Deck 12: Accounting for Not-For-Profit and Public Sector Organizations

Question 1

Do-Good Inc. is a newly formed not-for-profit organization. On January 1, 2012, its first day of operations, Do-Good purchased equipment costing $8,000. The equipment is estimated to have a useful life of 4 years, with no residual value at that time. This transaction was the only transaction that took place to date. The equipment was purchased from a restricted fund contribution of $8,400. What would be the balance in the Capital Fund on December 31, 2012?

A) ($1,600).
B) $400.
C) $4,400.
D) $6,400.

Answer 1

D

Question 2

Bequests are normally not recorded until:

A) the person making the bequests dies.
B) 10 years after the death of the person making the bequest after which period of time the other parties interested in the estate cannot legally challenge the bequest.
C) the beneficiaries of the estate decide to pay out the bequest.
D) the will has been probated and the time for appeal has passed.

Answer 2

D

Question 3

Section 4431 of the CICA Handbook contains a provision applicable to not-for-profit organizations which grants an exemption from capitalizing and amortizing all their fixed assets. The exemption is applicable to:

A) not-for-profit organizations with fewer than ten employees.
B) not-for-profit organizations that have assets less than $1 million.
C) not-for-profit organizations that are unincorporated.
D) not-for-profit organizations whose two-year average annual revenues in their statement of operations are less than $500,000.

Answer 3

D

Question 4

Do-Good Inc. is a newly formed not-for-profit organization. On January 1, 2012, its first day of operations, Do-Good purchased equipment costing $8,000. The equipment is estimated to have a useful life of 4 years, with no residual value at that time. This transaction was the only transaction that took place to date. The equipment was purchased from an unrestricted contribution of $8,000. In which fund would the receipt of the unrestricted contribution be recorded?

A) The General Fund.
B) The Endowment Fund.
C) The Capital Fund.
D) The Encumbrance Fund.

Question 5

Which of the following statements is correct?

A) Endowments are donations that are received with the provision that it will be invested and only the investment income may be spent by the organization.
B) Endowments are unrestricted donations which can be used for any purposes that are consistent with the goals and objectives of the not-for-profit organization.
C) Endowments are provided as donations which only allow a not-for-profit organization to invest in other not-for-profit organizations only.
D) Endowments may be restricted and unrestricted funds which must be used in accordance with the wishes of the contributor and only available during the life of the donor.

Question 6

Which of the following was NOT a common argument against the Accounting Standards Board's proposal that all capital acquisitions be capitalized and amortized?

A) Capitalization and amortization would be costly to apply.
B) It would change the nature of the operating statement from one that reflects resources spent to one that reflects the cost of resources used.
C) It would change the nature of the operating statement from one that reflects the cost of resources used to one that reflects resources spent.
D) Small not-for-profit organisations' financial statement users are only interested in seeing what money has been spent and what money is left over.

Question 7

Section 4431 contains a compromise applicable to not-for-profit organizations whose two-year average annual revenues are less than $500,000. These organizations must disclose all of the following EXCEPT:

A) their accounting policy for capital assets.
B) information about capital assets not shown in the balance sheet.
C) the amount expensed in the current period if their policy is to expense capital assets when acquired.
D) an appraised listing of the organizations capital assets, showing book values and appraised market values.

Question 8

Do-Good Inc. is a newly formed not-for-profit organization. On January 1, 2012, its first day of operations, Do-Good purchased equipment costing $8,000. The equipment is estimated to have a useful life of 4 years, with no residual value at that time. This transaction was the only transaction that took place to date. The equipment was purchased from an unrestricted contribution of $8,000. What would be the balance in the Capital Fund on December 31, 2012?

A) ($1,600).
B) $6,000.
C) $6,400.
D) $8,400.

Question 9

Which of the following statements is NOT correct?

A) A contribution receivable should be recognized as an asset when the amount can be reasonable estimated and the ultimate collection is reasonably assured.
B) A contribution receivable should be recognized as an asset when the amount can be reasonable estimated or the ultimate collection is reasonably assured.
C) A contribution receivable is one where in the contributor receives nothing directly in return for his or her contribution.
D) Government grants may qualify as contributions receivable.

