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CHAPTER 16

NON-SLG NOT-FOR-PROFIT ORGANIZATIONS: SFAS 116 AND 117


APPROACH
ANSWERS TO QUESTIONS
Question 16-1
Voluntary health and welfare organizations provide various kinds of health, welfare, and
community services. They are financed primarily by voluntary contributions from the public.
VHWOs are organized for the public benefit and are supported largely by public contributions.
The providers of resources are not the primary recipients of services or benefits of a VHWO.
VHWOs include the Boy Scouts and Girl Scouts, the American Cancer Society, the YMCA and
the YWCA, halfway houses for drug offenders, and so on.
Other not-for-profit organizations, in one sense, is the "all other not-for-profit organizations
category. It includes a wide variety of not-for-profit organizations that do not meet the definition
of VHWOs, colleges and universities, or health care organizations. ONPOs range from churches
and other religious organizations to fraternal organizations to political parties and professional
associations.
Question 16-2
Different accounting standards must be applied by VHWOs and by ONPOs that are government
organizations than are to be applied by VHWOs and by ONPOs that are not government
organizations. This situation exists because while the GASB has primary standards setting
authority over government VHWOs and government ONPOs, the FASB has primary standards
setting authority over all other VHWOs and ONPOs. Accounting and reporting for the
government and nongovernment entities were very similar until the FASB adopted SFAS Nos.
116 and 117. These standards changed financial reporting for nongovernment, not-for-profit
organizations significantly, but do not affect accounting and financial reporting for government
not-for-profit organizations.
Government VHWOs and ONPOs are required to apply the state and local government
accounting model discussed in the previous chapters. They are prohibited from applying the
FASB standards for not-for-profit organizations.
Question 16-3
The basic financial statements required for nongovernment ONPOs are:

Statement of Financial Position (Balance Sheet)


Statement of Activity
Statement of Cash Flows

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Question 16-4
SFAS No. 117 requires nongovernment, not-for-profit organizations to report net assets (assets
less liabilities) in three classes:
1.

Unrestricted net assetsThe portion of net assets not temporarily or permanently


restricted. (This category may include assets that previously were temporarily restricted,
but for which the donor stipulation has been met, removing the restriction.)

2.

Temporarily restricted net assetsThe portion of net assets whose use is limited by
donor-imposed restrictions on the timing of use (e.g., pledges for future period giving
and term endowments) or purpose of use of the donated resources.

3.

Permanently restricted net assetsThe portion of net assets whose use is limited by
donor imposed restrictions that are permanent in nature, i.e., restrictions cannot be
fulfilled by either passage of time or other actions of the organization.

Question 16-5
A nongovernment ONPO should recognize contributions that are restricted by donors for fixed
asset acquisitions as revenue using the same criteria as for other contributions. These restricted
contributions should be recognized in the period that they are received or unconditionally
promised. (Net assets released from restrictions are reported when the fixed assets acquired are
placed in service.)
Question 16-6
The FASB defines collections as:
Works of art, historical treasures, or similar assets that are (a) held for public exhibition,
education, or research in furtherance of public service rather than financial gain, (b) protected,
kept unencumbered, cared for and preserved, and (c) subject to an organizational policy that
requires the proceeds of items that are sold to be used to acquire other items for collections.
The traditional logic for not depreciating collections is that they are inexhaustible. Collections
have not been required to be capitalized because determining a reasonable approximate dollar
amount at which to capitalize them may be impossible, or virtually so. Capitalization is
permitted. An entity that capitalizes collections may capitalize all collections or just those
acquired after adopting SFAS No. 116. Organizations that capitalize collections report
donated collections as assets and as contributions revenue at their fair value.
Question 16-7
At receipt, restricted gifts, contributions, and bequests to a nongovernment VHWO (or ONPO)
are reported as temporarily restricted contribution revenueincreasing temporarily restricted net
assets. Upon expenditure of the restricted resources, a nongovernment VHWO (ONPO) would
report any expenses incurred as changes in unrestricted net assets and reflect assets acquired in

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Question 16-7 (continued)


the balance sheet. A nongovernment VHWO (ONPO) also would report "Net assets released
from restrictions" in its statement of activities as an increase in "Changes in Unrestricted Net
Assets" and as a decrease in "Changes in Temporarily Restricted Net Assets" to the extent that
the restrictions have been satisfied. (Fixed assets purchased with temporarily restricted assets
must be placed in service for the restriction to be deemed met.)
Question 16-8
a.

In some cases, the motivation for this practice may be to justify reporting the costs of fundraising mailings as program expenses. Resource providers are interested in the ratio of fundraising expenses to total expenses as an indicator of the extent to which the entity's resources
are ultimately used for the entity's primary purposes. A lower ratio generally is better. In
other cases, it is a legitimate effort to minimize costs of both fund raising and program
efforts.

b.

