Acc 240 Ch_16_sm_9e

CHAPTER 16NON-SLG NOT-FOR-PROFIT ORGANIZATIONS: SFAS 116 AND 117

APPROACH

ANSWERS TO QUESTIONS

Question 16-1

Voluntary health and welfare organizations provide various kinds of health, welfare, and community services. They are financed primarily by voluntary contributions from the public. VHWOs are organized for the public benefit and are supported largely by public contributions. The providers of resources are not the primary recipients of services or benefits of a VHWO. VHWOs include the Boy Scouts and Girl Scouts, the American Cancer Society, the YMCA and the YWCA, halfway houses for drug offenders, and so on.

Other not-for-profit organizations, in one sense, is the "all other not-for-profit organizations” category. It includes a wide variety of not-for-profit organizations that do not meet the definition of VHWOs, colleges and universities, or health care organizations. ONPOs range from churches and other religious organizations to fraternal organizations to political parties and professional associations.

Question 16-2

Different accounting standards must be applied by VHWOs and by ONPOs that are government organizations than are to be applied by VHWOs and by ONPOs that are not government organizations. This situation exists because while the GASB has primary standards setting authority over government VHWOs and government ONPOs, the FASB has primary standards setting authority over all other VHWOs and ONPOs. Accounting and reporting for the government and nongovernment entities were very similar until the FASB adopted SFAS Nos. 116 and 117. These standards changed financial reporting for nongovernment, not-for-profit organizations significantly, but do not affect accounting and financial reporting for government not-for-profit organizations.

Government VHWOs and ONPOs are required to apply the state and local government accounting model discussed in the previous chapters. They are prohibited from applying the FASB standards for not-for-profit organizations.

Question 16-3

The basic financial statements required for nongovernment ONPOs are:

Statement of Financial Position (Balance Sheet) Statement of Activity Statement of Cash Flows

©2009 Pearson Education, Inc. publishing as Prentice Hall343

Question 16-4

SFAS No. 117 requires nongovernment, not-for-profit organizations to report net assets (assets less liabilities) in three classes:

1. Unrestricted net assets—The portion of net assets not temporarily or permanently restricted. (This category may include assets that previously were temporarily restricted, but for which the donor stipulation has been met, removing the restriction.)

2. Temporarily restricted net assets—The portion of net assets whose use is limited by donor-imposed restrictions on the timing of use (e.g., pledges for future period giving and term endowments) or purpose of use of the donated resources.

3. Permanently restricted net assets—The portion of net assets whose use is limited by donor imposed restrictions that are permanent in nature, i.e., restrictions cannot be fulfilled by either passage of time or other actions of the organization.

Question 16-5

A nongovernment ONPO should recognize contributions that are restricted by donors for fixed asset acquisitions as revenue using the same criteria as for other contributions. These restricted contributions should be recognized in the period that they are received or unconditionally promised. (Net assets released from restrictions are reported when the fixed assets acquired are placed in service.)

Question 16-6

The FASB defines collections as:

Works of art, historical treasures, or similar assets that are (a) held for public exhibition, education, or research in furtherance of public service rather than financial gain, (b) protected, kept unencumbered, cared for and preserved, and (c) subject to an organizational policy that requires the proceeds of items that are sold to be used to acquire other items for collections.

The traditional logic for not depreciating collections is that they are inexhaustible. Collections have not been required to be capitalized because determining a reasonable approximate dollar amount at which to capitalize them may be impossible, or virtually so. Capitalization is permitted. An entity that capitalizes collections may capitalize all collections or just those acquired after adopting SFAS No. 116. Organizations that capitalize collections report donated collections as assets and as contributions revenue at their fair value.

Question 16-7

At receipt, restricted gifts, contributions, and bequests to a nongovernment VHWO (or ONPO) are reported as temporarily restricted contribution revenue—increasing temporarily restricted net assets. Upon expenditure of the restricted resources, a nongovernment VHWO (ONPO) would report any expenses incurred as changes in unrestricted net assets and reflect assets acquired in


Question 16-7 (continued)

the balance sheet. A nongovernment VHWO (ONPO) also would report "Net assets released from restrictions" in its statement of activities as an increase in "Changes in Unrestricted Net Assets" and as a decrease in "Changes in Temporarily Restricted Net Assets" to the extent that the restrictions have been satisfied. (Fixed assets purchased with temporarily restricted assets must be placed in service for the restriction to be deemed met.)

