18–1
CHAPTER 18
UNDERSTANDING THE ISSUES
1. Separating the accounting for current activ-
ities into restricted and unrestricted funds
allows for detailed reporting of resources
and spending. This is often done to satisfy
2. Users of not-for-profit financial information
are interested in the fair value of invest-
ments regardless of their trading status.
Not-for-profits, particularly foundations and
3. Public support captures all forms of dona-
tions to a not-for-profit organization, includ-
ing direct contributions of all types (cash,
assets, services, reduced liabilities, free
of goods or services, and realized and un-
realized earnings from investments.
4. A contribution is a nonreciprocal transac-
tion where one part gives something of
contribution. In the second example, a lia-
bility to the ultimate recipient is recorded.
5. A VHWO must include a statement of func-
tional expense as part of its financial
detailed expense patterns by program.
6. (Appendix) A VHWO may wish to present
its financial information on a fund basis ra-
Ch. 18—Exercises 18–2
EXERCISES
EXERCISE 18-1
EXERCISE 18-2
(1) C There is a permanent restriction on this donation.
(3) A If there is no law regarding recognition of unrealized gains/losses, an organization may
(4) B Investment income from donor-restricted permanent endowments is recognized as
temporarily restricted if the donor restricts the income as to use or specific time period.
(5) B The gain is not permanently restricted unless there is a donor stipulation or legal re-
EXERCISE 18-3
(1) The measurement focus of state and local government’s government-type activities is flows
of financial resources, whereas the measurement focus of voluntary health and welfare
organizations (VHWOs) is flows of economic resources. Some financial activities of a gov-
ernment, such as those of operating a utility, may be better reported (i.e., the financial
18–3 Ch. 18—Exercises
Exercise 18-3, Concluded
(2) State and local governments present revenues and expenditures for the governmental funds
separate from the proprietary funds. In addition, government-wide financial statements are
(3) Depreciation expense is reported in the statement of activities of a government. Accumu-
(4) A voluntary health and welfare organization may use a separate fund to account for fixed
assets called the Plant Fund or Land, Building, and Equipment Fund.
If capital assets are purchased by the Plant Fund, the usual entry is made as follows:
Land, Building, and Equipment …………………………………………. xxx
Cash or Some Payable ………………………………………………. xxx
The purpose of a voluntary health and welfare organization is to provide a service to the
community. Because there are usually numerous voluntary health and welfare organizations
competing for donations, it is only proper that donors be able to evaluate the cost of the ser-
vices provided in an effort to see which organizations use donations most efficiently. The
use of fixed assets in an organization represents a cost of providing a service, and so it is
appropriate for a voluntary health and welfare organization to show depreciation as a cost of
providing its service to the community.
The Land, Building, and Equipment Fund records any gain or loss on the sale of fixed
assets as revenue of the fund. If the proceeds of the sale are not legally required to be rein-
vested in fixed assets, the funds should be transferred to the unrestricted fund by entries re-
flected as direct additions and reductions to the respective fund balances.
EXERCISE 18-4
(1) d Donated works of art, historical treasures, or similar objects that are not held for public
(3) b Contributed services must be provided by persons possessing specialized skills that
would need to be purchased if not donated. There is no licensing requirement.
(5) b Rather than requiring restricted contributions to first be classified as restricted and then
EXERCISE 18-5
Supporting schedule
Drug Alcohol Weight Fund General and Total
Rehabilitation Recovery Control Raising Administrative Amount
Secretarial salary …… $ 0 $ 0 $ 0 $ 0 $ 2,000 $ 2,000
Office supplies ………. 600 300 300 300 1,500 3,000
18–5 Ch. 18—Exercises
Exercise 18-5, Concluded
Whole Life Clinic
Statement of Activities
For Year Ended December 31, 2019
Temporarily Total All
Unrestricted Restricted Funds
Public support and revenue:
Public support ……………………………………………………. $ 35,000 $ 35,000
Revenue ……………………………………………………………. 12,000 12,000
Net assets released from restriction:
Expenses:
Program services:
Drug rehabilitation …………………………………………. $ 11,700 $ 11,700
Alcohol recovery ……………………………………………. 8,950 8,950
Weight control ………………………………………………. 11,850 11,850
EXERCISE 18-6
(1) Cash ………………………………………………………………………………….. 9,000
(2) Cash ………………………………………………………………………………….. 22,000
(3) Provision for Uncollectible Pledges ………………………………………… 3,200
Exercise 18-6, Concluded
(4) Cash ………………………………………………………………………………….. 12,000
Special Events Support …………………………………………………… 12,000
(5) Car for Resale …………………………………………………………………….. 75,000
(6) Cash ($70,000 – $20,000) …………………………………………………….. 50,000
Pledges Receivable ……………………………………………………………… 30,000
Fund-Raising Expense …………………………………………………………. 20,000
EXERCISE 18-7
(1) Cash ………………………………………………………………………………….. 20,000
(2) Cash ………………………………………………………………………………….. 10,000
Accumulated Depreciation …………………………………………………….. 9,000
(3) Depreciation Expense ………………………………………………………….. 9,000
18–7 Ch. 18—Exercises
Exercise 18-7, Concluded
(4) Land, Building, and Equipment ………………………………………………. 18,000
Accounts Payable (or Vouchers Payable) ………………………….. 18,000
(5) Accounts Payable (or Vouchers Payable) ……………………………….. 18,000
EXERCISE 18-8
(1) Cash ………………………………………………………………………………….. 400,000
Legacies and Bequests—Permanently Restricted ………………. 400,000
(2) Cash ………………………………………………………………………………….. 207,000
Investments …………………………………………………………………… 200,000
(3) Cash ………………………………………………………………………………….. 15,000
(4) Increase in Carrying Value ……………………………………………………. 7,000
Ch. 18—Problems 18–8
PROBLEMS
PROBLEM 18-1
(1) a Fund raising and administrative and general expenses are classified as supporting
services.
