Ch. 1 and Ch. 13 Multiple Choice

Question 1

Governments and Nonprofit entities are similar in many ways. Which of the following statements is not true?

a. Neither governments nor nonprofit entities have a profit motive.
b. Both governments and nonprofit entities provide services.
c. Both governments and nonprofit entities assess taxes.
d. Both governments and nonprofit entities often report restricted resources.

Answer 1

c. Both governments and nonprofit entities assess taxes.

Question 2

Why go governments and nonprofit entities use fund accounting?

a. To help ensure restricted resources are spent for their intended purpose.
b. To help limit errors when posting general journal entries to the general ledger.
c. To allow managers more flexibility when budgeting.
d. To better match revenues and expenses.

Answer 2

a. To help ensure restricted resources are spent for their intended purpose.

Question 3

Which of the following is generally the major source of revenues for governments?

a. Voluntary donations
b. Revenue from exchange transactions
c. Taxes
d. Revenue from investments

Answer 3

c. Taxes

Question 4

Successful entities prepare budgets. Which of the following entities is generally required by law to prepare a budget?

a. Commercial business enterprises
b. Governments
c. Nonprofit entities
d. All of the above

Answer 4

b. Governments

Question 5

Users of governmental and nonprofit financial reports use financial statements to answer a number of following questions. Which of the following can at least partially be answered by reading a government or nonprofit’s financial statements?

a. Does the entity have sufficient financial resources to provide a reasonable cushion against near-term revenue shortfalls caused by economic contraction?
b. What is the likelihood of the entity’s ability to pay its short-term and long-term financial obligations?
c. What is the entity’s ability to continue to provide a particular level of services?
d. Financial statements can be used to answer all of the aforementioned questions.
e. None of the above.

Answer 5

d. Financial statements can be used to answer all of the aforementioned questions.

Question 6

Which of the following type of entities commonly uses fund accounting for internal reporting purposes?

a. State and local governments
b. Business enterprises
c. Nonprofit entities
d. Both a and b
e. Both a and c

Answer 6

e. Both a and c

Question 7

Which of the following type of entities prepares financial statements using both the modified accrual basis of accounting and the accrual basis of accounting?

a. State and local governments
b. Business enterprises
c. Nonprofit entities
d. Federal government

Answer 7

a. State and local governments

Question 8

Which of the following type of entities prepares both entity wide and fund financial statements?

a. State and local governments
b. Business enterprises
c. Nonprofit entities
d. Federal government

Answer 8

a. State and local governments

Question 9

How are nonprofits required to report expenses?

Answer 9

By natural classification and by function

Question 10

Which of the following types of entities follow FASB standards when preparing financial statements?

a. State and local governments and nonprofit entities
b. Business enterprises and the federal government
c. Nonprofit entities and business enterprises
d. Federal government and state and local government

Answer 10

c. Nonprofit entities and business enterprises

Question 11

Which of the following is a general rule established by the FASB regarding contributions received by a nonprofit in the form of investments?

a. They must be recorded either in a restricted fund or in an unrestricted fund
b. They must be reported either as support without donor restrictions or support with donor restrictions
c. They must be recorded at the amount paid by the donor for the investment
d. They must be reported in an endowment fund

Answer 11

b. They must be reported either as support without donor restrictions or support with donor restrictions

Question 12

If a donor provides that interest earned on an endowment be used to finance a particular program, how should the interest revenue be classified?

a. As revenues with donor restrictions
b. As revenues without donor restrictions
c. As an increase in the fair value of the endowment
d. As endowment income

Answer 12

a. As revenues with donor restrictions

Question 13

How should depreciation on buildings be reported in a nonprofit’s financial statements?

a. Nonprofits have the option of reporting or not reporting depreciation on buildings.
b. As an expense—a decrease in net assets with donor restrictions
c. As a reclassification from net assets with donor restrictions to net assets without donor restrictions
d. As an expense—a decrease in net assets without donor restrictions

Answer 13

d. As an expense—a decrease in net assets without donor restrictions

Question 14

At the statement of financial position date, the fair value of an investment is greater than the amount at which the investment was initially recorded. What adjustment, if any, is needed?