Question 16-8

a. In some cases, the motivation for this practice may be to justify reporting the costs of fund-raising mailings as program expenses. Resource providers are interested in the ratio of fund-raising expenses to total expenses as an indicator of the extent to which the entity's resources are ultimately used for the entity's primary purposes. A lower ratio generally is better. In other cases, it is a legitimate effort to minimize costs of both fund raising and program efforts.

b. Under GAAP, the costs of the mailings are an example of a joint activity. Costs of joint activities must be reported as fund-raising activities unless the activity meets three tests regarding the purpose of the activity, the audience to whom the activity is addressed, and the actions that the audience is asked to take. If these three conditions--which indicate that a legitimate program purpose is being served in addition to the fund-raising purpose of the activity, the costs of joint activities that are identifiable with specific program or management and general functions are allocated appropriately to those functions. Otherwise, all the costs of the joint activity except the costs of direct benefits to donors are reported as fund-raising expenses.

Question 16-9

Assuming that the pledges are unconditional at the time the pledge is received and that the first installment of the pledge is to be received in the next fiscal year, revenues from the pledge should be reported in the year the pledge is received even though nothing is collected. The revenues should be reported as changes in temporarily restricted net assets since there is an implied time restriction. The amount of revenues should equal the expected present value of the pledge.

Question 16-10

Expenses must be reported by program or function. These functional expenses are presented within two major classifications—Program expenses and Supporting Services expenses.

Program expenses are related directly to the primary missions of the organization. Supporting services expenses do not relate directly to the primary missions of the organization. Supporting services include management and general expenses, fund-raising expenses, and other costs not associated directly with rendering program services.


Question 16-11

Conditional pledges are pledges that are made subject to provisions (conditions) that release the donor from the obligation to give as a result of the occurrence or nonoccurrence of a future and uncertain event. (If the probability of not meeting the condition is slight, the pledge is not considered conditional.) Pledges that are not subject to such conditions are called unconditional pledges.

Unconditional pledges are recognized as revenues in the period received. Conditional pledges are not recognized as pledges until the condition is met or the probability of not meeting the condition becomes slight. At that point, the pledge is either collected or becomes unconditional—or both—and should be recognized as revenue.

Recall that the timing of recognition of contribution revenues for pledges is not affected by whether the pledge is restricted or unrestricted.

Question 16-12

Unrestricted contributions are available immediately for any legitimate use of the VHWO or ONPO. Restricted contributions are required, implicitly or explicitly, by donors to be used for a certain purpose or during or after a certain time period. (Some restrictions are permanent—e.g., permanent endowments.)

Restrictions have no effect on the timing of revenue recognition. They do determine the net asset class in which the revenues are reported. Unrestricted contributions are reported as revenues in the Changes in Unrestricted Net Assets section of the Statement of Activities. Contributions with permanent restrictions are classified as Changes in Permanently Restricted Contributions. Other restricted contributions are classified as Changes in Temporarily Restricted Contributions.

Question 16-13

Net assets released from restrictions is the term used to report the satisfaction of temporary restrictions on the use of resources. Net assets released from restrictions are reported as increases in Changes in Unrestricted Net Assets and as equal decreases in Changes in Temporarily Restricted Net Assets in the year that the restriction is satisfied (and therefore the net assets become unrestricted).

Question 16-14

Temporarily restricted contributions and temporarily restricted investment earnings are permitted to be reported as revenues in the changes in unrestricted net assets if the restrictions are met in the same year that the contributions or investment earnings are to be recognized as revenues AND if the entity applies the policy to both of these revenue sources.


Question 16-15

a. Temporarily restricted revenues in the current year (because of an implied time restriction).If received in the next year, net assets released from restrictions will be reported in that year.

b. Not reported as assets or revenues because the pledge is not unconditional. The pledge may be disclosed.

c. Temporarily restricted revenues in the current year. Net assets released from restrictions will be reported as expenses for community outreach are incurred.

d. Temporarily restricted revenues in the current year. Net assets released from restrictions will be reported when the building is placed in service.

Question 16-16

Direct costs of holding a special fund-raising event that is reported gross may be reported as an expense deduction from the revenues—just as cost of goods sold is deducted from sales. Alternatively, the direct costs may be reported in the expenses section of the statement of activities. The cost of benefits such as meals that are provided to contributors may be reported as part of a separate line item that identifies such costs. Other direct costs such as advertising should be included in fund raising expenses.

Revenues from these events should be reported at the gross amount unless the event is incidental or peripheral. In those cases, gains, not revenues, should be reported. Gains from special fund-raising events may be reported gross or net of direct costs of holding the event. If special event "gains" are reported net, the direct costs of the special event should be disclosed parenthetically.

Question 16-17

In order for an event to be recorded in the accounts it should be a viable revenue, contribution, expense, etc., and should be objectively measurable. VHWOs and ONPOs have many volunteer workers—skilled and unskilled, helpful and in the way, etc. Too, some volunteers may be skilled in one area, say medicine, but do volunteer work in arts and crafts or another area outside of their special skill area. With so many volunteers with different skills, doing different things—some well, some poorly—at different times it becomes virtually impossible to put a reasonable dollar value on much of the volunteer help.

