Unit 6

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30 Terms

1
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Users of government financial statements use the financial statements to determine which of the following types of information?

Cost of goods and services provided in the period

2
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Which one of the following statements regarding fund accounting for NPOs is true?

Interfund transfers can be used in fund accounting to transfer balances between funds.

3
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Which one of the following is a common purpose of using government financial statements?

To determine a government’s ability to meet its financial obligations, both short and long term

4
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An NPO that uses fund accounting receives a contribution of $1,000,000 in cash. There was a stipulation that the organization must invest the amount in AAA rated bonds, and the interest must be spent for the maintenance of the organization’s administrative building. Which one of the following funds would be the most appropriate to record the contribution?

Endowment fund

5
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Which one of the following statements about government financial statements is true?

Users assess government financial statements for a variety of purposes

6
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Which one of the following statements best describes the general fund used in fund accounting by NPOs?

The use of a general fund is required.

7
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Under the PSA Handbook, which one of the following is a required presentation and disclosure for public sector entities?

Government assets not recognized due to difficulty in measurement must be disclosed

8
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Which one of the following describes how an endowment contribution to an NPO is recorded under the deferral method?

As a direct increase to net assets

9
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Which one of the following statements regarding PSAS and the PSAB is true?

The PSA Handbook is supplemented by SORP.

10
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Which one of the following is a characteristic of the restricted fund method of accounting for contributions for an NPO?

All restricted contributions related to a specific fund are recognized as revenue when they are received

11
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Which one of the following statements about fund accounting is NOT true?

Fund accounting must be used when an NPO uses the deferral method of accounting for contributions.

12
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Which one of the following statements about government reporting is true?

Not all changes in measures of financial position of a government for a period can be captured in its financial statements.

13
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Full Stomachs, Full Hearts (FSFH) is an NPO that provides hot school lunches to children. The organization received a $100,000 donation that must be spent on fresh fruits and vegetables in the current school year ending in June. By March 31, FSFH’s year end, $85,000 of the donation had been spent. FSFH uses the deferral method to account for contributions.

What amount of revenues and expenses will be included on FSFH’s income statement on March 31, 2021, regarding this contribution?

Revenue $85,000; expenses $85,000

14
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Which one of the following public sector entities is an example of a government NPO?

Nova Scotia Community College

15
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Nova Association is an NPO that provides support to young parents. During Year 1, Nova began using a fundraising program called Building Futures to raise funds for general operations. As part of the program, in October, Nova held a breakfast event and asked attendees to make one-, two-, or three-year commitments for future unrestricted donations. It received the following total pledges by year:

Year 2

$150,000

Year 3

$98,000

Year 4

$45,000

Although pledges were not expected to be received until the following year, by December 31, Year 1, Nova had collected $15,000 of the Year 2 pledges. Building Futures has stated that the fundraising program results in an average collection of 70% of pledges for the first year (Year 2), 45% for the second year (Year 3), and 20% for the third year (Year 4). However, Nova is unsure if these statistics will be applicable to its organization and specific donors, as it does not have a history using the program.

What amount should Nova report as revenue related to these pledges in its Year 1 statement of operations? Assume Nova uses the deferral method to report its contributions.

$15,000

Pledges should only be recorded as receivable with a corresponding revenue when the amount can be reasonably estimated and collection is reasonably assured. This is the first year Nova is receiving pledges. Although the program it is working with — Building Futures — has history, this would not necessarily apply to Nova’s new pledge donors. As such, collection is only reasonably assured when the pledge is received, and only $15,000 in revenue can be recognized.

16
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Which one of the following describes how government financial statements are similar to those of for-profit entities?

The financial statements of public sector entities show the results of their operations.

17
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Rooster Experiences Project (REP) is an NPO that has received numerous government grants since its inception, and revenue has increased from $180,000 in Year 1, to $480,000 in Year 2, to $525,000 in Year 3. REP reports contributions using the restricted fund method and has a general fund, a capital asset fund, and a medical fund.

On September 1, Year 4, REP received a contribution of $45,000 for chicken coops, which was immediately used to purchase one large coop for $45,000. The coop has a nine-year useful life and no expected residual value at the end of its life.

REP is preparing its financial statements for the year ended December 31, Year 4. Which one of the following entries would be recorded in Year 4 because of this contribution?

DR Amortization expense (capital asset fund)

1,667

     CR Accumulated amortization (capital asset fund)

1,667

REP’s average revenue is $502,500 over Year 2 and Year 3 [($480,000 + $525,000) / 2]; therefore, it must capitalize and amortize its capital assets. Amortization expense would be recorded for four months in Year 4: $45,000 / 9-year life × 4/12 = $1,667.

