Chapter 15 – Accounting for Colleges and Universities
15-1
CHAPTER 15: ACCOUNTING FOR COLLEGES AND UNIVERSITIES
OUTLINE
Number
Topic
Type/Task
Status
(re: 18/e)
Questions:
15-1
Financial statements
Identify
Same
15-2
Net asset categories
Identify
Same
15-3
Bad debts
Compare
Revised
15-4
Grant revenue
Explain
Same
15-5
Intentions to give
Explain
New
15-6
Support functions
Compare
Same
15-7
Split-interest agreements
Explain
Same
15-8
UPMIFA
Explain
Same
15-9
Performance Measures
Explain
Same
15-10
Single Audits
Identify
Same
15-11
Revenue Recognition
Identify
New
Cases:
15-12
Annual report
Apply
Same
15-13
Comparison of public to a private
college
Analyze
Revised
15-14
Research Case—Rating college and
university performance
Explain, discuss
Revised
15-15
Research Case—UPMIFA
Research, analyze
Same
Exercises/Problems:
15-16
Various
Multiple Choice
Items 3, 6
revised; item
11 new.
15-17
Identifying the appropriate GAAP
Classify
Revised
15-18
Private college transactions and FS
Apply
Revised
15-19
Private college transactions and FS
Apply
Revised
15-20
Public university transactions
Apply
Same
15-21
Public and private university
transactions
Apply
Revised
15-22
Private university trial balance to FS
Apply
Revised
15-23
Computing the CFI for a Private
University
Apply
Same
15-24
Public university trial balance to FS
Apply
Same
Chapter 15 – Accounting for Colleges and Universities
15-2
CHAPTER 15: ACCOUNTING FOR COLLEGES AND UNIVERSITIES
Answers to Questions
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-
or single-step statement of activities, and they can use the direct or indirect method of
preparing the statement of cash flows.
General Problem Information: Financial statements
Learning Objective: 15-1
Topic: Accounting and Financial Reporting Standards
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Reporting
Level of Difficulty: Easy
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.
Within the restricted category of net position, public colleges and universities should
identify net position as nonexpendable or expendable. Restricted nonexpendable net
position includes those net resources required to be maintained in perpetuity. Restricted
expendable net position includes those net resources restricted by external
donors/contributors as to time or purpose.
15-3 Private colleges and universities follow FASB/NACUBO guidance and record bad debts
as an expense. Private colleges and universities would debit Institutional Support expense
for the estimated bad debts and credit an account such as Allowance for Doubtful
Chapter 15 – Accounting for Colleges and Universities
15-3
Ch. 15, Answers, Question 15-3 (Cont’d)
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 result is that
Topic: Accounting and Financial Reporting Standards; Reporting and Accounting Issues
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Measurement
Level of Difficulty: Medium
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 that results in commensurate
value received by the grantor, the receipt of the grant would be recorded as an exchange
or revenue transaction. An example would be a research grant from the federal
government in which the government retains the rights to any patents or other products
produced by the grant.
General Problem Information: Grant revenue
Learning Objective: 15-3
15-5. Intentions to give, such as naming a university in a will, are not recognized as revenue. In
addition, intentions to give are not considered promises to give since the potential donor
can change his/her will at any time. If the college had received a promise to give, the
promise would have to be unconditional before the college could consider recognizing
revenue.
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Measurement
Level of Difficulty: Medium
Chapter 15 – Accounting for Colleges and Universities
15-4
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
General Problem Information: Support functions
Learning Objective: 15-1
Learning Objective: 15-2
Topic: Accounting and Financial Reporting Standards; Financial Reporting
Bloom’s Taxonomy: Understand
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
that result from the donated assets. Such agreements are a planned form of giving that
result in the assets and the earnings thereon solely benefitting the college or university
General Problem Information: Split-interest agreements
Learning Objective: 15-5
Topic: Issues Related to Colleges and Universities
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Medium
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
Chapter 15 – Accounting for Colleges and Universities
15-5
Ch. 15, Answers, Question 15-8 (Cont’d)
students might identify as being important to colleges and universities. Two rather
significant provisions relate to honoring of donor restrictions on contributed assets and
spending levels of endowment funds. The Act’s provisions allow for a modification or
release of endowment restrictions. For example, the foundation of a college or university
can change without court approval a restriction on an endowment if the endowment is
small (less than $25,000) or old (over 20 years). Additionally, the Act provides guidance
on expenditure provisions for endowment funds, allowing for safeguards against
excessive expenditures.
