Find more slides, ebooks, solution manual and testbank on www.downloadslide.com Chapter 22 ACCOUNTING FOR NOT-FOR_PROFIT ORGANIZATIONS Questions The financial statements required for nongovernmental not-for-profit entities include a statement of financial position, a statement of activities, and a cash flow statement Voluntary health and welfare organizations also provide a statement of functional expenses Each hospital, college, and voluntary health and welfare organization (and other not-for-profit organizations as well) must be evaluated to determine whether it meets the definition of a government in the authoritative literature Those that meet the definition of a government must apply the government GAAP hierarchy GASB standards are the most authoritative guidance for these entities All other entities are to apply FASB standards The AICPA guides became nonauthoritative GAAP in 2009 with changes at both FASB and GASB FASB 162 issued in 2008 specified the hierarchy of GAAP for nongovernmental organizations to be moved from SAS 69 (i.e the auditing standards) to FASB (i.e the accounting standards) Similarly, GASB 55 issued in 2009 specified the hierarchy of GAAP for governmental entities to be moved from SAS 69 to GASB Subsequently, FASB 168 issued in 2009 – the last FASB “Statement” issued – created the codification of GAAP in the Accounting Standards Codification as the sole authoritative source of GAAP for nongovernmental organizations FASB now has two categories, the ASC which is authoritative and everything else is non-authoritative GASB 55 keeps the prior hierarchy whereby the AICPA audit and accounting guides are level b – just beneath GASB Statements and Interpretations A conditional promise to give depends on the occurrence of a specified future and uncertain event to bind the promisor An unconditional promise to give depends only on the passage of time or demand by the promisee for performance Organizations recognize conditional promises to give as contribution revenue and receivables when the conditions are substantially met (in other words, when the conditional promise to give becomes unconditional); however, they account for a conditional gift of cash or other asset that may have to be returned to the donor if the condition is not met as a refundable advance (liability) Organizations recognize unconditional promises to give as restricted or unrestricted contribution revenue and receivables in the period in which the promise is received A donor-imposed condition provides that the donor will have his resources returned (or will be released from the promise to give) if the condition is not met A donor-imposed restriction only limits the purpose or timing of use of the contributed assets Unconditional promises to give with payments due in the next period are reported as restricted support (net of an appropriate allowance for uncollectible accounts) that increase temporarily restricted net assets, even if the resources are not restricted for specific purposes When a time restriction is met, temporarily restricted net assets are reclassified as unrestricted net assets The entry includes a debit to temporarily restricted net assets—reclassifications out and a credit to unrestricted net assets—reclassifications in (Different account titles, such as amounts released from restrictions, are permitted as well.) Gifts in kind are reported as unrestricted support that increases unrestricted net assets if the not-for-profit entity has discretion over the disposition of the resources and a fair value can be reasonably determined If fair value cannot be determined, the items are recorded as sales revenue when they are sold If the not-for- © 2011 Pearson Education, Inc publishing as Prentice Hall 22-1 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-2 profit entity has little or no discretion over disposition of the items, the gifts in kind should be accounted for as agency transactions Program services of voluntary health and welfare organizations are expenses incurred in meeting the social service objectives of the organization Examples are research, public education, community services, and patient services Supporting services consist of the organization’s administrative and fund-raising costs, and expenses for these items are so classified in the statement of activities 10 The statement of functional expenses for voluntary health and welfare organizations is intended to reconcile the functional classification of expenses (which results in highly aggregated data) with basic object-of-expenditure classifications that are less aggregated and easier for many users to understand 11 Contributed services are recognized only if the services (a) create or enhance nonfinancial assets of the organization or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation 12 Charity care is excluded from both gross patient service revenue and from expense The hospital’s policy for providing charity care and the level of charity care provided are disclosed in notes to the financial statements 13 Net patient service revenues of hospitals are measured by deducting courtesy allowances and contractual adjustments from gross patient revenues Uncollectible accounts expenses are not deducted in computing net patient service revenues Net patient service revenues are reported in the statement of activities 14 The three major revenue groupings used by hospitals are patient service revenues, other operating revenue, and nonoperating gains Examples are: Patient service revenues—routine care, emergency room, recovery room, pharmacy Other operating revenues—tuition from educational programs, research grants for specific purposes, gift shop sales Nonoperating gains—unrestricted gifts, unrestricted endowment income, gain on sale of plant assets, rents from property not used in hospital operations (Premium fees also are significant for many hospitals today They would be reported as a separate line item under operating revenues.) 