Professional Documents
Culture Documents
1. Separating the accounting for current activities the sale of goods or services, and realized and
into restricted and unrestricted funds allows for unrealized earnings from investments.
detailed reporting of resources and spending.
4. A contribution is a nonreciprocal transaction
This is often done to satisfy donors and/or
where one part gives something of value and
grantors who require detailed reporting of
does not expect something in return. An
inflows and outflows. In addition, the
agency transaction is where one party gives
information generated assists in the overall
something of value to an intermediary
financial reporting that requires net assets to be
organization (e.g., a foundation) that receives
shown as restricted, temporarily restricted, and
this gift on behalf of another organization. In the
permanently restricted.
first example, public support is recorded at the
2. Users of not-for-profit financial information are fair value of the contribution. In the second
interested in the fair value of investments example, a liability to the ultimate recipient is
regardless of their trading status. Not-for- recorded.
profits, particularly foundations and pension
5. A VHWO must include a statement of functional
plans, have large portfolios. Up-to-date
expense as part of its financial statements in
information on the status of investments in
order to detail the total expenses in each
these portfolios is necessary for donors,
program and supporting services reported on
governments, and other grantors in their
the statement of activities. This allows users of
funding decisions. Thus, FASB Statement No.
the financial statements, including donors,
124 does not differentiate among investment
potential donors, grantors, lenders, and
categories.
governments, to better evaluate spending and
3. Public support captures all forms of donations identify detailed expense patterns by program.
to a not-for-profit organization, including direct
6. (Appendix) A VHWO may wish to present its
contributions of all types (cash, assets,
financial information on a fund basis rather than
services, reduced liabilities, free rent, reduced
simply on an organization-wide basis if this
rates, etc.), net proceeds from fund-raising
detailed presentation was requested or helpful
events, gifts from legacies and bequests, and
to the users. Since historically this information
indirect giving from umbrella charitable
was presented in funds-based statements,
campaigns, e.g., United Way. Revenue
keeping some notion of funds in the reporting
captures amounts earned from exchange
may be useful to board members, lenders, and
transactions—where both parties gain and
other oversight bodies. Many VHWOs still use
something of value is given or returned.
funds-based financial systems that can easily
Examples of revenue are dues and
generate this detailed information.
subscriptions, membership fees, proceeds from
237
Ch. 18—Exercises
EXERCISES
EXERCISE 18-1
Note to Instructor: You might wish to have students look for information on not-for-profit organizations in
your community and compare what links, if any, are found to state or national organizations (both
foundations and not-for-profit centers or portals).
EXERCISE 18-2
(5) B The gain is not permanently restricted unless there is a donor stipulation or legal requirement.
The income is temporarily restricted because it is to be expended in a future period.
EXERCISE 18-3
(1) The measurement focus of state and local government’s government-type activities is flows of
financial resources, whereas the measurement focus of voluntary health and welfare organizations
(VHWOs) is flows of economic resources. Some financial activities of a government, such as those
of operating a utility, may be better reported (i.e., the financial information may be more useful)
using a flow of economic resources measurement focus given their similarity to business
enterprises where goods and services are provided for fees. For these operations, governments
use the accrual basis of accounting. The financial activities of a VHWO, on the other hand, are
more similar to government-type activities where the relationship between revenues and costs of
goods and services provided is vague. Were VHWOs under the jurisdiction of the GASB, they
would be included under the standard guiding them to use the flows of financial resources
measurement focus and to report revenues and expenditures on an accrual basis. Financial
reporting standards for VHWOs, however, under the auspices of the FASB, require VHWOs to use
the flows of economic measurement focus and accrual basis of accounting.
238
Ch. 18—Exercises
(2) State and local governments present revenues and expenditures for the governmental funds
separate from the proprietary funds. In addition, government-wide financial statements are
prepared. VHWOs are not required to report their activities by funds. Financial reporting for
organization-wide activities of both governments and VHWOs includes a statement of activities and
a statement of net assets (called the statement of financial position for VHWOs).
(4) A voluntary health and welfare organization may use a separate fund to account for fixed assets
called the Plant Fund or Land, Building, and Equipment Fund.
If capital assets are purchased by the Plant Fund, the usual entry is made as follows:
Land, Building, and Equipment................................................ xxx
Cash or Some Payable...................................................... xxx
The purpose of a voluntary health and welfare organization is to provide a service to the
community. Because there are usually numerous voluntary health and welfare organizations
competing for donations, it is only proper that donors be able to evaluate the cost of the services
provided in an effort to see which organizations use donations most efficiently. The use of fixed
assets in an organization represents a cost of providing a service, and so it is appropriate for a
voluntary health and welfare organization to show depreciation as a cost of providing its service to
the community.
