Chapter 19 - Not-for-Profit Entities

Chapter 19 Not-for-Profit Entities
CHAPTER 19
NOT-FOR-PROFIT ENTITIES
ANSWERS TO QUESTIONS
Q19-1 Initially, tuition scholarships are included in revenue for the period in order to
measure fully the revenue obtainable. If the university requires an employment-type
work for the tuition scholarship, then they are also shown as an expense. However, if
no employment-type work is required of the recipient, then the university also records
the tuition scholarship as a revenue-reduction item.
Q19-2 In the statement of financial position for private colleges, the net assets are
designated as (1) unrestricted, (2) temporarily restricted, or (3) permanently
restricted. Permanently restricted assets result from contributions that the donors
have specified must be retained into perpetuity. Earnings from the principal are then
used in accordance with the wishes of the donor. Temporarily restricted assets are
those which the donor has contributed for specific use or which have been
contributed for use in a future period. All other assets are classified as unrestricted.
Q19-3 The accounting and reporting for public universities is specified by the GASB,
and GASB 35 provides specific guidance that public universities should be accounted
for as special-purpose governments in accordance with GASB 34. Private universities
have their accounting and financial reporting specified by the FASB. FASB 117
provides the format and requirements for financial reporting for private universities.
Q19-4 The accrual basis of accounting is used in a hospital's general and restricted
funds. Donor restricted contributions are held in the restricted fund until the conditions
are met and then are transferred to the general fund.
Q19-5 Donated services are included as a revenue and a corresponding expense at
their fair value if the services are significant and would otherwise be performed by
salaried personnel. The criteria for recognition require that the services either (a)
create or enhance the nonfinancial assets of the hospital or (b) the services provided
require specialized skills, are provided by individuals possessing those skills, and
would need to be purchased if not provided by donation. Donated equipment is
accounted for as a contribution in a temporarily restricted fund until placed into
service, at which time it is transferred to the general fund. Donated medical supplies
are recorded as revenue and charged to expenses as used.
Q19-6 The $15,000 is accounted for as a contribution to a specific purpose
restricted fund. When the $15,000 is expended by the general fund, the specific
purpose restricted fund transfers the resources to the general fund to reimburse the
general fund or pay for the intensive care operating expenses. The expense is
reported as an expense of the general fund and the reimbursement from the
restricted fund is reported as net assets released from the restricted fund.
Q19-7 Net patient service revenue of a hospital is computed by deducting
contractual adjustments from total billings for inpatient and outpatient services
provided. Charity care is excluded.
19-1
Q19-8 The general fund records a gain on the sale of hospital properties. The gain is
reported in the hospital's statement of activities.
Q19-9 Depreciation is recorded on an accrual basis by hospitals. It must be
accounted for because depreciable assets constitute a significant part of the total cost
of providing medical services.
Q19-10 The accrual basis of accounting is used for the unrestricted current fund of a
VHWO. The accrual basis of accounting is also used for all other funds, including the
restricted current fund, the land, building, and equipment fund (plant fund), and the
endowment fund.
Q19-11 If separate funds are maintained, fixed assets are recorded in the land,
building, and equipment fund (plant fund) in a VHWO. If separate funds are not
maintained, fixed assets would be recorded in the unrestricted fund along with all
other assets.
Q19-12 The $10,000 contribution is accounted for as contribution revenue in a
temporarily restricted (specific purpose) fund when it is received. The expense of the
$10,000 for public health education service is accounted for as a program services
expense of the unrestricted fund and as a net asset released from the temporarily
restricted fund.
Q19-13 Pledges from donors that are unconditional promises to give are recognized
as contribution revenue in the period in which the pledge is received. Although the
total amount of the pledge is recorded as a contribution receivable, an adequate
allowance for uncollectibles must be recognized. The estimated amount that actually
will be collected is recognized as contribution revenue. Pledges applicable to future
periods or restricted in use by the donor should be recorded in the temporarily
restricted or permanently restricted fund, as appropriate.
Q19-14 It would not be appropriate to report funds whose use is restricted as
revenue in the unrestricted fund prior to the time the restriction was met.
Contributions that must be permanently retained are included as contribution revenue
in the permanently restricted fund. Those received with restriction as to use or that
must be used in a future time period are recorded as contribution revenue in the
temporarily restricted fund(s).
Q19-15 Many VHWOs are heavily dependent upon donated services. However, such
services typically are not recorded and included for financial reporting purposes. For
example, neighborhood solicitations are an integral part of the activities of many
charitable organizations but no accounting recognition is given for these efforts. To
be recognized, donated services must (a) create or enhance nonfinancial assets or
(b) require specialized skills, be provided by individuals possessing those skills, and
typically be purchased if not provided by donation.
If these conditions are satisfied, the value of the donated services received should be
reported as part of revenue and public support and the cost of the services
recognized as an expense item of the period.
19-2
Q19-16 The statement of functional expenses details the items reported in the
expense section of the statement of activities. The individual expense categories
generally are assigned to each major programmatic activity and to general
management and efforts. As a result, much greater insight can be gained into the way
in which funds are spent. Voluntary health and welfare organizations are required to
prepare a statement of functional expenses.
Q19-17 The contribution of $12,000 is accounted for as a contribution of a
temporarily restricted net asset at the time of receipt. When the expense of $12,000 is
made for a community service activity, the amount used is recognized as funds
released from program use restrictions in the statement of activities.
Q19-18 All organizations subject to FASB jurisdiction must meet the qualifications for
recognition of contributed services set forth in FASB 116. Thus, most hospitals and
ONPO will be expected to account for donated services in the same manner. Both
hospitals and ONPOs must demonstrate that the services received either (a) created
or enhanced nonfinancial assets or (b) required specialized skills, were provided by
individuals possessing those skills, and would have been purchased if the services
had not been contributed. ONPOs also have been required to demonstrate that the
services of the ONPO were not principally intended for the benefit of the
organization's members in the past. As a result, ONPOs seldom have recorded
donated services. If donated services are recognized, an ONPO records them as
public support; hospitals recognize donated services as revenue.
Q19-19 The market value unit method of accounting for investments may be used for
pooled investments. Under this method, a fund is assigned a number of units based
on the fund's contribution to the pool and the total market value of all investments in
the pool at the time of the contribution.
Q19-20 As an ONPO, a Rotary Club should record depreciation expense because
the omission of depreciation would result in an understatement of the costs of
providing the organization's services.
Q19-21 The statement of activities for both an ONPO and VHWO reports the
support, revenue, expenses, net assets released from restriction, and changes in net
assets during the fiscal period. The particular items reported and the size of the
various revenue and expense categories may vary rather substantially between such
entities, however, due to differences in the overall missions and types of activities the
organizations are involved in on a routine basis.
Q19-22 Temporarily restricted contributions of ONPOs would include funds for
specific programs such as sponsoring a child to summer camp, purchasing reading
materials for vacation church school, or acquiring manuscripts for a research library.
Permanently restricted funds require the creation of an endowment with the principal
to be held intact. Examples would be the creation of an endowment with the earnings
to be used to help underwrite the cost of bringing in one or more large symphonies
each year to perform at a local concert hall, to provide for landscaping and lawn
service at a local cemetery, or to assist in recruiting and training new Girl Scout
leaders.
19-3
SOLUTIONS TO CASES
C19-1 Accounting for Donations
a. Donated services are a vital element of many not-for-profit entities, including
hospitals, voluntary health and welfare organizations and other not-for-profit
organizations. The criteria established in FASB 116 for recognition of donated
services require:
1.
The services performed create or enhance nonfinancial assets or,
2.
The services (a) require specialized skills, (b) are provided by individuals
possessing those skills, and (c) the services would be purchased if not
donated.
In general, donated services are not recognized unless they represent an important
contribution to the operations of the organization. For example, in the hospital setting,
a volunteer who staffs a nursing station on a regular shift but accepts no
compensation clearly provides services which meet the criteria for recognition. The
hospital would need to hire another nurse if these services were not volunteered.
Moreover, the hospital has the ability to supervise and directly control the activities of
the volunteer in the same manner as a paid employee. On the other hand, a group of
high school youth who visit patients and attempt to make their stay in the hospital
more pleasant would not qualify for recognition. If the services were not provided it is
unlikely the hospital would use its resources to hire staff to perform this function.
Voluntary health and welfare organizations often receive donated services for
concentrated fund raising efforts and for supplementary programs. Because of the
difficulty in determining the value of these services and the absence of controls over
the persons providing the services, VHWOs normally do not account for donated
services unless the first three criteria are met. Even when these are met, it may be
appropriate to recognize the donated services only if the amount of time donated is
significant and represents an integral part of the activities provided by the
organization.
Other not-for-profit organizations often rely heavily on donated services as well.
However, many of these are for the benefit of other members rather than for some
general public purpose and there has been reluctance to recognize donated services
in the financial statements. In many cases the services are not under the direct
control of the organization and are very difficult to value.
b. Donations of capital assets are recorded as a contribution in a restricted fund and
carried in the fund until the asset is placed into service, at which time it is transferred
to the general fund. The donation is recorded at its fair value. Once the asset is
placed in service, depreciation is recorded for the use of the asset in order to
measure fully the cost of providing the hospital's services.
19-4
C19-1 (continued)
c. As in all not-for-profit organizations, the accounting for cash contributions to a
hospital depends on whether or not the donor places a restriction on the use of the
cash. If the gift is unrestricted, it is accounted for as contribution revenue in the
general fund. If the gift is restricted, it is recorded as a contribution of temporarily
restricted or permanently restricted net assets. In the period in which the restriction is
met, the appropriate amount is reported in the general fund as released from use or
passage of time restriction.
Cash contributions to a voluntary health and welfare organization or an other not-forprofit organization are accounted for as public support in the period the contribution is
received as an addition to unrestricted or restricted net assets. If the contribution is
restricted by its donor, the gift is treated as a contribution of a temporarily restricted or
permanently restricted net asset at the time of receipt and then reported as released
from restriction in the period in which the restriction is met.
C19-2 Public Support to an Other Not-for-Profit Organization

