ch19_test bank jeter advanced accounting 3rd edition

Chapter 19

Accounting for Nongovernment Nonbusiness Organizations: Colleges and

Universities, Hospitals, and Other Healthcare Organizations

Multiple Choice

1. Special entities are not-for-profit organizations that are

a. government owned.

b. privately owned.

c. publicly owned.

d. either government owned or privately owned.

2. A municipality's capital projects fund is similar to a university's

a. renewals and replacements fund.

b. retirement of indebtedness fund.

c. investment in plant fund.

d. none of these.

3. Board designated funds should be accounted for as

a. restricted funds.

b. specific purpose funds.

c. unrestricted funds.

d. none of these.

4. For a university, the receipt of assets for operating activities that have external restrictions as to the

purposes for which they can be used is recorded by crediting

a. Fund Balance-Restricted.

b. Contribution Revenue.

c. Deferred Revenue.

d. Net Assets Released.

5. Which of the following statements related to pledges is incorrect?

a. Pledges are signed commitments to contribute specific amounts of money on a future date or in

installments.

b. Pledges are recorded as revenues when a promise to give is nonrevocable and unconditional.

c. Pledges are generally enforceable contracts.

d. All of these are correct.

6. When the donor has specified a particular date or event after which the principal of the Endowment

Fund may be expended, the Endowment Fund is referred to as a(n)

a. pure endowment fund.

b. term endowment fund.

c. quasi endowment fund.

d. expendable endowment fund.

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Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd

Edition

19-2

7. The basic financial statements for all NNOs include a

1. Balance sheet

2. Statement of activities

3. Statement of cash flows

a. 1 and 3

b. 2 and 3

c. 1 and 2

d. 1, 2, and 3

8. Revenues and expenses of hospitals are recorded in the accounts of the

a. Endowment Fund.

b. General Fund.

c. Plant Replacement Fund.

d. Specific Purpose Fund.

9. Investments are reported by NNOs at

a. cost.

b. fair value.

c. the lower of cost or fair value.

d. the higher of cost or fair value.

10. Resources of an unrestricted fund that are designated by the governing board for endowment

purposes are accounted for in the unrestricted fund by all NNOs except

a. voluntary health and welfare organizations.

b. hospitals.

c. colleges and universities.

d. other NNOs.

11. In accounting for loan funds, revenue is recorded when the

a. contribution is received.

b. loan is made to students.

c. loan is repaid by students.

d. students graduate.

12. All of the following are a plant fund in colleges and universities except

a. unexpended plant fund.

b. funds for renewals and replacements.

c. investment in plant.

d. plant replacement and expansion fund.

13. Most property, plant and equipment transactions of hospitals are accounted for in the

a. fund for renewals and replacements.

b. general fund.

c. plant replacement and expansion fund.

d. unexpended plant fund.

14. All NNOs have current restricted funds and unrestricted funds except

a. colleges and universities

b. hospitals

c. VHWOs

d. ONNOs




Chapter 19 Accounting for Nongovernment Nonbusiness Organizations:

Colleges and Universities, Hospitals, and Other Healthcare Organizations

19-3

15. Tuition waivers for which there is no intention of collection from the student should be classified by

a college as:

Revenue Expenditures

a. No No

b. No Yes

c. Yes Yes

d. Yes No

16. Which of the following is used for current expenditures by a college?

Unrestricted Restricted

Current Funds Current Funds

a. No No

b. No Yes

c. Yes Yes

d. Yes No

17. Under Newman Hospital’s established rate structure, the hospital would have earned patient service

revenue of $7,000,000 for the year ended December 31, 2011. However, Newman did not expect to

collect this amount because of charity allowances of $1,000,000 and discounts of $500,000 to third

party payers. In May 2011, Newman purchased bandages from Ace Supply Co. at a cost of $5,000.

However, Ace notified Newman that the invoice was being cancelled and that the bandages were

being donated to Newman.

