Not For Profit Accounting Paper 10

(c) FASB ASC 958 requires classification of an organization’s net assets and its revenues, expenses, gains, and losses based on the existence or absence of donor-imposed restrictions. It requires that the amount for each of three classes of net assets—permanently restricted, temporarily restricted, and unrestricted—be displayed in a statement of financial position and that the amounts of change in each of those classes of net assets be displayed in a statement of activities. A temporary restriction is a donor-imposed restriction that permits the donee organization to use up or expend the donated assets as specified; it is satisfied either by the passage of time or by actions of the organizations involved. Accordingly, the $5,000,000 contribution of Day Co. shares represents temporarily restricted net assets until the shares are sold and the proceeds used to erect a public viewing building. The $2,000,000 contribution of Day Co. shares represents permanently restricted net assets because the shares are to be retained permanently.

(d) A liability (not revenue) is recorded when the reporting entity acts as an agent or trustee. A recipient of assets who is an agent or trustee has little or no discretion in determining how the assets transferred will be used. The receipt of cash to purchase furniture specifically for the Jones family would constitute a “transfer” of assets. Upon receipt of the asset (cash), the Amer Benevolent society must expend (i.e., purchase furniture) the contribution to comply with the restrictions of the donor. Answer (a) is incorrect because the donee restricted the use of the contribution. Answer (c) is incorrect because a permanent restriction stipulates that the resources be maintained permanently (but permits the donee organization to expend part or all of the income or other economic benefits derived from the donated assets).

(b) Per FASB ASC 958, an entity need not recognize the contributions of works of art and historical artifacts if the collection is held for public exhibition rather than financial profit, cared for and preserved, and, if sold, the proceeds are used to acquire other items for collections.

(b) The requirement is to determine what classification is required to report expenses of all not-for-profit organizations. All not-for-profit organizations must classify expenses according to their function in either the financial statement or in the notes to the financial statements.

(b) Quasi endowment funds are established by the governing board of an organization using unrestricted net assets. Therefore, the assets in the quasi endowment would be included in the unrestricted net assets category.

(a) According to FASB ASC 958, a transfer of assets with a conditional promise to contribute them shall be accounted for as a refundable advance until the conditions have been substantially met. The conditions have been substantially met when the possibility that they will not be met is remote. In this question, the chance that the condition will not be met is reasonably possible, which is a higher level of doubt than remote and thus results in reporting the cash transfer as a liability at December 31, 2011.

(b) The receipt of cash from a donor to establish a permanent endowment should be reported as a financing activity on the statement of cash flows. This same paragraph also states that receipts from investment income that by donor stipulation are restricted for the purposes of acquiring plant, equipment, and other long-lived assets should also be reported as a financing activity.

(c) Voluntary health and welfare organizations should provide a statement of functional expenses. This statement reports expenses by both function (program and supporting) and by their natural classification (salaries expense, depreciation expense, etc.).

(c) Donations of services are recognized on the statement of activities if either of the following two conditions are met: (1) the services create or enhance a nonfinancial asset, or (2) the services require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. The services provided by Jones Heating and Air Conditioning would clearly meet the second criterion. Good Hope would record the invoice in the following manner: Supporting Expenses 1,500 Accounts Payable 1,500 Upon notification that the invoice was canceled, Good Hope would make the following journal entry: Accounts Payable 1,500 Unrestricted Revenues 1,500 Therefore, the net effect of the contributed services is an increase in expenses and an increase in unrestricted revenues.

(d) Donations of services are recognized on the statement of activities if either of the following conditions are met: (1) the services create or enhance a nonfinancial asset, or (2) the services require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. The services of Anderson and Anderson, attorneys-at-law, clearly meet criterion 2 and should be reported as unrestricted revenues on James’ statement of activities. However, the services provided by the senior citizens do not meet either criterion, and should not be reported on the foundation’s statement of activities.