Deck 18: A: Accounting for Not-For-Profit Entities

Question 1

The following gifts are received in 2016 by a not-for-profit entity:
I. $2,000 specified by the donor to be used to pay salaries.
II. $10,000 specified by the donor for new conference room furniture.
III. $5,000 specified by the donor to be held for one year before being expended.
The salaries are paid in 2017 and the conference room furniture is purchased in 2016. The donor did not specify any time restriction on holding the conference room furniture.
With respect to the donations received in 2016, what amount should be reported in the Statement of Activities as net increase to Temporarily Restricted Net Assets for the year 2016?

A) $ 2,000
B) $ 7,000
C) $12,000
D) $15,000
E) $17,000

Answer 1

B

Question 2

Historically, what pattern of reporting was used by private not-for-profit entities? (1) The same as used with respect to for-profit entities.
(2) Reporting that utilizes a fund accounting approach.
(3) A pattern of reporting that does not consider the entire entity.

A) 1 only.
B) 2 only.
C) 1 and 2 only.
D) 1, 2 and 3.
E) 2 and 3 only.

Answer 2

B

Question 3

The following gifts are received in 2016 by a not-for-profit entity:
I. $2,000 specified by the donor to be used to pay salaries.
II. $10,000 specified by the donor for new conference room furniture.
III. $5,000 specified by the donor to be held for one year before being expended.
The salaries are paid in 2017 and the conference room furniture is purchased in 2016. The donor did not specify any time restriction on holding the conference room furniture.
With respect to the donations received in 2016, what total amount should be recorded as an increase to Temporarily Restricted Net Assets?

A) $ 2,000
B) $ 7,000
C) $12,000
D) $15,000
E) $17,000

Answer 3

E

Question 4

What is the basis of accounting used in reporting the Statement of Activities?

A) Cash basis.
B) Modified accrual basis.
C) Accrual basis.
D) Either cash basis or accrual basis, depending on the type of revenue.
E) Either modified accrual basis or accrual basis, depending on the type of revenue.

Question 5

Which of the following types of health care entitys recognize depreciation expense?

Question 6

On a Statement of Activities for a not-for-profit entity, what is the minimum required classification for categories of expenses?

A) Fund-raising expenses and operating expenses.
B) Program services expenses and administrative services expenses.
C) Program services expenses and supporting services expenses.
D) Operating expenses and supporting services expenses.
E) Operating expenses and administrative expenses.

Question 7

Which of the following types of health care entities follow FASB Accounting Standards Codification for preparing financial statements?

Question 8

Reciprocal transfers where both parties give and receive something of value are

A) Donated supplies and materials.
B) Unconditional promises to give.
C) Endowment transactions.
D) Exchange transactions.
E) Required contributions.

Question 9

In accruing patient charges for the current month, which one of the following accounts should a hospital credit?

A) Accounts Payable.
B) Deferred Revenue.
C) Public Support Revenue.
D) Patient Service Revenues.
E) Accounts Receivable.

Question 10

Unconditional promises to transfer cash or other resources to an entity in a voluntary nonreciprocal transaction is the GAAP definition of

A) Miscellaneous revenues.
B) Contributions.
C) Unconditional promises to give.
D) Exchange transactions.
E) Pledges.

Question 11

Which of the following statements is required for voluntary health and welfare entities, but not for other not-for-profit entities?

A) Statement of Activities and Changes in Net Assets.
B) Statement of Functional Expenses.
C) Statement of Financial Position.
D) Statement of Cash Flows.
E) Statement of Budget to Actual.

Question 12

When individuals are considering whether to make a donation to a not-for-profit entity, the answer to which of the following questions is not typically sought?

A) Will donated funds be used effectively by the entity to accomplish its purpose?
B) Will the donated funds be wasted?
C) How much should this entity receive?
D) Is this entity profitable?
E) Is contributing to this charity a wise allocation of resources?

Question 13

Prior to ASU 2016-14, what are the three categories of net assets required by GAAP in reporting of a not-for-profit entity?

