Beams Aa13e TB 22

Advanced Accounting, 13e, Global Edition (Beams et al.
)
Chapter 22 Accounting for Not-for-Profit Organizations
22.1 Multiple Choice Questions
1) Which of the following is NOT true?

A) A not-for-profit entity operates for purposes other than to provide goods or services at a profit.
B) A not-for-profit entity may be governmental or non-governmental.
C) A not-for-profit entity may possess ownership interests like a corporation.
D) A not-for-profit entity receives resources from resource providers who do not expect commensurate or
proportionate pecuniary return.
Answer: C
Objective: LO22.1 Learn about the four main categories of not-for-profit organizations.
Difficulty: Easy
AACSB: Analytical thinking
2) On January 1, 2011, a Voluntary Health and Welfare Organization (VHWO) receives an unconditional
promise to give $6,000. The money is not collectible until 2012. The VHWO estimates that 10% of pledges
are uncollectible. On January 1, 2011, the VHWO will credit
A) Unrestricted Support - Contribution, $6,000.
B) Allowance for Uncollectible Contributions $600, and Unrestricted Support - Contribution, $5,400.
C) Allowance for Uncollectible Contributions $600, Temporarily Restricted Support - Contribution,
$5,400.
D) Allowance for Uncollectible Contributions $600, Contribution Revenue $5,400.
Answer: C
Objective: LO22.4 Apply not-for-profit accounting principles to voluntary health and welfare organizations.
Difficulty: Moderate
3) A nongovernmental, not-for-profit entity is subject to

A) GAAP.
B) GAAS.
C) SEC.
D) AICPA.
Answer: A
Objective: LO22.2 Differentiate between governmental and nongovernmental not-for-profit organizations.
Difficulty: Easy
4) A donor gives a Voluntary Health and Welfare Organization (VHWO) $1,000 cash that is restricted for
a research project. What account does the VHWO credit when the VHWO receives the money?
A) Nonoperating Revenue
B) Permanently Restricted Revenue
C) Unrestricted Support
D) Temporarily Restricted Support
Answer: D
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5) For a Voluntary Health and Welfare Organization, what entry is prepared when the restriction on a
cash donation is met?
A) Debit Unrestricted Net Assets, Credit Restricted Net Assets
B) Debit Unrestricted Fund Balance, Credit Restricted Fund Balance
C) Debit Restricted Fund Balance, Credit Unrestricted Fund Balance
D) Debit Temporarily Restricted Net Assets - Reclassifications out, Credit Unrestricted Net Assets -
Reclassifications in
Answer: D
6) Under GAAP, for nonprofit, nongovernmental entities, an unconditional transfer of cash or other assets
to an entity, or a settlement or cancellation of its liabilities in a voluntary, non-reciprocal transfer, is called
a(n)
A) unconditional promise to give.
B) contribution.
C) conditional promise to give.
D) residual equity transfer.
Answer: B
Objective: LO22.3 Introduce FASB not-for-profit accounting principles.
Difficulty: Easy
7) For nonprofit, nongovernmental organizations, unconditional promises to give that include promises
of payments due in future periods (next year or later) are reported as
A) unrestricted revenues.
B) unrestricted support.
C) deferred revenues until payment is received.
D) restricted support.
Answer: D
Difficulty: Easy
8) A gift-in-kind, for which the not-for-profit entity has no discretion on disposition, should be accounted
for by the not-for-profit, nongovernmental entity as
A) a special purpose contribution.
B) an exchange transaction.
C) an agency transaction.
D) a conditional promise to give.
Answer: C
Difficulty: Easy
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9) Voluntary health and welfare organizations must report expenses classified by
A) restriction.
B) function and natural classification.
C) restriction and natural classification.
D) restriction, function and natural classification.
Answer: B
Difficulty: Easy
10) Which one of the following statements is NOT required for voluntary health and welfare
organizations?
A) A statement of financial position
B) A statement of activities
C) A statement of functional expenses
D) A statement of changes in net assets
Answer: D
Difficulty: Easy
11) Voluntary health and welfare organizations classify fund-raising costs as

A) costs of services sold.
B) program services.
C) auxiliary expenses.
D) supporting services.
Answer: D
Difficulty: Easy
12) Voluntary health and welfare organizations

