ACC 410 Week 9 Quiz – Strayer NEW
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Quiz 7 Chapter 12 and 13
Not-for-Profit Organizations
TRUE/FALSE (CHAPTER 12)
1. The FASB has standard-setting jurisdiction
over all private not-for-profits and all government-owned not-for-profits.
2. Private not-for-profit accounting is closer
to business than to government accounting.
3. FASB Statement No. 117 directs that
revenues and expenses be reported in a statement of financial position.
4. In the statement of activities, FASB
Statement No. 117 requires revenues to be reported as increases in one of the
three categories of net assets, depending on donor-imposed restrictions;
however, all expenses should be reported as decreases in unrestricted net
assets.
5. Restricted contributions may be reported as
unrestricted if the restriction has been met in the same period as the
contribution is made.
6. FASB Statement No. 95 requires
not-for-profits use the direct method in the preparation of the statement of
cash flows.
7. In accounting for investments,
not-for-profits, like businesses, must report their investments at fair value
and classify the investments as either trading, available-for-sale, or
held-to-maturity.
8. Absent explicit donor or legal
stipulations, a not-for-profit’s endowment principal (permanently restricted
net assets) would not be affected by either gains or losses on investments.
9. Not-for-profits cannot own or be integrally
affiliated with either businesses or other not-for-profits.
10. FASB Statement No. 93 makes the recognition
of depreciation on long-lived assets optional at the discretion of the
not-for-profit.
MULTIPLE CHOICE (CHAPTER 12)
1. Financial statements for Smith College, a
church-supported college, should be prepared according to standards set by
a)
AICPA.
b)
FASB.
c)
GASB.
d)
Smith may choose any of the above.
2. The basis of accounting used by
not-for-profit organizations in their external financial reports is
a)
Industry-specific basis of accounting.
b)
Cash basis of accounting.
c)
Modified accrual basis of accounting.
d)
Accrual basis of accounting.
3. FASB requires the focus of external
financial reporting be on
a)
The donor-imposed restrictions on resources.
b)
All restrictions on resources.
c)
Funds of the entity.
d)
The entity taken as a whole.
4. Expenses incurred by not-for-profit
organizations should be reported as
a)
Decreases in one of the three categories of net assets.
b)
Decreases in unrestricted net assets.
c)
Decreases in temporarily restricted net assets.
d)
Decreases in permanently restricted net assets.
5. Revenues of a not-for-profit organization
should be reported as
a)
Increases in one of the three
categories of net assets.
b)
Increases in unrestricted net assets.
c)
Increases in temporarily restricted net assets.
d)
Increases in permanently restricted net assets.
6. Restricted gifts to not-for-profit
organizations
a)
Must always be shown as an increase in restricted net assets.
b)
Must always be shown as an increase in unrestricted net assets.
c)
May be shown as an increase in unrestricted net assets if the
restriction is met in the same period.
d)
May be shown as an increase in unrestricted net assets at the discretion
of management.
7. The account title “Resources Released from
Restriction” is reported by a ‘restricted fund’ as a
a)
Revenue account.
b)
Contra-revenue account.
c)
Expense account.
d)
Contra-expense account.
8. The account title “Resources Released from
Restriction” is reported by an ‘unrestricted fund’ as a
a)
Revenue account.
b)
Contra-revenue account.
c)
Expense account.
d)
Contra-expense account.
9. FASB requires that all not-for-profit
organizations report expenses
a)
By object.
b)
By function.
c)
By natural classification.
d)
By budget code.
10. Voluntary
health and welfare organizations must also report expenses by
a)
Object.
b)
Function.
c)
Natural classification.
d)
Budget code.
11. The National Association for the Preservation
of Wildlife received $10,000 from a benefactor to support the overall objective
of the organization. This amount will be
recognized as revenue
a)
In the period received.
b)
In the period spent.
c)
Never, because it is not earned.
d)
In the period it becomes susceptible to accrual.
12. Not-for-profit organizations report their
cash flows in which of the following categories?
a)
Operating, noncapital financing, capital financing, investing.
b)
Operating, noncapital financing, investing.
c)
Operating capital financing, investing.
d)
Operating, financing, investing.