a. No adjustment is needed
b. The increase should be recorded as a gain in net assets without donor restrictions
c. The increase should be recorded as a gain in net assets with donor restrictions
d. The increase should be recorded as a gain in the same net asset class in which the investment is reported

Answer 14

d. The increase should be recorded as a gain in the same net asset class in which the investment is reported

Question 15

The Prevent Cancer Organization incurred several expenses during 2019. Which of the following would not be classified as a program expense?

a. Postage for announcements of the 2019 Kickoff Dinner
b. Pamphlets mailed to the general public regarding the “danger signals of cancer”
c. Pamphlets on the relationship of smoking to cancer
d. Salaries of personnel who perform cancer research

Answer 15

a. Postage for announcements of the 2019 Kickoff Dinner

Question 16

As a result of its annual fundraising program, a nonprofit receives pledges in the amount of $300,000 during December 2018, the last month of its reporting period. Based on its previous history regarding pledges, the nonprofit believes that about $250,000 will be collected in the first 60 days of 2019; $35,000 will trickle in during the rest of 2019; and $15,000 will not be collected at all. How much should the nonprofit report as net contributions receivable on its 2018 financial statements?

a. $0
b. $250,000
c. $285,000
d. $300,000

Answer 16

c. $285,000

Question 17

Computer expert J. Leveille donated 60 hours of time to the Boston Museum, a nonprofit. He spent 40 hours designing a web site for the museum and 20 hours selling merchandise at the museum store. Mr. Leveille normally earns $150 an hour when he designs web sites, and the museum normally pays $10 to its salespeople. How much should the museum report as contribution revenue for Mr. Leveille’s services?

a. $0
b. $200
c. $6,000
d. $6,200

Answer 17

c. $6,000

Question 18

The trustees of a nonprofit decide to designate a portion of its resources for use in a specific research program. How should the designation be reported in the nonprofit’s financial statements?

a. Board designations should not be reported in nonprofit financial statements
b. As net assets with restrictions, either on the face of the statements or in a note
c. As net assets with restrictions, designated for research, in a note
d. As net assets without donor restrictions; the board designation may be shown on the face of the statement of financial position

Answer 18

d. As net assets without donor restrictions; the board designation may be shown on the face of the statement of financial position

Question 19

A nonprofit held a fundraising campaign at year-end 2018. It received pledges of $45,000, but it did not receive any cash until the following year. It estimates that 80% of the pledges are collectible. What should the nonprofit report in 2018 based on these pledges?

a. The nonprofit should not report any revenue in the year it conducted its fundraising campaign
b. The nonprofit should disclose the pledges in a note to its financial statements
c. The nonprofit should report net contributions receivable of $36,000 and contributions revenue of $36,000
d. The nonprofit should report contributions receivable of $40,000 and contributions revenues of $40,000

Answer 19

c. The nonprofit should report net contributions receivable of $36,000 and contributions revenue of $36,000

Question 20

If a nonprofit reports net assets with donor restrictions, it is likely:

a. The restrictions could have been placed either by donors or by the nonprofit’s board of directors
b. The restrictions could have been placed either by donors or through contractual provisions such as bond indentures
c. The restrictions have been placed by donors
d. The restrictions are temporary

Answer 20

c. The restrictions have been placed by donors

Question 21

A contractor built a garage for a nonprofit at no charge. Had the contractor charged the nonprofit for the garage, it would have billed the nonprofit $10,000. The nonprofit should:

a. Thank the contractor and record no asset on its books
b. Record the garage at its fair value of $10,000 and depreciate the asset over its useful life
c. Seek other estimates of the fair value of the garage once it was completed
d. Record the garage at its fair value of $10,000 but not depreciate it

Answer 21

b. Record the garage at its fair value of $10,000 and depreciate the asset over its useful life

Question 22

GAAP requires all nonprofits to report their functional expenses in a single location by natural classification:

a. In the notes to their financial statements
b. On the face of their statements of activities
c. In a separate financial statement
d. Any one of the above

Answer 22

d. Any one of the above