Package Title: Test Bank Questions

Course Title: Advanced Accounting, 6e

Chapter Number: 19

Question Type: Multiple Choice

1) Special entities are not-for-profit organizations that are:

a) government owned.
b) privately owned.
c) publicly owned.
d) either government owned or privately owned.

Answer: d

Question Title: Test Bank (Multiple Choice) Question 01

Difficulty: Easy
Learning Objective: 1 Describe the source of accounting standards for nongovernment nonbusiness
organizations (NNOs).
Section Reference: 19.1

2) A municipality's capital projects fund is similar to a university's:

a) renewals and replacements fund.

b) retirement of indebtedness fund.
c) investment in plant fund.
d) none of these.

Answer: a

Question Title: Test Bank (Multiple Choice) Question 02

Difficulty: Easy
Learning Objective: 9 Describe the funds used to account for property, plant and equipment.
Section Reference: 19.6

3) Board designated funds should be accounted for as:

a) restricted funds.
b) specific purpose funds.
c) unrestricted funds.
d) none of these.

Answer: c

Question Title: Test Bank (Multiple Choice) Question 03

Difficulty: Easy
Learning Objective: 4 Distinguish between a current restricted fund and an unrestricted fund.
Section Reference: 19.4

4) For a university, the receipt of assets for operating activities that have external restrictions as to the
purposes for which they can be used is recorded by crediting:

a) Fund Balance-Restricted.
b) Contribution Revenue.
c) Deferred Revenue.
d) Net Assets Released.

Answer: b

Question Title: Test Bank (Multiple Choice) Question 04

Difficulty: Medium
Learning Objective: 1 Describe the source of accounting standards for nongovernment nonbusiness
organizations (NNOs).
Section Reference: 19.1

5) Which of the following statements related to pledges is incorrect?

a) Pledges are signed commitments to contribute specific amounts of money on a future date or in
installments.
b) Pledges are recorded as revenues when a promise to give is nonrevocable and unconditional.
c) Pledges are generally enforceable contracts.
d) All of these are correct.

Answer: c

Question Title: Test Bank (Multiple Choice) Question 05

Difficulty: Medium
Learning Objective: 7 Explain how contributions are recorded by NNOs.
Section Reference: 19.5

6) When the donor has specified a particular date or event after which the principal of the Endowment Fund
may be expended, the Endowment Fund is referred to as a(n):

a) pure endowment fund.

b) term endowment fund.
c) quasi endowment fund.
d) expendable endowment fund.

Answer: b

Question Title: Test Bank (Multiple Choice) Question 06

Difficulty: Easy
Learning Objective: 10 Explain the basic accounting used by endowment funds.
Section Reference: 19.7
7) The basic financial statements for all NNOs include a:

a) Balance sheet and Statement of cash flows

b) Statement of activities and Statement of cash flows
c) Balance sheet and Statement of activities
d) Balance sheet, Statement of activities, and Statement of cash flows

Answer: d

Question Title: Test Bank (Multiple Choice) Question 07

Difficulty: Easy
Learning Objective: 2 Identify the three basic statements for NNOs.
Section Reference: 19.1

8) Revenues and expenses of hospitals are recorded in the accounts of the:

a) Endowment Fund.
b) General Fund.
c) Plant Replacement Fund.
d) Specific Purpose Fund.

Answer: b

Question Title: Test Bank (Multiple Choice) Question 08

Difficulty: Easy
Learning Objective: 3 Describe the basic funds used by nongovernment nonbusiness organizations.
Section Reference: 19.2

9) Investments are reported by NNOs at

a) cost.
b) fair value.
c) the lower of cost or fair value.
d) the higher of cost or fair value.

Answer: b

Question Title: Test Bank (Multiple Choice) Question 09

Difficulty: Easy
Learning Objective: 11 Indicate how equity investments are reported in the financial statements.
Section Reference: 19.8

10) Resources of an unrestricted fund that are designated by the governing board for endowment purposes
are accounted for in the unrestricted fund by all NNOs EXCEPT:

a) voluntary health and welfare organizations.

b) hospitals.
c) colleges and universities.
d) other NNOs.

Answer: c

Question Title: Test Bank (Multiple Choice) Question 10

Difficulty: Medium
Learning Objective: 10 Explain the basic accounting used by endowment funds.
Section Reference: 19.7

11) In accounting for loan funds, revenue is recorded when the:

a) contribution is received.
b) loan is made to students.
c) loan is repaid by students.
d) students graduate.

