Chap 013

Chapter 13 - Accounting for Not-for-Profit Organizations

CHAPTER 13: ACCOUNTING FOR NOT-FOR-PROFIT ORGANIZATIONS

OUTLINE

Number Type/Task Status(re: 15/e)

Questions:13-1 Characteristics of the not-for-profit sector Identify 14-1, same13-2 Operating statements of not-for-profits Compare New13-3 Required financial statements; reporting issues Explain 14-3, revised13-4 Classification of net assets; board designated

and temporarily restricted net assetsExplain and distinguish

14-4, same

13-5 Statement of functional expenses Explain 14-5, same13-6 Conditional and unconditional pledges Distinguish New13-7 Program services and supporting services Distinguish 14-7, same13-8 Donated services Explain 14-8, same13-9 Special events Explain New13-10 Fund-raising foundations and variance power Explain New

Cases:13-1 Temporarily restricted net assets Analyze and report 14-1, revised13-2 Terms of gifts – restricted vs. unrestricted Recommend 14-2, same13-3 Not-for-profit or government entity Analyze and explain 1-4, revised

Exercises/Problems:13-1 Various Multiple choice 14-1, revised 13-2 Classification of revenue/support and expenses Matching 14-2, revised13-3 Donated services Evaluate, compute 14-3, revised13-4 Joint costs with a fund-raising appeal Explain 14-4, same13-5 Identify departures from GAAP Evaluate and discuss 14-5, same 13-6 Statement of activities Evaluate 14-6, same13-7 Recording revenue and expense transactions Journal entries New13-8 Recording and reporting transactions Journalize, report New13-9 Recording and reporting transactions Journalize, report New13-10 Prepare all four financial statements Prepare statements 14-8, same

13-1


CHAPTER 13: ACCOUNTING FOR NOT-FOR-PROFIT ORGANIZATIONS

Answers to Questions

13-1. As discussed in the chapter, nongovernmental not-for-profit organizations differ from those in the public (governmental) sector because they do not have the power to tax citizens or issue tax-exempt debt, are not controlled by or financially accountable to a government, and do not have popular election of members of their governing board or appointment of board members by a government. Both types of organizations may depend on contributions and charges for services for financing their operations. This is particularly true for nongovernmental not-for-profit organizations. A not-for-profit organization (NFP) is different than a business in the for-profit sector because it has no owners who expect a return on their investment. In addition, an NFP operates for purposes other than providing goods and services at a profit.

Examples:Not-for-profit sector – Girl Scouts of AmericaPublic (governmental) sector – Colorado State University Private, business sector – Microsoft, Inc.

13-2. While the operating statements for nongovernmental NFPs and governmental NFPs reporting as business-type entities report substantially the same information, the form in which the information is presented has some differences. For example:

Nongovernmental Not-for-profits Governmental Not-for-profitsGenerally titles the statement the statement of activities

Titles the statement the statement of revenues, expenses, and changes in net position

Considerable flexibility in formatting the statement

Must provide a format that identifies operating and nonoperating activities

Reports changes in the three net asset categories for the reporting period

Reports the changes in total net position for the reporting period

Identifies expenses as program and support (either on the face of the financial statement or in the notes)

No similar requirement

13-3. FASB ASC 958-205-45 requires all nongovernmental not-for-profit organizations to present a statement of financial position (or balance sheet), a statement of activities, and a statement of cash flows for the entity as a whole. In addition to these three statements, voluntary health and welfare organizations must also present a statement of functional expenses.

13-2


Ch. 13, Answers (Cont’d)

13-4. FASB ASC 958-205-45 requires not-for-profit organizations to separate net assets into the three classifications of unrestricted, temporarily restricted, and permanently restricted. Unrestricted are contributions received without restrictions on their use by donors. Temporarily restricted net assets are contributions or unconditional promises to give for which the donor has imposed restrictions as to the period of use or purpose for which the resources can be used. When temporary restrictions have been met, temporarily restricted net assets are decreased and unrestricted net assets are increased by reporting the amount as a release of restriction in the statement of activities. Permanently restricted net assets are contributions or unconditional promises to give for which the donor requires that the principal amount of the gift be conserved, but the use of earnings is unrestricted unless the donor specifies that the earnings be used for a specific purpose.

