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Ch15-17 Student: _ A state has the obligation to monitor and regulate a not-for-profit (NPO) organization because it gave the NPO legal life through the not-for-profit corporation laws True The federal government's primary objective in regulating not-for-profit organizations through the income tax laws is to limit the number of exempt organizations that operate at any one point in time True False Board members of a not-for-profit organization have a fiduciary responsibility to provide fiscal guidance and ongoing governance over the not-for-profit organization to ensure that its exempt mission is carried out as described in the incorporating documents and exempt application True False If a tax-exempt organization dissolves and goes out of business, it must distribute its assets to another tax-exempt organization True False Intermediate sanctions are often imposed by the Internal Revenue Service in addition to the revoking tax-exempt status for organizations that confer excessive economic benefits on persons with substantial influence over the organization True False The unrelated business income tax is a significant penalty and therefore should be of concern to tax-exempt organizations True False The not-for-profit organization applying for tax-exempt status determines the appropriate subsection under IRC Sec 501 for which it wants to be considered and the Internal Revenue Services then approves or does not approve the application True False Not-for-profit corporations cannot lobby or attempt to influence legislation or politicians True False False All officers of a not-for-profit organization have the same responsibilities to the organization and its constituents True False 10 Not-for-profit organizations are so diverse in nature that it is not feasible to find benchmarks with which to compare their financial and operating performance True False 11 Performance measures that can be used to evaluate NPOs include percentage of total expenses spent on the programs versus on supporting the programs) and total dollars raised for fund-raising dollars spent True False 12 Not-for-profit organizations risk loss of their tax-exempt status if they engage in any political activity True False 13 "Excess benefit transactions" are those in which persons who have substantial influence over the not-for-profit organization engage in transactions that result in economic benefits to them that are excessive, such as unreasonable compensation, sale of assets at bargain prices, and lease arrangements True False 14 One of the limitations of financial ratio analysis for not-for-profit organizations is that donors may incorrectly assume that there are federal or state laws that govern the percentage of annual revenues that a charity must spend on its programs True False 15 The ratio unrestricted net assets as a percent of operating expenses is helpful in determining if the not-for-profit organization can cover its debt service expense True False 16 Which of the following is a not a true statement about tax-exempt organizations? A They must be organized to serve the charitable needs of the public at large B They must first become a not-for-profit corporation or charitable trust C They are permitted to some political lobbying if guidelines are met D Their unrelated business income is taxed at corporate income tax rates 17 Tax-exempt organizations must complete a Form 990 and send it to the IRS A Only if they have unrelated business income B If they are nongovernmental (and not a church) and their gross receipts are greater than $25,000 C Whether they are governmental or nongovernmental D All of the above are true statements 18 Which of the following not-for-profit organizations is most likely to be tax-exempt under IRC Sec 501(c)(3)? A Beta Kappa Alpha Sorority B Peaceful Dreams Cemetery Association C Regional Association of Tree Trimmers D Survivors of Breast Cancer Club 19 Which of the following is a reason why an NPO might fail to qualify for tax-exempt status? A It is operated primarily for the benefit of its members B Its officers are paid excessive wages C Its primary purpose is to promote the passage of legislation favorable to institutions of higher education D It has unrelated business income 20 The Internal Revenue Service may impose intermediate sanctions on a tax-exempt organization that gives an officer A Excessive compensation B More than the fair rental value for property owned by the officer C A bargain on the sale of assets D All of the above are transactions that may result in intermediate sanctions 21 The income most likely to be considered unrelated business income of a human service organization that provides immunizations to children in the community is A Rental of extra space in the building B Regular sale of sweatshirts with the organization's logo on it at a price considerably above cost C Interest and dividend income on investments D Gain on the sale of equipment no longer needed by the organization 22 The term that means information skewed toward a particular belief with a tendency to have little or no factual basis is A Political influence B Legislation C Propaganda D Lobbying 23 A tax-exempt organization that receives its support primarily from a large number of individuals or corporations and a relatively small amount from investment income is called a A Public charity B Private foundation C Public foundation D Voluntary health and welfare organization 24 The incorporating documents that have an external focus and describe the purpose of the organization without being too restrictive are called A By-laws B IRS Form 990 C Articles of incorporation D Minutes of the Board meetings 25 The incorporating documents that have an internal focus and describe