Question 10

Which of the following financial statements are NOT required by not-for-profit organizations for external reporting purposes?

A) A Statement of financial position.
B) A Statement of Changes in Members' Equity.
C) A Statement of Cash Flows.
D) A Statement of Operations.

Question 11

Do-Good Inc. is a newly formed not-for-profit organization. On January 1, 2012, its first day of operations, Do-Good purchased equipment costing $8,000. The equipment is estimated to have a useful life of 4 years, with no residual value at that time. This transaction was the only transaction that took place to date. The equipment was purchased from an unrestricted contribution of $8,000. In which fund would the purchase of the asset be recorded?

A) The General Fund.
B) The Operating Fund.
C) The Capital Fund.
D) The Encumbrance Fund.

Question 12

The maximum amortization period specified by Section 4431 with respect to capital assets is:

A) 5 years.
B) 10 years.
C) 20 years.
D) No maximum amortization period is specified.

Question 13

Do-Good Inc. is a newly formed not-for-profit organization. On January 1, 2012, its first day of operations, Do-Good purchased equipment costing $8,000. The equipment is estimated to have a useful life of 4 years, with no residual value at that time. This transaction was the only transaction that took place to date. The equipment was purchased from an unrestricted contribution of $8,000. What would be the balance in the General Fund on December 31, 2012?

A) Nil.
B) $6,000.
C) $6,400.
D) $8,000.

Question 14

How may a not-for-profit organization account for a portfolio investment it has made in profit- oriented entity?

A) By using fair value or the cost method.
B) By using the equity method.
C) By using proportionate consolidation.
D) By consolidating the results of the profit-seeking entity with its own.

Question 15

How would the not-for-profit organization report each controlled profit-oriented enterprise?

A) It is not required to report its interest in profit-oriented subsidiaries.
B) By disclosure in the notes to the financial statements of the not-for-profit organization.
C) By consolidating the controlled enterprise into its own financial statements or by using the equity method and disclosing additional financial information.
D) By using the cost method together with appropriate note disclosure.

Question 16

Collections are works of art that have been excluded from the definition of capital assets. Which of the following statements is NOT a criterion which must be met before works of art qualify as collections under Canadian accounting standards?

A) It must be possible to establish a useful life for the works and an appropriate amortization period.
B) The works are held for public exhibition, education and research.
C) They are protected, cared for, and preserved.
D) They are subject to organizational policies that require any proceeds from their sale to be used to acquire other items for the collection, or for the direct care of the existing collection.

Question 17

Do-Good Inc. is a newly formed not-for-profit organization. On January 1, 2012, its first day of operations, Do-Good purchased equipment costing $8,000. The equipment is estimated to have a useful life of 4 years, with no residual value at that time. This transaction was the only transaction that took place to date. The equipment was purchased from a restricted fund contribution of $8,400. What would be the carrying value of the equipment on December 31, 2012?

A) $6,000.
B) $6,300.
C) $8,000.
D) $8,400.

Question 18

Do-Good Inc. is a newly formed not-for-profit organization. On January 1, 2012, its first day of operations, Do-Good purchased equipment costing $8,000. The equipment is estimated to have a useful life of 4 years, with no residual value at that time. This transaction was the only transaction that took place to date. The equipment was purchased from a restricted fund contribution of $8,400. In which fund would the purchase and amortization of the asset be recorded?

A) The General Fund.
B) The Operating Fund.
C) The Capital Fund.
D) The Encumbrance Fund.

Question 19

Which of the following is NOT an acceptable way of reporting a not-for-profit entity over which an organization has control?

A) By consolidating the controlled organization in its financial statements.
B) By providing the disclosure set out in paragraph 4450.22 of the Handbook.
C) If the controlled organization is one of a large number of individually immaterial organizations, by adhering to the disclosure requirements set out in paragraph 4450.26 of the Handbook.
D) By using the equity method.

Question 20

Which of the following statements is correct?

A) Unrestricted resources can be used for any purposes by a not-for-profit organization.
B) Unrestricted resources can be used for any purposes that are consistent with the goals and objectives of the not-for-profit organization.
C) Restricted resources can only be used in the case of a serious financial deficit situation.
D) Both restricted and unrestricted funds must be used in accordance with the wishes of the contributor.