Under GAAP, the costs of the mailings are an example of a joint activity. Costs of joint
activities must be reported as fund-raising activities unless the activity meets three tests
regarding the purpose of the activity, the audience to whom the activity is addressed, and the
actions that the audience is asked to take. If these three conditions--which indicate that a
legitimate program purpose is being served in addition to the fund-raising purpose of the
activity, the costs of joint activities that are identifiable with specific program or management
and general functions are allocated appropriately to those functions. Otherwise, all the costs
of the joint activity except the costs of direct benefits to donors are reported as fund-raising
expenses.

Question 16-9
Assuming that the pledges are unconditional at the time the pledge is received and that the first
installment of the pledge is to be received in the next fiscal year, revenues from the pledge should
be reported in the year the pledge is received even though nothing is collected. The revenues
should be reported as changes in temporarily restricted net assets since there is an implied time
restriction. The amount of revenues should equal the expected present value of the pledge.
Question 16-10
Expenses must be reported by program or function. These functional expenses are presented
within two major classificationsProgram expenses and Supporting Services expenses.
Program expenses are related directly to the primary missions of the organization. Supporting
services expenses do not relate directly to the primary missions of the organization. Supporting
services include management and general expenses, fund-raising expenses, and other costs not
associated directly with rendering program services.

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Question 16-11
Conditional pledges are pledges that are made subject to provisions (conditions) that release the
donor from the obligation to give as a result of the occurrence or nonoccurrence of a future and
uncertain event. (If the probability of not meeting the condition is slight, the pledge is not
considered conditional.) Pledges that are not subject to such conditions are called unconditional
pledges.
Unconditional pledges are recognized as revenues in the period received. Conditional pledges are
not recognized as pledges until the condition is met or the probability of not meeting the condition
becomes slight. At that point, the pledge is either collected or becomes unconditionalor both
and should be recognized as revenue.
Recall that the timing of recognition of contribution revenues for pledges is not affected by
whether the pledge is restricted or unrestricted.
Question 16-12
Unrestricted contributions are available immediately for any legitimate use of the VHWO or
ONPO. Restricted contributions are required, implicitly or explicitly, by donors to be used for a
certain purpose or during or after a certain time period. (Some restrictions are permanente.g.,
permanent endowments.)
Restrictions have no effect on the timing of revenue recognition. They do determine the net asset
class in which the revenues are reported. Unrestricted contributions are reported as revenues in
the Changes in Unrestricted Net Assets section of the Statement of Activities. Contributions with
permanent restrictions are classified as Changes in Permanently Restricted Contributions. Other
restricted contributions are classified as Changes in Temporarily Restricted Contributions.
Question 16-13
Net assets released from restrictions is the term used to report the satisfaction of temporary
restrictions on the use of resources. Net assets released from restrictions are reported as
increases in Changes in Unrestricted Net Assets and as equal decreases in Changes in Temporarily
Restricted Net Assets in the year that the restriction is satisfied (and therefore the net assets
become unrestricted).
Question 16-14
Temporarily restricted contributions and temporarily restricted investment earnings are permitted
to be reported as revenues in the changes in unrestricted net assets if the restrictions are met in the
same year that the contributions or investment earnings are to be recognized as revenues AND if
the entity applies the policy to both of these revenue sources.

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Question 16-15
a.
b.
c.
d.

Temporarily restricted revenues in the current year (because of an implied time restriction).
If received in the next year, net assets released from restrictions will be reported in that year.
Not reported as assets or revenues because the pledge is not unconditional. The pledge may
be disclosed.
Temporarily restricted revenues in the current year. Net assets released from restrictions will
be reported as expenses for community outreach are incurred.
Temporarily restricted revenues in the current year. Net assets released from restrictions will
be reported when the building is placed in service.

Question 16-16
Direct costs of holding a special fund-raising event that is reported gross may be reported as an
expense deduction from the revenuesjust as cost of goods sold is deducted from sales.
Alternatively, the direct costs may be reported in the expenses section of the statement of
activities. The cost of benefits such as meals that are provided to contributors may be reported as
part of a separate line item that identifies such costs. Other direct costs such as advertising should
be included in fund raising expenses.
Revenues from these events should be reported at the gross amount unless the event is incidental
or peripheral. In those cases, gains, not revenues, should be reported. Gains from special fundraising events may be reported gross or net of direct costs of holding the event. If special event
"gains" are reported net, the direct costs of the special event should be disclosed parenthetically.
Question 16-17
In order for an event to be recorded in the accounts it should be a viable revenue, contribution,
expense, etc., and should be objectively measurable. VHWOs and ONPOs have many volunteer
workersskilled and unskilled, helpful and in the way, etc. Too, some volunteers may be skilled
in one area, say medicine, but do volunteer work in arts and crafts or another area outside of their
special skill area. With so many volunteers with different skills, doing different thingssome
well, some poorlyat different times it becomes virtually impossible to put a reasonable dollar
value on much of the volunteer help.
Likewise, some donated materials are excellent and useful, while others are scrap. And some
donated clothing is virtually new and ideal for the season, but other donated clothing is little more
than rags. Further, some facilities that are made available for VHWO and ONPO functions are
private homes, office conference rooms, or other facilities that are not normally rented out. In all
these cases it is very difficult, if not impossible, to establish the fair value of the materials,
clothing, or facilities received or used.
Thus, both VHWOs and ONPOs are very restricted as to which donated materials, services,
facilities, etc., are given recognition as contributions and expenses (or assets) in the accounts and
financial statements. Those that can be objectively valued and are significant enough to warrant
the trouble of doing so are recognized; the rest are not, though they may be described in the notes
to the financial statements and data on them may be presented in supplemental schedules or
statistical reports.
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SOLUTIONS TO EXERCISES
Exercise 16-1
1. b
2. b
3. b
4. c
5. d
6. d
7. a
8. a
9. c
10. b
Exercise 16-2
1. b
2. c
3. b
4. a
5. c
6. e
7. c
8. e
9. c
10. a
Exercise 16-3
1.

