GNP Exam 3, Professor Rich

Which of the following organizational structures is (are) possible for colleges and universities?

all of the above

What basis of accounting is used for public colleges and universities and for private, nonprofit colleges and universities?

accrual and accrual

Which of the following accurately describes the most common treatment of public colleges and universities for purpose of financial reporting?

Special-purpose governments engaged in business-type activities

Massengale University, a private, nonprofit university, has gross tuition and feesrevenue of $4,000,000 for the semester. Of this amount, $100,000 is not expectedto be collected.Which of the following describes the journal entry that would be recorded?

Debit tuition and fees receivable $4,000,000; credit allowance for uncollectible tuition and fees $100,000; credit tuition and fees revenue $3,900,000

Which of the following describes the appropriate treatment of appropriations revenue by a public college or university?

Nonexchange transaction; nonoperating revenue

Ellis University, a private, nonprofit university receives a letter pledging to donate $1,000,000 to the university. The pledge is unconditional, is expected to be received in the current fiscal year, and the pledge may be used for any purpose. What journal entry should Ellis University record?

Debit pledge receivable; credit contribution revenue-without donor restrictions

which of the following accurately depicts the period in which a public college or university and a private, nonprofit college or university would recognize in-kind contribution revenue for donated materials to be used in an art program?

when the materials are received and when the materials are received

What criteria would a private, nonprofit university follow in determining whether to recognize donated services revenue?

a. The services require specialized skills possessed by the donor
b. The services would be purchased otherwise

both of the above

Which of the following best describes how the revenue associated with an expenditure-driven grant will be recognized for either a public or a private, nonprofit college or university?

Revenue will be recognized as expenditures are incurred for the grant's purpose.

What is the primary distinction between grant revenue and contract revenue when a college or university is the revenue recipient?

Grant revenue is a nonexchange transaction in which the paying entity does not receive commensurate value, and contract revenue represents an outsourcing arrangement in which the paying entity receives benefit of the work.

Fitch State University receives $250,000 in grants and loans on behalf of incoming freshmen for their tuition bills. The amounts are received in advance of the semester. What journal entry will be recorded by this public university?

Debit cash; credit deposits held in custody for others

The financial statements of a public college or university are most like what part of a general-purpose government's financial reports?

Proprietary funds' financial statements

The receipt of an unconditional promise to give would result in which of the following in a private, nonprofit university's financial statements?

Increase in assets; increase in revenues

In accordance with its established billing rates, Alpha Hospital provided services amounting to $14 million during the year ended December 31, 2018. The hospital's best estimate of transaction price included contractual adjustments of $3 million and charity patient care of $1 million. What amount should Alpha report as patient service revenue in its year 2018 operating statement?
a. $10 million
b. $13 million
c. $14 million
d. $11 million

a. $10 million

A hospital has NOT insured itself for malpractice claims with a third-party insurer. Which of the following statements best expresses the general rule regarding the reporting of liabilities for malpractice claims on the face of the balance sheet?
a. They should be reported if it is highly likely that the disputes ultimately will be resolved in favor of the claimants.
b. They should be reported only to the extent that judgments and settlements are due and payable.
c. Outstanding claims should be described in the notes to the statements; adjudicated and settled claims should be reported if they have not been paid
d. They should be reported if it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

d. They should be reported if it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

Beta Hospital provided services to patients who were covered by the Kelly Health Plan. Beta's arrangement with Kelly called for interim billing rates at 25 percent less than the established rates, as well as a retrospective rate adjustment. Based on its established billing rates, Beta provided services amounting to $4,000,000 to patients covered by Kelly during the year ended December 31, 2018. At year-end, Beta estimated that it would need to refund $150,000 to Kelly in accordance with the cost standards set forth in the retrospective rate arrangement. What amount should Beta report as patient service revenue in its year 2018 financial statements?
a. $3,850,000
b. $3,000,000
c. $4,000,000
d. $2,850,000

d. $2,850,000

Gamma Hospital provided services amounting to $10 million at its established billing rates in the year ended December 31, 2018. Included in the $10 million were services of $8 million to Medicare patients. Medicare paid Gamma at 60 percent of Gamma's established rates. Also included in the $10 million were $2 million of services to self-pay patients who did not meet Gamma's criteria for charity care when admitted. Gamma collected $1.5 million from the self-pay patients during the year and estimated that 40 percent of the uncollected amount would not be collected.
What amount should Gamma report as patient service revenue in its year 2018 financial statements?
a. $6.6 million
b. $6.8 million
c. $6.3 million
d. $10 million

a. $6.6 million

On January 10, 2018, Delta Hospital received a bequest in the form of equity securities. Delta was required to hold the securities in perpetuity, but it could spend the income. The securities had cost the donor $2.7 million, but their fair value was $3.4 million when Delta received them. The fair value of the securities fluctuated during the year, and Delta's comptroller calculated that the average fair value during the year was $3.1 million. When Delta prepared its financial statements as of December 31, 2018, the fair value of the securities was $3.3 million. At what amount should Delta report the securities in its financial statements at December 31, 2018?
a. $2.7 million
b. $3.1 million
c. $3.3 million
d. $3.4 million

c. $3.3 million

Abbott and Costello Labs donated drugs to Epsilon Hospital, a nonprofit entity, in January 2018. If Epsilon had purchased the drugs, it would have paid $600,000. During the year, Epsilon used all the drugs in providing services to patients. How should Epsilon report the donation in its financial statements for the year ended December 31, 2018?
a. Report $600,000 as a reduction of operating expenses
b. Report nothing
c. Report the donation in a note to its financial statements
d. Report $600,000 as other revenues (or gains)

d. Report $600,000 as other revenues (or gains)