18
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Which one of the following statements is true about public sector accounting?

Government business enterprises must present their financial statements in accordance with IFRS.

19
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Which one of the following statements best describes the similarities between the deferral method and the restricted fund method of accounting for contributions to an NPO?

For both the deferral method and the restricted fund method, revenue is recognized for unrestricted contributions when the contribution can be estimated and collection is reasonably assured.

20
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Which one of the following statements about government business enterprises is true?

They sell goods and services to entities outside of the government reporting entity.

21
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Cochrane Music Makers (CMM) is an NPO with annual revenues of $425,000 for the year ended March 31. It has never had revenues higher than $425,000. Which one of the following statements was incorrectly stated under Part III of the CPA Canada Handbook?

CMM purchased a truck for $8,000. CMM has to capitalize the truck and amortize the cost over the uselife of the asset.

As CMM has average revenues for the last two periods of less than $500,000, CMM is considered a small-NPO which has the option to expense the truck and disclose this policy in its note to the financial statements.

22
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Franz’s Friends (FF), an NPO, received a donation of 10,000 face masks as part of a donor’s bequest. The masks were originally purchased by the donor for $19,000 one year ago and the estate valued the masks at $5,000. FF would otherwise have purchased the masks over time, but after examining the masks, the organization is unsure whether they can be used. The masks were made by a brand that has since gone out of business for manufacturing poor-quality masks that were recalled in several countries.

Which one of the following describes how FF should recognize the masks in its financial statements?

FF cannot recognize the masks in its financial statements.

An NPO may choose to recognize contributed goods and services if the following conditions are met:

  • The fair value of the contributed goods and services can be reasonably estimated.

  • The goods and services are used in the normal course of the organization’s operations and would have been purchased otherwise.

As the masks are of questionable quality, it is possible they are worthless, and FF may be unable to use them. Therefore, it is difficult to estimate the fair value of the masks and they should not be recognized.

23
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The board of a local NPO decided to internally restrict $80,000 of its net assets to purchase a new phone system next year. The NPO uses the restricted fund method to record its contributions and has a general fund, capital asset fund, mentoring fund, and endowment fund. Which one of the following statements is true?

The internally restricted amount is transferred to the capital asset fund as an interfund transfer.

24
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Calgary Code Camp (CCC) is an NPO with a June 30 year end. On January 1, a local business sold a van to CCC. This saved the organization from having to rent a van twice per week. The van has a fair market value of $10,000, but CCC obtained it for $1,000. It is expected to last four years.

Assuming that CCC uses the deferral method, what is the amount of deferred contribution recorded on January 1, when CCC receives the donation?

$9,000

When an NPO purchases a capital asset at substantially less than its fair value, it is recorded at fair value, with the difference treated as a contribution by the seller.

25
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On February 18, North Star Club (NSC), an NPO with a March 31 year end, is given $200,000 cash to buy equipment. At the end of the fiscal year, it had revenues of $700,000. NSC uses the cash to purchase equipment on April 3. NSC has an amortization policy where depreciable assets greater than $50,000 in value are amortized evenly over 10 years.

Which one of the following is the journal entry required on February 18? NSC uses the deferral method to account for contributions.

DR Cash $200,000; CR Deferred contribution $200,000

Because the deferral method is used and the equipment will be amortized, the restricted contribution received must be recognized as a deferred contribution liability. Subsequently, revenue will be recognized over the same basis as the amortization of the equipment

26
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The Basketball Club (TBC) is an NPO that reports its contributions using the restricted fund method. It has a general fund, a capital asset fund, an endowment fund, and a court upgrade fund.

In February, an individual contributed $650,000 to TBC on the condition that the principal amount be invested in marketable securities and that only the income earned from the investment be spent on general operations. Total investment income for the year from this investment was $7,000.

How much revenue will TBC recognize in its general fund related to this contribution for the year?

$7,000

because an endowment fund exists, endowment contributions should be recorded as contribution revenue in the endowment fund when received. In this case, use of the investment income is unrestricted, so it would be reported as revenue of the general fund

27
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Which one of the following statements best describes the sections of the CPA Canada Handbook – Accounting that private sector NPOs can follow?

They can either follow Part I, or Part III supplemented with Part II.

28
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Which one of the following is a characteristic of a government business enterprise?

It has the power to contract in its own name.

29
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Which one of the following statements describes the deferral method?

The deferral method records contributions as revenue when the related expenses are recognized.

30
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Which one of the following describes a government transfer?

Transfers of money or assets from one government to another