Board designated net assets is a subset of unrestricted net assets. Dollars are moved from the unrestricted net asset category to board designated net assets when the board takes action. Action to set aside a portion of net assets for a future purpose is usually reflected in the minutes to a board meeting. Examples might include repair of buildings or expansion of programs. As easily as a board can designate a special purpose for unrestricted net assets, it can “undesignate” those net assets, so board designated net assets are still classified as unrestricted net assets. For an asset to be considered temporarily restricted the restriction must be imposed by a donor.

13-5. A statement of functional expenses provides an analysis of the costs associated with each of the program services and supporting services. It allows the ratio of program expenses to total expenses and support expenses to total expenses to be computed and compared to other entities. In addition, the statement of functional expenses shows the natural, line-item or object of expense; such as, salaries, supplies, rent or occupancy costs, and depreciation. Illustration 13-5 in the text provides a statement of functional expenses that illustrates the relationship between functional expenses and natural classifications of expenses. A statement of activity includes both revenues and expenses, with expenses usually presented by functional category. So the total of each column in the statement of functional expenses should appear on the statement of activities in the expense section. FASB requires that program and support expenses be reported on the statement of activities or in the notes to the financial statements.

13-6. An unconditional pledge requires the passage of time or performance on the part of the not-for-profit entity. As a result, unconditional pledges are generally recognized in the year the pledge is made. A conditional pledge, however, depends on the occurrence of a future and uncertain event. Since it is unknown whether the conditions imposed on the pledge will be met, a conditional pledge is not recognized at the time the pledge is made, but it is disclosed. The conditional pledge will be recognized when substantially all of the conditions imposed by the donor are met.

13-7. Expenses in a not-for-profit organization are divided into functional categories: (1) program services, and (2) supporting services expenses. Program service expenses are

13-3


Ch. 13, Answers, 13-7 (Cont’d)

those that relate to the programs the NFP offers to the public; for example, the Community Family Service Agency (see Illustration 13-7) reports adoption, counseling, foster home care, and special outreach project as its programs.

Supporting services expenses are those that are necessary to make program services possible. These expenses are typically classified into management and general expenses and fund-raising expenses. The time that an executive director spends in overall administration of the organization, with the board of directors, in budgeting and strategic planning meetings, and oversight of accounting and financial reporting is considered general and administrative, and, consequently, is classified as support expenses. However, many executive directors will also spend considerable time in fund-raising, and, particularly in smaller NFPs, on delivering the programs. It is proper, then, to allocate a portion of the executive director’s salary and fringe benefits to the functional categories of fund-raising expenses and program expenses, using an appropriate allocation method.

Functional reporting of expenses in this manner is important since oversight bodies and donors place importance on the ratio of program services expenses to total expenses. In other words, they ask, “For every dollar the organization spends, how many cents go to the organization’s programs, rather than to management and general and fund-raising?”

13-8. To be recorded as contribution revenue and either an expense or asset, a donated service must (1) create or enhance nonfinancial assets or (2) require specialized skills, that are provided by individuals possessing those skills, and typically would have to be purchased if not provided by donation. A good example of a donated service that meets the first criteria would be an electrician contributing services for the new wing of a not-for-profit elementary school. An example of the second criteria would be medical doctors and nurses who contribute their time to provide medical services that are central to an organization’s mission.

13-9. FASB standards provide an option for reporting collections which include historical

treasures and works of art. Assuming the museum has met the criteria for recognizing its porcelain collection as an asset, the museum has the option of recognizing the collection or reporting the collection in the notes. Therefore, it is possible the reason the collection is not recognized is because the museum has simply opted not to recognize the collection.

