Afar 19

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Chapter 19
Accounting for Nongovernment Nonbusiness Organizations: Colleges and
Universities, Hospitals, and Other Healthcare Organizations
Multiple Choice
1. Special entities are not-for-profit organizations that are

a. government owned.
b. privately owned.
c. publicly owned.
d. either government owned or privately owned.
2. A municipality's capital projects fund is similar to a university's

a. renewals and replacements fund.
b. retirement of indebtedness fund.
c. investment in plant fund.
d. none of these.
3. Board designated funds should be accounted for as

a. restricted funds.
b. specific purpose funds.
c. unrestricted funds.
d. none of these.
4. For a university, the receipt of assets for operating activities that have external restrictions as to the
purposes for which they can be used is recorded by crediting
a. Fund Balance-Restricted.
b. Contribution Revenue.
c. Deferred Revenue.
d. Net Assets Released.
5. Which of the following statements related to pledges is incorrect?

a. Pledges are signed commitments to contribute specific amounts of money on a future date or in
installments.
b. Pledges are recorded as revenues when a promise to give is nonrevocable and unconditional.
c. Pledges are generally enforceable contracts.
d. All of these are correct.
6. When the donor has specified a particular date or event after which the principal of the Endowment
Fund may be expended, the Endowment Fund is referred to as a(n)
a. pure endowment fund.
b. term endowment fund.
c. quasi endowment fund.
d. expendable endowment fund.
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19-2 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition
7. The basic financial statements for all NNOs include a

1. Balance sheet
2. Statement of activities
3. Statement of cash flows
a. 1 and 3
b. 2 and 3
c. 1 and 2
d. 1, 2, and 3
8. Revenues and expenses of hospitals are recorded in the accounts of the

a. Endowment Fund.
b. General Fund.
c. Plant Replacement Fund.
d. Specific Purpose Fund.
9. Investments are reported by NNOs at

a. cost.
b. fair value.
c. the lower of cost or fair value.
d. the higher of cost or fair value.
10. Resources of an unrestricted fund that are designated by the governing board for endowment
purposes are accounted for in the unrestricted fund by all NNOs except
a. voluntary health and welfare organizations.
b. hospitals.
c. colleges and universities.
d. other NNOs.
11. In accounting for loan funds, revenue is recorded when the

a. contribution is received.
b. loan is made to students.
c. loan is repaid by students.
d. students graduate.
12. All of the following are a plant fund in colleges and universities except
a. unexpended plant fund.
b. funds for renewals and replacements.
c. investment in plant.
d. plant replacement and expansion fund.
13. Most property, plant and equipment transactions of hospitals are accounted for in the
a. fund for renewals and replacements.
b. general fund.
c. plant replacement and expansion fund.
d. unexpended plant fund.
14. All NNOs have current restricted funds and unrestricted funds except
a. colleges and universities
b. hospitals
c. VHWOs
d. ONNOs
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Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-3

Colleges and Universities, Hospitals, and Other Healthcare Organizations
15. Tuition waivers for which there is no intention of collection from the student should be classified by
a college as:
Revenue Expenditures
a. No No
b. No Yes
c. Yes Yes
d. Yes No
16. Which of the following is used for current expenditures by a college?
Unrestricted Restricted
Current Funds Current Funds
a. No No
b. No Yes
c. Yes Yes
d. Yes No
17. Under Newman Hospitals established rate structure, the hospital would have earned patient service
revenue of $7,000,000 for the year ended December 31, 2011. However, Newman did not expect to
collect this amount because of charity allowances of $1,000,000 and discounts of $500,000 to third
party payers. In May 2011, Newman purchased bandages from Ace Supply Co. at a cost of $5,000.
However, Ace notified Newman that the invoice was being cancelled and that the bandages were
being donated to Newman.
For the year ended December 31, 2011, how much should Newman record as patient service
revenue?
a. $7,000,000
b. $6,500,000
c. $6,000,000
d. $5,500,000
18. Under Newman Hospitals established rate structure, the hospital would have earned patient service
revenue of $7,000,000 for the year ended December 31, 2011. However, Newman did not expect to
collect this amount because of charity allowances of $1,000,000 and discounts of $500,000 to third
party payers. In May 2011, Newman purchased bandages from Ace Supply Co. at a cost of $5,000.
However, Ace notified Newman that the invoice was being cancelled and that the bandages were
being donated to Newman.
For the year ended December 31, 2011, Newman should record the donation of bandages as:
a. a $5,000 reduction in operating expenses.
b. nonoperating revenue of $5,000.
c. other operating revenue of $5,000.
d. a memorandum entry only.
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19. The following funds were among those on Cole University's books at April 30, 2011:
Funds to be used for acquisition of additional properties
for university purposes (unexpended at 4/30/11) $2,500,000
Funds set aside for debt service charges and for the
retirement of indebtedness on university properties 5,000,000
How much of the above-mentioned funds should be included in plant funds?
a. $0
b. $2,500,000
c. $5,000,000
d. $7,500,000
20. Which basis of accounting should a voluntary health and welfare organization use?
a. Cash basis for all funds
b. Modified accrual basis for all funds
c. Accrual basis for all funds
d. Accrual basis for some funds and modified accrual basis for other funds
21. Which one of the following statements is not required for NNOs?
a. statement of financial position
b. statement of cash flows
c. statement of changes in net assets
d. statement of activities
22. Admissions, counseling and registration are considered to be:

