Chap 019

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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.
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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-for-

profit 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 America’s (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 UWA’s 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 intra-

organizational 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
UWA’s 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 UWA’s 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: , CPA
Re: 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. Wyatt’s 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. Wyatt’s 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. Wyatt’s 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. Wyatt’s 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 Query Used

FASB 116, Par. 22 condition* gift*
FASB 116, Par. 23 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: , CPA
Re: 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 FASB’s intent in issuing FASB
116.
Primary references Other references Query Used

FASB 117, Par. 24 FASB 116, Par. 9 revenue* expense* net* not-for-
profit
19-10
FASB 116, Par. 5 FASB 116, Par. 72 contribution*

FASB 116, Par. 8 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 auditor’s 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 university’s 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 capitalize…the 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 University’s 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 President’s
Circle are disclosed.
m. To answer this question, you should read the section of the annual report that
covers ―endowment review.‖ The endowment’s 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 University’s 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 charity’s 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 charity’s 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. a
2. c
3. a
4. c $7,500,000 assets - $4,500,000 liabilities
5. d $550,000 unrestricted + $330,000 of restricted
6. b $200,000 for fair value of donated services. Travel is an additional cost of

the services provided by the university.
Expenses 218,000
Contribution Revenue 200,000
Cash 18,000
E19-2 Multiple-Choice Questions on Hospital Accounting [AICPA Adapted]
1. a Net patient service revenue represents total billings less contractual

adjustments.
2. c
3. d
4. a
5. d
6. a
7. d
8. c
9. d
10. a
11. b
12. d
19-16
E19-3 Entries for a Hospital’s Unrestricted (General) Fund
a. Journal entries for the general fund.
1. Accounts Receivable 6,200,000

Patient Services Revenue 6,200,000
2. Nursing Services Expense 2,070,000

Other Professional Services Expense 1,250,000
Fiscal Services Expense 225,000
General Services Expense 1,510,000
Bad Debts Expense 125,000
Administration Expense 260,000
Depreciation Expense 500,000
Cash 4,785,000
Allowance for Uncollectibles 125,000
Accumulated Depreciation 500,000
Accounts Payable 210,000
Inventory 240,000
Donated Services 80,000
3. Contractual Adjustments 220,000

Accounts Receivable 220,000
4. Cash 180,000
Net Assets Released from Program
Use Restrictions 180,000
5. Cash 200,000
Net Assets Released from Equipment
Acquisition Restriction 200,000
6. Cash 155,000
Contributions – Unrestricted 155,000
7. Cash 5,905,000
Accounts Receivable 5,980,000
8. Investment Securities 70,000

Unrealized Holding Gain on
Investment Securities – Designated
for Other Than Current Operations 70,000
19-17
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 $5,980,000
Contributions 155,000
Net assets released from program
use restriction 180,000
Total revenues, gains, and other support $6,315,000
Expenses and losses:

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

amounts for current operations 70,000
Net assets released from restrictions used
for purchase of equipment 200,000
Increase in unrestricted net assets $ 645,000
19-18
E19-4 Entries for Other Hospital Funds
1. Endowment Fund
Cash 270,000
Contributions – Permanent Endowments 150,000
Contributions – Term Endowments 120,000
2. Plant Replacement and Expansion Fund

Pledges Receivable 1,500,000
Contributions – Plant Replacement
and Expansion 1,350,000
(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.)
3. Specific-Purpose Fund
Cash 80,000
Contributions – Research 50,000
Contributions – Education 30,000
4. Endowment Fund
Cash 100,000
Investment Income – Permanent
Endowment 100,000
Plant Replacement and Expansion Fund

Cash 45,000
Investment Income 45,000
Specific-Purpose Fund
Cash 31,000
Investment Income – Research 31,000
5. Specific-Purpose Fund
Net Assets Released from Program Use
Restriction – Research 55,000
Net Assets Released from Program Use
Restriction – Education 32,000
Cash 70,000
Due to General Fund 17,000
6. Endowment Fund
Investments 270,000
Cash 270,000
Plant Replacement and Expansion Fund