13. Not-for-profit organization should report
contributions restricted for long-term purposes in which of the following
categories?
a)
Operating.
b)
Financing.
c)
Capital financing.
d)
Investing.
14. Not-for-profit organizations should report
interest and dividends earned and restricted for long-term purposes in which of
the following categories?
a)
Operating.
b)
Financing.
c)
Capital financing.
d)
Investing.
15. Revenue from an exchange transaction may be
classified as an increase in which class of net assets?
a)
Unrestricted net assets.
b)
Temporarily restricted net assets.
c)
Permanently restricted net assets.
d)
Any of the above.
16. During the annual fundraising drive, the
Cancer Society raised $900,000 in pledges of financial support for their
general operations. By the fiscal
year-end, the Society had collected $600,000 of the pledges. The Society estimates that 10% of the
remaining pledges will be uncollectible.
The NET amount of revenue the Society should recognize during the
current year from this pledge drive is
a)
$900,000.
b)
$870,000.
c)
$810,000.
d)
$600,000.
Use the following information to
answer #17 - #19.
United
Charities’ annual fund raising drive in 2001 raised pledges of $600,000 of
which $400,000 were collected in 2001 and $100,000 were collected in 2002. United Charities estimates $75,000 of the
remaining pledges will never be collected.
17. The increase in unrestricted net assets in
2001 as a result of the fund raising drive is
a)
$600,000.
b)
$525,000.
c)
$400,000.
d)
$125,000.
18. The increase in temporarily restricted net
assets in 2001 as a result of the fundraising drive is
a) $600,000.
b)
$525,000.
c)
$400,000.
d)
$125,000.
a)
$0
b)
$100,000 increase.
c)
$100,000 decrease.
d)
$500,000 increase.
20. In a prior year, United Charities received a
$100,000 gift to be used to acquire vans to provide transportation for
physically challenged adults. During the
current year, United acquired two vans at a cost of $60,000 each. The appropriate entry(ies) to record the
acquisition should be
a)
UNRESTRICTED FUND
Resources Released from
Restriction $100,00
Cash $100,000
RESTRICTED FUND
Fixed Assets $120,000
Cash $ 20,000
Resources Released
from Restriction $100,000
b)
RESTRICTED FUND
Resources Released from
Restriction $ 100,000
Cash $100,000
UNRESTRICTED FUND
Fixed Assets $120,000
Resources Released
from Restriction $100,000
Cash
$ 20,000
c)
UNRESTRICTED FUND
Fixed
Assets $120,000
Cash $120,000
d)
RESTRICTED FUND
Fixed Assets $120,000
Cash $120,000
21. In the current year National Pet Charities,
which uses fund-type accounting to maintain its books and records, received a
$30,000 contribution to help educate people on responsible pet ownership. During the current year, the entry to record
this donation is
a)
UNRESTRICTED FUND. No entry.
RESTRICTED FUND. Debit Cash $30,000; Credit Revenues $30,000.
b)
UNRESTRICTED FUND. No entry.
RESTRICTED FUND. Debit Cash $30,000; Credit Net Assets
$30,000.
c)
UNRESTICTED FUND. Debit Cash $30,000; Credit Revenues $30,000.
RESTRICTED FUND. No entry.
d)
UNRESTRICTED FUND. Debit Cash
$30,000; Credit Net Assets $30,000.
RESTRICTED FUND. No entry.
22. Grace Church, a nondenominational
not-for-profit entity, operates a school in connection with the Church. This year members of the Church decided to
construct a new wing on the school with six classrooms. The Church hired an architect and a construction
supervisor. The bulk of the labor for
construction was donated by Church members who were willing workers but not
necessarily skilled carpenters.
Materials for the construction cost $300,000 and the paid labor was
$100,000. The fair value of the completed
building is $1 million. When the
building is completed what should be the balance in the asset account
‘Building’ and the account ‘Contributed Revenue.’
a)
Building $400,000; Contributed Revenue $0.
b)
Building $400,000; Contributed Revenue $600,000.
c)
Building $1 million; Contributed Revenue $600,000.
d)
Building $1 million; Contributed Revenue $0.
23.