a. educational and general services.
b. auxiliary enterprises.
c. student services.
d. institutional support.
23. A good reason for NNOs to adopt fund accounting even though FASB standards do not require it is
because:
a. the capital assets are significant.
b. the donated services are significant.
c. the program services are involved with more than one type of revenue.
d. restrictions are placed by donors in many cases.
24. Which of the following groups of not-for-profit entities must use fund accounting to be in
conformity with GAAP?
Governmental Nongovernmental
a. Yes Yes
b. Yes No
c. No Yes
d. No No
25. GASB No. 35 allows public colleges and universities to:

a. apply guidance designed for special-purpose governments.
b. use FASB standards to permit consistent reporting.
c. optionally follow FASB standards.
d. none of the above is correct.
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26. For the fall semester of 2011, Newton College assessed its students $5,000,000 for tuition and fees.
The net amount realized was only $4,700,000 because of the following revenue reductions:
Refunds occasioned by class cancellations and student withdrawals $ 80,000
Tuition remissions granted to faculty members families 20,000
Scholarships and fellowships 200,000
How much should Newton College report for the period for unrestricted current funds revenues
from tuition and fees?
a. $5,000,000
b. $4,900,000
c. $4,780,000
d. $4,700,000
27. During the years ending June 30, 2010, and June 30, 2011, Madison University conducted a cancer
research project financed by a $3,000,000 gift from an alumnus. This entire amount was pledged by
the donor on July 10, 2009, although he paid only $800,000 at that date. The gift was restricted to
the financing of this particular research project. During the two-year research period, Madison
related gift receipts and research expenditures were as follows:
Year Ended June 30

2010 2011
Gift receipts 1,100,000 1,200,000
Cancer research restricted expenditures 1,400,000 1,600,000
How much gift revenue should Madison University report in the temporarily restricted column of its
statement of activities for the year ended June 30, 2011?
a. $3,000,000
b. $1,600,000
c. $1,200,000
d. $0
28. Bell Foundation, a voluntary health and welfare organization, supported by contributions from the
general public, included the following costs in its statement of functional expenses for the year
ended December 31, 2011.
Fund raising $1,000,000

Administrative 600,000
Research 200,000
Bells functional expenses for 2011 program services included