Question 21

Where should be endowment contributions presented in the financial statements of a not-for- profit organization under the deferral method?

A) They are reflected in the notes to the financial statements.
B) They are used to effect a reduction to a related expense account.
C) They are reflected in the statement of changes in net assets.
D) They are shown in the Statement of Operations.

Question 22

How should that portion of investment income earned from the investment of endowment contributions that is required to be used to maintain the purchasing power of the endowment be accounted for, if the not-for-profit organization uses the deferred contribution method of accounting?

A) As investment income.
B) As a deferred contribution.
C) As a direct increase in net assets.
D) As donation revenue.

Question 23

If a not-for-profit organization has revenues in excess of $500,000, how must it report its capital assets?

A) All asset purchases must be immediately and entirely expensed.
B) All capital assets must be capitalized and amortized.
C) All capital assets must be capitalized but not amortized.
D) All capital assets must be disclosed in a note to the financial statements.

Question 24

A government department uses an encumbrance system to keep tabs on spending. On July 1, 2013, a department employee issued a purchase order for cleaning supplies estimated to cost $500. The supplies were delivered promptly, and invoiced at $450. What would be the journal entry to record the payment of the invoice?

A)
B)
C)
D)

Question 25

If a not-for-profit organization uses the restricted fund method of reporting and has an endowment fund, how should an endowment contribution be reported?

A) As revenue in the general fund.
B) As revenue in the endowment fund.
C) As a direct increase in net assets in the general fund.
D) As a direct increase in net assets in the endowment fund.

Question 26

Net assets could be broken down into any of the following categories EXCEPT:

A) Net assets invested in capital assets.
B) Net assets maintained permanently in endowments.
C) Unrestricted net assets.
D) Net assets invested in operations.

Question 27

If a not-for-profit organization that has had annual revenues above $500,000 for a number of years, subsequently has revenues (for two years or more) significantly lower than $500,000, how must it report its Capital Assets?

A) It may choose to expense future capital assets at the date of their acquisition.
B) It must continue to capitalize and amortize its capital assets.
C) It may choose to capitalize but not amortize future capital asset additions.
D) It must derecognize capital assets recognized in past periods.

Question 28

A government department uses an encumbrance system to keep tabs on spending. On July 1, 2013, a department employee issued a purchase order for cleaning supplies estimated to cost $500. The supplies were delivered promptly, and invoiced at $450. What would be the journal entry to record the Purchase Order?

A) No entry is required.
B)
C)
D)

Question 29

How should that portion of investment income earned from the investment of endowment contributions that is required to be used to maintain the purchasing power of the endowment be accounted for if the not-for-profit organization uses the restricted fund method of reporting and has an endowment fund?

A) As investment income in the general fund.
B) As investment income in the endowment fund.
C) As a direct increase in net assets in the general fund.
D) As a direct increase in net assets in the endowment fund.

Question 30

A not-for-profit organization is required to record the donation of capital assets at:

A) replacement cost.
B) fair value.
C) net realizable value.
D) the original cost to the donor of the capital asset.

Question 31

Which of the following is NOT among the choices available to a not-for-profit organization with two-year average annual revenues of less than $500,000?

A) Capitalize and amortize capital assets.
B) Capitalize and not amortize capital assets.
C) Expense capital assets when acquired.
D) Make no entries when capital assets are acquired.

Question 32

How should investment income earned from the investment of endowment contributions be accounted for if the not-for-profit organization uses the deferred contribution method of accounting and the use of the investment income is restricted to a specific purpose?

A) As investment income.
B) As a deferred contribution.
C) As a direct increase in net assets.
D) As donation revenue.

Question 33

How should investment income earned from the investment of endowment contributions be accounted for if the not-for-profit organization uses the restricted fund method of accounting and the use of the investment income is restricted to a specific purpose for which the not-for- profit organization has a restricted fund?

A) As investment income in the endowment fund.
B) As a deferred contribution.
C) As investment income in the general fund.
D) As investment income in the specific restricted fund.

Question 34

Which of the following is NOT a type of contribution as identified by the Handbook?

A) Restricted.
B) Endowment.
C) Unrestricted.
D) Donated.