For the year ended December 31, 2011, how much should Newman record as patient service

revenue?

a. $7,000,000

b. $6,500,000

c. $6,000,000

d. $5,500,000

18. Under Newman Hospital’s established rate structure, the hospital would have earned patient service

revenue of $7,000,000 for the year ended December 31, 2011. However, Newman did not expect to

collect this amount because of charity allowances of $1,000,000 and discounts of $500,000 to third

party payers. In May 2011, Newman purchased bandages from Ace Supply Co. at a cost of $5,000.

However, Ace notified Newman that the invoice was being cancelled and that the bandages were

being donated to Newman.

For the year ended December 31, 2011, Newman should record the donation of bandages as:

a. a $5,000 reduction in operating expenses.

b. nonoperating revenue of $5,000.

c. other operating revenue of $5,000.

d. a memorandum entry only.





Edition

19-4

19. The following funds were among those on Cole University's books at April 30, 2011:

Funds to be used for acquisition of additional properties

for university purposes (unexpended at 4/30/11) $2,500,000

Funds set aside for debt service charges and for the

retirement of indebtedness on university properties 5,000,000

How much of the above-mentioned funds should be included in plant funds?

a. $0

b. $2,500,000

c. $5,000,000

d. $7,500,000

20. Which basis of accounting should a voluntary health and welfare organization use?

a. Cash basis for all funds

b. Modified accrual basis for all funds

c. Accrual basis for all funds

d. Accrual basis for some funds and modified accrual basis for other funds

21. Which one of the following statements is not required for NNOs?

a. statement of financial position

b. statement of cash flows

c. statement of changes in net assets

d. statement of activities

22. Admissions, counseling and registration are considered to be:

a. educational and general services.

b. auxiliary enterprises.

c. student services.

d. institutional support.

23. A good reason for NNOs to adopt fund accounting even though FASB standards do not require it is

because:

a. the capital assets are significant.

b. the donated services are significant.

c. the program services are involved with more than one type of revenue.

d. restrictions are placed by donors in many cases.

24. Which of the following groups of not-for-profit entities must use fund accounting to be in

conformity with GAAP?

Governmental Nongovernmental

a. Yes Yes

b. Yes No

c. No Yes

d. No No

25. GASB No. 35 allows public colleges and universities to:

a. apply guidance designed for special-purpose governments.

b. use FASB standards to permit consistent reporting.

c. optionally follow FASB standards.

d. none of the above is correct.






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26. For the fall semester of 2011, Newton College assessed its students $5,000,000 for tuition and fees.

The net amount realized was only $4,700,000 because of the following revenue reductions:

Refunds occasioned by class cancellations and student withdrawals $ 80,000

Tuition remissions granted to faculty members’ families 20,000

Scholarships and fellowships 200,000

How much should Newton College report for the period for unrestricted current funds revenues

from tuition and fees?

a. $5,000,000

b. $4,900,000

c. $4,780,000

d. $4,700,000

27. During the years ending June 30, 2010, and June 30, 2011, Madison University conducted a cancer

research project financed by a $3,000,000 gift from an alumnus. This entire amount was pledged by

the donor on July 10, 2009, although he paid only $800,000 at that date. The gift was restricted to

the financing of this particular research project. During the two-year research period, Madison

related gift receipts and research expenditures were as follows:

Year Ended June 30

2010 2011

Gift receipts 1,100,000 1,200,000

Cancer research restricted expenditures 1,400,000 1,600,000

How much gift revenue should Madison University report in the temporarily restricted column of its

statement of activities for the year ended June 30, 2011?

a. $3,000,000

b. $1,600,000

c. $1,200,000

d. $0

28. Bell Foundation, a voluntary health and welfare organization, supported by contributions from the

general public, included the following costs in its statement of functional expenses for the year

ended December 31, 2011.

Fund raising $1,000,000

Administrative 600,000

Research 200,000

Bell’s functional expenses for 2011 program services included

a. $200,000.

b. $600,000.

c. $1,000,000.

d. $1,800,000.