a. $200,000.
b. $600,000.
c. $1,000,000.
d. $1,800,000.
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29. National Service Center is a voluntary welfare organization funded by contributions from the
general public. During 2010 unrestricted pledges of $800,000 were received, half of which were
payable in 2010 with the other half payable in 2011 for use in 2011. It was estimated that 10% of
these pledges would be uncollectible. How much should National report as net contribution revenue
for 2010 with respect to the pledges?
a. $800,000
b. $720,000
c. $360,000
d. $0
30. Cindy Duncan is a social worker on the staff of National Service Center, a voluntary welfare
organization. She earns $42,000 annually for a normal workload of 2,000 hours. During 2011 she
contributed an additional 800 hours of her time to National at no extra charge. How much should
National record in 2011 as contributed service expense?
a. $0
b. $1,680
c. $8,400
d. $16,800
Problems
19-1 The following events affected the Burlington University Loan Fund:
1. $300,000 is received from a donor to establish a student loan fund. Loans will carry a 6%
annual interest rate.
2. The Loan Fund loaned the $300,000 to students. Five percent of the loans are estimated to be
uncollectible.
3. Loans of $50,000 were repaid with $3,000 of interest.
4. A $1,000 student loan was written off as uncollectible.
Required:
Prepare the journal entries necessary to record these transactions.
19-2 On October 10, 2010, a national voluntary health help foundation was the recipient of a telethon
sponsored by a renowned celebrity. Phone donations totaling $8,500,000 were promised. Based on
historical information, 15% of these pledges are expected to be uncollectible. Of these pledges,
$7,100,000 were collected in 2011; the remainder were considered uncollectible.
Required:
Identify the proper fund and prepare the journal entries necessary in 2010 and 2011.
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19-3 Prepare journal entries for the following transactions or events:

1. The board of trustees of Young College voted to designate $300,000 for expansion of the
student union and $90,000 for future research projects.
2. In accordance with the requirements of a bond indenture, Young College transferred $85,000 of
unrestricted funds for the accumulation of cash to retire the debt related to the construction of
the Central Computer Building.
3. A governing board of a hospital designates $280,000 for the future expansion of the emergency
care facilities.
4. A heart association receives pledges of $900,000 from the general public in connection with a
telethon. It is estimated that 30% of the amounts pledged will not be collectible.
5. An ONNO receives the donated services of a CPA with a market value of $10,000.
6. On November 3, 2011, $75,000 was donated to a university for library acquisitions of which
$50,000 was expended for this purpose during the remainder of the fiscal year.
7. On November 4, 2011, $15,000 was contributed to a voluntary health organization to be used to

conduct CPR classes for the public. During the remainder of the current fiscal year $14,000 was
expended for this purpose.
8. On November 5, 2011, $100,000 was contributed to a hospital for cancer research of which
$90,000 was expended for this purpose during the remainder of the fiscal year.
19-4 An NNO obtained cash for the acquisition of property and equipment as follows:
Loan proceeds $200,000
Contributions $400,000
These funds are used to acquire land. In addition, $20,000 in principal and $2,000 in interest is paid
on indebtedness relating to property and equipment. Depreciation on property and equipment for the
year is $80,000.
Required:
Prepare all necessary entries in the affected funds of the NNO, assuming that the NNO is a:
a. Voluntary health and welfare organization.
b. University.
c. Hospital.
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19-5
The following information was taken from the accounts and records of the NSP Foundation, a private, not-
for-profit organization. All balances are as of June 30, 2011, unless otherwise noted.
Unrestricted Support Contributions $250,000

