42. (continued)
University of Danville
Statement of Activities
Unrestricted Temporarily Permanently Total
Net Restricted Restricted
Assets Net Assets Net Assets
Revenues and Gains
-Tuition 1,200,000
Contributions
-Cash and Other
Assets 707,000 300,000 1,007,000
-Services 80,000 80,000
Total Revenues, Gains,
Operating Expenses
-Salaries 390,000 390,000
-Depreciation 32,000 32,000
-Utilities and Other
Expenses 212,000 212,000
Total Expenses 634,000 634,000
43.(30 Minutes) (Series of questions about private not-for-profit entities)
a. Many private non-for-profit entities depend heavily on gifts and grants from
outside parties. An earning process is not present in connection with such
conveyances. Asset inflows are simply created by donations. Such amounts
b. A statement of functional expenses is required to be included in the financial
statements of voluntary health or welfare entities and is permitted for all other
private not-for-profits. This statement enables readers to determine the
c. Some charities (Goodwill Industries and the Salvation Army, for example)
d. A not-for-profit entity may receive gifts (or unconditional promises to give)
from outside parties that (1) must be expended for a particular purpose or (2)
cannot be expended until a particular point in the future. Because the
organization does not have free use of these assets, they are included within
are included within the “Permanently Restricted Net Assets.”
e. Donated services are extremely common in the operation of many not-for-
profit entities. Literally thousands of individuals solicit funds for entities such
as the Heart Fund, Salvation Army, and March of Dimes. In addition,
individuals often voluntarily fill positions of responsibility throughout many of
f. Prior to 1987, the costs of direct mailings and other solicitations for
support were recorded by private not-for-profit entities as fundraising
expenses even if educational materials were included. In that year, this
requirement was modified so that an allocation of the joint costs could be
made between educational expenses (a program service cost) and fundraising
(a supporting service cost). Some entities took advantage of this rule.
g. Donated materials are normally reported as assets at their fair value
accompanied by an increase in unrestricted net assets (see answer [c]
above). However, the recording of art works, historical treasures, museum
44. (25 Minutes) (Determine impact of various transactions on a private college.)
(1)—False. The January 1, Year 1, restriction is an internal action and, therefore,
causes no changes in the amount of unrestricted net assets. Such changes can
only be created by external donors.
is made immediately at the time of proper expenditure. Spending of the board-
designated $1.9 million does not change the amount of net unrestricted assets—
just the composition.
(5)—False. Depreciation expense is appropriate for all long-lived assets with a
finite life regardless of the policy of the school. A time restriction indicates when
any related donations for this project are released from restriction.
(10)—False. Based on the information given, both the contributed support and
the expense must be reported. “Might” implies an option which is not available
for this type of donation. If a donated service meets the criteria, it is reported.
45. (30 Minutes) (Determine changes in net asset balances for several different
types of transactions)
Part (1)
–Unrestricted Net Assets – No net change. When the $22,000 in designated
funds is spent as designated, a reclassification of that amount is made into
Unrestricted Net Assets. At that time, though, a faculty salary expense of the
Part (2)
–Unrestricted Net Assets – No net change. Because of the restriction on the
use of the machine for this period of time, the $200,000 gift is initially reported as
an increase in Temporarily Restricted Net Assets. At the end of the year, the
asset balance will be reduced by $20,000 in depreciation. Thus, a $20,000
Part (3)
–Unrestricted Net Assets – Category increases by $1.6 million. The tuition
revenue of $2 milion is reduced by the $700,000 in financial aid for a net increase
of $1.3 million. However, because $300,000 of previously restricted net assets
46. (65 Minutes) (Prepare financial statements for a private not-for-profit entity.)
a. Entries for this not-for-profit entity are presented below. The numbers in
parenthesis indicate account totals at that point in time. This method is used
as an easy way to monitor account balances.
Contributions receivable……………..…..…... 20,000 (220,000)
Contributed support—unrestricted
net assets…………..…………..……………… 180,000 (180,000)
Salary expense……….……………………….…... 90,000 ( 90,000)
Cash ………..…………..…………………………….. 12,000 (302,000)
Contributed support—temporarily restricted 12,000 ( 12,000)
(To record gift to go to a specified beneficiary.