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19-6

29. National Service Center is a voluntary welfare organization funded by contributions from the

general public. During 2010 unrestricted pledges of $800,000 were received, half of which were

payable in 2010 with the other half payable in 2011 for use in 2011. It was estimated that 10% of

these pledges would be uncollectible. How much should National report as net contribution revenue

for 2010 with respect to the pledges?

a. $800,000

b. $720,000

c. $360,000

d. $0

30. Cindy Duncan is a social worker on the staff of National Service Center, a voluntary welfare

organization. She earns $42,000 annually for a normal workload of 2,000 hours. During 2011 she

contributed an additional 800 hours of her time to National at no extra charge. How much should

National record in 2011 as contributed service expense?

a. $0

b. $1,680

c. $8,400

d. $16,800

Problems

19-1 The following events affected the Burlington University Loan Fund:

1. $300,000 is received from a donor to establish a student loan fund. Loans will carry a 6%

annual interest rate.

2. The Loan Fund loaned the $300,000 to students. Five percent of the loans are estimated to be

uncollectible.

3. Loans of $50,000 were repaid with $3,000 of interest.

4. A $1,000 student loan was written off as uncollectible.

Required:

Prepare the journal entries necessary to record these transactions.

19-2 On October 10, 2010, a national voluntary health help foundation was the recipient of a telethon

sponsored by a renowned celebrity. Phone donations totaling $8,500,000 were promised. Based on

historical information, 15% of these pledges are expected to be uncollectible. Of these pledges,

$7,100,000 were collected in 2011; the remainder were considered uncollectible.

Required:

Identify the proper fund and prepare the journal entries necessary in 2010 and 2011.






19-7

19-3 Prepare journal entries for the following transactions or events:

1. The board of trustees of Young College voted to designate $300,000 for expansion of the

student union and $90,000 for future research projects.

2. In accordance with the requirements of a bond indenture, Young College transferred $85,000 of

unrestricted funds for the accumulation of cash to retire the debt related to the construction of

the Central Computer Building.

3. A governing board of a hospital designates $280,000 for the future expansion of the emergency

care facilities.

4. A heart association receives pledges of $900,000 from the general public in connection with a

telethon. It is estimated that 30% of the amounts pledged will not be collectible.

5. An ONNO receives the donated services of a CPA with a market value of $10,000.

6. On November 3, 2011, $75,000 was donated to a university for library acquisitions of which

$50,000 was expended for this purpose during the remainder of the fiscal year.

7. On November 4, 2011, $15,000 was contributed to a voluntary health organization to be used to

conduct CPR classes for the public. During the remainder of the current fiscal year $14,000 was

expended for this purpose.

8. On November 5, 2011, $100,000 was contributed to a hospital for cancer research of which

$90,000 was expended for this purpose during the remainder of the fiscal year.

19-4 An NNO obtained cash for the acquisition of property and equipment as follows:

Loan proceeds $200,000

Contributions $400,000

These funds are used to acquire land. In addition, $20,000 in principal and $2,000 in interest is paid

on indebtedness relating to property and equipment. Depreciation on property and equipment for the

year is $80,000.

Required:

Prepare all necessary entries in the affected funds of the NNO, assuming that the NNO is a:

a. Voluntary health and welfare organization.

b. University.

c. Hospital.





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19-8

19-5

The following information was taken from the accounts and records of the NSP Foundation, a private, not-

for-profit organization. All balances are as of June 30, 2011, unless otherwise noted.

Unrestricted Support – Contributions $250,000

Unrestricted Revenues – Investment Income 28,000

Temporarily Restricted Gain on Sale of Investments 13,000

Expenses – Scholarships 300,000

Expenses – Fund Raising 60,000

Expenses – Management and General 120,000

Restricted Support – Contributions 420,000

Restricted Revenues – Investment Income 30,000

Permanently Restricted Support – Contributions 50,000

Unrestricted Net Assets, July 1, 2010 250,000

Temporarily Restricted Net Assets, July 1, 2010 40,000

Permanently Restricted Net Assets, July 1, 2010 10,000

The unrestricted support from contributions was received in cash during the year. The expenses included

$500,000 payable from donor-restricted resources.