Unrestricted Revenues Investment Income 28,000
Temporarily Restricted Gain on Sale of Investments 13,000
Expenses Scholarships 300,000
Expenses Fund Raising 60,000
Expenses Management and General 120,000
Restricted Support Contributions 420,000
Restricted Revenues Investment Income 30,000
Permanently Restricted Support Contributions 50,000
Unrestricted Net Assets, July 1, 2010 250,000
Temporarily Restricted Net Assets, July 1, 2010 40,000
Permanently Restricted Net Assets, July 1, 2010 10,000
The unrestricted support from contributions was received in cash during the year. The expenses included
$500,000 payable from donor-restricted resources.
Required:
Prepare NSPs statement of activities for the fiscal year ended June 30, 2011.
19-6
Christy Hospital received money from a donor to set up an endowment fund. The following information
pertains to this contribution:
2010
1. $3,000,000 was received to establish the fund. The requirements were
a. $150,000 of the endowment funds income must be used for research grants each year.
b. The remainder of income is under the discretion of the governing board.
c. The principal is expendable after the donors death. It shall be used to purchase equipment.
2. The cash received was invested in a number of securities.
2011
3. Dividends of $150,000 and interest of $400,000 were received.
4. The income was transferred to the appropriate funds.
5. Of the restricted income, only $100,000 was expended for its specified purpose during 2011.
6. The governing board specified that $300,000 of the income would be used for loans for deserving
medical students.
2012
7. $250,000 was lent to medical students.
8. The donor died of cancer.
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Required:
Set up headings for the following funds: Endowment, General, Specific Purpose, and Plant
Replacement and Expansion. Prepare the entries necessary in each fund to record the events listed
above.
19-7
The following events were recorded on the books of Denton Hospital for the year ended December 31, 2011.
1. Revenue from patient services totaled $12,000,000. The allowance for uncollectibles was
established at $2,500,000. Of the $12,000,000 revenue, $4,500 was recognized under cost
reimbursement agreements. This revenue is subject to audit and retroactive adjustment by third-
party payors.
2. Patient service revenue is accounted for at established rates on the accrual basis.
3. Other operating revenue totaled $260,000, of which $120,000 was from specific purpose funds.
4. Denton received $310,000 in unrestricted gifts and bequests. They are recorded at fair market value
when received.
5. Endowment funds earned $120,000 in unrestricted income.
6. Board designated funds earned $62,000 in income.
7. Dentons operating expenses for the year amounted to $10,030,000. This included $380,000 in
straight-line depreciation.
Required:
Prepare a statement of activities for Denton Hospital for the year ended December 31, 2011.
Short Answer
1. The fund structure and terminology differ among NNOS, but there are six funds commonly used.
Identify the funds used by nongovernment nonbusiness organizations.
2. Contributions to NNOS include gifts of cash, pledges, donated services, and gifts of noncash assets.
Explain how contributions are recorded by NNOS.
Short Answer Questions from the Textbook
1. What authoritative body(s) is (are) responsible for establishing financial accounting standards for
NNOs?
2. Why do most NNOs use fund accounting?
3. NNOs distinguish between restricted and un restricted funds. Why is this distinction important?
4. What is the major difference in accounting for the general fund of a hospital and the unrestricted
fund of other NNOs?
5. What is the major difference in accounting between conditional and unconditional pledges? Give an
example of each.
6. What is the relationship (if any) between board-designated funds and nonmandatory transfers?
7. May board designated funds ever be accounted for in the unrestricted current fund? Explain.
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8. When should an NNO record donated services in its accounting records?
9. The donated services of volunteer workers on fundraising campaigns are usually not given ac-
counting recognition. Why?
10. Universities and hospitals often reduce their standard service charge to students or patients. How are
these reductions reflected in the statements of revenue and expenses of these organizations?
Explain.
11. What fund is used to account for the library books owned by a university? How should depreciation
of the library books be reflected in the financial statements of the university?
12. In which fund of a hospital are medical equipment and related longterm obligations recorded?
Would your answer be the same for a voluntary health and welfare organization? Explain.
13. What capital assets (if any) of ONNOs need not be depreciated?
14. Identify three different types of endowment funds and explain how they differ.
15. Distinguish an annuity fund from a life income fund.
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ANSWER KEY
Multiple Choice
1. d 7. d 13. b 19. d 25. a

2. a 8. b 14. b 20. c 26. b
3. c 9. b 15. c 21. c 27. b
4. b 10. c 16. c 22. c 28. a
5. c 11. a 17. a 23. c 29. b
6. b 12. d 18. c 24. b 30. d
Problems
19-1 1. Cash 300,000

Revenue-Contributions Restricted 300,000
2. Loans Receivable 300,000

Cash 300,000
Bad Debt Expense 15,000

Allowance for Uncollectible Loans 15,000
3. Cash 53,000
Loans Receivable 50,000
Interest Income 3,000
4. Allowance for Uncollectible Loans 1,000

Loans Receivable 1,000
19-2 Current Unrestricted Fund

2010
Pledges Receivable 8,500,000
Revenue Contributions 8,500,000
Expense-Provision for Uncollectible Pledges 1,275,000

Allowance for Uncollectible Pledges 1,275,000
2011
Cash 7,100,000
Expense-Provision for Uncollectible Pledges 125,000

Allowance for Uncollectible Pledges 1,275,000
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19-3 1. a. Unrestricted Current Fund

Nonmandatory Transfer to Plant Fund 300,000
Cash 300,000
Fund Balance Unallocated 90,000

