Accounting 4070/8096 Exam 1

Transcription

1 Accounting 4070/8096 Exam 1 Spring 2017 Name Section Row I. Multiple Choice. (2 points each, 48 points total) Read the following questions carefully and indicate your answer to each question by placing a circle around the letter preceding the one best answer. Assume that when any reference is made to a not-for-profit organization, the organization is a nongovernmental not-for-profit organization unless specifically stated otherwise. 1. The body that has been established to recommend accounting and financial reporting standards for the federal government is the a. Financial Accounting Standards Board (FASB). b. Governmental Accounting Standards Board (GASB). c. Federal Accounting Foundation (FAF). d. Federal Accounting Standards Advisory Board (FASAB). 2. The Financial Accounting Standards Board has the responsibility for setting accounting and financial reporting standards for a. all not-for-profit organizations that are nongovernmental and business entities. b. all not-for-profit organizations and business entities. c. all not-for-profit organizations. d. special purpose governments with a business purpose. 3. Which of the following groups is considered a primary user of a state or local government's general-purpose external financial statements? a. Citizens. b. Managers and administrators. c. Employees. d. Special interest groups. 4. A comprehensive annual financial report (CAFR) prepared in conformity with GASB recommendations should include which of the following sections? a. Letter of transmittal, management's discussion and analysis (MD&A), and financial. b. Introductory, financial, and statistical. c. Introductory, MD&A, and financial. d. Letter of transmittal, financial, and supplementary. 5. Which of the following statements is prepared by all not-for-profit organizations? a. Statement of financial position. b. Statement of functional expenses. c. Statement of revenues, expenses, and changes in net position. d. Both A and B. 6. Which of the following is not a net asset category reported by not-for-profit entities? a. Unrestricted net assets. b. Temporarily restricted net assets. c. Restricted net assets. d. Permanently restricted net assets. 1

2 7. Which of the following is not an example of a support expense that might be reported by a notfor-profit entity? a. Fund-raising expenses. b. Program expenses. c. Management expenses. d. General expenses of operating the not-for-profit entity. 8. Which of the following organizations would be subject to the accounting and reporting requirements of the FASB? a. The Nebraska CPA Society. b. St. Mary's Catholic Hospital. c. Both of the above. d. Neither (a) or (b) above. 9. Which of the following is always subject to GASB jurisdiction? a. A hospital. b. A federal agency. c. A public-school district. d. A nongovernmental not-for-profit organization. 10. The primary standards-setting body for a museum that receives the majority of its funding from local property taxes is a. American Institute of CPAs (AICPA) b. Governmental Accounting Standards Board (GASB) c. General Accountability Office (GAO) d. Financial Accounting Standards Board (FASB) 11. Under FASB standards how would a not-for-profit organization recognize a conditional pledge? a. It would debit Pledges Receivable and credit Contributions Temporarily Restricted. b. It would debit Pledges Receivable and credit Deferred Contributions. c. It would debit Conditional Pledges Receivable and Credit Deferred Contributions. d. It would not recognize the conditional pledge until pledge conditions are substantially met. 12. The FASB Codification requires the following financial statements for all not-for-profit organizations: a. Statement of financial position, statement of activities, statement of cash flows, and statement of functional expenses. b. Statement of financial position, statement of operations, statement of cash flows, and statement of functional expenses. c. Statement of financial position, statement of activities, and statement of cash flows. d. Statement of financial position, statement of revenues and expenses, and statement of cash flows. 13. An example of an increase in net assets for a not-for-profit organization that would be labeled revenue rather than support is a. an unconditional promise to give. b. investment income. c. a restricted gift. d. an allocation of funds from the local United Way organization. 2