Required:

Prepare NSP’s statement of activities for the fiscal year ended June 30, 2011.

19-6

Christy Hospital received money from a donor to set up an endowment fund. The following information

pertains to this contribution:

2010

1. $3,000,000 was received to establish the fund. The requirements were

a. $150,000 of the endowment fund’s income must be used for research grants each year.

b. The remainder of income is under the discretion of the governing board.

c. The principal is expendable after the donor’s death. It shall be used to purchase equipment.

2. The cash received was invested in a number of securities.

2011

3. Dividends of $150,000 and interest of $400,000 were received.

4. The income was transferred to the appropriate funds.

5. Of the restricted income, only $100,000 was expended for its specified purpose during 2011.

6. The governing board specified that $300,000 of the income would be used for loans for deserving

medical students.

2012

7. $250,000 was lent to medical students.

8. The donor died of cancer.






19-9

Required:

Set up headings for the following funds: Endowment, General, Specific Purpose, and Plant

Replacement and Expansion. Prepare the entries necessary in each fund to record the events listed

above.

19-7

The following events were recorded on the books of Denton Hospital for the year ended December 31, 2011.

1. Revenue from patient services totaled $12,000,000. The allowance for uncollectibles was

established at $2,500,000. Of the $12,000,000 revenue, $4,500 was recognized under cost

reimbursement agreements. This revenue is subject to audit and retroactive adjustment by third-

party payors.

2. Patient service revenue is accounted for at established rates on the accrual basis.

3. Other operating revenue totaled $260,000, of which $120,000 was from specific purpose funds.

4. Denton received $310,000 in unrestricted gifts and bequests. They are recorded at fair market value

when received.

5. Endowment funds earned $120,000 in unrestricted income.

6. Board designated funds earned $62,000 in income.

7. Denton’s operating expenses for the year amounted to $10,030,000. This included $380,000 in

straight-line depreciation.

Required:

Prepare a statement of activities for Denton Hospital for the year ended December 31, 2011.

Short Answer

1. The fund structure and terminology differ among NNOS, but there are six funds commonly used.

Identify the funds used by nongovernment nonbusiness organizations.

2. Contributions to NNOS include gifts of cash, pledges, donated services, and gifts of noncash assets.

Explain how contributions are recorded by NNOS.

Short Answer Questions from the Textbook

1. What authoritative body(s) is (are) responsible for establishing financial accounting standards for

NNOs?

2. Why do most NNOs use fund accounting?

3. NNOs distinguish between restricted and un restricted funds. Why is this distinction important?

4. What is the major difference in accounting for the general fund of a hospital and the unrestricted

fund of other NNOs?

5. What is the major difference in accounting between conditional and unconditional pledges? Give an

example of each.

6. What is the relationship (if any) between board-designated funds and nonmandatory transfers?

7. May board designated funds ever be accounted for in the unrestricted current fund? Explain.





Edition

19-10

8. When should an NNO record donated services in its accounting records?

9. The donated services of volunteer workers on fundraising campaigns are usually not given ac-

counting recognition. Why?

10. Universities and hospitals often reduce their standard service charge to students or patients. How are

these reductions reflected in the statements of revenue and expenses of these organizations?

Explain.

11. What fund is used to account for the library books owned by a university? How should depreciation

of the library books be reflected in the financial statements of the university?

12. In which fund of a hospital are medical equipment and related longterm obligations recorded?

Would your answer be the same for a voluntary health and welfare organization? Explain.

