Test bank with answers for advanced accounting 3e by jeter chapter 19

To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: Colleges and Universities, Hospitals, and Other Healthcare Organizations Multiple Choice 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 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 Board designated funds should be accounted for as a restricted funds b specific purpose funds c unrestricted funds d none of these 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 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 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 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19-2 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition The basic financial statements for all NNOs include a Balance sheet Statement of activities Statement of cash flows a and b and c and d 1, 2, and 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 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 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 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: a b c d 16 19-3 Revenue No No Yes Yes Expenditures No Yes Yes No Which of the following is used for current expenditures by a college? a b c d Unrestricted Current Funds No No Yes Yes Restricted Current Funds No Yes Yes No 17 Under Newman Hospital’s 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 Hospital’s 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 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19-4 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 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 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? a b c d 25 Governmental Yes Yes No No Nongovernmental Yes No Yes No 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 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: Colleges and Universities, Hospitals, and Other Healthcare Organizations 26 19-5 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: Gift receipts Cancer research restricted expenditures Year Ended June 30 2010 2011 1,100,000 1,200,000 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 Administrative Research $1,000,000 600,000 200,000 Bell’s functional expenses for 2011 program services included a $200,000 b $600,000 c $1,000,000 d $1,800,000 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19-6 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 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: $300,000 is received from a donor to establish a student loan fund Loans will carry a 6% annual interest rate The Loan Fund loaned the $300,000 to students Five percent of the loans are estimated to be uncollectible Loans of $50,000 were repaid with $3,000 of interest 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 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: Colleges and Universities, Hospitals, and Other Healthcare Organizations 19-3 19-7 Prepare journal entries for the following transactions or events: 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 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 A governing board of a hospital designates $280,000 for the future expansion of the emergency care facilities 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 An ONNO receives the donated services of a CPA with a market value of $10,000 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 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 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 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19-8 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 19-5 The following information was taken from the accounts and records of the NSP Foundation, a private, notfor-profit organization All balances are as of June 30, 2011, unless otherwise noted Unrestricted Support – Contributions Unrestricted Revenues – Investment Income Temporarily Restricted Gain on Sale of Investments Expenses – Scholarships Expenses – Fund Raising Expenses – Management and General Restricted Support – Contributions Restricted Revenues – Investment Income Permanently Restricted Support – Contributions Unrestricted Net Assets, July 1, 2010 Temporarily Restricted Net Assets, July 1, 2010 Permanently Restricted Net Assets, July 1, 2010 $250,000 28,000 13,000 300,000 60,000 120,000 420,000 30,000 50,000 250,000 40,000 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 NSP’s 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 $3,000,000 was received to establish the fund The requirements were a $150,000 of the endowment fund’s 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 donor’s death It shall be used to purchase equipment The cash received was invested in a number of securities 2011 Dividends of $150,000 and interest of $400,000 were received The income was transferred to the appropriate funds Of the restricted income, only $100,000 was expended for its specified purpose during 2011 The governing board specified that $300,000 of the income would be used for loans for deserving medical students 2012 $250,000 was lent to medical students The donor died of cancer http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: Colleges and Universities, Hospitals, and Other Healthcare Organizations 19-9 