Answer: a

Question Title: Test Bank (Multiple Choice) Question 11

Difficulty: Medium
Learning Objective: 12 Explain the change in accounting for loan funds brought about by new standards.
Section Reference: 19.9

12) All of the following are a plant fund in colleges and universities EXCEPT:

a) unexpended plant fund.

b) funds for renewals and replacements.
c) investment in plant.
d) plant replacement and expansion fund.

Answer: d

Question Title: Test Bank (Multiple Choice) Question 12

Difficulty: Medium
Learning Objective: 9 Describe the funds used to account for property, plant and equipment.
Section Reference: 19.6

13) Most property, plant and equipment transactions of hospitals are accounted for in the:

a) fund for renewals and replacements.

b) general fund.
c) plant replacement and expansion fund.
d) unexpended plant fund.

Answer: b

Question Title: Test Bank (Multiple Choice) Question 13

Difficulty: Medium
Learning Objective: 9 Describe the funds used to account for property, plant and equipment.
Section Reference: 19.6

14) All NNOs have current restricted funds and unrestricted funds EXCEPT:

a) colleges and universities

b) hospitals
c) VHWOs
d) ONNOs

Answer: b

Question Title: Test Bank (Multiple Choice) Question 14

Difficulty: Easy
Learning Objective: 4 Distinguish between a current restricted fund and an unrestricted fund., 5 Explain the
term “assets whose use is limited.”
Section Reference: 19.4

15) Tuition waivers for which there is no intention of collection from the student should be classified by a
college as:

a) Revenue, No; Expenditures, No

b) Revenue, No; Expenditures, Yes
c) Revenue, Yes; Expenditures, Yes
d) Revenue, Yes; Expenditures, No

Answer: c

Question Title: Test Bank (Multiple Choice) Question 15

Difficulty: Medium
Learning Objective: 14 Discuss the special reporting issues of hospitals.
Section Reference: 19.12

16) Which of the following is used for current expenditures by a college?

a) Unrestricted Current Funds, No; Restricted Current Funds, No

b) Unrestricted Current Funds, No; Restricted Current Funds, Yes
c) Unrestricted Current Funds, Yes; Restricted Current Funds, Yes
d) Unrestricted Current Funds, Yes; Restricted Current Funds, No

Answer: c

Question Title: Test Bank (Multiple Choice) Question 16

Difficulty: Medium
Learning Objective: 4 Distinguish between a current restricted fund and an unrestricted fund.
Section Reference: 19.4
17) Under Southdale Hospital’s established rate structure, the hospital would have earned patient service
revenue of $7,000,000 for the year ended December 31, 2017. However, Southdale did not expect to collect
this amount because of charity allowances of $1,000,000 and discounts of $500,000 to third party payers. In
May 2017, Southdale purchased bandages from Ace Supply Co. at a cost of $5,000. However, Ace notified
Southdale that the invoice was being cancelled and that the bandages were being donated to Southdale.
For the year ended December 31, 2017, how much should Southdale record as patient service revenue?

a) $7,000,000
b) $6,500,000
c) $6,000,000
d) $5,500,000

Answer: a

Question Title: Test Bank (Multiple Choice) Question 17

Difficulty: Easy
Learning Objective: 14 Discuss the special reporting issues of hospitals.
Section Reference: 19.12

18) Under Southdale Hospital’s established rate structure, the hospital would have earned patient service
revenue of $7,000,000 for the year ended December 31, 2017. However, Southdale did not expect to collect
this amount because of charity allowances of $1,000,000 and discounts of $500,000 to third party payers. In
May 2017, Southdale purchased bandages from Ace Supply Co. at a cost of $5,000. However, Ace notified
Southdale that the invoice was being cancelled and that the bandages were being donated to Southdale.
For the year ended December 31, 2017, Southdale should record the donation of bandages as:

a) a $5,000 reduction in operating expenses.

b) nonoperating revenue of $5,000.
c) other operating revenue of $5,000.
d) a memorandum entry only.