13. What capital assets (if any) of ONNOs need not be depreciated?

14. Identify three different types of endowment funds and explain how they differ.

15. Distinguish an annuity fund from a life income fund.






19-11

ANSWER KEY

Multiple Choice

1. d 7. d 13. b 19. d 25. a

2. a 8. b 14. b 20. c 26. b

3. c 9. b 15. c 21. c 27. b

4. b 10. c 16. c 22. c 28. a

5. c 11. a 17. a 23. c 29. b

6. b 12. d 18. c 24. b 30. d

Problems

19-1 1. Cash 300,000

Revenue-Contributions – Restricted 300,000

2. Loans Receivable 300,000

Cash 300,000

Bad Debt Expense 15,000

Allowance for Uncollectible Loans 15,000

3. Cash 53,000

Loans Receivable 50,000

Interest Income 3,000

4. Allowance for Uncollectible Loans 1,000

Loans Receivable 1,000

19-2 Current Unrestricted Fund

2010

Pledges Receivable 8,500,000

Revenue – Contributions 8,500,000

Expense-Provision for Uncollectible Pledges 1,275,000

Allowance for Uncollectible Pledges 1,275,000

2011

Cash 7,100,000


Expense-Provision for Uncollectible Pledges 125,000

Allowance for Uncollectible Pledges 1,275,000






Edition

19-12

19-3 1. a. Unrestricted Current Fund

Nonmandatory Transfer to Plant Fund 300,000

Cash 300,000

Fund Balance – Unallocated 90,000

Fund Balance – Allocated 90,000

b. Unexpended Plant Fund

Cash 300,000

Fund Balance – Unrestricted 300,000

2. a. Unrestricted Current Fund

Mandatory Transfer to Plant Fund 85,000

Cash 85,000

b. Plant Fund – For Retirement of Indebtedness

Cash 85,000

Fund Balance – Restricted 85,000

3. General Fund

Fund Balance – Unallocated 280,000

Fund Balance – Allocated for Plant

Expansion 280,000

or no entry need be made and the designation of $280,000 for plant expansion may be

reported in a footnote to the financial statements.

4. Current Unrestricted Fund

Pledges Receivable 900,000

Revenue – Contributions 900,000

Expense-Provision for Uncollectible Pledges 270,000

Allowance for Uncollectible Pledges 270,000

5. Current Unrestricted Fund

Management and General Expense 10,000

Donated Services Revenue 10,000

6. Restricted Current Fund

Cash 75,000

Contribution Revenue 75,000

Net Assets Released from Restrictions 50,000

Cash 50,000

Unrestricted Current Fund

Cash 50,000







19-13

Expenses – Library 50,000

Cash 50,000

7. Current Restricted Fund

Cash 15,000

Contribution Revenue 15,000


Cash 14,000

Unrestricted Current Fund

Cash 14,000

Net Assets Transferred–In 14,000

8. a. Specific Purpose Fund

Cash 100,000

Fund Balance 100,000

Fund Balance 90,000

Cash 90,000

b. General Fund

Research Expenditures 90,000

Specific Purpose Grants [Revenue] 90,000

19-4 a. Plant Fund

Cash 600,000

Notes Payable 200,000

Contributions-Revenue-Restricted 400,000

Land 600,000

Cash 600,000


Interest Expense 2,000

Cash 22,000

Depreciation Expense 80,000

Accumulated Depreciation 80,000

Unexpended Fund Balance 340,000

Expended Fund Balance 340,000

[($600,000 + $20,000) - ($200,000 + $80,000) = $340,000]





Edition

19-14

b. Unexpected Plant Fund

Cash 600,000


Revenue-Contributions-Restricted 400,000

Land 600,000

Cash 600,000



Land 600,000

Investment in Plant Fund

Land 600,000


Net Investment in Plant 400,000

Funds for Retirement of Indebtedness


Cash (Principal) 20,000


Cash 2,000

Investment in Plant Fund


Net Investment in Plant 20,000



c. Plant Replacement & Expansion Fund

Cash 400,000

Revenue-Contributions-Restricted 400,000

General Fund

Cash 200,000


Land 600,000

Cash 200,000


Plant Replacement & Expansion Fund


Cash 400,000






19-15

General Fund



Cash 22,000



19-5

NSP Foundation

Statement of Activities

For the Year Ended June 30, 2011

Changes in Unrestricted Net Assets

Revenues and Gains

Contributions $250,000

Investment Income 28,000

Total revenues and gains 278,000

Net assets released from restrictions 500,000

Increase in unrestricted net assets 778,000

Expenses:

Program Services:

Scholarships 300,000

Supporting Services:

Management and General $120,000

Fund Raising 60,000

Total Supporting Services 180,000

Total Expenses 480,000

Net increase in unrestricted net assets 298,000

Changes in Temporarily Restricted Net Assets

Contributions 420,000

Investment Income 30,000

Gain on Sale of investments 13,000

Net assets released from restrictions (500,000)

Decrease in temporarily restricted net assets ( 37,000)

Changes in Permanently Restricted Net Assets

Contributions 50,000

Increase in permanently restricted net assets 50,000

Increase in net assets 311,000

Net assets, July 1, 2010 50,000

Net assets, June 30, 2011 $361,000





Edition

19-16

19-6

Endowment Fund

1. Cash 3,000,000

Revenue-Contribution – Restricted 3,000,000

2. Investments 3,000,000

Cash 3,000,000

3. Cash 550,000

Due to General Fund 400,000

Due to Specific Purpose Fund 150,000

4. Due to General Fund 400,000

Due to Specific Purpose Fund 150,000

Cash 550,000

8. Transfer to Plant Replacement and Expansion Fund 3,000,000

Cash 3,000,000

General Fund

3. Due from Endowment Fund 400,000

Unrestricted Income from Endowment Fund 400,000

4. Cash 400,000

Due from Endowment Fund 400,000

5. Other Professional Services – Research 100,000

Other Operating Revenue 100,000

6. Assets Whose Use is Limited 100,000

Cash 100,000

7. Loans Receivable 250,000

Cash 250,000

Specific Purpose Fund

3. Due from Endowment Fund 150,000


4. Cash 150,000

Due from Endowment Fund 150,000


Cash 100,000






19-17

Plant Replacement and Expansion Fund

8. Cash 3,000,000

Transfer from Endowment Fund – Restricted 3,000,000

Endowment Fund

1. Fund Balance – Term 3,000,000

Cash 3,000,000

19-7

Statement of Activities

Patient Service Revenue $12,000,000

Allowances and Uncollectible Accounts (2,500,000)

Net Patient Service Revenue 9,500,000

Other Operating Revenue (includes $120,000 from specific purpose funds) 260,000

Total Operating Revenue 9,760,000

Operating Expenses (includes depreciation of $380,000) 10,030,000

Loss from Operations (270,000)

Nonoperating Revenue:

Unrestricted Gifts and Requests 310,000

Unrestricted Income from Endowment Funds 120,000

Income from Board-Designated Funds 62,000

Total Nonoperating Revenue 492,000

Excess of Revenue over Expenses $ 222,000

Short Answer 1. The six funds commonly used by NNOs are (a) Current fund, (b) Plant fund, (c) Endowment Fund, (d)

Loan Fund, (e) Agency or custodial fund, and (f ) Annuity and life income fund.

2. Contributions are recognized as revenue in the period received. Conditional promises are recognized

when they become unconditional. Donor-restricted contributions are recognized as revenue if the

contributions are unconditional. Pledges are recognized as revenues at the present value of the expected

receipts when a promise is nonrevocable and unconditional.

Short Answer Questions from Textbook Solutions

1. In 1979, the FASB took the responsibility for establishing financial accounting and reporting

standards for NNOs. Support for existing accounting and reporting practices is also contained in

Audit Guides and Statements of Position published by the AICPA.

2. NNOs use fund accounting because in many cases their resources are restricted by law, contract,

donors, other external authorities, or the organization's governing board. Fund accounting

facilitates compliance with such restrictions.

3. NNOs need to distinguish between restricted and unrestricted funds in order to separate resources

that may be used at the discretion of the governing board and those which have restrictions.





Edition

19-18

Resources not found in the unrestricted funds have contractual, external, legal, or discretionary

restrictions.