the functional rules of the organization A IRS Form 990 B By-laws C Minutes of the Board meetings D Articles of incorporation 26 A good measure of whether the NPO is spending too much on overhead, such as general and administrative expenses, is A Percentage of unrestricted net assets to operating expenses B Current ratio C Total revenues divided by total expenses D Percentage of total expenses spent on the program function as opposed to supporting the programs 27 A good measure of whether the NPO is a "going concern" and can sustain its operations into the future is A Total revenues divided by total expenses B Percentage of unrestricted net assets to operating expenses C Percentage of total expenses spent on the program function as opposed to support function D Both A and B 28 A good measure of whether the NPO is "liquid" and can meet its short-term obligations is A Percentage of total expenses spent on the program function as opposed to support function B Total revenues divided by total expenses C Current assets divided by current liabilities D Percentage of unrestricted net assets to operating expenses 29 A good measure of whether the NPO is efficient in its fund-raising efforts is A Public support as a percentage of fund-raising expenses B Current ratio C Total revenues divided by total expenses D Percentage of total expenses spent on the program function as opposed to support function 30 Nongovernmental (private) colleges and universities follow FASB standards; governmental (public) colleges and universities should follow GASB standards True False 31 Public colleges and universities are considered general purpose governments and are expected to be engaged in governmental activities only for purposes of their stand-alone reports True False 32 Revenues and expenses of both public and private colleges and universities are accounted for on the accrual basis True False 33 A gift designated by the board of regents of a public university for agricultural research would be recorded as an unrestricted contribution True False 34 Contributions or grants restricted by an external donor for a particular operating purpose would be reported as increases to restricted fund balances by a public college or university and as an addition to temporarily restricted net assets by a private college or university True False 35 College summer school revenues of a public university should be recognized totally within the fiscal year in which the term is predominantly conducted True False 36 Depreciation of a residence hall should be reported as an expense in a private college's operating statement but might not be reported in the operating statement of a public college True False 37 An unrestricted endowment established by the governing board of a public college is considered a permanent fund and would be reported as unrestricted net assets True False 38 Earnings on endowment investments may increase unrestricted or restricted net assets, or both True False 39 A receipt of $500,000 by a private college to be used to endow a "chaired" professorship in accounting would be recorded as an increase in temporarily restricted net assets True False 40 The sale of bonds for construction of a college residence hall would always result in a credit to proceeds of bonds in the accounts True False 41 A statement of cash flows is required by GAAP for all colleges and universities True False 42 Private colleges and universities must provide aggregated entity-wide financial statements prepared in conformity with FASB Statement No 117 Consequently, private colleges and universities no longer utilize fund accounting True False 43 Public colleges and universities that use business-type reporting must present segment information in the notes to the financial statements True False 44 Which of the following statements is true regarding generally accepted accounting principles (GAAP) for colleges and universities? A The FASB has set standards for private colleges and universities from the time of its inception in 1974 B The National Association of Colleges and University Business Officers (NACUBO) only recently began to play a role in establishing accounting and reporting standards for colleges and universities C Public and private colleges and universities must comply with the 1973 AICPA Audit and Accounting Guide Audits of Colleges and Universities for guidance in financial reporting D The GASB is responsible for establishing GAAP for public colleges and universities 45 What type of college or university should report expenses by functional classification? A Both private and public colleges and universities B Private colleges and universities C Public colleges and universities D Neither private nor public colleges and universities 46 If a public college or university has an independent not-for-profit fund-raising foundation, then the financial position and activity of the foundation should be A Disclosed in the notes to the university's financial statements B Consolidated with the university's financial information C It depends on the degree of control, economic interest, and influence the university has over the foundation D Considered a component unit of the university 47 GASBS 34/35 accounting and reporting standards applicable to public colleges and universities A Are the same as FASB standards to permit consistent reporting B Permit public colleges and universities to use the AICPA model which differs substantially from the reporting model used by private colleges and universities subject to FASB jurisdiction C Permit public colleges and universities to optionally follow FASB standards D None of the above is correct regarding GASB standards 48 The cost of professors' salaries would normally be recorded in which functional area? A Research B