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Chapter 15 Accounting for Colleges and Universities     True / False Questions   1

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Chapter 15

Accounting for Colleges and Universities

 

 

True / False Questions

 

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

 

True    False

 

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

 

 True    False

 

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

 

True    False

 

4.         A private college would record a federal grant received to test a medical device that the federal government intends to patent as Contributions—Temporarily Restricted. 

 

True    False

 

5.         Contributions or grants 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 engaged only in business-type activities and as an addition to temporarily restricted net assets by a private college or university. 

 

True    False

 

6.         Tuition refunds are recorded by debiting Tuition and Fees—Unrestricted. 

 

True    False

 

7.         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. 

 

True    False

 

8.         Assets set aside for an endowment by a university governing board would be reported as unrestricted. 

 

True    False

 9.        Earnings on a private college's endowment investments may increase unrestricted or temporarily restricted net assets, or both. 

 

True    False

 

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

 

True    False

 

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

 

True    False

 

12.       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. 

 

True    False

 

13.       Private colleges and universities report term endowments as permanently restricted net assets until the term has expired.

 

True    False

 

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

 

True    False

 

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

 

True    False

 

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

 

True    False

 

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

 

True    False

 

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

 

True    False

 

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

 

True    False

 

20.       Both public and private universities report an infrastructure classification.

 

True    False

 

21.       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.

 

True    False

 

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

 

True    False

 

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

 

True    False

 

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

 

True    False

 

25.       The federal government is considering a national ranking system in which colleges and universities would be ranked on affordability, among other factors.

 

True    False

 

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

 

True    False

 

 

 

Multiple Choice Questions

 

27.       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 College 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.

 

 

28.       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.

 

 

29.       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.

 

 

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

 

A.        Land.

B.        Intangible assets.

C.        Collections.

D.        Equipment.

 

 

31.       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.        Unrestricted net assets.

B.        Temporarily restricted net assets.

C.        Permanently restricted net assets.

D.        Unrestricted designated net assets.

 

 

32.       Which of the following receipts may properly be accounted for as an increase in unrestricted net assets 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.

 

 

33.       Economic rationality would argue against a university accepting 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.

 

 

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

 

A.        A statement of functional expenses.

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.

 

 

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.

 

 

36.       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.

 

 

37.       Which of the following is required as part of a complete set of financial statements for a public college or university? 

 

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.

 

 

38.       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.

 

 

39.       Which of the following statements usually will not be included in the annual financial report of 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.

 

 

40.       A tuition scholarship for which a private university expects no service on the part of the student should be classified as which of the following?

 

A.        A contra-revenue.

B.        A revenue and an expense.

C.        A revenue and expenditure.

D.        The method of classification is up to the university provided the method is consistently applied each year.

 

 

41.       Culver City College, a public college, has a 10-week summer session that starts on June 25, 2017, so that one week is held during FY 2017 and the other nine weeks meet during FY 2018. 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, 2017 and June 30, 2018?

 

        FYE 2017            FYE 2018

 A.    $100,000               $900,000

 B.    $0                          $1,000,000

 C.    $1,000,000            $0

 D.    $500,000               $500,000

 

A.        Choice A.

B.        Choice B.

C.        Choice C.

D.        Choice D.

 

 

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.        Unrestricted net assets.

C.        Permanently restricted net assets.

D.        Temporarily restricted net assets.

 

 

43.       During the years ended June 30, 2017 and 2018, 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, 2016. 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):                                                        
                                                            FY 2017         FY 2018
 Gift receipts                                       $200,000        $800,000
 Cancer research expenses                   $100,000        $900,000
 
What amount of net assets was released from restriction in 2017?

 

A.        $200,000.

B.        $100,000.

C.        $1,000,000.

D.        $0.

 

44.       During the years ended June 30, 2017 and 2018, 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, 2016. 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):                                                        
                                                         FY 2017         FY 2018
 Gift receipts                                   $200,000        $800,000
 Cancer research expenses           $100,000        $900,000
 
How much had temporarily restricted net assets increased as of the end of FY2018 ?

A.        $1,000,000.

B.        $100,000.

C.        $(100,000).

D.        $0.

 

 

45.       How would estimated uncollectible tuition and fees be reported on the financial statements of a university? 

 

A.        It would be reported as a contra-revenue by public and private universities.

B.        It would be reported as an operating expense by public and private universities.

C.        It would be reported as a contra-revenue by a public university and an operating expense by a private university.

D.        It would be reported as an operating expense by a public university and a contra-revenue by a private university.

 

 

46.       During the year ended June 30, 2017, 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 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, 2017?

 

   

 

 

A.        Choice A.

B.        Choice B.

C.        Choice C.

D.        Choice D.

 

 

47.       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.        Federal appropriations.

C.        Investment income.

D.        Private gifts.

 

 

48.       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.

 

 

49.       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.

 

 

50.       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.        Current ratio.

C.        Faculty productivity.

D.        Graduation rate.

 

 

51.       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.

 

52.       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.

 

 

53.       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.

 

 

54.       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 the provisions of the 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.

 

 

Short Answer Questions

 

55.       The following are key terms in Chapter 15 that relate to accounting for colleges and universities:

 A. Term endowments

 B. Annuity agreements

 C. Collections

 D. Pooled life income agreements

 E. Spending rate

 F. Total return

 

 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.

 

  _____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

 

 

 

 

56.       A private university receives $1,000,000 in fiscal year 2017 as a grant restricted for a specific research project and incurs expenses of $400,000 related to the research project during fiscal year 2017.  Make all necessary journal entries to record the transactions related to the grant for fiscal year 2017.

 

 

 

57.       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.

 

1.  A generous alumnus donated $300,000 that can only be used for research on diabetes. The full $300,000 was received in FY 2017.

2. During FY 2017, 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 FY 2017, the parking garage (see item 3 above) was partially completed at a total cash expenditure of $1,800,000.

5. During 2017, interest was paid in the amount of $120,000 on the long-term bonds issued for the parking garage project (see item 3 above).

 

 

 

58.       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.

 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 temporarily 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.

 

 

Essay Questions

 

59.       "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.

 

 

 

60.       If a private university receives $1,000,000 in fiscal year 2017 as a grant restricted for a specific research project and makes expenditures amounting to $400,000 during fiscal year 2017 properly chargeable to the grant, how much should be reported as revenues in fiscal year 2017? Explain.

 

 

 

61.       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?