A) may not have paid executives or staff.
B) are governed by separate GASB statements.
C) use fund accounting, following the rules for proprietary fund reporting.
D) are supported by, and provide voluntary services to, the public.
Answer: D
Difficulty: Easy
13) Voluntary health and welfare organizations (VHWO) measure contributions at fair value unless
A) fair value is less than the original cost of the item.
B) the contributed item is not intended to be re-sold by the VHWO.
C) fair value cannot be reasonably determined.
D) the contributions are not in cash or cash equivalents.
Answer: C
Difficulty: Easy
3
14) The gift shop of a nonprofit, private hospital has cash revenue of $24,000. What account will the
hospital credit?
A) Unrestricted support
B) Unrestricted revenue
C) Temporarily restricted revenue
D) Other operating revenue - unrestricted
Answer: D
Objective: LO22.5 Apply not-for-profit accounting principles to hospitals and other healthcare organizations.
Difficulty: Easy
15) In a nonprofit, nongovernmental hospital, courtesy allowances are

A) charity care services.
B) revenue deductions.
C) expenses.
D) revenues earned even if the standard charge is above or below the allowance.
Answer: B
Difficulty: Easy
16) In a nongovernmental, nonprofit hospital, contractual adjustments are

A) the discounted rate given to hospital employees.
B) discounts arranged with third-party payors.
C) recorded as a deduction from revenue or as an expense.
D) additional amounts paid by select group participants.
Answer: B
Difficulty: Easy
17) An alumnus of a nonprofit, nongovernmental university establishes an endowment of $50,000. When

the university receives the endowment from the donor, what account will the university credit?
A) Temporarily restricted revenues
B) Temporarily restricted support
C) Permanently restricted revenues
D) Permanently restricted support
Answer: C
Objective: LO22.6 Apply not-for-profit accounting principles to private not-for-profit colleges and universities.
Difficulty: Easy
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18) Not-for-profit, private colleges classify student unions, dining halls, and residence halls as
A) educational and general services.
B) auxiliary enterprises.
C) independent operations.
D) restricted enterprises.
Answer: B
Difficulty: Easy
19) An alumnus made a donation of adjoining land to a not-for-profit, nongovernmental university. The
donor made no specifications regarding the time period or use of the land. The university would record
the gift as
A) an endowment asset.
B) temporarily restricted revenue.
C) unrestricted revenue.
D) permanently restricted support.
Answer: C
Difficulty: Easy
20) In a not-for-profit, private university, the federal grant funds given directly to students for financial
aid are an example of
A) a bequest.
B) an agency transaction.
C) unrestricted revenue.
D) a restricted contribution.
Answer: B
Difficulty: Easy
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22.2 Exercises
1) Will Wealth made three charitable donations in 2014. Each was for $500,000, however they were made
to three different organizations as follows:
1. Will donated to a local voluntary health and welfare organization (VHWO), and indicated that the
funds could be used as the VHO wanted.
2. Will donated to a local private, not-for-profit university, designating the funds to be used for
scholarships and student aid.
3. Will donated to the local not-for-profit, nongovernmental hospital, designating the funds to be used
for purchase of diagnostic equipment.
Required:
For each of the above three situations:
A. Prepare the journal entry that each organization would prepare at the time of the contribution.
B. Prepare the journal entry that each organization would prepare at the time of the subsequent
spending of the funds. Assume that the spending is in accordance with any restrictions that Will placed
on the donation.
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Answer:
1A. VHWO
Cash 500,000
Unrestricted support - contributions 500,000
1B. VHWO
Expenses - (by function or account title) 500,000
Cash 500,000
2A. University
Cash 500,000
Temporarily Restricted Revenues -
contributions 500,000
2B. University
Expenses - Unrestricted: student aid 500,000
Cash 500,000
Temporarily restricted net assets -

reclassifications out 500,000
Unrestricted net assets -
reclassifications in 500,000
3A. Hospital
Cash 500,000
Temporarily Restricted Support 500,000
3B. Hospital
Equipment 500,000
Cash 500,000

AACSB: Application of knowledge
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2) A small town in a rural area has an organization that serves the local community when there is a
financial need. Among the services they provide is free groceries, clothes and furniture, along with
transportation to doctors' appointments when the doctor is out of town. This voluntary health and
welfare organization (VHWO) accepts most donations of goods, all donations of cash, and has developed
a relationship with the local grocer who helps them obtain needed food items. The VHO has one paid
administrator who tracks and coordinates the donations, performs application reviews to determine
eligibility, and schedules transportation for those in need. Volunteers unload and pack grocery items, sort
clothes and furniture, and drive those who need transportation. Gasoline costs are reimbursed to the
driver based on mileage. The local CPA provides bookkeeping and tax services for free, and designates
90% of expenses incurred to community services and 10% to management and general.
The VHWO had the following transactions in 2014:
1. The administrator is paid $11,000 salary.
2. The accountant services are valued at $6,000 based on their normal billable rate.
3. The landlord of the building they use for their operations has waived their rent and provided the bill
of $6,000 for their records. The VHWO paid utilities and property taxes of $3,000.
4. Office furniture was donated with an estimated fair value of $9,400.
5. The VHWO received cash donations of $20,000, $5,000 of which was an unpaid pledge from the prior
year. The beginning pledges receivable balance was $6,000, and no amount had previously been
estimated to be uncollectible. The prior year balance will now be written off. In addition, $12,000 was
pledged to be donated in 2015. Based on recent history, the VHWO knows that 10% of the new pledges
will not be collected.
Required:
Prepare the journal entries for the transactions noted above.
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Answer:
1. Expenses - community service 9,900
Expenses - management and general 1,100
Cash 11,000
2. Expenses - management and general 6,000