Likewise, some donated materials are excellent and useful, while others are scrap. And some donated clothing is virtually new and ideal for the season, but other donated clothing is little more than rags. Further, some facilities that are made available for VHWO and ONPO functions are private homes, office conference rooms, or other facilities that are not normally rented out. In all these cases it is very difficult, if not impossible, to establish the fair value of the materials, clothing, or facilities received or used.

Thus, both VHWOs and ONPOs are very restricted as to which donated materials, services, facilities, etc., are given recognition as contributions and expenses (or assets) in the accounts and financial statements. Those that can be objectively valued and are significant enough to warrant the trouble of doing so are recognized; the rest are not, though they may be described in the notes to the financial statements and data on them may be presented in supplemental schedules or statistical reports.


SOLUTIONS TO EXERCISES

Exercise 16-1

1. b2. b3. b4. c5. d6. d7. a8. a9. c10. b

Exercise 16-2

1. b2. c3. b4. a5. c6. e7. c8. e9. c10. a

Exercise 16-3

1. Pledges Receivable............................................................... 250,000Cash..................................................................................... 1,250,000

Allowance for Uncollectible Pledges............................. 50,000Temporarily Restricted Support—Contributions*.......... 700,000Unrestricted Support—Contributions............................. 750,000

To record pledges and collections of pledges.*The uncollected pledges receivable have an implied time restriction.

2. Cash..................................................................................... 300,000Permanently Restricted Support—Contributions............ 300,000

To record permanent endowment gift.

3a. Expenses—Program X......................................................... 222,000Cash/Payables/Etc......................................................... 222,000

To record expenses for specified program.


Exercise 16-3 (continued)

3b. Reclassifications Out............................................................ 222,000Reclassifications In........................................................ 222,000

To record satisfaction of restrictions on restricted resources.

4. No entry until the pledges become unconditional.

Exercise 16-4

1. Supplies Inventory................................................................ 50,000Accounts Payable.......................................................... 50,000

To record purchase of supplies on account.

2. Expenses—Supplies............................................................. 40,000Supplies Inventory......................................................... 40,000

To record supplies used.

3. Equipment............................................................................ 16,000Cash/Payables............................................................... 16,000

To record purchase of equipment.

Reclassifications Out............................................................ 16,000Reclassifications In........................................................ 16,000

To record satisfaction of restrictions on restricted resources

4. Cash..................................................................................... 1,000,000Bonds Payable............................................................... 1,000,000

To record issuance of bonds.

5. Cash..................................................................................... 45,000Land.............................................................................. 33,000Gain on Sale of Land..................................................... 12,000

To record sale of land.

6. Cash..................................................................................... 6,000Unrestricted Revenues—Interest Income....................... 6,000

To record unrestricted interest earnings. Note that even Though the organization intends to use the earnings for the same purpose for which the principal of the gift is restricted, the earnings are not donor-restricted.


Exercise 16-5

(a)

1. Equipment............................................................................ 30,000Cash.............................................................................. 30,000

To record purchase of equipment.

2. Expenses—Depreciation....................................................... 12,000Accumulated Depreciation—Equipment........................ 12,000

To record depreciation.

3. Cash..................................................................................... 20,000Accumulated Depreciation—Equipment............................... 12,000

Equipment..................................................................... 30,000Unrestricted Gain on Sale of Equipment........................ 2,000

To record sale of equipment.

(b) The depreciation expense decreases unrestricted net assets by $12,000 and the gain on the equipment sale increases unrestricted net assets by $2,000.

Exercise 16-6

1. Pledges Receivable............................................................... 1,000,000Allowance for Uncollectible Pledges............................. 150,000Temporarily Restricted Support—Contributions............ 850,000

To record pledges expected to be collected afteryear end.

Even if the pledges are unrestricted they are reported as temporarily restricted unless the donors specify that the pledge is intended to cover current year costs. Uncollected pledges have an implied time restriction according to the FASB.

2. Cash..................................................................................... 3,000,000Temporarily Restricted Support—Contributions............ 3,000,000

To record temporarily restricted contributions.

3a. Expenses—Killer Bee Research............................................ 2,200,000Cash.............................................................................. 2,200,000

3b. Reclassifications Out............................................................ 2,200,000Reclassifications In........................................................ 2,200,000

To record satisfaction of temporary use restrictions.