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 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 thirdparty payors Patient service revenue is accounted for at established rates on the accrual basis Other operating revenue totaled $260,000, of which $120,000 was from specific purpose funds Denton received $310,000 in unrestricted gifts and bequests They are recorded at fair market value when received Endowment funds earned $120,000 in unrestricted income Board designated funds earned $62,000 in income Denton’s 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 The fund structure and terminology differ among NNOS, but there are six funds commonly used Identify the funds used by nongovernment nonbusiness organizations 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 What authoritative body(s) is (are) responsible for establishing financial accounting standards for NNOs? Why most NNOs use fund accounting? NNOs distinguish between restricted and un restricted funds Why is this distinction important? What is the major difference in accounting for the general fund of a hospital and the unrestricted fund of other NNOs? What is the major difference in accounting between conditional and unconditional pledges? Give an example of each What is the relationship (if any) between board-designated funds and nonmandatory transfers? May board designated funds ever be accounted for in the unrestricted current fund? Explain http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19-10 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition When should an NNO record donated services in its accounting records? The donated services of volunteer workers on fundraising campaigns are usually not given accounting 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 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-11 Colleges and Universities, Hospitals, and Other Healthcare Organizations ANSWER KEY Multiple Choice d a c b c b 10 11 12 d b b c a d 13 14 15 16 17 18 b b c c a c 19 20 21 22 23 24 d c c c c b 25 26 27 28 29 30 a b b a b d Problems 19-1 Cash 300,000 Revenue-Contributions – Restricted Loans Receivable Cash 300,000 300,000 300,000 Bad Debt Expense Allowance for Uncollectible Loans Cash 15,000 15,000 53,000 Loans Receivable Interest Income Allowance for Uncollectible Loans Loans Receivable 19-2 Current Unrestricted Fund 2010 Pledges Receivable Revenue – Contributions Expense-Provision for Uncollectible Pledges Allowance for Uncollectible Pledges 2011 Cash 50,000 3,000 1,000 1,000 8,500,000 8,500,000 1,275,000 1,275,000 7,100,000 Pledges Receivable Expense-Provision for Uncollectible Pledges Allowance for Uncollectible Pledges Pledges Receivable 7,100,000 125,000 1,275,000 http://downloadslide.blogspot.com 1,400,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19-12 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 19-3 a Unrestricted Current Fund Nonmandatory Transfer to Plant Fund Cash 300,000 Fund Balance – Unallocated Fund Balance – Allocated 90,000 b Unexpended Plant Fund Cash Fund Balance – Unrestricted 300,000 a Unrestricted Current Fund Mandatory Transfer to Plant Fund Cash b Plant Fund – For Retirement of Indebtedness Cash Fund Balance – Restricted 300,000 General Fund Fund Balance – Unallocated Fund Balance – Allocated for Plant Expansion 90,000 300,000 85,000 85,000 85,000 85,000 280,000 280,000 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 Current Unrestricted Fund Pledges Receivable Revenue – Contributions Expense-Provision for Uncollectible Pledges Allowance for Uncollectible Pledges 900,000 900,000 270,000 270,000 Current Unrestricted Fund Management and General Expense Donated Services Revenue 10,000 Restricted Current Fund Cash Contribution Revenue 75,000 Net Assets Released from Restrictions Cash 10,000 75,000 50,000 50,000 Unrestricted Current Fund Cash 50,000 Net Assets Released from Restrictions http://downloadslide.blogspot.com 50,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-13 Colleges and Universities, Hospitals, and Other Healthcare Organizations Expenses – Library Cash 50,000 Current Restricted Fund Cash Contribution Revenue 15,000 Net Assets Released from Restrictions Cash 50,000 15,000 14,000 14,000 Unrestricted Current Fund Cash 14,000 Net Assets Transferred–In a Specific Purpose Fund Cash Fund Balance Fund Balance Cash 100,000 100,000 90,000 90,000 b General Fund Research Expenditures Specific Purpose Grants [Revenue] 19-4 14,000 a Plant Fund Cash Notes Payable Contributions-Revenue-Restricted Land 90,000 90,000 600,000 200,000 400,000 600,000 Cash 600,000 Notes Payable Interest Expense Cash 20,000 2,000 Depreciation Expense Accumulated Depreciation 80,000 22,000 Unexpended Fund Balance 340,000 Expended Fund Balance [($600,000 + $20,000) - ($200,000 + $80,000) = $340,000] http://downloadslide.blogspot.com 80,000 340,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19-14 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition b Unexpected Plant Fund Cash Notes Payable Revenue-Contributions-Restricted 600,000 200,000 400,000 Land Cash 600,000 Fund Balance – Restricted Notes Payable Land 400,000 200,000 600,000 Investment in Plant Fund Land Notes Payable Net Investment in Plant Funds for Retirement of Indebtedness Fund Balance – Restricted