2.

3a.

Pledges Receivable..................................................................
250,000
Cash........................................................................................
1,250,000
Allowance for Uncollectible Pledges................................
Temporarily Restricted SupportContributions*...........
Unrestricted SupportContributions..............................
To record pledges and collections of pledges.
*The uncollected pledges receivable have an implied time restriction.

50,000
700,000
750,000

Cash........................................................................................
Permanently Restricted SupportContributions.............
To record permanent endowment gift.

300,000
300,000

ExpensesProgram X............................................................
Cash/Payables/Etc............................................................
To record expenses for specified program.

222,000

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222,000

Exercise 16-3 (continued)


3b.

4.

Reclassifications Out...............................................................
Reclassifications In..........................................................
To record satisfaction of restrictions on restricted resources.

222,000
222,000

No entry until the pledges become unconditional.

Exercise 16-4
1.

2.

3.

4.

5.

6.

Supplies Inventory..................................................................
Accounts Payable............................................................
To record purchase of supplies on account.

50,000

ExpensesSupplies................................................................
Supplies Inventory...........................................................
To record supplies used.

40,000

Equipment..............................................................................
Cash/Payables..................................................................
To record purchase of equipment.

16,000

Reclassifications Out...............................................................
Reclassifications In..........................................................
To record satisfaction of restrictions on restricted resources

16,000

Cash........................................................................................
Bonds Payable.................................................................
To record issuance of bonds.

1,000,000

Cash........................................................................................
Land................................................................................
Gain on Sale of Land.......................................................
To record sale of land.

45,000

Cash........................................................................................
Unrestricted RevenuesInterest Income.........................
To record unrestricted interest earnings. Note that even
Though the organization intends to use the earnings for the
same purpose . for which the principal of the gift is restricted,
the earnings are not donor-restricted.

6,000

50,000

40,000

16,000

16,000

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1,000,000

33,000
12,000

6,000

Exercise 16-5
(a)
1.

2.

3.

Equipment..............................................................................
Cash.................................................................................
To record purchase of equipment.

30,000

ExpensesDepreciation.........................................................
Accumulated DepreciationEquipment..........................
To record depreciation.

12,000

Cash........................................................................................
Accumulated DepreciationEquipment.................................
Equipment.......................................................................
Unrestricted Gain on Sale of Equipment..........................

20,000
12,000

30,000

12,000

30,000
2,000

To record sale of equipment.


(b)

The depreciation expense decreases unrestricted net assets by $12,000 and the gain on the
equipment sale increases unrestricted net assets by $2,000.

Exercise 16-6
1.

Pledges Receivable..................................................................
Allowance for Uncollectible Pledges................................
Temporarily Restricted SupportContributions.............
To record pledges expected to be collected after
year end.

1,000,000
150,000
850,000

Even if the pledges are unrestricted they are reported as temporarily restricted unless the donors
specify that the pledge is intended to cover current year costs. Uncollected pledges have an implied
time restriction according to the FASB.
2.

3a.
3b.

Cash........................................................................................
Temporarily Restricted SupportContributions.............
To record temporarily restricted contributions.

3,000,000

ExpensesKiller Bee Research..............................................


Cash.................................................................................

2,200,000

Reclassifications Out...............................................................
Reclassifications In..........................................................
To record satisfaction of temporary use restrictions.