Mary’s Extended
Care Center, a not-for-profit entity, enjoys the services of a group of high
school age people who each agree to work three afternoons a week for three
hours each afternoon performing a variety of patient-related services such as
writing letters for those who are unable to do so, delivering mail to the
patient rooms, and pushing wheel-chair patients across the grounds. The services rendered by these young people
enhance the quality of life for the residents.
They could not be provided if they were not donated because there are
not enough resources to do so. The past
year the young people donated 5000 hours in total. The services would have cost $6.00 per hour
if they had been purchased but they were worth $10 an hour to St. Mary’s. What is the amount of contributed revenue
that should be recognized by St. Mary’s related to these services?
a)
$50,000.
b)
$30,000.
c)
$0.
d)
Cannot determine.
24. Simplex Games, a not-for-profit entity
organized to provide athletic competition opportunities for high school
students, utilizes a number of volunteers in carrying out its mission. At the 2002 Games 50 volunteers provided a
total of 1000 hours of service performing tasks such as picking up litter and
delivering water to the athletes. A
local CPA firm donates its services to prepare the annual tax return and other
federal and state required paperwork which must be filed to maintain its status
as a tax-exempt organization. During
2002 the CPA firm provided 50 hours of service.
If purchased, the CPA services would have cost $50 per hour and the game
workers would have cost $5 per hour. How
much contributed service revenue should Simplex Games recognize in 2002?
a)
$7,500.
b)
$5,000.
c)
$2,500.
d)
$0.
25. A
not-for-profit Art Museum that has elected not to capitalize its art collection
receives a donation of a rare piece of Tlinket Indian art. The donor paid $8,000 for the piece several
years ago. Today the piece has an
estimated fair value of $50,000. What
entry should the Art Museum make upon receipt of this donation?
a)
Debit Collection Items $50,000; Credit Donated Revenue $50,000.
b) Debit Collection Items $8,000; Credit Donated
Revenue $8,000.
c)
Debit Collection Items $50,000; Credit Unrestricted Net Assets $50,000.
d)
No entry required.
26. Native Art Museum, a not-for-profit entity
that elects not to capitalize its collection items, purchased for $10,000 a
wonderful totem pole for display near the door of the Museum. As a result of this transaction, which of the
following entries should be made?
a)
Debit Collection Items $10,000; Credit Cash $10,000.
b)
Debit Collection Expense $10,000; Credit Cash $10,000.
c)
Debit Unrestricted Net Assets $10,000; Credit Cash $10,000.
d)
No entry is required.
27. The Nature Conservatory, a not-for-profit
entity, engaged in a fundraising drive to raise money to buy land to provide a
habitat for the endangered Sleepy Eagle.
A donor pledged $1 million to the project provided that the Nature
Conservatory was able to raise an additional $1.5 million from other
sources. What entry should the Nature
Conservatory make at the time of the $1 million pledge?
a)
Debit Pledge Receivable $1 million; Credit Unrestricted Revenue $1
million.
b)
Debit Pledges Receivable $1 million; Credit Temporarily Restricted
Revenue $1 million.
c)
Debit Pledges Receivable $1 million; Credit Temporarily Restricted Net
Assets $1 million.
d)
No entry is made at the time of the pledge.
28. When should a not-for-profit entity recognize
pledge revenue that is contingent upon raising a matching amount?
a)
When the pledge is made.
b)
When the cash is received.
c)
When the matching funds have been raised.
d)
When the project is completed.
29. A donor pledges $100,000 to the Shakespeare Foundation
to be used only to support the summer Shakespeare Theater—an event that has
been held every summer for 38 years.
This is an example of a(an)
a) Conditional contribution.
b) Unconditional contribution.
c)
Restricted contribution.
d)
Unrestricted contribution.
30. United Charities accepted a contribution from
a donor and agreed to transfer the assets to Aid for Friends, a not-for-profit
that provides temporary shelter to the homeless. United Charities should debit cash or other
assets and credit
a)
Unrestricted revenue.
b)
Temporarily restricted revenue.
c)
Liability to Aid for Friends.
d)
United Charities should not make an entry.