Cash (Principal) Interest Expense Cash 600,000 600,000 200,000 400,000 20,000 20,000 2,000 2,000 Investment in Plant Fund Notes Payable Net Investment in Plant Depreciation Expense Accumulated Depreciation c Plant Replacement & Expansion Fund Cash Revenue-Contributions-Restricted General Fund Cash Notes Payable 20,000 20,000 80,000 80,000 400,000 400,000 200,000 200,000 Land Cash Fund Balance 600,000 200,000 400,000 Plant Replacement & Expansion Fund Fund Balance Cash 400,000 http://downloadslide.blogspot.com 400,000 To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-15 Colleges and Universities, Hospitals, and Other Healthcare Organizations General Fund Interest Expense Notes Payable Cash Depreciation Expense Accumulated Depreciation 2,000 20,000 22,000 80,000 80,000 19-5 NSP Foundation Statement of Activities For the Year Ended June 30, 2011 Changes in Unrestricted Net Assets Revenues and Gains Contributions Investment Income Total revenues and gains Net assets released from restrictions Increase in unrestricted net assets Expenses: Program Services: Scholarships Supporting Services: Management and General Fund Raising Total Supporting Services Total Expenses Net increase in unrestricted net assets Changes in Temporarily Restricted Net Assets Contributions Investment Income Gain on Sale of investments Net assets released from restrictions Decrease in temporarily restricted net assets Changes in Permanently Restricted Net Assets Contributions Increase in permanently restricted net assets Increase in net assets Net assets, July 1, 2010 Net assets, June 30, 2011 $250,000 28,000 278,000 500,000 778,000 300,000 $120,000 60,000 180,000 480,000 298,000 420,000 30,000 13,000 (500,000) ( 37,000) 50,000 50,000 311,000 50,000 $361,000 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19-16 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 19-6 Endowment Fund Cash Revenue-Contribution – Restricted Investments Cash 3,000,000 3,000,000 3,000,000 3,000,000 Cash 550,000 Due to General Fund Due to Specific Purpose Fund Due to General Fund Due to Specific Purpose Fund Cash Transfer to Plant Replacement and Expansion Fund Cash 400,000 150,000 400,000 150,000 550,000 3,000,000 3,000,000 General Fund Due from Endowment Fund Unrestricted Income from Endowment Fund 400,000 Cash 400,000 400,000 Due from Endowment Fund 400,000 Other Professional Services – Research Other Operating Revenue 100,000 Assets Whose Use is Limited Cash 100,000 Loans Receivable Cash 250,000 100,000 100,000 250,000 Specific Purpose Fund Due from Endowment Fund Fund Balance 150,000 Cash 150,000 150,000 Due from Endowment Fund Fund Balance Cash 150,000 100,000 100,000 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-17 Colleges and Universities, Hospitals, and Other Healthcare Organizations Plant Replacement and Expansion Fund Cash Transfer from Endowment Fund – Restricted 3,000,000 Endowment Fund Fund Balance – Term Cash 3,000,000 3,000,000 3,000,000 19-7 Statement of Activities Patient Service Revenue Allowances and Uncollectible Accounts Net Patient Service Revenue Other Operating Revenue (includes $120,000 from specific purpose funds) Total Operating Revenue Operating Expenses (includes depreciation of $380,000) Loss from Operations Nonoperating Revenue: Unrestricted Gifts and Requests Unrestricted Income from Endowment Funds Income from Board-Designated Funds Total Nonoperating Revenue Excess of Revenue over Expenses $12,000,000 (2,500,000) 9,500,000 260,000 9,760,000 10,030,000 (270,000) 310,000 120,000 62,000 492,000 $ 222,000 Short Answer 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 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 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 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 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 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19-18 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition Resources not found in the unrestricted funds have contractual, external, legal, or discretionary restrictions 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 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 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 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 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 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 19 Accounting for Nongovernment Nonbusiness Organizations: 19-19 Colleges and Universities, Hospitals, and Other Healthcare Organizations 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 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 http://downloadslide.blogspot.com To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19-20 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 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) http://downloadslide.blogspot.com ... solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19- 4 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 19 The following... solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19- 8 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 19- 5 The... solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com 19- 12 Test Bank to accompany Jeter and Chaney Advanced Accounting 3rd Edition 19- 3 a