Investments 160,000
Cash 160,000
Specific-Purpose Fund
Investments 75,000
Cash 75,000
19-19
E19-5 Multiple-Choice Questions on Voluntary Health and Welfare

Organization Accounting [AICPA Adapted]
1. c
2. b $800,000 x .50 = $400,000

$400,000 x .10 = (40,000)
$360,000
3. d
4. c
5. b $275,000 = $240,000 + $35,000
6. d
7. c
8. a
9. c
19-20
E19-6 Entries for Voluntary Health and Welfare Organizations
a. Journal entries.
1. Pledges Receivable 700,000

Allowance for Uncollectible Pledges 56,000
Contributions – Temporarily Restricted 138,000
2. Grants Receivable 150,000

Contributions – Temporarily Restricted 150,000
3. Cash – Unrestricted 520,000

Pledges Receivable 520,000
Allowance for Uncollectible Pledges 44,000

Pledges Receivable 30,000
$520,000 pledges collected
506,000 recorded as contributions
$ 14,000 Adjustment to contributions
4. Land, Buildings, and Equipment 15,000

Cash – Unrestricted 15,000
5. Mortgage Payable 3,000

6. Cash – Unrestricted 27,200

Cash – Temporarily Restricted 5,400
Investment Income – Unrestricted 27,200
Investment Income – Temporarily Restricted 5,400
Cash – Permanently Restricted 6,000

Endowment Investments 5,000
Gain on Sale of Investment
– Permanently Restricted 1,000
7. Community Services Expense 12,000

Public Health Education Expense 7,000
Research Expense 10,000
Fund Raising Expense 15,000
General and Administrative Expense 9,000
19-21
E19-6 (continued)
8. Community Services Expense 250,600

Public Health Education Expense 100,000
Research Expense 81,000
Fund Raising Expense 39,000
General and Administrative Expense 61,000
9. Fund Raising Expense 2,400

Donated Services 2,400
b. Midwest Heart Association

Statement of Activities
Temporarily Permanently
Unrestricted Restricted Restricted Total
Revenues, gains, and other
support:
Contributions, net of
estimated uncollectible
pledges $520,000 $138,000 $658,000
Grants 150,000 150,000
Investment income 27,200 5,400 32,600
Gain on investments $ 1,000 1,000
Donated services 2,400 2,400
Total revenues, gains and
other support $549,600 $293,400 $ 1,000 $844,000
Program services and support:

Program services:
Community services $262,600 $262,600
Public health education 107,000 107,000
Research 91,000 91,000
Total program services $460,600 $460,600
Supporting services:
General and administrative $ 70,000 70,000
Fund raising 54,000 54,000
Total supporting services $124,000 $124,000
Total expenses $584,600 $ -0- $ -0- $584,600
Change in net assets $(35,000) $293,400 $ 1,000 $259,400

Net assets at beginning of year 281,000 87,000 219,000 587,000
Net assets at end of year $246,000 $380,400 $220,000 $846,400
19-22
E19-7 Determination of Contribution Revenue
a. Journal entries
1. Property, Plant and Equipment 42,000

Contributions – Property, Plant and Equipment 42,000
2. Pledges Receivable – Unrestricted 120,000

Pledges Receivable – Restricted
for Passage of Time 70,000
Pledges Receivable – Restricted for Program Use 90,000
Pledges Receivable – Restricted for Construction 310,318
Contributions – Restricted
for Passage of Time 70,000
Contributions – Restricted for Program Use 90,000
Contributions – Restricted for Construction 310,318
$ 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
Cash – Restricted for Construction 50,000

Pledges Receivable – Restricted for
Construction 50,000
3. Vision Testing Expense 45,000


Reclassification from Temporarily Restricted
Contributions to Unrestricted 38,000
Reclassification of Contributions from

Temporarily Restricted 38,000
Cash – Restricted for Program Use 38,000
b. Pledges Receivable – Restricted for Construction 20,825

Contributions – Restricted for Construction 20,825
$20,825 = $260,318 x .08
Cash – Restricted for Construction 50,000

