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

One of the programs that the Tyger Society operates is a drug and alcohol awareness program for junior high school students across Canada. This is an example of _________.

A not-for-profit organization provides language training and homework assistance to immigrants. Most of the services are provided by volunteers and all the funds come from public donations. The primary objective in preparing financial statements for this organization is ________.

The CICA Handbook requires large not-for-profit organizations to ________.

Baseball for All (BFA)is a not-for-profit organization that runs baseball tournaments and clinics for all ages. It also buys equipment needed at the tournaments. It receives government funding from the municipality, and tournament and clinic fees are paid by participants. Generally, annual revenues have been $350,000. This year, BFA received a special grant of $150,000 to buy new equipment. Equipment in the amount of $180,000 was purchased. The equipment is expected to last five years. Required: Discuss the various methods that BFA can use to record the purchase of the equipment allowed under the CICA Handbook-Part III and prepare the appropriate journal entries. As part of your explanation, explain the differences between the expenditure basis and expense basis of reporting.

Kind to Animals (KTA)is an 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 12 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.

Help Yourself, a not-for-profit organization, has a 5% economic interest in the Furnishing Bank, another not-for-profit organization. The organizations operate independently, have no directors in common, and have no transactions with each other. For financial reporting purposes, how should Help Yourself account for its interest in the Furnishing Bank?

What type of not-for-profit (NFP)organization may be allowed to use the restricted fund method?

When is an obligation recorded under an encumbrance system?

The primary objective of using an encumbrance system is to keep track of an organization's ________.

Contributions received by NFPs may be restricted. Funds can be received in the form of endowment contributions and contributions that are externally restricted by the donor or internally restricted by the board. Required: Explain the differences between endowment contributions and contributions that are externally restricted by the donor or internally restricted by the board. Discuss the accounting treatment for each type of restricted contribution if the NFP uses the deferral method of reporting.

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 five years. The club and vendor of the golf course agreed that the $5,000,000 purchase price would be split as follows: Land $\quad \quad \$ 600,000$ Land improvements $\quad 4,400,000$ 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: Initiation fee $\quad \$ 20,000$ Annual course fee $\quad\$ 1,000$ 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 two 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 and 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.

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 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 the above transactions for the fiscal year-end December 31, 20X8. Bright School uses the deferral method of reporting.

Which of the following statements about incorporated not-for-profit (NFP)organizations is true?

The Wellness Society, a not-for-profit organization, owns 25% of the shares of the Fitness Factory, a for-profit organization. Three of the 10-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?

Under the deferral method of NFP accounting for unrestricted contributions, ________.

A university needs to know the cost of delivering each of its programs. Which basis would be the most appropriate for the university to use on its statement of operations?

Jordan made a $100,000 contribution to the Appo Society, a not-for-profit organization. Jordan stipulated that his contribution be used for the organization's breakfast program in the next year. How should Appo record the contribution at the time of contribution?

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 five years using the straight-line method, with no residual value. The shelter has a December 31 year-end and uses the deferral method. At December 31, 20X3, the shelter made a journal entry to record depreciation. What other journal entry, if any, should the shelter make?

A not-for-profit organization is not required to capitalize and amortize its capital assets if the organization ________.

World Doctors (WD)is a not-for-profit organization that provides medical expertise and equipment in areas of the world that cannot afford this type of service or 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 it will use specifically for fundraising 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 six members)of an NFP involved in providing relief when disaster strikes around the world. Required: Determine the accounting and reporting treatment of the affiliates described above.