Fund Balance Allocated 90,000
b. Unexpended Plant Fund

Cash 300,000
Fund Balance Unrestricted 300,000
2. a. Unrestricted Current Fund

Mandatory Transfer to Plant Fund 85,000
Cash 85,000
b. Plant Fund For Retirement of Indebtedness

Cash 85,000
Fund Balance Restricted 85,000
3. General Fund
Fund Balance Unallocated 280,000
Fund Balance Allocated for Plant
Expansion 280,000
or no entry need be made and the designation of $280,000 for plant expansion may be
reported in a footnote to the financial statements.
4. Current Unrestricted Fund

Pledges Receivable 900,000
Revenue Contributions 900,000
Expense-Provision for Uncollectible Pledges 270,000

Allowance for Uncollectible Pledges 270,000
5. Current Unrestricted Fund

Management and General Expense 10,000
Donated Services Revenue 10,000
6. Restricted Current Fund

Cash 75,000
Contribution Revenue 75,000
Net Assets Released from Restrictions 50,000

Cash 50,000
Unrestricted Current Fund

Cash 50,000
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Expenses Library 50,000

Cash 50,000
7. Current Restricted Fund

Cash 15,000
Contribution Revenue 15,000

Cash 14,000
Unrestricted Current Fund

Cash 14,000
Net Assets TransferredIn 14,000
8. a. Specific Purpose Fund

Cash 100,000
Fund Balance 100,000
Fund Balance 90,000

Cash 90,000
b. General Fund
Research Expenditures 90,000
Specific Purpose Grants [Revenue] 90,000
19-4 a. Plant Fund

Cash 600,000
Notes Payable 200,000
Contributions-Revenue-Restricted 400,000
Land 600,000
Cash 600,000

Interest Expense 2,000
Cash 22,000
Depreciation Expense 80,000

Accumulated Depreciation 80,000
Unexpended Fund Balance 340,000

Expended Fund Balance 340,000
[($600,000 + $20,000) - ($200,000 + $80,000) = $340,000]
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b. Unexpected Plant Fund

Cash 600,000
Revenue-Contributions-Restricted 400,000
Land 600,000
Cash 600,000

Land 600,000
Investment in Plant Fund

Land 600,000
Net Investment in Plant 400,000
Funds for Retirement of Indebtedness

Cash (Principal) 20,000

Cash 2,000
Investment in Plant Fund

Net Investment in Plant 20,000

c. Plant Replacement & Expansion Fund

Cash 400,000
Revenue-Contributions-Restricted 400,000
General Fund
Cash 200,000
Land 600,000
Cash 200,000
Plant Replacement & Expansion Fund

Cash 400,000
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General Fund
Cash 22,000
19-5
NSP Foundation
Statement of Activities
For the Year Ended June 30, 2011
Changes in Unrestricted Net Assets

Revenues and Gains
Contributions $250,000
Investment Income 28,000
Total revenues and gains 278,000
Net assets released from restrictions 500,000
Increase in unrestricted net assets 778,000
Expenses:
Program Services:
Scholarships 300,000
Supporting Services:
Management and General $120,000
Fund Raising 60,000
Total Supporting Services 180,000
Total Expenses 480,000
Net increase in unrestricted net assets 298,000
Changes in Temporarily Restricted Net Assets

Contributions 420,000
Investment Income 30,000
Gain on Sale of investments 13,000
Net assets released from restrictions (500,000)
Decrease in temporarily restricted net assets ( 37,000)
Changes in Permanently Restricted Net Assets

Contributions 50,000
Increase in permanently restricted net assets 50,000
Increase in net assets 311,000

Net assets, July 1, 2010 50,000
Net assets, June 30, 2011 $361,000
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19-6
Endowment Fund
1. Cash 3,000,000
Revenue-Contribution Restricted 3,000,000
2. Investments 3,000,000
Cash 3,000,000
3. Cash 550,000
Due to General Fund 400,000
Due to Specific Purpose Fund 150,000
4. Due to General Fund 400,000

Due to Specific Purpose Fund 150,000
Cash 550,000
8. Transfer to Plant Replacement and Expansion Fund 3,000,000

