Preliminary Examination

Part ll
1. Guil College, a private not-for-profit college, received the following cash inflows:
 $400,000 from students for tuition.
 $200,000 from a donor who stipulated that the money be invested indefinitely and the
earnings used for student scholarships.
 $100,000 from a donor who stipulated that the money be spent according to the wishes
of the Board of Trustees.

Which amounts of these cash flows should be shown on the cash flow statement as cash from
operating activities?
a. $700,000.
b. $400,000.
c. $600,000.
d. $500,000.

2. On December 30, 19X4, Leigh Museum, a not-for-profit organization, received a $7,000,000

donation of Day Co. shares with donor stipulated requirements as follows:
 Shares valued at $5,000,000 are to be sold with the proceeds used to erect a public
viewing building.
 Shares valued at $2,000,000 are to be retained with the dividends used to support
current operations.

Leigh adopted of FASB Statement No. 117, Financial Statements of Not-for-Profit

Organizations. As a consequence of the receipt of the Day shares, how much should Leigh
report as temporarily restricted net assets on its 19X4 statement of financial position?
a. $0
b. $2,000,000
c. $5,000,000
d. $7,000,000

3. An NPO hospital has the following account balances:

Amount charged to patients $500,000
Revenue from newsstand 15,000
Undesignated gifts 40,000
Contractual adjustments 70,000
Interest income 12,000
Salaries expense – nurses 120,000
Bad debts 8,000

What is the hospital’s net patient service revenue?

a. $422,000
b. $430,000
c. $500,000
d. $540,000

4. Home Care, Inc., a nongovernmental voluntary health and welfare organization, received
two contributions in 2003. One contribution of $250,000 was restricted for use as general
 support in 2004. The other contribution of $200,000 carried no donor restrictions. What
amount should Home Care report as temporarily restricted contributions in its 2003
statement of activities.
a. $450,000
b. $250,000
c. $200,000
d. $0

5. The Weyman Hospital, a private, not-for-profit institution, reported the following

information:

Gross patient service revenue $1,000,000

Allowance for discounts to hospital employees 20,000
Bad debt expense 40,000
Contractual adjustments 100,000

What amount should the hospital report as net patient service revenue?
a. 840,000
b. 900,000
c. 880,000
d. 980,000

6. The Johnson Hospital, a private not-for-profit hospital, received the following revenues in
the current year:
Proceeds from sales of the Hospital’s flower shop $60,000
Dividends and interest revenue not restricted $20,000
Cash contributions for the renovation of the children’s ward in the Hospital $200,000

Which of these amounts should be reported as other revenues and gains (other revenue) on the
Statement of Operations?
a. $280,000
b. $60,000
c. $80,000
d. $260,000

7. A hospital has the following account balances:

Revenue from newsstand $ 50,000
Amounts charged to patients 800,000
Interest income 30,000
Salary expense – nurses 100,000
Bad debts 10,000
Undesignated gifts 80,000
Contractual adjustments 110,000
What is the hospital’s net patient service revenue?
a. $880,000
b. $800,000
c. $690,000
D ,$680,000

8. A private not-for-profit performing arts center receives the following three donations:
 A gift of $90,000 which is unrestricted.
  A gift of $125,000 restricted for payment of salaries.
 A gift of $200,000 that is restricted forever but the income from the gift may be used for
current expenditures.

Which of the following is not true?

a. Temporarily restricted net assets increased by $125,000.
b. Permanently restricted net assets increased by $325,000.
c. When the money is spent for salaries, unrestricted net assets increase and decrease by
the same amount.
d. When the money is spent for salaries, temporarily restricted net assets decrease.

9. Which of the following types of health care organizations recognize depreciation expense?
Investor-Owned Not-for-Profit Organizations Governmental Health Care
Health Care Enterprises Organizations
a. Yes Yes No
b. Yes No Yes
c. No No Yes
d. Yes Yes Yes

10. On December 31, 20X1, the Board of Trustees of a private, not-for-profit college designated
$5,000,000 of unrestricted net assets for the construction of an addition to the music
building. What effect does this designation have on the college’s unrestricted and
temporarily restricted net assets shown on the statement of financial position on December
31, 20X1?
Unrestricted Net Assets Temporarily restricted Net Assets
a. Decrease Increase
b. Decrease No effect
c. No effect Increase
d. No effect No effect