Question 35

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. How much donation revenue should the not-for-profit organization recognize in the current year, if the organization uses the deferred contribution method of reporting?

A) $6,000.
B) $14,000.
C) $20,000.
D) $34,000.

Question 36

How should investment income earned on donation revenue be accounted for if the donation revenue was a restricted contribution and the not-for-profit organization used the restricted fund method and had a fund for the purpose for which the donation was intended?

A) As investment income in the general fund.
B) As investment income in the restricted fund.
C) As donation revenue in the restricted fund.
D) As a direct increase in net assets in the restricted fund.

Question 37

Which of the following is NOT a requirement for a not-for-profit organization to record donated materials and services?

A) The fair value of the donation can be determined.
B) The organization uses the deferred contribution method of revenue recognition.
C) The materials or services would normally have been used in the organization's operations.
D) The not-for-profit organization would have purchased the goods or services if they had not been donated.

Question 38

If a not-for-profit organization uses the restricted fund method of reporting and has a capital fund, how should a donation of cash restricted to the purchase of land be reported?

A) As revenue in the general fund.
B) As revenue in the capital fund.
C) As a direct increase in net assets in the general fund.
D) As a direct increase in net assets in the capital fund.

Question 39

If a not-for-profit organization that usually has had annual revenues well below $500,000, subsequently has (for two years or more) revenues significantly higher than $500,000, how must it report its Capital Assets?

A) It must capitalize and amortize retroactively.
B) It must continue following the same policy.
C) It must capitalize and amortize prospectively.
D) It must capitalize, but not amortize, retroactively.

Question 40

A government department uses an encumbrance system to keep tabs on spending. On July 1, 2013, a department employee issued a purchase order for cleaning supplies estimated to cost $500. The supplies were delivered promptly, and invoiced at $450. What would be the balance in the encumbrances account after payment of the invoice?

A) ($50).
B) Nil.
C) $50.
D) $500.

Question 41

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. What will the net asset balance in the restricted fund be at the end of the year if the organization uses the restricted fund method for reporting and had a fund for this project?

A) Nil.
B) $6,000.
C) $14,000.
D) $20,000.

Question 42

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. How much donation revenue should the not-for-profit organization recognize in the current year, if the organization uses the restricted fund method for reporting and had a fund for this project?

A) Nil.
B) $6,000.
C) $14,000.
D) $20,000.

Question 43

When a not-for-profit organization uses the deferred contribution method of revenue recognition and receives a donation restricted to the purchase of land, when should the donation be recognized as revenue?

A) When the cash is received.
B) When the land is purchased.
C) When the land is put into service by the organization.
D) It should not be recognized as revenue at all.

Question 44

A capital asset (equipment) with a fair value of $1,500,000 and a remaining useful life of ten years and land with a fair value of $2,000,000 is donated to a not-for-profit organization. The organization will use the equipment in its operations. Prepare the journal entries (including amortization) if the organization uses the: a) the deferral method for contributions. b) the restricted fund method with a capital fund The machinery has a ten year useful life.

Question 45

A statement of changes in net assets in the financial statements of a not-for-profit organization corresponds most closely to which of the following in the financial statements of a profit- oriented business which reports under IFRS?

A) The statement of financial position.
B) The statement of cash flows.
C) The income statement.
D) The statement of changes in shareholders' equity.

Question 46

The following are selected transactions for HELP-ON-US, an NFPO for 2014. On January 1, the organization purchased fixed assets at a cost of $10,000. The assets were estimated to have a useful life of 5 years with no residual value. Straight-line amortization is used. Assuming that the assets were purchased from unrestricted fund sources, prepare the required journal entries for 2014, indicating the fund or funds to be used.