Answer: c

Question Title: Test Bank (Multiple Choice) Question 18

Difficulty: Easy
Learning Objective: 14 Discuss the special reporting issues of hospitals.
Section Reference: 19.2

19) The following funds were among those on Cole University's books at April 30, 2017:

Funds to be used for acquisition of additional properties for university $2,500,000

purposes (unexpended at 4/30/17)

Funds set aside for debt service charges and for the 5,000,000
retirement of indebtedness on university properties

How much of the above-mentioned funds should be included in plant funds?

a) $0
b) $2,500,000
c) $5,000,000
d) $7,500,000

Answer: d

Question Title: Test Bank (Multiple Choice) Question 19

Difficulty: Medium
Learning Objective: 9 Describe the funds used to account for property, plant and equipment.
Section Reference: 19.6

20) Which basis of accounting should a voluntary health and welfare organization use?

a) Cash basis for all funds

b) Modified accrual basis for all funds
c) Accrual basis for all funds
d) Accrual basis for some funds and modified accrual basis for other funds

Answer: c

Question Title: Test Bank (Multiple Choice) Question 20

Difficulty: Easy
Learning Objective: 1 Describe the source of accounting standards for nongovernment nonbusiness
organizations (NNOs).
Section Reference: 19.3

21) Which one of the following statements is NOT required for NNOs?

a) statement of financial position

b) statement of cash flows
c) statement of changes in net assets
d) statement of activities

Answer: c

Question Title: Test Bank (Multiple Choice) Question 21

Difficulty: Easy
Learning Objective: 2 Identify the three basic statements for NNOs.
Section Reference: 19.1

22) Admissions, counseling and registration are considered to be:

a) educational and general services.

b) auxiliary enterprises.
c) student services.
d) institutional support.

Answer: c
Question Title: Test Bank (Multiple Choice) Question 22
Difficulty: Hard
Learning Objective: 4 Distinguish between a current restricted fund and an unrestricted fund.
Section Reference: 19.3

23) A good reason for NNOs to adopt fund accounting even though FASB standards do NOT require it is
because:

a) the capital assets are significant.

b) the donated services are significant.
c) the program services are involved with more than one type of revenue.
d) restrictions are placed by donors in many cases.

Answer: c

Question Title: Test Bank (Multiple Choice) Question 23

Difficulty: Hard
Learning Objective: 1 Describe the source of accounting standards for nongovernment nonbusiness
organizations (NNOs).
Section Reference: 19.1

24) Which of the following groups of not-for-profit entities must use fund accounting to be in conformity
with GAAP?

a) Governmental, Yes; Nongovernmental, Yes

b) Governmental, Yes; Nongovernmental, No
c) Governmental, No; Nongovernmental, Yes
d) Governmental, No; Nongovernmental, No

Answer: b

Question Title: Test Bank (Multiple Choice) Question 24

Difficulty: Hard
Learning Objective: 1 Describe the source of accounting standards for nongovernment nonbusiness
organizations (NNOs).
Section Reference: 19.1

25) GASB No. 35 allows public colleges and universities to:

a) apply guidance designed for special-purpose governments.

b) use FASB standards to permit consistent reporting.
c) optionally follow FASB standards.
d) none of these are correct.

Answer: a
Question Title: Test Bank (Multiple Choice) Question 25
Difficulty: Hard
Learning Objective: 1 Describe the source of accounting standards for nongovernment nonbusiness
organizations (NNOs).
Section Reference: 19.1

26) For the fall semester of 2017, Irving College assessed its students $5,000,000 for tuition and fees. The
net amount realized was only $4,700,000 because of the following revenue reductions:

Refunds occasioned by class cancellations and student withdrawals $ 80,000

Tuition remissions granted to faculty members’ families 20,000
Scholarships and fellowships 200,000

How much should Irving College report for the period for unrestricted current funds revenues from tuition
and fees?

a) $5,000,000
b) $4,900,000
c) $4,780,000
d) $4,700,000

Answer: b

Question Title: Test Bank (Multiple Choice) Question 26

Difficulty: Hard
Learning Objective: 14 Discuss the special reporting issues of hospitals.
Section Reference: 19.12

27) During the years ending June 30, 2016, and June 30, 2017, Jefferson University conducted a cancer
research project financed by a $3,000,000 gift from an alumnus. This entire amount was pledged by the
donor on July 10, 2015, although he paid only $800,000 at that date. The gift was restricted to the financing
of this particular research project. During the two-year research period, Jefferson related gift receipts and
research expenditures were as follows:

Year Ended June 30

2016 2017
Gift receipts 1,100,000 1,200,000
Cancer research restricted expenditures 1,400,000 1,600,000

How much gift revenue should Jefferson University report in the temporarily restricted column of its
statement of activities for the year ended June 30, 2017?

a) $3,000,000
b) $1,600,000
c) $1,200,000
d) $0

Answer: b

Question Title: Test Bank (Multiple Choice) Question 27

Difficulty: Hard
Learning Objective: 7 Explain how contributions are recorded by NNOs.
Section Reference: 19.5

28) Bell Foundation, a voluntary health and welfare organization, supported by contributions from the
general public, included the following costs in its statement of functional expenses for the year ended
December 31, 2017.