(2) b Amounts received (or promised) and restricted for future periods are recorded as public
(3) d Amounts not available to spend until 2018 are classified as temporarily restricted.
(5) a Contributions are $400,000 shown in the statement of activities as follows:
(6) c Printing an annual report is an administrative function.
PROBLEM 18-2
(1) b To be recognized as donated services, the service must be of a skilled nature and pur-
(2) d Net Assets are reported in three categories: unrestricted net assets, temporarily
restricted net assets, and permanently restricted net assets.
(4) b Gains and losses should be reported in the statement of activities as increases or de-
creases in unrestricted net assets unless otherwise stipulated by donor or by law.
18–9 Ch. 18—Problems
PROBLEM 18-3
(1) e Both are recorded as a contribution increasing public support in the period received.
(2) b The contributions have not yet been expended. They are part of resources and tempo-
(3) a The entry given is the typical journal entry to record board-designated intentions for
(4) d Not-for-profit organizations may choose to record unrealized gains/losses on marketa-
(5) d When investments are carried at fair value, changes in total fair value are recorded
PROBLEM 18-4
(1) Event
(a) Accounts Receivable ……………………………………………………… 2,200,000
Patient Service Revenue …………………………………………… 2,200,000
Provision for Uncollectible Accounts Receivable ……………….. 92,000
Allowance for Uncollectibles and Contractual
Problem 18-4, Continued
(e) Assets Whose Use Is Limited—Cash ……………………………….. 50,000
Cash ………………………………………………………………………. 50,000
Note: No outside restriction exists. An additional entry
to designate the unrestricted net assets may
Reclassification In—Unrestricted—Expiration
of Time Restrictions ………………………………………… 10,000
(g) Plant and Equipment ……………………………………………………… 250,000
Accounts Payable …………………………………………………….. 250,000
(h) Nursing Services Expenses ……………………………………………. 1,120,000
Problem 18-4, Concluded
(2) Fall Nursing Home, Inc.
Statement of Activities
For Year Ended December 31, 2019
Temporarily Permanently
Unrestricted Restricted Restricted Total
Patient service revenue (net of $120,000 contractual
adjustments) …………………………………………………. $2,020,000 $2,020,000
Net assets released from restrictions:
Satisfaction of equipment acquisition restrictions
(depreciation) …………………………………………… 20,000 $(20,000) 0
Expiration of time restrictions
(term endowment expired) …………………………. 10,000 (10,000) 0
Total revenue and other support ……………………… $2,050,000 $(30,000) $2,020,000
Operating expenses:
Nursing services ……………………………………………. $1,120,000 $1,120,000
Dietary services …………………………………………….. 230,000 230,000
PROBLEM 18-5
(1) Land, Building, and Equipment ……………………………………………… 200,000
(2) Land, Building, and Equipment ………………………………………………. 9,000
(3) Land, Building, and Equipment ………………………………………………. 14,000
(4) Mortgage Payable ………………………………………………………………. 10,000
Interest Expense (14% × $160,000) ……………………………………….. 22,400
(5) Cash ………………………………………………………………………………….. 1,800
Accumulated Depreciation …………………………………………………….. 2,000
(6) Accumulated Depreciation …………………………………………………….. 7,000
(7) Depreciation Expense ………………………………………………………….. 46,000
Accumulated Depreciation ……………………………………………….. 46,000
To record annual depreciation.
