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NOT-FOR-PROFIT ORGANIZATIONS Objectives of Nonbusiness Organizations 1 .

Which one of the following is ordinarily not considered one of the major distinguishing characteristics of nonbusiness organizations? a. Significant amounts of resources are provided by donors in nonreciprocal transactions. b. There is an absence of defined, transferable ownership interests. c. erformance indicators similar to a business enterprise!s profit are readily available. d. The primary operating purpose is not to provide goods or services at a profit. "leim
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S'*S 11/, Financial Statements of Not-for-Profit Organizations, focuses on a. %asic information for the organization as a whole. b. Standardization of funds nomenclature. c. 3nherent differences of not0for0profit organizations that affect reporting presentations. d. 4istinctions between current fund and non0current fund presentations. *3- * 115+ T("0 &6 3n a statement of financial position, a not0for0profit organization should report amounts for which of the following classes of net assets? 3. 7nrestricted. 33. Temporarily restricted. 333. ermanently restricted. a. 3, 33, and 333. c. 3 and 333 only. b. 3 and 33 only. d. 33 and 333 only. "leim 3n its statement of activities, a not0for0profit organization may report e1penses as decreases in which of the following classes of net assets? "leim a. b. c. d. 7nrestricted 9es 9es 9es 9es ermanently ,estricted 9es $o $o 9es Temporarily ,estricted $o 9es $o 9es 'or which of the following assets held by a religious organization should depreciation be recognized in the organization!s general0purpose e1ternal financial statements? a. The house of worship. c. * nationally recognized historical treasure. b. * priceless painting. d. :and used for a building site. "leim . The *ddams family lost its home in a fire. ;n 4ecember #., #661, a philanthropist sent money to the %enevolent Society to purchase furniture for the *ddams family. The resource provider did not e1plicitly grant the Society the unilateral power to redirect the use of the assets. 4uring <anuary #66#, the Society purchased this furniture for the *ddams family. The Society, a not0for0profit organization, should report the receipt of the money in its #661 financial statements as a=n> a. 7nrestricted contribution. c. ermanently restricted contribution. b. Temporarily restricted contribution d. :iability. *3- * 6.5. T("0.8 . The *rt (useum, a not0for0profit organization, received a contribution of historical artifacts. 3t need not recognize the contribution if the artifacts are to be sold and the proceeds used to

Which of the following is a characteristic of nonbusiness organizations? a. $oneconomic reasons seldom underlie the decision to provide resources to nonbusiness enterprises. b. %usiness and nonbusiness organizations usually obtain resources in the same way. c. %oth nonbusiness and business organizations use scarce recourses in the production and distribution of goods and services. d. The operating environment of nonbusiness organizations ordinarily differs from that of business organizations. "leim 'inancial reporting by nonbusiness organizations should provide information useful in a. (a)ing resource allocation decisions. b. *ssessing services and the ability to continue to provide services. c. *ssessing management stewardship and performance. d. *ll of the answers are correct.

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Typical users of financial reports of nonbusiness organizations include which of the following? a. ,esource providers. c. "overning and oversight bodies. b. -onstituents. d. *ll of the answers are correct. "leim

Not-for-Profit Organizations . . S'*S 11/, Financial Statements of Not-for-Profit Organizations , establishes standards for general0purpose e1ternal financial statements issued by not0for0profit organizations. * complete set of financial statements should include a. Statements of financial position as of the beginning and end of the reporting period, a statement of cash flows, and a statement of activities. b. * statement of financial position as of the end of the reporting period, a statement of cash flows prepared on the direct basis, and a statement of activities. c. * statement of financial position as of the end of the reporting period, a statement of cash flows, and a statement of activities. "leim d. Statements of financial position as of the beginning and end of the reporting period, comparative statements of cash flows, and comparative statements of activities.

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a. Support general museum activities. b. *c?uire other items for collections.