31. Music Lovers Foundation, a not-for-profit
governed by an independent board, was founded to support the Northern State
University Choir until such time as the state legislature shall adequately fund
the choir. When the Choir is adequately
funded by appropriation the Foundation may direct resources to other music
projects that it deems acceptable. When
Music Lovers accepts a contribution from a donor it should debit cash and/or
other assets and credit
a)
Unrestricted revenue.
b)
Temporarily restricted revenue.
c)
Liability.
d)
It should not make an entry.
32. The Save the Animals Foundation received a
gift of $500,000 from a donor who wanted the gift used to acquire habitat for
endangered snails. The money may be
invested but all earnings are restricted to habitat acquisition. During the year all of the gift was invested
in corporate securities. At year-end,
the securities had a value of $501,0000.
The appropriate way to recognize the change in fair value is
a)
Debit Investment $1,000; Credit Unrestricted Revenue $1,000.
b)
Debit Investment $1,000; Credit Temporarily Restricted Revenue $1,000.
c)
Debit Investment $1,000; Credit Permanently Restricted Revenue $1,000.
d)
No entry should be made until the securities are sold.
33. Sheridan Public School Foundation had
available temporarily restricted gifts in excess of $200,000. The Foundation decided to invest this money
temporarily until it needs the funds for the restricted purpose. The donors had made no specific stipulations
regarding investment earnings but the Foundation board had voted to use the
earnings on the projects for which the gift had originally been
restricted. At year-end, the securities
had a fair value of $200,500. The
appropriate way to recognize the change in fair value is
a)
Debit Investment $500; Credit Unrestricted Revenue $500.
b)
Debit Investment $500; Credit Temporarily Restricted Revenue $500.
c)
Debit Investment $500; Credit Permanently Restricted Revenue $500.
d)
No entry should be made until the securities are sold.
34. The Friends of the Library (FOL), a
not-for-profit entity, received a gift restricted to acquisition of a special
piece of the equipment used to restore books.
Late last year FOL acquired the machine at a total cost of $19,000. The machine is estimated to have a useful
life of eight years and a salvage value of $3,000. In what fund should FOL make the entry to
record the depreciation for the current year?
a)
Unrestricted fund.
b)
Temporarily restricted fund.
c)
Permanently restricted fund.
d)
FOL should not recognize depreciation.
35. A not-for-profit would include which of the
following financial statements in is Basic Financial Statements?
a)
Statement of Financial Position and Statement of Activities.
b)
Statement of Financial Position, Statement of Activities, and Cash Flow
Statement.
c)
Statement of Financial Position, Statement of Activities, Cash Flow
Statement, and a Statement of Functional Expenses.
d)
Statement of Financial Position, Statement of Activities, and a
Statement of Functional Expenses.
PROBLEMS (CHAPTER 12)
1. United Charities, a not-for-profit entity,
supports activities for lower-income families.
They have regularly engaged in activities such as providing
transportation for physically-challenged individuals, providing shelters for
the temporarily homeless, providing
congregate meals for the homeless, and providing shelters for abused women and
children. Record the following transactions.
Your account titles should clearly indicate to which class of net assets
the entry will be closed or the fund in which the entry is being made. If no entry is required, write “No entry
required.”
a.
United Charities engaged in a fund-raising campaign which resulted in
pledges of $600,000 to support activities of the current year. During the year, United collected $500,000 on
these pledges.
b.
A local citizen pledged $50,000 to purchase and equip a van to provide
transportation for physically challenged individuals. This citizen has donated regularly and there
is no reason to believe that this pledge will not be collectible.
c.
In prior years, an advocacy group for abused women donated $10,000 to be
used to furnish a ‘safe-house’ for abused women and children. During the current year renovation of the
safe house was completed and furniture was acquired at a total cost of $15,000.
d.
A wealthy benefactor pledges $100,000 to United if United successfully
raises a matching amount in a capital asset fund-raising drive being conducted
over a 12-month period.
e.
$60,000 cash is received from a donor who specifies that the money must
be spent to provide educational activities for children who will be living in
the ‘safe-house’. It will be next year
before the ‘safe-house’ has its first residents.
f.
A local attorney has agreed to provide legal services to United on a
pro-bona basis. During the current
period the attorney provided services for which she would have billed $1,500.
g.