Cash 3,000,000
General Fund
3. Due from Endowment Fund 400,000
Unrestricted Income from Endowment Fund 400,000
4. Cash 400,000
Due from Endowment Fund 400,000
5. Other Professional Services Research 100,000

Other Operating Revenue 100,000
6. Assets Whose Use is Limited 100,000

Cash 100,000
7. Loans Receivable 250,000

Cash 250,000
Specific Purpose Fund

3. Due from Endowment Fund 150,000
4. Cash 150,000
Due from Endowment Fund 150,000

Cash 100,000
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Plant Replacement and Expansion Fund

8. Cash 3,000,000
Transfer from Endowment Fund Restricted 3,000,000
Endowment Fund
1. Fund Balance Term 3,000,000
Cash 3,000,000
19-7
Statement of Activities
Patient Service Revenue $12,000,000
Allowances and Uncollectible Accounts (2,500,000)
Net Patient Service Revenue 9,500,000
Other Operating Revenue (includes $120,000 from specific purpose funds) 260,000
Total Operating Revenue 9,760,000
Operating Expenses (includes depreciation of $380,000) 10,030,000

Loss from Operations (270,000)
Nonoperating Revenue:
Unrestricted Gifts and Requests 310,000
Unrestricted Income from Endowment Funds 120,000
Income from Board-Designated Funds 62,000
Total Nonoperating Revenue 492,000
Excess of Revenue over Expenses $ 222,000
Short Answer
1. The six funds commonly used by NNOs are (a) Current fund, (b) Plant fund, (c) Endowment Fund, (d)
Loan Fund, (e) Agency or custodial fund, and (f ) Annuity and life income fund.
2. Contributions are recognized as revenue in the period received. Conditional promises are recognized
when they become unconditional. Donor-restricted contributions are recognized as revenue if the
contributions are unconditional. Pledges are recognized as revenues at the present value of the expected
receipts when a promise is nonrevocable and unconditional.
Short Answer Questions from Textbook Solutions
1. In 1979, the FASB took the responsibility for establishing financial accounting and reporting
standards for NNOs. Support for existing accounting and reporting practices is also contained in
Audit Guides and Statements of Position published by the AICPA.
2. NNOs use fund accounting because in many cases their resources are restricted by law, contract,
donors, other external authorities, or the organization's governing board. Fund accounting
facilitates compliance with such restrictions.
3. NNOs need to distinguish between restricted and unrestricted funds in order to separate resources
that may be used at the discretion of the governing board and those which have restrictions.
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Resources not found in the unrestricted funds have contractual, external, legal, or discretionary
restrictions.
4. Unlike other NNOs, hospitals combine their revenues from unrestricted resources and restricted
resources in the General Fund accounts and financial statements. In addition, hospitals account for
property and equipment, accumulated depreciation and depreciation expense, and long-term
obligations associated with the acquisition of property and equipment in the General Fund whereas
other NNOS account for these assets and liabilities in Plant Funds.
5. Unconditional pledges are recorded as revenues while conditional pledges are not recorded until
they become unconditional. An example of unconditional pledges is when a donor makes a
nonrevocable offer to give one million dollars to a hospital. An example of conditional pledges is
when a donor offers to contribute one million dollars if the hospital receives less than ten million
dollars from government funding in the next fiscal year.
6. Nonmandatory transfers are transfers by Colleges and Universities of Board Designated Funds
from the resources of the Unrestricted Current Fund to Quasi-Endowment, Loan, Plant or other
funds maintained by the College or University.
7. Yes, board designated funds should be accounted for in the Unrestricted Current Fund (General
Fund of a hospital). The procedure for formal recognition of such designations in the Unrestricted
Current Fund by NNO's other than hospitals is similar to an appropriation of retained earnings.
Hospitals classify resources that have been designated by the board for a specific use in a separate
section of the Statement of Financial Position of the General Fund entitled Assets Whose Use is
Limited.
8. Prior to the effective date of SFAS No. 116, donated services were recorded under different
circumstances for each of the NNOs.
The necessary conditions to be met for each NNO were
Colleges:
When operated by a religious group, donated services rendered by members of the religious
group should be recorded at their monetary values.
Hospitals:
(1) The organization controls the employment and duties of the persons donating the service
and
(2) The organization has a clearly measurable basis for determining the amount of revenue and
expenses to be recorded.
VHWOs:
(1) and (2) from above and
(3) The services performed are significant and form an integral part of the efforts of the
organization and the services would be performed by salaried personnel if the donated services
were not available.
ONNOs:
(1), (2), (3), from above and
(4) The services of the reporting organization are not principally intended for the benefit of its
members.
Under the provisions of SFAS NO. 116, donated services are recognized by all NNOs only if the
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services received (a) create or enhance nonfinancial assets or (b) require professional skills, are
provided by individuals possessing those skills, and typically would need to be purchased if not
provided by donation. The provisions of SFAS 116 are effective for financial statements issued by
larger NNOs for years beginning after December 15, 1994. Thus, in terms of annual financial
statements, these changes will appear in financial statements distributed beginning in 1996 by
larger NNOs and in 1997 by smaller NNOs.
9. Voluntary services rendered for fund raising campaigns are usually not recognized in the
accounting records because of the difficulty of measuring a market value for them and because it is
extremely difficult for the organization to implement effective controls over the performance of
volunteer solicitors.
10. The revenue is recorded at the standard rate and any waivers or discounts are reported separately
as expenditures or as reductions of gross revenue.
11. Library books owned by a university are accounted for in the Plant Fund. Depreciation expense
should be recorded in the investment in plant fund. Note, prior to the issuance of SFAS No. 97 by
the FASB, colleges and universities were not required to record depreciation expense.
12. Medical equipment and long-term obligations are accounted for in the General Fund of a hospital.
VHWOS would use a Plant Fund to account for such equipment and the related obligation.
13. ONNOs need not record depreciation on historical treasures and works of art that have estimated
useful lives that are extraordinarily long. To qualify, such assets must have cultural, historical or
aesthetic value that is worth preserving perpetually and the holder must have the financial and
technological ability to protect and preserve the asset.
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14. (1) Pure Endowment Fund - the principal is donated and must be maintained in perpetuity.
(2) Term Endowment Fund - the donor specifies a particular date or event after which the
principal may be expended.
(3) Quasi-Endowment Fund - board designated resources that are transferred from the Unrestricted
Current Fund by a college or university. Maintenance or expenditure of the principal is at the
discretion of the governing board.
15. The difference between an Annuity Fund and a Life Income Fund is that under an Annuity Fund,
the beneficiary receives periodic payments of a stated amount while the beneficiary of a Life
Income Fund receives periodic payments of varying amounts (depending on the fund's earnings).