(8) Land, Building, and Equipment ………………………………………………. 75,000
Cash …………………………………………………………………………….. 75,000
(9) Accounts Payable ………………………………………………………………… 9,000
18–13 Ch. 18—Problems
PROBLEM 18-6
(1) Pledges Receivable ……………………………………………………………… 800,000
Contributions—Unrestricted ……………………………………………… 800,000
(2) Cash ………………………………………………………………………………….. 470,000
Pledges Receivable ………………………………………………………… 470,000
(3) Cash ………………………………………………………………………………….. 35,000
Special Events Support—Unrestricted ………………………………. 12,000
(4) Medical Services Program ……………………………………………………. 60,000
(5) Management and General Services ……………………………………….. 150,000
(6) Buildings and Equipment ………………………………………………………. 18,000
Cash …………………………………………………………………………….. 18,000
(7) Depreciation Expense ………………………………………………………….. 15,000
Accumulated Depreciation ……………………………………………….. 15,000
(8) Vouchers Payable ……………………………………………………………….. 330,000
PROBLEM 18-7
(1) Event Journal Entry Debit Credit
(a) Cash ……………………………………………………………………………. 20,000
Revenue—Annual Dues ……………………………………………. 20,000
(b) Cash ……………………………………………………………………………. 31,000
Revenue—Snack Bar and Soda Fountain …………………… 31,000
(g) Cash ……………………………………………………………………………. 5,000
Public Support—Unrestricted Bequests ………………………. 5,000
(h) Investments ………………………………………………………………….. 7,000
Unrealized Gain on Investments—Unrestricted ……………. 7,000
(i) Depreciation Expense—House ……………………………………….. 9,000
18–15 Ch. 18—Problems
Problem 18-7, Concluded
(2) Mayfair Sports Club
Statement of Activities
For Year Ended March 31, 2019
Temporarily Permanently
Unrestricted Restricted Restricted Total
Public support and revenue:
Public support:
Contributions ………………………………………. $35,000 $100,000 $135,000
Unrestricted bequests ………………………….. $ 5,000 5,000
Total public support …………………………. $ 5,000 $35,000 $100,000 $140,000
Revenue:
Annual dues ……………………………………….. $20,000 $ 20,000
Snack bar and soda fountain sales ………… 31,000 31,000
PROBLEM 18-8
(1) Total of allocable operating expenses financed by donor-restricted contributions:
Salaries and payroll taxes …………………………………………………………… $ 33,000
Telephone and miscellaneous …………………………………………………….. 2,000
Nursing and medical fees …………………………………………………………… 70,000
Problem 18-8, Continued
Journal entry:
Alcohol and Drug Abuse Program …………………………………….. 127,800
Outreach to Teens Program …………………………………………….. 85,200
(2) Outreach Clinic
Allocation of Expenses Financed by Unrestricted Resources
For Year Ended December 31, 2019
Programs
Supporting Services
Total Alcohol and Outreach Manage- Fund
Expense Allocated Amount Drug Abuse to Teens ment Raising
Salaries and payroll taxes …………………… $ 73,000 $ 21,900 $ 14,600 $21,900 $14,600
Telephone and miscellaneous …………….. 20,000 4,000 4,000 3,000 9,000
(3) Alcohol and Drug Abuse Program ………………………………………….. 225,200
Outreach to Teens Program ………………………………………………….. 125,700
Management and General Services ……………………………………….. 24,900
Fund-Raising Services ………………………………………………………… 54,200
Problem 18-8, Concluded
(4) Alcohol and Drug Abuse Program ………………………………………….. 24,000
Outreach to Teens Program ………………………………………………….. 4,800
Management and General Services ………………………………………. 14,400
PROBLEM 18-9
(1) We Care
Statement of Activities
For Year Ended December 31, 2019
Temporarily Permanently
Unrestricted Restricted Restricted Total
Total revenue ………………………………………………. $ 13,000 $ 19,000 $ 25,000 $ 57,000
Net assets released from restriction:
Satisfaction of program restrictions ………………… $143,000 $(143,000) $ 0
Satisfaction of equipment acquisition
restrictions ……………………………………………….. 20,000 (20,000) 0
Problem 18-9, Concluded
(2) Closing entries:
Contributions—Unrestricted ……………………………………………… 407,000
Investment Revenue—Unrestricted …………………………………… 13,000
Adult Services Program ……………………………………………… 322,200
Education Program ……………………………………………………. 184,100
Management and General Services …………………………….. 27,600
Fund-Raising Services ……………………………………………….. 50,100
PROBLEM 18-10
We Care
Statement of Functional Expenses
For Year Ended December 31, 2019
Program Services Supporting Services**
Total Alcohol and Outreach Total Manage- Fund Total
All Funds Drug Abuse to Teens Programs ment Raising Supporting
Salaries and payroll taxes* ……… $ 106,000 $ 41,700 $ 27,800 $ 69,500 $21,900 $14,600 $36,500
Telephone and miscellaneous
expenses …………………………. 22,000 5,200 4,800 10,000 3,000 9,000 12,000
programs) ………………………. 10,000 6,000 4,000 10,000
Interest expense (50/10/30/10) .. 8,000 4,000 800 4,800 2,400 800 3,200
Provision for uncollectible
pledges ……………………………. 26,000 26,000 26,000
Total before depreciation
18-8 or percentage
allocations in Problem
18-8.) …………………………….. $ 73,000 $ 21,900 $ 14,600 $ 36,500 $21,900 $14,600 $36,500
From donor-restricted
contributions (split 60/40