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c. ,epair e1isting collections. d. urchase buildings to house collections. *3- * 6.5. T("0.5

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. *ccording to S'*S 112, Accounting for Contributions Received and Contributions Made, what classification=s>, if any, should be used by not0for0profit organizations to report receipts of contributions? "leim a. b. c. d. 7nrestricted Support $o $o 9es 9es ,estricted Support $o 9es $o 9es . S'*S 112 re?uires not0for0profit organizations to recognize a conditional promise to give when a. The promise is received. b. The promise is received in writing. c. The conditions are met. d. 3t is reasonably possible that the conditions will be met. "leim . $apro -harities, a not0for0profit agency, receives free electricity on a continuous basis from a local utility company. The utility company!s contribution is made subject to cancellation by the donor. $apro -harities should account for this contribution as a=n> a. 7nrestricted revenue only. b. ,estricted revenue only. c. 7nrestricted revenue and an e1pense. d. ,estricted revenue and an e1pense. "leim

. Three presentations in the lecture series were held in #661. The spea)er fees for the three presentations amounted to B56,666. The not0for0profit organization used the B.6,666 dividend income to cover part of the total fees. %ecause the board of directors did not wish to sell part of the investments, the organization used B+6,666 in unrestricted resources to pay the remainder of the spea)er fees. 3n the #661 statement of activity, the B.6,666 of dividend income should be recorded as an increase in a. 7nrestricted net assets. b. Temporarily restricted net assets. c. ermanently restricted net assets. d. Aither unrestricted or temporarily restricted net assets. . The $ ;!s accounting policy is to record increases in net assets, for which a donor0imposed restriction is met in the same accounting period as gains and investment income are recognized, as increases in unrestricted net assets. 3n the #661 statement of activity, the B1#6,666 unrealized gain should be recognized as a. * B+6,666 increase in unrestricted net assets and an B86,666 increase in temporarily restricted net assets. b. * B1#6,666 increase in unrestricted net assets. c. * B1#6,666 increase in temporarily restricted net assets. d. * B1#6,666 increase in permanently restricted net assets. . 3f the lecture series were not scheduled to begin until #66#, the B.6,666 dividend income would be recorded in the #661 statement of activity as an increase in a. 7nrestricted net assets. b. Temporarily restricted net assets. c. ermanently restricted net assets. d. Aither unrestricted or temporarily restricted net assets. . 3f the lecture series were not scheduled to begin until #66#, the B1#6,666 unrealized gain should be recorded in the #66# statement of activity as an increase in a. 7nrestricted net assets. b. Temporarily restricted net assets. c. ermanently restricted net assets. d. Aither unrestricted or temporarily restricted net assets. . 'ollowing the destruction of its house of worship by fire, a religious organization held a rebuilding party. art of the labor was donated by professional carpenters. The remainder was donated by members of the organization. -apitalization is re?uired for the value of the services provided by

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@uestions ## through #2 are based on the following information. "leim Aarly in #661, a not0for0profit organization =$ ;> received a B#,666,666 gift from a wealthy benefactor. This benefactor specified that the gift be invested in perpetuity with income restricted to provide spea)er fees for a lecture series named for the benefactor. The $ ; is permitted to choose suitable investments and is responsible for all other costs associated with initiating and administering this series. $etierh the donor!s stipulation nor the law addresses gains and losses on this permanent endowment. 3n #661, the investments purchased with the gift earned B.6,666 in dividend income. The fair value of the investments increased by B1#6,666.
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. The B#,666,666 gift should be recorded in the #661 statement of activity as an increase in a. 7nrestricted net assets. b. Temporarily restricted net assets. c. ermanently restricted net assets. d. Aither unrestricted or temporarily restricted net assets.

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a. b. c. d.
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The professional carpenters only. The members only. The professional carpenters and the members. $either the professional carpenters nor the members.