Fund raising $1,000,000

Administrative 600,000
Research 200,000

Bell’s functional expenses for 2017 program services included:

a) $200,000.
b) $600,000.
c) $1,000,000.
d) $1,800,000.

Answer: a

Question Title: Test Bank (Multiple Choice) Question 28

Difficulty: Hard
Learning Objective: 3 Describe the basic funds used by nongovernment nonbusiness organizations.
Section Reference: 19.3

29) Military Family Center is a voluntary welfare organization funded by contributions from the general
public. During 2016 unrestricted pledges of $800,000 were received, half of which were payable in 2016
with the other half payable in 2017 for use in 2017. It was estimated that 10% of these pledges would be
uncollectible. How much should National report as net contribution revenue for 2016 with respect to the
pledges?

a) $800,000
b) $720,000
c) $360,000
d) $0

Answer: b

Question Title: Test Bank (Multiple Choice) Question 29

Difficulty: Medium
Learning Objective: 7 Explain how contributions are recorded by NNOs.
Section Reference: 19.5

30) Cindy Duncan is a social worker on the staff of Military Family Center, a voluntary welfare
organization. She earns $42,000 annually for a normal workload of 2,000 hours. During 2017 she
contributed an additional 800 hours of her time to Military Family Center at no extra charge. How much
should Military Family Center record in 2017 as contributed service expense?
a) $0
b) $1,680
c) $8,400
d) $16,800

Answer: d

Question Title: Test Bank (Multiple Choice) Question 30

Difficulty: Medium
Learning Objective: 7 Explain how contributions are recorded by NNOs.
Section Reference: 19.5

Question Type: Essay

31) The fund structure and terminology differ among NNOS, but there are six funds commonly used.
Identify the funds used by nongovernment nonbusiness organizations.

Answer: The six funds commonly used by NNOs are (a) Current fund, (b) Plant fund, (c) Endowment Fund,
(d) Loan Fund, (e) Agency or custodial fund, and (f ) Annuity and life income fund.

Question Title: Test Bank (Essay) Question 31

Difficulty: Medium
Learning Objective: 3 Describe the basic funds used by nongovernment nonbusiness organizations.
Section Reference: 19.2

32) Contributions to NNOS include gifts of cash, pledges, donated services, and gifts of noncash assets.
Explain how contributions are recorded by NNOS.

Answer: Contributions are recognized as revenue in the period received. Conditional promises are
recognized when they become unconditional. Donor-restricted contributions are recognized as revenue if the
contributions are unconditional. Pledges are recognized as revenues at the present value of the expected
receipts when a promise is nonrevocable and unconditional.

Question Title: Test Bank (Essay) Question 32

Difficulty: Medium
Learning Objective: 7 Explain how contributions are recorded by NNOs.
Section Reference: 19.5

33) The following events affected the New Athens University Loan Fund:

1. $300,000 is received from a donor to establish a student loan fund. Loans will carry a 6% annual interest
rate.

2. The Loan Fund loaned the $300,000 to students. Five percent of the loans are estimated to be
uncollectible.
3. Loans of $50,000 were repaid with $3,000 of interest.

4. A $1,000 student loan was written off as uncollectible.

Required:
Prepare the journal entries necessary to record these transactions.

Answer:
1. Cash 300,000
Revenue-Contributions – Restricted 300,000

2. Loans Receivable 300,000

Cash 300,000

Bad Debt Expense 15,000

Allowance for Uncollectible Loans 15,000

3. Cash 53,000
Loans Receivable 50,000
Interest Income 3,000

4. Allowance for Uncollectible Loans 1,000

Loans Receivable 1,000

Question Title: Test Bank (Problem) Question 19-1

Difficulty: Medium
Learning Objective: 12 Explain the change in accounting for loan funds brought about by new standards.
Section Reference: 19.9

34) On October 10, 2016, a national voluntary health help foundation was the recipient of a telethon
sponsored by a renowned celebrity. Phone donations totaling $8,500,000 were promised. Based on historical
information, 15% of these pledges are expected to be uncollectible. Of these pledges, $7,100,000 were
collected in 2017; the remainder were considered uncollectible.