Several older housewives provide services at the United Charities
congregate meal setting facility. These
women work in the kitchen serving meals and cleaning up the kitchen. If these services were not donated they would
have to purchased. The value of these services at the prevailing wage rate for
similar employees would have amounted to $50,000 for the current year.
h.
Fixed assets belonging to United Charities have an original cost of
$270,000, an estimated salvage value of $70,000, and an estimated useful life
of 20 years. Record depreciation if
applicable.
2. The Heritage Art Museum, a not-for-profit
entity specializing in art items created by natives of the Pacific Northwest,
has a December 31 fiscal year-end. The
Museum has a policy of not capitalizing collection items. Your entry should clearly indicate to which
class of net assets the account would be closed, or in which fund the entry is
being made. If no entry is required, write “No entry required.”
a.
During the current year the Museum received admissions fees in cash
$500,000.
b.
Citizens of the local community are encouraged to participate in a
program called ‘Friends of the Museum.’
For a yearly contribution of $25 per family, a family is entitled to
free admission to the Museum during the calendar year. A ‘Friend of the Museum; also receives a
monthly one-page newsletter announcing upcoming events. At year-end, there were 1000 members in the
‘Friends of the Museum.’
c.
During the current year the Museum incurred salary expense of $1 million of which $60,000 remains unpaid at
year end.
d.
During the year the Museum incurred operating expenses of $400,000 of
which $30,000 remains unpaid at year end.
Of the $400,000, $50,000 was used
to buy supplies of which $20,000 remains on hand at year-end.
e. Office equipment owned by the Museum has a
historical cost of $100,000, salvage value of $20,000 and can be depreciated
over 8 years on the straight-line basis.
f.
During the year the Museum conducted a fund-raising drive to raise money
to acquire new art items for the Museum.
The Museum received pledges of $200,000 of which the Museum had
collected $150,000 by year-end and expected to ultimately collect another
$20,000.
g.
The Museum had a small portfolio of investments in equity
securities.. At the beginning of the
year the portfolio had a fair value of $60,000.
During the year the Museum collected $3,000 in dividends on the
securities. At year-end the portfolio
had a market value of $61,000.
h.
During the year a citizen died and willed his wonderful collection of
native art to the Museum. The appraised
value of the collection was $600,000.
i.
To balance its collection, the Museum sold two of its collection items
for $250,000 which approximates fair value. These items had a historical cost to the
Museum of $10,000.
j.
The proceeds of the sale were used to acquire two new items at a cost of
$310,000.
ESSAYS (CHAPTER 12)
1. For each of the cases below state whether or
not the contributed services would be recognized, how much would be recognized,
and how it would be recognized. Explain
your answer in terms of the existing standard.
Also explain why, in your opinion, the standard permits/prohibits
recognition of this particular type of contribution.
a.
A non-denominational church votes to construct a new educational wing on
their existing facility. The church will
hire an architect to design the new wing and a construction supervisor to
oversee the construction. Church members
will provide most of the labor for the construction. Labor donated by members who have
construction experience or who are considered professional craftsmen at the
prevailing wage for their trade or craft is $500,000. Labor donated by persons possessing
non-building specialized skills (doctors, teachers, lawyers, etc.) at their
prevailing wage rates is $700,000. Labor
donated by non-professionals measured at the minimum wage is $300,000. The appraised value of the building when
completed is $3 million. The architect
was paid $700,000, the construction supervisor was paid $50,000 and the
materials purchased for use in the building cost $1 million.
b.
An investment advisor, a member of the Board of a not-for-profit entity,
provides pro bono investment advise to the NFP.
The NFP does not have a particularly large investment portfolio and
without the advise of the Board member the NFP would probably invest its idle
cash in certificates of deposits at an insured commercial bank to protect
itself against loss of its principal. If
the investment advisor had provided similar services to his customers he would
have charged $2,000.
c.
Members of a religious order provide professional nursing services for a
health-care facility that is run by their order. The members are not compensated but their
order provides lodging, food, and other necessities. The cost of the lodging, food, etc., is paid
by the health-care entity and classified as Nursing Service Expense. At the end of the year the balance in the
Nursing Service Expense account is $3 million.