Pledges Receivable – Restricted for
Construction 50,000
19-23
E19-8 Multiple-Choice Questions on Other Nonprofit Organizations [AICPA
Adapted]
1. a
2. a
3. b Note: Gains on endowment investments are considered

principal unless otherwise stated.
4. d
5. c Note: Annual report has program and service intent.
6. d
7. c Note: Board designations are internal; therefore, not

restricted.
8. d $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. a Note: All other expenses are for supporting services.
10. c
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
Operating Funds
Unrestricted
Support and revenue:
Tuition and fees $1,200,000
Contributions 165,000
Auxiliary activities 40,000
Investments income 32,000
Other revenue 38,000
Net assets released from restriction:
Temporarily restricted net assets 130,000
Permanently restricted assets 12,000
Total support and revenue $1,617,000
Expenses:
Program services:
Instruction $1,050,000
Auxiliary activities 37,000
Fund raising 28,000
Total program and support services expenses $1,365,000
Increase in net assets $ 252,000

Fund balance, July 1, 20X1 420,000
Fund balance, June 30, 20X2 $ 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 20X3 20X2
Cash $ 824,900 $217,000
Accounts receivable (student tuition and
fees, less allowance for uncollectibles
of $11,000 and $9,000, respectively) 137,000 341,000
State appropriations receivable 50,000 75,000
Investments 89,000 60,000
Total assets $1,100,900 $693,000
Accounts payable $ 59,000 $ 45,000

Deferred revenue 158,000 66,000
Net assets:
Unrestricted 716,000 515,000
Temporarily restricted by donors 117,900 67,000
Permanently restricted by donors 50,000 -0-
Total liabilities and net assets $1,100,900 $693,000
b. Friendly College
For Year Ended June 30, 20X3
Tuition and fees $1,900,000 $1,900,000
State appropriation 50,000 50,000
Interest income 6,000 $ 7,000 13,000
Contributions 25,000 50,000 $ 50,000 125,000
Gain on sale of investments 5,000 5,000
Investment income 1,900 1,900
Net assets released
from temporary restriction* 13,000 (13,000)
Total revenue, gains, and
other support $1,994,000 $ 50,900 $ 50,000 $2,094,900
Expenses and other deductions 1,793,000 1,793,000

Change in net assets $ 201,000 $ 50,900 $ 50,000 $ 301,900
Net assets at beginning of Year 515,000 67,000 582,000
Net assets at end of year $ 716,000 $117,900 $ 50,000 $ 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 year’s 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 year’s 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 year’s tuition and fees
349,000 collection of prior year’s accounts receivable
1,000 write-off of remainder of prior year’s 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 $ 100,000
Contributions receivable 100,000
Investments in marketable securities 200,000
Interest receivable 15,000
Accounts receivable 55,000
Inventory 35,000
Total current assets $ 505,000
Long-term assets:
Buildings and equipment $ 750,000
Less: Accumulated depreciation (325,000)
Net investment in buildings and equipment $ 425,000
Land 95,000
Investment in marketable securities 300,000
Total long-term assets 820,000
Total assets $1,325,000
Liabilities:
Accounts payable $ 40,000
Mortgage payable 320,000
Total liabilities $ 360,000
Net assets:
Unrestricted $ 555,000
Temporarily restricted 80,000
Permanently restricted 330,000
Total net assets 965,000
Total liabilities and net assets $1,325,000
Proof of selected amounts:
Accumulated depreciation:
Buildings: ($600,000 / 30 years) x 11 years expired = $220,000
Equipment: ($150,000 / 10 years) x 7 years expired = 105,000
$325,000
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
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 20,000
Revenue – Annual Dues 20,000
2. Cash 28,000
Revenue – Snack Bar and Soda
Fountain 28,000
3. Cash 6,000
Investment Income 6,000
4. Expense – House 17,000

Expense – Snack Bar and Soda Fountain 26,000
Expense – General and Administrative 11,000
5. Accounts Payable 55,000

Cash 55,000
6. Assessments Receivable 10,000

Deferred Capital Support 10,000
7. Cash 5,000
Support – Bequest (unrestricted) 5,000
19-29
P19-12 (continued)
Adjustments
March 31, 20X3
1. Investments 7,000
Unrealized Gain on Investment 7,000
Note: ONPOs may value investments
at full market values
2&3. Depreciation Expense – House 9,000