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. When a nonprofit organization combines fund0raising efforts with educational materials or program services, the total combined costs incurred are a. ,eported as program services e1penses. b. *llocated between fund0raising and program services e1penses using an appropriate allocation basis. c. ,eported as fund0raising costs. d. ,eported as management and general e1penses. *3- * 6.5& T026 . Aleemosynary 3nstitution =A3> received a donation of e?uity securities with readily determinable fair values. The securities had appreciated in value after they were purchase by the donor, and they continued to appreciate through the end of A3!s fiscal year. *t what amount should A3 report its investment in donated securities in its year0end balance sheet? a. 4onor!s cost. b. 'air value at the date of receipt. c. 'air value at the balance sheet date. d. 'air value at either the date of receipt or the balance sheet date. *3- * 6.5& 330&8 . Anvirons, a community foundation, incurred B16,666 in management and general e1penses during #661. 3n Anvirons! statement of activities for the year ended 4ecember &1, #661, the B16,666 should be reported as *3- * 6.5# 330+6 a. * direct reduction of fund balance. c. art of program services. b. art of supporting services. d. * contra account to offset revenue. . 3n <uly #666, ,oss irrevocably donated B#66,666 cash to be invested and held in trust by a church. ,oss stipulated that the revenue generated from this gift to be paid to ,oss during ,oss!s lifetime. *fter ,oss dies, the principal is to be used by the church for any purpose chosen by its governing body. The church received interest of B12,666 on the B#66,666 for the year ended <une &6, #661, and the interest was remitted to ,oss. 3n the church!s <une &6, #661 annual financial statements a. B#66,666 should be reported as revenue. b. B18+,666 should be reported as revenue. c. B12,666 should be reported as revenue. *3- * 6.56 33011 d. The gift and its terms should be disclosed only in notes to the financial statements.

. (aple -hurch has cash available for investments from contributions with different restrictions. (aple!s policy is to ma1imize its financial resources. Cow may (aple pool its investments? a. (aple may not pool its investments. b. (aple may pool all investments but must e?uitably allocate realized and unrealized gains and loses among participants. c. (aple may pool only unrestricted investments but must e?uitably allocate realized and unrealized gains and losses among participating funds. d. (aple may pool only restricted investments but must e?uitably allocate realized and unrealized gains and losses among participating funds. *3- * 6.5& 330+6

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Healt !are Organizations #2 . (onies from educational programs of a hospital normally are included in a. *ncillary service revenue. c. $onoperating gains. b. atient service revenue. d. ;ther revenue.
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. Which of the following should normally be considered ongoing or central transactions for a not0 for0profit hospital? 3. ,oom and board fees from patients. 33. ,ecovery room fees. a. $either 3 nor 33. c. 33 only. b. %oth 3 and 33. d. 3 only. *3- * 115. T("0/. . Dalley!s community hospital normally includes proceeds from the sale of cafeteria meals in a. 4eductions from dietary service e1penses. b. *ncillary service revenues. c. atient service revenues. d. ;ther revenues. *3- * 6.5+ T("026 . 3n health care accounting, restricted net assets are a. $ot available unless the directors remove the restrictions. b. ,estricted as to use only for board0designated purposes. c. $ot available for current operating useE however, the income generated is available for current operating use. *3- * 6.5& 330#5 d. ,estricted as to use by the donor, grantor, or other source of the resources. . 3n *pril #661, 4elta Cospital purchased medicines from 'ield harmaceutical -o. at a cost of B.,666. Cowever, 'ield notified 4elta that the invoice was being canceled and that the medicines were being donated to 4elta. 4elta should record this donation of medicines as a. * memorandum entry only. b. * B.,666 credit to nonoperating e1penses.

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c. * B.,666 credit to operating e1penses. d. ;ther operating revenue of B.,666.


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. Which of the following normally would be included in the health care revenues of a hospital? *3- * 115+ T("0#8 a. b. c. d. ,evenues from Aducational rograms $o $o 9es 9es 7nrestricted "ifts $o 9es $o 9es . "eneral purpose e1ternal financial reporting by a health care organization re?uires presentation of a. 'und group information by a not0for0profit organization. b. * statement of operations. c. * separate statement of changes in e?uity or net assets. d. * performance indicator only by for0profit entities. "leim

