FARE 9 Not for profit org

Question 1

Characteristics of not for profit org

Answer 1

1. Revenue from contributions
2. Profit is not a goal
3. Ownership interests are not like business enterprises

Question 2

Industries that use not for profit accounting

Answer 2

1. Health care org
2. Educational Institutions
3. Voluntary health and welfare org
4. Other private (not governmental) not for profit org

Question 3

The basis of accounting

Answer 3

Accrual basis of accounting

Primary authority FASB

Question 4

Financial statements prepared for nongovernmental not for profit

Answer 4

1. Statement of financial position
2. Statement of activities
3. Statement of cash flows
4. Statement of functional expenses

Question 5

Components of the Statement of Financial Position

Answer 5

1. Assets
2. Liabilities
3. Net assets (equity)

Question 6

The classifications of net assets

Answer 6

1. Unrestricted
2. Temporarily restricted
3. Permanently restricted

Question 7

The classifications of net assets: unrestricted

Answer 7

Not permanently or temporarly restricted by donor-imposed stipulations.
Internal board designated funds are unrestricted.

Question 8

The classifications of net assets: Temporarily restricted

Answer 8

Donor-imposed stipulation expires at some point or can be fulfilled or removed.

Question 9

The classifications of net assets: Permanently restricted

Answer 9

Limited by donor-imposed restrictions, that don’t expire

Question 10

The elements in the statement of activities

Answer 10

1. Change in total net assets
2. Change in unrestricted net assets
3. Change in temp restricted net assets
4. Change in perm restricted net assets

Question 11

Expense classification in the Statement of Activities

Answer 11

1. Program services- org is charted to do it
2. Support services - everything else
3. Combined costs - fundraising and education services

Question 12

Classifications of the statement of cash flows.

Operating activities

Answer 12

Operating activities:

a. Agency transactions
b. If Direct method used- gross receipts
c. Unrestricted resources directed by the governing body to be used for long-lived assets

Question 13

Classifications of the statement of cash flows.

Investing activities

Answer 13

Investing activities:

a. sale/purchase of art work
b. investment in equipment
c. proceeds from sale of assets received in prior periods that were restricted to be invested in equipment

Question 14

Classifications of the statement of cash flows.

Financing activities

Answer 14

Financing activities:

a. Proceeds from restricted contributions
b. Other financing activities

Question 15

the statement of cash flows.

Answer 15

Direct or indirect method

Question 16

Cash and cash equivalents

Answer 16

Exclude donor-restricted securities

Question 17

Statement of functional expenses

Answer 17

Mandatory for voluntary health and welfare org

Optional for all other

Question 18

Statement of functional expenses

Answer 18

1. The total amount of each functional exp should be clearly disclosed in the statement of activities and or the footnotes.
2. The statement of functional expenses analyzes expenses by their natural expense classification

Question 19

Functional classification of expenses

Answer 19

1. Program support expenses - directly related
2. Fundraising exp - classified functionally and be separately disclosed in the FS.
3. Management and general costs - the overall direction of the org, record keeping etc
4. Multiple cost items -belong to several categories

Question 20

Recognition of cash contributions

Answer 20

Revenue or gains in period in which they are received.

Measured at fair value at the date of gift

Question 21

Recognition of unconditional promises (contributions)

Answer 21

Revenue at its fair value when the promise is made

Question 22

Recognition Conditional Promises (contributions)

Answer 22

Recognized when conditions are met and the promise becomes unconditional

Question 23

Recognition of multi-year pledges

Answer 23

Recorded at the net present value at the date of the pledge is made

1. Future collections are temporarily restricted revenues and net assets
2. The difference between the previously recorded present value and the current amount collected is considered contribution revenue, not interest income

Question 24

Split interest agreements

Answer 24

Shared with other beneficiaries.
Recognized for amortization of discounts and revaluation.
Measured at fair value at the date of acquisition.
Estimated based on the present value of the estimated future distributions.
Displayed as temporarily restricted (may be perm if donor wants that)

Question 25

Specialized Support Transactions

Answer 25

1. Donated services 2. Donated collection items 3. Donated materials

Question 26

Specialized Support Transactions | Donated services

Answer 26

Not recorded normally, but if meets criteria recorded at fair value: - create or enhance a nonfinancial asset - require specializes skills and would have to be purchased (accountant) If service is solicitations of contributions then it is fundrising expense Expense or asset Dr Contributions - nonoperating revenue Cr

Question 27

Specialized Support Transactions | Donated Collection items

Answer 27

Recorded unless criteria met: - part of collection, which is held for public viewing, - collection is cared by the org - the org has policy to reinvested in other collection items

Question 28

Specialized Support Transactions | Donated materials significant in amount

Answer 28

If significant in amount, donated materials should be recorded at fair value on the date of receipt. Asset Dr Contributions - support Cr

Question 29

Specialized Support Transactions | Donated materials that pass through the org (used clothing)

Answer 29

Not recorded unless substantial in amount Expense Dr Unrestricted contributions - supplies Cr

Question 30

Recording promises to contribute and other support transactions. Unrestricted contributions.