Question 47

On January 1, 2013, some residents of the community of Kiterup,
B.C., formed the Kiterup Winter Sports Association (KWSA) which was organized as a not-for-profit organization which has as its purposes encouraging participation in outdoor winter sports. In its first year, the board decided to restrict its activities to ice skating and skiing.
Initial funding was provided by a wealthy individual who made an endowment contribution of
$200,000 which was invested in bonds and generated income during the year of $8,000. The donor placed no restrictions on the use of the income produced by the investment of the endowment contribution which were to be divided evenly between all programs undertaken by the Association.
During the year donations of $750,000 were received and a further $150,000 of pledges was outstanding of which the board estimated $130,000 would be collected. It was agreed that such donations, all of which were unrestricted, would be divided evenly between the skating and skiing programs. As a practical matter, donations not yet received at year-end were considered to be restricted for use in the following year. A special fund drive was undertaken to raise money to provide skates to needy youngsters and skiing equipment to needy senior citizens. During the year $25,000 was received in contributions for skates and $15,000 for contributions towards purchasing skis.
During the year ended December 31, 2013, the organization incurred the following costs.

At December 31, 2013, the only outstanding payables were for $30,000 relating to the skiing program (the costs are included in the table above). The ice skates and skiing equipment were paid for out of the funds raised by the special fund drive and were expensed as acquired. KWSA does not use fund accounting but uses the deferred contribution method to account for
restricted donations and uses programmatic reporting to report the results of its activities.
Prepare journal entries to record the transactions of the Kiterup Winter Sports Association for the year ended June 30, 2013. Closing entries are not required.

Question 48

What reporting choices are given to Canadian non-governmental and not-for-profit organizations?

A) They may report under the Accounting Standards for Private Enterprises without modification.
B) They may report under the Accounting Standards for Private Enterprises modified by the standards found in Part III of the CICA Handbook.
C) They may report under the International Financial Reporting Standards modified by the standards found in Part III of the CICA Handbook.
D) They may continue to report in accordance with the Canadian standards for not-for-profit enterprises that existed prior to 2011-2012.

Question 49

The following are selected transactions for HELP-ON-US, an NFPO for 2014. On January 1, the organization purchased fixed assets at a cost of $10,000. The assets were estimated to have a useful life of 5 years with no residual value. Straight-line amortization is used. Prepare journal entries for these transactions, using the deferred contribution method, assuming that the assets were purchased using restricted funds in the amount of $11,000.

Question 50

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. What should be the balance in the deferred contribution account at the end of the year, if the organization uses the deferred contribution method of reporting?

A) Nil.
B) $6,000.
C) $14,000.
D) $20,000.

Question 51

Describe what fund accounting is and why is it used for not-for-profit organizations.

Question 52

How should outstanding commitments best be presented in the financial statements of non- for-profit organizations that use encumbrance accounting?

A) The encumbrance should be reported as an expense and the estimated commitment as a liability.
B) The encumbrances should be reported as a deferred asset and the estimated commitment as a liability.
C) The estimated commitment should be reported as a liability with the encumbrance deducted from it on the face of the statement of financial position.
D) Neither the encumbrance nor estimated commitment should be included in the financial statements; if the commitment is sufficiently material, it could be disclosed in the notes to the financial statements.

Question 53

Buana Fide is a local charity which received the following donations during 2013: • A local radio station donated air time valued at $20,000. If the air time had not been donated, Buana Fide would have purchased it. • An anonymous donor donated land with a fair value of $50,000 as well as machinery valued at $4,000. • During a recent fund-raising campaign, volunteers spend roughly 1,000 hours soliciting donations from the public. The minimum hourly wage rate in Buana Fide's main area of operation is $8.00 per hour. Prepare the necessary journal entries to record these transactions assuming that the restricted fund method of accounting for contributions is used and the organization has a general fund, a capital fund and an endowment fund.

Question 54

A not-for-profit organization receives a restricted contribution of $20,000 to be used for a specific project. During the current year, $14,000 is spent toward the project with the balance to be spent next year. How much donation revenue should the not-for-profit organization recognize in the current year, if the organization uses the restricted fund method of reporting and did not have a fund for this project?

A) $6,000.
B) $14,000.
C) $20,000.
D) $34,000.

Question 55

The following are selected transactions for HELP-ON-US, an NFPO for 2014. On January 1, the organization purchased fixed assets at a cost of $10,000. The assets were estimated to have a useful life of 5 years with no residual value. Straight-line amortization is used. Assuming that the assets were purchased from a restricted fund contribution in the amount of $11,000, prepare the required journal entries for 2014, indicating the fund or funds to be used.