Instruction C Service D Institutional support 49 Cactus College, a small private college, received a research grant from NACUBO to study whether service efforts and accomplishments measures improve institutional performance Under the provisions of SFAS No 116 the grant would be reported as an increase in: A Unrestricted net assets B The fund balance of restricted current funds C Permanently restricted net assets D Temporarily restricted net assets 50 Which of the following receipts may properly be accounted for as an increase in unrestricted net assets? A Student tuition and fees B Gift from an alumnus for a new college of business building C Federal grant for genetic research D Acceptance of assets the income from which will be paid to the donor 51 Economic rationality would argue against a university accepting a split interest agreement in which a fixed annuity is payable to the donor if: A The donor has attached conditions to the gift B The university has no immediate need for the assets C The sum of future annuity payments plus interest thereon exceeds the fair market value of the assets D The present value of the future annuity payments and other liabilities exceed the fair market value of the assets 52 FASB standards applicable to private colleges and universities require that their financial statements A Provide separate columns for each fund group B Provide aggregated financial information on an entity-wide basis C Include a statement of changes in fund balances D Include a statement of cash flows prepared using the direct method 53 Which of the following items would not be reported in the section on revenues and gains in the statement of activities of a private college or university? A Student tuition and fees B Gifts and donations C Net assets released from restriction D None of the above; that is, all are reported as a revenue, support, or gain 54 Which of the following is not a condition that would permit a public college or private college or university to avoid accounting recognition of the value of its collections of art, historical treasures, and similar assets? A The assets are held for public exhibition, education, or research in furtherance of public service rather than financial gain B The assets are protected, kept unencumbered, cared for, and preserved C The assets are subject to an organizational policy that ensures the proceeds of sales of collectible assets are used for operations of the organization D None of above; all three items are conditions that will avoid accounting recognition 55 Which of the following is required as part of a complete set of financial statements for a private college or university? A Statement of changes in financial position B Statement of revenues, expenses, and changes in net assets C Statement of activities D All of these statements are required 56 Assets that the governing board of a public university, rather than a donor or other outside agency, has determined are to be retained and invested for future scholarships would be reported as A An endowment B Unrestricted net assets C Deposits held in custody for others D Restricted net assets 57 Which of the following statements usually will not be included in the annual financial report of a governmentally owned public university engaged only in business-type activities? A Statement of cash flows B Statement of net assets C Statement of activities D Statement of revenues, expenses, and changes in net assets 58 Pinewood College, a public college, has a 10-week summer session that starts on June 25, 2008, so that one week is held during FY 2008 and the other nine weeks meet during FY 2009 Tuition and fees in the amount of $900,000 were collected from students for classes to be conducted in this session What amount should Pinewood College recognize as unrestricted revenue in each of the years ended June 30, 2008 and June 30, 2009 A Item A B Item B C Item C D Item D 59 Tuition scholarships for which there is no intention of collection from the student should be classified by a private university as A Revenues and expenditures B A reduction of gross revenue to arrive at net revenue C Revenues and expenses D Any of the above 60 An alumnus donates securities to St Aloysius College, a private college, and stipulates that the principal be held in perpetuity and income from the securities be used for faculty travel Dividends received from the securities should be recognized as increases in: A Endowments B Unrestricted net assets C Permanently restricted net assets D Temporarily restricted net assets 61 During the years ended June 30, 2008 and 2009, Jasper University, a public university, conducted a cancer research project financed by a $1,000,000 gift from an alumnus The entire amount was pledged by the donor on July 10, 2007, although she paid only $200,000 at that date The gift was restricted to the financing of this particular research project During the two-year research period, Jasper's related gift receipts and research expenditures were as follows: How much gift revenue should Jasper University report for the year ended June 30, 2009? A $1,000,000 B $900,000 C $800,000 D $0 62 Are public and private colleges and universities required to report depreciation expense in their financial statements? A Public: No; Private: No B Public: Yes; Private: No C Public: Yes; Private: Yes D Public: No; Private: Yes 63 During the year ended June 30, 2009, Hopkins College, a private college, received a federal government grant of $800,000 for research on the role of music in improving math skills for students Expenses for this research amounted to $100,000 during the same year Under applicable FASB standards, assuming this is a nonexchange transaction, Hopkins College would report what amount(s) as revenues or support for