Unrestricted Support - donated services 6,000
3. Expenses - community service 5,400

Expenses - management and general 600
Unrestricted Support - donated rent 6,000
Expenses - community service 2,700

Expenses - management and general 300
Cash 3,000
4. Office furniture 9,400

5. Cash 20,000
Contributions receivable 5,000


Temporarily restricted support - contributions 10,800
Allowance for uncollectible contributions 1,200
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3) Southtown Community Hospital (SCH) shows the following balances on its trial balance at June 30,
2014, their fiscal year end. SCH is a not-for-profit, nongovernmental hospital. $260,000 cash was spent on
equipment from donations restricted for that purpose.
Debits:
Administrative services expense 200,000
Contractual allowances 1,200,000
Depreciation expense 700,000
Employee discounts 300,000
General services expense 900,000
Loss on sale of fixed assets 100,000
Nursing services expense 4,000,000
Resident and visiting professional services expense 3,000,000
Provision for bad debts 600,000
Credits:
Income from investment in clinic 120,000
Patient service revenues 10,000,000
Pharmacy 400,000
Cafeteria services 200,000
Unrestricted contributions 350,000
Unrestricted income from endowment funds 280,000
Restricted donations for equipment purchases 500,000
Required:
Prepare a statement of operations for Southtown Community Hospital at June 30, 2014.
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Answer: Southtown Community Hospital
Statement of Operations
For the year ended June 30, 2014
Unrestricted revenues, gains and other support:

Net patient service revenues
(10,000,000 - 1,200,000 - 300,000) $8,500,000
Other operating revenue (400,000 + 200,000) 600,000
Income from endowments 280,000
Income from investment in clinic 120,000
Unrestricted contributions 350,000
Total operating revenues, gains and other support $9,850,000
Expenses and losses:

Resident and visiting professional services $3,000,000
Nursing services 4,000,000
General services 900,000
Administrative services 200,000
Provision for uncollectible accounts 600,000
Loss on sale of fixed assets 100,000
Provision for depreciation 700,000
Total expenses and losses 9,500,000
Excess of revenues, gains and other support over

expenses and losses 350,000
Net assets released from restrictions for acquisition

of equipment 260,000
Increase in unrestricted net assets $ 610,000
Difficulty: Difficult
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4) Wilhelman University, a not-for-profit, nongovernmental university, had the following transactions in
2014.
1. Tuition bills were sent amounting to $4,000,000, with tuition waivers granted on that amount of
$200,000.
2. State funding was received in the amount of $2,000,000.
3. The bookstore and cafeteria sales amounted to $1,600,000, and their cost of sales was $1,500,000.
Assume cash sales and cash purchases for these auxiliary operations.
4. Endowment income amounted to $100,000 that was restricted to chair the accounting department,
and $200,000 of unrestricted income.
5. Expenses were incurred and paid as follows: faculty, $3,800,000 (including faculty chair, paid in part
by endowment income); Student services, $250,000; Facilities operations, $350,000; and scholarships
(excluding tuition waived), $400,000.
Required:
Prepare the journal entries for 2014 for Wilhelman University.
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Answer:
1. Accounts Receivable 4,000,000
Unrestricted revenue - tuition 4,000,000
Tuition reduction: unrestricted - student aid 200,000

Accounts receivable 200,000
2. Cash 2,000,000
Unrestricted revenues - state appropriations 2,000,000
3. Cash 1,600,000
Revenue - auxiliary operations 1,600,000
Expenses - auxiliary operations 1,500,000

Cash 1,500,000
4. Cash 300,000
Temporarily restricted revenues -
endowment income 100,000
Unrestricted revenues - endowment income 200,000
5. Expenses - education/general - instruction 3,800,000

Expenses - education/general - student svc 250,000
Expenses - education/general - plant operation 350,000
Expenses - education/general - student aid 400,000
Cash 4,800,000