Exercise 16-7

Illustrative VHWO/ONPOStatement of Activities

For the Year Ended December 31, 20X1

Unrestricted Temporarily

Restricted Permanently

Restricted Total Revenues and gains:Contributions (net of uncollectibles of $20,000) $363,000 $275,000 $55,000 $ 693,000 Special events 75,000 — — 75,000 Less: Direct costs of events 25,000 — — 25,000

50,000 — — 50,000 Membership dues 17,300 — — 17,300Investment income 34,000 35,500 10,500 80,000Realized gains on sale of investments 1,400 1,400Gain on sale of equipment 10,000Net assets released from restrictions 445,000 (445,000) —

— Total revenues and gains 919,300 (134,500) 66,900 851,700 Expenses:Program Services: Research 103,800 — — 103,800 Education 184,000 — — 184,000 Total program services 287,800 — — 287,800 Supporting Services: Management and general 171,200 — — 171,200 Fund-raising 91,000 — — 91,000 Total supporting services 262,200 — — 262,200 Total expenses 550,000 — — 550,000 Change in net assets 369,300 (134,500) 66,900 301,700 Net assets, January 1, 20X1* 417,000 431,000 345,000 1,193,000 Net assets, December 31, 20X1 $786,300 $296,500 $411,900 $1,494,700

*These amounts are from Illustration 16-6 on page 667 of the text.


Exercise 16-8The American Red Cross

Statement of ActivitiesYear Ended June 30, 20X6

(in thousands)

Changes in Unrestricted Net AssetsOperating revenues and gainsContributions:

Corporate, foundation and individual giving.............................. $ 258,002United Way and other federated................................................ 60,025Legacies and bequests............................................................... 59,666Services and materials............................................................... 25,126Grants....................................................................................... 33,520

Products and services:Biomedical................................................................................ 2,165,172Program materials..................................................................... 141,300

Contracts, including federal government........................................... 311,435Investment income (Note 7)............................................................. 108,570Other revenues................................................................................. 67,528Net assets released from restrictions................................................. 2,517,098 Total operating revenues and gains................................................ 5,747,442Operating Expenses:Program Services:

Armed Forces Emergency Services........................................... 54,096Biomedical services.................................................................. 2,103,572Community Service ................................................................. 133,467Domestic disaster services......................................................... 2,630,766Health and safety services......................................................... 224,594International relief and development services............................ 154,283

Total program services ................................................................. 5,300,778Supporting Services:

Fund raising ............................................................................. 140,082Management and general .......................................................... 187,249

Total Supporting Services ............................................................ 327,331Total operating expenses .......................................................... 5,628,109

Change in net assets from operations ............................................... 119,333Nonoperating gains.......................................................................... 62,804Additional minimum pension liability.............................................. 94,470 Change in unrestricted net assets................................................... 276,607


Changes in Temporarily Restricted Net AssetsContributions:

Corporate, foundation and individual giving.............................. $ 2,387,042United Way and other federated................................................ 102,275Legacies and bequests............................................................... 9,609Services and materials............................................................... 213,215Grants....................................................................................... 40,932

Products and services:Program materials..................................................................... 387

Investment income (Note 7)............................................................. 1,409Nonoperating gains.......................................................................... 856

Net assets released from restrictions *....................................... (2,517,098 ) Increase in temporarily restricted net assets .............................. 238,627

Changes in Permanently Restricted Net AssetsLegacies and bequests...................................................................... 23,412Nonoperating gains.......................................................................... 796

Increase in permanently restricted net assets ............................. 24,208Increase in net assets ....................................................................... 539,442Net Assets, Beginning...................................................................... 2,646,121Net Assets, Ending .......................................................................... $3,185,563


SOLUTIONS TO PROBLEMS

Problem 16-1

1a. Cash ......................................................................................... 3,000,000Unrestricted Support—Contributions ................................. 3,000,000

To record cash contribution received.

b. Expenses (by function) ............................................................. 400,000Cash .................................................................................. 400,000

To record operating expenses paid.

2a. Cash ......................................................................................... 3,000,000Temporarily Restricted Support—Contributions—Research 3,000,000

To record restricted cash gift received.

b. Expenses—Research ................................................................ 400,000Cash .................................................................................. 400,000

To record research expenses.

Reclassifications Out ................................................................ 400,000Reclassifications In ........................................................... 400,000

To record release of assets from temporary restrictions.

The expenses must be reported as changes in unrestricted net assets.

3a. Cash ......................................................................................... 3,000,000Temporarily Restricted Support—Contributions................. 3,000,000

To record cash gift restricted for capital additions.

b. Construction in Progress ........................................................... 400,000Cash .................................................................................. 400,000

To record construction costs incurred.

Net assets released from restrictions are not reported until the assets are placed in service.

4. In the first case, $3,000,000 of contributions revenue and $400,000 of operating expenses will be reported in the Statement of Activities as Changes in Unrestricted Net Assets. For the last two cases, the contributions revenue is reported under Changes in Temporarily Restricted Net Assets. In addition, in the second case, net assets released from restrictions of $400,000 is reported as an increase (the reclassification in) under Changes in Unrestricted Net Assets and as a decrease (the reclassification out) under Changes in Temporarily Restricted Net Assets and expenses in the second case are reported under Changes in Unrestricted Net Assets.

