978-1259917059 Chapter 15 Solution Manual Part 1

Chapter 15 – Accounting for Colleges and Universities

CHAPTER 15: ACCOUNTING FOR COLLEGES AND UNIVERSITIES

Chapter 15 – Accounting for Colleges and Universities

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CHAPTER 15: ACCOUNTING FOR COLLEGES AND UNIVERSITIES

15-1 FASB standards indicate that private colleges and universities are to prepare a statement

of financial position or a balance sheet; a statement of activities; and a statement of cash

flows. Similar to for-profit entities, private colleges and universities are allowed a great

deal of flexibility in preparing statements. For example, private entities can use a multi-

15-2. The FASB requires that private colleges and universities identify donor/contributor

restrictions on net assets as net assets with donor restrictions. The GASB utilizes a

similar category, restricted net position. However, the restricted net position category is

broader, including not only restrictions by donors, but also creditors, law, or regulation.

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Ch. 15, Answers (Cont’d)

15-3 Private colleges and universities follow FASB/NACUBO guidance and record bad debts

as a direct deduction to the revenue account. Thus a private entity would debit Tuition

and Fees for the estimated bad debts and credit an account such as Allowance for

Doubtful Accounts. In contrast public colleges and universities use a contra-revenue

account, such as Provision for Bad Debts, with a credit to an allowance account. The end

15-4 Not all grants are recorded as nonexchange transactions or contributions. If the grant

requires performance on the part of the college or university the receipt of the grant

would be recorded as an exchange or revenue transaction. An example would be a

15-5. For the pledges due within one year, the college can report the pledge at its net realizable

Chapter 15 – Accounting for Colleges and Universities

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Ch. 15, Answers, Question 15-5 (Cont’d)

One of the methods, the one demonstrated in the textbook and used by many not-for-

15-6. Although the NACUBO accounts do not clearly identify program and support functions,

under FASB standards private colleges and universities are still required to provide

program and support information. The FASB allows that if the information about

program and support is not provided on the face of the financial statements it should be

15-7. A split-interest agreement is when a donor and a college or university enter into an

arrangement whereby the donor (or a designated beneficiary) and the college or

university share the benefits from the donor’s gift. Generally, they share in the earnings

Chapter 15 – Accounting for Colleges and Universities

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Ch. 15, Answers, Question 15-7 (Cont’d)

15-8. UPMIFA stands for the Uniform Prudent Management of Institutional Funds Act. The

Act provides legal guidance to not-for-profit organizations on the management,

investment, and expenditure of funds held by the organizations for what the UPMIFA

terms charitable purposes (this includes endowment funds). UPMIFA is important to

colleges and universities since they are likely bound by its requirements, given that 49

15-9. The performance of colleges and universities can be measured utilizing financial and

nonfinancial information. When measuring performance, it is important to take the

mission of the college or university into account. For example, while it may take longer

Chapter 15 – Accounting for Colleges and Universities

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Ch. 15, Answers, Question 15-9 (Cont’d)

In measuring outcomes, relevant information could include performance on nationally

ranked exams or results of surveys on student/employer satisfaction with education

15-10. Whether a college or university is subject to an audit under Governmental Auditing

Standards depends on the amount of federal dollars it has expended. Any college or

university (public or private) that expends $750,000 or more in federal funds is subject to

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Solutions to Cases

15-11. a. If the school is a public college or university it should follow the GASB

standards. There are many ways a student could identify the GASB standards

from the financial reports, including: the presence of an MD&A; a statement of

net position with the net position classifications, net investment in capital assets,

restricted, and unrestricted; a statement of revenues, expenses, and changes in net

statement of cash flow prepared using three categories of cash flows.

b. Again, the answers will vary based on the financial reports reviewed. The answer

should generally be yes, reporting standards are being followed. Remember that

reporting formats can vary somewhat and still be in compliance with reporting

standards. By comparing financial statements to the examples in the chapter,

position or the statement of activities. When searching for information to calculate

the percentage it is important to remember that grants and contracts can be

operating or nonoperating, and restricted or unrestricted.

e. This too will vary by college and university. The percentage would be calculated

by taking the total of all program expenses and dividing by the total expenses. It is

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Ch. 15, Solutions, Case 15-11 (Cont’d)

It is unlikely that a student with a public college or university will be able to

determine the program expense as a percentage of total expenses. This

15-12. a. The private college (Catherine College) has prepared its statements under the

FASB standards, while the public college (Midland State College) has prepared

its statements under the GASB standards. Catherine College reports its expenses

using functional classifications and reports changes in net assets without donor

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Ch. 15, Solutions, Case 15-12 (Cont’d)

Calculations:

Catherine College

Tuition and fees (net): $66,888,492 / $91,614,600 = 73.01%

State appropriation: = 0.00%

Grants and contributions: $(2,241,863 + $9,020,584) / $91,614,600 =

12.29%

Midland State College

Tuition and fees (net): $14,939 / $46,908* = 31.85%

State appropriation: $(14,514 + $675) / $46,908 = 32.38%

Grants and contributions: ($5,173+$2,303+$1,324) / $46,908 = 18.76%

operating income, which is defined as the revenues and expenses related to the

primary activities of the colleges. Here are calculations that can be used for the

discussion:

Catherine College: $85 / 5,000 students = $0.02

In this calculation the change in net assets without donor restrictions was used. It

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Ch. 15, Solutions, Case 15-12 (Cont’d)

It could be argued that although the appropriations and grants are considered

nonoperating revenues for classification purposes under GASB they are used to

difficult to clearly identify some of the operating revenue and expenses. For

example, it is hard to determine how much of the private college revenue was for

capital acquisitions, how much of the expenses were for interest, fund-raising or

other nonoperating activities. The same is true of the public college. Although the

public college identifies nonoperating activities, it seems that several of the items

15-13. a. The college scorecard provides an average annual cost which is the net price paid

after subtracting school, state, and/or federal financial aid. Students’ answers will

Chapter 15 – Accounting for Colleges and Universities

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graphic displaying the graduation rate. Students answers will vary depending on

the schools chosen.

Ch. 15, Solutions, Case 15-13 (Cont’d)

information in their “value” assessment.

e. Students can be expected to have different views on what they believe to be

strengths and weaknesses of the college scorecard. Some possible points include:

Strengths – a national system that allows for increased comparability, increased

transparency of information, and increased accountability

15-14. a. Yes, organizations in Minnesota are subject to UPMIFA.

b. The foundation would be subject to UPMIFA since it is located in Minnesota and

it is a NFP organization that, according to UPMIFA, manages funds for a

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Ch. 15, Solutions, Case 15-14 (Cont’d)

1. Duration and preservation of the endowment fund.

3. The general economic conditions.

5. The expected total return from income and the appreciation of investments.

7. The investment policy of the institution.

Ms. Hernandez might look to criteria 1, 5 and 7 in addressing her concerns. The

expected total return is not much higher than the spending rate. If the expectation

is that the total return will not increase given the projected general economic

conditions and the existing investment policy, perhaps the investment policy needs

15-15. 1. d. 6. a.

3. c. 8. c.

5. d. 10. b.

Chapter 15 – Accounting for Colleges and Universities

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Ch. 15, Solutions, Exercise 15-15 (Cont’d)

2. a. 7. a.

4. c. 9. b.

5. a. 10. c.

General Problem Information: Identifying the appropriate GAAP

15–17.

1. TUITION AND FEES RECEIVABLE 223,100

TUITION & FEES DISCOUNT AND ALLOWANCES 21,400

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2. CASH 3,235

PLEDGES RECEIVABLE 550

4. DEPOSITS HELD IN CUSTODY FOR OTHERS 10

CASH 10

5. INSTRUCTION EXPENSE 86,100

ACADEMIC SUPPORT EXPENSE 23,300

STUDENT SERVICES EXPENSE 37,700

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6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 41,271

7. CASH 3,960

INVESTMENT INCOME—WITHOUT DONOR

8. TUITION AND FEES—WITHOUT DONOR RESTRICTIONS 20

ALLOWANCE FOR DOUBTFUL ACCOUNTS 20

INSTRUCTION EXPENSE 18,480

ACADEMIC SUPPORT EXPENSE 7,920

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consent of McGraw-Hill Education.

WITH DONOR RESTRICTIONS—ENDOWMENT 1,610

Ch. 15, Solutions, Exercise 15-17 (Cont’d)

STEINER COLLEGE

GENERAL JOURNAL

Debits Credits

9. To close nominal accounts

TUITION AND FEES⎯WITHOUT DONOR

RESTRICTIONS (trans. 1 & 8) 233,270

CONTRIBUTIONS⎯WITHOUT DONOR RESTRICTIONS 2,080

INVESTMENT INCOME—WITHOUT

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DONOR RESTRICTIONS—ENDOWMENT 1,610

NET ASSETS—WITH DONOR RESTRICTIONS 1,945

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Ch. 15, Solutions, Exercise 15-17 (Cont’d)

b. STEINER COLLEGE

STATEMENT OF ACTIVITIES

Chapter 15 – Accounting for Colleges and Universities

Ch. 15, Solutions, Exercise 15-17 (Cont’d)

c. STEINER COLLEGE

STATEMENT OF FINANCIAL POSITION

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15-18. a. ELIZABETH COLLEGE

1. TUITION RECEIVABLE 5,254,000

TUITION & FEES DISCOUNT AND ALLOWANCES 69,600

2. TUITION AND FEES—WITHOUT DONOR

3. CASH 2,466,200

INVESTMENTS 1,000,000

4. PLEDGES RECEIVABLE 1,090,000

CONTRIBUTIONS—WITH DONOR RESTRICTIONS

—CAPITAL CAMPAIGN 573,200