(assumes accounting chair paid from temporarily restricted funds)
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5) Albatross University, a not-for-profit, nongovernmental university, had the following transactions in
2014.
1. Tuition bills were sent amounting to $8,000,000, with 70% collected before the end of the fiscal year;
tuition waivers were granted on the total amount of $400,000, and $220,000 was expected to be
uncollectible.
2. Cafeteria sales, all cash, were $1,400,000.
3. Salaries and wages were paid amounting to $5,500,000, of which $370,000 was for cafeteria staff.
4. Long-term debt payments were made from general funds amounting to $800,000, of which $130,000
was for interest.
5. Equipment was purchased for the engineering department with funds previously set aside for that
purpose, amounting to $180,000.
Required:
Prepare the journal entries for 2014 for Albatross University.
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Answer:
1. Accounts Receivable 8,000,000
Unrestricted revenue - tuition 8,000,000
Cash 5,600,000
Accounts Receivable 5,600,000
Tuition reduction: unrestricted - student aid 400,000

Expenses - educational/general -
instructional support 220,000
Allowance for uncollectible accounts 220,000
2. Cash 1,400,000
Revenue - auxiliary operations 1,400,000
3. Expenses - educational/general 5,130,000

Expenses - auxiliary operations 370,000
Cash 5,500,000
4. Long-term debt payable 670,000

Interest expense 130,000
Cash 800,000
5. Equipment 180,000
Cash 180,000

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6) Carousel Clothes is a voluntary health and welfare organization that provides gently-used second-
hand clothes to those in need. They had the following transactions in 2014.
1. Cash gifts were received in the amount of $60,000, of which $13,000 had been pledged in the prior
year.
2. Pledges made in the current year but not yet fulfilled amounted to $39,000. Ten percent of the pledges
typically prove to be uncollectible. Pledges are made for 2014.
3. An office supply company donates office furniture to the VHWO. The fair value of the furniture is
$40,000. No restrictions were placed on the donation.
4. The following expenses were incurred and paid: director's salary, $15,000; facility rental, $18,000;
cleaning and repair costs for clothes, $29,000; and purchase of supplies consumed in tagging and
distribution of clothes, $5,000. The director's salary is categorized as Support Services and the rest of the
costs are Program Services.
5. Restricted pledges were received during the year for $450,000. The pledges are restricted for the
construction of a new facility.
Required:
Prepare the journal entries for Carousel for 2014.
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Answer:
1. Cash 60,000
Temporarily Restricted Net Assets -

Reclassifications out 13,000
Temporarily Restricted Net Assets -
Reclassifications in 13,000
2. Contributions receivable 39,000

3. Office furniture 40,000

4. Expenses - support services 15,000

Expenses - program services 52,000
Cash 67,000
5. Contributions Receivable 450,000

Temporarily restricted support -
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7) The Trasque Hospital is a nongovernmental, not-for-profit hospital. During 2014, they had the
following transactions.
1. Trasque's standard charges for services rendered amounted to $550,000. Contractual adjustments on
those amounts with third-party payors amounted to $230,000. Bad debts on the remaining balance are
estimated to be 10%.
2. The hospital received a cash donation of $20,000 to be used for medical equipment.
3. The hospital also received rent from a local shelter that uses the basement of their facility for overflow
housing, amounting to $6,000 per year.
4. The hospital paid the following costs: Professional fees (doctors and physician assistants), $80,000;
Nursing services, $70,000; and administrative services, $40,000.
5. The hospital paid for pharmaceuticals and medical supplies amounting to $110,000. The hospital had
an agreement with the pharmaceutical and medical supply vendors to carry all inventory on
consignment, due to their not-for-profit status. As a result, items are only paid for as consumed, and all
inventory belongs to the vendors.
Required:
Prepare the journal entries for Trasque for 2014.
Answer:
1. Patient Accounts Receivable 550,000
Patient Service Revenues - unrestricted 550,000
Contractual Adjustments 230,000

Patient Accounts Receivable 230,000
Bad Debt Expense 32,000

Allowance for uncollectible patient
accounts receivable 32,000
2. Cash 20,000
Temporarily Restricted Support 20,000
3. Cash 6,000
Other operating revenue - unrestricted 6,000
4. Professional fees expense 80,000

Nursing services expense 70,000
Administrative services expense 40,000
Cash 190,000
5. Pharmaceutical and supplies expense 110,000

Cash 110,000
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8) The following information was taken from the accounts and records of the Community Chest
Foundation, a private, not-for-profit VHWO organization. All balances are as of December 31, 2014,
unless otherwise noted.
Unrestricted Support - Contributions $6,500,000

