Chapter 18 – Accounting and Reporting for Private Not-for-Profit Entities – Hoyle, Schaefer, Doupnik, 13e
18-21
Education.
42. (70 minutes) (Produce journal entries for a private university as well as a
statement of activities)
a. Tuition Receivable 1,200,000
Tuition Revenues 1,200,000
f. Salary Expense 80,000
Contributed Support—
Unrestricted Net Assets 80,000
g. Equipment 200,000
Cash 200,000
Cash 100,000
42. (continued)
Chapter 18 – Accounting and Reporting for Private Not-for-Profit Entities – Hoyle, Schaefer, Doupnik, 13e
18-22
Education.
18-23
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
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
-Scholarships (100,000) 1,100,000 1,100,000
-Unrealized Gain on
Operating Expenses
-Salaries 390,000 390,000
-Depreciation 32,000
32,000
-Utilities and Other
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
18-24
Education.
received. Membership dues, for example, are not viewed as gifts if rights that
have value are conveyed to the members. A not-for-profit entity might also
gain assets from sources such as interest or dividend income. Money derived
in this fashion is not a donation and is, thus, recorded as earned revenue.
b. A statement of functional expenses is required to be included in the financial
service expenses (dealing with the cost of running the entity and raising
funds). This statement permits interested parties such as potential donors to
see the utilization made of the not-for-profit entity’s resources.
c. Some charities (Goodwill Industries and the Salvation Army, for example)
receive a large amount of contributions in the form of donated materials such
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)
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,
Chapter 18 – Accounting and Reporting for Private Not-for-Profit Entities – Hoyle, Schaefer, Doupnik, 13e
18-25
f. At one time, 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. This requirement was modified so that an
allocation of the joint costs could be made between educational expenses (a
were met, a logical portion of the direct mailing costs could be assigned to
program service expenses. Otherwise, the entire cost is included within
fundraising.
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 pieces, and
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.
(2)—True. The stipulation of the April 1, Year 1, gift is that only subsequent cash
Chapter 18 – Accounting and Reporting for Private Not-for-Profit Entities – Hoyle, Schaefer, Doupnik, 13e
18-26
Education.
the use of this stadium. Therefore, the reclassification to unrestricted net assets
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
that contributed service support as well as a salary expense are recognized for
the $14,000 value.
(10)—False. Based on the information given, both the contributed support and
qualifies as a work of art. However, if the value of the donated gift is $30,000, no
situation can exist where the school is not allowed to recognize revenue.
45. (30 Minutes) (Determine changes in net asset balances for several different
types of transactions)
Chapter 18 – Accounting and Reporting for Private Not-for-Profit Entities – Hoyle, Schaefer, Doupnik, 13e
18-27
Education.
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
expense for the year.
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.)
Chapter 18 – Accounting and Reporting for Private Not-for-Profit Entities – Hoyle, Schaefer, Doupnik, 13e
18-28
Education.
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)
net assets ……………………………………… 180,000 (180,000)
Salary expense ……………………………………. 90,000 ( 90,000)
Cash …………………………………………….. 90,000 (290,000)
Reclassification – temporarily restricted
Reclassification – temporarily restricted
net assets ………………………………………….. 50,000 ( 65,000)
46. (continued)
Cash ………………………………………………….. 30,000 (282,000)
Chapter 18 – Accounting and Reporting for Private Not-for-Profit Entities – Hoyle, Schaefer, Doupnik, 13e
18-29
Education.
Membership revenue—unrestricted net assets 30,000 ( 30,000)
(Membership dues are listed as revenues
and not as contributions because members
receive substantial benefits.)
Contributions receivable ……………………… 6,000 (275,000)
Contributed support—interest—temporarily
restricted net assets …………………… 6,000 ( 6,000)
18-30
Education.
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, 2017
Temporarily Permanently
Unrestricted Restricted Restricted
Net Assets Net Assets Net Assets
Contributed support $ 180,000 $ 161,000
Contributions — interest 20,000 6,000
Expenses:
General and administrative
—Rent $ (12,000)
—Salary (90,000)
—Advertising (15,000)
46. (continued)
Chapter 18 – Accounting and Reporting for Private Not-for-Profit Entities – Hoyle, Schaefer, Doupnik, 13e
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Education.
b.
WATSON FOUNDATION
STATEMENT OF FINANCIAL POSITION
December 31, 2017
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
$730,000. Because the acquisition value ($1 million) exceeds the total fair
value recognized for the individual assets and liabilities ($1,470,000 plus
—Buildings & equipment – $1,430,000 ($700,000 plus $730,000)
47. (continued)
Chapter 18 – Accounting and Reporting for Private Not-for-Profit Entities – Hoyle, Schaefer, Doupnik, 13e
—Goodwill – $80,000 (above)
—Total assets – $3,360,000 (summation)
—Accounts payable and accrued liabilities – $180,000 ($110,000 plus $70,000)
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
value recognized for the individual assets and liabilities ($1,470,000 plus
$140,000 less $690,000 or $920,000), the excess ($70,000 in this case) is
in unrestricted net assets is needed.
Balances to Be Reported:
—Cash – $1,110,000 ($1,600,000 less $990,000 plus $500,000)
47. (continued)
—Accounts payable and accrued liabilities – $180,000 ($110,000 plus $70,000)