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Legal
Level of Difficulty: Medium
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
for students to graduate from an urban-based university relative to a university based in a
college town, the longer duration to completion may be due to the composition of the
student body (i.e., more part-time students at the urban-based university) than to the
performance of the university. The performance of colleges and universities can be
measured in terms of outputs and outcomes. Output measures include graduation
statistics, number of graduates, and job placements. Outcomes differ from outputs in that
they measure the benefits derived by constituents.
The financial health of colleges and universities is also an important consideration when
assessing performance. One financial measure that has been designed to assess the
financial health of colleges and universities is the composite financial index (CFI). The
Chapter 15 – Accounting for Colleges and Universities
15-6
Ch. 15, Answers, Question 15-9 (Cont’d)
CFI is composed of four financial ratios: a primary reserve ratio, a viability ratio, a return
on net assets ratio, and a net operating revenues ratio. The four ratios are weighted to
generate a CFI that ranges from −4 to 10 and provides a general indication of the
financial health of the college or university. Colleges and universities with a score of 3 or
higher have relatively strong financial health.
General Problem Information: Performance measures
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
the requirements of the Single Audit Act and the provisions of Office of Management and
Budget (OMB) Uniform Administrative Requirements, Cost Principles, and Audit
Requirements for Federal Awards, 78 FR 78589, § 200.38.
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Easy
15-11. Private colleges and universities must comply with FASB ASC 606 when recording
tuition revenue. Revenue recognition consists of following a five-step process: 1) Identify
the contract with the customer, 2) Identify the performance obligations in the contract, 3)
Determine the transaction price, 4) Allocate the transaction price to the performance
obligations in the contract, and 5) Recognize revenue as the entity satisfies a performance
obligation.
Topic: Reporting and Accounting Issues
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: BB: Industry
Level of Difficulty: Easy
Chapter 15 – Accounting for Colleges and Universities
15-7
Solutions to Cases
15-12. 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
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,
students should be able to identify several instances where the college or
university is in compliance with reporting standards.
d. This will vary by college and university. Information to calculate the percentage
should be found in the statement of revenues, expenses, and changes in net
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
unlikely that program, management and general, and fund-raising expenses will
Chapter 15 – Accounting for Colleges and Universities
15-8
Ch. 15, Solutions, Case 15-12, e. (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
information is not required under the GASB standards.
Students should have varying opinions on this. Most students do not select
colleges or universities based on the program expense as a percentage of total
expenses basis. There are many other considerations that go into the selection;
f. Published annual reports should include an audit of the financial statements or a
statement indicating that the financial statements are unaudited.
General Problem Information: Annual report
Learning Objective: 15-1
Learning Objective: 15-3
Topic: Accounting and Financial Reporting Standards; Reporting and Accounting Issues
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN: Reporting
Level of Difficulty: Hard
15-13. 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
b. The proportion of total revenue from tuition and fees, state appropriations, and
grants and contributions are calculated below:
Catherine College Midland State
Tuition and fees 73.01% 42.79%
State appropriations 0% 21.44%
Grants and contributions 12.29% 18.76%
Chapter 15 – Accounting for Colleges and Universities
15-9
Ch. 15, Solutions, Case 15-13, b. (Cont’d)
Calculations:
Catherine College
Tuition and fees (net): $66,888,492 / $91,614,600 = 73.01%
Midland State College
Tuition and fees (net): $20,071 / $46,908* = 42.79%
State appropriation: $(9,382 + $675) / $46,908 = 21.44%
Grants and contributions: ($5,173+$2,303+$1,324) / $46,908 = 18.76%
c. To some extent, the answer will depend on how students interpret the definition of
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:
In this calculation, the change in net assets without donor restrictions was used. It
could be argued that only the net assets without donor restrictions were used in
operating activity, those resources received that were donor restricted were not
available for operations in the current period and were not used to operate the
college. Conversely, some students may have opted to include donor–restricted
revenues stating that if the college was able to meet the restrictions within the
year the resources could have been used. Other students may have opted to
exclude certain revenues and expenses such as investment income and auxiliary
services revenues and expenses saying that these activities are not primary
activities of the college.
The first calculation is the operating loss divided by the number of students. The
second calculation includes noncapital appropriations and grants.
Chapter 15 – Accounting for Colleges and Universities
15–10
Ch. 15, Solutions, Case 15-13, c. (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
support the primary mission of the college, which is education and research. If
this is true, they should be considered operating revenues.
Some of the issues the students might bring up related to how to determine
operating income include 1) no clear definition of what would be considered
operating activity, and 2) the lack of detail on the financial statements makes it
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, fundraising, 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
listed as nonoperating are clearly related to operations and have been classified as
nonoperating because it is required by GASB.
General Problem Information: Comparison of public to a private college
Learning Objective: 15-1
Learning Objective: 15-2
Learning Objective: 15-3
Topic: Accounting and Financial Reporting Standards; Financial Reporting; Reporting
and Accounting Issues
15-14. 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
vary depending on the schools chosen.