a. The $25,000 of unrestricted contributions should be accounted for as public
support revenue in the statement of activities for the current period.
b. The $15,000 of restricted contributions should be accounted for as a temporarily
restricted asset in the restricted fund, if a restricted fund is used or in the general fund
if a separate restricted fund is not maintained. The $15,000 should be recorded as a
contribution in the period of receipt. The expense of $6,000 for public health
advertisements triggers recognition of $6,000 as funds released from a use restriction
with both the expense and release of funds included in the statement of activities for
the period. If a separate temporarily restricted fund is maintained and the $6,000
expense is made from the unrestricted operating fund, the restricted fund would then
reimburse the unrestricted fund for its expenses. It does not matter that unrestricted
assets were used for the actual expense.
The remaining $9,000 of restricted resources should be reported as a part of its
temporarily restricted net assets on the ONPO's balance sheet.
19-5
C19-3 A Brief Analysis of the Financial Disclosures of United Way of America

The United Way of Americas (UWA) web site is www.unitedway.org. The navigation
to the consolidated financial statements and Form 990 (the form that the IRS requires
tax exempt charitable organizations to file) is as follows: (Click on each of the
following, in turn) 1.) About United Way; 2.) United Way of America; 3.) Financial Info
(990); and then you will be at the links for the Form 990 and the Consolidated
Financial Statements and Supplemental Schedule.
The most recent year of availability will provide the specific data for the questions, but
the following are general answers to the questions in the case.
a. From footnote 1 of the Consolidated Financial Statements: The reporting entity
includes the following: United Way of America (UWA) and its subsidiaries, United Way
Store and United eWay. The statements also include UWAs regional office of United
Way of Tri-State, Inc. Operationally, the United Way Store is a for-profit subsidiary to
provide sales fulfilment services to UWA and other organizations. United eWay
provides on-line giving along with pledge processing and fund distribution services for
corporations working with UWA. In June 2005, United Way of Tri-State, Inc (UWTS)
became a Tri-State Regional office of the UWA and is responsible for raising
charitable funds and working with companies whose employees live and/or work in
the New York Tri-State region. And there are a large number of local United Way
chapters that manage local fund raising campaigns.
b. The Consolidated Statements of Financial Position includes eliminations for intraorganizational payables and receivables (Due from affiliates and Due to affiliates) and
the capital accounts of the for-profit United Way Store (against the investment in
subsidiary account of the parent, UWA. These eliminating entries are the same type
as in the consolidating workpaper used for a parent and its subsidiary companies as
presented in the first ten chapters of this textbook.
The major components of the consolidated assets and equity will depend on the
specific year analyzed. Because UWA is an organization that focuses on raising and
distributing charitable funds, the consolidated statement of financial position will
reflect unrestricted and restricted amounts, custodial funds (both as an asset and a
liability), campaign receivables, and fixed assets such as building, land, and
equipment.
The custodial funds are described in footnote 1. UWA is the fiscal agent for a Federal
Emergency Management Agency (FEMA) program to distribute federal funds through
the Emergency Food and Shelter (EF&S) program which is not consolidated into
UWAs financial statements. UWA is the custodian of the federal funds and distributes
these funds in accordance with the directions of the national board established to
determine needs that can be met with these funds. Thus, UWA reports both an asset
and a liability in the same amount for any undistributed funds for which it is the
custodian.
c. The consolidated statement of activities shows the typical types of revenues and
expenses of a large fund raising not-for-profit entity. Revenues will include public
support through membership, campaigns, and contributions. Also, United Way Stores
generates revenue from sales of promotional materials. Expenses include program
services, particularly Public Policy, which footnote 1 describes as federal advocacy
efforts and coordination of national activities at the regional level, and crisis response.
19-6
C19-3 (continued)
The total consolidated fund raising expenses are included in supporting services. In
2006, these costs were $577,000, which is a relatively small percentage of total
expenses as compared with other fund raising not-for-profit entities. UWA has
successfully worked with a large number of businesses and other entities to
coordinate UWA fund raising activities in those entities. Thus, the businesses and
other entities provide a relatively large part of UWAs fund raising efforts.
d. The supplementary schedule of functional expenses presents expense
information on each of the program services described in footnote 1 of the
consolidated financial statements. Public policy is generally the largest, followed by
brand leadership, investor relations, Center for Community Leadership and
community impact leadership.
Note that supporting services are presented
separately from program services.
The three largest expense categories are scholarships, grants, and awards (primarily
given through the public policy program); salaries, and professional fees and contract
services (across all program services and supporting services, but especially under
brand leadership).
e. Form 990 contains much of the same information as provided in the consolidated
financial statements, but in a format that permits the IRS to easily compare
information for tax-exempt organizations. Most students will not have seen a Form
990 before this case and can quickly see that Form 990 can be prepared from
information from the consolidated financial statements.
19-7
C19-4 Case on Conditional Gift to a Not-for-Profit Organization

MEMO
To:
Betty Gardner, Treasurer, Central Illinois Chapter
From:
Re:
, CPA
Victor Wyatt pledge
Mr. Wyatt has pledged $20,000 per year for five years to the Central Illinois Chapter,
with the condition that the chapter sponsor annual educational programs over the
next five years. Mr. Wyatts pledge should be considered as a conditional promise to
give, under the requirements stated in paragraph 22 of FASB Statement No. 116.
The first $20,000 gift, which has already been received by the chapter, should be
recognized either as a contribution or as a refundable advance, depending on
whether the conditions associated with the contribution have been substantially met.
[FASB 116, Par. 22] Because the first educational workshop has been organized and
scheduled and has been approved by Mr. Wyatt, I believe that this amount can be
recognized as a contribution during the current fiscal year.
Although the chapter does intend to fulfil Mr. Wyatts conditions in order to receive the
additional contributions, at this point in time these conditions are not substantially
met. Therefore, the additional $80,000 that Mr. Wyatt has pledged should not be
recognized in the current fiscal year. Mr. Wyatt has clearly stated that the additional
contributions will not be made if the chapter does not continue with the educational
programs. Thus there is no ambiguity about whether Mr. Wyatts promise to give is
conditional or unconditional.
Determining whether a promise is conditional or unconditional can be difficult if it
contains donor stipulations that do not clearly state whether the right to receive
payment or delivery of the promised assets depends on meeting those stipulations.
It may be difficult to determine whether those stipulations are conditions or
restrictions. In cases of ambiguous donor stipulations, a promise containing
stipulations that are not clearly unconditional shall be presumed to be a conditional
promise. [FASB 116, Par. 23]
Although the chapter cannot recognize the $80,000, the pledge should be disclosed.
The chapter should disclose the following with respect to Mr. Wyatts conditional
promise:
a. The total of the amounts promised, and
b. A description and amount for each group of promises having similar
characteristics, such as amounts of promises conditioned on establishing new
programs, completing a new building, and raising matching gifts by a specified date.
[FASB 116, Par. 25]
Primary references
FASB 116, Par. 22
FASB 116, Par. 23
Query Used
condition* gift*
condition* giv*
Other references
19-8
FASB 116, Par. 25

