Chapter 19 – Not-for-Profit Entities
P19-16 Matching Effects of Transactions on a Hospital’s Financial Statements
1.
E
The designation of intent is not a transaction. When the actual purchase is
made, the transaction will be recorded.
2.
A
After the investment is actually made, the income from resources under the
control of the governing board is recorded as unrestricted revenue.
3.
C
Resources contributed for capital expansion serve a specific purpose for
which the resources should be used. This contribution is accounted for in a
temporarily restricted fund, and reported as an increase in temporarily
restricted net assets.
4.
A
The use of temporarily restricted resources in accordance with the donor’s
specification results in a reclassification (transfer) of the resources from
temporarily restricted to unrestricted. The following entries would be made in
the case of the hospital maintaining a separate Plant Fund:
Plant Fund:
Net Assets Released – Plant Acquisition
XXXX
Cash
Unrestricted Fund:
Cash
XXXX
Net Assets Released from Capital
Acquisition Restriction
Property, Plant, and Equipment
XXXX
Cash
5.
A
Donated services to a hospital are accounted for in accordance with ASC
958 under which donated services are recognized if the services (a) create or
enhance nonfinancial assets, or (b) require specialized skills, are provided by
individuals possessing those skills, and would typically need to be purchased
if not provided by donations. In the case of specialized accounting services,
the hospital would recognize the estimated value of the donated services as
an expense and a corresponding amount is reported as an increase in
unrestricted revenues, gains, and other support. Given the five choices of A
through E, A is the answer.
6.
D
The contribution of permanently restricted investments would normally be
accounted for in an endowment fund which would be an increase in
permanently restricted net assets. The income from the investments would
be available for the temporarily restricted fund, but the investments
themselves would be restricted in accordance with the donor’s specification.
(Note: because the donor puts a restriction on how the income can be
used—for outpatient services—the income is temporarily restricted.)
Chapter 19 – Not-for-Profit Entities
P19-20 Net Asset Identification for Transactions Involving a Private University
1.
Unrestricted net assets increased $2,000,000.
2.
Temporarily restricted net assets increased $1,000,000.
3.
Unrestricted net assets decreased $200,000.
4.
Temporarily restricted net assets increased $1,500,000.
5.
Temporarily restricted net assets increased $150,000.
6.
Temporarily restricted net assets increased $75,000.
7.
Temporarily restricted net assets decreased $60,000, the result of a reclassification
of $60,000 to unrestricted net assets. There is no effect on unrestricted net assets
because the increase of $60,000 due to the reclassification is offset by a $60,000
increase in expenses. Expenses are decreases in unrestricted net assets.
8.
There is no effect on unrestricted net assets as a result of this board designation.
Net assets under the control of the governing board are unrestricted. The board of
BU took cash that was unrestricted and designated that it be used for a specific
purpose. This designation does not change the net asset classification of the cash.
9.
Permanently restricted net assets increased $3,750,000.
10.
There is no effect on unrestricted net assets as a result of the acquisition of debt
securities by the board. The board took cash that was unrestricted and used it to
acquire debt securities that are also unrestricted by external parties.
11.
Unrestricted net assets increased $6,000. The interest revenue of $18,000 from the
investments is an increase in unrestricted net assets, while the $12,000 used to
fund summer research grants represents a $12,000 decrease in unrestricted net
assets.