Deck 15: Accounting for Colleges and Universities

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Question
The ratio unrestricted net assets as a percent of operating expenses is helpful in determining if the not-for-profit organization can cover its debt service expense.
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Question
Which of the following not-for-profit organizations is most likely to be tax-exempt under IRC Sec.501(c)(3)?

A)Beta Kappa Alpha Sorority.
B)Peaceful Dreams Cemetery Association.
C)Regional Association of Tree Trimmers.
D)Survivors of Breast Cancer Club.
Question
A state has the obligation to monitor and regulate a not-for-profit (NPO)organization because it granted the NPO tax-exempt status through the not-for-profit corporation laws.
Question
One of the limitations of financial ratio analysis for not-for-profit organizations is that donors may incorrectly assume that there are federal or state laws that govern the percentage of annual revenues that a charity must spend on its programs.
Question
"Excess benefit transactions" are those in which persons who have substantial influence over the not-for-profit organization engage in transactions that result in economic benefits to them that are excessive,such as unreasonable compensation,sale of assets at bargain prices,and lease arrangements.
Question
The purpose of the Internal Revenue Service's 2008 revision of the Form 990 is to simplify and shorten the form so that it takes less time for not-for-profit organizations to complete.
Question
Not-for-profit corporations cannot lobby or attempt to influence legislation or politicians.
Question
Many states have worked closely to have uniform policies relating to not-for-profit organizations in the areas of not-for-profit incorporation,charitable solicitation,investing funds,and protecting volunteers.
Question
The unrelated business income tax could be a significant cost and therefore should be of concern to tax-exempt organizations.
Question
Performance measures that can be used to evaluate not-for-profit organizations include percentage of total expenses spent on the programs versus on supporting the programs and total dollars raised for fund-raising dollars spent.
Question
If a tax-exempt organization dissolves and goes out of business,it must distribute its assets to another tax-exempt organization.
Question
Tax-exempt organizations must complete a Form 990 and send it to the Internal Revenue Service

A)Only if they have unrelated business income.
B)If they are nongovernmental and not a church.
C)Whether they are governmental or nongovernmental.
D)Only if they are a private foundation,not a public charity.
Question
Not-for-profit organizations risk loss of their tax-exempt status if they engage in any political activity.
Question
Which of the following is a not a true statement about tax-exempt organizations?

A)They must be organized to serve the charitable needs of the public at large.
B)They must first become a not-for-profit corporation or charitable trust.
C)They are permitted to do some political lobbying if guidelines are met.
D)Their unrelated business income is taxed at corporate income tax rates.
Question
Intermediate sanctions are often imposed by the Internal Revenue Service,in addition to revoking the tax-exempt status for organizations that confer excessive economic benefits on persons with substantial influence over the organization.
Question
Board members of a not-for-profit organization have a fiduciary responsibility to provide fiscal guidance and ongoing governance over the not-for-profit organization to ensure that its exempt mission is carried out as described in the incorporating documents and exempt application.
Question
The not-for-profit organization applying for tax-exempt status determines the appropriate subsection under IRC Sec.501 for which it wants to be considered and the Internal Revenue Service then approves or does not approve the application.
Question
All officers of a not-for-profit organization have the same responsibilities to the organization and its constituents.
Question
The federal government's primary objective in regulating not-for-profit organizations through the income tax laws is to limit the number of exempt organizations that operate at any one point in time.
Question
Not-for-profit organizations are so diverse in nature that it is not feasible to find benchmarks with which to compare their financial and operating performance.
Question
A good measure of whether a not-for-profit organization is spending too much on overhead,such as general and administrative expenses,is