FASB 116, Par. 79
19-9
C19-5
Accounting for Contributions to and Activities of a Not-for-Profit

Organization
MEMO
To:
Gerry Finley, Manager
From:
Re:
, CPA
Auction Extravaganza
There are two different problems with the way that the Community Chest is reporting
the proceeds of the Auction Extravaganza event. First, paragraph 24 of FASB
Statement No. 117 (FASB 117) requires that the revenues and expenses from the
event be reported as gross amounts and should not be netted together.
Although FASB 117 does permit net reporting for investment income or gains from
certain peripheral activities [FASB 117, Par. 24-25], these exceptions do not apply to
a major event like the Auction Extravaganza. Therefore, the statement of activities
should include the gross revenue from the event in the revenues section and should
identify the event expenses in the expense section of the statement.
The second accounting issue is the donations that the Community Chest receives for
the Auction Extravaganza event. Community Chest is recording as revenue the event
ticket sales and the auction proceeds but is not reporting donated auction items and
services as contributions. In paragraph 5 of FASB Statement No. 116 (FASB 116),
contributions received by a not-for-profit organization are defined as an unconditional
transfer of cash, other assets, or services.
The items that businesses donated to be auctioned meet the definition of
contributions. FASB 116 provides that contributions received are to be recorded at
fair value. [FASB 116, Par. 8] Because the donated items are immediately used by
the Community Chest in the auction, the fair value of the items should be estimated
and recognized as both a revenue and an expense in the current reporting period.
Contributions received shall be recognized as revenues or gains in the period
received and as assets, decreases of liabilities, or expenses depending on the form
of the benefits received. [FASB 116, par. 8]
The Community Chest should also estimate a fair value for the services provided by
the auctioneer and the musicians. These meet the requirement for recognition that
the services are specialized skills that the Community Chest would have to purchase
if the donation was not made. [FASB 116, Par. 9] Again, since the services are both
donated to and consumed in the Auction Extravaganza, the fair values should be
recognized as both revenue and expense.
Although these changes will have no net effect on the change in net assets reported
in the statement of activities, they will provide more complete information about the
Auction Extravaganza event, which complies with the FASBs intent in issuing FASB
116.
Primary references
FASB 117, Par. 24
profit
Other references
FASB 116, Par. 9
19-10
Query Used
revenue* expense* net* not-for-
FASB 116, Par. 5

FASB 116, Par. 8
FASB 116, Par. 72
contribution*
contribution* service*
C 19-6 An Analysis of the Financial Statements for the American Red Cross, a
Voluntary Health and Welfare Organization
a. Read the independent auditors report of the U. S. Army Audit Agency that is
disclosed in the annual report of the American Red Cross (ARC). In this report, it
states that The Act of Congress that incorporated the American Red Cross, as
implemented by Department of Defense Directive 1330.5 and Army Regulation
930.5, requires the U. S. Army Audit Agency perform an annual audit of the
financial statements of the American Red Cross.
b. Look at the statement of functional expenses for the most recent year. This
statement is a required financial statement for the ARC. From this financial
statement, you can determine the ratio of program expenses to total expenses for
the most recent year. The ratio of program expenses to total expenses for the
ARC has been around the 90% level. This ratio is substantially better than the
60% threshold recommended by the Better Business Bureau.
c. Read the revenue recognition note. In this note to the financial statement, the
ARC reports that Contributions, which include unconditional promises to give
(pledges) are recognized as revenues in the period received or promised. To
answer the question on the amount of temporarily restricted contributions
receivable as of the most recent balance sheet date, you should look at the
consolidated statement of financial position. On this statement, the portion of
temporarily restricted contributions receivable that are reported under current
assets should be added to the temporarily restricted contributions receivable that
are reported under noncurrent assets to get the answer.
d. Read the note on net assets. In this note, the amount of unrestricted net assets
that are undesignated by the Board of Governors at June 30 of the most recent
year is disclosed.
e. Read the note on contributions receivable. In this note, the discount rate used to
present value long-term pledges is disclosed.
f. Look at the consolidated statement of activities for the most recent year. On this
statement, the ARC reports the amount net assets released from restrictions.
This is the amount that was reclassified from temporarily restricted net assets to
unrestricted net assets due to satisfaction of purpose and/or time restrictions.
g. Look at the statement of functional expenses for the most recent year. In past
years, Biomedical has had the highest total cost for salaries and wages and
employee benefits.
h. Read the note on organization and basis of presentation. In this note, temporarily
restricted net assets are those net assets subject to donor-imposed restrictions
on their use that may be met either by actions of the Organization or the passage
of time.
19-11
i.
Read the note dealing with contributed services and materials. In this note, you
will find the amount of contributed service revenue that was reported for the most
recent year.
C19-6 (continued)
j.
Read the note on contributions receivable. In this note, the ARC reports the
amount of conditional contributions at the end of the most recent year. Conditional
contributions are not reported as revenues for the current year because the
conditions have not been met. After the conditions are met, the contributions will
become unconditional and revenue will be reported.
k. Read the note on investments. In this note, the amount of dividend and interest
revenue for the most recent year is reported for all three net asset categories.
l. In the past, the ARC disclosed that its unrelated business income came from the
following sources:
Rental income;
Parking garage;
S-corp income; and
Charitable gaming.
m. Read the note on revenue recognition. In this note, it states that When a donor
restriction expires, that is, when a stipulated time restriction ends or purpose
restriction is accomplished, temporarily restricted net assets are released and
reclassified to unrestricted net assets in the consolidated statement of activities.
n. Read the note on revenue recognition. In this note, it states that Donor-restricted
contributions are initially reported in the temporarily restricted net asset class,
even if it is anticipated such restrictions will be met in the current reporting
period.
o. Read the note on contributed services and materials. In this note, it states that
in the absence of donor-imposed restrictions, gifts of long-lived assets are
reported as unrestricted revenue.
19-12
C19-7 An Analysis of the Financial Statements of the University of Notre Dame,

a Private University.
The specific answers your students provide for the questions will depend on the most
recent year for which the annual report is provided on universitys web site. The
following are general guidance for the answers to the questions.
a. In the notes to the financial statements, read the note on restricted net assets and
endowment. In this note, temporarily restricted contributions received for
buildings and equipment is disclosed for the most recent year.
b. Read the note that contains a summary of significant accounting policies. In this
note, the University states Non-operating activity in the statements of changes in
unrestricted net assets includes unrestricted contributions from bequests
designated by the University for endowment and acquisition of physical facilities
and equipment, investment return in excess of or less than the amount distributed
under the spending plan, any gains or losses on other financial instruments, net
assets released from restrictions designated for investment and physical facilities,
and other activities considered to be more of an unusual and non-recurring
nature.
c. Read the most recent statements of changes in unrestricted net assets. On this
statement, net assets released from restrictions are disclosed in two places (1)
the operating section and (2) the Nonoperating section. This question asks for
the amount of net assets released from restrictions for operations.
d. Read the note on land, buildings, and equipment. In this note, the University
states that it does not capitalizethe cost or fair value of its art collection.
e. Read the note that discloses the summary of significant accounting policies. In
this note, read the section that deals with contributions. In this note, it states that
Contributions to be received in future years are discounted at a U. S. Treasury
rate commensurate with the payment plan.
f. Read the note that discloses the details of contributions receivable. In this note,
the University discloses the gross amount of its contributions receivable and
subtracts an allowance for uncollectible amounts and an amount that discounts
contributions that are time restricted. The note also discloses the allocation of the
contributions receivable, net, to the various net asset categories.
g. Read the statements of financial position to answer this question. The University
discloses the unrestricted net assets that are designated by the Board in the net
asset section.
h. True, operating expenses on the statements of changes in unrestricted net assets
are disclosed by function. In the summary of significant accounting policies, it
states that Operating expenses are reported by functional categories, after
allocating costs for operations and maintenance of plant, interest on indebtedness,
and depreciation expense.
i. Read the section of the annual report that is titled development update. In this
section, the number of individual donors who supported the University during the
most recent year is disclosed.
19-13
C19-7 (continued)
j. True, the Universitys land, buildings, and equipment, net of accumulated
depreciation, are reported in the unrestricted net asset class. Look at the note that
discloses the composition of restricted net assets and endowment. In this note,
the items that make up temporarily restricted and permanently restricted net asset
classes do not include land, buildings, or equipment. The temporarily restricted net
asset class does include contributions for the acquisition of buildings and
equipment; however, the University will release these net assets when the
buildings and equipment are acquired and subsequently will report these assets in
unrestricted net assets.
k.
To answer this question, first read the note on investment return. This note
provides the total investment return for the most recent year. Note that investment
return includes (1) investment income, net, (2) realized gain (loss), and (3)
unrealized gain (loss). To answer the question dealing with the unrestricted portion
of the investment return, you should read the most recent statements of changes
in unrestricted net assets. The investment return that is unrestricted includes (1)
investment income and (2) net gain (loss) on investments.
l. To answer this question, read the section of the report on development update. In
this section, the criteria that should be met to be a member of the Presidents
Circle are disclosed.
m. To answer this question, you should read the section of the annual report that
covers endowment review. The endowments annualized returns for the past ten
years will be mentioned in this section.
n. To answer this question, read the note that discloses restricted net assets and
endowments.
In this note, endowment funds that are reported in the
permanently restricted net asset class are disclosed. Note that this answer
cannot be found on the statements of financial position because this statement
discloses a single amount for investments for all three net asset categories.
o. Read the section of the annual report that contains the endowment review. This
section will disclose how the Universitys endowment ranks amongst U. S.
universities.
19-14
C19-8 Profiles of Large Charitable Organizations

