Deck 15: Accounting for Colleges and Universities

Question 1

The accrual basis of accounting is used to record revenues and expenses of both public business-type and private colleges and universities.

Answer 1

True

Question 2

The Uniform Prudent Management of Institutional Funds Act (UPMIFA) applies primarily to colleges and universities.

Answer 2

False

Question 3

An annuity agreement requires that a college pay the donor (or other designated individual) a fixed dollar amount at specified time intervals.

Answer 3

True

Question 4

Receipt of a $500,000 gift by a private college that must be invested, the earning of which are to be used to support a "chaired" professorship in accounting, would be recorded as an increase in net assets with donor restrictions.

Question 5

Private colleges report intangible assets as a separate asset classification; whereas, public colleges report intangible assets as part of the capital asset classification.

Question 6

Earnings on a private college's endowment investments may increase net assets without donor restrictions or net assets with donor restrictions, or both.

Question 7

The National Association of College and University Business Officers (NACUBO) provides second-tier GAAP for private colleges and universities.

Question 8

Private colleges and universities report term endowments as net assets with donor restrictions until the term has expired.

Question 9

Under GASB standards, public colleges and universities are considered general purpose governments.

Question 10

Term endowments are donor restricted resources whose principal is to be maintained intact until the happening of a particular event or the passage of a stated period of time.

Question 11

A private university following the recommendations of the National Association of College and University Business Officers (NACUBO) chart of accounts for reporting expenses must disclose expenses by program and support function in the notes.

Question 12

Both public and private universities report an infrastructure classification.

Question 13

Loan assets represent loans made by a university to an external organization, and would be recorded by debiting Investments.

Question 14

A statement of cash flows is required by GAAP for both private colleges and universities and public colleges and universities engaged in business-type activities.

Question 15

A private college would record a federal grant received to test a medical device that the federal government intends to patent as Contributions-With Donor Restrictions.

Question 16

Tuition refunds are recorded by debiting Tuition and Fees-Unrestricted.

Question 17

Contributions with no eligibility requirement restricted by an external donor for a particular operating purpose would be reported as increases to restricted fund balances by a public college or university and as an addition to net assets with donor restrictions by a private college or university.

Question 18

The organizational form of a college can be governmental, nongovernmental not-for-profit, or for-profit.

Question 19

Nongovernmental (private) colleges and universities should follow FASB standards; governmental (public) colleges and universities should follow GASB standards.

Question 20

Public colleges and universities that use business-type reporting must present segment information in the notes to the financial statements.

Question 21

It would not make economic sense for a university to accept a split-interest agreement in which a fixed annuity is payable to the donor if:

A) The donor has attached conditions to the gift.
B) The university has no immediate need for the assets.
C) The sum of future annuity payments plus interest thereon exceeds the fair market value of the assets.
D) The present value of the future annuity payments and other liabilities exceed the fair market value of the assets.

Question 22

Colleges and universities will report tuition waivers as either a contra-revenue account or an expense, depending on the purpose for which the waiver is given.

Question 23

Colleges and universities frequently present outcome measures rather than output measures.

Question 24

The FASB requires that private colleges and universities prepare which of the following financial statements?

A) A statement of net position.
B) A statement of net changes in financial position.
C) A statement of activities.
D) The FASB requires private colleges and universities to prepare all of the above statements.

Question 25

Which of the following statements is True regarding generally accepted accounting principles (GAAP) for colleges and universities?

A) The FASB has set standards for private and public colleges and universities from the time of its inception in 1974.
B) The National Association of Colleges and University Business Officers (NACUBO) provides category (b) accounting principles under the FASB GAAP hierarchy.
C) Public and private colleges and universities are subject to the requirements in the AICPA audit and accounting guide for Not-for-Profit Entities.
D) The GASB is responsible for establishing GAAP for public colleges and universities.

Question 26

Which of the following receipts may properly be accounted for as an increase in net assets without donor restrictions by a private college?