the year ended June 30, 2009? A Item A B Item B C Item C D Item D 64 Which of the following is not a classification of revenues for a college or university as provided by the National Association of College and University Business Officers (NACUBO)? A Private gifts B Federal appropriations C Sales and services of educational activities D All of the above are included in NACUBO's suggested chart of accounts 65 State appropriations received by a public university are classified as which of the following on the statement of revenues, expenses, and changes in net assets? A Nonoperating revenue B Operating revenue C Other financing source D Increase in unrestricted net assets 66 Which of the following is a typical classification of a functional expense in a college or university? A Recreation and culture B Public safety C Academic support D Depreciation 67 Which of the following measures may be useful to decision makers evaluating the financial condition of a college or university? A Number of graduates B Faculty productivity C Current ratio D All of the above 68 Financial reporting standards for all government owned and operated hospitals would be found in GASB pronouncements True False 69 Patient service revenues and related receivables include charges for charity care services True False 70 In accounting for health care entities, the bad debt estimate should always be recorded as a revenue deduction, rather than as an expense True False 71 Investor-owned health care entities recognize all revenues and expenses on the accrual basis of accounting, whereas all governmentally owned health care entities recognize revenues and expenditures on the modified accrual basis True False 72 An expense for diabetes research that was in accordance with the stipulation of the donor would be recorded as a decrease of unrestricted net assets of a not-for-profit health care organization True False 73 Long-term debt related to a construction project in a public hospital that follows business-type accounting should be recorded in the capital projects fund True False 74 Health care is provided by organizations that may be for-profit, not-for-profit, or governmental; although roughly half of all health care provided by not-for-profit entities True False 75 In a public hospital, when resources restricted by donors for the purchase of capital assets are expended for that purpose in a public hospital, then the equity account called "net assets invested in capital assets" is increased True False 76 Endowment income expended during the current period for purposes specified by the donor would be recorded as a decrease in temporarily restricted net assets using the account "net assets released from restrictions." True False 77 Assets set aside by the governing board for the eventual construction of a hospital addition should be recorded as "assets limited as to use" True False 78 Equipment purchased from the restricted resources of a private hospital should not be depreciated True False 10 48 The cost of professors' salaries would normally be recorded in which functional area? A B C D Research Instruction Service Institutional support Content: Concept Level: Medium Wilson - Chapter 16 #19 49 Cactus College, a small private college, received a research grant from NACUBO to study whether service efforts and accomplishments measures improve institutional performance Under the provisions of SFAS No 116 the grant would be reported as an increase in: A B C D Unrestricted net assets The fund balance of restricted current funds Permanently restricted net assets Temporarily restricted net assets Content: Concept Level: Medium Wilson - Chapter 16 #20 50 Which of the following receipts may properly be accounted for as an increase in unrestricted net assets? A B C D Student tuition and fees Gift from an alumnus for a new college of business building Federal grant for genetic research Acceptance of assets the income from which will be paid to the donor Content: Concept Level: Medium Wilson - Chapter 16 #21 51 Economic rationality would argue against a university accepting a split interest agreement in which a fixed annuity is payable to the donor if: A The donor has attached conditions to the gift B The university has no immediate need for the assets C The sum of future annuity payments plus interest thereon exceeds the fair market value of the assets D The present value of the future annuity payments and other liabilities exceed the fair market value of the assets Content: Concept Level: Medium Wilson - Chapter 16 #22 52 FASB standards applicable to private colleges and universities require that their financial statements A B C D Provide separate columns for each fund group Provide aggregated financial information on an entity-wide basis Include a statement of changes in fund balances Include a statement of cash flows prepared using the direct method Content: Concept Level: Medium Wilson - Chapter 16 #23 12 53 Which of the following items would not be reported in the section on revenues and gains in the statement of activities of a private college or university? A B C D Student tuition and fees Gifts and donations Net assets released from restriction None of the above; that is, all are reported as a revenue, support, or gain Content: Concept Level: Medium Wilson - Chapter 16 #24 54 Which of the following is not a condition that would permit a public college or private college or university to avoid accounting recognition of the value of its collections of art, historical treasures, and similar assets? A The assets are held for public exhibition, education, or research in furtherance of public service rather than financial gain B The assets are protected, kept unencumbered, cared for, and preserved C The assets are subject to an organizational