Unrestricted Support - Membership Dues 700,000
Unrestricted Revenues - Investment Income 63,000
Temporarily restricted gain on sale of investments 20,000
Expenses - Program Services 2,950,000
Expenses - Supporting Services 670,000
Temporarily Restricted Support - Contributions 560,000
Temporarily Restricted Revenues - Investment Income 70,000
Permanently Restricted Support - Contributions 80,000
Unrestricted Net Assets, January 1, 2014 500,000
Temporarily Restricted Net Assets, January 1, 2014 4,000,000
Permanently Restricted Net Assets, January 1, 2014 50,000
The unrestricted support from contributions was received in cash during the year. The expenses included
$980,000 paid from temporarily-restricted cash donations.
Required:
Prepare Community Chest's Statement of Activities for the year ended December 31, 2014.
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Answer: Community Chest Foundation
Statement of Activities
For the Year Ended December 31, 2014
Changes in Unrestricted Net Assets:

Revenues and Gains
Contributions $6,500,000
Membership dues 700,000
Investment Income 63,000
Total unrestricted revenues and gains 7,263,000
Net assets released from restrictions 980,000
Total unrestricted revenues, gains and other support 8,243,000
Expenses and Losses:

Program Services 2,950,000
Supporting Services 1,020,000
Total Expenses 3,970,000
Increase in unrestricted net assets 4,273,000
Changes in Temporarily Restricted Net Assets:

Contributions 560,000
Gain on Sale of investments 20,000
Net assets released from restriction (980,000)
Decrease in temporarily restricted net assets (330,000)
Changes in Permanently Restricted Net Assets:

Increase in permanently restricted net assets 80,000
Increase in net assets 4,023,000

Net assets, January 1, 2014 4,550,000
Net assets, December 31, 2014 $8,573,000
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9) The following information was taken from the accounts and records of the Helping Hands Foundation,
a private, not-for-profit organization classified as a VHWO. All balances are as of June 30, 2014, unless
otherwise noted.
Unrestricted Support - Contributions $2,000,000

Unrestricted Support - Membership Dues 640,000
Unrestricted Revenues - Investment Income 80,000
Temporarily restricted gain on sale of investments 25,000
Expenses - Program Services 1,860,000
Temporarily Restricted Revenues - Investment Income 60,000
Permanently Restricted Support - Contributions 100,000
Unrestricted Net Assets, July 1, 2013 450,000
Temporarily Restricted Net Assets, July 1, 2013 2,100,000
Permanently Restricted Net Assets, July 1, 2013 60,000
The unrestricted support from contributions was received in cash during the year. The expenses included
$1,350,000 paid from temporarily-restricted cash donations.
Required:
Prepare Helping Hands' Statement of Activities for the fiscal year ended June 30, 2014.
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Answer: Helping Hands Foundation
Statement of Activities
For the Year Ended June 30, 2014
Changes in Unrestricted Net Assets:

Revenues and Gains
Contributions $2,000,000
Membership dues 640,000
Total unrestricted revenues and gains 2,720,000
Net assets released from restrictions 1,350,000
Total unrestricted revenues, gains and other support 4,070,000
Expenses:
Program Services 1,860,000
Supporting Services 900,000
Total Expenses 2,760,000
Increase in unrestricted net assets 1,310,000
Changes in Temporarily Restricted Net Assets:

Gain on Sale of investments 25,000
Net assets released from restriction (1,350,000)
Decrease in temporarily restricted net assets (625,000)
Changes in Permanently Restricted Net Assets:

Increase in permanently restricted net assets 100,000
Increase in net assets 785,000

Net assets, July 1, 2013 2,610,000
Net assets, June 30, 2014 $3,395,000
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10) Coats for Kids is a private, not-for-profit organization that provides free coats for children in the
suburbs of a large city. Coats for Kids had the following transactions in 2014.
1. Unrestricted cash gifts that were received last year, but designated for use in the current year, totaled
$50,000. The cash gifts were used in 2014.
2. Unrestricted pledges of $40,000 were received. They are expected to be collected in 2014. Ten percent
of the pledges typically prove uncollectible. Additional cash contributions during the year totaled
$65,000.
3. A donor donated investments with a fair value of $10,000. The investments can be sold and used only
for the purchase of coats for children.
4. The following expenses were incurred and paid: Salary of director, $15,000, classified as supporting
services. The remaining expenses of $47,500 were classified as program services.
5. Pledges of $250,000 were received during the year. The pledges were restricted for use in purchasing
new delivery vans. All of these pledges are expected to be collected in the next fiscal year. Ten percent are
estimated to be uncollectible.
Required:
Prepare the journal entries for the aforementioned transactions.
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Answer:
1. Temporarily restricted net assets - reclassifications out 50,000
Unrestricted net assets - reclassifications in 50,000