The Land, Building, and Equipment Fund records any gain or loss on the sale of fixed assets
as revenue of the fund. If the proceeds of the sale are not legally required to be reinvested in fixed
assets, the funds should be transferred to the unrestricted fund by entries reflected as direct
additions and reductions to the respective fund balances.
Governmental units, on the other hand, do not create a separate fund for fixed assets. If fixed
assets are acquired for use in a trust, an enterprise, or an internal service fund, these assets are
included within the fund and depreciated in a similar manner and for the same purpose as in a
commercial enterprise.
If fixed assets are acquired for use by a fund other than the above funds within a governmental
unit, the assets are recorded in the general fixed assets account group (not a fund). The general
fixed assets account group is a memorandum record of fixed assets maintained for stewardship
purposes only.
In governmental accounting, except in the three types of funds mentioned earlier, the cost of a
fixed asset is matched against revenues in the period of acquisition. This is done to reflect the
outflow of funds (stewardship concept) within a given period. Because the cost of the fixed asset is
matched with revenues in this manner, depreciation is not necessary.
239
Ch. 18—Exercises
EXERCISE 18-4
(1) d Donated works of art, historical treasures, or similar objects that are not held for public
inspections, education, or research, are not protected and preserved, and are not subject to
the provision that all proceeds from their sale be used to acquire other items for the collection
must be capitalized.
(3) b Contributed services must be provided by persons possessing specialized skills that would
need to be purchased if not donated. There is no licensing requirement.
(4) b If a donor receives something of value in exchange, then the transaction is not a contribution.
(5) b Rather than requiring restricted contributions to first be classified as restricted and then
“released” as the restrictions are met, this exception is allowed if both happen in the same
reporting period.
EXERCISE 18-5
Supporting schedule
Drug Alcohol Weight Fund General and Total
Rehabilitation Recovery Control Raising Administrative Amount
Secretarial salary....................... $ 0 $ 0 $ 0 $ 0 $ 5,000 $ 5,000
Office supplies............................ 1,200 600 600 600 3,000 6,000
Printing....................................... 800 800 1,600 4,000 800 8,000
Depreciation............................... 800 800 800 0 1,600 4,000
Instruction.................................. 2,700 2,250 3,150 900 0 9,000
Rent........................................... 3,000 2,000 3,000 0 2,000 10,000
Total..................................... $8,500 $6,450 $9,150 $5,500 $12,400 $42,000
240
Ch. 18—Exercises
EXERCISE 18-6
241
Ch. 18—Exercises
EXERCISE 18-7
242
Ch. 18—Exercises
EXERCISE 18-8
243
Ch. 18—Problems
PROBLEMS
PROBLEM 18-1
(1) d Fund raising and administrative and general expenses are classified as supporting services.
(2) c Amounts received (or promised) and restricted for future periods are recorded as public
support—temporarily restricted. $680,000 federated campaign + $90,000 current year pledges
not received = $770,000 (unrestricted).
(3) a Amounts not available to spend until 20X9 are classified as temporarily restricted. $30,000
cash designated for operations + $25,000 pledges for next year = $55,000 (temporarily
restricted).
(4) c The asset would be recorded at fair value, which would become the basis for depreciation
computation.
PROBLEM 18-2
(1) b To be recognized as donated services, the service must be of a skilled nature and purchased
by the organization if not provided by volunteers. Since the volunteers were doing the work of a
previously-paid secretary, that salary ($10,000) is included along with the $150,000 salaries
paid.
(3) a Depreciation expense is included as an element of expense shown in the statement and is
allocated to program and support services.
(4) b The cost should be allocated between the two activities. If no bona fide program exists, all
costs are reported as fund raising.
(5) c Both unrestricted and restricted contributions are recognized in the period made. ($200,000 +
$150,000) x 90% = $315,000.
Ch. 18—Problems
PROBLEM 18-3
(1) e Both are recorded as a contribution increasing public support in the period received. The
endowment is classified as permanently restricted. The donation for the child care center is
temporarily restricted until spent on the donor-specified purpose.
(2) b The contributions have not yet been expended. They are part of resources and temporarily
restricted for acquisition of fixed assets. Restrictions are released either (1) when fixed assets
are acquired or (2) over the useful life of the asset to match depreciation.
(3) a The entry given is the typical journal entry to record board-designated intentions for future
actions. Because the entry debits Unrestricted Net Assets—Undesignated, the unrestricted net
asset class has been internally designated, not externally donor-restricted.
(5) d When investments are carried at fair value, changes in total fair value are recorded periodically
in Net Decrease (Increase) in Carrying Value of Investments, which is shown in the revenue
section of the statement of activities. These (losses) gains may be unrestricted, temporarily
restricted, or permanently restricted.