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. ,A@73,A4F The statement not ordinarily considered a major characteristic of nonbusiness organizations. 43S-7SS3;$F =-> S'*- +, ;bjectives of 'inancial ,eporting by $onbusiness ;rganizations, states that the objectives of financial reporting are derived from the common interests of those who provide the resources to nonbusiness organizations. Such organizations ordinarily have no single indicator of performance comparable to a business enterprise!s profit. Thus, nonbusiness organization performance is usually evaluated in terms of management stewardship. *nswers =*>, =%>, and =4> are incorrect because S'*- + specifically gives each as a distinguishing characteristic of nonbusiness organizations. . ,A@73,A4F The characteristic of nonbusiness organizations. 43S-7SS3;$F =-> The operating environments of nonbusiness and business organizations are similar in many ways. %oth produce and distribute goods and services using scarce resources. *nswer =*> is incorrect because many noneconomic factors affect decisions to provide resources to nonbusiness enterprises. *nswer =%> is incorrect because business organizations obtain resources by providing goods and services. (any nonbusiness organizations obtain resources from contributors and are accountable to the providers of those resources or to their representatives. *nswer =4> is incorrect because the operating environments of nonbusiness and business organizations are similar. . ,A@73,A4F The objective=s> of financial reporting by nonbusiness organizations. 43S-7SS3;$F =4> *nswers =*> through =-> are included among the business objectives of financial reporting for nonbusiness organizations stated in S'*- +. *dditional objectives are to provide information about the li?uidity of the organization, economic resources, obligations, net resources, and changes in them, including managers! e1planations and interpretations. *nswers =*>, =%>, and =-> are incorrect because financial reporting by nonbusiness organizations should provide information useful in ma)ing resource allocation decisions, assessing services and the ability to continue to provide services, and assessing management stewardship and performance. . ,A@73,A4F The typical users of financial reports prepared by nonbusiness organizations. 43S-7SS3;$F =4> 3n addition to those users listed in answers =*> through =->, others potentially interested in the financial information provided by nonbusiness organizations include managers, organization members, ta1payers, contributors, grantors, lenders, suppliers, creditors, employees, directors and trustees, service beneficiaries, financial analysts and advisers, bro)ers, underwriters, lawyers, economists, ta1ing authorities, regulatory authorities, legislators, the financial press, labor unions, trade associations, researchers, teachers, and students. *nswers =*>, =%>, and =-> are incorrect because resource providers, constituents, and governing and oversight bodies are typical users. . ,A@73,A4F The statements included in a complete set of financial statements of not0for0profit organizations. 43S-7SS3;$F =-> S'*S 11/ states that Ga complete set of financial statements of a not0for0profit organizations shall include a statement of financial position as of the end of the reporting period, a statement of activities and a statement of cash flows for the reporting period, and accompanying notes to financial statements.H *nswer =*> is incorrect because the statement of financial position should be as of the end of the reporting period. *nswer =%> is incorrect because S'*S 11/ does not specify how the statement of cash flows is to be prepared. *nswer =4> is incorrect because the statement of financial position should be as of the end of the reporting period, and comparative statements are not re?uired. . ,A@73,A4F The focus of S'*S 11/. 43S-7SS3;$F =*> S'*S 11/ is intended to promote the relevance, understandability, and comparability of financial statements issued by not0for0profit organizations by re?uiring that certain basic information be reported. The focus of the financial statements re?uired by S'*S 11/ is on the not0for0profit organization as a whole. *nswers =%>, =->, and =4> are incorrect because, according to S'*S 11/, the focus is on the not0for0profit organization as a whole and on reporting assets, liabilities, and net assetsE changes in net assetsE flows of economic resourcesE cash flows, borrowing and repayment of borrowing, and other factors affecting li?uidityE and service efforts.