4. Unlike other NNOs, hospitals combine their revenues from unrestricted resources and restricted

resources in the General Fund accounts and financial statements. In addition, hospitals account for

property and equipment, accumulated depreciation and depreciation expense, and long-term

obligations associated with the acquisition of property and equipment in the General Fund whereas

other NNOS account for these assets and liabilities in Plant Funds.

5. Unconditional pledges are recorded as revenues while conditional pledges are not recorded until

they become unconditional. An example of unconditional pledges is when a donor makes a

nonrevocable offer to give one million dollars to a hospital. An example of conditional pledges is

when a donor offers to contribute one million dollars if the hospital receives less than ten million

dollars from government funding in the next fiscal year.

6. Nonmandatory transfers are transfers by Colleges and Universities of Board Designated Funds

from the resources of the Unrestricted Current Fund to Quasi-Endowment, Loan, Plant or other

funds maintained by the College or University.

7. Yes, board designated funds should be accounted for in the Unrestricted Current Fund (General

Fund of a hospital). The procedure for formal recognition of such designations in the Unrestricted

Current Fund by NNO's other than hospitals is similar to an appropriation of retained earnings.

Hospitals classify resources that have been designated by the board for a specific use in a separate

section of the Statement of Financial Position of the General Fund entitled Assets Whose Use is

Limited.

8. Prior to the effective date of SFAS No. 116, donated services were recorded under different circumstances for each of the NNOs. The necessary conditions to be met for each NNO were Colleges:

When operated by a religious group, donated services rendered by members of the religious group should be recorded at their monetary values.

Hospitals: (1) The organization controls the employment and duties of the persons donating the service and (2) The organization has a clearly measurable basis for determining the amount of revenue and expenses to be recorded.

VHWOs: (1) and (2) from above and (3) The services performed are significant and form an integral part of the efforts of the organization and the services would be performed by salaried personnel if the donated services were not available.

ONNOs: (1), (2), (3), from above and (4) The services of the reporting organization are not principally intended for the benefit of its members.

Under the provisions of SFAS NO. 116, donated services are recognized by all NNOs only if the






19-19

services received (a) create or enhance nonfinancial assets or (b) require professional skills, are provided by individuals possessing those skills, and typically would need to be purchased if not provided by donation. The provisions of SFAS 116 are effective for financial statements issued by larger NNOs for years beginning after December 15, 1994. Thus, in terms of annual financial statements, these changes will appear in financial statements distributed beginning in 1996 by larger NNOs and in 1997 by smaller NNOs.

9. Voluntary services rendered for fund raising campaigns are usually not recognized in the accounting records because of the difficulty of measuring a market value for them and because it is extremely difficult for the organization to implement effective controls over the performance of volunteer solicitors.

10. The revenue is recorded at the standard rate and any waivers or discounts are reported separately as expenditures or as reductions of gross revenue.

11. Library books owned by a university are accounted for in the Plant Fund. Depreciation expense should be recorded in the investment in plant fund. Note, prior to the issuance of SFAS No. 97 by the FASB, colleges and universities were not required to record depreciation expense.

12. Medical equipment and long-term obligations are accounted for in the General Fund of a hospital. VHWOS would use a Plant Fund to account for such equipment and the related obligation.

13. ONNOs need not record depreciation on historical treasures and works of art that have estimated useful lives that are extraordinarily long. To qualify, such assets must have cultural, historical or aesthetic value that is worth preserving perpetually and the holder must have the financial and technological ability to protect and preserve the asset.





Edition

19-20

14. (1) Pure Endowment Fund - the principal is donated and must be maintained in perpetuity. (2) Term Endowment Fund - the donor specifies a particular date or event after which the

principal may be expended. (3) Quasi-Endowment Fund - board designated resources that are transferred from the Unrestricted

Current Fund by a college or university. Maintenance or expenditure of the principal is at the discretion of the governing board.

15. The difference between an Annuity Fund and a Life Income Fund is that under an Annuity Fund,

the beneficiary receives periodic payments of a stated amount while the beneficiary of a Life Income Fund receives periodic payments of varying amounts (depending on the fund's earnings).




ch19_test bank jeter advanced accounting 3rd edition

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