15 Both the provision for bad debts (other than for charity care, which is not recorded as revenue) and depreciation are expenses of a hospital Hospitals use full accrual accounting procedures 16 FASB Statement No 117 (now codified in FASB ASC 958) requires private not-for-profit universities to provide a set of financial statements that includes a statement of financial position, statement of activities, statement of cash flows, and accompanying notes Governmental universities are considered specialpurpose governments under GASB Statements No 34 and 35 Special-purpose governments with more than one governmental program or both governmental and business-type activities present both government-wide and fund financial statements, as well as the MD&A, notes, and required supplementary information Special-purpose governments with only one governmental program may combine fund and government-wide statements, whereas those with only business-type activities should report only the financial statements required for enterprise funds, as well as the MD&A, notes, and required supplementary information 17 Government colleges and universities no longer have the option of using the AICPA college guide; however, many organizations may have retained AICPA model features for internal accounting and control purposes 18 Much guidance comes from the Financial Accounting and Reporting Manual, an accounting manual prepared by the National Association of College and University Business Officers (NACUBO) which is available as an online subscription service © 2011 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 19 20 22-3 GASB Statements No 34 and 35 require special-purpose government with more than one governmental program or both governmental and business-type activities to present both government-wide and fund financial statements, as well as the MD&A, notes, and required supplementary information Specialpurpose governments with only one governmental program may combine fund and government-wide statements, whereas those with only business-type activities should report only the financial statements required for enterprise funds, as well as the MD&A, notes and required supplementary information Functional classifications include the following: Instruction Expenses for the educational programs Resource Expenses to produce research outcome Public Service Expenses for activities to provide noninstructional services to external groups Academic support Expenses to provide support for instruction, research, and publications Student Services Amounts expended for admissions and registrar, and amounts expended for students’ emotional, social, and physical well-being Institutional support Amounts expended for administration and the long-range planning of the university Operation and maintenance of plant Expenses for operating and maintaining the physical plant (net of amounts to auxiliary enterprises and university hospitals) Student aid Expenses from restricted or unrestricted funds in the form of grants, scholarships, or fellowships to students 21 Property, plant, and equipment acquired by a not-for-profit organization with unrestricted or restricted resources may be recorded at acquisition as unrestricted or temporarily restricted If temporarily restricted, the assets are reclassified when depreciation is recognized © 2011 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-4 EXERCISES E22-1 d a d c b E22-2 b a d b c E22-3 b b c d a E22-4 a b a a c E22-5 b b c c d E22-6 b a a c b E22-7 b a c a d E22-8 Program services: Education Public Health Research $20,400 15,700 12,000 $48,100 Supporting services: Fund raising Management and general $11,400 5,500 $16,900 E22-9 1) Contributions receivable Allowance for uncollectible contributions Unrestricted support — contributions Restricted support — contributions To record contribution revenues and an allowance for uncollectible accounts 20,000 600 13,580 5,820 Contributions that are not due until the next period imply a time restriction unless the donor explicitly stipulates that the pledge is for current expenditures Thus, unrestricted net assets are increased by $13,580 and temporarily restricted net assets are increased by $5,820 2) Cash 200 Restricted support — contributions To record a gift restricted to a special project (Recall that some NFPs may record as unrestricted if the restriction is met in the same period.) Expenses — community service [program services] Cash To record expenditures