. ,A@73,A4F The classes of net assets reported in a statement of financial position of a not0for0profit organization. 43S-7SS3;$F =*> S'*S 11/, 'inancial Statements of $ot0for0 rofit ;rganizations, re?uires a not0for0profit organization to report amounts for all three classesF permanently restricted net assets, temporarily restricted net assets, and unrestricted net assets. 3nformation regarding the nature and amounts of permanently or temporarily restricted net assets should be provided by reporting amounts on the face of the statement or by including details in the notes to financial statements. *nswers =%>, =->, and =4> are incorrect because a not0for0profit organization should report amounts for all three classes. . ,A@73,A4F The reporting of e1penses in a not0for0profit organization!s statement of activities. 43S-7SS3;$F =-> 3n a statement of activities, revenues and e1penses ordinarily should be reported as gross amounts. ,evenues may be reported as increases in either unrestricted or restricted =temporarily or permanently> net assets. A1penses ordinarily should be reported as decreases in unrestricted net assets. Cowever, investment revenues, reported as increases in unrestricted or restricted net assets, may be reported net of related fees such as custodial fees and investment advisory fees provided that these fees are disclosed either on the face of the statement or in the related notes. *nswers =*>, =%>, and =4> are incorrect because not0for0profit organizations should report e1penses as decreases in unrestricted net assets. A1penses do not decrease permanently and temporarily restricted net assets. . ,A@73,A4F The asset held by a nonprofit organization for which depreciation should be recognized. 43S-7SS3;$F =*> S'*S 5&, ,ecognition of 4epreciation by $ot0for0 rofit ;rganizations, re?uires all nonprofit organization to recognize the cost of using up long0lived tangible assets =depreciation> in their general purpose e1ternal financial statements. Cence, a building used for religious activity is ordinarily depreciable. *nswers =%> and =-> are incorrect because depreciation does not have to be recognized for certain wor)s of art and historical treasures whose economic benefit or service potential is used up so slowly that their estimated useful lives are e1traordinarily long. *nswer =4> is incorrect because land is normally not depreciated by any organization. . ,A@73,A4F The reporting of a transfer to an $ ; with a direction that the assets be used to aid a specific beneficiary. 43S-7SS3;$F =4> S'*S 1&2, Transfer of *ssets to a $ot0for0 rofit ;rganization or -haritable Trust that ,aises or Colds -ontributions for ;thers, applies when a donor ma)es a contribution to a recipient entity that agrees either to user the assets for the benefit of another entity designated by the donor or to transfer the assets of the beneficiary. The recipient entity should recognize the receipt of the assets as a contribution if the donor e1plicitly grants the entity variance power to redirect the use of the assets or if the recipient and the beneficiary are financially interrelated. Cowever, if neither of these conditions applies, the recipient entity should recognize the fair value of the assets as a liabilityI *nswers =*>, =%>, and =-> are incorrect because the recipient has not been granted variance power, and the recipient and beneficiary are not financially interrelated organizations. Thus, the transfer should be accounted for as a liability. . ,A@73,A4F The circumstances under which a contribution of artifacts to be sold need not be recognized. 43S-7SS3;$F =%> -ontributions of such items as art wor)s and historical treasures need not be capitalized and recognized as revenues if they are added to collections that are =1> subject to a policy that re?uires the proceeds of sale of collection items to be used to ac?uire another collection itemsE =#> protected, )ept unencumbered, cared for, and preservedE and =&> held for public e1hibition, education, or research for public service purposes rather than financial gain =S'*S 112>. *nswers =*>, =->, and =4> are incorrect because, if the proceeds are used to support general museum activities, repair e1isting collections, or purchase buildings to house collections, the contribution must be recognized. . ,A@73,A4F The classification=s>, if any, of contributions received by not0for0profit organizations. 43S-7SS3;$F =4> S'*S 112 re?uires that contributions received by not0for0profit organizations be reported as restricted support or unrestricted support. -ontributions with donor0imposed restrictions are reported as restricted support. ,estricted support increases permanently restricted net assets or temporarily restricted net assets. -ontributions without donor0imposed restrictions are reported as unrestricted support.