A) Unrestricted, Temporarily Restricted, and Permanently Restricted.
B) Unrestricted, Restricted, and Fund Balance.
C) Restricted, Permanently Restricted, and Fund Balance.
D) Unrestricted, Temporarily Restricted, and Fund Balance.
E) None of these answer choices are correct.

Question 14

When are unconditional promises to give recognized as revenues?

A) In the period the promise is received.
B) In the period the promise is collected.
C) In the period in which the conditions upon which they are contingent are substantially met.
D) In the period in which the conditions upon which they are contingent have begun to be met.
E) Unconditional promises from potential donors are not revenues.

Question 15

Which account should be credited to record a gift of cash which is from an outside party to an animal rescue agency and is used for expenses to care for the animals?

A) Non-Operating Gain - Special Revenues.
B) Contractual Adjustments.
C) Patient Service Revenues.
D) Drugs and Medicines.
E) Unrestricted net assets - contributions.

Question 16

Which of the following is a voluntary health and welfare entity?

A) A charity raising money for underprivileged children.
B) A nursing home.
C) A private medical school.
D) A hospital.
E) A preschool.

Question 17

On a Statement of Activities for a not-for-profit entity, what are the broad categories of supporting service costs required to be reported?

A) Fund-raising expenses and operating expenses.
B) Program services expenses and administrative services expenses.
C) Fund-raising expenses and supporting services expenses.
D) Fund-raising expenses and administrative expenses.
E) Operating expenses and administrative expenses.

Question 18

On a statement of functional expenses for a voluntary health and welfare entity, how are expenses classified?

A) Health services expenses and operating expenses.
B) Program services expenses and administrative services expenses.
C) Program services expenses and supporting services expenses.
D) Operating expenses and supporting services expenses.
E) Operating expenses and administrative expenses.

Question 19

Unconditional transfers of cash or other resources to an entity in a voluntary nonreciprocal transaction is the GAAP definition of

A) Miscellaneous revenues.
B) Contributions.
C) Unconditional promises to give.
D) Exchange transactions.
E) Pledges.

Question 20

Which one of the following financial statements is not required by GAAP regarding a voluntary health and welfare entity?

A) Statement of Financial Position.
B) Statement of Functional Expenses.
C) Statement of Activities and Changes in Net Assets.
D) Statement of Cash Flows.
E) Statement of Operations.

Question 21

Give several examples, by name, of specific not-for-profit entities that are voluntary health and welfare entities.

Question 22

Which entry would be the correct entry on the not-for-profit entity's books to record a donor's gift when the donor retains power over the assets? DEBIT CREDIT

A) Expense-charitable contribution Cash
B) Refundable advance to charity Cash
C) Cash Liability to beneficiary
D) Cash Refundable advance
E) Cash Contribution revenue

Question 23

Which entry would be the correct entry to record that a not-for-profit entity collected $80,000 of amounts pledged and also wrote off $3,000 of amounts pledged that were previously estimated as amounts uncollectible? DEBIT CREDIT

A) Pledges Receivable $80,000 Cash $80,000
B) Cash $80,000 Pledges Receivable $80,000
C) Pledges Receivable $80,000 Allowance for uncollectible pledges 3,000 Cash $83,000
D) Cash $80,000 Pledges Receivable $83,000 Allowance for uncollectible
Pledges $3,000
E) Cash $80,000 Unrestricted net assets-contributions $83,000 Allowance for uncollectible
Pledges $3,000

Question 24

Which entry would be the correct entry to record pledges of $100,000 for a telethon event to raise money for a not-for-profit public television station? The public television entity estimates that 5% of the funds will be uncollectible. DEBIT CREDIT

A) Pledges Receivable $100,000 Unrestricted net assets-contributions $100,000
B) Cash $100,000 Unrestricted net assets-contributions $100,000
C) Pledges Receivable $100,000 Unrestricted net assets-contributions $95,000 Allowance for uncollectible pledges $ 5,000
D) Pledges Receivable $95,000 Unrestricted net assets-contributions $100,000 Allowance for uncollectible
Pledges $5,000
E) Cash $95,000 Unrestricted net assets-contributions $100,000 Allowance for uncollectible
Pledges $5,000