for restricted purpose 200 200 © 2011 Pearson Education, Inc publishing as Prentice Hall 200 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-5 Temporarily restricted net assets — reclassifications out Unrestricted net assets — reclassifications in To record satisfaction of temporary restriction 3) Equipment 200 200 6,000 Unrestricted support — Contributions To record receipt of donated equipment Depreciation expense — community services Accumulated depreciation — equipment To record depreciation expense for the year on unrestricted long-lived assets 6,000 1,500 1,500 The organization may also adopt an accounting policy that implies a time restriction that expires over the useful life of the donated asset If the gift is reported as restricted support in temporarily restricted net assets, depreciation is recorded as an expense in unrestricted net assets, which results in a reclassification for the amount of the depreciation from temporarily restricted to unrestricted net assets 4) Cash 8,000 Restricted support — contributions To record receipt of donation restricted to the purchase of a truck Accrued interest receivable Restricted revenue — investment income To record accrual of interest on funds restricted for the purchase of a truck 8,000 215 215 The contribution of cash restricted for long-lived asset purchases increased temporarily restricted net assets, as did the donor-restricted investment income on those funds 5) Accounts receivable Unrestricted revenues — tuition and fees To record tuition and fees Tuition reduction: unrestricted—student aid Accounts receivable To record tuition reductions Expenses—educational and general—institutional support Allowance for uncollectible accounts To record allowance for uncollectible accounts 6) Cash 735,000 735,000 65,000 65,000 7,350 7,350 3,000,000 Temporarily restricted contribution — tobacco research To record receipt of restricted grant 3,000,000 Expenses — tobacco research Cash To record expenses for tobacco research 1,200,000 Temporarily restricted contribution — tobacco research Contribution (unrestricted) To reclassify the contribution as unrestricted 1,200,000 1,200,000 © 2011 Pearson Education, Inc publishing as Prentice Hall 1,200,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-6 PROBLEMS P22-1 Voluntary Health and Welfare Organization gift a Cash Unrestricted support—contributions To record cash contribution received b Expenses (by function) Cash To record operating expenses paid Private University Gift a Cash 5,000,000 5,000,000 2,300,000 2,300,000 5,000,000 Restricted support—contributions — research To record restricted cash gift received b 5,000,000 Expenses—research Cash To record research expenses 2,300,000 Temporarily restricted net assets— reclassifications out Unrestricted net assets — reclassifications in To record release of assets from temporary restrictions 2,300,000 Local Hospital Gift a Cash 2,300,000 2,300,000 5,000,000 Restricted support — contributions To record cash gift restricted for capital additions b 5,000,000 Construction in progress Cash To record construction costs incurred 2,300,000 Temporarily restricted net assets — reclassifications out Unrestricted net assets — reclassifications in To record release of assets from temporary restrictions 2,300,000 2,300,000 2,300,000 P22-2 Payment of salaries Expenses — management and general 2,920 Expenses — community service 11,680 Cash To record payment of salaries allocated 20% to management and general services and 80% to program services Donated services Expenses — management and general Unrestricted support — donated services To record donated services 14,600 900 © 2011 Pearson Education, Inc publishing as Prentice Hall 900 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-7 Donated facilities Expenses — management and general 600 Expenses — community service 2,400 Unrestricted support — donated facilities To record allocation of donated facilities 20% to management and general and 80% to program services Payment of utilities Expenses — management and general 360 Expenses — community service 1,440 Cash To record payment of utilities allocated 20% to management and general and 80% to program services Purchase and use of supplies Supplies inventory Cash To record purchase of supplies 3,000 1,800 300 300 Expenses — management and general 60 Expenses — community service 240 Supplies inventory To record allocation of supplies expense 20% to management and general and 80% to program services Administration and other expenses Expenses — management and general 1,200 Expenses — community service 4,800 Cash To record payment of recordkeeping expenses allocated 20% to management and general and 80% to program services 300 6,000 Gifts in kind are reported as contributions since Share Shop has discretion over their distribution and a fair value is determinable When gifts in kind are distributed to recipients, they are recorded as program expenses If fair value cannot be determined, neither the contribution nor distribution would be recorded Inventory — nonperishable food Inventory — household items Unrestricted support — donated assets To record receipt of donated food and household items 60,000 40,000 Expenses — community service