The value of the nursing services provided, measured at the prevailing
wage for nurses, is $5 million.
2. A generous benefactor pledges $1 million to
The R. J. Smith Foundation, a
not-for-profit entity that promotes the arts.
The gift is to be used to provide scholarships for talented musicians at
a music camp operated by the Foundation.
The gift was given in August, 2002 to support the Summer 2003 music
program. The Foundation Director argues
that the gift is a conditional restricted gift and therefore cannot be
recognized as revenue in 2002. The
accountant argues that the gift is an unconditional restricted gift and must be
recognized in the current year. What is
the basis for the Director’s argument?
What is the basis for the accountant’s argument? In your answer provide an explanation of the
terms conditional, unconditional, restricted and unrestricted.
Chapter
13
Special Issues for Not-for-Profit
Health Care Providers and Institutions of Higher Education
TRUE/FALSE (CHAPTER 13)
1. The statement of financial position of a
not-for-profit health care organization should distinguish among unrestricted,
temporarily restricted, and permanently restricted net assets.
2. The statement of activities of a
not-for-profit health care organization should classify the revenues as
unrestricted, temporarily restricted, or permanently restricted, but should
report expenses only as decreases in unrestricted resources.
3. Temporarily restricted funds related to
plant and equipment generally account only for resources restricted to their
purchase or construction, not for the plant and equipment itself, which are
typically reported in the general operating fund.
4. Not-for-profit health care organizations
must use exactly three funds to account for the three categories of
restrictiveness.
5. In classifying expenses in the statement of
activities of a not-for-profit health care organization, all expenses are
reported exclusively within the temporarily restricted category.
6. Unlike businesses, not-for-profit health
care providers often serve patients who they know will be unable to pay the
amounts billed.
7. According to the AICPA audit guide, Health Care Organizations, revenue must
be recorded using the patient discharge method.
8. The Hill-Burton
Act stipulates that hospitals receiving federal construction funds must
provide a certain amount of charity care.
9. Government hospitals are subject to the
same FASB standards as private not-for-profit health care organizations.
10. Private not-for-profit colleges and
universities are subject to the same FASB standards as other not-for-profit
entities.
MULTIPLE CHOICE (CHAPTER 13)
1. For a not-for-profit hospital, which of the
following financial statements is NOT required?
a)
Statement of financial position.
b)
Statement of activities.
c)
Statement of cash flows.
d)
Statement of functional expenses.
2. For a not-for-profit college or university,
which of the following categories of net assets is NOT appropriate in its
external financial statements?
a)
Unrestricted net assets.
b)
Temporarily restricted net assets.
c)
Permanently restricted net assets.
d)
None. All of the above are
appropriate.
3. New College, a private college, received a
$1 million donation. The donor specified
that the principal of her gift could not be used for program activities but the
earnings on the principal must be used to provide scholarships to academically
qualified students in the business school.
The $1 million gift would increase which of the following categories of
net assets?
a)
Unrestricted net assets.
b)
Temporarily restricted net assets.
c)
Permanently restricted net assets.
d)
Either (b) and (c).
4. Intermountain Hospital, a not-for-profit
health care provider, issued $70 million in term bonds to finance construction
of a new wing at its main hospital.
Terms of the bond issue require that $5 million of the proceeds of the
bond issue be invested in U.S. government securities. The $5 million must be held until maturity of
the bonds. The $5 million will increase
which class of net assets?
a)
Unrestricted net assets.
b)
Temporarily restricted net assets.
c)
Permanently restricted net assets.
d)
Either (b) or (c).
5. During the current year, Jones University
received a $50,000 gift from an alumnae who specified that it must be used to
pay travel costs for faculty to attend health care conferences in foreign
countries. During the year the
university spent $8,000 to support travel to a health care conference in
Italy. The $8,000 disbursement will
cause a NET decrease in which class of net assets?
a)
Unrestricted net assets.
b)
Temporarily restricted net assets.
c)
Permanently restricted net assets.
d)
Cannot be determined.
Use the following
information to answer #6 and #7.