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*nswers =*>, =%>, and =-> are incorrect because not0for0profit organizations must record contributions as unrestricted support or restricted support.
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. ,A@73,A4F The timing of recognition of a conditional promise to give. 43S-7SS3;$F =-> * conditional promise to give is one that depends on the occurrence of a specified future, uncertain event to establish the promisor!s obligations. 3t is recognized when the conditions are substantially met, i.e., when the conditional promise becomes unconditional. 3f the possibility is remote that the condition will not be met, the recognition criterion is satisfied. *nswers =*> and =%> are incorrect because receipt of the promise is not sufficient for recognition of a contribution. *nswer =4> is incorrect because the possibility that the condition will not be met must be remote before a contribution is recognized. . ,A@73,A4F The amount at which a contribution of electricity should be recorded by the donee. 43S-7SS3;$F =-> S'*S 112 defines a contribution of utilities, such as electricity, as a contribution of other assets, not a contribution of services. * simultaneous receipt and use of utilities should be recognized as both an unrestricted revenue and an e1pense in the period of receipt and use. The revenue and e1pense should be measured at estimated fair value. This estimate can be obtained from the rate schedule used by the utility company to determine rates charged to a similar customer. *nswers =*>, =%>, and =4> are incorrect because the simultaneous receipt and use of electricity should be recorded as an unrestricted revenue and an e1pense in the period of receipt and use. . ,A@73,A4F The classification of a gift to be invested in perpetuity. 43S-7SS3;$F =-> * donor0imposed restriction limits the use of contributed assets. This gift is unconditional in the sense that no condition is imposed on the transfer, but it includes a permanent restriction on the use of the assets. 7nder S'*S 11/, the gift should therefore be classified as an increase in permanently restricted net assets. *nswers =*>, =%>, and =4> are incorrect because the donor stipulated that the gift invested in perpetuity, a permanent restriction. . ,A@73,A4F The classification of e1pended dividend income generated from investments held in perpetuity. 43S-7SS3;$F =4> S'*S 11/ and 1#+ re?uire that income from donor0restricted permanent endowments be classified as an increase in temporarily restricted or permanently restricted net assets if the donor restricts its use. Cowever, if the donor0imposed restrictions are met in the same reporting period as the gains and investment income are recognized, the gains and income may be reported as increases in unrestricted net assets, provided that the organization has a similar policy for reporting contributions received, reports on a consistent basis from period to period, and ade?uately discloses its accounting policy. The temporary restriction on the B.6,666 of investment income was met by e1penditure in #661, the year the gain and income were recognized. Thus, the dividend revenue may be classified as an increase in either unrestricted or temporarily restricted net assets, depending on the $ ;!s accounting policy. *nswers =*>, =%>, and =-> are incorrect because investment income may be reported as an increase in either unrestricted or temporarily restricted net assets in these circumstances. . ,A@73,A4F The classification of unrealized gain from investments held in perpetuity. 43S-7SS3;$F S'*S 11/ and 1#+ permit the recognition of gains and investment income as increases in unrestricted net assets if the donor0imposed restrictions are met in the same reporting period as the gains and investment income are recognized, provided that the organization has a similar policy for reporting contributions received, reports on a consistent basis from period to period, and ade?uately discloses its accounting policy. The temporary restriction on the income was met by e1penditure in #661, the year the income and the gain were recognized. Thus, consistent with its policy, the $ ; should treat the gain as an increase in unrestricted net assets. "iven that the donor of the endowment allows the $ ; to choose suitable investments and that no permanent restriction is imposed on the gain by the donor or by the law, the classification of the gain is the same as that of the income. *nswers =*>, =->, and =4> are incorrect because $ ;!s policy is to report the gain as an increase in unrestricted net assets if the donor restriction is met in the period the gain and income are recognized. . ,A@73,A4F The classification of une1pended dividend income generated from investments held in perpetuity.