Inventory — nonperishable food Inventory — household items To record distribution of food and household items to qualified recipients 65,000 Cash contributions Cash Unrestricted support — contributions To record receipt of cash contributions 100,000 45,000 20,000 10,000 © 2011 Pearson Education, Inc publishing as Prentice Hall 10,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-8 Unconditional promises to give (solution assumes all pledges were due in 2011) Pledges receivable Unrestricted support — contributions Allowance for uncollectible pledges To record pledges received and 10% estimated uncollectible pledges 20,000 18,000 2,000 Cash 15,000 Unrestricted support — contributions 3,000 Allowance for uncollectible pledges 1,000 Contributions receivable Temporarily restricted support — contributions To record receipt of cash, adjust the allowance account for the overstatement of uncollected pledges, and reclassify uncollected support Grant Grant receivable 15,000 4,000 25,000 Temporarily restricted support — grant To accrue grant from Town of North Ptarmigan due in 2012 © 2011 Pearson Education, Inc publishing as Prentice Hall 25,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-9 P22-3 Hometown Memorial Hospital Statement of Operations For the year ended December 31, 2011 Unrestricted revenues, gains, and other support: Net patient service revenues ($2,500,000 - $400,000 - $100,000) Other operating revenues ($300,000 + $50,000) Income from investment in affiliate Investment income Unrestricted contributions Net assets released from restrictions for operating purposes Total operating revenues, gains, and net assets released from restrictions for operations Expenses and Losses: Nursing services Other professional services General services Administrative services Uncollectible accounts Loss on sale of fixed assets Depreciation Total expenses and losses Excess of revenues, gains, and other support over expenses and losses Net assets released from restrictions for acquisitions of fixed assets Increase in unrestricted net assets © 2011 Pearson Education, Inc publishing as Prentice Hall $2,000,000 350,000 80,000 270,000 200,000 80,000 2,980,000 1,000,000 500,000 290,000 310,000 150,000 50,000 200,000 2,500,000 480,000 97,000 $ 577,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-10 P22-4 Accounts receivable Unrestricted revenues — tuition and fees To record tuition and fees Tuition reduction: unrestricted—student aid Accounts receivable To record tuition reductions Cash 2,000,000 2,000,000 120,000 120,000 1,100,000 Unrestricted revenues — state appropriation Unrestricted revenues — local appropriation To record governmental appropriations Cash 800,000 300,000 500,000 Revenue – auxiliary operations To record auxiliary revenues Expenses – auxiliary operations Cash To record auxiliary expenses Cash 500,000 480,000 480,000 90,000 Unrestricted revenues—contributions Temporarily restricted revenues— contributions To record contributions received Cash 20,000 70,000 380,000 Unrestricted revenues—gifts and grants Temporarily restricted revenues—Gifts and grants To record gifts and grants received Expenses – educational and general - instruction Expenses – educational and general - research Expenses – educational and general – student services Expenses – educational and general – operation of plant Expenses – educational and general – student aid Cash (or payables) To record educational and general expenses Temporarily restricted net assets — reclassifications out Unrestricted net assets — reclassifications in To reclassify temporarily restricted assets (assumes all scholarships and research were from temporarily restricted funds) 80,000 300,000 2,100,000 100,000 120,000 180,000 200,000 2,700,000 300,000 © 2011 Pearson Education, Inc publishing as Prentice Hall 300,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-11 Nongovernmental NFP College Statement of Activities for the year 200X Revenues Tuition and fees (net) $1,880,000 State appropriations 1,100,000 Federal grants and contracts Private grants and gifts 80,000 Endowment income 20,000 Sales and services of educational departments Sales and services of auxiliary enterprises Total current revenues 500,000 $3,580,000 Total net assets released from restrictions for operations Total revenues and reclassifications 300,000 $ 3,880,000 Expenses Educational and general Instruction 2,100,000 Research 100,000 Student services 120,000 Operation and maintenance of plant 180,000 Student aid 200,000 Auxiliary operations Total operating expenses Net increase in unrestricted net assets 480,000 3,180,000 700,000 Changes in temporarily restricted net assets: Federal grants and contracts Private grants and gifts Endowment income Net assets released from restrictions* Increase in temporarily restricted net assets Change in net assets Net assets, beginning Net assets, ending 300,000 70,000 -300,000 70,000 770,000 $ 770,000 *assumes all scholarships and research were from temporarily restricted funds © 2011 Pearson Education, Inc publishing as Prentice Hall Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-12 P22-5 Community Society Statement of Activities For the Year Ended December 31, 2011 Changes in Unrestricted