PROBLEM 18-4
(1) Event
(a) Accounts Receivable.............................................................. 2,200,000
Patient Service Revenue.................................................. 2,200,000
Provision for Uncollectible Accounts Receivable.................... 92,000
Allowance for Uncollectibles and Contractual
Adjustments................................................................ 92,000
Contractual Adjustments......................................................... 120,000
Allowance for Uncollectibles and Contractual
Adjustments................................................................ 120,000
Temporarily Permanently
Unrestricted Restricted Restricted Total
Patient service revenue (net of $120,000 contractual
adjustments).......................................................... $2,020,000 $2,020,000
Net assets released from restrictions:
Satisfaction of equipment acquisition restrictions
(depreciation).................................................... 20,000 $(20,000) 0
Expiration of time restrictions
(term endowment expired)................................ 10,000 (10,000) 0
Total revenue and other support........................... $2,050,000 $(30,000) $2,020,000
Operating expenses:
Nursing services.................................................... $1,120,000 $1,120,000
Dietary services..................................................... 230,000 230,000
Maintenance services............................................ 115,000 115,000
Administrative services.......................................... 285,000 285,000
Interest expense.................................................... 160,000 160,000
Depreciation.......................................................... 60,000 60,000
Provision for uncollectible patient accounts........... 92,000 92,000
Provision for uncollectible pledges........................ 6,000 6,000
Total operating expenses................................. $2,068,000 $ 0 $ 0 $2,068,000
Loss from operations.................................................. $ (18,000) $ (30,000) $ (48,000)
Contributions.............................................................. 80,000 75,000 $ 0 155,000
Change in net assets.................................................. $ 62,000 $ 45,000 $ 0 $ 107,000
Ch. 18—Problems
PROBLEM 18-5
PROBLEM 18-6
PROBLEM 18-7
PROBLEM 18-8
Journal entry:
Alcohol and Drug Abuse Program............................................ 85,800
Outreach to Teens Program..................................................... 57,200
Salaries and Payroll Taxes................................................. 23,000
Telephone and Miscellaneous Expenses........................... 2,000
Nursing and Medical Fees.................................................. 50,000
Educational Seminars Expense.......................................... 20,000
Research Expense............................................................. 16,000
Medical Supplies Expense................................................. 22,000
Rent Expense..................................................................... 10,000
To assign allocable operating expenses to
programs and to close expense accounts.
PROBLEM 18-9
PROBLEM 18-10
Caring Clinic
Statement of Functional Expenses
For Year Ended December 31, 20X9
Program Services Supporting Services**
Total Alcohol and Outreach Total Manage- Fund Total
All Funds Drug Abuse to Teens Programs ment Raising Supporting
Salaries and payroll taxes*......... $ 86,000 $ 32,700 $ 21,800 $ 54,500 $18,900 $12,600 $31,500
Telephone and miscellaneous
expenses............................... 12,000 3,200 2,800 6,000 1,500 4,500 6,000
Nursing and medical fees........... 120,000 79,000 41,000 120,000
Educational seminars expenses. 66,000 25,800 35,600 61,400 4,600 4,600
Research expense..................... 153,000 91,800 61,200 153,000
Medical supplies expense.......... 87,000 71,700 15,300 87,000
Rent expense (60/40 to
programs)............................ 10,000 6,000 4,000 10,000
Interest expense (50/10/30/10). . 4,000 2,000 400 2,400 1,200 400 1,600
Provision for uncollectible
pledges.................................. 26,000 26,000 26,000
Total before depreciation
expense.......................... $564,000 $312,200 $182,100 $494,300 $21,600 $48,100 $69,700
Depreciation expense
(50/10/30/10)....................... 20,000 10,000 2,000 12,000 6,000 2,000 8,000
Total expenses†.......................... $584,000 $322,200 $184,100 $506,300 $27,600 $50,100 $77,700
*Each of the first six expenses
has its allocation determined
using the process illustrated
for salaries:
From unrestricted resources
(Use solution of Problem
18-8 or percentage
allocations in Problem
18-8.)................................... $ 63,000 $ 18,900 $ 12,600 $ 31,500 $18,900 $12,600 $31,500
From donor-restricted
contributions (split 60/40
to programs only)................. 23,000 13,800 9,200 23,000
Totals................................ $ 86,000 $ 32,700 $ 21,800 $ 54,500 $18,900 $12,600 $31,500
**Because no part of the expenses funded by donor-restricted resources was allocated to supporting services, the
portion assigned to supporting services consists only of the allocated expenses funded by unrestricted
revenues as shown in the solution to Problem 18-8 or determined by use of the percentages stated in that
problem.
†
The total expenses assigned to the individual programs and supporting services must agree with those shown in
the statement of activities in the solution to Problem 18-9.