A) Student tuition and fees.
B) Gift from an alumnus for a new college of business building.
C) Federal grant for genetic research.
D) Acceptance of assets, the income from which will be paid to the donor.

Question 27

Which of the following is required as part of a complete set of financial statements for a public college or university engaged only in business-type activities?

A) Statement of changes in operations.
B) Statement of revenues, expenses, and changes in net position.
C) Statement of activities.
D) Statement of functional expenses.

Question 28

GASB accounting and reporting standards applicable to public colleges and universities:

A) Are now the same as FASB standards to permit comparability between public and private colleges and universities.
B) Permit public colleges and universities to use the AICPA model which differs substantially from the reporting model used by private colleges and universities subject to FASB jurisdiction.
C) Permit public colleges and universities to optionally follow FASB standards.
D) Differ in some significant ways from FASB standards applicable to private colleges and universities.

Question 29

A college has collected returnable dormitory room deposits from students. How would these deposits be reported by the college?

A) A current liability.
B) Unrestricted revenue.
C) Restricted revenue.
D) A long-term liability.

Question 30

Cactus College, a small private college, received a research grant from NACUBO to study whether service efforts and accomplishments measures improve institutional performance. In accordance with FASB standards the grant would be reported as an increase in:

A) Net assets without donor restrictions.
B) Net assets with donor restrictions.
C) Deferred revenue.
D) Board-designated net assets.

Question 31

What type of college or university must report expenses by functional classification?

A) Both private and public colleges and universities.
B) Private colleges and universities.
C) Public colleges and universities.
D) Neither private nor public colleges and universities.

Question 32

Colleges and universities often make loans to students. How would these loans be reported on the financial statements?

A) An expense.
B) A receivable.
C) A liability.
D) An investment.

Question 33

A private college would report which of the following assets differently than a public college?

A) Land.
B) Intangible assets.
C) Collections.
D) Equipment.

Question 34

Only public colleges and universities are subject to the federal single audit requirements.

Question 35

Which of the following items would not affect the amounts reported in the Revenues and Gains section of the statement of activities for a private college or university?

A) Student tuition and fees.
B) Tuition and fees discounts and allowances.
C) Net assets released from restriction.
D) Deferred revenues.

Question 36

The college scorecard allows students and parents to assess colleges' and universities' performance based on metrics such as affordability and graduation rates.

Question 37

The Uniform Prudent Management of Institutional Funds Act specifies the spending rate a not-for-profit should use when establishing its expenditure policies.

Question 38

An example of a college outcome performance metric would be performance on nationally ranked exams such as the CPA exam.

Question 39

Which of the following statements is required for both a private university and a governmentally owned public university engaged only in business-type activities?

A) Statement of cash flows.
B) Statement of net position.
C) Statement of activities.
D) Statement of revenues, expenses, and changes in net position.

Question 40

A split-interest agreement is when the university and another beneficiary share in the benefits from a donor's gift.

Question 41

During the years ended June 30, 2020 and 2021, Jackson University, a private university, conducted a cancer research project financed by a $1,000,000 gift from an alumnus. The entire amount was pledged by the donor on July 10, 2019. The gift was restricted to the financing of this particular research project. During the two-year research period, Jackson's gift receipts from the alumnus and research expenses related to the research project were as follows for each fiscal year (FY):
What amount of net assets was released from restriction in 2020?

A) $200,000.
B) $100,000.
C) $1,000,000.
D) $0.

Question 42

An alumnus donates securities to a private college and stipulates that the principal be held in perpetuity and income from the securities be used for faculty travel. Dividends received from the securities should be recognized as increases in:

A) Endowments.
B) Net assets without donor restrictions.
C) Deferred revenue.
D) Net assets with donor restrictions.

Question 43

The composite financial index (CFI), a measure of financial health for colleges and universities, includes which of the following ratios?

A) Primary reserve ratio.
B) Net operating revenues ratio.
C) Return on net assets ratio.
D) All of these ratios are included in the CFI.

Question 44

Which of the following statements about the Uniform Prudent Management of Institutional Funds Act (UPMIFA) is correct?

