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

When is an obligation recorded under an encumbrance system?

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?

During the year,a not-for-profit art gallery acquired a number of pieces for its collection.Which of the following choices for reporting the acquisitions is not in accordance with the CICA Handbook?

Bright School is a private school operating as a NFP with a fiscal year end of December 31,20X8.Bright School has an endowment fund and an operating fund.Earnings of the endowment fund can only be used to provide scholarships to students in need during the year.In any year that the full earnings are not paid out as in scholarships,they may be carried forward and used in future years.Scholarships are paid from the operating fund.During the year,the following transactions occurred: 1.The endowment fund earned interest income of $40,000.Only $30,000 was paid out in scholarships in the current year. 2.An additional endowment contribution was received of $750,000 at the end of the year.In this case,earnings on this endowment can only be used to purchase equipment for the science labs in the school. 3.A pledge for an endowment for $350,000 was received in October,20X8.This arose on the death of a long -time donor who made provisions in their will to leave to the school this endowment contribution.The lawyer handling the estate stated that the funds would be released in early February,20X9 once all of the legal requirements pertaining to the estate had been completed. Required: Prepare the journal entries to record all the transactions related to the above transactions.Bright School uses the deferral method of reporting.

When budgetary control accounts are first set up,________.

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

Describe the four fundamental ways in which not-for-profit organizations differ from business enterprises.What are the reporting objectives of NFP's ?

Which of the following would result in higher income under the cash basis as compared to the accrual basis deferral method for a not-for-profit organization in its first year of operations?

For not-for-profit organizations,the CICA Handbook ________.

On December 1,20X1,Wilson contributed $25,000 to The Women's Shelter,stipulating that his contribution be used to buy a commercial refrigerator and freezer system.The system was purchased on January 2,20X3.The shelter will depreciate the refrigerator over 5 years using the straight-line method.The shelter has a December 31 year-end and uses the deferral method.At December 31,20X3,the shelter records a journal entry to record depreciation and should also make the following journal entry.

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?

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?

World Doctors (WD)is a non-profit-organization that provides medical expertise and equipment in areas of the world that cannot afford this type of service or that have been struck with a disaster and need additional medical expertise.It is organized with numerous affiliated organizations.Recently,you have been appointed treasurer and the accountant has come to you with the following questions: 1.WD set up a new NFP which they will use specifically for fund raising purposes.The Board of directors of this agency is a separate Board,but any funds raised will be paid to WD at the end of each year,after all related costs have been deducted. 2.WD purchased shares in a profit-seeking enterprise that manufactures and distributes medical equipment.The rational for this decision was to be able to get a seat on the Board and influence the level of donated equipment made to WD each year.WD purchased 25% in this company. 3.Two directors of WD's Board sit on a board (of a total of 6 members)of a NFP involved in providing relief when disaster strikes around the world. Required: Determine the accounting and reporting treatment of the affiliates described above.

The transportation fleet department for a provincial government uses an encumbrance system.On October 15,20X1,the department manager issues 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?

The Wellness Society,a not-for-profit organization,owns 25% of the shares of the Fitness Factory,a for-profit organization.Three of the ten-person board of directors of the Fitness Factory are also directors of the Wellness Society.How should the Wellness Society account for its investment in the Fitness Factory?

Kind to Animals (KTA)is a NFP that operates an animal shelter and commenced operations in 20X9.KTA has a December 31 year end.In 20X9,the organization received $1.5 million to build a new shelter which was completed in October,20X9.The shelter is expected to have a useful life of 40 years.This was financed with $800,000 of private donations and $700,000 of government grants.In addition,$150,000 was provided in government grants on October 1,20X9 to fund two veterinarians for the next twelve months.Two veterinarians were hired October 1,20X9 at an annual salary of $120,000 each.The organization is expected to generate $1,250,000 in annual revenues.During the period October 1 to December 31,KIA received donations of $275,000 and paid out operating expenses of $235,000. Required: Prepare a partial statement of financial position to capture the above transactions occurring during 20X9.KIA uses the deferral method and does not have a separate capital fund..

Which of the following statements is true?

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?

When consolidated financial statements are prepared for a not-for-profit organization using fund accounting,these statements should show ________.

On January 2,20X6,the Exeter Golf and Country Club was formed and registered as a non-profit organization.In May 20X6,the Club purchased a golf course near Exeter for $5,000,000.The purchase price was financed with an 8% mortgage loan of $4,500,000 and $500,000 contributed by the founding members.The mortgage was repayable over 25 years.The $500,000 contribution from the founding members was an interest-free loan repayable over 5 years. The Club and vendor of the golf course agreed that the $5,000,000 purchase price would be split as follows: The land improvement costs include the costs of developing the golf course.Experts in the field estimate that major costs are incurred approximately every 25 years to redevelop a golf course. During 20X6,the membership fees were established for the Club as follows: The initiation fee entitles the member to lifetime membership in the Club and to a vote at the annual general meeting.The Club hopes to sell 400 of these lifetime memberships over the next 2 years in order to pay off the existing loans and provide $3,000,000 for development of a clubhouse.The annual course fee is due by April 1 of each year.It entitles the member to golf at the Club throughout the year.If the member pays the annual course fee prior to January 31,the fee is reduced to $950.It is expected that 60% of the members will take advantage of the early payment discount. The Club's president has approached you asking for assistance in establishing the accounting policies for the Club for its yearly financial statements. Required: Assume that the Club has decided to amortize the land improvement costs over 25 years,the clubhouse over 40 years,and to use the deferral method of accounting for contributions.Provide recommendations with supporting arguments for the accounting treatment of the initiation fees and annual fees.