As noted above, net assets released from restrictions are not reported in the final case until the asset is completed and placed in service.


Problem 16-2, Part I

April 1 Equipment .............................................................. 47,300Cash or Vouchers Payable ................................. 47,300

To record equipment purchase.

Reclassifications Out................................................. 47,300Reclassifications In............................................ 47,300

To record release of net assets from restrictions.

July 1 Cash ........................................................................ 10,000,000Bonds Payable .................................................. 10,000,000

To record bond issuance.

During 20X8Cash ........................................................................ 800,000

Temporarily Restricted Support—Contributions—Debt Service ..................... 800,000

To record contributions restricted for debt service.

October 31 Cash ........................................................................ 19,000Accumulated Depreciation—Equipment .................. 7,500

Equipment ........................................................ 25,000Unrestricted Gain on Sale of Fixed Assets ......... 1,500

To record sale of equipment.

Dec. 31 Interest Expense ....................................................... 500,000Cash ................................................................. 500,000

To record interest payment.

Reclassifications Out ................................................ 500,000Reclassifications In ........................................... 500,000

To record satisfaction of restrictions.

Depreciation Expense ($47,300/5) x .75.................... 7,095Accumulated Depreciation—Equipment............ 7,095

To record depreciation for the year.


Problem 16-2, Part II (a)

1. Cash ......................................................................................... 2,000,000Temporarily Restricted Support—Contributions ................ 2,000,000

To record endowment gift.

Reclassifications Out ................................................................ 1,000,000Reclassifications In ........................................................... 1,000,000

To record satisfaction of restrictions.

Note that no reclassification is recorded at this point for the portion of the term endowment that must be used for capital additions (i.e., plant asset additions) because a use restriction remains even though the time restriction has been met.

(b)

1. Upon receipt, the Neuland Community Center should report the gift as temporarily restricted revenues.

2. When the term of the endowment expires, the $1,000,000 that becomes available for unrestricted use should be reported as net assets released from restriction—an increase in unrestricted net assets and a decrease in temporarily restricted net assets.

Problem 16-3

Net Assets:Permanently restricted ($50,000,000 + $1,500,000).......................... $ 51,500,000

Temporarily restricted:For research ............................................................................. 10,000,000For scholarships ....................................................................... 4,000,000For plant assets ........................................................................ 5,000,000For endowment ........................................................................ 2,000,000For future years ........................................................................ 1,300,000 22,300,000

Unrestricted .................................................................................... 32,000,000*

Total net assets ......................................................................... $105,800,000

*Certain portions of unrestricted net assets are committed to specific purposes, as follows:Designated for plant expansion ............................................................ $ 3,000,000Required by bond indenture to be used for plant expansion................... 4,500,000Invested in fixed assets ($17,000,000 - $1,500,000).............................. 15,500,000Undesignated ....................................................................................... 9,000,000

Total unrestricted net assets........................................................... $32,000,000


Problem 16-4West Texas Zoological and Botanical Society

Balance SheetDecember 31, 20X5

Assets Cash ($350,000 - $50,000)........................................................................................ $ 300,000Accounts receivable (net of $20,000 allowance for uncollectibles).............................. 100,000Pledges receivable (net of $100,000 allowance for uncollectibles)............................... 600,000Inventories................................................................................................................ 300,000Investments* ($15,000,000 - $2,800,000 - $1,200,000)............................................... 11,000,000Assets restricted for plant purposes............................................................................ 1,200,000Assets restricted for endowment................................................................................. 2,850,000Land, buildings and improvements, and equipment (net of

$10,000,000 accumulated depreciation)......................................................... 28,000,000Other assets............................................................................................................... 150,000

Total Assets.................................................................................................. $44,500,000

Liabilities and Net Assets Liabilities:Accounts payable...................................................................................................... $ 525,000Accrued expenses payable......................................................................................... 100,000Unearned revenues.................................................................................................... 75,000Long-term debt......................................................................................................... 6,000,000

Total Liabilities............................................................................................ 6,700,000Net Assets:Permanently restricted............................................................................................... 2,850,000Temporarily restricted for:

Specific operating purposes........................................................................... 5,500,000Plant expansion............................................................................................ 1,200,000

Total temporarily restricted.................................................................... 6,700,000Unrestricted:

Invested in plant........................................................................................... 22,000,000Undesignated................................................................................................ 6,250,000

Total unrestricted.................................................................................. 28,250,000Total net assets............................................................................................. 37,800,000

Total Liabilities and Net Assets............................................................. $44,500,000

*Assumes that all assets restricted for plant purposes are investments. Also, permanently restricted net assets for Endowment of $2,850,000 less $50,000 cash means $2,800,000 of investments are for endowments.