A) It establishes a maximum total return rate for investments.
B) It requires that the spending rate for the return on investments be no more than five percent.
C) It allows institutions to release net assets from restrictions if certain criteria are met.
D) It requires that specific policies concerning solicitation of donations be established.

Question 45

Which of the following measures may be useful to decision makers evaluating the financial condition of a college or university?

A) Number of graduates.
B) Composite financial index.
C) Faculty productivity.
D) Graduation rate.

Question 46

Which of the following is a typical classification of a functional expense in a college or university?

A) Academic wages and benefits.
B) Student support.
C) Institutional support.
D) Depreciation.

Question 47

How would a private college or university report its estimate for uncollectible tuition and fees on its statement of activities?

A) A contra-revenue account titled Provision for Doubtful Accounts.
B) A direct reduction of Tuition and Fees-Unrestricted.
C) An operating expense titled Provision for Doubtful Accounts.
D) An operating expense titled Bad Debt Expense.

Question 48

Tuition scholarships for which there is no intention of performance from the student should be classified by a private university as

A) Reductions of gross revenue to arrive at net revenue.
B) Not recognized in the financial statement.
C) Increases in expenditures.
D) Reductions of gross revenue or as expenses provided they are consistently classified in the same manner from year to year.

Question 49

The Academy, a private college, provided tuition waivers of $500,000. Of the amount $200,000 was for students teaching courses as graduate assistants and $300,000 was simply an award for scholastic accomplishments. Another $100,000 was given is tuition refunds. What amount would The Academy record as Tuition and Fees Discounts and Allowances?

A) $600,000.
B) $500,000.
C) $400,000.
D) $300,000.

Question 50

During the year ended June 30, 2020, Hopkins College, a private college, received a federal government grant of $800,000 for research on the role of music in improving math skills for students. Expenses that were not capital in nature for this research amounted to $100,000 during the same year. Under FASB standards, which of the following best represents how Hopkins College would report this nonexchange transaction in the net assets section for the year ended June 30, 2020?
A.
B.
C.
D.

A) Choice A.
B) Choice B
C) Choice C.
D) Choice D.

Question 51

Culver City College, a public college, has a 10-week summer session that starts on June 25, 2020, so that one week is held during FY 2020 and the other nine weeks meet during FY 2021. Tuition and fees in the amount of $1,000,000 were collected from students for classes to be conducted in this session. What amount should Culver City College recognize as unrestricted revenue in each of the years ended (FYE) June 30, 2020 and June 30, 2021?           
A. $\$ \quad 100,000\quad \$ \quad 900,000$
B.
C.
D. $\$ \quad 500,000 \quad \$ \quad 500,000$

A) Choice A.
B) Choice B.
C) Choice C.
D) Choice D.

Question 52

Prepare in general journal form the entries required for each of the following selected transactions of Northern University, a state-funded public institution engaged only in business-type activities. Some of these transactions are related and some are not. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) 
1. A generous alumnus donated $300,000 that can only be used for research on diabetes. The full $300,000 was received in the current fiscal year.
2. During the current fiscal year, expenses of $150,000 were made in cash for diabetes research (see item 1 above).
3. $2,000,000 in long-term bonds was issued to construct a new parking garage on campus.
4. During the current fiscal year, the parking garage (see item 3 above) was partially completed at a total cash expenditure of $1,800,000.
5. During the current fiscal year, interest was paid in the amount of $120,000 on the long-term bonds issued for the parking garage project (see item 3 above).

Question 53

During the years ended June 30, 2020 and 2021, Jackson University, a private university, conducted a cancer research project financed by a $1,000,000 gift from an alumnus. The entire amount was pledged by the donor on July 10, 2019. The gift was restricted to the financing of this particular research project. During the two-year research period, Jackson's gift receipts from the alumnus and research expenses related to the research project were as follows for each fiscal year (FY):
How much had net assets with donor restrictions increased as of the end of FY 2021?

A) $1,000,000.
B) $100,000.
C) $(100,000).
D) $0.