Omicron Hospital, a nonprofit entity, received $6 million in premium revenue under a capitation contract with Zeta HMO to provide services to subscribing participants. Its internal records showed that Omicron spent $5.6 million in caring for Zeta's subscribers. How should Omicron report the transactions with Zeta in its financial statements?
a. Report $400,000 as patient service revenue
b. Report $6 million as patient service revenue
c. Report $6 million as premium revenue
d. Report $400,000 as premium revenue

c. Report $6 million as premium revenue

Which of the following is the most likely description of the resources reported by Kappa Hospital on its balance sheet as assets limited as to use?
a. An investment of unrestricted resources that is not readily marketable
b. A donation that can be used only for cancer research
c. A donation that must be held in perpetuity in an Endowment Fund
d. An amount designated by Kappa's governing board for plant expansion

d. An amount designated by Kappa's governing board for plant expansion

How should Phi Hospital, a nonprofit hospital, report an unrealized increase in the fair value of its investments with donor restrictions?
a. Above the performance indicator, such as part of revenues over expenses
b. As a direct addition to total net assets with donor restrictions
c. After the hospital's performance indicator
d. Only in the notes to its statements

c. After the hospital's performance indicator

Historical experience shows that a hospital sometimes receives malpractice claims in the year after the incidents occur. Which of the following statements best expresses the general rule for reporting liabilities for such claims, if risk of loss has not been transferred to a third-party insurer?
a. The hospital should have purchased extended insurance.
b. No mention is required to be made of these claims anywhere in the financial statements.
c. Liabilities should be recognized in the statements if it is probable that claims will be asserted for incidents occurring before the balance sheet date and the losses can be reasonably estimated.
d. A note should be prepared discussing the likelihood that claims will be received after the balance sheet date, but no estimate needs to be made of the possibility of loss.

c. Liabilities should be recognized in the statements if it is probable that claims will be asserted for incidents occurring before the balance sheet date and the losses can be reasonably estimated.

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

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

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

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

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

a. As revenues with donor restrictions

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

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

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

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

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

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

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

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

a. Postage for announcements of the 2019 Kickoff Dinner

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

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

c. $285,000

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

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

c. $6,000

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

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

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

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

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

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

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

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

c. The restrictions have been placed by donors

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

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

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

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

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

d. Any one of the above

what type of entities may be identified by IRC section 501(C)(3) entities

public charities and private foudnations

what type of test is performed to differentiate between a public charity and a private foundation

public support test

what type of form is completed annually and submitted to the IRS by a private foundation

Form 990-PF

Which of the following accurately identifies the sources of GAAP for public and private, nonprofit colleges and universities?

FASB establishes GAAP for private, nonprofit colleges and universities; GASB establishes GAAP for public colleges and universities

Public college and university financial reporting typically prepares financial statements consistent with which of the following funds:

enterprise funds

Which of the following accurately describes the basis for reporting investments of endowment gifts by public and private, nonprofit colleges and universities?

Both public and private, nonprofit colleges and universities carry endowment investments at fair value.

Which of the following organizations provide a functional expense classification system that includes nine categories that may be used by both public and private, nonprofit colleges and universities?

National Association of College and University Business Officers

Which of the following identifies the residual account on the balance sheets of public and private, nonprofit colleges and universities?

Public colleges and universities report net position; private, nonprofit colleges and universities report net assets

Regardless of ownership, most hospitals' revenues come from third-party payers, including:

All of these choices are correct.

A nonprofit hospital had gross patient billings of $50 million, explicit price adjustments of $20 million, and charity care of $5 million. How much does the hospital report as patient service revenue?

25 million

Differences between a nonprofit hospital's established rates and amounts negotiated with third-party payers are referred to as:

explicit concessions

Under what circumstances do nonprofit hospitals sometimes present a fifth financial statement?

To report expenses by function and when they have not done so in their statement of operations

A nonprofit hospital receives a $150,000 donation that must be used for a specific research project. The hospital anticipates that it will undertake the project next year. How should the hospital report the donation?

As contribution revenue--support with donor restrictions, a time restriction

Which of the following is a characteristic of a nonprofit, as defined by the Financial Accounting Standards Board (FASB)?

All of these choices are correct.

Which of the following is not one of the key elements of the IRS Form 990 filed by a nonprofit organization?

Statement of cash flows

Which of the following organizations establish accounting and financial reporting requirements for nonprofit entities?

The Financial Accounting Standards Board

Which of the following financial statements is not required to be prepared by nonprofit organizations?

Statement of donations and contributions received

The FASB requires nonprofits to report net assets in which categories?

Net assets without donor restrictions and net assets with donor restrictions

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

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

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

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

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

a. As revenues with donor restrictions

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

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

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

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

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

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

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

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

a. Postage for announcements of the 2019 Kickoff Dinner

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

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

c. $285,000

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

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

c. $6,000

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

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

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

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

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

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

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

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

c. The restrictions have been placed by donors

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

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

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

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

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

d. Any one of the above

what type of entities may be identified by IRC section 501(C)(3) entities

public charities and private foudnations

what type of test is performed to differentiate between a public charity and a private foundation

public support test

what type of form is completed annually and submitted to the IRS by a private foundation

Form 990-PF