Note that the equality of total liabilities and total temporarily restricted net assets is coincidental and unusual. Also, note that the amounts shown as liabilities for deferred support and deferred capital additions are in fact temporarily restricted net assets as reported here, since restrictions on use do not defer revenue recognition. Finally, cash, investments, and other assets restricted for plant purposes or endowment must be reported as separate line items as presented in the solution, not as part of the general cash or investments accounts.


Problem 16-5

1a. Cash ......................................................................................... 2,000,000Pledges Receivable ................................................................... 1,850,000

Allowance for Uncollectible Pledges ................................. 185,000Unrestricted Support—Contributions ................................. 700,000Permanently Restricted Support—Contributions ................ 500,000Temporarily Restricted Support—Contributions................. 2,465,000

To record cash and pledge contributions.

2a. Buildings & Additions ............................................................. 1,500,000Cash .................................................................................. 600,000Notes Payable ................................................................... 900,000

To record completion of addition and partial payment;note given for the balance.

2b. Reclassifications Out ................................................................ 600,000Reclassifications In ........................................................... 600,000

To record satisfaction of temporary restrictions.

3a. Expenses—Fund Raising .......................................................... 100,000Expenses—General and Administrative .................................... 80,000Expenses—Program A ............................................................. 320,000Expenses—Program B ............................................................. 200,000Expenses—Program C ............................................................. 400,000Expenses—Interest.................................................................... 54,000Notes Payable........................................................................... 90,000Investments Restricted for Endowment...................................... 450,000

Cash .................................................................................. 1,694,000To record expenses incurred and paid and note principal retirement.

3b. Reclassifications Out ................................................................ 600,000Reclassifications In ........................................................... 600,000

To record satisfaction of temporary restrictions.

4. Equipment ............................................................................... 300,000Cash .................................................................................. 300,000

To record equipment purchased from restricted resources.

5a. Cash ......................................................................................... 40,000Accumulated Depreciation—Equipment ................................... 65,000

Unrestricted Gain on Sale of Equipment ............................ 5,000Equipment ........................................................................ 100,000

To record sale of used equipment.


Problem 16-5 (continued)

6. Land and Building Held for Resale ........................................... 850,000Temporarily Restricted Support—Contributions ................ 850,000

To record receipt of lot and building to be sold and the proceeds used for Program D.

7. Cash ......................................................................................... 850,000Land and Building Held for Resale .................................... 850,000

To record sale of land and building given to support Program D.

8. Accrued Interest Receivable ..................................................... 100,000Cash ......................................................................................... 100,000

Unrestricted Revenues—Interest........................................ 75,000Temporarily Restricted Revenues—Interest........................ 125,000

To record interest earnings.

9a. Cash ......................................................................................... 300,000Unrestricted Support—Special Events ............................... 300,000

To record gross proceeds of fund-raiser.

9b. Expenses—Direct Costs of Special Events ................................ 60,000Cash .................................................................................. 60,000

To record direct costs of fund-raiser.

9c. Expenses—Direct Costs of Special Events ................................ 17,500Unrestricted Support—Special Events—

Donated Facilities ...................................................... 10,000Unrestricted Support—Special Events—

Donated Materials ...................................................... 7,500To record donated facilities and materials.

10. Expenses—Program A ............................................................. 13,500Expenses—Program B ............................................................. 9,000Expenses—Program C ............................................................. 11,250Expenses—Program D.............................................................. 11,250

Unrestricted Support—Donated Services ........................... 45,000To record donated professional services.

11. Land ........................................................................................ 100,000Building ................................................................................... 250,000

Mortgage Note Payable ..................................................... 50,000Unrestricted Support—Contributions ................................. 300,000

To record donation of land and building for infant nursery and playground.


Problem 16-6 (a)

COMMUNITY ASSOCIATION FOR HANDICAPPED CHILDRENStatement of Activities

For the Year Ended June 30, 20X6

Changes in Unrestricted Net AssetsRevenues and gain:Contributions (net of estimated uncollectibles of $2,000) ................. $313,000Membership dues ............................................................................ 25,000Program service fees........................................................................ 30,000Investment income ($20,000 + $10,000)........................................... 30,000

Total Revenue and Gains ......................................................... 398,000

Expenses:Program Services:

Deaf children's program ........................................................... 120,000Blind children's program .......................................................... 150,000

Total Program Services ..................................................... 270,000Supporting Services:

Management and general ($49,000 + $6,000)........................... 55,000Fund raising ............................................................................. 9,000

Total Supporting Services ................................................. 64,000Total Expenses .................................................................. 334,000

Net Increase in Unrestricted Net Assets............................................ 64,000Net Assets, July 1, 20X5 ($699,000 - $64,000)................................. 635,000Net Assets, June 30, 20X6................................................................ $699,000


Problem 16-6 (b)