policy that ensures the proceeds of sales of collectible assets are used for operations of the organization D None of above; all three items are conditions that will avoid accounting recognition Content: Concept Level: Medium Wilson - Chapter 16 #25 55 Which of the following is required as part of a complete set of financial statements for a private college or university? A B C D Statement of changes in financial position Statement of revenues, expenses, and changes in net assets Statement of activities All of these statements are required Content: Concept Level: Medium Wilson - Chapter 16 #26 56 Assets that the governing board of a public university, rather than a donor or other outside agency, has determined are to be retained and invested for future scholarships would be reported as A B C D An endowment Unrestricted net assets Deposits held in custody for others Restricted net assets Content: Concept Level: Medium Wilson - Chapter 16 #27 57 Which of the following statements usually will not be included in the annual financial report of a governmentally owned public university engaged only in business-type activities? A B C D Statement of cash flows Statement of net assets Statement of activities Statement of revenues, expenses, and changes in net assets Content: Concept Level: Medium Wilson - Chapter 16 #28 13 58 Pinewood College, a public college, has a 10-week summer session that starts on June 25, 2008, so that one week is held during FY 2008 and the other nine weeks meet during FY 2009 Tuition and fees in the amount of $900,000 were collected from students for classes to be conducted in this session What amount should Pinewood College recognize as unrestricted revenue in each of the years ended June 30, 2008 and June 30, 2009 A B C D Item A Item B Item C Item D Wilson - Chapter 16 #29 59 Tuition scholarships for which there is no intention of collection from the student should be classified by a private university as A B C D Revenues and expenditures A reduction of gross revenue to arrive at net revenue Revenues and expenses Any of the above Content: Concept Level: Medium Wilson - Chapter 16 #30 60 An alumnus donates securities to St Aloysius College, a private college, and stipulates that the principal be held in perpetuity and income from the securities be used for faculty travel Dividends received from the securities should be recognized as increases in: A B C D Endowments Unrestricted net assets Permanently restricted net assets Temporarily restricted net assets Content: Concept Level: Medium Wilson - Chapter 16 #31 14 61 During the years ended June 30, 2008 and 2009, Jasper University, a public university, conducted a cancer research project financed by a $1,000,000 gift from an alumnus The entire amount was pledged by the donor on July 10, 2007, although she paid only $200,000 at that date The gift was restricted to the financing of this particular research project During the two-year research period, Jasper's related gift receipts and research expenditures were as follows: How much gift revenue should Jasper University report for the year ended June 30, 2009? A B C D $1,000,000 $900,000 $800,000 $0 Content: Concept Level: Medium Wilson - Chapter 16 #32 62 Are public and private colleges and universities required to report depreciation expense in their financial statements? A B C D Public: No; Private: No Public: Yes; Private: No Public: Yes; Private: Yes Public: No; Private: Yes Content: Concept Level: Medium Wilson - Chapter 16 #33 63 During the year ended June 30, 2009, Hopkins College, a private college, received a federal government grant of $800,000 for research on the role of music in improving math skills for students Expenses for this research amounted to $100,000 during the same year Under applicable FASB standards, assuming this is a nonexchange transaction, Hopkins College would report what amount(s) as revenues or support for the year ended June 30, 2009? A B C D Item A Item B Item C Item D Content: Concept Level: Medium Wilson - Chapter 16 #34 15 64 Which of the following is not a classification of revenues for a college or university as provided by the National Association of College and University Business Officers (NACUBO)? A B C D Private gifts Federal appropriations Sales and services of educational activities All of the above are included in NACUBO's suggested chart of accounts Content: Concept Level: Easy Wilson - Chapter 16 #35 65 State appropriations received by a public university are classified as which of the following on the statement of revenues, expenses, and changes in net assets? A B C D Nonoperating revenue Operating revenue Other financing source Increase in unrestricted net assets Content: Concept Level: Medium Wilson - Chapter 16 #36 66 Which of the following is a typical classification of a functional expense in a college or university? A B C D Recreation and culture Public safety Academic support Depreciation Content: Concept Level: Medium Wilson - Chapter 16 #37 67 Which of the following measures may be useful to decision makers evaluating the financial condition of a college or university? A B C D Number of graduates Faculty productivity Current ratio All of the above Content: Concept Level: Medium Wilson - Chapter 16 #38 68 Financial reporting standards for all government owned and operated hospitals would be found in GASB pronouncements TRUE Public hospitals owned and operated by governments would follow GASB standards as well as the AICPA Audit and Accounting Guide Health Care Organizations Public hospitals would most likely be considered special purpose governments engaged in business-type activities, and consequently follow GASBS 34 Content: Concept Level: Easy Wilson - Chapter 17 #1 16 69 Patient service revenues and related receivables include