Depreciation Expense – Snack Bar and Fountain 2,000
Depreciation Expense – General and
Administrative 1,000
Accumulated Depreciation – Building 4,000
Accumulated Depreciation – Furniture
and Equipment 8,000
4. Expense – Snack Bar and Soda Fountain 4,000

Inventories 4,000
b. Community Sports Club

For the Year Ended March 31, 20X3
Revenues, gains and other support
Snack bar and soda fountain sales $ 28,000

Dues 20,000
Investment income 6,000
Bequest 5,000
Total revenue, gains and other support $ 59,000
Expenses
Snack bar and soda fountain $32,000

House 26,000
General and administrative 12,000
Total expenses 70,000
Change in net assets before unrealized

gain on investments $(11,000)
Unrealized gain on investments 7,000
Change in net assets $ (4,000)
Net assets on April 1, 20X2 12,000
Net assets on March 31, 20X3 $ 8,000
19-30
P19-13 Entries and Statements for General Fund of a Hospital
a. Journal entries:
1. Accounts Receivable 6,160,000

Patient Services Revenue 6,160,000
2. Contractual Adjustments 330,000

Accounts Receivable 330,000
3. Nursing Services 1,800,000

Other Professional Services 1,200,000
Fiscal Services 250,000
General Services 1,550,000
Bad Debts 120,000
Depreciation Expense 400,000
Cash 4,580,000
Accrued Expense 35,000
Inventories 195,000
Prepaid Expenses 30,000
Nonoperating Gain – Donated Services 70,000
4. Cash 75,000
Due from Specific-Purpose Fund 25,000
Net Assets Released from Program
Use Restriction 100,000
5. Inventories 176,000
Cash 200,000
6. Cash 85,000
Investment Income from Endowment
Fund Investments 85,000
[Note that the general fund directly recorded this
income because it is unrestricted income from the
endowment investments.]
7. Cash 17,000
Property, Plant, and Equipment 30,000
Gain on Sale of Equipment 7,000
8. Cash 5,800,000
Accounts Receivable 5,932,000
9. Investments 60,000
Cash 60,000
19-31
P19-13 (continued)
10. Cash 72,000

Investment Income from
Board – Designated Investments 72,000
11. Accounts Payable 150,000

Accrued Expenses 55,000
Cash 205,000
12. Cash 20,000

Deferred Revenue – Reimbursement 20,000
13. Cash 140,000

Net Assets Released from Fixed
Asset Acquisition Restriction 140,000
14. Cash 63,000

Other Operating Revenue – Cafeteria
and Gift Shop Sales 63,000
b. Comparative balance sheets:
Serene Hospital
Balance Sheet – General Fund
For Years Ended December 31, 20X2 and 20X1
20X2 20X1
Assets
Cash $ 1,352,000 $ 125,000

Accounts receivable 298,000 400,000
Less: Allowance for uncollectibles (38,000) (50,000)
Due from specific-purpose fund 65,000 40,000
Inventories 76,000 95,000
Prepaid expenses 14,000 20,000
Investments 960,000 900,000
Property, plant, and equipment 6,070,000 6,100,000
Less: Accumulated depreciation (1,880,000) (1,500,000)
Total $ 6,917,000 $ 6,130,000
Liabilities and Fund Balance
Accounts payable $ 170,000 $ 150,000

Accrued expenses 35,000 55,000
Deferred revenue – reimbursements 95,000 75,000
Bonds payable 3,000,000 3,000,000
Unrestricted net assets 3,617,000 2,850,000
Total $ 6,917,000 $ 6,130,000
19-32
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 $ 5,830,000
Gain on sale of equipment $ 7,000
Cafeteria and gift shop sales 63,000
Donated services 70,000
Net assets released from:
Program use restriction 100,000 397,000
Total revenues, gains and other support $ 6,227,000
Operating expenses:
Nursing services $1,800,000
Other professional services 1,200,000
Fiscal services 250,000
General services 1,550,000
Bad debts 120,000
Total expenses (5,600,000)
Excess of revenues over expenses $ 627,000
Other item:
Net assets released from fixed asset
acquisition restriction 140,000
Statement of changes in net assets (not required)
Serene Hospital
Statement of Changes in Net Assets
Operating Income $ 627,000