COMMUNITY ASSOCIATION FOR HANDICAPPED CHILDRENBalance SheetJune 30, 20X6

Assets

Cash................................................................................................ $ 49,000Bequests receivable.......................................................................... 5,000Pledges receivable (net of $3,000 estimated uncollectibles).............. 9,000Accrued interest receivable............................................................... 1,000Investments...................................................................................... 100,000Assets restricted for endowment....................................................... 500,000Equipment (net of $50,000 accumulated depreciation)..................... 100,000

Total Assets.......................................................................... $764,000

Liabilities and Net Assets

Liabilities:Accounts payable and accrued expenses payable.............................. $ 51,000Unearned revenues........................................................................... 2,000Note payable.................................................................................... 12,000

Total Liabilities.................................................................... 65,000

Net Assets:Permanently restricted...................................................................... 500,000Temporarily restricted for:

Specific operating purposes.................................................. 3,000Future years* ($5,000 + $12,000 - $3,000)........................... 14,000

Total temporarily restricted............................................ 17,000Unrestricted:

Invested in plant ($150,000 - $50,000 - $12,000).................. 88,000Designated (given)............................................................... 12,000Undesignated ($699,000 -$550,000 - $17,000 –

$88,000 - $12,000)................................................ 82,000Total unrestricted........................................................... 182,000

Total net assets..................................................................... 699,000Total Liabilities and Net Assets............................................ $764,000

*Implied time restriction


Problem 16-7Organization Name

Statement of ActivityFor Fiscal Year 20X7

Changes in Unrestricted Net AssetsRevenues and gainsContributions................................................................................... 5,000,000Special events ................................................................................. 3,000,000 Less: Direct costs of special events ................................................ 2,100,000 900,000Membership dues ............................................................................ 1,800,000Investment income .......................................................................... 3,000,000

Total revenue and gains ............................................................ 10,700,000Net assets released from restrictions *.............................................. 11,700,000

Increase in unrestricted net assets ............................................. 22,400,000Expenses:Program Services:

Research ($3,500,000 + $1,750,000)........................................ 5,250,000Community Service ................................................................. 3,000,000

Total Program Services ..................................................... 8,250,000Supporting Services:

Management and general .......................................................... 700,000Fund raising ............................................................................. 1,000,000

Total Supporting Services ................................................. 1,700,000Total expenses .................................................................. 9,950,000Net increase in unrestricted net assets ................................ 12,450,000

Changes in Temporarily Restricted Net AssetsContributions............................................................................ 14,600,000Investment income ................................................................... 2,700,000Net assets released from restrictions *....................................... (11,700,000 ) Increase in temporarily restricted net assets .............................. 5,600,000

Changes in Permanently Restricted Net AssetsContributions ........................................................................... 4,000,000Realized gains on sale of investments ....................................... 950,000

Increase in permanently restricted net assets ...................... 4,950,000

Increase in net assets ....................................................................... 23,000,000Net Assets, Beginning...................................................................... 34,400,000Net Assets, Ending .......................................................................... $57,400,000

Computations:Net assets released from restrictions:

Qualifying research expenses ............................................ $3,500,000Fixed asset purchases ........................................................ 7,000,000Expired term endowment .................................................. 1,200,000

Total .......................................................................... $11,700,000



Temporarily restricted contributions:For future years ................................................................. 700,000For specific programs ........................................................ 2,300,000For term endowments ........................................................ 600,000For plant assets .................................................................. 11,000,000

Total .......................................................................... $14,600,000

Beginning net assets:Unrestricted ...................................................................... $ 3,000,000Temporarily restricted ....................................................... 9,400,000Permanently restricted ....................................................... 22,000,000

Total .......................................................................... $34,400,000


Problem 16-8

KINDNESS COOPERATIVEStatement of Activities

For the Year Ended December 31, 20X7

Changes in Unrestricted Net AssetsRevenues and gainsContributions............................................................................ $335,000,000Special events .......................................................................... $75,000,000 Less: Direct costs of special events ......................................... 25,000,000 50,000,000Membership dues ..................................................................... 17,300,000Investment income ................................................................... 34,000,000Donated materials..................................................................... 10,000,000Donated facilities...................................................................... 8,000,000Donated services....................................................................... 10,000,000Gain on sale of equipment......................................................... 10,000,000

Total revenue and gains ..................................................... 474,300,000Net assets released from restrictions *...................................... 313,800,000

Increase in unrestricted net assets ............................... 788,100,000Expenses:Program Services:

Research............................................................................ 103,800,000Education........................................................................... 184,000,000

Total Program Services .............................................. 287,800,000Supporting Services:

Management and general ($151,200,000 + $20,000,000).................................... 171,200,000

Fund raising ...................................................................... 91,000,000Total Supporting Services .......................................... 262,200,000Total expenses ........................................................... 550,000,000Net increase in unrestricted net assets ......................... 238,100,000

