Chapter 18

Accounting and Reporting for Private Not for Profit Organizations

Multiple Choice Questions

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

1. 1. contributed services.
   2. unconditional promises to give.
   3. endowment transactions.
   4. exchange transactions.
   5. required contributions.

2. Which of the following types of health care organizations follow FASB Accounting Standards Codification for GAAP?

1. 1. Entry
   2. Entry
   3. Entry
   4. Entry
   5. Entry

3. Which of the following types of health care organizations recognize depreciation expense?

1. 1. Entry
   2. Entry
   3. Entry
   4. Entry
   5. Entry

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

1. 1. Accounts Payable.
   2. Deferred Revenue.
   3. Unearned Revenue.
   4. Patient Service Revenues.
   5. Accounts Receivable.

5. Which account would be credited in recording a gift of medicine to a nursing home from an outside party?  

1. 1. Nonoperating Gain - Contributions.
   2. Contractual Adjustments.
   3. Patient Service Revenues.
   4. Drugs and Medicines.
   5. Nonoperating Revenues - Contribution.

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

1. 1. Statement of Financial Position.
   2. Statement of Functional Expense.
   3. Statement of Activities and Changes in Net Assets.
   4. Statement of Cash Flows.
   5. Statement of Operations.

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

1. 1. miscellaneous revenues.
   2. contributions.
   3. unconditional promises to give.
   4. exchange transactions.
   5. pledges.

8. Which one of the following is a voluntary health and welfare organization?  

1. 1. Charity raising money for underprivileged children.
   2. Nursing home.
   3. Clinic.
   4. Hospital.
   5. Preschool.

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

1. 1. Health services expenses and operating expenses.
   2. Program services expenses and administrative services expenses.
   3. Program services expenses and supporting services expenses.
   4. Operating expenses and supporting services expenses.
   5. Operating expenses and administrative expenses.

10. Which of the following is not a question individuals ask of not-for-profit organizations in considering whether to make a contribution?  

1. 1. Will donated funds be used effectively by the organization to accomplish its purpose?
   2. Will the donated funds be wasted?
   3. How much should this organization receive?
   4. Is this organization profitable?
   5. Is contributing to this charity a wise allocation of resources?

11. Historically, what was the pattern of reporting of not-for-profit organizations?
    1. Patterned after for-profit accounting
    2. Emphasis on separate fund types
    3. Disregard for the entire entity  

1. 1. 1 only.
   2. 2 only.
   3. 1 and 2 only.
   4. 1, 2 and 3.
   5. 2 and 3 only.

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

1. 1. Statement of Activities and Changes in Net Assets.
   2. Statement of Functional Expenses.
   3. Statement of Financial Position.
   4. Statement of Cash Flows.
   5. Statement of Budget to Actual.

13. What are the three categories of net assets required by GAAP in reporting a not-for-profit organization?  

1. 1. Unrestricted, Temporarily Restricted, and Permanently Restricted.
   2. Unrestricted, Restricted, and Fund Balance.
   3. Restricted, Permanently Restricted, and Fund Balance.
   4. Unrestricted, Temporarily Restricted, and Fund Balance.
   5. None of the above.

14. What is the basis of accounting used in reporting the Statement of Activities and Changes in Net Assets?  

1. 1. Cash basis.
   2. Modified accrual basis.
   3. Accrual basis.
   4. Either cash basis or accrual basis, depending on the type of revenue.
   5. Either modified accrual basis or accrual basis, depending on the type of revenue.

15. When are unconditional promises to give recognized as revenues?  

1. 1. In the period the promise is received.
   2. In the period the promise is collected.
   3. In the period in which the conditions on which they depend are substantially met.
   4. In the period in which the conditions on which they depend have begun to be met.
   5. Unconditional promises from potential donors are not revenues.

The following gifts are received in Year One by a not-for-profit organization: I. $2,000 specified by the donor to be used to pay salaries. II. $10,000 for new conference room furniture.

III. $5,000 to be held for one year before being expended.

The salaries are paid in Year Two and the conference room furniture is purchased in Year One.

16. How much should be shown as increases as Temporarily Restricted Net Assets in Year One?

1. 1. $2,000
   2. $7,000
   3. $12,000
   4. $15,000
   5. $17,000

17. How much should be reclassified on the Statement of Activities in Year Two from the Temporarily Restricted column to the Unrestricted column?  

1. 1. $2,000.
   2. $5,000.
   3. $7,000.
   4. $10,000.
   5. $12,000.

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

1. 1. Lower of cost or market, with unrealized losses in the Statement of Activities.
   2. Fair value, with unrealized gains and losses in the Statement of Activities.
   3. Lower of cost or market, with unrealized losses in Temporarily Restricted Net Assets.
   4. Cost, with unrealized gains and losses in the Statement of Activities.