Answer 30

Unconditional promises to contribute in the future are reported as restricted support (implied time restriction) at the present value of the estimated future cash flows using a discount rate commensurate with the risks involved even if their ultimate use is restricted.

Question 31

Recording of unrestricted contributions - unconditional promises to contribute.

Answer 31

Pledge receivable - temp restricted Dr Allowance for doubtful accounts Cr Contributed revenue - temp restricted Cr When collected: Cash - temp restricted Dr Pledge receivable - temp restricted Cr Satisfaction of time restriction - temp restricted Dr Cash - temp restricted Cr Unrestricted: Cash - unrestricted Dr Satisfaction of time restriction - temp restricted Cr

Question 32

Recording of restricted contributions

Answer 32

Contribution may be restricted by donor. Recognized as revenues or gains in the period received and as assets, or decrease in liabilities etc depending on the form benefits received.

Question 33

Recording of restricted contributions. | Restricted net assets and later after collected and when money is spent

Answer 33

Pledge receivable -temp restricted Dr Allowance for doubt accounts Cr Restricted revenue - temp restricted net assets Cr Later Reclassification - satisfaction of restriction Dr Cash/Restricted net assets Cr Unrestricted net assets: Unrestricted net assets Dr Reclassification - satisfaction of restriction CR Operating exp DR Cash/Unrestricted net assets CR

Question 34

Distinguishing contributions from other transactions. | Agency transactions

Answer 34

Consist of resources received by the not for profit over which the not for profit has little or no discretion or variance power (can't use as they want) Accounted for as liabilities if no variance power.

Question 35

Recording Gifts in kind

Answer 35

Non cash contributions. | Fair value measurement.

Question 36

Recording Exchange transactions

Answer 36

1. Reciprocal transfers in which each party receives and sacrifices something of approx. equal value are termed exchange transactions. 2. The cost of premiums given to potential donors as part of a fundraising appeal is classified as a fundraising exp. 3. Cost of premiums - fundraising exp 4. The difference between FV of dues and the amount transferred is classified as a contribution. 5. Exchange transactions are classified as unrestricted revenues and net assets.

Question 37

Recording exchange transaction contributions

Answer 37

Amount transferred - FV Dues/Purchases = Contribution revenue

Question 38

General Principles: Recipient Accounting.

Answer 38

1. Without Variance Power 2. Granted Variance Power 3. Financially Interrelated - Granted variance power

Question 39

Financially interrelated org are:

Answer 39

1. one org can influence the other 2. One org has economic interest in the assets of the other 3. Residual rights are created in this instance that increase or decrease as the value of net assets change.

Question 40

General Principles: Recipient Accounting. | Without variance power

Answer 40

Assets used or managed on behalf of a beneficiary without variance power. 1. assets valued at fair value 2. assets are recognized as a liability to the beneficiary Assets Dr Refundable advance Cr

Question 41

General Principles: Recipient Accounting. | Granted variance power

Answer 41

Assets used or managed on behalf of beneficiary but is granted variance power. a. valued at FV b. assets are recognized as contribution revenue when received and expensed Assets Dr Contribution revenue Cr

Question 42

General Principles: Recipient Accounting. | Financially interrelated - granted variance power

Answer 42

``` Assets valued at 1. FV 2. Recognized as contribution revenue when received and expensed when distributed to the beneficiary Assets Dr Contribution revenue Cr ```

Question 43

General Principles: Beneficiary Accounting. | Recognition Rule

Answer 43

Specified beneficiaries recognize their rights to assets held by others (the recipient) unless the recipient is explicitly granted variance power.

Question 44

General Principles: Beneficiary Accounting. | Recognized Rights

Answer 44

Rights, when recognized will be recorded as any one of the following: a. an interest in the net assets of the recipient b. a beneficial interest c. a receivable and contribution revenue

Question 45

General Principles: Beneficiary Accounting. | Recognized interest - financially interrelated

Answer 45

The interest in the net assets of the recipient is adjusted for the beneficiary's share of the change. Assets Dr Equity transaction Cr

Question 46

General Principles: Beneficiary Accounting. | Recognized beneficial interest - pools of assets

Answer 46

An unconditional right to receive specified cash flows from pools of assets. Measurements and re-measurements serve to present assets at FV using discounting or other techniques. Beneficial interest DR Contribution revenue CR

Question 47

General Principles: Beneficiary Accounting. | Recognized Receivable and contribution revenue

Answer 47

When no recognition of net assets or beneficial interests involved, the beneficiary recognizes a receivable and contribution revenue consistent with treatment of all other unconditional promises to give. Receivable Dr Contribution revenue Cr

Question 48

Investment in securities

Answer 48

1. Fair value 2. Gains and losses - realized and unrealized (in unrestricted net assets) 3. Derivatives - change in FV in the period of change 4. Dividends, interest - when earned, unrestricted net assets 5. Donor's stipulation - increase in temp or perm restricted net assets