Net Assets Revenues and gains Contributions Membership dues Investment income Total revenue and gains Net assets released from restrictions: For research For fixed assets Increase in unrestricted net assets Expenses: Program Services: Research Education Total Program Services 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 ($438,000 + $425,000 - $16,000) 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 $3,000,000 400,000 83,000 3,483,000 $ 500,000 3,789,000 4,289,000 7,772,000 2,300,000 300,000 2,600,000 117,000 223,000 340,000 2,940,000 4,832,000 847,000 22,500 5,000 (4,289,000) (3,414,500) 37,000 37,000 Increase in net assets Net assets, beginning Net assets, ending © 2011 Pearson Education, Inc publishing as Prentice Hall 1,454,500 5,475,000 $6,929,500 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-13 P22-6 Tuition and fees receivable Revenues — educational and general To record tuition revenues Expenditures — scholarships Expenditures — bad debts Tuition and fees receivable Allowance for uncollectible accounts To record scholarships and estimated bad debts Cash 6,000,000 6,000,000 200,000 100,000 200,000 100,000 4,800,000 Tuition and fees receivable To record collections of receivables Cash 4,800,000 800,000 Revenues — sales and services of auxiliary enterprises To record sales of bookstore 800,000 Expenditures — educational and general Expenditures — auxiliary enterprises Cash To record payroll 2,430,000 170,000 Mortgage payable Cash To record mortgage payment 1,000,000 2,600,000 1,000,000 Mortgage payable Interest expense Cash To record debt service payment 360,000 600,000 Cash Temporarily restricted revenues— contributions To record restricted gift 440,000 Expenditures — instruction Cash To record expenditures for program 237,000 Temporarily restricted net assets— reclassifications out Unrestricted net assets—reclassifications in To reclassify revenues equal to qualifying expenditures 237,000 Temporarily restricted net assets— reclassifications out Unrestricted net assets—reclassifications in To reclassify revenues equal to qualifying expenditures 44,000 Equipment 44,000 960,000 440,000 237,000 237,000 44,000 Cash To record equipment purchased © 2011 Pearson Education, Inc publishing as Prentice Hall 44,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-14 P22-7 Temporarily restricted net assets — reclassifications out Unrestricted net assets — reclassifications in To record satisfaction of time restriction 20,000 Pledges receivable Cash Allowance for uncollectible pledges Unrestricted support — contributions* To record contributions 65,000 35,000 * 3,250 96,750 To the extent that pledges are not collected by year end a time restriction will be implied An adjusting entry reducing unrestricted support and recording temporarily restricted support for the net realizable value of the uncollected pledges will be required Inventory of materials Unrestricted support — donated materials To record donations of food 150,000 Expenses — Program services Inventory of materials To record expenses for food used 151,200 Inventory of supplies Cash To record purchases of supplies Expenses — management and general Expenses — Program services* Inventory of supplies Cash To record expenses incurred * ($8,000 + 70,000 + [27,000 – 5,000 account increase]) 20,000 Pledges receivable Allowance for uncollectible pledges Temporarily restricted support — contributions To record restricted pledges 150,000 151,200 27,000 27,000 10,000 100,000 22,000 88,000 300,000 15,000 285,000 Solution P22-8 Patient accounts receivable Patient service revenues—unrestricted To record patient service charges at established rates Contractual adjustments Patient accounts receivable To record contractual adjustments Bad debt expense Allowance for uncollectible Patient accounts receivable To establish an allowance for uncollectible receivables 102,300 102,300 30,000 30,000 2,046 © 2011 Pearson Education, Inc publishing as Prentice Hall 2,046 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-15 Cash 54,000 Premium Revenue — unrestricted To record premium revenue from capitation agreements Cash 54,000 16,000 Other operating revenue - unrestricted To record pharmacy revenue 16,000 Nursing services expense Other professional services General services Fiscal services Administrative services Cash To record salaries and wages 35,000 11,000 10,000 2,000 20,000 Cash 12,000 78,000 Grant revenue - restricted To record receipt of restricted grant funds Supplies inventory Cash (or accounts payable) To record the purchase of nursing supplies Supplies expense Supplies inventory To record the use of nursing supplies 12,000 13,000 13,000 6,700 © 2011 Pearson Education, Inc publishing as Prentice Hall 6,700 ... model features for internal accounting and control purposes 18 Much guidance comes from the Financial Accounting and Reporting Manual, an accounting manual prepared by the National Association... as Prentice Hall 10,000 Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-8 Unconditional promises to give (solution assumes all pledges were due in 2011) Pledges...Find more slides, ebooks, solution manual and testbank on www.downloadslide.com 22-2 profit entity has little or no discretion