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Exam 10: Financial Reporting for Not-For-Profit Organizations

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Question 21

Multiple Choice

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In a not-for-profit organization, donated capital assets are recorded at what value?

A) The donor's net book value
B) Replacement or reproduction cost
C) Fair market value
D) Estimated net realizable value

E) All of the above
F) B) and C)

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Question 22

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When is it not appropriate to use an encumbrance system?

A) When there is a significant lag between purchase orders and the receipt of goods
B) When reporting is done on an expenditure basis
C) When only a small part of expenditures for goods and services are discretionary
D) When commitments and expenditures are made on a decentralized basis

E) B) and D)
F) C) and D)

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Question 23

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The Wellness Society, a not-for-profit organization, owns 5% of the shares of the Fitness Factory, a for-profit organization. The two organizations operate independently and have no board members in common. How should the Wellness Society account for its investment in the Fitness Factory?

The transportation fleet department for a provincial government uses an encumbrance system. On October 15, 20X1, the department manager issued a purchase order for $4,000 for snow tires. The tires were delivered on October 31, 20X1, with an invoice for $3,800. What should be recorded on October 15, 20X1?

Mr. Generous donated $100,000 to Excel Private School and specified that the principal amount not be spent but be maintained permanently. Interest on the invested funds can be used to award scholarships to those who excel in drama. How should the $100,000 contribution be presented on Excel Private School's financial statements?

Under the deferral method, how should contributions received in the current year, but restricted for operating expenses for one or more future periods, be reported in the current year?

With respect to the endowment fund, which of the following statements is true?

The disbursement basis for recognizing resource outflows uses which of the following bases?

Sydney won a lottery and made a $500,000 endowment contribution to his alma mater to provide scholarships. Under the deferral method, in the year of contribution, the university should recognize the contribution as which of the following?

For NFPs with a GAAP constraint, the CICA Handbook ________.

The Wellness Society, a not-for-profit organization, owns 30% of Walk for Canada, also a not-for-profit organization. The two organizations operate independently and have no board members in common. How should the Wellness Society account for its investment in Walk for Canada?

Which of the following statements related to accounting for donated goods and services for a not-for-profit (NFP) organization is true?

Big Research Foundation is a large not-for-profit organization that funds research into a variety of diseases. Annual revenues are in excess of $10 million. It has an endowment fund, a general fund, and a capital fund. You have just been appointed treasurer on its board and the accountant has come to you with a variety of questions. Required: Address each of the following questions, making sure that your advice complies with GAAP for not-for -profit organizations. 1. Big received a large endowment of $2 million on January 31, 20X9. During the year ended 20X9, there was interest earned of $60,000. Prepare the journal entries required to record the receipt of the endowment and the interest earned. 2. During the year, 1,500 volunteer hours were provided. The accountant has estimated that the value of this time is $37,500. The accountant stated that without the volunteers, Big would have had to hire employees to perform the work. Determine how the volunteer hours should be reported. 3. A large piece of research equipment was donated to the laboratory. The value of the equipment is $250,000 and it estimated to last about 10 years. Prepare the journal entries related to this donated equipment for the year.

The Smith family contributed $200,000 to a local college to establish a scholarship fund in the name of their late father. Scholarships will be provided from the fund earnings. This is best described as which kind of contribution?

A local ice cream shop pledged 10% of its sales on July 1 to the Children's Clubhouse, a not-for-profit organization. How should the Children's Clubhouse treat this pledge?

A museum has invested substantial funds for its collection in the past. During the year, the museum hired a new accountant, who decided that the collection should have been capitalized and amortized to operations. The accountant needs the approval of the treasurer to prepare the journal entries required to correct the previous financial statements. Required: You are the treasurer of this museum. Outline your response to the accountant.

Food for All (FFA)is a not-for-profit organization that has grown to be quite large. FFA operates 25 food banks in multiple locations throughout the province and has moved to a decentralized organizational structure. All of the funding is received by the head office and then each location is allocated a fixed amount of funds that can be used over the year for local expenses. Local expenses are at the discretion of the local managers. The board has decided to change its method of accounting to keep better track of costs at these various locations and to better manage the budget. The board has decided to implement a new budgeting and encumbrance accounting system. Required: 1. In October 20X9, FFA issued a purchase order for $35,000 to have 100,000 pamphlets printed to be distributed to households over the next six months. In December 20X9, the pamphlets were received along with an invoice for $33,900. Prepare the journal entries for October and December 20X9 using encumbrance accounting. 2. Identify when encumbrance reporting would be appropriate. Comment as to whether or not encumbrance reporting is appropriate for FFA.

In Canada, what is the most common way for a museum to report its collection on its financial statements?

Quick Care, a not-for-profit organization, received an externally restricted contribution. Quick Care does not have a separate restricted fund for the contribution. Under the restricted fund method, the contribution will be recognized as which of the following?

Which of the following reporting objectives for not-for-profit organizations allows the users to determine whether restricted funds were spent in accordance with the intended purpose?