Question 25

If the total acquisition value of an acquired not-for-profit entity is greater than the fair value of all identifiable net assets of the entity, and that entity's revenues are not generated by rendering goods or services or from membership dues, then the excess of acquisition value over identifiable net assets is immediately reported:

A) As goodwill on the consolidated Statement of Position.
B) As a pro-rata increase to the identifiable assets and liabilities acquired.
C) As a direct reduction in unrestricted net assets on the Statement of Financial Position.
D) As a reduction in unrestricted net assets on the Statement of Activities.
E) As an increase in other assets on the Statement of Financial Position.

Question 26

Not-for-profit entities that are eligible to obtain tax-exempt status under Internal Revenue Code section 501(c)(4) are

A) Those promoting literacy.
B) Those promoting scientific research.
C) Chambers of Commerce.
D) Professional sports leagues.
E) Those functioning exclusively to promote social welfare.

Question 27

Which entry would be the correct entry on the not-for-profit entity's books to record a donor's gift when the money is simply passing through the not-for-profit entity, it creates no direct benefit, and control of the assets has been relinquished by the donor? DEBIT CREDIT

A) Expense-charitable contribution Cash
B) Refundable advance to charity Cash
C) Cash Liability to beneficiary
D) Cash Refundable advance
E) Cash Contribution revenue

Question 28

Which entry would be the correct entry on the donor's books when the donor relinquishes control of an asset, such as cash, which it contributes to a not-for-profit entity? DEBIT CREDIT

A) Expense-charitable contribution Cash
B) Refundable advance to charity Cash
C) Charitable pledge Cash
D) Cash Liability to beneficiary
E) Cash Refundable advance

Question 29

Which entry would be the correct entry to record that a hospital has provided patient services for $200,000, of which 25% will be billed to a third party? DEBIT CREDIT

A) Accounts Receivable-Patients $200,000 Patient Service Revenue $200,000
B) Accounts Receivable-Patients $150,000 Patient Service Revenue $200,000 Accounts Receivable-Third Party $50,000
C) Accounts Receivable-Patients $50,000 Accounts Receivable-Third Party $150,000 Patient Service Revenue $200,000
D) Accounts Receivable-Patients $200,000 Patient Service Revenue $50,000 Accounts Receivable - Third Party $150,000
E) Patient Service Revenue $200,000 Accounts Receivable-Patients $150,000 Accounts Receivable-Third Party $50,000

Question 30

Which of the following topics are not included in the Form 990 which tax-exempt entities file to maintain their tax-exempt status?

A) Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees and Independent Contractors.
B) Donor Disclosure: Identification of Every Donor by Name, Contribution Value & Contribution Type.
C) Statement of Revenue.
D) Balance Sheet.
E) Statement of Functional Expenses.

Question 31

What is the appropriate account to credit when estimating a portion of health care entity's receivables that will prove to be uncollectible?

A) Bad Debt Expense.
B) Allowance for Uncollectible Accounts.
C) Patient Service Revenues.
D) Accounts Receivable.
E) Contractual Adjustments.

Question 32

When an acquisition occurs in not-for-profit accounting, recognition of goodwill depends on:

A) Whether control has been achieved by the acquiring not-for-profit entity.
B) Whether the acquired not-for-profit entity has the ability to generate significant amounts of revenue from providing goods or services or from membership fees, or whether it is expected to generate primarily contribution and investment revenue in the future.
C) Whether the acquired not-for-profit entity has the ability to generate significant amounts of revenues from goods or services or membership fees, as well as significant amounts of contribution revenues in the future.
D) Whether the acquired not-for-profit entity has a history of generating significant revenues of any type.
E) None of these answer choices are correct. Goodwill can only be recognized in an acquisition of a for-profit entity.