It is also possible the museum has not met the criteria for the definition of a collection as an asset. To meet the definition of a collection under FASB ASC 958-360-20 the museum must:

1. Hold the collection for public exhibition, education, or research in furtherance of public service rather than financial gain.

2. Protect, keep unencumbered, care for, and preserve the collection.

13-4


Ch. 13, Answers, 13-9 (Cont’d)

3. Subject the collection to an organizational policy that requires the proceeds of items that are sold from the collection to be used to acquire other items for the collection.

13-10. Similar to realized gains and losses, unrealized gains and losses are reported by NFP entities on the statement of activities. Unrealized gains and losses will be reported as unrestricted net assets on the statement of activities, unless their use is restricted by the donor or law. This differs from reporting by for-profit entities, where unrealized gains and losses are reported as other comprehensive income unless the gains/losses relate to trading securities. Generally, for-profit entities report other comprehensive income in the statement of stockholders’ equity.

Solutions to Cases

13-1. a. An example of an evaluation memo would be as follows.

Date: To:Chair, Baytown Area United Way Allocation PanelFrom: [Your Name], Financial Advisor

Re: Analysis of Baytown Rehabilitative Camp for Disabled Children’s financial condition and recommendations for FY 2015 funding

As you and the members of the panel may recall, we were quite concerned during the evaluation of this organization for FY 2014 funding that their financial reserves were precariously low. At that time, I raised the issue about the organization’s ability to continue to sustain its program at the budgeted level and recommended that its budget request from the United Way be cut in half until such time its financial management improved. I also noted that the camp’s FY 2013 statement of activities showed that only 57 percent of its total expenses were incurred for program services. The full panel subsequently decided to send the organization a message about our concerns and reduced the agency’s budget request by $5,000 to $25,000, the amount the United Way Board ultimately approved. During last year’s meeting, the camp’s director and chairman of its board promised to take immediate action to improve the camp’s financial condition, including such actions as more fund-raising activity and, if necessary, cutting support staff at the camp.

When I first looked at the FY 2015 budget request and FY 2014 financial statements for the Baytown Rehabilitative Camp, I was very surprised and pleased by the evident improvement the organization had made since last year in its financial situation. After closer inspection, however, I noted a suspicious reduction of $31,934 in the amount of the investments the camp has been carrying for several years that are restricted for building expansion, together with an exact amount of decrease in temporarily restricted net assets. What really got my attention was that there was no increase in the balance of the buildings account (the only change in that account was

13-5


Ch. 13, Solutions, Case 13-1 (Cont’d)

a decrease for depreciation of $7,240). It became apparent that the camp had removed money from restricted investments and used the money to bolster its unrestricted financial reserves.

When I noted the apparent funds transfer, I contacted the camp’s director who informed me that the original donor, who had contributed $100,000 several years ago for future building expansion, was no longer living. Further, after an exhaustive search she was unable to locate a written agreement regarding the contribution. Upon reporting these facts to the board of directors, a resolution was passed authorizing the use of $37,500 of investments for unrestricted purposes in FY 2014. She stated that additional transfers could occur in future years, if the need arises.

So that you and the other members of the panel can see the impact this $37,500 transfer has on the camp’s financial position, I have calculated the following key measures both including and excluding the $37,500 amount. Normally, a current ratio over 2.0 and quick ratio over 1.0 are considered reasonable. Three months or more of financial reserves would be considered reasonable. As you can see, the camp’s financial improvement without the $37,500 is minimal. In short, the organization would still be financially distressed without the questionable $37,500 transfer.