The Give.org web site is well known by persons interested in donating larger amounts
to a charity. The web site is a good source for obtaining an overview of the national
charities and the availability of the same information for each of the charities makes
comparisons easier.
a. The Standards for Charity Accountability are found under the Charity Standards
link. These 20 standards were established to measure: a.) governance and oversight;
b.) effectiveness in establishing its mission; c.) finances to ensure that the charity is
raising its funds honestly and spending those funds prudently in furtherance of its
mission; d.) fund raising and informational materials to ensure that the charitys fund
raising materials are accurate and truthful, that financial reports are available to the
public and that the privacy rights of its donors are met.
b. The BBB Wise Giving Report for the American Red Cross includes charity contact
information, the BBB evaluation conclusions; the charitys programs, its tax status, its
governance, fund raising information and financial information. The information
provided is more of a thumbnail, but can quickly provide the types of information many
donors wish to have before giving to a charity.
c. It will be interesting to have your students talk about their selected charities, why
they selected the ones they did, and what types of information they found of interest.
19-15
SOLUTIONS TO EXERCISES
E19-1
Multiple-Choice Questions on Colleges and Universities [AICPA Adapted]
1.
2.
3.
4.
$7,500,000 assets - $4,500,000 liabilities
5.
$550,000 unrestricted + $330,000 of restricted
6.
$200,000 for fair value of donated services. Travel is an additional cost of

the services provided by the university.
Expenses
Contribution Revenue
Cash
218,000
200,000
18,000
E19-2 Multiple-Choice Questions on Hospital Accounting [AICPA Adapted]

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Net patient service revenue represents total billings less contractual

adjustments.
19-16
E19-3 Entries for a Hospitals Unrestricted (General) Fund

a.
Journal entries for the general fund.

1.
Accounts Receivable
Patient Services Revenue
6,200,000
2.
Nursing Services Expense

Other Professional Services Expense
Fiscal Services Expense
General Services Expense
Bad Debts Expense
Administration Expense
Depreciation Expense
Cash
Allowance for Uncollectibles
Accumulated Depreciation
Accounts Payable
Inventory
Donated Services
2,070,000
1,250,000
225,000
1,510,000
125,000
260,000
500,000
3.
Contractual Adjustments
Accounts Receivable
220,000
4.
Cash
Net Assets Released from Program
Use Restrictions
180,000
Cash
Net Assets Released from Equipment
Acquisition Restriction
200,000
6.
Cash
Contributions Unrestricted
155,000
7.
Cash
Accounts Receivable
5.
8.
19-17
4,785,000
125,000
500,000
210,000
240,000
80,000
220,000
180,000
200,000
5,905,000
75,000
Investment Securities
Unrealized Holding Gain on
Investment Securities Designated
for Other Than Current Operations
6,200,000
155,000
5,980,000
70,000
70,000
E19-3 (continued)
b.
Sycamore Hospital
Statement of Operations
For the Year Ended December 31, 20X6
Revenues, gains, and other support:

Net patient services revenue
Contributions
Net assets released from program
use restriction
$5,980,000
155,000
180,000
Total revenues, gains, and other support

Expenses and losses:
Nursing services
Other professional services
Fiscal services
General services
Bad debts
Administration
Depreciation
Total operating expenses
$6,315,000
$2,070,000
1,250,000
225,000
1,510,000
125,000
260,000
500,000
Operating income
5,940,000
$ 375,000
Other income
-0-
Excess of revenues over expenses
$ 375,000
Unrealized gains designated in excess of

amounts for current operations
Net assets released from restrictions used
for purchase of equipment
Increase in unrestricted net assets
70,000
200,000
$ 645,000
19-18
E19-4 Entries for Other Hospital Funds

1.
2.
3.
4.
5.
6.
Endowment Fund
Cash
Contributions Permanent Endowments
Contributions Term Endowments
270,000
Plant Replacement and Expansion Fund

Pledges Receivable
1,500,000
Contributions Plant Replacement
and Expansion
(Note that FASB 116 provides that pledges receivable within
the next year should be measured at net realizable value
with the estimated uncollectibles as a reduction of
contribution revenue.)
Specific-Purpose Fund
Cash
Contributions Research
Contributions Education
80,000
Endowment Fund
Cash
Investment Income Permanent
Endowment
Cash
Investment Income Research
31,000
50,000
30,000
45,000
31,000
55,000
32,000
Endowment Fund
Investments
Cash
270,000

Investments
Cash
160,000
75,000
19-19
1,350,000
100,000
45,000
Investments
Cash
150,000
100,000

Cash
Investment Income
Net Assets Released from Program Use
Restriction Research
Net Assets Released from Program Use
Restriction Education
Cash
Due to General Fund
150,000
120,000
70,000
17,000
270,000
160,000
75,000
E19-5
Multiple-Choice Questions on Voluntary Health and Welfare

Organization Accounting [AICPA Adapted]
1.
2.
3.
4.
5.
6.
7.
8.
9.
$800,000 x .50 = $400,000

$400,000 x .10 =
(40,000)
$360,000
$275,000 = $240,000 + $35,000
19-20
E19-6 Entries for Voluntary Health and Welfare Organizations

a.
Journal entries.
1.
Pledges Receivable
Allowance for Uncollectible Pledges
Contributions Temporarily Restricted
700,000
2.
Grants Receivable
Contributions Temporarily Restricted
150,000
3.
Cash Unrestricted
Pledges Receivable
520,000
Allowance for Uncollectible Pledges

Pledges Receivable
$520,000 pledges collected
506,000 recorded as contributions
$ 14,000 Adjustment to contributions
44,000
4.
Land, Buildings, and Equipment

Cash Unrestricted
15,000
5.
Mortgage Payable
Cash Unrestricted
6.
Cash Unrestricted
Cash Temporarily Restricted
Investment Income Unrestricted
Investment Income Temporarily Restricted
3,000
Cash Permanently Restricted

Endowment Investments
Gain on Sale of Investment
Permanently Restricted
7.
27,200
5,400
6,000
56,000
506,000
138,000
150,000
520,000
30,000
14,000
15,000
3,000
27,200
5,400
5,000
1,000
Community Services Expense

Public Health Education Expense
Research Expense
Fund Raising Expense
General and Administrative Expense
19-21
12,000
7,000
10,000
15,000
9,000
53,000
E19-6 (continued)
8.
9.
b.
Community Services Expense

Public Health Education Expense
Research Expense
General and Administrative Expense
Cash Unrestricted
250,600
100,000
81,000
39,000
61,000
531,600

Donated Services
2,400
2,400
Midwest Heart Association

Statement of Activities
Revenues, gains, and other

support:
Contributions, net of
estimated uncollectible
pledges
Grants
Investment income
Gain on investments
Donated services
Total revenues, gains and
other support
Program services and support:
Program services:
Community services
Public health education
Research
Total program services
Supporting services:
General and administrative
Fund raising
Total supporting services
Total expenses
Change in net assets
Net assets at beginning of year
Net assets at end of year
Unrestricted
$520,000
27,200
Temporarily
Restricted
$138,000
150,000
5,400
2,400
$549,600
$293,400
Permanently
Restricted
1,000
1,000
Total
$658,000
150,000
32,600
1,000
2,400
$844,000
$262,600
107,000
91,000
$460,600
$262,600
107,000
91,000
$460,600
$ 70,000
54,000
$124,000
$584,600
-0-
-0-
70,000
54,000
$124,000
$584,600
$(35,000)
281,000
$246,000
$293,400
87,000
$380,400
1,000
219,000
$220,000
$259,400
587,000
$846,400
19-22
E19-7 Determination of Contribution Revenue

a.
Journal entries
1.
Property, Plant and Equipment

Contributions Property, Plant and Equipment
2.
Pledges Receivable Unrestricted

Pledges Receivable Restricted
for Passage of Time
Pledges Receivable Restricted for Program Use
Pledges Receivable Restricted for Construction
Contributions Restricted
for Passage of Time
Contributions Restricted for Program Use
Contributions Restricted for Construction
$ 50,000 present value of initial payment
260,318 present value of 7 payments of $50,000
each discounted at 8 percent
$310,318 present value of construction pledge
3.
70,000
90,000
310,318
120,000
70,000
90,000
310,318
50,000
Vision Testing Expense