Question 33

What is the appropriate account to debit when reducing net patient service revenue as a result of arrangements with third party payors?

A) Contractual Adjustments.
B) Allowance for uncollectible and reduced accounts.
C) Patient Service Revenues.
D) Account Receivable-Patients.
E) Accounts Receivable-Third Party.

Question 34

Which of the following is not true about a merger of two not-for-profit entities?

A) The two entities will continue to legally exist but there will be a new governing board.
B) Neither entity is considered to be acquired.
C) Identifiable assets and liabilities are not adjusted to their fair values at the date of the merger.
D) The two entities will together form an entirely new entity with a new governing board.
E) There will be no acquisition value or goodwill determination.

Question 35

How are investments in equity securities with readily determinable market values, and their related unrealized gains and losses, reported by a not-for-profit entity?

A) At lower of cost or market in the Statement of Financial Position, with unrealized losses in the Statement of Activities.
B) At fair value in the Statement of Financial Position, with unrealized gains and losses in the Statement of Activities.
C) At lower of cost or market in the Statement of Financial Position, with unrealized losses in Temporarily Restricted Net Assets.
D) At original cost in the Statement of Financial Position, with unrealized gains and losses in the Statement of Activities.
E) At original cost in the Statement of Financial Position, with unrealized gains and losses disclosed in the notes to the financial statements.

Question 36

A gift to a not-for-profit school that is not restricted by the donor is recorded with a credit to:

A) Fund Balance.
B) Deferred Revenues.
C) Contribution Revenues.
D) Non-Operating Revenues.
E) Encumbrances.

Question 37

The following gifts are received in 2016 by a not-for-profit entity:
I. $2,000 specified by the donor to be used to pay salaries.
II. $10,000 specified by the donor for new conference room furniture.
III. $5,000 specified by the donor to be held for one year before being expended.
The salaries are paid in 2017 and the conference room furniture is purchased in 2016. The donor did not specify any time restriction on holding the conference room furniture.
What amount should be reclassified on the Statement of Activities for 2017 from the Temporarily Restricted column to the Unrestricted column?

A) $ 2,000.
B) $ 5,000.
C) $ 7,000.
D) $10,000.
E) $12,000.

Question 38

Which statement below is not correct for financial statements of not-for-profit entities?

A) Pledged contributions are recognized in the accounting period in which pledged by donors.
B) A not-for-profit entity's Statement of Financial Position includes a section specifically for net assets.
C) Contributed assets are recognized by a not-for-profit entity as public support contribution revenue.
D) Depreciation expense is not recognized by not-for-profit entities.
E) Not-for-profit entities issue a Statement of Activities.

Question 39

Which entry would be the correct entry on the donor's books when the donor retains control of an asset, such as cash, which it contributes to a not-for-profit entity? DEBIT CREDIT

A) Expense-charitable contribution Cash
B) Refundable advance to charity Cash
C) Charitable pledge Cash
D) Cash Liability to beneficiary
E) Cash Refundable advance

Question 40

In not-for-profit accounting, an acquisition occurs when one not-for-profit entity obtains:

A) Significant influence over another not-for-profit entity.
B) More than 50% of another not-for-profit entity's fixed assets.
C) The right to collect more than 20% of pledged contributions.
D) Control over another not-for-profit entity.
E) None of these answer choices are correct. An acquisition can only occur for profit-oriented entities.

Question 41

What term is often used by voluntary health and welfare entities as a category for resources received from contributions, as opposed to those from providing goods or services?

Question 42

For the month of December 2017, patient charges at Northfield Hospital (a not-for-profit hospital) were $2,720,000. Third-party payors were billed $1,800,000.
$520,000 of the $2,720,000 was expected to be uncollectible.
Required:
Prepare the necessary journal entry to record the anticipated uncollectible amount.

Question 43

What two classifications are used for the expenses incurred by voluntary health and welfare entities?

Question 44

For May 2018, Carlington Hospital's charges for patient services were $608,000, of which 80% was billed to third-party payors.
Required:
Prepare the journal entry to accrue patient charges for the month.

