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Exam 13: Accounting for Nonprofit Organizations

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Question 21

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Following are the preclosing trial balances of Clark Township Senior Citizens Center as of December 31, 2019. Prepare a statement of financial position and a statement of activities for the Center at and for the year ended December 31, 2019.

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Question 22

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Nonprofit entities must present their assets and liabilities in order of relative liquidity in their statements of financial position / balance sheets.

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Question 23

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Kenyan Children Matter, Inc., a small nonprofit entity devoted to providing for primary school costs for underprivileged or orphaned children, prepares a brochure about its programs. The brochure showcases the children it currently supports, discusses how it accomplishes its programs, and the type of costs it incurs. It also discusses the AIDS epidemic as the reason why so many children are orphaned in Kenya. The brochure encourages readers to sponsor individual children. It distributes the brochures in U.S. churches and private schools. The cost of the producing the four-page brochure is $3,000. KCM estimates that a third of the cost of the brochure should be allocated to its programs and two thirds to fundraising. KCM also incurs other expenses in 2018, as listed below. i. Pays the annual costs for a boarding school for 20 Kenyan children at $800 each ii. Pays $30,000 for tuition for its students who continue to live at home iii. Pays for a visiting nurse to conduct annual health checks for its students totaling $6,000 iv. Pays the $10,000 annual salary for a social worker to monitor the home situations of children it supports but who are not placed in boarding schools v. Pays $5,000 for a U.S. CPA firm to maintain KCM's books and to process contributions. vi. Pays $2,000 for another CPA firm to prepare its IRS Form 990 vii. Pays $3,000 to buy backpacks and supplies in Kenya for its students viii. Pays $5,000 "stipend" to its president for overseeing KCM's programs ix. Pays $10,000 to cover the costs of its president to make a 6-day trip to Kenya to accompany 15 of its best contributors (who pay their own travel costs) to Kenya to meet some of KCM's students. After some discussion, KCM's CPA firm agrees with the nonprofit's conclusion that 90% of this cost should be reported as program expenses and the remainder as management and general expenses Required: (a) Prepare a schedule of KCM's costs for the year, using three columns: Program expenses, Management and General expenses, and Fundraising expenses. (b) If KCM reports its operating results to a national charity rating organization, what percentages of its expenses would it report for programs expenses, administrative expenses, and fundraising expenses?

The Aurora Fund received equipment having a cost of $65,000 and a fair value of $50,000 as a gift. The donor states that the Fund should decide how to best use the gift. How should the gift be reported in the Aurora Fund's financial statements?

Nonprofits must report expenses by program, which is any activity directly related to the organization's purpose. Which of the following is true about nonprofit programs?

Nonprofits are required to prepare their cash flows statement using three categories of cash receipts and cash payments. What are these three categories?

The Board of Trustees of Building Lives, Inc., a nonprofit entity that provides support services for homeless men, votes to set aside $100,000 toward purchasing a fitness center for their clients at some time in the future. How should Building Lives report these assets?

Dave Hall did some estate planning recently and decided to establish a trust for his favorite museum, the National Baseball Hall of Fame. He put $6 million into a revocable charitable remainder trust whereby all income from the trust would go to his children until the youngest reaches age 35. At that time, the remaining trust assets would be contributed to the Hall of Fame. An actuary for the trust estimated, based on the current ages of Hall's children, that $3.2 million could be contributed to the Hall of Fame. How should the Hall of Fame report this arrangement when it learns of the trust?

Nonprofits must recognize donated food that they will use in their operations at fair value.

Donor restrictions play an important role in how assets should be classified in a nonprofit's statement of financial position. What additional information may a nonprofit provide about the liquidity of its assets and liabilities?

The Trent Baisley Bird Watching Club charges membership dues to finance its activities. These dues are $300 per year but the only direct benefit to the club members is a monthly newsletter listing regional citings and bird-watching tips. The newsletter has a fair value of $85 per year. What portion of the $300 member dues should be reported as an exchange transaction and what portion should be reported as contribution revenue?

When a nonprofit entity's net assets are presented as net assets with donor restrictions, who has imposed the restrictions?

FASB revenue recognition requirements require nonprofits to apply five steps to each type of exchange contract to determine when to recognize revenue. The first 4 steps are (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, and (4) allocate the transaction price to the performance obligations in the contract. What is the 5th step?

Nonprofits are required to report contributed investments, such as bonds, at their fair value at the time they are contributed.

Prepare journal entries to record the following transactions of Weatherford Teen Foundation, Inc. (WTFI), a nonprofit entity that provides counseling, training, and other programs for young people. WTFI accounts for all transactions in a single fund, recording them so as to distinguish between net assets with donor restrictions and net assets without donor restrictions as required for financial reporting purposes. a. WTFI receives pledges of $150,000 to help finance its activities for the year. WTFI expects that it will ultimately receive 90% of these pledges in cash. b. During the year, WTFI receives cash of $130,000 against the pledges and writes off $10,000 of the pledges as uncollectible. c. WTFI incurs the following program expenses, financed by its unrestricted revenues: (1) Counseling programs, $40,000 (2) Training programs, $50,000 d. WTFI has a contract with the county in which it is located to administer a youth recreation program. It incurs $20,000 of expenses under the program, and sends an invoice to the county for that amount. e. Carole Burgess donates $5,000, stipulating that WTFI must use her gift to obtain the services of a well-known country singer for a special concert. f. WTFI gives the concert referred to in e. WTFI pays $5,000 to the country singer, and charges the expense to Recreation programs. g. David Bean, a local attorney, donates 10 hours of his time to WTFI drawing up legal contracts. Mr. Bean also donates 20 hours coaching softball for the youths. He normally charges $200 an hour for his legal services. WTFI would have hired an attorney and a coach to do this work if Mr. Bean had not volunteered his time. h. Mary Catlett donates common stock to WTFI, stipulating that the stock must be used during WTFI's next fiscal year for any programs WTFI wishes to undertake. At the time of the gift, the stock has a fair value of $10,000. i. When WTFI closes its books at year-end, the stock gift from Ms. Catlett has a fair value of $11,000.

Nonprofits must report all their expenses as decreases in net assets without donor restrictions.

Nonprofits receive significant amounts of contributions, operate for purposes other than to generate a profit, lack shareholders or owners.

A nonprofit organization receives a pledge from a donor in fiscal 2018. The terms of the pledge are such that the organization will receive a large cash contribution in fiscal 2022. At what value should the pledge be reported in the organization's 2018 statement of financial position?

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

The Victoria Fund, a child welfare fund, received $50,000 in cash in 2018. The donor requires the gift be held in perpetuity and that the income from investing this money may be used for its program of promoting adoption of young girls. How should the gift be reported in the Victoria Fund's financial statements?