Cash Unrestricted
45,000
Cash Unrestricted
Reclassification from Temporarily Restricted
Contributions to Unrestricted
38,000
50,000
45,000
38,000
38,000
Pledges Receivable Restricted for Construction

Contributions Restricted for Construction
$20,825 = $260,318 x .08
20,825
Cash Restricted for Construction

Pledges Receivable Restricted for
Construction
50,000
19-23
42,000
120,000
Cash Restricted for Construction

Pledges Receivable Restricted for
Construction
Reclassification of Contributions from

Temporarily Restricted
Cash Restricted for Program Use
b.
42,000
38,000
20,825
50,000
E19-8
Multiple-Choice Questions on Other Nonprofit Organizations [AICPA

Adapted]
1.
2.
3.
4.
5.
6.
7.
Note: Board designations are internal; therefore, not

restricted.
8.
$830,000 = $680,000 + $90,000 + $60,000

Note: Nonexpendable gifts for loan purposes are classified
as temporarily restricted ($30,000) and permanently
restricted ($25,000).
9.
Note: All other expenses are for supporting services.
10.
Note: Gains on endowment investments are considered

principal unless otherwise stated.
Note: Annual report has program and service intent.
19-24
E19-9 Statement of Activities for an Other Nonprofit Organization

Pleasant School
Statement of Activities Unrestricted Operating Fund Only
Year Ended June 30, 20X2
Support and revenue:

Tuition and fees
Contributions
Auxiliary activities
Investments income
Other revenue
Net assets released from restriction:
Temporarily restricted net assets
Permanently restricted assets
Total support and revenue
Expenses:
Program services:
Instruction
Auxiliary activities
Administration
Fund raising
Total program and support services expenses
Increase in net assets
Fund balance, July 1, 20X1
Fund balance, June 30, 20X2
Operating Funds
Unrestricted
$1,200,000
165,000
40,000
32,000
38,000
130,000
12,000
$1,617,000
$1,050,000
37,000
250,000
28,000
$1,365,000
$ 252,000
420,000
$ 672,000
19-25
SOLUTIONS TO PROBLEMS
P19-10 Financial Statements for a Private, Not-for-Profit College
a.
Friendly College
Statement of Financial Position
June 30, 20X3 and 20X2
Item
Cash
Accounts receivable (student tuition and
fees, less allowance for uncollectibles
of $11,000 and $9,000, respectively)
State appropriations receivable
Investments
Total assets
Accounts payable
Deferred revenue
Net assets:
Unrestricted
Temporarily restricted by donors
Permanently restricted by donors
Total liabilities and net assets
b.
20X2
$217,000
137,000
50,000
89,000
$1,100,900
341,000
75,000
60,000
$693,000
59,000
158,000
$ 45,000
66,000
716,000
117,900
50,000
$1,100,900
515,000
67,000
-0$693,000
Friendly College
For Year Ended June 30, 20X3
Unrestricted

Tuition and fees
$1,900,000
State appropriation
50,000
Interest income
6,000
Contributions
25,000
Gain on sale of investments
Investment income
Net assets released
from temporary restriction*
13,000
Total revenue, gains, and
other support
$1,994,000
Expenses and other deductions
Net assets at beginning of Year
Net assets at end of year
20X3
824,900
1,793,000
$ 201,000
515,000
$ 716,000
Temporarily
Restricted
$ 7,000
50,000
5,000
1,900
Permanently
Restricted
$ 50,000
Total
$1,900,000
50,000
13,000
125,000
5,000
1,900
(13,000)
$ 50,900
$ 50,000
$ 50,900
67,000
$117,900
$ 50,000
$ 50,000
$2,094,900
1,793,000
$ 301,900
582,000
$ 883,900
*The transfers of temporarily restricted resources are reported as Net

Assets Released from Temporary Restriction and included in unrestricted expenses.
19-26
P19-10 (continued)
Proof of selected items:
(1)
Cash =
Beginning balance of $217,000 plus receipts of:
$ 100,000 from alumnus
1,686,000 from student tuition and fees
158,000 from fee revenue deferred to next year
349,000 from outstanding accounts receivable
6,000 from interest received
75,000 from prior years state appropriation
25,000 from unrestricted gift from alumni
26,000 from sale of investments
1,900 from investment interest income
7,000 from interest on savings certificates
Less payments of:
$ 50,000 to acquire savings certificates
1,718,000 to operating expenses ($1,777,000 - $59,000 unpaid)
13,000 to items for restricted purposes
45,000 to prior years accounts payable
= Ending balance of $824,900
(2)
Accounts receivable =
Beginning balance of $350,000 gross plus
$1,834,000 for net increase in tuition ($1,900,000 - $66,000)
Less collections of:
$1,686,000 collection of current years tuition and fees
349,000 collection of prior years accounts receivable
1,000 write-off of remainder of prior years receivable
= Ending balance of $148,000 gross (less estimated
uncollectibles of $11,000)
(3)
Investments =
Beginning balance of $60,000 plus
$ 50,000 acquire certificate of deposit
Less decreases of:
$ 21,000 sale of restricted investments
= Ending balance of $89,000
(4)
Expenses and other deductions =

$1,777,000 unrestricted operating expenses recorded
+
3,000 year-end accrual for increase in estimated uncollectibles
+ 13,000 transferred from temporarily restricted and spent in unrestricted
$1,793,000
19-27
P19-11 Balance Sheet for a Hospital

Brookdale Hospital
Balance Sheet
December 31, 20X4
Current Assets:
Cash
Contributions receivable
Investments in marketable securities
Interest receivable
Accounts receivable
Inventory
Total current assets
Long-term assets:
Buildings and equipment
Less: Accumulated depreciation
Net investment in buildings and equipment
Land
Investment in marketable securities
Total long-term assets
Total assets
Liabilities:
Accounts payable
Mortgage payable
Total liabilities
Net assets:
Unrestricted
Temporarily restricted
Permanently restricted
Total net assets
$ 100,000
100,000
200,000
15,000
55,000
35,000
$ 750,000
(325,000)
$ 425,000
95,000
300,000
$ 40,000
320,000
$ 555,000
80,000
330,000
Proof of selected amounts:

Accumulated depreciation:
Buildings: ($600,000 / 30 years) x 11 years expired
Equipment: ($150,000 / 10 years) x 7 years expired
Land: for amount of historical cost
Temporarily restricted net assets: $50,000 of short-term investments
plus $30,000 in temporarily restricted contributions receivable.
Permanently restricted net assets: $300,000 of long-term investments
plus $30,000 in permanently restricted contributions receivable.
Unrestricted net assets = $555,000 balancing plug after corrections, or
$1,140,000 preadjusted balance
for reduction of building and equipment to historical
(185,000) cost
(65,000) for correction of accumulated depreciation
(25,000) for reduction of land to fair value at time of donation
40,000 for unrecognized, unrestricted contributions receivable
for preadjusted temporarily and permanently restricted
(350,000) net assets
19-28
505,000
820,000
$1,325,000
$ 360,000
965,000
$1,325,000
= $220,000
= 105,000
$325,000
P19-12 Entries and Statement of Activities for an Other Nonprofit Organization

[AICPA Adapted]
a.
Community Sports Club

Transactions
For the Year Ended March 31, 20X3
1.
Cash
Revenue Annual Dues
20,000
2.
Cash
Revenue Snack Bar and Soda
Fountain
28,000
28,000
3.
Cash
Investment Income
6,000
4.
Expense House
Expense Snack Bar and Soda Fountain
Expense General and Administrative
Accounts Payable
17,000
26,000
11,000
5.
Accounts Payable
Cash
55,000
6.
Assessments Receivable
Deferred Capital Support
10,000
7.
Cash
Support Bequest (unrestricted)
19-29
20,000
5,000
6,000
54,000
55,000
10,000
5,000
P19-12 (continued)
Adjustments
March 31, 20X3
1.
2&3.
4.
Investments
Unrealized Gain on Investment
Note: ONPOs may value investments
at full market values
7,000
Depreciation Expense House