2,200,000

3,000,000

2,200,000

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2,200,000

Exercise 16-7
Illustrative VHWO/ONPO
Statement of Activities
For the Year Ended December 31, 20X1
Unrestricted
Revenues and gains:
Contributions (net of uncollectibles
of $20,000)
Special events
Less: Direct costs of events
Membership dues
Investment income
Realized gains on sale of investments

$363,000
75,000
25,000
50,000
17,300
34,000

Temporarily
Restricted

Permanently
Restricted

$275,000

35,500

$55,000

10,500

$ 693,000
75,000
25,000
50,000
17,300
80,000

1,400

1,400

Total

Gain on sale of equipment


Net assets released from restrictions

10,000
445,000

(445,000)

Total revenues and gains


Expenses:
Program Services:
Research
Education
Total program services
Supporting Services:
Management and general
Fund-raising
Total supporting services
Total expenses
Change in net assets
Net assets, January 1, 20X1*
Net assets, December 31, 20X1

919,300

(134,500)

66,900

851,700

103,800
184,000
287,800

103,800
184,000
287,800

171,200
91,000
262,200
550,000
369,300
417,000
$786,300

(134,500)
431,000
$296,500

66,900
345,000
$411,900

171,200
91,000
262,200
550,000
301,700
1,193,000
$1,494,700

*These amounts are from Illustration 16-6 on page 667 of the text.

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Exercise 16-8
The American Red Cross
Statement of Activities
Year Ended June 30, 20X6
(in thousands)
Changes in Unrestricted Net Assets
Operating revenues and gains
Contributions:
Corporate, foundation and individual giving................................
United Way and other federated..................................................
Legacies and bequests..................................................................
Services and materials..................................................................
Grants..........................................................................................
Products and services:
Biomedical...................................................................................
Program materials........................................................................
Contracts, including federal government.............................................
Investment income (Note 7)................................................................
Other revenues....................................................................................
Net assets released from restrictions...................................................
Total operating revenues and gains..................................................
Operating Expenses:
Program Services:
Armed Forces Emergency Services..............................................
Biomedical services.....................................................................
Community Service ....................................................................
Domestic disaster services...........................................................
Health and safety services............................................................
International relief and development services...............................
Total program services ....................................................................
Supporting Services:
Fund raising ................................................................................
Management and general ............................................................
Total Supporting Services ...............................................................
Total operating expenses ............................................................
Change in net assets from operations .................................................
Nonoperating gains.............................................................................
Additional minimum pension liability...................................................
Change in unrestricted net assets......................................................

258,002
60,025
59,666
25,126
33,520
2,165,172
141,300
311,435
108,570
67,528
2,517,098
5,747,442
54,096
2,103,572
133,467
2,630,766
224,594
154,283
5,300,778
140,082
187,249
327,331
5,628,109
119,333
62,804
94,470
276,607

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Changes in Temporarily Restricted Net Assets


Contributions:
Corporate, foundation and individual giving................................ $ 2,387,042
United Way and other federated..................................................
102,275
Legacies and bequests..................................................................
9,609
Services and materials..................................................................
213,215
Grants..........................................................................................
40,932
Products and services:
Program materials........................................................................
387
Investment income (Note 7)................................................................
1,409
Nonoperating gains.............................................................................
856
Net assets released from restrictions *.........................................
(2,517,098)
Increase in temporarily restricted net assets ................................
238,627
Changes in Permanently Restricted Net Assets
Legacies and bequests.........................................................................
23,412
Nonoperating gains.............................................................................
796
Increase in permanently restricted net assets ...............................
24,208
Increase in net assets ..........................................................................
539,442
Net Assets, Beginning.........................................................................
2,646,121
Net Assets, Ending ............................................................................
$3,185,563

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SOLUTIONS TO PROBLEMS
Problem 16-1
1a. Cash ............................................................................................
Unrestricted SupportContributions ..................................
To record cash contribution received.

3,000,000

b. Expenses (by function) ................................................................


Cash ....................................................................................
To record operating expenses paid.

400,000

2a. Cash ............................................................................................


Temporarily Restricted SupportContributionsResearch
To record restricted cash gift received.

3,000,000

b. ExpensesResearch ..................................................................
Cash ....................................................................................
To record research expenses.

400,000

Reclassifications Out ...................................................................


Reclassifications In ..............................................................
To record release of assets from temporary restrictions.

400,000

3,000,000

400,000

3,000,000

400,000

400,000

The expenses must be reported as changes in unrestricted net assets.


3a. Cash ............................................................................................
Temporarily Restricted SupportContributions..................
To record cash gift restricted for capital additions.

3,000,000

b. Construction in Progress .............................................................


Cash ....................................................................................
To record construction costs incurred.

400,000

3,000,000

400,000

Net assets released from restrictions are not reported until the assets are placed in service.
4.

In the first case, $3,000,000 of contributions revenue and $400,000 of operating expenses
will be reported in the Statement of Activities as Changes in Unrestricted Net Assets. For the
last two cases, the contributions revenue is reported under Changes in Temporarily
Restricted Net Assets. In addition, in the second case, net assets released from restrictions of
$400,000 is reported as an increase (the reclassification in) under Changes in Unrestricted
Net Assets and as a decrease (the reclassification out) under Changes in Temporarily
Restricted Net Assets and expenses in the second case are reported under Changes in
Unrestricted Net Assets.
As noted above, net assets released from restrictions are not reported in the final case until
the asset is completed and placed in service.