Required:
Identify the proper fund and prepare the journal entries necessary in 2016 and 2017.

Answer:
Current Unrestricted Fund
2016
Pledges Receivable 8,500,000
Revenue – Contributions 8,500,000

Expense-Provision for Uncollectible Pledges 1,275,000

Allowance for Uncollectible Pledges 1,275,000

2017
Cash 7,100,000
Pledges Receivable 7,100,000
 Expense-Provision for Uncollectible Pledges 125,000
Allowance for Uncollectible Pledges 1,275,000
Pledges Receivable 1,400,000

Question Title: Test Bank (Problem) Question 19-2

Difficulty: Medium
Learning Objective: 7 Explain how contributions are recorded by NNOs.
Section Reference: 19.5

35) Prepare journal entries for the following transactions or events:

1. The board of trustees of Snark College voted to designate $300,000 for expansion of the student union
and $90,000 for future research projects.
2. In accordance with the requirements of a bond indenture, Snark College transferred $85,000 of
unrestricted funds for the accumulation of cash to retire the debt related to the construction of the Central
Computer Building.
3. A governing board of a hospital designates $280,000 for the future expansion of the emergency care
facilities.
4. A heart association receives pledges of $900,000 from the general public in connection with a telethon. It
is estimated that 30% of the amounts pledged will not be collectible.
5. An ONNO receives the donated services of a CPA with a market value of $10,000.
6. On November 3, 2017, $75,000 was donated to a university for library acquisitions of which $50,000 was
expended for this purpose during the remainder of the fiscal year.

7. On November 4, 2017, $15,000 was contributed to a voluntary health organization to be used to conduct
CPR classes for the public. During the remainder of the current fiscal year $14,000 was expended for this
purpose.
8. On November 5, 2017, $100,000 was contributed to a hospital for cancer research of which $90,000 was
expended for this purpose during the remainder of the fiscal year.

Answer:
1. a. Unrestricted Current Fund
Nonmandatory Transfer to Plant Fund 300,000
Cash 300,000

Fund Balance – Unallocated 90,000

Fund Balance – Allocated 90,000

b. Unexpended Plant Fund

Cash 300,000
Fund Balance – Unrestricted 300,000

2. a. Unrestricted Current Fund

Mandatory Transfer to Plant Fund 85,000
 Cash 85,000

b. Plant Fund – For Retirement of Indebtedness

Cash 85,000
Fund Balance – Restricted 85,000

3. General Fund
Fund Balance – Unallocated 280,000
Fund Balance – Allocated for Plant
Expansion 280,000
or no entry need be made and the designation of $280,000 for plant expansion may be
reported in a footnote to the financial statements.

4. Current Unrestricted Fund

Pledges Receivable 900,000
Revenue – Contributions 900,000

Expense-Provision for Uncollectible Pledges 270,000

Allowance for Uncollectible Pledges 270,000

5. Current Unrestricted Fund

Management and General Expense 10,000
Donated Services Revenue 10,000

6. Restricted Current Fund

Cash 75,000
Contribution Revenue 75,000

Net Assets Released from Restrictions 50,000

Cash 50,000

Unrestricted Current Fund

Cash 50,000
Net Assets Released from Restrictions 50,000
Expenses – Library 50,000
Cash 50,000

7. Current Restricted Fund

Cash 15,000
Contribution Revenue 15,000

Net Assets Released from Restrictions 14,000

Cash 14,000

Unrestricted Current Fund

Cash 14,000
Net Assets Transferred–In 14,000

8. a. Specific Purpose Fund

 Cash 100,000
Fund Balance 100,000

Fund Balance 90,000

Cash 90,000

b. General Fund
Research Expenditures 90,000
Specific Purpose Grants [Revenue] 90,000

Question Title: Test Bank (Problem) Question 19-3

Difficulty: Hard
Learning Objective: 4 Distinguish between a current restricted fund and an unrestricted fund., 9 Describe the
funds used to account for property, plant and equipment.
Section Reference: 19.3, 19.4, 19.5, 19.6

36) An NNO obtained cash for the acquisition of property and equipment as follows:
Loan proceeds $200,000
Contributions $400,000

These funds are used to acquire land. In addition, $20,000 in principal and $2,000 in interest is paid on
indebtedness relating to property and equipment. Depreciation on property and equipment for the year is
$80,000.