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

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

3. Board designated funds should be accounted for as

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

7. The basic financial statements for all NNOs include a

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

9. Investments are reported by NNOs at

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

Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-3

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

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

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

Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-5

Year Ended June 30

Fund raising $1,000,000

Bells functional expenses for 2011 program services included

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

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

Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-7

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

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

Unrestricted Support Contributions $250,000

Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-9

Short Answer Questions from the Textbook

2. Why do most NNOs use fund accounting?

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

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

Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-11

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

19-1 1. Cash 300,000

2. Loans Receivable 300,000

Bad Debt Expense 15,000

4. Allowance for Uncollectible Loans 1,000

19-2 Current Unrestricted Fund

Expense-Provision for Uncollectible Pledges 1,275,000

Expense-Provision for Uncollectible Pledges 125,000

19-3 1. a. Unrestricted Current Fund

Fund Balance Unallocated 90,000

b. Unexpended Plant Fund

2. a. Unrestricted Current Fund

b. Plant Fund For Retirement of Indebtedness

4. Current Unrestricted Fund

Expense-Provision for Uncollectible Pledges 270,000

5. Current Unrestricted Fund

6. Restricted Current Fund

Net Assets Released from Restrictions 50,000

Unrestricted Current Fund

Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-13

Expenses Library 50,000

7. Current Restricted Fund

Net Assets Released from Restrictions 14,000

Unrestricted Current Fund

8. a. Specific Purpose Fund

Fund Balance 90,000

19-4 a. Plant Fund

Notes Payable 20,000

Depreciation Expense 80,000

Unexpended Fund Balance 340,000

b. Unexpected Plant Fund

Fund Balance Restricted 400,000

Investment in Plant Fund

Funds for Retirement of Indebtedness