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Problem 16-2, Part I


April 1

July 1

Equipment ................................................................
Cash or Vouchers Payable ..................................
To record equipment purchase.

47,300

Reclassifications Out...................................................
Reclassifications In..............................................
To record release of net assets from restrictions.

47,300

Cash ...........................................................................
Bonds Payable ....................................................
To record bond issuance.

10,000,000

Cash ...........................................................................
Temporarily Restricted Support
ContributionsDebt Service .......................
To record contributions restricted for debt
service.

800,000

Cash ...........................................................................
Accumulated DepreciationEquipment ....................
Equipment ..........................................................
Unrestricted Gain on Sale of Fixed Assets ..........
To record sale of equipment.

19,000
7,500

Interest Expense .........................................................


Cash ....................................................................
To record interest payment.

500,000

Reclassifications Out ..................................................


Reclassifications In .............................................
To record satisfaction of restrictions.

500,000

Depreciation Expense ($47,300/5) x .75.....................


Accumulated DepreciationEquipment..............
To record depreciation for the year.

7,095

47,300

47,300

10,000,000

During 20X8

October 31

Dec. 31

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800,000

25,000
1,500

500,000

500,000

7,095

Problem 16-2, Part II (a)


1.

Cash ............................................................................................
Temporarily Restricted SupportContributions .................
To record endowment gift.

2,000,000

Reclassifications Out ...................................................................


Reclassifications In ..............................................................
To record satisfaction of restrictions.

1,000,000

2,000,000

1,000,000

Note that no reclassification is recorded at this point for the portion of the term endowment that
must be used for capital additions (i.e., plant asset additions) because a use restriction remains even
though the time restriction has been met.
(b)
1.
2.

Upon receipt, the Neuland Community Center should report the gift as temporarily restricted
revenues.
When the term of the endowment expires, the $1,000,000 that becomes available for
unrestricted use should be reported as net assets released from restrictionan increase in
unrestricted net assets and a decrease in temporarily restricted net assets.

Problem 16-3
Net Assets:
Permanently restricted ($50,000,000 + $1,500,000)...........................
Temporarily restricted:
For research ................................................................................
For scholarships ..........................................................................
For plant assets ...........................................................................
For endowment ...........................................................................
For future years ..........................................................................

$ 51,500,000
10,000,000
4,000,000
5,000,000
2,000,000
1,300,000

22,300,000

Unrestricted .......................................................................................

32,000,000*

Total net assets ...........................................................................

$105,800,000

*Certain portions of unrestricted net assets are committed to specific purposes, as follows:
Designated for plant expansion ...............................................................
$ 3,000,000
Required by bond indenture to be used for plant expansion.....................
4,500,000
Invested in fixed assets ($17,000,000 - $1,500,000)................................
15,500,000
Undesignated ..........................................................................................
9,000,000
Total unrestricted net assets.............................................................
$32,000,000

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Problem 16-4
West Texas Zoological and Botanical Society
Balance Sheet
December 31, 20X5
Assets
Cash ($350,000 - $50,000)............................................................................................
Accounts receivable (net of $20,000 allowance for uncollectibles).................................
Pledges receivable (net of $100,000 allowance for uncollectibles)..................................
Inventories....................................................................................................................
Investments* ($15,000,000 - $2,800,000 - $1,200,000).................................................
Assets restricted for plant purposes................................................................................
Assets restricted for endowment.....................................................................................
Land, buildings and improvements, and equipment (net of
$10,000,000 accumulated depreciation)............................................................
Other assets...................................................................................................................
Total Assets.....................................................................................................
Liabilities and Net Assets
Liabilities:
Accounts payable..........................................................................................................
Accrued expenses payable.............................................................................................
Unearned revenues........................................................................................................
Long-term debt..............................................................................................................
Total Liabilities................................................................................................
Net Assets:
Permanently restricted...................................................................................................
Temporarily restricted for:
Specific operating purposes..............................................................................
Plant expansion................................................................................................
Total temporarily restricted.......................................................................
Unrestricted:
Invested in plant...............................................................................................
Undesignated....................................................................................................
Total unrestricted......................................................................................
Total net assets.................................................................................................
Total Liabilities and Net Assets................................................................

300,000
100,000
600,000
300,000
11,000,000
1,200,000
2,850,000

28,000,000
150,000
$44,500,000

$ 525,000
100,000
75,000
6,000,000
6,700,000
2,850,000
5,500,000
1,200,000
6,700,000
22,000,000
6,250,000
28,250,000
37,800,000
$44,500,000

*Assumes that all assets restricted for plant purposes are investments. Also, permanently restricted net assets
for Endowment of $2,850,000 less $50,000 cash means $2,800,000 of investments are for endowments.
Note that the equality of total liabilities and total temporarily restricted net assets is coincidental and unusual.
Also, note that the amounts shown as liabilities for deferred support and deferred capital additions are in fact
temporarily restricted net assets as reported here, since restrictions on use do not defer revenue recognition.
Finally, cash, investments, and other assets restricted for plant purposes or endowment must be reported as
separate line items as presented in the solution, not as part of the general cash or investments accounts.