Cash 65,000
3. Investments 10,000
4. Expenses - support services 15,000

Expenses - program services 47,500
Cash 62,500

Temporarily restricted support - contributions 225,000
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11) Marshfield Hospital is a private, not-for-profit hospital. The following transactions occurred:
1. Unrestricted cash gifts that were received last year, but designated for use in the current year, totaled
$180,000. The cash gifts were used in the current year in accordance with restrictions.
2. Unrestricted pledges of $800,000 were received. Ten percent of the pledges typically prove
uncollectible. Additional cash contributions during the year totaled $300,000.
3. Gifts in kind were received that were sold at a silent auction for $23,000. The fair value of the donated
gifts in kind could not be reasonably determined.
4. Expenses were incurred and paid as follows: Salary of doctor, $190,000; facility rental, $36,000;
purchases of supplies, $8,000; and utility costs, $10,000.
5. Marketable securities with a fair value of $650,000 were received as a donation with a stipulation that
the hospital use the funds to purchase suitable land for the hospital.
Required:
Prepare journal entries for the aforementioned transactions.
Answer:
1. Temporarily restricted net assets -

Cash 300,000
Unrestricted support - nonoperating gain 1,020,000
3. Cash 23,000
Sales revenue - unrestricted 23,000
4. Professional fees expense 190,000

Administrative expense 54,000
Cash 244,000
5. Marketable securities 650,000

Temporarily restricted support 650,000
25
12) General Hospital is a private, not-for-profit hospital. The following information is available about the
operations.
1. Gross patient services charges totaled $3,700,000.

2. Included in the above revenues are: charity services, $360,000; contractual adjustments, $1,200,000;
courtesy allowances, $20,000; and estimated uncollectible amounts, $250,000.
3. Premium fees receipts were $110,000.
4. Purchased $75,000 of hospital supplies on account, with payments on that account, $36,000.
5. Received cash donations for a new hospital wing of $2,500,000.
6. Paid contractor $275,000 for billed costs toward the new hospital wing.
Required:
Answer:
1. Patient accounts receivable 3,700,000
Patient service revenues - unrestricted 3,700,000
2. Patient service revenues - unrestricted 360,000

Contractual adjustments 1,200,000
Courtesy discounts 20,000
Patient accounts receivable 1,580,000
Bad debt expense 250,000

3. Cash 110,000
Premium revenue - unrestricted 110,000
4. Supplies inventory 75,000

Accounts payable 75,000
Accounts payable 36,000

Cash 36,000
5. Cash 2,500,000
Temporarily restricted support 2,500,000
6. Construction in progress 275,000

Cash 275,000

26
13) Childrens Hospital is a private, not-for-profit hospital. The following information is available about
the operations.
1. Gross patient services charges totaled $6,400,000.
and courtesy allowances, $37,000.
3. Received a donation of marketable securities with a fair value of $165,000 for the purchase of new
diagnostic equipment.
4. The marketable securities were sold for $182,000 and diagnostic equipment was purchased at a cost
of $210,000.
5. Revenue from the hospital gift shop was $58,000 and from the cafeteria revenues were $227,000.
Received cash from both enterprises.
6. Incurred and paid nursing service costs of $1,700,000 and general service costs of $400,000.
Required:
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Answer:
Patient service revenues - unrestricted 6,400,000
2. Patient service revenues - unrestricted 210,000

Contractual adjustments 2,400,000
Courtesy discounts 37,000
3. Marketable securities 165,000

Temporarily restricted support 165,000
4. Cash 182,000
Marketable securities 165,000
Temporarily restricted support - gain
on sale of marketable securities 17,000
Equipment 210,000
Cash 210,000

5. Cash 285,000
Other operating revenue - unrestricted 285,000
6. Nursing service expense 1,700,000

General services expense 400,000
Cash 2,100,000
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14) Prepare journal entries to record the following transactions for a private, not-for-profit university.
1. Tuition and fees assessed total $10,000,000, 80% of which was collected by year-end; tuition
scholarships were granted for $1,300,000, and $650,000 was expected to be uncollectible.
2. Revenues collected from sales and services by the university bookstore were $1,450,000.
3. Salaries and wages paid were $5,600,000, $300,000 of which was for employees of the university
bookstore.
4. Financial aid funds of $700,000 were received from the Pell Grant program; the funds were then
disbursed to the appropriate students.
5. Contributions of $600,000 were received; $30,000 was restricted for the athletic department and the
balance was unrestricted. An additional $70,000 was pledged to the athletic department by the alumni.
6. Athletic equipment was purchased with $42,000 previously set aside for that purpose.
29
Answer:
1. Accounts receivable 10,000,000
Unrestricted Revenues - tuition and fees 10,000,000
Tuition reduction:Unrestricted - student aid 1,300,000