Net assets released from fixed asset
acquisition restriction 140,000
Net Assets at Beginning of Year 2,850,000
Net Assets at End of Year $ 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:

Change in net assets $ 767,000
Adjustments to reconcile changes in net assets to
net cash provided by operating activities:
Gain on sale of property, plant, and equipment (7,000)
Decrease in net patient accounts receivable 90,000
Increase in due from specific-purpose fund (25,000)
Decrease in inventories 19,000
Decrease in prepaid expenses 6,000
Net change in accounts payable and accrued expenses -0-
Increase in deferred revenue – reimbursements 20,000
Net assets released from fixed asset restriction (140,000)
Net cash provided by operating activities $1,130,000
Cash flows from investing activities:

Sale of property, plant, and equipment $ 17,000
Transfer in from restricted plant fund 140,000
Purchase of investments (60,000)
Net cash provided by investing activities $ 97,000
Cash flows from financing activities $ -0-
Net increase in cash $1,227,000

Cash at beginning of year 125,000
Cash at end of year $1,352,000
19-34
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 $ 5,883,000
Cash paid to employees and suppliers (4,985,000)
Other receipts from operations 75,000
Income on endowment investments 85,000
Income on board-designated investments 72,000
Net cash provided by operating activities $ 1,130,000
Cash flows from investing activities:

Sale of property, plant, and equipment $ 17,000
Transfer in from restricted plant fund 140,000
Purchase of investments (60,000)
Net cash provided by investing activities $ 97,000
Cash flows from financing activities $ -0-
Net increase in cash $ 1,227,000

Cash at beginning of year 125,000
Cash at end of year $ 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
Temporarily
Unrestricted Restricted
Public support and revenue:
Public support:
Contributions (net of estimated
uncollectible pledges of $2,000) $298,000 $ 15,000
Revenue:
Membership dues 25,000
Program service fees 30,000
Net assets released from:
Time restriction (from Endowment Fund) 20,000 (20,000)
Use restriction 5,000 (5,000)
Total support and revenue $388,000 $(10,000)
Expenses:
Program services:
Deaf children $120,000
Blind children 150,000
Total program services $270,000
Management and general $ 49,000
Fund raising 9,000
Total supporting services $ 58,000 ___ ____
Total expenses $328,000 $__ _-0-
Change in net assets $ 60,000 $(10,000)

Fund balances, July 1, 20X3 38,000 23,000
Fund balances, June 30, 20X4 $ 98,000 $ 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 $ 40,000
Investments (at cost, which approximates
market value) 100,000
Pledges receivable (less $3,000 allowance
for uncollectibles) 9,000
Interest receivable 1,000
Assets whose use is restricted 13,000
Total assets $163,000
Accounts payable $ 50,000

Deferred revenue 2,000
Total liabilities $ 52,000
Net assets:
Unrestricted $98,000
Temporarily restricted 13,000
Total net assets 111,000
Total liabilities and net assets $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. Local Government Unit
1. General Fund
Expenditures – Purchase of Equipment 25,000
Cash 25,000
2. General Fund (or any other fund)

Cash 100,000
Revenue – Donations 100,000
3. Permanent Trust Fund

Cash 55,000
Investments 50,000
Fund Balance – Restricted –
Gain on Sale of Investments 5,000
4. Capital Projects Fund

Cash 1,000,000
Other Financing Sources –
Bond Issue 1,000,000
Capital Projects Fund

Construction Expenditures 1,000,000
Cash 1,000,000
19-38
P19-15 (continued)
b. Voluntary Health and Welfare Organization
1. Unrestricted Fund
Equipment 25,000
Cash 25,000
Cash 25,000
Temporarily Restricted Fund – Plant and Equipment