Problem 16-5

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1a. Cash ............................................................................................


Pledges Receivable .....................................................................
Allowance for Uncollectible Pledges ...................................
Unrestricted SupportContributions ..................................
Permanently Restricted SupportContributions .................
Temporarily Restricted SupportContributions..................
To record cash and pledge contributions.

2,000,000
1,850,000

2a. Buildings & Additions ................................................................


Cash ....................................................................................
Notes Payable ......................................................................
To record completion of addition and partial payment;
note given for the balance.

1,500,000

2b. Reclassifications Out ...................................................................


Reclassifications In ..............................................................
To record satisfaction of temporary restrictions.

600,000

3a. ExpensesFund Raising ............................................................


ExpensesGeneral and Administrative ......................................
ExpensesProgram A ...............................................................
ExpensesProgram B ................................................................
ExpensesProgram C ................................................................
ExpensesInterest......................................................................
Notes Payable..............................................................................
Investments Restricted for Endowment.......................................
Cash ....................................................................................
To record expenses incurred and paid and note
principal retirement.

100,000
80,000
320,000
200,000
400,000
54,000
90,000
450,000

3b. Reclassifications Out ...................................................................


Reclassifications In ..............................................................
To record satisfaction of temporary restrictions.

600,000

4.

Equipment ..................................................................................
Cash ....................................................................................
To record equipment purchased from restricted resources.

300,000

5a. Cash ............................................................................................


Accumulated DepreciationEquipment .....................................
Unrestricted Gain on Sale of Equipment ..............................
Equipment ...........................................................................
To record sale of used equipment.

40,000
65,000

185,000
700,000
500,000
2,465,000

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600,000
900,000

600,000

1,694,000

600,000

300,000

5,000
100,000

Problem 16-5 (continued)


6.

Land and Building Held for Resale .............................................


Temporarily Restricted SupportContributions .................
To record receipt of lot and building to be sold and the proceeds
used for Program D.

850,000

Cash ............................................................................................
Land and Building Held for Resale ......................................
To record sale of land and building given to support Program D.

850,000

Accrued Interest Receivable .......................................................


Cash ............................................................................................
Unrestricted RevenuesInterest..........................................
Temporarily Restricted RevenuesInterest.........................
To record interest earnings.

100,000
100,000

9a. Cash ............................................................................................


Unrestricted SupportSpecial Events ................................
To record gross proceeds of fund-raiser.

300,000

9b. ExpensesDirect Costs of Special Events .................................


Cash ....................................................................................
To record direct costs of fund-raiser.

60,000

9c. ExpensesDirect Costs of Special Events .................................


Unrestricted SupportSpecial Events
Donated Facilities .........................................................
Unrestricted SupportSpecial Events
Donated Materials ........................................................
To record donated facilities and materials.

17,500

10. ExpensesProgram A ...............................................................


ExpensesProgram B ................................................................
ExpensesProgram C ................................................................
ExpensesProgram D................................................................
Unrestricted SupportDonated Services ............................
To record donated professional services.

13,500
9,000
11,250
11,250

11. Land ...........................................................................................


Building ......................................................................................
Mortgage Note Payable .......................................................
Unrestricted SupportContributions ..................................
To record donation of land and building for infant nursery and
playground.

100,000
250,000

7.

8.

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850,000

850,000

75,000
125,000

300,000

60,000

10,000
7,500

45,000

50,000
300,000

Problem 16-6 (a)


COMMUNITY ASSOCIATION FOR HANDICAPPED CHILDREN
Statement of Activities
For the Year Ended June 30, 20X6
Changes in Unrestricted Net Assets
Revenues and gain:
Contributions (net of estimated uncollectibles of $2,000) ...................
Membership dues ...............................................................................
Program service fees...........................................................................
Investment income ($20,000 + $10,000).............................................
Total Revenue and Gains ............................................................
Expenses:
Program Services:
Deaf children's program ..............................................................
Blind children's program .............................................................
Total Program Services .......................................................
Supporting Services:
Management and general ($49,000 + $6,000).............................
Fund raising ................................................................................
Total Supporting Services ...................................................
Total Expenses ....................................................................
Net Increase in Unrestricted Net Assets..............................................
Net Assets, July 1, 20X5 ($699,000 - $64,000)..................................
Net Assets, June 30, 20X6..................................................................