3 14. A donor provides a large cash contribution that is to be used for acquisition of a new building. Under FASB standards, how would this contribution be reported by a not-for-profit organization on its statement of cash flows? a. Operating activity. b. Investing activity. c. Financing activity. d. Capital activity. 15. Which of the following is a false statement about tax-exempt organizations? a. They must be organized to serve the charitable needs of the public at large. b. They must first become a not-for-profit corporation or charitable trust. c. They are permitted to do some political lobbying if guidelines are met. d. Their unrelated business income is taxed at corporate income tax rates. 16. The IRS may impose intermediate sanctions on all of the following transactions between a notfor-profit organization and its executive officer except a transaction involving a. excessive compensation. b. more than the fair rental value for property owned by the officer. c. a bargain purchase on the sale of assets. d. fringe benefits comparable to those given to all employees. 17. The income most likely to be considered unrelated business income of a human service organization that provides immunizations to children in the community is a. rental of extra space in the building. b. regular sale of sweatshirts with the organization's logo on it at a price considerably above cost. c. interest and dividend income on investments. d. gain on the sale of equipment no longer needed by the organization. 18. Public disclosure rules require that a public charity tax-exempt not-for-profit organization a. post a copy of its articles of incorporation and by-laws on its Web site. b. provide a copy of its board meeting minutes to any person who requests the minutes within 90 days of the board meeting. c. make available a copy of its Form 990-T, but not its Form 990, to the public for a period of up to two years. d. make available a copy of its Form 990 to the public for a period of up to three years. 19. Which of the following is a good measure that can be used to help assess whether a not-for-profit organization is spending too much on overhead, such as general and administrative expenses? a. Percentage of unrestricted net assets to operating expenses. b. Current ratio. c. Total revenues divided by total expenses. d. Percentage of program expenses to total expenses. 3

4 20. Which of the following is a good measure of whether a not-for-profit organization is "liquid" and can meet its short-term obligations? a. Percentage of program expenses to total expenses. b. Total revenues divided by total expenses. c. Current assets divided by current liabilities. d. Percentage of unrestricted net assets to operating expenses. 21. The local Kennel Club is a not-for-profit organization with gross receipts of $23,500 for the current tax year. Under the Internal Revenue Service Code, the Kennel Club would be required to file which of the following forms for the tax year? a. Form 990-N. b. Form 990-EZ. c. Form 990-PF. d. Since its gross receipts are less than $25,000 it need not file with the Internal Revenue Service. 22. A not-for-profit organization is granted its legal status by which of the following? a. Federal government. b. State government. c. The city or county government in which it resides. d. The courts. 4

5 II. Problems 1. (8 points) Below is a list of characteristics of entities. For each characteristic indicate the entity or entities that possess the characteristic by placing an in the appropriate column. Each characteristic may apply to none, one, two, or all three entities. Characteristic Business Entity Nongovernmental Nonprofit Entity Governmental Entity a. Lack of a profit motive. b. No power to enact and enforce a tax levy. c. Popular election of the governing board. d. Lack of ownership interests that can be sold or transferred. e. Providers of resources to this type of entity do not expect to receive repayment or benefits in proportion to amount paid. f. Pays taxes. 5

6 2. (12 points) The Midwest Reading Academy is a public charity under IRC Sec. 501(c)(3). Its total support consisted of the following. United Way support $ 12,000 Grant from OPS Foundation 26,500 Grant from city of Omaha 12,000 Contributions from individuals 262,900 Investment income 8,000 Revenue from the sale of sweatshirts with logo 1,500 $ 322,900 Of the $262,900 received from contributors, $192,000 came from three unrelated individuals, each of whom gave more than $10,000; the other $70,900 came from small individual contributions. Required: a. Calculate the total amount of support that qualifies as public support in meeting the public support test to escape private foundation status. b. Is Midwest Reading Academy a public charity? Why or why not? 6

7 3. (18 points) Assume that Big Horn Valley Nature Center, a not-for-profit organization, started the fiscal year ending December 31, 2017 with $26,880 in temporarily restricted net assets. The amounts are restricted for the following reasons: restricted for educational programs relating to preservation of wetlands $14,880. restricted for future equipment purchases $12,000 (Fixed assets are recorded as unrestricted when acquired). During the year ended December 31, 2017, the following transactions occurred. Prepare journal entries for each of these events. (a) On January 1, 2017, a written promise to give is received that will provide $3,000 each of the next six years for general support. The pledge specified that the money could not be spent until all six payments are received. Assume the first payment will be received on January 1, 2018, and the present value of the six payments discounted at 6 percent is $14,752. (b) On May 16, 2017, expenses related to educational programs on conservation of wetlands are paid for $8,262. (c) On June 11, 2017, the $12,000 received in a prior year for equipment, together with an additional $25,500 is used to acquire equipment. (d) On December 31, 2017, interest of 6% is recorded on the pledge receivable. (e) What is the balance of Net Assets Temporarily Restricted on December 31, 2017 after closing entries? 7