Depreciation Expense Snack Bar and Fountain
Depreciation Expense General and
Administrative
Accumulated Depreciation Building
Accumulated Depreciation Furniture
and Equipment
9,000
2,000
Expense Snack Bar and Soda Fountain

Inventories
4,000
b.
1,000
7,000
4,000
8,000
4,000
Community Sports Club

For the Year Ended March 31, 20X3
Revenues, gains and other support
Snack bar and soda fountain sales
Dues
Investment income
Bequest
Total revenue, gains and other support
$ 28,000
20,000
6,000
5,000
$ 59,000
Expenses
Snack bar and soda fountain
House
General and administrative
Total expenses
$32,000
26,000
12,000
Change in net assets before unrealized

gain on investments
Unrealized gain on investments
Net assets on April 1, 20X2
Net assets on March 31, 20X3
19-30
70,000
$(11,000)
7,000
$ (4,000)
12,000
$ 8,000
P19-13 Entries and Statements for General Fund of a Hospital

a.
Journal entries:
1.
Accounts Receivable
Patient Services Revenue
2.
Contractual Adjustments
Accounts Receivable
3.
Nursing Services
Other Professional Services
Fiscal Services
General Services
Bad Debts
Administration
Depreciation Expense
Cash
Accounts Payable
Accrued Expense
Inventories
Prepaid Expenses
Nonoperating Gain Donated Services
4.
5.
6.
7.
8.
9.
6,160,000
330,000
1,800,000
1,200,000
250,000
1,550,000
120,000
280,000
400,000
Cash
Due from Specific-Purpose Fund
Net Assets Released from Program
Use Restriction
Cash
Investment Income from Endowment
Fund Investments
[Note that the general fund directly recorded this
income because it is unrestricted income from the
endowment investments.]
85,000
Cash
Property, Plant, and Equipment
Gain on Sale of Equipment
17,000
20,000
200,000
85,000
5,800,000
132,000
60,000
19-31
4,580,000
120,000
400,000
170,000
35,000
195,000
30,000
70,000
100,000
176,000
24,000
Investments
Cash
330,000
75,000
25,000
Inventories
Prepaid Expenses
Cash
Cash
Accounts Receivable
6,160,000
30,000
7,000
5,932,000
60,000
P19-13 (continued)
10.
11.
72,000
72,000
Accounts Payable
Accrued Expenses
Cash
150,000
55,000
12.
Cash
Deferred Revenue Reimbursement
13.
Cash
Net Assets Released from Fixed
Asset Acquisition Restriction
14.
b.
Cash
Investment Income from
Board Designated Investments
205,000
20,000
20,000
140,000
140,000
Cash
Other Operating Revenue Cafeteria
and Gift Shop Sales
63,000
63,000
Comparative balance sheets:

Serene Hospital
Balance Sheet General Fund
For Years Ended December 31, 20X2 and 20X1
20X2
Assets
Cash
Accounts receivable
Less: Allowance for uncollectibles
Due from specific-purpose fund
Inventories
Prepaid expenses
Investments
Property, plant, and equipment
Less: Accumulated depreciation
Total
$ 1,352,000
298,000
(38,000)
65,000
76,000
14,000
960,000
6,070,000
(1,880,000)
$ 6,917,000
20X1
$
125,000
400,000
(50,000)
40,000
95,000
20,000
900,000
6,100,000
(1,500,000)
$ 6,130,000
Liabilities and Fund Balance

Accounts payable
Accrued expenses
Deferred revenue reimbursements
Bonds payable
Unrestricted net assets
Total
19-32
170,000
35,000
95,000
3,000,000
3,617,000
$ 6,917,000
150,000
55,000
75,000
3,000,000
2,850,000
$ 6,130,000
P19-13 (continued)
c.
Statement of operations for the unrestricted general fund:

Serene Hospital
Statement of Operations for the Unrestricted General Fund
Unrestricted revenues, gains,
and other support:
Net patient services revenue
Gain on sale of equipment
Cafeteria and gift shop sales
Investment income
Donated services
Net assets released from:
Program use restriction
Total revenues, gains and other support
Operating expenses:
Nursing services
Other professional services
Fiscal services
General services
Bad debts
Administration
Depreciation
Total expenses
Excess of revenues over expenses
Other item:
Net assets released from fixed asset
acquisition restriction
7,000
63,000
157,000
70,000
100,000
$1,800,000
1,200,000
250,000
1,550,000
120,000
280,000
400,000
$ 5,830,000
397,000
$ 6,227,000
(5,600,000)
$ 627,000
140,000
767,000
627,000
Statement of changes in net assets (not required)

Serene Hospital
Statement of Changes in Net Assets
Operating Income
Net assets released from fixed asset
acquisition restriction
Net Assets at Beginning of Year
Net Assets at End of Year
140,000
767,000
2,850,000
$ 3,617,000
$
19-33
P19-13 (continued)
d.
Statement of cash flows for the general fund (indirect method):
Serene Hospital
Statement of Cash Flows for the General Fund
Cash flows from operating activities:
Adjustments to reconcile changes in net assets to
net cash provided by operating activities:
Depreciation
Gain on sale of property, plant, and equipment
Decrease in net patient accounts receivable
Increase in due from specific-purpose fund
Decrease in inventories
Decrease in prepaid expenses
Net change in accounts payable and accrued expenses
Increase in deferred revenue reimbursements
Net assets released from fixed asset restriction
Net cash provided by operating activities
Cash flows from investing activities:
Sale of property, plant, and equipment
Transfer in from restricted plant fund
Purchase of investments
Net cash provided by investing activities
767,000
400,000
(7,000)
90,000
(25,000)
19,000
6,000
-020,000
(140,000)
$1,130,000
$
17,000
140,000
(60,000)
$ 97,000
Cash flows from financing activities
Net increase in cash

Cash at beginning of year
Cash at end of year
$1,227,000
125,000
$1,352,000
19-34
-0-
P19-13 (continued)
Optional d.
Statement of cash flows for the general fund

(direct method):*
Serene Hospital
Statement of Cash Flows for the General Fund
Cash flows from operating activities and gains and losses:
Cash received from patients and third-party payers
Cash paid to employees and suppliers
Other receipts from operations
Income on endowment investments
Income on board-designated investments
Net cash provided by operating activities
$ 5,883,000
(4,985,000)
75,000
85,000
72,000
$ 1,130,000
Cash flows from investing activities:

Sale of property, plant, and equipment
Transfer in from restricted plant fund
Purchase of investments
Net cash provided by investing activities
17,000
140,000
(60,000)
97,000
Cash flows from financing activities
-0-
Net increase in cash

Cash at beginning of year
Cash at end of year
$ 1,227,000
125,000
$ 1,352,000
* If the direct method is used, a supplementary schedule is required to reconcile "revenue

and gains in excess of expenses and losses to net cash provided by operating activities
and gains and losses." This required supplementary schedule is similar to the cash
flows from operating activities section under the indirect method of presenting cash
flows as presented for part d above.
19-35
P19-14
Statements for Current Funds of a Voluntary Health and Welfare

Organization [AICPA Adapted]
Community Association for Handicapped Children
Year Ended June 30, 20X4
Public support and revenue:

Public support:
Contributions (net of estimated
uncollectible pledges of $2,000)
Revenue:
Membership dues
Program service fees
Investment income
Net assets released from:
Time restriction (from Endowment Fund)
Use restriction
Total support and revenue
Expenses:
Program services:
Deaf children
Blind children
Total program services
Management and general
Fund raising
Total supporting services
Total expenses
Unrestricted
Temporarily
Restricted
$298,000
$ 15,000
25,000
30,000
10,000
20,000
5,000
$388,000
(20,000)
(5,000)
$(10,000)
$120,000
150,000
$270,000
$ 49,000
9,000
$ 58,000
$328,000