Chapter 15 – Accounting for Colleges and Universities
15–11
Ch. 15, Solutions, Case 15-14 (Cont’d)
b. The graduation rate is the share of students who graduated within eight years of
entering this school for the first time. For institutions that do not have this data
available, they can report the graduation rate as the share of students who
c. The salary after attending is the median earnings of former students’ one year
after graduation. Students answers will vary depending on the schools chosen.
d. Determining which school offers the better “value” is a subjective assessment.
Students could compare the average costs, graduation rates, and salaries after
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.
Weaknesses – the college scorecard cannot consider the different missions of each
university, the different funding levels/structures in each state, the quality
of individual programs within a school. Additionally, information on
graduate and employer satisfaction is not available.
General Problem Information: Rating college and university performance
Learning Objective: 15-5
Topic: Issues Related to Colleges and Universities
Bloom’s Taxonomy: Analyze
15-15. 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
charitable purpose. The charitable purpose of the foundation would be to provide
for the advancement of education since the sole purpose of the foundation is to
benefit the university.
Chapter 15 – Accounting for Colleges and Universities
15–12
Ch. 15, Solutions, Case 15-15 (Cont’d)
c. The spending rate is not set by UPMIFA. UPMIFA allows NFP organizations to
establish their own spending rate. However, it does provide guidance in the form
of seven criteria that should be considered when determining level of
expenditures or spending policies. The criteria from Section 4(a) of the Act
(outlined in the chapter) are:
2. The purposes of the institution and the endowment fund.
4. The effect of inflation or deflation.
6. Other resources of the NFP.
7. The investment policy of the institution.
d. The donor is no longer available to release the endowment from the restriction
that the income be used to study Lake Superior fossils. However, given that it is
impractical for the university to carry out the intent of the restriction on the use of
the income, because the paleontology department no longer exists, UPMIFA
allows that the university can notify the state regulator of a modification to the
restriction that is in line with the donor wishes. For example, one argument that
General Problem Information: UPMIFA
Learning Objective: 15-5
Topic: Issues Related to Colleges and Universities
Bloom’s Taxonomy: Analyze
Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: BB: Decision Making
Level of Difficulty: Hard
Chapter 15 – Accounting for Colleges and Universities
15–13
Solutions to Exercises and Problems
2. b. 7. d.
4. d. 9. a.
5. d. 10. b.
General Problem Information: Various
Learning Objective: 15-1
Learning Objective: 15-2
Learning Objective: 15-3
2. c. 7. b.
4. b. 9. b.
5. a. 10. a.
General Problem Information: Identifying the appropriate GAAP
Learning Objective: 15-1
Learning Objective: 15-3
Topic: Accounting and Financial Reporting Standards; Reporting and Accounting Issues
15-18.
a. STEINER COLLEGE
GENERAL JOURNAL
Debits Credits
1. TUITION AND FEES RECEIVABLE 223,100
TUITION & FEES DISCOUNT AND ALLOWANCES 21,400
TUITION AND FEES—WITHOUT DONOR RESTRICTIONS 244,500
Chapter 15 – Accounting for Colleges and Universities
15–14
Ch. 15, Solutions, Exercise 15-18 (Cont’d)
STEINER COLLEGE
GENERAL JOURNAL
Debits Credits
INSTRUCTION EXPENSE 17,300
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 17,300
2. CASH 3,235
PLEDGES RECEIVABLE 550
CONTRIBUTIONS—WITHOUT DONOR RESTRICTIONS 2,080
3. CASH 222,600
TUITION AND FEES RECEIVABLE 222,600
4. DEPOSITS HELD IN CUSTODY FOR OTHERS 10
CASH 10
5. INSTRUCTION EXPENSE 86,100
ACADEMIC SUPPORT EXPENSE 23,300