Question 45

What criteria must be met before a not-for-profit entity can recognize contributed services as a means of support?

Question 46

For the month of December 2017, patient charges at Northfield Hospital (a not-for-profit hospital) were $2,720,000. Third-party payors were billed $1,800,000.
Prepare the necessary journal entry to record the revenue and receivables.

Question 47

What is the main source of financial support for most voluntary health and welfare entities?

Question 48

For a not-for-profit entity, what are supporting services expenses?

Question 49

For the month of December 2017, patient charges at Northfield Hospital (a not-for-profit hospital) were $2,720,000. Third-party payors were billed $1,800,000.
The hospital estimated that contractual adjustments would reduce the amount collected from third-party payors to $1,710,000.
Required:
Prepare the necessary journal entry to record the contractual adjustments.

Question 50

For a not-for-profit entity, when is recognition of contributions of artworks and historical treasures not required?

Question 51

For not-for-profit entities, what is the difference in identification of "control" between a merger and an acquisition?

Question 52

For the month of December 2017, patient charges at Northfield Hospital (a not-for-profit hospital) were $2,720,000. Third-party payors were billed $1,800,000.
In this month, there were several patients that had no health insurance and due to their low income level, the hospital decided that $85,000 of receivables would not be collectible.
Required:
Prepare the necessary journal entry to reflect the decision to consider the $85,000 as charity care.

Question 53

Dura Foundation, a voluntary health and welfare entity dedicated to finding medical cures and supported by contributions from the general public, included the following costs in its Statement of Functional Expenses for the year ended December 31, 2018:

What should Dura Foundation report as program service expenses?

Question 54

How does a not-for-profit entity account for: 1) cash contributions, and 2) donated goods that are received for operating purposes? What types of revenues are recognized by voluntary health and welfare entities?

Question 55

What are the objectives of accounting for a not-for-profit entity?

Question 56

Dura Foundation, a voluntary health and welfare entity dedicated to finding medical cures and supported by contributions from the general public, included the following costs in its Statement of Functional Expenses for the year ended December 31, 2018:

What should Dura Foundation report as supporting service expenses?

Question 57

What financial statements would normally be prepared by a voluntary health and welfare entity?

Question 58

During 2017, the Garfield Humane Society, a voluntary health and welfare entity, received cash donations of $892,000 and membership dues of $62,000.A member of the Humane Society donated services valued at $8,000 that would otherwise have been performed by a paid staff member.A pet food manufacturer donated dog food valued at $16,400.The Humane Society received a gift of $140,000, to be used in building a new animal shelter.Also during 2017, investments held by the Humane Society earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for contributions from public support for 2017.

Question 59

What are third party payors? Why are their interests important in accounting for health care entities?

Question 60

How does a recipient not-for-profit entity record the receipt of a gift that will be transferred without restriction to another charitable entity? What if the donor retains the right to revoke or redirect the gift?

Question 61

A not-for-profit entity (Charity A) raises money for other charitable entities. Charity A receives $10,000 to distribute to Charity B.
Assume that the donor retains the right to revoke or redirect the gift.
Prepare the journal entries for Charity A and Charity B.The entries should be for the gift when received by Charity A, and when the gift is distributed for Charity B.

Question 62

Turnaround Childcare Agency is a private not-for-profit entity providing child care for a fee.The agency has a permanent endowment and the income may be used to sponsor families that are unable to pay for services but the principal must be preserved.In addition, various fundraising activities take place during the year.
When the agency held its annual holiday fundraiser in 2017, pledges of $50,000 were received.The administration expected 5% of the pledges to be uncollectible.
In addition, income of $10,000 was received from the permanent endowment to sponsor children to be placed with foster families.
Prepare the journal entries for these transactions.