Fund balances, July 1, 20X3
Fund balances, June 30, 20X4
$ 60,000
38,000
$ 98,000
___ ____
$__ _-0$(10,000)
23,000
$ 13,000
Note: The use restriction transfer of $5,000 from the temporarily restricted fund to the
unrestricted fund is for the $4,000 and $1,000 of expenses initially recorded in the
temporarily restricted fund. FASB 117 requires that all not-for-profit organizations report
all entity expenses in the unrestricted fund. Therefore, the temporarily restricted fund
will not report any expenses. The management and general, and the fund raising
amounts in the unrestricted fund include the $4,000 and $1,000 expenses transferred
from the temporarily restricted fund.
19-36
P19-14 (continued)
Community Association for Handicapped Children
Statement of Financial Position
June 30, 20X4
Cash
Investments (at cost, which approximates
market value)
Pledges receivable (less $3,000 allowance
for uncollectibles)
Interest receivable
Assets whose use is restricted
Total assets
Accounts payable
Deferred revenue
Total liabilities
Net assets:
Unrestricted
Temporarily restricted
Total net assets
$ 40,000
100,000
9,000
1,000
13,000
$163,000
$ 50,000
2,000
$ 52,000
$98,000
13,000
111,000
$163,000
Note: The $13,000 for Assets whose use is restricted is the $14,000 of temporarily
restricted assets minus the $1,000 of temporarily restricted liabilities.
19-37
P19-15
Comparative Journal Entries for a Government Entity and a
Voluntary Health and Welfare Organization [AICPA Adapted]
a.
1.
2.
3.
4.
Local Government Unit

General Fund
Expenditures Purchase of Equipment
Cash
General Fund (or any other fund)
Cash
Revenue Donations
25,000
100,000
Permanent Trust Fund

Cash
Investments
Fund Balance Restricted
Gain on Sale of Investments
Capital Projects Fund
Cash
Other Financing Sources
Bond Issue
Capital Projects Fund
Construction Expenditures
Cash
55,000
100,000
50,000
5,000
1,000,000
1,000,000
1,000,000
19-38
25,000
1,000,000
P19-15 (continued)
b.
1.

Unrestricted Fund
Equipment
Cash
25,000
Cash
Temporarily Restricted Fund Plant and Equipment
Cash
2.
3.
4.
Unrestricted Fund
Cash
Permanently Restricted Fund Endowments
Cash
Investments Common Stocks
Gain on Sale of Investments
Unrestricted Fund
Cash
Bonds Payable
25,000
25,000
25,000
100,000
55,000
1,000,000
Buildings
Cash
1,000,000
19-39
25,000
25,000
100,000
50,000
5,000
1,000,000
1,000,000
P19-16
Matching Effects of Transactions on a Hospitals Financial Statements

[AICPA Adapted]
1.
The designation of intent is not a transaction. When the actual purchase is

made, the transaction will be recorded.
2.
After the investment is actually made, the income from resources under the
control of the governing board is recorded as unrestricted revenue.
3.
Resources contributed for capital expansion serve a specific purpose for

which the resources should be used. This contribution is accounted for in a
temporarily restricted fund, and reported as an increase in temporarily
restricted net assets.
4.
The use of temporarily restricted resources in accordance with the donors

specification results in a reclassification (transfer) of the resources from
temporarily restricted to unrestricted. The following entries would be made in
the case of the hospital maintaining a separate Plant Fund:
Plant Fund:
Net Assets Released Plant Acquisition
Cash
Unrestricted Fund:
Cash
Net Assets Released from Capital
Acquisition Restriction
Property, Plant, and Equipment
Cash
XXXX
XXXX
XXXX
XXXX
XXXX
XXXX
5.
Donated services to a hospital are accounted for in accordance with FASB

116 under which donated services are recognized if the services (a) create or
enhance nonfinancial assets, or (b) require specialized skills, are provided by
individuals possessing those skills, and would typically need to be purchased
if not provided by donations. In the case of specialized accounting services,
the hospital would recognize the estimated value of the donated services as
an expense and a corresponding amount is reported as an increase in
unrestricted revenues, gains, and other support. Given the five choices of A
through E, A is the answer.
6.
The contribution of permanently restricted investments would normally be

accounted for in an endowment fund which would be an increase in
permanently restricted net assets. The income from the investments would
be available for the unrestricted fund, but the investments themselves would
be restricted in accordance with the donors specification.
19-40
P19-17 Balance Sheet for a Hospital

Havencrest Hospital
Balance Sheet
June 30, 20X8
Assets
Current:
Cash
Accounts Receivable (net of the allowance of $5,000)
Inventories
Prepaid Expenses
Total Current Assets
Assets Limited as to Use:
By Donors for Specific Purpose Research
By Donors for Plant Replacement and Expansion
By Donors for Permanent Investment
Investments
Property, Plant, and Equipment (net of accumulated
depreciation of $140,000)
Total Assets
Liabilities and Net Assets
Current:
Accounts Payable
Accrued Expenses
Deferred Revenues
Current Portion of Long-term Debt
Total Current Liabilities
Long-term Debt:
Mortgage Payable
Total Liabilities
Net Assets:
Unrestricted
Temporarily Restricted
Permanently Restricted
Total Net Assets
Total Liabilities and Net Assets
19-41
30,000
20,000
50,000
10,000
$ 110,000
32,000
200,000
520,000
100,000
160,000
$1,122,000
45,000
17,000
11,000
24,000
97,000
125,000
$ 222,000
$ 148,000
232,000
520,000
$ 900,000
$1,122,000
P19-18
Matching of Transactions to Effects on Statement of Changes in Net

Assets for a Hospital
1.
2.
3.
4.
5.
6.
7.
A and D
8.
9.
A
D (A and B offset)
10.
11.
12.
P19-19
Matching of Transactions to Effects on Statement of Activities for a

1.
2.
3.
4.
5.
6.
7.
A and C
8.
9.
10.
11.
12.
A board-designation is not an external, donor-imposed restriction. There is

no change in the unrestricted net assets.
19-42
P19-20
Net Asset Identification for Transactions Involving a Private University
1. Unrestricted net assets increased $2,000,000.

2. Temporarily restricted net assets increased $1,000,000.
3. Unrestricted net assets decreased $200,000.
4. Temporarily restricted net assets increased $1,500,000.
5. Temporarily restricted net assets increased $150,000.
6. Temporarily restricted net assets increased $75,000.
7. Temporarily restricted net assets decreased $60,000, the result of a reclassification
of $60,000 to unrestricted net assets. There is no effect on unrestricted net assets
because the increase of $60,000 due to the reclassification is offset by a $60,000
increase in expenses. Expenses are decreases in unrestricted net assets.
8. There is no effect on unrestricted net assets as a result of this board designation.
Net assets under the control of the governing board are unrestricted. The board of
BU took cash that was unrestricted and designated that it be used for a specific
purpose. This designation does not change the net asset classification of the cash.
9. Permanently restricted net assets increased $3,750,000.
10. There is no effect on unrestricted net assets as a result of the acquisition of debt
securities by the board. The board took cash that was unrestricted and used it to
acquire debt securities.
11. Unrestricted net assets increased $6,000. The interest revenue of $18,000 from the
investments is an increase in unrestricted net assets, while the $12,000 used to
fund summer research grants represents a $12,000 decrease in unrestricted net
assets.
19-43
P19-21
Questions on Voluntary Health and Welfare Organization [AICPA

Adapted]
Transaction
1.
List A Effect
B
List B Effect
N
2.
3.
4.
5.
6.
P19-22 Contributions to a Hospital [AICPA Adapted]

1.
The boards designation is not a required reportable event.
2.
The investments are under the boards discretion; therefore, the income
is recorded as unrestricted revenue.
3.
Funds provided specifically for a building expansion are temporarily

restricted until the construction takes place.
4.
At the time the temporarily restricted resources are expended for the
program specified by the donor, the funds are reclassified as
unrestricted.
5.
Professional services contributed to the not-for-profit organization are

valued at their fair value and recorded as unrestricted revenues, gains,
and other support.
6.
The principal is permanently restricted by the donor. The income from the
investments, when the income is earned, would be classified as
temporarily restricted, to be used for the specific purpose specified by the
donor.
19-44
P19-23 Evaluating Items for a Hospitals Statement of Operations