A)Percentage of unrestricted net assets to operating expenses.
B)Current ratio.
C)Total revenues divided by total expenses.
D)Percentage of total expenses spent on the program function as opposed to supporting the programs.
Question
The following are key terms in Chapter 15 that relate to regulatory and taxation issues of not-for-profit organizations:
A.Unrelated business income
B.Public charity
C.Gifts in kind
D.Lobbying
E.Debt financed income
F.Private foundation
G.Expenditure responsibility
H.Propaganda
For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition The following are key terms in Chapter 15 that relate to regulatory and taxation issues of not-for-profit organizations: A.Unrelated business income B.Public charity C.Gifts in kind D.Lobbying E.Debt financed income F.Private foundation G.Expenditure responsibility H.Propaganda For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition  <div style=padding-top: 35px>
Question
All of the following are reasons why the Internal Revenue Service (IRS)overhauled the Form 990 for tax years beginning in 2008 except

A)To minimize the burden of filing on tax-exempt organizations.
B)To shorten the time it takes to complete a return for large not-for-profit organizations.
C)To enhance transparency about the organization.
D)To allow the IRS to efficiently assess noncompliance.
Question
Describe the process for becoming a tax-exempt organization.Why is it important for an accountant to understand this process?
Question
The following are types of ratios described in Chapter 15 that can be used to assess the financial performance of not-for-profit organizations:
A.Liquidity
B.Going concern
C.Capital structure
D.Program effectiveness
E.Efficiency
F.Leverage and debt coverage
G.Fund-raising efficiency
H.Investment performance
For each of the following performance indicators,indicate the type of ratio from the list above that best matches by placing the appropriate letter in the blank space next to the phrase. The following are types of ratios described in Chapter 15 that can be used to assess the financial performance of not-for-profit organizations: A.Liquidity B.Going concern C.Capital structure D.Program effectiveness E.Efficiency F.Leverage and debt coverage G.Fund-raising efficiency H.Investment performance For each of the following performance indicators,indicate the type of ratio from the list above that best matches by placing the appropriate letter in the blank space next to the phrase.  <div style=padding-top: 35px>
Question
A good measure of whether a not-for-profit organization is a "going concern" and can sustain its operations into the future is

A)Total revenues divided by assets.
B)Percentage of unrestricted net assets to operating expenses.
C)Percentage of total expenses spent on the program function as opposed to support function.
D)Public support divided by total fund-raising expenses.
Question
Which of the following is a reason why an NPO might fail to qualify for tax-exempt status?

A)It is operated primarily for the benefit of its members.
B)Its officers are paid excessive wages.
C)Its primary purpose is to promote the passage of legislation favorable to institutions of higher education.
D)It has unrelated business income.
Question
Public disclosure rules require that a tax-exempt not-for-profit organization

A)Provide a copy of its Form 990 immediately to any person who comes into the office and requests it.
B)Provide a copy of its articles of incorporation and by-laws to any person who requests it in writing.
C)Provide a copy of the minutes to all board meetings to any person who requests such documents in writing.
D)Provide a copy of its Form 990-T,but not its Form 990,to any person who requests it.
Question
The incorporating documents that have an internal focus and describe the functional rules of the organization are the

A)IRS Forms 990.
B)By-laws.
C)Minutes of the board meetings.
D)Articles of incorporation.
Question
The incorporating documents that have an external focus and describe the purpose of the organization without being too restrictive are called

A)By-laws.
B)IRS Form 990.
C)Articles of incorporation.
D)Minutes of the board meetings.
Question
The Internal Revenue Service may impose intermediate sanctions on all of the following transactions between a not-for-profit organization and its executive officer except

A)Excessive compensation.
B)More than the fair rental value for property owned by the officer.
C)A bargain on the sale of assets.
D)Fringe benefits comparable to those given to all employees.
Question
A good measure of whether a not-for-profit organization is efficient in its fund-raising efforts is

A)Public support as a percentage of fund-raising expenses.
B)Current ratio.
C)Total revenues divided by total expenses.
D)Percentage of total expenses spent on the program function as opposed to support function.
Question
A tax-exempt organization that receives its support primarily from a large number of individuals or corporations and a relatively small amount from investment income is called a

A)Public charity.
B)Private foundation.
C)Public foundation.
D)Voluntary health and welfare organization.
Question
Explain why Congress enacted the "intermediate sanctions" legislation in 1996.
Question
The income most likely to be considered unrelated business income of a human service organization that provides immunizations to children in the community is