Expenses - educational/general-institutional
support 650,000
Accounts receivable 1,300,000
Allowance for uncollectible accounts 650,000
Cash 8,000,000
Accounts receivable 8,000,000
2. Cash 1,450,000
Revenues - auxiliary enterprises 1,450,000
3. Expenses - educational and general 5,300,000

Expenses - auxiliary enterprises 300,000
Cash 5,600,000
4. Cash 700,000
Grant funds held for students 700,000
Grant funds held for students 700,000

Cash 700,000
5. Cash 600,000
Unrestricted revenues - contributions 570,000
6. Equipment 42,000
Cash 42,000

30
15) A private, not-for-profit university received donations of $1,000,000 cash in 2014 that were restricted
to certain research projects on sustainability, with an emphasis on reducing the campus waste. The
university incurred and paid $450,000 of expenses on this research in 2014.
In 2014, an alumnus contributed a $700,000 endowment for energy research with all endowment income
restricted for that purpose. Income totaled $35,000 for the year. Energy research expenses incurred and
paid were $22,000.
Required:
Prepare the appropriate journal entries for the university for these transactions.
Answer: Cash 1,000,000

contributions 1,000,000
Expenses - research 450,000

Cash 450,000

Cash 700,000
Permanently restricted revenues -
endowment contribution 700,000
Cash 35,000
Expenses - research 22,000

Cash 22,000

31
16) The following information is available about the operations for a private, not-for-profit university.
1. The university sold $20,000,000 of 5% bonds to finance the construction of a new building for the
business school. The bonds were sold on January 1 and pay interest on December 31 of each year. The
bonds were sold at par and mature in 20 years.
2. The university received $7,500,000 cash in alumni and corporate donations for the new business
school building.
3. The building was constructed at a total cost of $22,000,000 and the contractor was paid in full.
4. Interest was paid on the bonds.
5. Depreciation on the new building the first year was $275,000.
Required:
Answer:
1. Cash 20,000,000
Bonds payable 20,000,000
2. Cash 7,500,000
contributions 7,500,000
3. Building 22,000,000
Cash 22,000,000

reclassifications out 7,500,000
reclassifications in 7,500,000
4. Expenses - interest 1,000,000

Cash 1,000,000
5. Expenses - educational and general -

operation and maintenance of plant 275,000
Accumulated depreciation 275,000
32
17) A private, not-for-profit university received donations of $800,000 in 2014 that were restricted to
capital improvements of the football stadium. The university spent $670,000 on capital improvements for
the stadium in 2014 and recorded depreciation of $130,000.
In 2014, an alumnus contributed a $1,500,000 endowment for football scholarships with all endowment
income restricted for that purpose. Endowment income totaled $75,000 for the year and scholarship
awards were $68,000.
Required:
Answer: Cash 800,000
contribution 800,000
Buildings - stadium 670,000

Cash 670,000

Expenses - auxiliary enterprises 130,000

Accumulated depreciation 130,000
Cash 1,500,000
Permanently restricted revenues -
endowment contribution 1,500,000
Cash 75,000
Expenses - unrestricted - student aid 68,000

Cash 68,000

33
18) Match each of the following descriptions with the correct category for a private, not-for-profit
hospital. Each term may be used more than once.
Categories:
A. Revenue
B. Deduction from Revenue
C. Expense
D. Gains / Losses
________ 1. Courtesy allowances provided to hospital patients

________ 2. Premium fees
________ 3. Fees paid to the doctors
________ 4. Charges to patients for patient services
________ 5. Wages paid to nursing staff
________ 6. Contractual allowances arranged with third-party payors
________ 7. Cafeteria sales
________ 8. Wages paid to hospital janitors
________ 9. Depreciation expense on hospital equipment
________ 10.Other operating revenue—unrestricted
Answer: 1. B, 2. A, 3. C, 4. A, 5. C, 6. B, 7. A, 8. C, 9. C, 10. A
19) Record the following transactions for Porter Hospital, a private, nonprofit hospital:
1. Gross patient services revenues: $25,000,000. Billed to patients.
and estimated uncollectible amounts, $250,000.
3. Purchased equipment by issuing a 5-year note for $200,000.
4. Received cash donations restricted for a capital building addition program, $5,100,000.
5. Incurred and paid $1,700,000 of contractor billings for the capital building program.
34
Answer:
Patient service revenue - unrestricted 25,000,000
2. Patient service revenue - unrestricted 500,000

Contract adjustments 11,000,000
Bad debt expense 250,000

accounts receivable 250,000
3. Equipment 200,000
Notes payable 200,000
4. Cash 5,100,000
Temporarily restricted support 5,100,000
5. Construction in progress 1,700,000

Cash 1,700,000

reclassifications out 1,700,000
Reclassifications in 1,700,000
22.3 True/False
1) Governmental not-for-profit entities follow GASB.