8 4. (18 points) The Chişinau Symphony Association s June 30, 2016, preclosing trial balance is show below, but the accountant has already reclassified the expenses from natural expense classifications to functional classifications. Prepare, in good form on the following page, the Statement of Activities for the Chişinau Symphony Association for the year ending June 30, DO NOT remove this page or the next page from the test. Account Debits Credits Cash and Cash Equivalents $ 100,700 Contributions Receivable (net) $ 43,000 Equipment $ 716,890 Accumulated Depreciation Equipment $ 234,710 Accounts Payable $ 37,800 Net Assets Unrestricted $ 395,370 Net Assets Temporarily Restricted $ 142,080 Net Assets Permanently Restricted $ 110,000 Net Assets Reclassified from Temporarily Restricted Release of $ 100,200 Time Restrictions Contributions Unrestricted $ 510,480 Contributions Temporarily Restricted $ 136,850 Contributions Permanently Restricted $ 150,000 Net Assets Reclassified to Unrestricted Release of Time Restrictions $ 100,200 Net Assets Reclassified from Temporarily Restricted Release of Purpose Restrictions $ 2,450 Net Assets Reclassified to Unrestricted Release of Purpose Restrictions $ 2,450 Interest Revenue $ 33,650 Ticket Sales Revenue $ 109,870 Program Expenses Symphony Concert Series $ 199,400 Program Expenses Music Education $ 670,900 Administrative Expenses $ 94,000 Fund Raising Expenses $ 35,920 Totals $ 1,963,460 $ 1,963,460 8

9 Chişinau Symphony Association Statement of Activities For the Year Ended June 30,

10 Multiple Choice Answers Question No. Answer Question No. Answer Question No. Answer 1. d 10. b 19. d 2. a 11. d 20. c 3. a 12. c 21. a 4. b 13. b 22. b 5. a 14. c 6. c 15. a 7. b 16. d 8. c 17. b 9. c 18. d Problems 1. Characteristic Business Entity Nonprofit Entity Governmental Entity a. Lack of a profit motive. b. No power to enact and enforce a tax levy. c. Popular election of the governing board. d. Lack of ownership interests that can be sold or transferred. e. Providers of resources to this type of entity do not expect to receive repayment or benefits in proportion to amount paid. f. Pays taxes. 10

11 3. (a) Accounts Contributions Receivable Contributions-Temp Restricted Discount on Contributions Temp Restricted Debits 18,000 Credits 14, (b) Education Programs Expense Cash 8,262 8,262 Reclassification from Temporarily Restricted Reclassification to Unrestricted 8,262 8,262 (c) Equipment Cash 37,500 37,500 Reclassification from Temporarily Restricted Reclassification to Unrestricted 12,000 12,000 (d) Discount Contributions Temp Restricted Contribution-Temporarily Restricted ($14,752 * 6%) (e) =

12 4. Chişinau Symphony Association Statement of Activities For the Year Ended June 30, 2016 UNRESTRICTED TEMPORARILY RESTRICTED PERMANENTLY RESTRICTED TOTAL REVENUES, GAINS, AND OTHER SUPPORT: CONTRIBUTIONS $510,480 $136,850 $150,000 $797,330 INTEREST 33,650 33,650 TICKET SALE REVENUE 109, ,870 NET ASSETS RELEASED FROM: PROGRAM RESTRICTIONS 2,450-2,450 0 TIME RESTRICTIONS 100, ,200 0 TOTAL REVENUES, GAINS, AND OTHER SUPPORT 756,650 34, , ,850 EPENSES: PROGRAM SYMPHONY SERIES 199, ,400 MUSIC EDUCATION 670, ,900 SUPPORT MANAGEMENT AND GENERAL 94,000 94,000 FUND RAISING 35,920 35,920 TOTAL EPENSES 1,000, ,000,220 CHANGE IN NET ASSETS -243,570 34, ,000-59,370 NET ASSETS, 7/1/15 395, , , ,450 NET ASSETS, 6/30/16 $151,800 $176,280 $260,000 $588,080 12