Changes in Temporarily Restricted Net AssetsContributions..................................................................... 275,000,000Investment income ............................................................ 35,500,000Net assets released from restrictions *................................ (313,800,000 )

Decrease in temporarily restricted net assets ............... (3,300,000 )

Changes in Permanently Restricted Net AssetsContributions .................................................................... 55,000,000Investment income............................................................. 10,500,000Realized gains on sale of investments ................................ 1,400,000

Increase in permanently restricted net assets ............... 66,900,000Increase in net assets .............................................................. 301,700,000Net Assets, Beginning.............................................................. 1,300,000,000Net Assets, Ending ................................................................. $1,601,700,000



Computation of net assets released from restrictions:

Net assets were released from restrictions as follows:Restricted to future years (prior year pledges collected)...... $100,000,000Research expenses.............................................................. 103,800,000Construction and equipment costs....................................... 110,000,000

Total........................................................................... $313,800,000


Problem 16-9Mark Meadows Foundation

Statement of ActivityFor the Year Ended December 31, 20X6

Changes in Unrestricted Net AssetsRevenues and gainsContributions ($3,000,000 - $250,000)............................................. $2,750,000Special events ................................................................................. $290,500 Less: Direct costs of special events ................................................ 97,500 193,000Membership dues ............................................................................ 75,000Investment income .......................................................................... 83,400

Total revenue and gains ............................................................ 3,101,400Net assets released from restrictions *.............................................. 910,000

Increase in unrestricted net assets ............................................. 4,011,400Expenses:Program Services:

Community service ($220,000 + $2,110,000)............................ 2,330,000Public presentations.................................................................. 555,000Education.................................................................................. 200,000

Total Program Services ..................................................... 3,085,000Supporting Services:

Management and general .......................................................... 253,000Fund raising ............................................................................. 95,000

Total Supporting Services ................................................. 348,000Total expenses .................................................................. 3,433,000Net increase in unrestricted net assets ................................ 578,400

Changes in Temporarily Restricted Net AssetsContributions ($250,000 + $1,000,000 + $1,500,000)................ 2,750,000Investment income ................................................................... 320,000Net assets released from restrictions *....................................... (910,000 ) Increase in temporarily restricted net assets .............................. 2,160,000

Changes in Permanently Restricted Net AssetsContributions ........................................................................... 10,000,000

Increase in net assets ..................................................................... 12,738,400Net Assets, January 1..................................................................... 1,703,000Net Assets, December 31................................................................ $14,441,400

* Net assets released from restrictions:Qualifying community service expenses ............................ $ 220,000Qualifying public presentations program expenses ............. 555,000Collection of prior year pledges ......................................... 135,000

Total .......................................................................... $ 910,000


Problem 16-10

Reclassifications Out........................................................................ 50,000Reclassifications In........................................................ 50,000

To record satisfaction of restriction on net assets.

2. Pledges Receivable............................................................... 600,000Allowance for Uncollectible Pledges............................. 60,000Unrestricted Support—Contributions............................. 405,000Temporarily Restricted Support—Contributions............ 135,000

To record pledges.

3. Cash..................................................................................... 480,000Allowance for Uncollectible Pledges.................................... 7,000

Pledges Receivable........................................................ 487,000To record collections and write-offs of pledges receivable.

If a student assumes that the pledges collected were included in Temporarily Restricted Support—either in the current year or in a prior year--a reclassification entry should be made at this point.

4a. Inventory of Materials and Supplies...................................... 22,000Unrestricted Support—Donated Materials...................... 22,000

To record donations of materials.

4b. Expenses—Materials and Supplies....................................... 17,000Inventory of Materials and Supplies............................... 17,000

To record cost of materials used.

5. Cash..................................................................................... 400,000Unrestricted Support—Membership Dues...................... 400,000

To record collection of membership dues.

6. Cash..................................................................................... 30,000Temporarily Restricted Support—Contributions............ 30,000

To record restricted gifts.

7a. Expenses—Community Outreach—Salaries......................... 3,000Expenses—Community Outreach—Equipment Rental.......... 15,000

Cash.............................................................................. 18,000To record salaries and equipment rentals.

7b. Reclassifications Out............................................................ 18,000Reclassifications In........................................................ 18,000

To record satisfaction of restriction on net assets.


Note that when expenses are incurred for purposes for which restricted resources are available, the restriction has been satisfied even if management uses unrestricted resources to pay those expenses.Problem 16-10 (continued)

8. Cash..................................................................................... 500,000Pledges Receivable............................................................... 2,200,000

Temporarily Restricted Support—Contributions............ 2,700,000To record restricted gifts to finance recreation center construction.


Documents

Acc 240 Ch_16_sm_9e