Required:
Prepare all necessary entries in the affected funds of the NNO, assuming that the NNO is a:
a. Voluntary health and welfare organization.
b. University.
c. Hospital.

Answer:
a. Plant Fund
Cash 600,000
Notes Payable 200,000
Contributions-Revenue-Restricted 400,000

Land 600,000
Cash 600,000

Notes Payable 20,000

Interest Expense 2,000
Cash 22,000

Depreciation Expense 80,000

Accumulated Depreciation 80,000

Unexpended Fund Balance 340,000

Expended Fund Balance 340,000
[($600,000 + $20,000) - ($200,000 + $80,000) = $340,000]
b. Unexpected Plant Fund
Cash 600,000
Notes Payable 200,000
Revenue-Contributions-Restricted 400,000

Land 600,000
Cash 600,000

Fund Balance – Restricted 400,000

Notes Payable 200,000
Land 600,000

Investment in Plant Fund

Land 600,000
Notes Payable 200,000
Net Investment in Plant 400,000

Funds for Retirement of Indebtedness

Fund Balance – Restricted 20,000
Cash (Principal) 20,000

Interest Expense 2,000

Cash 2,000

Investment in Plant Fund

Notes Payable 20,000
Net Investment in Plant 20,000

Depreciation Expense 80,000

Accumulated Depreciation 80,000

c. Plant Replacement & Expansion Fund

Cash 400,000
Revenue-Contributions-Restricted 400,000

General Fund
Cash 200,000
Notes Payable 200,000

Land 600,000
Cash 200,000
Fund Balance 400,000

Plant Replacement & Expansion Fund

Fund Balance 400,000
Cash 400,000

General Fund
Interest Expense 2,000
 Notes Payable 20,000
Cash 22,000
Depreciation Expense 80,000
Accumulated Depreciation 80,000

Question Title: Test Bank (Problem) Question 19-4

Difficulty: Hard
Learning Objective: 9 Describe the funds used to account for property, plant and equipment.
Section Reference: 19.6

37) The following information was taken from the accounts and records of the ABC Foundation, a private,
not-for-profit organization. All balances are as of June 30, 2017, unless otherwise noted.

Unrestricted Support – Contributions $250,000

Unrestricted Revenues – Investment Income 28,000
Temporarily Restricted Gain on Sale of Investments 13,000
Expenses – Scholarships 300,000
Expenses – Fund Raising 60,000
Expenses – Management and General 120,000
Restricted Support – Contributions 420,000
Restricted Revenues – Investment Income 30,000
Permanently Restricted Support – Contributions 50,000
Unrestricted Net Assets, July 1, 2016 250,000
Temporarily Restricted Net Assets, July 1, 2016 40,000
Permanently Restricted Net Assets, July 1, 2016 10,000

The unrestricted support from contributions was received in cash during the year. The expenses included
$500,000 payable from donor-restricted resources.

Required:
Prepare ABC’s statement of activities for the fiscal year ended June 30, 2017.

Answer:
ABC Foundation
Statement of Activities
For the Year Ended June 30, 2017

Changes in Unrestricted Net Assets

Revenues and Gains
Contributions $250,000
Investment Income 28,000
Total revenues and gains 278,000
Net assets released from restrictions 500,000
Increase in unrestricted net assets 778,000

Expenses:
Program Services:
Scholarships 300,000
Supporting Services:
 Management and General $120,000
Fund Raising 60,000
Total Supporting Services 180,000
Total Expenses 480,000
Net increase in unrestricted net assets 298,000

Changes in Temporarily Restricted Net Assets

Contributions 420,000
Investment Income 30,000
Gain on Sale of investments 13,000
Net assets released from restrictions (500,000)
Decrease in temporarily restricted net assets ( 37,000)

Changes in Permanently Restricted Net Assets

Contributions 50,000
Increase in permanently restricted net assets 50,000

Increase in net assets 311,000

Net assets, July 1, 2016 50,000
Net assets, June 30, 2017 $361,000

Question Title: Test Bank (Problem) Question 19-5

Difficulty: Hard
Learning Objective: 2 Identify the three basic statements for NNOs., 4 Distinguish between a current
restricted fund and an unrestricted fund., 7 Explain how contributions are recorded by NNOs.
Section Reference: 19.1, 19.2, 19.4, 19.5

38) Jersey Hospital received money from a donor to set up an endowment fund. The following information
pertains to this contribution:

2016
1. $3,000,000 was received to establish the fund. The requirements were
a. $150,000 of the endowment fund’s income must be used for research grants each year.
b. The remainder of income is under the discretion of the governing board.
c. The principal is expendable after the donor’s death. It shall be used to purchase equipment.
2. The cash received was invested in a number of securities.