Question 63

During 2017, the Garfield Humane Society, a voluntary health and welfare entity, received cash donations of $892,000 and membership dues of $62,000.A member of the Humane Society donated services valued at $8,000 that would otherwise have been performed by a paid staff member.A pet food manufacturer donated dog food valued at $16,400.The Humane Society received a gift of $140,000, to be used in building a new animal shelter.Also during 2017, investments held by the Humane Society earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for contributions from public support for 2017.

Question 64

During 2018, the Garfield Humane Society, a voluntary health and welfare entity, received cash donations of $892,000 and membership dues of $62,000.A member of the Humane Society donated services valued at $8,000 that would otherwise have been performed by a paid staff member.A pet food manufacturer donated dog food valued at $16,400.The Humane Society received a gift of $140,000, to be used for building a new animal shelter.Also during 2018, investments held by the Humane Society earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for contributions from public support for 2018, according to ASU 2016-14.

Question 65

The Yelton Center is a voluntary health and welfare entity.During 2017, unrestricted pledges of $780,000 were received by the Yelton Center, sixty percent of which were fulfilled in 2017.Officials estimated that fifteen percent of the original amount of pledges will be uncollectible.The remainder of the amount expected to be collected from pledges will be received in 2018 (for use in 2018).
Required:
1) Show with appropriate amounts how the Yelton Center would present the pledges on its Statement of Financial Position on the day the pledges are recorded in 2017.
2) Show with appropriate amounts the effect on net assets the Yelton Center would report for contributions for 2017.

Question 66

A not-for-profit entity provides the following information for the year 2017: Required: Prepare the journal entries for these transactions for the year 2017.

Question 67

A not-for-profit entity (Charity A) raises money for other charitable entities. Charity A receives $10,000 to distribute to Charity B.
Assume there are no donor rights to revoke or redirect the gift.
Prepare the journal entries for Charity A when the gift is received, and for Charity A and Charity B when the gift is distributed.

Question 68

Wakefield Home is a private not-for-profit health care entity offering services for a fee. In the first quarter of 2017, Wakefield Home rendered services of $300,000 to patients. Of this amount, patients bear responsibility for 75% and the remaining amount is to be paid by third-party insurance providers. However, at the end of 2017, Wakefield Home realizes that $25,000 of the patients' responsibility to pay their share of the billed amounts is estimated to be uncollectible and $3,000 of the amounts from the third-party payors will not be collected.
The Wakefield Home incurred the following liabilities that need to be recorded at the end of 2017: $110,000 salaries, $30,000 medical equipment, $10,000 utilities expense.
Prepare the journal entries for these transactions.

Question 69

A local social worker, earning $12 per hour working for the state government, contributed 600 hours of time at no charge to the Sunny Homeless Shelter, a voluntary health and welfare entity.If not for these donated services, an additional staff person would have been hired by the entity.
Required:
How should the Sunny Homeless Shelter record the contributed services?

Question 70

Wakefield Home is a private not-for-profit health care entity offering services for a fee. In the first quarter of 2017, Wakefield Home rendered services of $300,000 to patients. Of this amount, patients bear responsibility for 75% and the remaining amount is to be paid by third-party insurance providers. However, at the end of 2017, Wakefield Home realizes that $25,000 of the patients' responsibility to pay their share of the billed amounts is estimated to be uncollectible and $3,000 of the amounts from the third-party payors will not be collected.
Record the journal entries that reflect all of this information.

Question 71

A not-for-profit entity receives a computer as a donation (valued at $2,000).Prepare the journal entry for the transaction.

Question 72

Wakefield Home is a private not-for-profit health care entity offering services for a fee. In the first quarter of 2017, Wakefield Home rendered services of $300,000 to patients. Of this amount, patients bear responsibility for 75% and the remaining amount is to be paid by third-party insurance providers. However, at the end of 2017, Wakefield Home realizes that $25,000 of the patients' responsibility to pay their share of the billed amounts is estimated to be uncollectible and $3,000 of the amounts from the third-party payors will not be collected.
A local business donated medical supplies to Wakefield Home with a value of $40,000.
Prepare the journal entry for the receipt of these supplies.