48. (10 minutes) (Adjusting totals for incorrectly reported student tuition)
a. The tuition was properly recorded as revenue. However, the financial aid
figure should have been a direct reduction to the tuition revenue rather
49. (15 minutes) (Adjusting totals for incorrectly recorded restricted giving)
a. Because the use of the interest was specified by the donor, both interest
balances should have been recorded initially as increases within
b. Each amount was reported as expenses in unrestricted net assets and
c. As indicated in (a), the $5,000 and the $7,000 should have initially
increased Temporarily Restricted Net Assets and then been removed
50. (15 minutes) (Adjusting the incorrect recording of a donation and subsequent
expenditure)
a. Because a time restriction has been assumed, only $5,000 ($50,000/10
years) should have been reclassified from Temporarily Restricted Net
b. Depreciation expense of $5,000 ($50,000/10 years) was recorded within the
Unrestricted Net Assets. That handling is appropriate so that the $500,000
expense figure that is reported is correct.
c. The problem says that the correct entry was made in Year One. Thus, a
$50,000 balance resides in Temporarily Restricted Net Assets as a result
of the gift. Because a time restriction was assumed, only an amount
51. (5 minutes) (Incorrect reporting of membership dues)
In this case, because nothing was received in exchange for the members’
dues, these collections should have been recorded as contributed support
which would increase Unrestricted Net Assets. Instead, the dues were
52. (15 minutes) (Reporting of donated services)
a. The problem here is that an expense of $70,000 was reported when the
donation was a garage that should have been capitalized as an asset.
Subsequently, this asset should have been depreciated at the rate of
b. The entity reported no assets as a result of the contributed garage. The
entity should report a $70,000 garage less $7,000 in accumulated
c. As indicated in (a) above, the expenses were overstated by $63,000.
Removing this $63,000 drops the expense total from $500,000 to $437,000.
53. (10 minutes) (Reporting a gift that must be transferred to another party)
a. Because the donor can take the money back, the gift is still under the
control of the donor. Consequently, the not-for-profit entity should have
b. The issue in this problem is about whether contributed service or a
54. (15 minutes) (Handling of various events by two different charities)
a. Charity A debits repair expense and credits contributed support. These
two changes offset so that unrestricted net assets are not impacted.
b. Charity A will report the investment income as an increase in unrestricted
net assets and then report salary expense for the same amount. These
two changes offset so that unrestricted net assets are not impacted.
c. The only difference here between Charity A and Charity B is in the
handling of the excess $20,000 acquisition value. Charity A records this
amount as goodwill because the acquired charity gains a significant
d. Charity A records the $100,000 as patient service revenue and then writes
the amount off as uncollectible. The provision for bad debts is a direct
e. Charity A reports the entire $50 per cake as earned revenue. Charity B
reports $30 per cake as earned revenue and $20 per cake as contributed
Develop Your Skills
Research Case 1
This assignment is an excellent way to demonstrate the wealth of information
available on the Internet about charities and other not-for-profit entities. Many
individuals want to be generous and help entities that deserve assistance.
Obviously, the information that a student finds at this website depends on the
specific charities that are examined. However, some of the information that is
normally available includes:
the entity’s stated purpose,
year it was started,
methods used for fundraising,
tax status,
sources of funding, including dollar amounts
From this type of information, a student should be able to write a detailed
overview of the not-for-profit entity and its operations and finances.
Research Case 2
Charity Navigator provides a wealth of information about its methodology that
should help students understand how a charity can be evaluated.
The following outline of information was listed on this website at June 23, 2013,
under methodology:
“Charity Navigator works to guide intelligent giving. Our goal is to help people
give to charity with confidence. At the same time, we aim to help charities by
What Kind of Charities Do We Evaluate?
How Do We Classify Charities?
How Do We Rate Charities?
How Do We Decide To Remove A Donor Advisory?
How Do We Plan To Evaluate Results Reporting?
Glossary of Terms”
**
Each of these links provides an extensive amount of information. For example,
the link “How Do We Rate Charities’ Financial Health?” provides a description of
seven different performance metrics.
1 – Program expenses
2 – Administrative expenses
3 – Fundraising expenses
Based on all of the available information, students should be able to write a
memo on how this organization rates various charities.
Research Case 3
This case is designed to introduce students to the information that can be found
on the Form 990 that must be made public by tax-exempt organizations. Some of
this information can be found in the entity’s financial statements but much of it
goes beyond what is otherwise available. The filing of Form 990 ensures that
such information is made public.
Another exercise that can be done is to simply list on the classroom board the
types of information that the students uncover in the Form 990. What data seems
most important and why include each of these items?
Research Case 4
Students often have trouble envisioning the amount of evolution that can take
place in accounting and financial reporting. By comparing the 1987 financial
statements for Georgetown University to the current statements, students should
note how much change has taken place. Here are just a few of the more obvious
examples that students might list.
–The influence of government accounting in 1987 is obvious. These statements
resemble fund financial statements for the Governmental Funds of a state or
local government more than they resemble the current financial statements of a
private not-for-profit entity.
Analysis Case 1
Many times a potential donor might be interested in an array of information that
can best be found by studying the actual financial statements of a not-for-profit
entity. The purpose of financial statements is to provide a complete picture of
the financial operations and position of the entity to help outsiders make
The web site for many not-for-profit entity’s can be found by going to
The exact information that is found will, obviously, depend on the not-for-profit
entity that is studied. As just one example, the following information comes from
recent financial statements for the American Heart Association for June 30, 2012,
and the year then ended:
1–This not-for-profit entity has four program services listed in its financial
statements: research, public health education, professional
education/training, and community services.
4–A question that is raised in connection with virtually any charity has to
do with the amount of financial resources that are expended to raise more
resources. In the year ended June 30, 2012, the American Heart
Association, incurred $80.9 million in fundraising expenses. That amount
makes up approximately 13 percent of the total expenses for the period.
Analysis Case 2
Most private colleges and universities now place their latest audited financial
statements on their Website. However, in some cases, a bit of searching is
needed to locate these statements. The method by which the statements are
made available is certainly not standardized.
2– Note five to the financial statements provides the following information
about contributions receivable as of May 31, 2012 (all numbers in
thousands):
Restricted current funds $ 63
Endowment funds 1,000
Plant Projects:
3–This is an extremely difficult question for any school to answer because
the costs of “educating the students” can be included within several
different accounts: instruction, academic support, student services &
4–For the year ended May 31, 2012, Baylor University shows “gifts” of
$16.5 million under unrestricted net assets, $56.6 million under temporarily
restricted net assets, and $29.2 million under permanently restricted net
assets.
6—Footnote 4 indicates a single figure (a loss of $45.1 million) as the net
realized and unrealized gains (and losses).
Net Tuition and Fees $278,721,000
Education Expenses (one way that term can be defined)
—Instruction $209,565,000
—Academic Support 48,520,000
Many students feel that, because of the high amounts being charged, colleges
and universities should be making a great profit from tuition. Depending on how
computation that can really interest a college student.
Communication Case
Under each principle listed for Strong Financial Oversight, the Core Concepts will
include a considerable amount of practical guidance for the accountant of a
Here are the Core Concepts for financial records:
It is important for the staff to keep complete, accurate, and current
financial records and share appropriate records with the board in a timely
manner.
The board should review financial statements at least quarterly.