A)Rental of extra space in the building.
B)Regular sale of sweatshirts with the organization's logo on it at a price considerably above cost.
C)Interest and dividend income on investments.
D)Gain on the sale of equipment no longer needed by the organization.
Question
Your client is a nongovernmental not-for-profit museum that operates a gift shop.Explain the unrelated business income tax to your client and suggest ways to avoid this tax.
Question
All of the following are examples of acts or policies that are uniform across the United Stated for not-for-profit organizations except

A)Uniform Prudent Management of Investment Funds Act of 2006.
B)Model Charitable Solicitation Act.
C)Uniform Executive Compensation Act.
D)Volunteer Protection Act of 1997.
Question
A good measure of whether a not-for-profit organization is "liquid" and can meet its short-term obligations is

A)Percentage of total expenses spent on the program function as opposed to support function.
B)Total revenues divided by total expenses.
C)Current assets divided by current liabilities.
D)Percentage of unrestricted net assets to operating expenses.
Question
Why do states and the federal government exercise oversight responsibility over not-for-profit,tax-exempt corporations? How do states and the federal government differ in the way they exercise this responsibility?
Question
The term that means information skewed toward a particular belief with a tendency to have little or no factual basis is

A)Political influence.
B)Legislation.
C)Propaganda.
D)Lobbying.
Question
Describe the difficulty in comparing the financial performance of a not-for-profit organization to other similar organizations.What benchmarks are available to assist in this task?
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Deck 15: Accounting for Colleges and Universities
1
The ratio unrestricted net assets as a percent of operating expenses is helpful in determining if the not-for-profit organization can cover its debt service expense.
False
Explanation: Unrestricted net assets divided by operating expenses can be used to assess whether the not-for-profit organization is a going concern, but a better measure to determine if the not-for-profit organization's debt service expense is adequately covered by income is revenue, support, gain plus interest and depreciation expense divided by annual debt service expense.
2
Which of the following not-for-profit organizations is most likely to be tax-exempt under IRC Sec.501(c)(3)?

A)Beta Kappa Alpha Sorority.
B)Peaceful Dreams Cemetery Association.
C)Regional Association of Tree Trimmers.
D)Survivors of Breast Cancer Club.
D
3
A state has the obligation to monitor and regulate a not-for-profit (NPO)organization because it granted the NPO tax-exempt status through the not-for-profit corporation laws.
False
Explanation: States grant a not-for-profit organization its legal life, separate from the incorporators, just as commercial businesses apply to the state to become corporations. It is the federal government, through tax laws and the Internal Revenue Service that grants not-for-profit organizations tax-exempt status.
4
One of the limitations of financial ratio analysis for not-for-profit organizations is that donors may incorrectly assume that there are federal or state laws that govern the percentage of annual revenues that a charity must spend on its programs.
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5
"Excess benefit transactions" are those in which persons who have substantial influence over the not-for-profit organization engage in transactions that result in economic benefits to them that are excessive,such as unreasonable compensation,sale of assets at bargain prices,and lease arrangements.
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6
The purpose of the Internal Revenue Service's 2008 revision of the Form 990 is to simplify and shorten the form so that it takes less time for not-for-profit organizations to complete.
Unlock Deck
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k this deck
7
Not-for-profit corporations cannot lobby or attempt to influence legislation or politicians.
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8
Many states have worked closely to have uniform policies relating to not-for-profit organizations in the areas of not-for-profit incorporation,charitable solicitation,investing funds,and protecting volunteers.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
9
The unrelated business income tax could be a significant cost and therefore should be of concern to tax-exempt organizations.
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k this deck
10
Performance measures that can be used to evaluate not-for-profit organizations include percentage of total expenses spent on the programs versus on supporting the programs and total dollars raised for fund-raising dollars spent.
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11
If a tax-exempt organization dissolves and goes out of business,it must distribute its assets to another tax-exempt organization.
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Unlock for access to all 41 flashcards in this deck.
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k this deck
12
Tax-exempt organizations must complete a Form 990 and send it to the Internal Revenue Service

A)Only if they have unrelated business income.
B)If they are nongovernmental and not a church.
C)Whether they are governmental or nongovernmental.
D)Only if they are a private foundation,not a public charity.
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13
Not-for-profit organizations risk loss of their tax-exempt status if they engage in any political activity.
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Unlock for access to all 41 flashcards in this deck.
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k this deck
14
Which of the following is a not a true statement about tax-exempt organizations?