Cash 25,000
Cash 100,000
3. Permanently Restricted Fund – Endowments

Cash 55,000
Investments – Common Stocks 50,000
Gain on Sale of Investments 5,000
Cash 1,000,000
Bonds Payable 1,000,000
Buildings 1,000,000
Cash 1,000,000
19-39
P19-16 Matching Effects of Transactions on a Hospital’s Financial Statements
[AICPA Adapted]
1. E The designation of intent is not a transaction. When the actual purchase is

made, the transaction will be recorded.
2. A After the investment is actually made, the income from resources under the
control of the governing board is recorded as unrestricted revenue.
3. C 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. A The use of temporarily restricted resources in accordance with the donor’s

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 XXXX
Cash XXXX
Unrestricted Fund:
Cash XXXX
Net Assets Released from Capital
Acquisition Restriction XXXX
Property, Plant, and Equipment XXXX
Cash XXXX
5. A 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. D 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 donor’s specification.
19-40
P19-17 Balance Sheet for a Hospital
Havencrest Hospital
Balance Sheet
June 30, 20X8
Assets
Current:
Cash $ 30,000
Accounts Receivable (net of the allowance of $5,000) 20,000
Inventories 50,000
Total Current Assets $ 110,000
Assets Limited as to Use:
By Donors for Specific Purpose – Research $ 32,000
By Donors for Plant Replacement and Expansion 200,000
By Donors for Permanent Investment 520,000
Investments 100,000
Property, Plant, and Equipment (net of accumulated
depreciation of $140,000) 160,000
Total Assets $1,122,000
Liabilities and Net Assets

Current:
Accounts Payable $ 45,000
Accrued Expenses 17,000
Deferred Revenues 11,000
Current Portion of Long-term Debt 24,000
Total Current Liabilities $ 97,000
Long-term Debt:
Mortgage Payable 125,000
Total Liabilities $ 222,000
Net Assets:
Unrestricted $ 148,000
Temporarily Restricted 232,000
Permanently Restricted 520,000
Total Net Assets $ 900,000
Total Liabilities and Net Assets $1,122,000
19-41
P19-18 Matching of Transactions to Effects on Statement of Changes in Net
Assets for a Hospital
1. A
2. E
3. B
4. G
5. C
6. C
7. A and D
8. A
9. D (A and B offset)
10. E
11. G
12. A
P19-19 Matching of Transactions to Effects on Statement of Activities for a

Voluntary Health and Welfare Organization
1. C
2. B
3. B
4. G A board-designation is not an external, donor-imposed restriction. There is

no change in the unrestricted net assets.
5. E
6. C
7. A and C
8. A
9. A
10. C
11. A
12. D
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 List A Effect List B Effect

1. B N
2. B H
3. A H
4. G K
5. D N
6. G L
P19-22 Contributions to a Hospital [AICPA Adapted]
1. E The board’s designation is not a required reportable event.
2. A The investments are under the board’s discretion; therefore, the income
is recorded as unrestricted revenue.
3. C Funds provided specifically for a building expansion are temporarily

restricted until the construction takes place.
4. A At the time the temporarily restricted resources are expended for the
program specified by the donor, the funds are reclassified as
unrestricted.
5. A 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. D 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 Hospital’s 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 hospital’s 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 donor’s 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-for-
profit 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. F The building and equipment is recorded and reported in the hospital’s
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 hospital’s statement of operations.
12. T 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. F Estimated uncollectibles from patient service receivables should be

shown as a bad debt expense and a contra account to the receivables
asset.
14. F 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. F 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. F 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. F Fund accounting is not required for hospitals, although many hospitals do
use fund accounting for its account discipline. Hospitals and other not-for-
profit 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. T 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. F 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. F 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
Contributions $ 500,000 $ 950,000 $ 1,450,000
Investment income 200,000 $ 600,000 800,000
Donated services 15,000 15,000
Net assets released from
restriction:
Program use restrictions 150,000 (150,000)
Equipment acquisitions 100,000 (100,000)
Total revenues, gains, and

Other support $ 765,000 $ 900,000 $ 600,000 $ 2,265,000
Program and supporting services expenses:

Research $ 250,000 $ 250,000
Public health education 100,000 100,000
Community services 150,000 150,000
Management and general 140,000 140,000
Fund raising 115,000 115,000
Total expenses $ 755,000 $ -0- $ -0- $ 755,000

Change in net assets $ 10,000 $ 900,000 $ 600,000 $ 1,510,000
Net assets, beginning of
the year 3,000,000 5,000,000 6,000,000 14,000,000
Net assets, end of the year $3,010,000 $5,900,000 $6,600,000 $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 restriction—the pledges will not be received until 20X4.
4. The governing board’s 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 board’s 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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Q19-5 Donated services are included as a revenue and a corresponding expense at

Q19-6 The $15,000 is accounted for as a contribution to a specific purpose

Q19-7 Net patient service revenue of a hospital is computed by deducting

Q19-9 Depreciation is recorded on an accrual basis by hospitals. It must be

Q19-12 The $10,000 contribution is accounted for as contribution revenue in a

Q19-14 It would not be appropriate to report funds whose use is restricted as

Q19-17 The contribution of $12,000 is accounted for as a contribution of a

Q19-20 As an ONPO, a Rotary Club should record depreciation expense because

Q19-22 Temporarily restricted contributions of ONPOs would include funds for

C19-1 Accounting for Donations

a. Donated services are a vital element of many not-for-profit entities, including

1. The services performed create or enhance nonfinancial assets or,

Other not-for-profit organizations often rely heavily on donated services as well.

b. Donations of capital assets are recorded as a contribution in a restricted fund and

c. As in all not-for-profit organizations, the accounting for cash contributions to a

Cash contributions to a voluntary health and welfare organization or an other not-for-

C19-2 Public Support to an Other Not-for-Profit Organization

a. The $25,000 of unrestricted contributions should be accounted for as public

b. The $15,000 of restricted contributions should be accounted for as a temporarily

The remaining $9,000 of restricted resources should be reported as a part of its

a. From footnote 1 of the Consolidated Financial Statements: The reporting entity

b. The Consolidated Statements of Financial Position includes eliminations for intra-

d. The supplementary schedule of functional expenses presents expense

C19-4 Case on Conditional Gift to a Not-for-Profit Organization

To: Betty Gardner, Treasurer, Central Illinois Chapter

Re: Victor Wyatt pledge

Determining whether a promise is conditional or unconditional can be difficult if it

It may be difficult to determine whether those stipulations are conditions or

Primary references Query Used

To: Gerry Finley, Manager

Re: Auction Extravaganza

The items that businesses donated to be auctioned meet the definition of

Contributions received shall be recognized as revenues or gains in the period

Primary references Other references Query Used

FASB 116, Par. 5 FASB 116, Par. 72 contribution*

h. True, operating expenses on the statements of changes in unrestricted net assets

j. True, the University’s land, buildings, and equipment, net of accumulated

E19-1 Multiple-Choice Questions on Colleges and Universities [AICPA Adapted]

4. c $7,500,000 assets - $4,500,000 liabilities

5. d $550,000 unrestricted + $330,000 of restricted

6. b $200,000 for fair value of donated services. Travel is an additional cost of

E19-2 Multiple-Choice Questions on Hospital Accounting [AICPA Adapted]

1. a Net patient service revenue represents total billings less contractual

a. Journal entries for the general fund.

1. Accounts Receivable 6,200,000

2. Nursing Services Expense 2,070,000

3. Contractual Adjustments 220,000

8. Investment Securities 70,000

Revenues, gains, and other support:

Total revenues, gains, and other support $6,315,000

Expenses and losses:

Operating income $ 375,000

Other income -0-

Excess of revenues over expenses $ 375,000

Unrealized gains designated in excess of

Increase in unrestricted net assets $ 645,000

2. Plant Replacement and Expansion Fund

Plant Replacement and Expansion Fund

Plant Replacement and Expansion Fund

E19-5 Multiple-Choice Questions on Voluntary Health and Welfare

2. b $800,000 x .50 = $400,000

5. b $275,000 = $240,000 + $35,000

1. Pledges Receivable 700,000