2017
3. Dividends of $150,000 and interest of $400,000 were received.
4. The income was transferred to the appropriate funds.
5. Of the restricted income, only $100,000 was expended for its specified purpose during 2017.
6. The governing board specified that $300,000 of the income would be used for loans for deserving
medical students.

2018
7. $250,000 was lent to medical students.
8. The donor died of cancer.
Required:
Set up headings for the following funds: Endowment, General, Specific Purpose, and Plant Replacement and
Expansion. Prepare the entries necessary in each fund to record the events listed above.

Answer:
Endowment Fund
1. Cash 3,000,000
Revenue-Contribution – Restricted 3,000,000

2. Investments 3,000,000
Cash 3,000,000

3. Cash 550,000
Due to General Fund 400,000
Due to Specific Purpose Fund 150,000

4. Due to General Fund 400,000

Due to Specific Purpose Fund 150,000
Cash 550,000

8. Transfer to Plant Replacement and Expansion Fund 3,000,000

Cash 3,000,000

General Fund
3. Due from Endowment Fund 400,000
Unrestricted Income from Endowment Fund 400,000

4. Cash 400,000
Due from Endowment Fund 400,000

5. Other Professional Services – Research 100,000

Other Operating Revenue 100,000

6. Assets Whose Use is Limited 100,000

Cash 100,000

7. Loans Receivable 250,000

Cash 250,000

Specific Purpose Fund

3. Due from Endowment Fund 150,000
Fund Balance 150,000

4. Cash 150,000
Due from Endowment Fund 150,000

Fund Balance 100,000

Cash 100,000
Plant Replacement and Expansion Fund
8. Cash 3,000,000
Transfer from Endowment Fund – Restricted 3,000,000
Endowment Fund
1. Fund Balance – Term 3,000,000
Cash 3,000,000

Question Title: Test Bank (Problem) Question 19-6

Difficulty: Hard
Learning Objective: 10 Explain the basic accounting used by endowment funds.
Section Reference: 19.7

39) The following events were recorded on the books of Free Hospital for the year ended December 31,
2017.

1. Revenue from patient services totaled $12,000,000. The allowance for uncollectibles was established at
$2,500,000. Of the $12,000,000 revenue, $4,500 was recognized under cost reimbursement agreements.
This revenue is subject to audit and retroactive adjustment by third-party payors.

2. Patient service revenue is accounted for at established rates on the accrual basis.

3. Other operating revenue totaled $260,000, of which $120,000 was from specific purpose funds.

4. Free received $310,000 in unrestricted gifts and bequests. They are recorded at fair market value when
received.

5. Endowment funds earned $120,000 in unrestricted income.

6. Board designated funds earned $62,000 in income.

7. Free’s operating expenses for the year amounted to $10,030,000. This included $380,000 in straight-line
depreciation.

Required:
Prepare a statement of activities for Free Hospital for the year ended December 31, 2017.

Answer:
Statement of Activities
Patient Service Revenue $12,000,000
Allowances and Uncollectible Accounts (2,500,000)
Net Patient Service Revenue 9,500,000
Other Operating Revenue (includes $120,000 from specific purpose funds) 260,000
Total Operating Revenue 9,760,000

Operating Expenses (includes depreciation of $380,000) 10,030,000

Loss from Operations (270,000)
Nonoperating Revenue:
Unrestricted Gifts and Requests 310,000
Unrestricted Income from Endowment Funds 120,000
Income from Board-Designated Funds 62,000
 Total Nonoperating Revenue 492,000
Excess of Revenue over Expenses $ 222,000

Question Title: Test Bank (Problem) Question 19-7

Difficulty: Hard
Learning Objective: 10 Explain the basic accounting used by endowment funds., 14 Discuss the special
reporting issues of hospitals.
Section Reference: 19.7, 19.12