Question 56

XYZ is a local charity that commenced operations on January 1, 2014. XYZ uses an encumbrance system to manage costs. For the following partial data provided, prepare the journal entry to record that transaction. In addition, specify which fund or funds must be used to record the entry. a) Revenue deferred earlier in the year in the amount of $5,000 was recognized. b) Pledges receivable in the amount of $10,000 were collected in full. c) Accounts payable and wages payable amounting to $10,000 and $5,000 were paid. d) Government grants amounted to $50,000, half of which was received. The balance is expected by late 2015. The grants may be applied to any of the organization's programs. e) Total Wage costs amounted to $60,000 which breaks down as follows: 25% of these expenses are still payable at the end of 2014. f) A wealthy local businessman donated $100,000 to be held in endowment, with the interest earned to be unrestricted. g) The investments in an endowment fund earned interest in the amount $3,000. h) Amortization expense for the year amounted to $10,000.

Question 57

How should a not-for-profit organization value inventories which are held for distribution at no charge or for a nominal charge or for consumption in the production process of goods which will be distributed at no charge or for a nominal charge?

A) At cost.
B) At fair value.
C) At the lower of cost and net realizable value.
D) At the lower of cost and current replacement cost.

Question 58

The following are selected transactions from Helpers Cooperative which uses the restricted fund method. Helpers has an operating fund, a capital fund and an endowment fund: Pledges amounting to $400,000 were received, of which $80,000 applies to the operations of the following year. It is estimated that 2% of the pledges will be uncollectible. The association purchased office equipment at a cost of $6,000. Pledges of $300,000 were collected, while pledges amounting to $4,000 were written off as uncollectible. A local newspaper agreed to offer Helpers a full-page ad. This had an estimated value of $5,000. Interest and dividends received amounted to $15,000 on endowment fund investments. These earnings are considered unrestricted. Depreciation for the year amounted to $40,000. Required: Prepare journal entries to record the above transactions. Also, indicate which fund will be used for each entry.

Question 59

A not-for-profit organization received unrestricted pledges of $200,000, and believes based on past experience that 95% of them will be paid. What entry should be made to record the pledges?

A)
B)
C)
D)

Question 60

Buana Fide is a local charity which received the following donations during 2013: • A local radio station donated air time valued at $20,000. If the air time had not been donated, Buana Fide would have purchased it. • An anonymous donor donated land with a fair value of $50,000 as well as machinery valued at $4,000. • During a recent fund-raising campaign, volunteers spend roughly 1,000 hours soliciting donations from the public. The minimum hourly wage rate in Buana Fide's main area of operation is $8.00 per hour. Prepare the necessary journal entries to record these transactions assuming that the deferral method of accounting for contributions is used.

Question 61

On January 1, 2013, some residents of the community of Kiterup,
B.C., formed the Kiterup Winter Sports Association (KWSA) which was organized as a not-for-profit organization which has as its purposes encouraging participation in outdoor winter sports. In its first year, the board decided to restrict its activities to ice skating and skiing.
Initial funding was provided by a wealthy individual who made an endowment contribution of
$200,000 which was invested in bonds and generated income during the year of $8,000. The donor placed no restrictions on the use of the income produced by the investment of the endowment contribution which were to be divided evenly between all programs undertaken by the Association.
During the year donations of $750,000 were received and a further $150,000 of pledges was outstanding of which the board estimated $130,000 would be collected. It was agreed that such donations, all of which were unrestricted, would be divided evenly between the skating and skiing programs. As a practical matter, donations not yet received at year-end were considered to be restricted for use in the following year. A special fund drive was undertaken to raise money to provide skates to needy youngsters and skiing equipment to needy senior citizens. During the year $25,000 was received in contributions for skates and $15,000 for contributions towards purchasing skis.
During the year ended December 31, 2013, the organization incurred the following costs.

At December 31, 2013, the only outstanding payables were for $30,000 relating to the skiing program (the costs are included in the table above). The ice skates and skiing equipment were paid for out of the funds raised by the special fund drive and were expensed as acquired. KWSA does not use fund accounting but uses the deferred contribution method to account for
restricted donations and uses programmatic reporting to report the results of its activities.
Prepare a statement of operations for the Kiterup Winter Sports Association for the year ended
December 31, 2013.