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$313,000
25,000
30,000
30,000
398,000

120,000
150,000
270,000
55,000
9,000
64,000
334,000
64,000
635,000
$699,000

Problem 16-6 (b)


COMMUNITY ASSOCIATION FOR HANDICAPPED CHILDREN
Balance Sheet
June 30, 20X6
Assets
Cash....................................................................................................
Bequests receivable.............................................................................
Pledges receivable (net of $3,000 estimated uncollectibles)................
Accrued interest receivable.................................................................
Investments.........................................................................................
Assets restricted for endowment.........................................................
Equipment (net of $50,000 accumulated depreciation)......................
Total Assets............................................................................

$ 49,000
5,000
9,000
1,000
100,000
500,000
100,000
$764,000

Liabilities and Net Assets


Liabilities:
Accounts payable and accrued expenses payable................................
Unearned revenues..............................................................................
Note payable.......................................................................................
Total Liabilities.......................................................................
Net Assets:
Permanently restricted.........................................................................
Temporarily restricted for:
Specific operating purposes....................................................
Future years* ($5,000 + $12,000 - $3,000)............................
Total temporarily restricted..............................................
Unrestricted:
Invested in plant ($150,000 - $50,000 - $12,000)...................
Designated (given)..................................................................
Undesignated ($699,000 -$550,000 - $17,000
$88,000 - $12,000)..................................................
Total unrestricted.............................................................
Total net assets.......................................................................
Total Liabilities and Net Assets...............................................

$ 51,000
2,000
12,000
65,000
500,000
3,000
14,000
17,000
88,000
12,000
82,000
182,000
699,000
$764,000

*Implied time restriction

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Problem 16-7
Organization Name
Statement of Activity
For Fiscal Year 20X7
Changes in Unrestricted Net Assets
Revenues and gains
Contributions......................................................................................
Special events ....................................................................................
Less: Direct costs of special events ..................................................
Membership dues ...............................................................................
Investment income .............................................................................
Total revenue and gains ..............................................................
Net assets released from restrictions *................................................
Increase in unrestricted net assets ...............................................
Expenses:
Program Services:
Research ($3,500,000 + $1,750,000)..........................................
Community Service ....................................................................
Total Program Services .......................................................
Supporting Services:
Management and general ............................................................
Fund raising ................................................................................
Total Supporting Services ...................................................
Total expenses .....................................................................
Net increase in unrestricted net assets ..................................
Changes in Temporarily Restricted Net Assets
Contributions...............................................................................
Investment income ......................................................................
Net assets released from restrictions *.........................................
Increase in temporarily restricted net assets ................................
Changes in Permanently Restricted Net Assets
Contributions ..............................................................................
Realized gains on sale of investments ..........................................
Increase in permanently restricted net assets ........................

5,000,000
3,000,000
2,100,000

900,000
1,800,000
3,000,000
10,700,000
11,700,000
22,400,000

5,250,000
3,000,000
8,250,000
700,000
1,000,000
1,700,000
9,950,000
12,450,000
14,600,000
2,700,000
(11,700,000)
5,600,000
4,000,000
950,000
4,950,000

Increase in net assets ..........................................................................


Net Assets, Beginning.........................................................................
Net Assets, Ending ............................................................................

23,000,000
34,400,000
$57,400,000

Computations:
Net assets released from restrictions:
Qualifying research expenses ...............................................
Fixed asset purchases ...........................................................
Expired term endowment ....................................................
Total .............................................................................

$3,500,000
7,000,000
1,200,000
$11,700,000

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Problem 16-7 (continued)


Temporarily restricted contributions:
For future years ...................................................................
For specific programs ..........................................................
For term endowments ..........................................................
For plant assets ....................................................................
Total .............................................................................

700,000
2,300,000
600,000
11,000,000
$14,600,000

Beginning net assets:


Unrestricted .........................................................................
Temporarily restricted .........................................................
Permanently restricted .........................................................
Total .............................................................................

$ 3,000,000
9,400,000
22,000,000
$34,400,000

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Problem 16-8
KINDNESS COOPERATIVE
Statement of Activities
For the Year Ended December 31, 20X7
Changes in Unrestricted Net Assets
Revenues and gains
Contributions...............................................................................
Special events .............................................................................
Less: Direct costs of special events ...........................................
Membership dues ........................................................................
Investment income ......................................................................
Donated materials........................................................................
Donated facilities.........................................................................
Donated services..........................................................................
Gain on sale of equipment............................................................
Total revenue and gains .......................................................
Net assets released from restrictions *.......................................
Increase in unrestricted net assets .................................
Expenses:
Program Services:
Research...............................................................................
Education.............................................................................
Total Program Services ................................................
Supporting Services:
Management and general
($151,200,000 + $20,000,000)......................................
Fund raising .........................................................................
Total Supporting Services ............................................
Total expenses ..............................................................
Net increase in unrestricted net assets ..........................
Changes in Temporarily Restricted Net Assets
Contributions........................................................................
Investment income ...............................................................
Net assets released from restrictions *..................................
Decrease in temporarily restricted net assets ................