A)They must be organized to serve the charitable needs of the public at large.
B)They must first become a not-for-profit corporation or charitable trust.
C)They are permitted to do some political lobbying if guidelines are met.
D)Their unrelated business income is taxed at corporate income tax rates.
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Unlock for access to all 41 flashcards in this deck.
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15
Intermediate sanctions are often imposed by the Internal Revenue Service,in addition to revoking the tax-exempt status for organizations that confer excessive economic benefits on persons with substantial influence over the organization.
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k this deck
16
Board members of a not-for-profit organization have a fiduciary responsibility to provide fiscal guidance and ongoing governance over the not-for-profit organization to ensure that its exempt mission is carried out as described in the incorporating documents and exempt application.
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k this deck
17
The not-for-profit organization applying for tax-exempt status determines the appropriate subsection under IRC Sec.501 for which it wants to be considered and the Internal Revenue Service then approves or does not approve the application.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
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k this deck
18
All officers of a not-for-profit organization have the same responsibilities to the organization and its constituents.
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k this deck
19
The federal government's primary objective in regulating not-for-profit organizations through the income tax laws is to limit the number of exempt organizations that operate at any one point in time.
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k this deck
20
Not-for-profit organizations are so diverse in nature that it is not feasible to find benchmarks with which to compare their financial and operating performance.
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Unlock for access to all 41 flashcards in this deck.
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k this deck
21
A good measure of whether a not-for-profit organization is spending too much on overhead,such as general and administrative expenses,is

A)Percentage of unrestricted net assets to operating expenses.
B)Current ratio.
C)Total revenues divided by total expenses.
D)Percentage of total expenses spent on the program function as opposed to supporting the programs.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
22
The following are key terms in Chapter 15 that relate to regulatory and taxation issues of not-for-profit organizations:
A.Unrelated business income
B.Public charity
C.Gifts in kind
D.Lobbying
E.Debt financed income
F.Private foundation
G.Expenditure responsibility
H.Propaganda
For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition The following are key terms in Chapter 15 that relate to regulatory and taxation issues of not-for-profit organizations: A.Unrelated business income B.Public charity C.Gifts in kind D.Lobbying E.Debt financed income F.Private foundation G.Expenditure responsibility H.Propaganda For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition
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k this deck
23
All of the following are reasons why the Internal Revenue Service (IRS)overhauled the Form 990 for tax years beginning in 2008 except

A)To minimize the burden of filing on tax-exempt organizations.
B)To shorten the time it takes to complete a return for large not-for-profit organizations.
C)To enhance transparency about the organization.
D)To allow the IRS to efficiently assess noncompliance.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
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k this deck
24
Describe the process for becoming a tax-exempt organization.Why is it important for an accountant to understand this process?
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Unlock for access to all 41 flashcards in this deck.
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k this deck
25
The following are types of ratios described in Chapter 15 that can be used to assess the financial performance of not-for-profit organizations:
A.Liquidity
B.Going concern
C.Capital structure
D.Program effectiveness
E.Efficiency
F.Leverage and debt coverage
G.Fund-raising efficiency
H.Investment performance
For each of the following performance indicators,indicate the type of ratio from the list above that best matches by placing the appropriate letter in the blank space next to the phrase. The following are types of ratios described in Chapter 15 that can be used to assess the financial performance of not-for-profit organizations: A.Liquidity B.Going concern C.Capital structure D.Program effectiveness E.Efficiency F.Leverage and debt coverage G.Fund-raising efficiency H.Investment performance For each of the following performance indicators,indicate the type of ratio from the list above that best matches by placing the appropriate letter in the blank space next to the phrase.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
26
A good measure of whether a not-for-profit organization is a "going concern" and can sustain its operations into the future is

A)Total revenues divided by assets.
B)Percentage of unrestricted net assets to operating expenses.
C)Percentage of total expenses spent on the program function as opposed to support function.
D)Public support divided by total fund-raising expenses.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
27
Which of the following is a reason why an NPO might fail to qualify for tax-exempt status?