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43S-7SS3;$F =%> S'*S 11/ re?uires that gains and investment income from donor0restricted permanent endowments be classified as increases in temporarily restricted net assets if the donor restricts the use of these resources to a specific purpose that either e1pires with the passage of time or can be met by actions of the organization. The restriction is temporary because it will e1pire when the income is e1pended in a future period. *nswers =*>, =->, and =4> are incorrect because the donor0imposed restriction is temporary. 3t will e1pire when the income is e1pended. (oreover, the income cannot be classified as unrestricted because recognition and the e1piration of the restriction do not occur in the same period. *nswers =*>, =->, and =4> are incorrect because the donor0imposed restriction is temporary. 3t will e1pire when the income is e1pended. (oreover, the income cannot be classified as unrestricted because recognition and the e1piration of the restriction do not occur in the same period.
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. ,A@73,A4F The classification of an unrealized gain on investments held in perpetuity. 43S-7SS3;$F =%> given that the $ ; has the discretion to choose suitable investments =as opposed to holding specific securities in perpetuity>, the gain is not permanently restricted absent a donor stipulation or a legal re?uirement. ,ather, the gain has the same classification as the income. The latter is temporarily restricted because it is to be e1pended in a future period. Cence, the gain is also temporarily restricted. *nswers =*>, =->, and =4> are incorrect because the income and the gain are temporarily restricted. . ,A@73,A4F The contributed services to be capitalized. 43S-7SS3;$F =-> -ontributions of services by the professional carpenters should be capitalized. 7nder S'*S 112, the contributions of services re?uiring specialized s)ills, such as those of carpenters, electricians, etc., should be recognized if they are provided by individuals possessing those s)ills and would typically need to be purchased if not provided by donation. S'*S 112 also re?uires that donated services creating or enhancing nonfinancial assets be recognized even though specialized s)ills are not involved. %ecause the members! labor helped rebuild the church, their contributions of services also should be capitalized. *nswers =*>, =%>, and =4> are incorrect because the church members! donated labor and the services of the professional carpenters should be capitalized. . ,A@73,A4F The correct accounting treatment of combined fund0raising and educational materials or program services costs. 43S-7SS3;$F =%> When fund0raising costs are combined with program services costs or educational materials, the total of these combined services should be systematically and rationally allocated between the programs and fund0 raising. *nswer =*> and =-> are incorrect because costs that do not completely relate to one category should be allocated. *nswer =4> is incorrect because the costs must be allocated to the proper programs to which they relate. . ,A@73,A4F The valuation of donated e?uity securities. 43S-7SS3;$F =-> 3n its statement of financial position, a not0for0profit organization should measure the following investments at fair valueF =1> e?uity securities with readily determinable fair values and =#> debt securities. Thus, the total change in the fair value of the donated securities from the date of receipt to the balance sheet date must be reported in the statement of activities =S'*S 1#ld measure the following investments at fair valueF =1> e?uity securities with readily determinable fair values and =#> debt securities. Thus, the total change in the fair value of the donated securities from the date of receipt to the balance sheet date must be reported in the statement of activities =S'*S 1#+>. *nswers =*>, =%>, and =4> are incorrect because all investments to which S'*S 1#+ applies are reported at fair value. . ,A@73,A4F The e1pense classification for management and general e1penses in the statement of activities. 43S-7SS3;$F =%> Two functional categories of e1penses for an $ ; are program services and supporting services e1penses. Supporting services e1penses, which do not relate to the primary mission of the organization, may be further subdivided into =1> management and general e1penses, =#> fund0raising e1penses, and =&> membership development costs. *nswer =*> is incorrect because a direct reduction of fund balance would be the result of a transfer or a refund to a donor. (oreover, fund accounting information is not re?uired to be e1ternally reported. *nswer =-> is incorrect because program services e1penses related directly to the primary mission of the $ ;. *nswer =4> is incorrect because only