Answer: TRUE
Difficulty: Easy
2) Nongovernmental not-for-profit entities follow FASB standards.

Answer: TRUE
Difficulty: Easy
3) Not-for-profits have three classes of net assets within the financial statements: unrestricted, temporarily
restricted, and permanently restricted.
Answer: TRUE
35
4) Unrestricted net assets are the portion of net assets that carry no donor-imposed stipulations.
Answer: TRUE
Difficulty: Easy
5) Not-for-profits account for revenues and expenses using the modified accrual basis of accounting.
Answer: FALSE
6) Not-for-profits organizations report expenses by functional classification: program services and

supporting services.
Answer: TRUE
7) GAAP defines a contribution as unconditional transfer of cash or other assets to an entity or a

settlement or cancellation of its liabilities in a voluntary, nonreciprocal transfer by another entity acting
other than as an owner.
Answer: TRUE
Difficulty: Easy
8) Not-for-profit health care organizations present a statement of financial position, a statement of

operations, a statement of changes in net assets, and a statement of cash flows.
Answer: TRUE
9) Contractual adjustments are discounts arranged with third-party payors that frequently have
agreements to reimburse at less-than-established rates.
Answer: TRUE
10) The FASB ASC is the primary authority over accounting principles for governmental colleges and
universities.
Answer: FALSE
36
11) Colleges and universities maintain accounts and reports on a modified-accrual basis.
Answer: FALSE
37

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Beams Aa13e TB 22

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Advanced Accounting, 13e, Global Edition (Beams et al.

22.1 Multiple Choice Questions

1) Which of the following is NOT true?

3) A nongovernmental, not-for-profit entity is subject to

11) Voluntary health and welfare organizations classify fund-raising costs as

12) Voluntary health and welfare organizations

15) In a nonprofit, nongovernmental hospital, courtesy allowances are

16) In a nongovernmental, nonprofit hospital, contractual adjustments are

17) An alumnus of a nonprofit, nongovernmental university establishes an endowment of $50,000. When

Temporarily restricted net assets -

Temporarily restricted net assets -

The VHWO had the following transactions in 2014:

1. The administrator is paid $11,000 salary.

4. Office furniture was donated with an estimated fair value of $9,400.

2. Expenses - management and general 6,000

3. Expenses - community service 5,400

Expenses - community service 2,700

4. Office furniture 9,400

Unrestricted support - contributions 1,000

Contributions receivable 12,000

Unrestricted revenues, gains and other support:

Expenses and losses:

Excess of revenues, gains and other support over

Net assets released from restrictions for acquisition

2. State funding was received in the amount of $2,000,000.

Tuition reduction: unrestricted - student aid 200,000

Expenses - auxiliary operations 1,500,000

5. Expenses - education/general - instruction 3,800,000

Temporarily restricted net assets -

2. Cafeteria sales, all cash, were $1,400,000.

Tuition reduction: unrestricted - student aid 400,000

3. Expenses - educational/general 5,130,000

4. Long-term debt payable 670,000

Temporarily restricted net assets -

Temporarily Restricted Net Assets -

2. Contributions receivable 39,000

3. Office furniture 40,000

4. Expenses - support services 15,000

5. Contributions Receivable 450,000

Contractual Adjustments 230,000

Bad Debt Expense 32,000

4. Professional fees expense 80,000

5. Pharmaceutical and supplies expense 110,000

Unrestricted Support - Contributions $6,500,000

Changes in Unrestricted Net Assets:

Expenses and Losses:

Changes in Temporarily Restricted Net Assets:

Changes in Permanently Restricted Net Assets:

Increase in net assets 4,023,000

Unrestricted Support - Contributions $2,000,000

Changes in Unrestricted Net Assets:

Changes in Temporarily Restricted Net Assets:

Changes in Permanently Restricted Net Assets:

Increase in net assets 785,000

2. Contributions receivable 40,000

4. Expenses - support services 15,000

5. Contributions receivable 250,000

2. Contributions receivable 800,000

4. Professional fees expense 190,000

5. Marketable securities 650,000

1. Gross patient services charges totaled $3,700,000.

2. Patient service revenues - unrestricted 360,000

Bad debt expense 250,000