenses be reported in a statement of financial position.
4. In the statement of activities, FASB Statement No. 117 requires revenues to be reported as increases in one of the three categories of net assets, depending on donor-imposed restrictions; however, all expenses should be reported as decreases in unrestricted net assets.
5. Restricted contributions may be reported as unrestricted if the restriction has been met in the same period as the contribution is made.
6. FASB Statement No. 95 requires not-for-profits use the direct method in the preparation of the statement of cash flows.
7. In accounting for investments, not-for-profits, like businesses, must report their investments at fair value and classify the investments as either trading, available-for-sale, or held-to-maturity.
8. Absent explicit donor or legal stipulations, a not-for-profit’s endowment principal (permanently restricted net assets) would not be affected by either gains or losses on investments.
9. Not-for-profits cannot own or be integrally affiliated with either businesses or other not-for-profits.
10. FASB Statement No. 93 makes the recognition of depreciation on long-lived assets optional at the discretion of the not-for-profit.
MULTIPLE CHOICE (CHAPTER 12)
1. Financial statements for Smith College, a church-supported college, should be prepared according to standards set by
a) AICPA.
b) FASB.
c) GASB.
d) Smith may choose any of the above.
2. The basis of accounting used by not-for-profit organizations in their external financial reports is
a) Industry-specific basis of accounting.
b) Cash basis of accounting.
c) Modified accrual basis of accounting.
d) Accrual basis of accounting.
3. FASB requires the focus of external financial reporting be on
a) The donor-imposed restrictions on resources.
b) All restrictions on resources.
c) Funds of the entity.
d) The entity taken as a whole.
4. Expenses incurred by not-for-profit organizations should be reported as
a) Decreases in one of the three categories of net assets.
b) Decreases in unrestricted net assets.
c) Decreases in temporarily restricted net assets.
d) Decreases in permanently restricted net assets.
5. Revenues of a not-for-profit organization should be reported as
a) Increases in one of the three categories of net assets.
b) Increases in unrestricted net assets.
c) Increases in temporarily restricted net assets.
d) Increases in permanently restricted net assets.
6. Restricted gifts to not-for-profit organizations
a) Must always be shown as an increase in restricted net assets.
b) Must always be shown as an increase in unrestricted net assets.
c) May be shown as an increase in unrestricted net assets if the restriction is met in the same period.
d) May be shown as an increase in unrestricted net assets at the discretion of management.
7. The account title “Resources Released from Restriction” is reported by a ‘restricted fund’ as a
a) Revenue account.
b) Contra-revenue account.
c) Expense account.
d) Contra-expense account.
8. The account title “Resources Released from Restriction” is reported by an ‘unrestricted fund’ as a
a) Revenue account.
b) Contra-revenue account.
c) Expense account.
d) Contra-expense account.
9. FASB requires that all not-for-profit organizations report expenses
a) By object.
b) By function.
c) By natural classification.
d) By budget code.
10. Voluntary health and welfare organizations must also report expenses by
a) Object.
b) Function.
c) Natural classification.
d) Budget code.
11. The National Association for the Preservation of Wildlife received $10,000 from a benefactor to support the overall objective of the organization. This amount will be recognized as revenue
a) In the period received.
b) In the period spent.
c) Never, because it is not earned.
d) In the period it becomes susceptible to accrual.
12. Not-for-profit organizations report their cash flows in which of the following categories?
a) Operating, noncapital financing, capital financing, investing.
b) Operating, noncapital financing, investing.
c) Operating capital financing, investing.
d) Operating, financing, investing.
13. Not-for-profit organization should report contributions restricted for long-term purposes in which of the following categories?
a) Operating.
b) Financing.
c) Capital financing.
d) Investing.
14. Not-for-profit organizations should report interest and dividends earned and restricted for long-term purposes in which of the following categories?
a) Operating.
b) Financing.
c) Capital financing.
d) Investing.
15. Revenue from an exchange transaction may be classified as an increase in which class of net assets?
a) Unrestricted net assets.
b) Temporarily restricted net assets.
c) Permanently restricted net assets.
d) Any of the above.
16. During the annual fundraising drive, the Cancer Society raised $900,000 in pledges of financial support for their general operations. By the fiscal year-end, the Society had collected $600,000 of the pledges. The Society estimates that 10% of the remaining pledges will be uncollectible. The NET amount of revenue the Society should recognize during the current year from this pledge drive is
a) $900,000.
b) $870,000.
c) $810,000.
d) $600,000.
Use the following information to answer #17 - #19.
United Charities’ annual fund raising drive in 2001 raised pledges of $600,000 of which $400,000 were collected in 2001 and $100,000 were collected in 2002. United Charities estimates $75,000 of the remaining pledges will never be collected.
17. The increase in unrestricted net assets in 2001 as a result of the fund raising drive is
a) $600,000.
b) $525,000.
c) $400,000.
d) $125,000.
18. The increase in temporarily restricted net assets in 2001 as a result of the fundraising drive is
a) $600,000.
b) $525,000.
c) $400,000.
d) $125,000.
19. In 2002, the change in unrestricted net assets is
a) $0
b) $100,000 increase.
c) $100,000 decrease.
d) $500,000 increase.
20. In a prior year, United Charities received a $100,000 gift to be used to acquire vans to provide transportation for physically challenged adults. During the current year, United acquired two vans at a cost of $60,000 each. The appropriate entry(ies) to record the acquisition should be
a) UNRESTRICTED FUND
Resources Released from Restriction $100,00
Cash $100,000
RESTRICTED FUND
Fixed Assets $120,000
Cash $ 20,000
Resources Released from Restriction $100,000
b) RESTRICTED FUND
Resources Released from Restriction $ 100,000
Cash $100,000
UNRESTRICTED FUND
Fixed Assets $120,000
Resources Released from Restriction $100,000
Cash $ 20,000
c) UNRESTRICTED FUND
Fixed Assets $120,000
Cash $120,000
d) RESTRICTED FUND
Fixed Assets $120,000
Cash $120,000
21. In the current year National Pet Charities, which uses fund-type accounting to maintain its books and records, received a $30,000 contribution to help educate people on responsible pet ownership. During the current year, the entry to record this donation is
a) UNRESTRICTED FUND. No entry.
RESTRICTED FUND. Debit Cash $30,000; Credit Revenues $30,000.
b) UNRESTRICTED FUND. No entry.
RESTRICTED FUND. Debit Cash $30,000; Credit Net Assets $30,000.
c) UNRESTICTED FUND. Debit Cash $30,000; Credit Revenues $30,000.
RESTRICTED FUND. No entry.
d) UNRESTRICTED FUND. Debit Cash $30,000; Credit Net Assets $30,000.
RESTRICTED FUND. No entry.
22. Grace Church, a nondenominational not-for-profit entity, operates a school in connection with the Church. This year members of the Church decided to construct a new wing on the school with six classrooms. The Church hired an architect and a construction supervisor. The bulk of the labor for construction was donated by Church members who were willing workers but not necessarily skilled carpenters. Materials for the construction cost $300,000 and the paid labor was $100,000. The fair value of the completed building is $1 million. When the building is completed what should be the balance in the asset account ‘Building’ and the account ‘Contributed Revenue.’
a) Building $400,000; Contributed Revenue $0.
b) Building $400,000; Contributed Revenue $600,000.
c) Building $1 million; Contributed Revenue $600,000.
d) Building $1 million; Contributed Revenue $0.
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