Question 54

A private university receives $1,000,000 in the current fiscal year as a grant restricted for a specific research project and incurs expenses of $400,000 related to the research project during the current fiscal year. Make all necessary journal entries to record the transactions related to the grant for the current fiscal year.
Prepare journal entries to record the transactions related to the grant for the current fiscal year. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Question 55

For each of the following definitions, indicate the key term from the list that best matches by placing the appropriate definition.
A. Term endowments
B. Annuity agreements
C. Collections
D. Pooled life income agreements
E. Spending rate
F. Total return
________1. Agreements to pay the donor the income earned by assets donated to an organization over the specified beneficiary's lifetime
________ 2. A comprehensive measure of the rate of investment return, which includes unrealized and realized gains and losses, as well as interest and dividend income
________ 3. A contribution that must be retained intact until the happening of a specific event or the passage of a stated period of time
________ 4. The proportion of total return that may prudently be used by an institution for current purposes
________ 5. Agreement to pay stipulated amounts periodically to the donor of assets by the recipient organization

Question 56

State educational appropriations received by a public university are classified as which of the following on the statement of revenues, expenses, and changes in net position?

A) Nonoperating revenue.
B) Operating revenue.
C) Other financing source.
D) Increase in unrestricted net position.

Question 57

Manthei University, a private university, has provided the following information concerning selected transactions. Prepare in general journal form the entries required for each of the transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
1. The university was awarded a federal grant in the amount of $1,800,000 to be used for a specified research project (determined to be a nonexchange transaction). During the year the entire $1,800,000 was received and expenses for the specified project totaled $1,000,000.
2. Ira Beaker, a renowned chemist and alumnus, donated $7,000,000 to be used for the construction of new chemistry building to be named Beaker Hall. The gift is to be paid to the university in equal installments over a two-year period; the sum for the current year was received in cash.
3. Cash outlays of $2,750,000 were made during the year for construction in progress on the new chemistry building. Other construction projects completed during the year, also financed by restricted resources, amounted to $1,500,000 for buildings and $500,000 for improvements other than buildings. There was no debt financing used for these projects.
4. During the year bonds with a face value of $180,000 were retired.

Question 58

How would estimated uncollectible tuition and fees be reported on the financial statements of a university? I. It would be reported as part of net revenue by a public university.
II) It would be reported as an operating expense by a public university.
III) It would be reported as an operating expense by a private university.

A) I only.
B) II only.
C) III only.
D) Both I and III are correct methods of reporting estimated uncollectible tuition and fees.

Question 59

Which of the following is not a classification of revenues for a college or university as recommended by the National Association of College and University Business Officers (NACUBO)?

A) Sporting events.
B) State appropriations.
C) Investment income.
D) Contributions.

Question 60

Which of the following statements concerning the audits of colleges and universities is True?

A) Both public and private colleges and universities are subject to a single audit if they expend over $750,000 in federal funds in a fiscal year.
B) The nongovernmental nature of public colleges and universities means they are exempt from the requirements of the single audit, but they are required to have an audit conducted under generally accepted auditing standards.
C) Public colleges and universities are exempt from the requirements of the single audit, but they are required to follow the Uniform Guidance to ensure only allowable costs are charged to federal grants.
D) Both public and private colleges and universities are exempt from the requirements of the single audit, but they are both required to follow the Uniform Guidance to ensure only allowable costs are charged to federal grants.

Question 61

If a private university receives $1,000,000 in the current fiscal year as a grant restricted for a specific research project and makes expenditures amounting to $400,000 during the current fiscal year properly chargeable to the grant, how much should be reported as revenues in the current fiscal year? Explain.

Question 62

"Tuition and fees should be recorded as revenues of colleges and universities even though they must be reported net of tuition refunds, scholarships, and fellowships." Do you agree or disagree with this statement? If you disagree, explain how refunds, scholarships, and fellowships should be recorded.

Question 63

Refunds of college or university tuition or fees should be recorded as expenses in the period in which they are made. Do you agree? Why or why not?