Kale
Hospital, a not-for-profit entity, received a pledge from a donor in support of
a fund raising effort by the Hospital to finance construction of a new facility
for cancer treatment. The donor promised
to pay $1 million in equal annual installments of $100,000 over the next 10
years. The present value of the gift at
the risk-free interest rate is $736,000.
6. The amount of unrestricted revenue that
should be recognized by Kale in the year of the gift is
a)
$1 million.
b)
$736,000.
c)
$100,000.
d)
$0.
7. The amount of restricted revenue that
should be recognized by Kale in the year of the gift is
a)
$1 million.
b)
$736,000.
c)
$100,000.
d)
$0.
8. An accountant has encountered a perplexing
financial reporting issue related to the hospital for which she is preparing
financial statements. The issue is not
specifically addressed by FASB
statements. To which of the following
sources would the accountant probably look for industry-specific guidance?
a)
GASB Statements.
b)
AICPA accounting and auditing guide, Not-for-Profit
Organizations.
c)
AICPA accounting and auditing guide, Health
Care Organizations.
d)
Pronouncements of the HFMA or AHA.
9. Which of the following entities should
recognize depreciation expense on its operating statement?
a)
Not-for-profit University.
b)
Not-for-profit Foundation.
c)
Not-for-profit Hospital.
d)
All of the above.
10. In prior years, a not-for-profit hospital
received funds from a donor who restricted the use of those funds to providing
nursing scholarships. During the current
year $8,000 of scholarships were awarded.
These scholarships should be reported
a)
As expenses in the unrestricted fund.
b)
As reductions in the revenue section in the unrestricted fund.
c)
As expenses in the temporarily restricted fund.
d)
As expenses in the permanently restricted fund.
11. During the current year, St. Mary’s Hospital
(a not-for-profit entity) earned, based on its normal billings rate, $1 million
in patient service revenues. Many of
these patients belong to a health plan that has an established pay schedule. Based on the specific services rendered to
members of the plan, the hospital estimates that $.05 million will not be collectible from the plan or the
patient. Some of the patients are
Hospital employees. These employees are
given a 50% discount on the services rendered.
Employee discounts for the current year total $.01 million. Some of the patients are uninsured and the
hospital estimates, that of the amount billed to the uninsured patients, $.2
million will not be collectible (bad debts). The amount of net patient service revenues
for St. Mary’s Hospital for the current year is
a)
$1 million.
b)
$.94 million.
c)
$.87 million.
d)
$.74 million.
12. A consortium of physicians agree to provide
services to the employees of a large County government. The agreement calls for monthly payments from
the County to the consortium in the amount of $100,000 per month. County employees are not billed for services
rendered by the consortium. All County
employees are required to use the consortium under their health care program
(any services rendered to County employees by other physicians are not covered
under the health plan). During the
period the consortium performed services for County employees for which it
would have billed $85,000. The
consortium referred patients to other health care providers for services they
could not perform. The consortium
estimates that it will be billed $5,000 for those services. The amount of revenue that should be recognized
by the consortium is
a)
$100,000.
b)
$95,000.
c)
$85,000.
d)
$80,000.
13. A hospital estimates, based on past
experience, that it will incur $5 million in malpractice claims as a result of
services rendered in the current period.
The hospital carries a malpractice insurance policy with a yearly $2
million deductible clause. The amount
that should appear on its year-end financial statement as Claims Expense (Loss)
should be
a)
$0.
b)
$2 million.
c)
$3 million.
d)
$5 million.
14. A hospital carried a 2-year malpractice
insurance policy that allows for retroactive premium adjustments based on
experience (claims actually incurred).
The basic premium is $150,000 for the 2-year policy payable in advance. At the end of the first year the hospital estimates
that it will have to pay an additional $40,000 in premiums as a result of
claims filed in the current year and it estimates that it will incur additional
premiums in the second year of $50,000 as a result of claims filed in the
second year. The amount of insurance
expense that should appear on the financial statements at the end of the first
year should be
a)
$75,000.
b)
$115,000.
c)
$150,000.
d)
$240,000.