Chapter 15 – Accounting for Colleges and Universities
15–15
Ch. 15, Solutions, Exercise 15-18 (Cont’d)
STEINER COLLEGE
GENERAL JOURNAL
Debits Credits
NET ASSETS RELEASED FROM RESTRICTIONS—
WITH DONOR RESTRICTIONS 7,320
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 41,271
CASH 41,271
($21,130 BB + $17,300 trans. 1 + $4,776 trans. 5 – $1,935 EB)
7. CASH 3,960
INVESTMENT INCOME—WITHOUT DONOR
8. INSTITUTIONAL SUPPORT EXPENSE 20
ALLOWANCE FOR DOUBTFUL ACCOUNTS 20
INSTRUCTION EXPENSE 18,480
Chapter 15 – Accounting for Colleges and Universities
15–16
Ch. 15, Solutions, Exercise 15-18 (Cont’d)
STEINER COLLEGE
GENERAL JOURNAL
Debits Credits
INVESTMENTS 4,700
UNREALIZED GAIN ON INVESTMENTS—
WITHOUT DONOR RESTRICTIONS 2,300
9. To close nominal accounts
TUITION AND FEES⎯WITHOUT DONOR
RESTRICTIONS (trans. 1 & 8) 233,290
CONTRIBUTIONS⎯WITHOUT DONOR RESTRICTIONS 2,080
INVESTMENT INCOME—WITHOUT
DONOR RESTRICTIONS 1,890
TUITION & FEES DISCOUNT AND ALLOWANCES 21,400
INSTRUCTION EXPENSE (trans. 1, 5 & 8) 121,880
ACADEMIC SUPPORT EXPENSE (trans. 5 & 8) 31,220
STUDENT SERVICES EXPENSE 37,700
INSTITUTIONAL SUPPORT EXPENSE (trans. 5 & 8) 28,520
CONTRIBUTIONS—WITH DONOR RESTRICTIONS
—TIME 550
Chapter 15 – Accounting for Colleges and Universities
15–17
Ch. 15, Solutions, Exercise 15-18 (Cont’d)
STEINER COLLEGE
GENERAL JOURNAL
Debits Credits
DONOR RESTRICTIONS—SCHOLARSHIPS 790
NET ASSETS—WITH DONOR RESTRICTIONS 3,410
To reclassify Net Assets:
NET ASSETS—WITH DONOR RESTRICTIONS 7,320
NET ASSETS RELEASED FROM RESTRICTIONS—
WITHOUT DONOR RESTRICTIONS 7,320
NET ASSETS—WITHOUT DONOR RESTRICTIONS 7,320
Chapter 15 – Accounting for Colleges and Universities
15–18
Ch. 15, Solutions, Exercise 15-18 (Cont’d)
b. STEINER COLLEGE
STATEMENT OF ACTIVITIES
YEAR ENDED JUNE 30, 2023
With Donor
Restrictions
Total
Revenues and gains:
Student tuition and fees (net)*
$211,890
Contributions
$ 885
2,965
Investment income
1,890
3,960
Unrealized gain on investments
2,300
4,700
Net assets released from
restrictions
7,320
(7,320)
Total revenues and gains
225,480
(1,965)
223,515
Expenses and losses:
Educational and general
expenses:
Instruction
121,880
Academic support
31,220
Student services
37,700
Institutional support
28,520
Total expenses and losses
219,320
Total change in net assets
(1,965)
4,195
Net assets, beginning of the year
104,000
229,940
333,940
Net assets, end of the year
$110,160
$338,135
* net of $21,400 in Tuition & Fees Discount and Allowances
Chapter 15 – Accounting for Colleges and Universities
Ch. 15, Solutions, Exercise 15-18 (Cont’d)
c. STEINER COLLEGE
STATEMENT OF FINANCIAL POSITION
JUNE 30, 2023
Assets
Cash and cash equivalents
$ 7,758
Short-term investments
Tuition and fees receivable (net of doubtful accounts of $32)
Pledges receivable (net of doubtful pledges of $280)
Prepaid assets
Property, plant and equipment (net of accumulated depreciation
of $130,640)
255,004
Investments (at fair value, cost of $162,000)
163,100
Total assets
$440,670
Liabilities and Net Assets
Liabilities:
Accounts payable and accrued liabilities
1,935
Deposits held in custody for others
Deferred revenue
Bonds payable
99,000
Net Assets:
Without donor restrictions
110,160
With donor restrictions
227,975
Total net assets
338,135
Total liabilities and net assets
$440,670
General Problem Information: Private college transactions and FS
Learning Objective: 15-4
Topic: Transactions and Financial Statements for Private Colleges and Universities
15–20
15-19. a. ELIZABETH COLLEGE
GENERAL JOURNAL
Debits Credits
1. TUITION AND FEES RECEIVABLE 5,254,000
TUITION & FEES DISCOUNT AND ALLOWANCES 69,600
2. TUITION AND FEES—WITHOUT DONOR
RESTRICTIONS 101,670
TUITION AND FEES RECEIVABLE 101,670
3. CASH 2,466,200
INVESTMENTS 1,000,000
CONTRIBUTIONS—WITHOUT DONOR
RESTRICTIONS 1,891,000
4. PLEDGES RECEIVABLE 1,090,000
CONTRIBUTIONS—WITH DONOR RESTRICTIONS
—CAPITAL CAMPAIGN 573,200
CONTRIBUTIONS—WITH DONOR RESTRICTIONS
—TIME 216,800