A)It is operated primarily for the benefit of its members.
B)Its officers are paid excessive wages.
C)Its primary purpose is to promote the passage of legislation favorable to institutions of higher education.
D)It has unrelated business income.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
28
Public disclosure rules require that a tax-exempt not-for-profit organization

A)Provide a copy of its Form 990 immediately to any person who comes into the office and requests it.
B)Provide a copy of its articles of incorporation and by-laws to any person who requests it in writing.
C)Provide a copy of the minutes to all board meetings to any person who requests such documents in writing.
D)Provide a copy of its Form 990-T,but not its Form 990,to any person who requests it.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
29
The incorporating documents that have an internal focus and describe the functional rules of the organization are the

A)IRS Forms 990.
B)By-laws.
C)Minutes of the board meetings.
D)Articles of incorporation.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
30
The incorporating documents that have an external focus and describe the purpose of the organization without being too restrictive are called

A)By-laws.
B)IRS Form 990.
C)Articles of incorporation.
D)Minutes of the board meetings.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
31
The Internal Revenue Service may impose intermediate sanctions on all of the following transactions between a not-for-profit organization and its executive officer except

A)Excessive compensation.
B)More than the fair rental value for property owned by the officer.
C)A bargain on the sale of assets.
D)Fringe benefits comparable to those given to all employees.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
32
A good measure of whether a not-for-profit organization is efficient in its fund-raising efforts is

A)Public support as a percentage of fund-raising expenses.
B)Current ratio.
C)Total revenues divided by total expenses.
D)Percentage of total expenses spent on the program function as opposed to support function.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
33
A tax-exempt organization that receives its support primarily from a large number of individuals or corporations and a relatively small amount from investment income is called a

A)Public charity.
B)Private foundation.
C)Public foundation.
D)Voluntary health and welfare organization.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
34
Explain why Congress enacted the "intermediate sanctions" legislation in 1996.
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k this deck
35
The income most likely to be considered unrelated business income of a human service organization that provides immunizations to children in the community is

A)Rental of extra space in the building.
B)Regular sale of sweatshirts with the organization's logo on it at a price considerably above cost.
C)Interest and dividend income on investments.
D)Gain on the sale of equipment no longer needed by the organization.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
36
Your client is a nongovernmental not-for-profit museum that operates a gift shop.Explain the unrelated business income tax to your client and suggest ways to avoid this tax.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
37
All of the following are examples of acts or policies that are uniform across the United Stated for not-for-profit organizations except

A)Uniform Prudent Management of Investment Funds Act of 2006.
B)Model Charitable Solicitation Act.
C)Uniform Executive Compensation Act.
D)Volunteer Protection Act of 1997.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
38
A good measure of whether a not-for-profit organization is "liquid" and can meet its short-term obligations is

A)Percentage of total expenses spent on the program function as opposed to support function.
B)Total revenues divided by total expenses.
C)Current assets divided by current liabilities.
D)Percentage of unrestricted net assets to operating expenses.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
39
Why do states and the federal government exercise oversight responsibility over not-for-profit,tax-exempt corporations? How do states and the federal government differ in the way they exercise this responsibility?
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Unlock for access to all 41 flashcards in this deck.
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k this deck
40
The term that means information skewed toward a particular belief with a tendency to have little or no factual basis is

A)Political influence.
B)Legislation.
C)Propaganda.
D)Lobbying.
Unlock Deck
Unlock for access to all 41 flashcards in this deck.
Unlock Deck
k this deck
41
Describe the difficulty in comparing the financial performance of a not-for-profit organization to other similar organizations.What benchmarks are available to assist in this task?
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