1. A
Estimated uncollectibles from providing services is an operating expense.
2. A,A
Both as a contribution revenue and an operating expense. If the supplies

had not been used during the period they would be reported as contribution
revenue and an increase in inventory. The operating expense would be
recognized as they are consumed.
3. A
Unrestricted investment income is included in unrestricted revenue.
4. A
Assumes normal case that gain is not restricted.
5. B
Net assets released for acquisition of equipment are nonoperating items.
6. A
Net assets released for operations are part of operating items.
7. C
The statement of operations reports only income/loss on unrestricted net

assets.
8. C
This investment income would be retained by the temporarily restricted

fund.
9. C
Pledges for planned new construction would be accounted for as

contributions in the temporarily restricted building fund until released for
acquisition of the equipment. They would then be accounted for as a net
assets released to the unrestricted fund.
10. A
Auxiliary services revenues are included in unrestricted revenues.
11. A,A
Both as contribution revenue and an operating expense.
12. A
Depreciation is an operating expense of the hospital.
13. C
Board designations do not change the nature of the unrestricted resources.
14. A
Contribution revenue would be recorded at the time of the gift and assets
would be increased. Operating expense would be recorded for the periodic
depreciation.
15. C
Charity care not reported on the statement. Charity care is usually

footnoted.
16. C
Net patient care revenue is net of contractual adjustments. Therefore,

contractual adjustments not directly shown on the statement of operations.
17. C
A bond issue is shown as a liability in the hospitals balance sheet.
18. C
Only the periodic depreciation on these operating tables will be reported on

the statement of operations.
19. B
Investment income in excess of amounts designated for current operations

are shown below the operating performance indicator.
19-45
P19-24 True-False Questions About Not-for-Profit Accounting and Reporting

1. F
Per FASB 117, a statement of functional expenses is required only for

voluntary health and welfare organizations.
2. T
According to FASB 116, pledge revenue is recorded net of estimated

uncollectibles.
3. F
Time restricted contributions should be recorded in the temporarily restricted

net assets until the time restriction has expired. At that point, the resources
may be transferred to the unrestricted net asset class.
4. F
Contractual adjustments should be a direct reduction of patient revenue, not

an expense.
5. F
Designated resources are part of the unrestricted net asset class. Only
external donor-restricted resources are reported in the restricted asset
classes.
6. T
The net asset transfer from the temporarily restricted net asset class is
appropriate at the point the unrestricted net asset class expends the
resources in accordance with the donors restrictions.
7. F
According to FASB 116, donated supplies should be recognized as

contribution revenue in the period received and as an operating expense in
the period used.
8. T
FASB 124 specifies that income on permanently restricted endowment assets

should be recognized in the appropriate net asset class for which the income
is directed. In this example, the income is restricted for a specific use.
Therefore, the investment income should be recognized directly in the
temporarily restricted net asset class.
9. F
FASB 124 requires that investments held by not-for-profit organizations

should be revalued to their fair values at each balance sheet date. The total
investment return for the period would be determined and that portion
designated for current operations would be reported above the operating
performance measure in the statement of operations.
10. T
FASB 116 states that contributions of art or historical works do not need to be
recorded as contribution revenue and capitalized as assets of the not-forprofit organization if the works are for public display, the organization agrees
to care and preserve the collection, and any proceeds from sales of any
collection item will be used only for acquiring other items for the collection.
19-46
P19-24 (continued)
11.
The building and equipment is recorded and reported in the hospitals

unrestricted net asset class (the general fund). The restricted building
fund is used to account for resources, some of which might be
contributions of equipment, to be used for obtaining buildings and
equipment. Some contributions to the building fund might be equipment
that is not put into service. At the time the resources are used for
acquiring or using plant assets for providing services to patients, the
resources are accounted for as net assets released from temporary
restriction out of the building fund and also as net assets released from
temporary restriction into the unrestricted, general fund. The unrestricted
fund reports this transfer received below the operating performance
measure on the hospitals statement of operations.
12.
FASB 116 states that significant donated services that would otherwise
need to be obtained should be recognized as contribution revenue and
an expense in the period of the donation.
13.
Estimated uncollectibles from patient service receivables should be

shown as a bad debt expense and a contra account to the receivables
asset.
14.
FASB 116 states that conditional pledges should not be recognized until
the conditions have been substantially met. Potentially possible is not
equal to substantially met.
15.
The temporarily restricted net asset class should not report any
expenses. Only the unrestricted net asset class may report expenses.
The cost of the program should be reported in the unrestricted net asset
class and then a net assets released from temporary restriction transfer
should be made from the temporarily restricted net asset class to the
unrestricted net asset class.
16.
FASB 116 states that time restricted contributions should be reported as

contribution revenue in a temporarily restricted net asset class. At the end
of the time restriction, the resources will be transferred to the unrestricted
net asset class.
17.
Fund accounting is not required for hospitals, although many hospitals do

use fund accounting for its account discipline. Hospitals and other not-forprofit organizations are required by FASB 117 to report net assets by
unrestricted, temporarily restricted, and permanently restricted classes.
Net assets are restricted only by external donors or laws that govern the
organization.
19-47
P19-24 (continued)
18.
The performance measure may have any descriptive title such as Excess of
revenues over expenses but must separate the operating income (loss) from
the nonoperating items.
19.
The building fund should record this transfer as a net assets released from
the temporarily restricted fund. The unrestricted, general fund should record
this transfer as net assets released from the temporarily restricted fund to the
general fund. Note that it is not a revenue of the general fund because the
revenue was already recognized in the temporarily restricted fund at the time
of the donation. Contribution revenue should be recognized only once by the
not-for-profit hospital.
20.
FASB 117 specified that the cost of a fund raising effort of a VHWO is an
important piece of information for users of the financial statements of the
VHWO. Thus, fund raising costs must be separately reported as an expense
of the entity and cannot be reported as a direct reduction of the contribution
revenue obtained in the fund raising effort.
19-48
P19-25 Statement of Activities for a Voluntary Health and Welfare Organization

United Ways
Unrestricted
Contributions
Investment income
Donated services
Net assets released from
restriction:
Program use restrictions
Equipment acquisitions
Total revenues, gains, and
Other support
$ 950,000
200,000
Permanently
Restricted
150,000
100,000
(150,000)
(100,000)
765,000
$ 900,000
Total
600,000
$ 1,450,000
800,000
15,000
600,000
$ 2,265,000
15,000
Program and supporting services expenses:

Research
$
Public health education
Community services
Management and general
Fund raising
Total expenses
Net assets, beginning of
the year
Net assets, end of the year
500,000
Temporarily
Restricted
250,000
100,000
150,000
140,000
115,000
250,000
100,000
150,000
140,000
115,000
$ 755,000
$ 10,000
$
-0$ 900,000
$
-0$ 600,000
$ 755,000
$ 1,510,000
3,000,000
$3,010,000
5,000,000
$5,900,000
6,000,000
$6,600,000
14,000,000
$15,510,000
Notes:
1.
The donated services of $15,000 are reported as an increase in unrestricted net assets
and included as part of the $140,000 of expenses for management and general.
2.
The uncollectible pledges of $50,000 are reported as a deduction from temporarily
restricted contributions received in 20X3.
3.
The $950,000 of pledges received in 20X3 is reported as temporarily restricted because of
a time restrictionthe pledges will not be received until 20X4.
4.
The governing boards designation of $225,000 for computer acquisitions is not reported
on the Statement of Activities. The resources that were designated were reported as
unrestricted, and the governing boards designation of the resources does not change
their classification.
5.
FASB 117 permits temporarily restricted net assets that are spent in the same year in
which the assets are received to be reported as unrestricted. In the problem, this means
that the $150,000 of investment income that was earned in 20X3 and used for research in
20X3 could have been reported directly in unrestricted net assets, avoiding the need to
report $150,000 of net assets released from restriction.
19-49
P19-26
Reporting Transactions on the Statement of Cash Flows for Private,

Not-for-Profit Entities
1. Report the $100,000 increase in accounts receivable as a deduction from the

change in net assets in the operating activities section.
2. Report a deduction for the $200,000 contribution from the change in net assets in
the operating activities section and disclose an increase of $200,000 in the
financing activities section.
3. Report a deduction for the $25,000 contribution from the change in net assets in
the operating activities section and disclose an increase of $25,000 in the
investing activities section.
4. Report an addition to the change in net assets in the operating activities section
for the increase of $20,000 in accounts payable.
5. Report the $70,000 borrowed as an increase in the financing activities section.
6. Report a deduction of $50,000 to acquire investments in the investing activities
section.
7. Report a deduction for the investment income of $45,000 from the change in net
assets in the operating activities section and report an increase of $45,000 in the
financing activities section.
8. Report the $850,000 as a decrease in the investing activities section.
9. Report the loans made to students and faculty of $100,000 as a decrease in the
investing activities section.
10. Report the $30,000 loan repayment as a deduction in the financing activities
section.
11. Report the increase in accrued interest receivable as a deduction from the
12. Report the increase of $12,000 in deferred revenue as an increase to the change
in net assets in the operating activities section.
13. Report the $100,000 received as an increase in the investing activities section.
14. Report the increase of $2,500 in prepaid assets as a deduction to the change in
net assets in the operating activities section.
15. Report the $35,000 unrealized gain on investment as a deduction from the
19-50

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Chapter 19 Not-for-Profit Entities