15. An accountant has encountered a perplexing
financial reporting issue related to the private college for which he is
preparing financial statements. The
issue is not specifically addressed by FASB Statements. To what standards would the accountant now
look for guidance?
a)
GASB Statements.
b) AICPA accounting and auditing
guide, Not-for-Profit Organizations.
c)
AICPA accounting and auditing guide, Audits
of Colleges and Universities and/or AICPA SOP 74-8, Financial Accounting and Financial Reporting by Colleges and Universities.
d)
College textbooks.
16. A private not-for-profit college would
include which of the following financial statements in is Basic Financial
Statements?
a)
Statement of Financial Position and Statement of Activities.
b)
Statement of Financial Position, Statement of Activities, and Cash Flow
Statement.
c)
Statement of Financial Position, Statement of Activities, Cash Flow
Statement, and a Statement of Functional Expenses.
d)
Statement of Financial Position, Statement of Activities, and a
Statement of Functional Expenses.
17. For financial reporting purposes, government
hospitals are within the jurisdiction of the
a)
FASB.
b)
GASB.
c)
AICPA.
d)
Hill-Burton Act.
18. For financial reporting purposes, private
not-for-profit health care providers are within the jurisdiction of the
a)
FASB.
b)
GASB.
c)
AICPA.
d)
Hill-Burton Act.
19. For financial reporting purposes, state
supported colleges and universities are within the jurisdiction of the
a)
FASB.
b)
GASB.
c)
AICPA.
d)
NACUBO.
20. For financial reporting purposes, private
not-for-profit colleges and universities are within the jurisdiction of the
a)
FASB.
b)
GASB.
c)
AICPA.
d)
NACUBO.
PROBLEMS (CHAPTER 13)
1. St. Anthony’s hospital is a private
not-for-profit entity that provides health care services to the citizens in the
small rural community in which it is located.
The most recent construction at the Hospital was financed using
Hill-Burton funds. During the current
month, St. Anthony’s engaged in the following transactions. Using the following information make the appropriate
entries for St. Anthony's for the current month.
a.
The Hospital would have billed $1.2 million for services rendered to
in-patients. The $1.2 million is based
on the hospital’s established billing rate.
Of this amount $800,000 will be billed to Delta Medical Group, a
third-party payor that insurers many state employees, $150,000 will be billed
to uninsured patients, $200,000 is provided to indigents and will be considered
charity care, and $50,000 was for services rendered to Hospital employees.
b.
Based on prior experience with uninsured patients, the Hospital
estimates that $60,000 of the $150,000 will be uncollectible.
c.
The Hospital recognizes the value of charity services rendered.
2. Richards College is a not-for-profit
college. Record the following
transactions for Richards College. The
College has a June 30 fiscal year.
a.
Tuition revenue for the Fall semester 2002 (August - December) was $4
million; tuition for the Spring semester 2003 (January - May) was $3.8 million;
tuition for the Summer semester 2003 (June 1-August 15) was $1 million. All tuition received in cash.
b.
Faculty salaries for the Fall semester were $3 million; for the Spring
semester, $2.9 million; for the Summer semester were $.5 million. All salaries are paid at the end of the month
earned. Salaries earned in summer are
June $.2 million, July $2 and August .5 million.
c.
During June $3.2 million of tuition applicable to the Fall 2003 was
received in cash.
d. Fixed assets of the University have a
historical cost of $120 million, estimated salvage value of $20 million and an
estimated useful life of 50 years.
ESSAYS (CHAPTER 13)
1. Alpha Hospital is a recipient of Hill-Burton
funds and must provide some hospital care for which it will not be
compensated. During the current year
Alpha Hospital provided $1 million in charity care. What is the current financial reporting
requirement for charity care? Do you
agree or disagree with the current financial reporting requirement? Why or why not? If you do not agree, how do you think charity
care should be reported? If you agree
with the current standards, what alternative reporting requirements do you
believe will be proposed by those who do not agree with the current standards?
2. Neither the FASB nor the GASB
pronouncements, nor the current AICPA not-for-profit audit guide, addresses the
issue of tuition revenue. Thus, the 1973
AICPA college and university guide remains the most authoritative source of guidance
for both government and not-for-profit institutions. What is the directive on how to report
revenues and expenditures of an academic term, such as a summer session, which
is conducted over a fiscal year-end?
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