charges for charity care services FALSE The AICPA Audit and Accounting Guide Health Care Organizations specifically requires that charity care services not be included in patient service revenues and related receivables because there is no intention to collect Content: Concept Level: Medium Wilson - Chapter 17 #2 70 In accounting for health care entities, the bad debt estimate should always be recorded as a revenue deduction, rather than as an expense FALSE The AICPA Audit and Accounting Guide Health Care Organizations makes clear that the provision for bad debts or bad debt expense be reported as an expense and not as a deduction from gross revenue in arriving at net patient revenue; however, public health care entities that follow business-type accounting practices follow GASB standards applicable to proprietary funds Content: Concept Level: Medium Wilson - Chapter 17 #3 71 Investor-owned health care entities recognize all revenues and expenses on the accrual basis of accounting, whereas all governmentally owned health care entities recognize revenues and expenditures on the modified accrual basis FALSE Some governmental health care entities that are either captive parts of general purpose governments or that are directly supported by taxes follow either governmental fund/activities accounting or both government/business-type accounting The Audit Guide is only applicable to public health care entities that follow business-type accounting Content: Concept Level: Easy Wilson - Chapter 17 #4 72 An expense for diabetes research that was in accordance with the stipulation of the donor would be recorded as a decrease of unrestricted net assets of a not-for-profit health care organization TRUE All expenses in a nongovernmental, not-for-profit organizations, including health care organizations, are reported, as decreases in unrestricted net assets Content: Concept Level: Medium Wilson - Chapter 17 #5 17 73 Long-term debt related to a construction project in a public hospital that follows business-type accounting should be recorded in the capital projects fund FALSE Public health care organizations would report long-term debt as a liability of the entity as a whole in the statement of net assets Content: Concept Level: Easy Wilson - Chapter 17 #6 74 Health care is provided by organizations that may be for-profit, not-for-profit, or governmental; although roughly half of all health care provided by not-for-profit entities TRUE Illustration 17-1 in the text outlines the sponsorship or legal structure of health care organizations as well as the types of services provided Content: Concept Level: Medium Wilson - Chapter 17 #7 75 In a public hospital, when resources restricted by donors for the purchase of capital assets are expended for that purpose in a public hospital, then the equity account called "net assets invested in capital assets" is increased TRUE Public hospitals follow GASBS 34 requires capital assets to be capitalized and reported in the statement of net assets Content: Concept Level: Medium Wilson - Chapter 17 #8 76 Endowment income expended during the current period for purposes specified by the donor would be recorded as a decrease in temporarily restricted net assets using the account "net assets released from restrictions." TRUE A private hospital would show a decrease in temporarily restricted net assets (net assets released from restrictions) and an increase in unrestricted net assets for the amount of the expense with the related expense as a decrease in unrestricted net assets Content: Concept Level: Medium Wilson - Chapter 17 #9 18 77 Assets set aside by the governing board for the eventual construction of a hospital addition should be recorded as "assets limited as to use" TRUE This is one example of assets limited as to use Another is when assets must be set aside by the terms of an external party, such as a fiscal agent for bond repayment, other than a donor or grantor Content: Concept Level: Medium Wilson - Chapter 17 #10 78 Equipment purchased from the restricted resources of a private hospital should not be depreciated FALSE Capital assets in any health care organization (public, private, or for-profit) must be depreciated, strictly following the full accrual basis of accounting Content: Concept Level: Medium Wilson - Chapter 17 #11 79 Continuing care retirement communities (CCRC) provide residential care in a facility, along with some level of long-term medical care that is less intensive that hospital care TRUE This is the definition of CCRCs provided in Chapter 17 Content: Concept Level: Easy Wilson - Chapter 17 #12 80 A health care organization reports its investments at fair value and records any unrealized gains or losses on the statement of operations FALSE The first part of this statement is generally true; however, which securities are marked to fair value and where the unrealized gains and losses are reported depends on whether the organization is a for-profit (see SFAS No 115), a governmental (see GASBS 31), or not-for-profit health care entity (see SFAS No 124) Content: Concept Level: Medium Wilson - Chapter 17 #13 19 81 Contingencies that are unique to health care providers arise from malpractice claims, risk contracting, and third-party payor payment programs, obligations to provide uncompensated care, and contractual agreements with physicians TRUE These are some commitments and contingencies likely to be found in health care organizations Content: Concept Level: Medium Wilson - Chapter 17 #14 82 The asset section of the balance sheet will indicate whether the health care organization is for-profit, not-for-profit, or governmental FALSE The equity, not asset, section, of a balance sheet ill provide information to determine the legal structure of a health care organization A