Topic: Tax-exempt status for NFP entities
Difficulty: 1 Easy
40. Give several examples, by name, of specific not-for-profit entities that are voluntary health and
welfare entities.
41. What are the objectives of accounting for a not-for-profit entity?
42. What term is often used by voluntary health and welfare entities as a category for resources received
from contributions, as opposed to those from providing goods or services?
43. What two classifications are used for the expenses incurred by voluntary health and welfare entities?
44. What is the main source of financial support for most voluntary health and welfare entities?
45. What criteria must be met before a not-for-profit entity can recognize contributed services as a means
of support?
2. Requires a specialized skill possessed by the contributor that would typically need to be
purchased if not donated.
Learning Objective: 18-04
46. For a not-for-profit entity, what are supporting services expenses?
47. What financial statements would normally be prepared by a voluntary health and welfare entity?
48. What are third party payors? Why are their interests important in accounting for health care entities?
49. How does a not-for-profit entity account for: 1) cash contributions, and 2) donated goods that are
received for operating purposes? What types of revenues are recognized by voluntary health and welfare
entities?
50. For a not-for-profit entity, when is recognition of contributions of artworks and historical treasures
not required?
51. How does a recipient not-for-profit entity record the receipt of a gift that will be transferred without
restriction to another charitable entity? What if the donor retains the right to revoke or redirect the gift?
52. For not-for-profit entities, what is the difference in identification of “control” between a merger and
an acquisition?
53. For May 2018, Carlington Hospital’s charges for patient services were $608,000, of which 80% was
billed to third-party payors.
Required:
Prepare the journal entry to accrue patient charges for the month.
54. Prepare the necessary journal entry to record the revenue and receivables.
55. $520,000 of the $2,720,000 was expected to be uncollectible.
Required:
Prepare the necessary journal entry to record the anticipated uncollectible amount.
56. In this month, there were several patients that had no health insurance and due to their low income
level, the hospital decided that $85,000 of receivables would not be collectible.
Required:
Prepare the necessary journal entry to reflect the decision to consider the $85,000 as charity care.
57. The hospital estimated that contractual adjustments would reduce the amount collected from third-
party payors to $1,710,000.
Required:
Prepare the necessary journal entry to record the contractual adjustments.
58. What should Dura Foundation report as program service expenses?
59. What should Dura Foundation report as supporting service expenses?
60. During 2017, the Garfield Humane Society, a voluntary health and welfare entity, received cash
donations of $892,000 and membership dues of $62,000. A member of the Humane Society donated
services valued at $8,000 that would otherwise have been performed by a paid staff member. A pet food
manufacturer donated dog food valued at $16,400. The Humane Society received a gift of $140,000, to
be used in building a new animal shelter. Also during 2017, investments held by the Humane Society
earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for
contributions from public support for 2017.
60. During 2017, the Garfield Humane Society, a voluntary health and welfare entity, received cash
donations of $892,000 and membership dues of $62,000. A member of the Humane Society donated
services valued at $8,000 that would otherwise have been performed by a paid staff member. A pet food
manufacturer donated dog food valued at $16,400. The Humane Society received a gift of $140,000, to
be used in building a new animal shelter. Also during 2017, investments held by the Humane Society
earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for
contributions from public support for 2017.
61. During 2018, the Garfield Humane Society, a voluntary health and welfare entity, received cash
donations of $892,000 and membership dues of $62,000. A member of the Humane Society donated
services valued at $8,000 that would otherwise have been performed by a paid staff member. A pet food
manufacturer donated dog food valued at $16,400. The Humane Society received a gift of $140,000, to
be used for building a new animal shelter. Also during 2018, investments held by the Humane Society
earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for
contributions from public support for 2018, according to ASU 2016-14.
62. The Yelton Center is a voluntary health and welfare entity. During 2017, unrestricted pledges of
$780,000 were received by the Yelton Center, sixty percent of which were fulfilled in 2017. Officials
estimated that fifteen percent of the original amount of pledges will be uncollectible. The remainder of the
amount expected to be collected from pledges will be received in 2018 (for use in 2018).
Required:
1) Show with appropriate amounts how the Yelton Center would present the pledges on its Statement of
Financial Position on the day the pledges are recorded in 2017.
2) Show with appropriate amounts the effect on net assets the Yelton Center would report for
contributions for 2017.
63. A local social worker, earning $12 per hour working for the state government, contributed 600 hours
of time at no charge to the Sunny Homeless Shelter, a voluntary health and welfare entity. If not for these
donated services, an additional staff person would have been hired by the entity.
Required:
How should the Sunny Homeless Shelter record the contributed services?
64. A not-for-profit entity receives a computer as a donation (valued at $2,000). Prepare the journal entry
for the transaction.
65. Assume there are no donor rights to revoke or redirect the gift.
Prepare the journal entries for Charity A when the gift is received, and for Charity A and Charity B when
the gift is distributed.
66. Assume that the donor retains the right to revoke or redirect the gift.
Prepare the journal entries for Charity A and Charity B. The entries should be for the gift when received
by Charity A, and when the gift is distributed for Charity B.
67. A not-for-profit entity provides the following information for the year 2017:
Required: Prepare the journal entries for these transactions for the year 2017.
Allowance for Uncollectible Pledges
12,500
Unrestricted Net Assets – Contributions
112,500
Permanently Restricted Net Assets – Contributions
20,000
Cash
75,000
Allowance for Uncollectible Pledges
3,000
Contributions Receivable
78,000
Learning Objective: 18-04
Topic: Contributions―Pledges
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Use the following to answer questions 68 – 70:
REFERENCE: 18-05
Wakefield Home is a private not-for-profit health care entity offering services for a fee. In the first
quarter of 2017, Wakefield Home rendered services of $300,000 to patients. Of this amount, patients bear
responsibility for 75% and the remaining amount is to be paid by third-party insurance providers.
However, at the end of 2017, Wakefield Home realizes that $25,000 of the patients’ responsibility to pay
their share of the billed amounts is estimated to be uncollectible and $3,000 of the amounts from the
third-party payors will not be collected.
[QUESTION]
REFER TO: 18-05
68. Record the journal entries that reflect all of this information.
Accounts Receivable-Patients
$225,000
Accounts Receivable-Third Party
Patient Service Revenues
Provision for Bad Debts
Allowance for Uncollectible and Reduced Accounts
$25,000
Contractual Adjustments
69. A local business donated medical supplies to Wakefield Home with a value of $40,000.
Prepare the journal entry for the receipt of these supplies.
70. The Wakefield Home incurred the following liabilities that need to be recorded at the end of 2017:
$110,000 salaries, $30,000 medical equipment, $10,000 utilities expense.
Prepare the journal entries for these transactions.
71. Turnaround Childcare Agency is a private not-for-profit entity providing child care for a fee. The
agency has a permanent endowment and the income may be used to sponsor families that are unable to
pay for services but the principal must be preserved. In addition, various fundraising activities take place
during the year.
When the agency held its annual holiday fundraiser in 2017, pledges of $50,000 were received. The
administration expected 5% of the pledges to be uncollectible.
In addition, income of $10,000 was received from the permanent endowment to sponsor children to be
placed with foster families.
Prepare the journal entries for these transactions.