$335,000,000
$75,000,000
25,000,000

50,000,000
17,300,000
34,000,000
10,000,000
8,000,000
10,000,000
10,000,000
474,300,000
313,800,000
788,100,000

103,800,000
184,000,000
287,800,000
171,200,000
91,000,000

Changes in Permanently Restricted Net Assets


Contributions .......................................................................
Investment income................................................................
Realized gains on sale of investments ..................................
Increase in permanently restricted net assets .................
Increase in net assets ................................................................
Net Assets, Beginning................................................................
Net Assets, Ending ....................................................................

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262,200,000
550,000,000
238,100,000
275,000,000
35,500,000
(313,800,000)
(3,300,000)
55,000,000
10,500,000
1,400,000
66,900,000
301,700,000
1,300,000,000
$1,601,700,000

Problem 16-8 (continued)


Computation of net assets released from restrictions:
Net assets were released from restrictions as follows:
Restricted to future years (prior year pledges collected)....... $100,000,000
Research expenses................................................................ 103,800,000
Construction and equipment costs........................................ 110,000,000
Total.............................................................................. $313,800,000

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Problem 16-9
Mark Meadows Foundation
Statement of Activity
For the Year Ended December 31, 20X6
Changes in Unrestricted Net Assets
Revenues and gains
Contributions ($3,000,000 - $250,000)...............................................
Special events ....................................................................................
Less: Direct costs of special events ..................................................
Membership dues ...............................................................................
Investment income .............................................................................
Total revenue and gains ..............................................................
Net assets released from restrictions *................................................
Increase in unrestricted net assets ...............................................
Expenses:
Program Services:
Community service ($220,000 + $2,110,000)..............................
Public presentations.....................................................................
Education....................................................................................
Total Program Services .......................................................
Supporting Services:
Management and general ............................................................
Fund raising ................................................................................
Total Supporting Services ...................................................
Total expenses .....................................................................
Net increase in unrestricted net assets ..................................
Changes in Temporarily Restricted Net Assets
Contributions ($250,000 + $1,000,000 + $1,500,000).................
Investment income ......................................................................
Net assets released from restrictions *.........................................
Increase in temporarily restricted net assets ................................
Changes in Permanently Restricted Net Assets
Contributions ..............................................................................
Increase in net assets .......................................................................
Net Assets, January 1.......................................................................
Net Assets, December 31..................................................................
*

$2,750,000
$290,500
97,500

193,000
75,000
83,400
3,101,400
910,000
4,011,400

2,330,000
555,000
200,000

Net assets released from restrictions:


Qualifying community service expenses ...............................
Qualifying public presentations program expenses ...............
Collection of prior year pledges ...........................................
Total .............................................................................

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3,085,000
253,000
95,000
348,000
3,433,000
578,400
2,750,000
320,000
(910,000)
2,160,000
10,000,000
12,738,400
1,703,000
$14,441,400
$ 220,000
555,000
135,000
$ 910,000

Problem 16-10
Reclassifications Out...........................................................................
Reclassifications In..........................................................
To record satisfaction of restriction on net assets.
2.

3.

50,000
50,000

Pledges Receivable..................................................................
Allowance for Uncollectible Pledges................................
Unrestricted SupportContributions..............................
Temporarily Restricted SupportContributions.............
To record pledges.

600,000

Cash........................................................................................
Allowance for Uncollectible Pledges.......................................
Pledges Receivable..........................................................
To record collections and write-offs of pledges receivable.

480,000
7,000

60,000
405,000
135,000

487,000

If a student assumes that the pledges collected were included in Temporarily Restricted Support
either in the current year or in a prior year--a reclassification entry should be made at this point.
4a.

4b.

5.

6.

7a.

7b.

Inventory of Materials and Supplies........................................


Unrestricted SupportDonated Materials.......................
To record donations of materials.

22,000

ExpensesMaterials and Supplies..........................................


Inventory of Materials and Supplies.................................
To record cost of materials used.

17,000

Cash........................................................................................
Unrestricted SupportMembership Dues.......................
To record collection of membership dues.

400,000

Cash........................................................................................
Temporarily Restricted SupportContributions.............
To record restricted gifts.

30,000

ExpensesCommunity OutreachSalaries...........................
ExpensesCommunity OutreachEquipment Rental...........
Cash.................................................................................
To record salaries and equipment rentals.

3,000
15,000

Reclassifications Out...............................................................
Reclassifications In..........................................................
To record satisfaction of restriction on net assets.

18,000

22,000

17,000

400,000

30,000

18,000

18,000

Note that when expenses are incurred for purposes for which restricted resources are available, the
restriction has been satisfied even if management uses unrestricted resources to pay those expenses.
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Problem 16-10 (continued)


8.

Cash........................................................................................
Pledges Receivable..................................................................
Temporarily Restricted SupportContributions.............
To record restricted gifts to finance recreation
center construction.

500,000
2,200,000

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2,700,000