for-profit organization will have capital stock and retained earnings in its equity section of the balance sheet; a not-for-profit organization will report net assets classified as to unrestricted, temporarily restricted or permanently restricted; and a governmental health care organization (according to GASBS 34) will display net assets invested in capital assets, net of related debt; restricted, or unrestricted Content: Concept Level: Medium Wilson - Chapter 17 #15 83 A gift to a hospital given with the stipulation that the principal be maintained intact for ten years and then it may be expended would be an example of a permanent endowment FALSE This is an example of a term endowment not a permanent or pure endowment in which the principal is to be maintained intact in perpetuity Content: Concept Level: Easy Wilson - Chapter 17 #16 84 Health care organizations often collaborate and combine with related entities in providing health care services TRUE For a variety of reasons, health care organizations will form partnerships and working relationships with other entities Examples include, separate fund-raising and medical research foundations, and obligated groups (e.g., to obtain financing) Content: Concept Level: Medium Wilson - Chapter 17 #17 20 85 The goal of financial and operational analysis of a health care organization is to determine if the entity is profitable FALSE The goal of financial and operational analysis depends on the decision maker doing the analysis For example, a bond holder will assess the organization's liquidity or ability to repay debt, the third party payor may be interested in pricing strategies, management may evaluate productivity and efficiency, and patients are interested in the quality of care Content: Concept Level: Easy Wilson - Chapter 17 #18 86 The required financial statements for a not-for-profit hospital are a balance sheet, statement of revenues and expenses of the General Fund, a statement of changes in fund balances, and a statement of cash flows of the General Fund FALSE Not-for-profit health care organizations are required to present a balance sheet, statement of operations, statement of changes in equity, and a statement of cash flows, as well as notes to the financial statements for the entity as a whole Content: Concept Level: Easy Wilson - Chapter 17 #19 87 An appropriate performance indicator for a not-for-profit hospital is the excess of revenues over expenses TRUE Other performance indicators described in the AICPA Audit and Accounting Guide Health Care Organizations are revenues and gains over expenses and losses, earned income, and performance earnings Content: Concept Level: Easy Wilson - Chapter 17 #20 88 Which statement is false regarding generally accepted accounting principles (GAAP) applicable to health care organizations? A Private hospitals follow guidance from the GASB B Public health care organizations follow guidance from the GASB C The AICPA Audit and Accounting Guide Health Care Organizations provides guidance for public, private, and for-profit health care entities D All of these statements are true Content: Concept Level: Medium Wilson - Chapter 17 #21 21 89 The AICPA Audit and Accounting Guide Health Care Organizations requires that the following statements be prepared for health care organizations: A Balance sheet, statement of activities, statement of changes in equity, statement of cash flows B Balance sheet, statement of revenues and expenses, statement of changes in equity, statement of cash flows C Balance sheet, statement of operations, statement of changes in equity, statement of cash flows D Balance sheet, statement of operations, statement of changes in equity, statement of cash flows, statement of functional expenses Content: Concept Level: Easy Wilson - Chapter 17 #22 90 If the equity section of the balance sheet is comprised of unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets, then the health care organization is A B C D Public, governmental Private, nongovernmental Commercial or proprietary Cannot be determined Content: Concept Level: Medium Wilson - Chapter 17 #23 91 Contractual adjustments that arise from differences between the gross charge for patient services and the amount paid by a third party payor are reported as A B C D Bad debt expense Disclosures in the notes to the financial statements It depends on how material the differences are Deductions from gross patient revenue in arriving at net patient revenue Content: Concept Level: Medium Wilson - Chapter 17 #24 92 Which of the following statements is true about diagnosis-related groups (DRGs)? A DRGs are the basis for a cost accounting method that groups costs together by departments performing the services B The federal Medicare system of retroactive payment for services depends on DRGs C A DRG is a case-mix classification scheme that is used to determine the payment provided to the hospital for inpatient services, regardless of how much the hospital spends to treat a patient D None of the above is a true statement Content: Concept Level: Medium Wilson - Chapter 17 #25 93 Assets whose use is limited by contracts or agreements with outside parties other than donors or grantors are labeled A B C D Assets limited as to use Designated assets Temporarily restricted net assets Restricted assets Content: Concept Level: Medium Wilson - Chapter 17 #26 22 94 The primary source of revenue for hospitals is A B C D Nonexchange transactions, such as contributions Exchange transactions, such as fees for services Investment income Capitation fees from health maintenance organizations Content: Concept Level: Easy Wilson - Chapter 17 #27 95 A contribution that is restricted by the donor to be held in perpetuity and for which the investment income can be spent at the