Entity records this contribution because it
holds variance powers.)
Reclassification – unrestricted net
assets………..………………………….….….… 50,000 ( 65,000)
(To record reclassification of restricted
amount properly spent.)
46. (continued)
Investment revenue—unrestricted net assets 30,000 ( 30,000)
(Income is earned on permanently restricted
net assets but use of the income is unrestricted.)
Rent expense……………………………………..… 12,000 ( 12,000)
Advertising expense ……………………….…... 15,000 ( 15,000)
(Although pledge is unrestricted, it will not
be collected for five years and, therefore,
the proceeds are viewed as temporarily
restricted.)
Contributions receivable……………..…..…... 6,000 (275,000)
Contributed support—interest–temporarily
restricted net assets ……………..….…. 6,000 ( 6,000)
46. (continued)
Based on the final balances computed above, the following statements can be
prepared.
WATSON FOUNDATION
STATEMENT OF ACTIVITIES
For Year Ending December 31, 2015
Temporarily Permanently
Unrestricted Restricted Restricted
Net Assets Net Assets Net Assets
Contributed support $ 180,000 $ 161,000
Contributions — interest 20,000 6,000
restriction 65 ,000 ( 65 ,000) ________
Total support, revenues, and net
Assets released from restriction $ 325 ,000 $ 102 ,000 ________
Expenses:
General and administrative
—Depreciation (40,000)
—Interest (15 ,000)
Total expenses $(188 ,000)
Excess of total support, revenues
and net assets released from
restriction over expenses $137,000 $102,000 -0-
46. (continued)
b.
WATSON FOUNDATION
STATEMENT OF FINANCIAL POSITION
December 31, 2015
ASSETS
Cash $ 254,000
Contributions receivable (net) 275,000
Investments 300,000
47. (40 minutes) (Accounting for mergers and acquisitions)
a. In an acquisition, the assets and liabilities of the acquired entity are
included at fair value. Thus, the buildings and equipment reported by
Swim For Safety must be increased by $140,000 from $590,000 to
Cash held by Help & Save must be reduced by the $1 million payment as
must the balance shown for its unrestricted net assets.
47. (continued)
–Goodwill – $80,000 (above)
–Total assets – $3,360,000 (summation)
–Accounts payable and accrued liabilities – $180,000 ($110,000 plus $70,000)
–Notes payable – $1,720,000 ($1,100,000 plus $620,000)
–Total liabilities – $1,900,000 (summation)
b. In an acquisition, the assets and liabilities of the acquired entity are
included at fair value. Thus, the buildings and equipment reported by
Swim For Safety must be increased by $140,000 from $590,000 to
$730,000. Because the acquisition value ($990,000) exceeds the total fair
Cash held by Help & Save must be reduced by the $990,000 payment as must
the balance shown for its unrestricted net assets.
The increase in the buildings & equipment ($140,000) is reflected by an
increase in unrestricted net assets since no external restriction is in place
Balances To Be Reported:
–Cash – $1,110,000 ($1,600,000 less $990,000 plus $500,000)
–Contributions receivable (net) – $280,000 ($70,000 plus $210,000)
47. (continued)
–Accounts payable and accrued liabilities – $180,000 ($110,000 plus $70,000)
–Notes payable – $1,720,000 ($1,100,000 plus $620,000)
–Total liabilities and net assets – $3,290,000 ($1,900,000 plus $1,390,000)
c. This transaction is a merger: two not-for-profit entities are brought
together to form a new not-for-profit under a newly-formed governing
body.
As a merger, the carryover method is used. Book values are simply added
Balances To Be Reported:
–Cash – $2,100,000 ($1,600,000 plus $500,000)
–Accounts payable and accrued liabilities – $180,000 ($110,000 plus $70,000)
–Notes payable – $1,720,000 ($1,100,000 plus $620,000)
–Total liabilities – $1,900,000 (summation)
–Total liabilities and net assets – $4,140,000 ($1,900,000 plus $2,240,000)