19. Which statement below is not correct?  

1. 1. The accounting period in which pledged revenues are recognized is dependent on donor specifications.
   2. The permanently restricted section of a nonprofit organization's net assets is set aside by donor restrictions.
   3. A contributed asset is recognized as revenue by a nonprofit organization.
   4. Depreciation expense is not recognized by nonprofit organizations.
   5. Nonprofit organizations issue a statement of activities.

20. A gift to a not-for-profit school that is not restricted by the donor is credited to:  

1. 1. Fund Balance.
   2. Deferred Revenues.
   3. Contribution Revenues.
   4. Nonoperating Revenues.
   5. Encumbrances.

21. Which entry would be the correct entry on the donor's books when the donor relinquishes control of an asset that it contributes to a not-for-profit organization?

1. 1. Option A
   2. Option B
   3. Option C
   4. Option D
   5. Option E

22. Which entry would be the correct entry on the donor's books when the donor retains control of an asset that it contributes to a not-for-profit organization?

1. 1. Option A
   2. Option B
   3. Option C
   4. Option D
   5. Option E

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

1. 1. Option A
   2. Option B
   3. Option C
   4. Option D
   5. Option E

24. Which entry would be the correct entry on the not-for-profit organization's books to record a donor's gift when power over the assets has been retained by the donor?

1. 1. Option A
   2. Option B
   3. Option C
   4. Option D
   5. Option E

25. Which entry would be the correct entry to record pledges of $100,000 to a public television fundraiser? The public television organization estimates that 5% of the funds will be uncollectible.

1. 1. Option A
   2. Option B
   3. Option C
   4. Option D
   5. Option E

26. Which entry would be the correct entry to record that a not-for-profit organization collected $80,000 of amounts pledged and wrote off $3,000 of amounts pledged as amounts uncollectible?

1. 1. Option A
   2. Option B
   3. Option C
   4. Option D
   5. Option E

27. In not-for-profit accounting, an acquisition occurs when one not-for-profit organization obtains:  

1. 1. Significant influence over another not-for-profit organization.
   2. The direct ability to determine the direction of management of another not-for-profit organization.
   3. The indirect ability to direct the policies of management of another not-for-profit organization.
   4. Control over another not-for-profit organization.
   5. None of the above. An acquisition can only occur for profit-oriented organizations.

28. If the total acquisition value of an acquired not-for-profit organization is greater than the fair value of all identifiable net assets of the organization, and that organization's revenues are not earned by dues or other types of earned revenues, then the excess of acquisition value over identifiable net assets is immediately reported:  

1. 1. As goodwill on the consolidated balance sheet.
   2. As a pro-rata increase to the identifiable assets and liabilities acquired.
   3. As a direct reduction in unrestricted net assets on the balance sheet.
   4. As a reduction in unrestricted net assets on the statement of activities.
   5. As an increase in other assets on the balance sheet.

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

1. 1. Whether control has been achieved by the acquiring not-for-profit entity.

BWhether the acquired not-for-profit entity has the ability to generate significant amounts of earned . revenue or whether it generates mostly contribution and investment revenue in the future.

CWhether the acquired not-for-profit entity has the ability to generate significant amounts of both earned . revenues and contribution revenues in the future.

1. 4. Whether the acquired not-for-profit entity has a history of generating significant revenues of any type.
   5. None of the above. Goodwill can only be recognized in an acquisition of a for-profit entity.

30. Which of the following is not true about a merger of two not-for-profit organizations?  

1. 1. The two organizations will continue to legally exist but there will be a new governing board.
   2. Neither organization is considered to be acquired.
   3. Identifiable assets and liabilities are not adjusted to their fair values at the date of the merger.
   4. The two entities will together form an entirely new organization with a new governing board.
   5. There will be no acquisition value or goodwill determination.

31. 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?

1. 1. Option A
   2. Option B
   3. Option C
   4. Option D
   5. Option E

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

1. 1. Contractual Adjustments.
   2. Allowance for uncollectible and reduced accounts.
   3. Patient Service Revenues.
   4. Account Receivable-Patients.
   5. Accounts Receivable-Third Party.

33. What is the appropriate account to credit when estimating a portion of health care organization receivables that will prove to be uncollectible?  

1. 1. Bad Debt Expense.
   2. Allowance for Uncollectible Accounts.
   3. Patient Service Revenues.
   4. Accounts Receivable.
   5. Contractual Adjustments.

34. Give several examples of voluntary health and welfare organizations.  

35. What are the objectives of accounting for a not-for-profit organization?  

36. What term is used by voluntary health and welfare organizations for contributions?  

37. two classifications are used for the expenses incurred by voluntary health and welfare organizations?  

38. What is the main source of financial support for most voluntary health and welfare organizations?  

39. What criteria must be met before a voluntary health and welfare organization can recognize donated services as a means of support?  

40. For a voluntary health and welfare organization, what are supporting services expenses?  

41. What financial statements would normally be prepared by a voluntary health and welfare organization?  

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

43. How does a voluntary health and welfare organization account for donated goods and cash contributed for operating purposes? What types of revenues are recognized by voluntary health and welfare organizations?  

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

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