discretion of a nongovernmental, not-for-profit hospital's governing board, will be reported as an increase to A B C D Endowments Current restricted funds Permanently restricted net assets Specific purpose assets Content: Concept Level: Medium Wilson - Chapter 17 #28 96 Charity service and bad debts in a public hospital that follows business-type accounting are reported A The same, both as deductions from gross patient revenue in arriving at net patient revenue B The same, both are reported as expenses C Differently, charity service is reported as a deduction from gross patient revenue and bad debts are reported as an expense D Differently, charity service is merely disclosed in the notes to the financial statements, and bad debts are reported as a deduction from revenue Content: Concept Wilson - Chapter 17 #29 97 For which of the following volunteers in a hospital is there most likely going to be reported contribution income and salary expense? A B C D Community members who plant flowers on the grounds once a year in the spring Volunteers in the gift shop who work a few hours a day serving customers Nurses who are affiliated with a religious organization and not receive a salary An accountant who is a member of the board of directors Content: Concept Level: Medium Wilson - Chapter 17 #30 98 Which of the following would not be considered a health care organization required to follow guidance in the AICPA Audit and Accounting Guide Health Care Organizations? A B C D A heart research and education foundation A home health agency A hospice A health maintenance organization Content: Concept Level: Easy Wilson - Chapter 17 #31 23 99 Which of the following would usually be considered as temporarily restricted funds in a nongovernmental not-for-profit hospital? A B C D Investment income Donated services by senior citizens A permanent endowment received from the city's leading citizen A research grant from the federal government to study high blood pressure Content: Concept Level: Medium Wilson - Chapter 17 #32 100 Independent health care organizations that associate for the specific purpose of obtaining financing are called a (an) A B C D Consolidation Obligated group Affiliation Joint venture Content: Concept Level: Medium Wilson - Chapter 17 #33 101 Which of the following statements is true? A Hospital accounting and financial reporting is identical to that used by for-profit businesses B Hospitals use modified accrual accounting C Hospitals record revenues based upon full charges and report contractual adjustments as a deduction from revenues D None of the above is true Content: Concept Level: Medium Wilson - Chapter 17 #34 102 Contractual adjustments is properly characterized as A B C D An expense An other financing use A liability A deduction from revenues Content: Concept Level: Medium Wilson - Chapter 17 #35 103 An unrestricted pledge from an annual contributor to a not-for-profit hospital with a December 31 year end that was made in October 2007 to be paid in cash March 2008 would generally be credited to: A B C D Contributions Temporarily Restricted in 2007 Contributions Unrestricted in 2007 Contributions Temporarily Restricted in 2008 Contributions Unrestricted in equal amounts in 2007 and 2008 Content: Concept Level: Medium Wilson - Chapter 17 #36 24 104 Donated medicines that normally would be purchased by a hospital should be recorded at fair market value and should be credited to A B C D Net patient Service Revenue Nonoperating Gains Other Revenue Deferred Revenues Content: Concept Level: Medium Wilson - Chapter 17 #37 105 Under SFAS No 116, pledges received by a nongovernmentally owned not-for-profit hospital during its building construction fund drive, and restricted for that purpose, would be recognized as an increase in temporarily restricted net assets (support) A B C D When the building is constructed When the pledge is made When the pledge is collected During each period of construction using the percentage-of-completion method Content: Concept Level: Medium Wilson - Chapter 17 #38 106 SFAS No 117 requires that interest received on endowment funds be reported in the statement of cash flows as a(n) A B C D Reconciliation of change in net assets to cash Operating activity Investing activity Financing activity Content: Concept Level: Medium Wilson - Chapter 17 #39 107 The statement of activities required by SFAS No 117 for health care entities subject to its jurisdiction must display changes for the period in which of the following categories of net assets? A B C D Unrestricted Temporarily restricted Permanently restricted All of the above Content: Concept Level: Medium Wilson - Chapter 17 #40 108 Which of the following would be an appropriate performance indicator for a not-for-profit health care organization? A B C D Revenues Excess of revenues and gains over expenses and losses Expenses and losses Contributions to long-lived assets Content: Concept Level: Medium Wilson - Chapter 17 #41 25 Ch15-17 Summary Category # of Questions Content: Concept 107 Level: Easy 16 Level: Medium 90 Wilson - Chapter 15 29 Wilson - Chapter 16 38 Wilson - Chapter 17 41 ... definition of excess benefit transactions given in Chapter 15 and described in the Taxpayer Bill of Rights in 19 96 Content: Concept Level: Medium Wilson - Chapter 15 #13 14 One of the limitations of. .. long-lived assets 14 Ch15 -17 Key A state has the obligation to monitor and regulate a not -for- profit (NPO) organization because it gave the NPO legal life through the not -for- profit corporation... Chapter 15 #16 17 Tax-exempt organizations must complete a Form 990 and send it to the IRS A B C D Only if they have unrelated business income If they are nongovernmental (and not a church) and
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