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costs directly related to a certain source of support, such as a special event or estimated uncollectible pledges, may be offset against revenue.
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. ,A@73,A4F The proper accounting for a split0interest agreement. 43S-7SS3;$F =*> *n $ ; should report an irrevocable split0interest agreement. *ssets under the control of the $ ; are recorded at fair value at the time of initial recognition, and the contribution is recognized as revenue. %ecause the $ ; has a remainder interest, it should not recognize revenue from receipt of the income of the trust. Thus, the $ ; should recognize revenue of B#66,666 =the presumed fair value of the contributed cash>. *nswer =%> is incorrect because the contribution is not reduced by the income paid to the donor. *nswer =-> is incorrect because the income paid to the donor is not revenue of the $ ;. *nswer =4> is incorrect because the contribution should be recognized at fair value. . ,A@73,A4F The true statement about pooling of investments by an $ ;. 43S-7SS3;$F =%> 3nvestment pools, including investments from contributions with different restrictions, are created for portfolio management. ;wnership interests are assigned =ordinarily in terms of units> to the pool categories =participants> based on the mar)et value of the cash and securities obtained from each participant. -urrent mar)et value also determines the units allocated to additional assets placed in the pool and to value withdrawals. 3nvestment income, realized gains and losses, and recognized unrealized gains and losses are allocated based on the units assigned. *nswer =*> is incorrect because pooling of investments is allowed to obtain investment fle1ibility and reduce ris). *nswers =-> and =4> are incorrect because no prohibition e1ists as to the types of investments that may be pooled. . ,A@73,A4F The classification of monies derived from educational programs of a hospital. 43S-7SS3;$F =4> ,evenues of a hospital are classified as patient service revenue and other revenue. ;ther revenue includes the usual ongoing operating revenues derived by hospitals from sources other than patient care and services. (ajor sources of other revenue are student tuition and fees and revenue recognized upon e1penditure of donor restricted gifts, grants, or subsidies for specific purposes such as research and education. Thus, the monies received from an educational program conducted by a hospital should be classified as other revenue. *nswer =*> is incorrect because ancillary service revenue is included under patient service revenues. *nswer =%> is incorrect because educational program revenue is not directly related to patient care and is, therefore, not includible in patient service revenues. *nswer =-> is incorrect because nonoperating gains typically arise from activities such as sales of investments or fi1ed assets, or investment income. . ,A@73,A4F The item=s>, if any, that are ongoing or central transactions for a not0for0profit hospital. 43S-7SS3;$F ,evenue from health care services include inpatient and outpatient services provided directly to patients for their medical care. The resulting revenues derive from furnishing room and board and nursing services. Cealth care service revenues are also earned by the operating room, recovery room, labor and delivery room, and other ancillary departments that give patient care. *nswers =*>, =->, and =4> are incorrect because room and board fees from patients and recovery room fees are ongoing or central transactions. . ,A@73,A4F The classification of revenue from cafeteria meals. 43S-7SS3;$F =4> ;ther revenues are derived from services other than providing health care services or coverage to patients, residents, or enrollees. This category includes proceeds from sale of cafeteria meals and guest trays to employees, medical staff, and visitors. *nswer =*> is incorrect because revenues from cafeteria sales are accounted for separately and not as a component of any related e1penses. *nswer =%> is incorrect because Gancillary service revenuesH is not a proper classification for hospital revenues. *nswer =-> is incorrect because patient service revenues are health care service revenues. . ,A@73,A4F The definition of restricted net assets. 43S-7SS3;$F =4> 3n health care organization accounting, the term GrestrictedH is used to describe resources that have been restricted as to their use by the donors or grantors of those resources. Temporarily restricted net assets are those donor0restricted net assets that can be used by the not0for0profit organization for their specified purpose once the

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donor!s restriction is met. ermanently restricted net assets =for e1ample, endowment funds> are those with donor restrictions that do not e1pire with the passage of time and cannot be removed by any actions ta)en by the entity. *nswer =*> is incorrect because donor restrictions are not removable by the board. Temporary restrictions e1pire by passage of time or by actions by the entity consistent with the donor!s restrictions. *nswer =%> is incorrect because board0designated restrictions are board0removable. *nswer =-> is incorrect because income generated by restricted net assets can be restricted for specific purposes.
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. ,A@73,A4F The accounting for a donation of medicine. 43S-7SS3;$F =4> -ontributions of noncash assets that are not long0lived are reported at fair value in the statement of operations. 4onated medicines, office supplies, and other materials that normally would be purchased by a hospital should be credited at fair value as other revenue because they directly relate to ongoing major operation but are not derived from services directly provided to patients. *nswer =*> is incorrect because donated assets should be recorded at their fair value when received. *nswers =%> and =-> are incorrect because this donation should be credited to another revenue account or a gain account. . ,A@73,A4F The health care revenues of a hospital. 43S-7SS3;$F =-> Cealth care services revenues are derived from services other than health care provided to patients and residents. ;ther revenues may include cafeteria sales, tuition from educational programs, donated medicine, and office space rentals. Cowever, contributions, either unrestricted or for a specific purpose, are treated as gains unless fund0raising is an ongoing major activity of the hospital. They are recognized at fair value. *nswers =*>, =%>, and =4> are incorrect because revenues from educational programs are other revenues, but unrestricted gifts are usually gains. . ,A@73,A4F The true statement about e1ternal reporting by a health care organization. 43S-7SS3;$F =%> The basic financial statements of a health are organization include a balance sheet, a statement of operations, a statement of changes in e?uity or net assets, and a statement of cash flows. *nswer =*> is incorrect because fund accounting may be used for internal purposes but is not re?uired or encouraged for e1ternal reporting. *nswer =-> is incorrect because the statement of changes in e?uity or net assts may be combined with the statement of operations. *nswer =4> is incorrect because the statement of operations all C-;s, including $ ;s, should report a performance indicator and other changes in net assets.

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