FY 2014 $37,500 Included $37,500 Excluded FY 2013

Current Ratio: $81,089 / $29,141 = $43,589 / $29,141 = $46,368 / $40,786 =(current assets/ 2.78 1.50 1.14 current liabilities)

Quick Ratio: $65,530 / $29,141 = $28,030 / $29,141 = $28,620 / $40,786 =((current assets – 2.25 .96 .70 prepaid assets)/ current liabilities)

Days of expenses (($81,089 - $29,141) / (($43,589 - $29,141) / 12 days, covered by $238,932) X 365 = $238,932) X 365 = provided financial reserves 79.4 days 22.1 days in case. (((current assets – current liabilities) / total expenses) X 365 days in a year)

13-6



Based on the facts as I know them and the foregoing analysis, I recommend that the United Way have an attorney with experience in such matters look at the situation concerning use of donor-restricted resources for unrestricted operating purposes.

Respectfully submitted,

[Your signature]

b. The answer to part b will depend on the individual students. Students should be concerned with funding given the camp’s use of donor-restricted funds. Students might raise concerns about ethics and “earnings management.” The following is provided for use in discussion.

It appears that the director and board of the Baytown Rehabilitative Camp may have violated their fiduciary duty by using donor-restricted resources for unrestricted operating purposes. Why the camp’s independent auditor did not address this issue in its report is puzzling. An independent attorney with experience in this area should be engaged to investigate this situation. If a subsequent investigation determines that the director and board of directors acted in an illegal manner, legal charges could be filed against them. In addition, the heirs of the original donor might consider bringing civil charges against the agency to force reinstatement of the restricted resources. Finally, depending on state regulatory rules and policies, the state could revoke the organization’s charter and force it to liquidate. One possible solution would be for the camp to seek remedy from the courts, perhaps using the argument that they no longer intend to expand the building (although there is no indication that such a policy decision has been made).

c. Again this will depend on the students’ reaction to the activities undertaken by the camp with regard to the use of funds with donor imposed restrictions. Clearly, performance has the appearance of improving as a result of the use of the restricted assets.

13-2. a. The Shelter Association has unrestricted net assets equal to last year’s operating budget, so any unrestricted contribution made by the potential donor will cause next year’s United Way allocation to be reduced. In effect, he would make a gift to the United Way and not to the Shelter Association. The donor should be encouraged to make a restricted contribution so that the association will have use of the money. His restriction can relate to the year in which the gift is spent or to the purposes for which it is spent.

b. The association may be required by its board or by-laws to have an independent audit by a CPA. If so, the donor can review a statement of financial position, statement of activities, statement of cash flows, and statement of functional expenses. The state may require audited financial statements to be filed with the appropriate state agency. As a tax-exempt entity, this association is also required to send a Form 990

13-7



to the IRS each year (see Chapter 14 for more information on regulatory, taxation and performance issues). From this information the donor will be able to see the amount of contributions restricted, which would include his contribution and any other restricted contributions. He can also see the amount of resources expended for program purposes, and the amount of restricted contributions (net assets released from restrictions) released for those purposes.

The financial audit produces an opinion as to whether the financial statements present the financial position fairly in conformity with GAAP, but does not address efficiency and effectiveness. As such, it provides no help in assessing whether the agency was efficient and effective in using the donor’s gift. The board would have to contract with a consultant or CPA firm for a performance audit to get this information.

13-3. Issue: Is the Native American Heritage Center and Museum a governmental not-for-profit entity or nongovernmental not-for-profit entity? This is an essential determination because if the museum is governmental the auditor will need to examine whether the museum’s financial statements are in conformity with GASB standards. If it is nongovernmental, its financial statements must conform to FASB standards.

Analysis: There is no evidence to suggest that the Heritage Center and Museum is a government per se, that is, a “public corporation or body corporate and politic.” Thus, it is necessary to apply the three AICPA criteria listed in the text to determine whether the organization is governmental in character. Only two of the governing board are appointed or approved by any one governmental entity (Mound City Council), thus, criterion a is not met. There is no evidence that a government has any power to dissolve the museum if it wished to do so according to the original charter. Additionally, the net assets of the museum are allocated among entities; they do not revert to a government. Thus, it does not appear criterion b is met. It doesn’t appear that the museum has the power to enact or enforce a tax levy (criterion c). Only one of the three criteria needs to be met for the museum to be considered governmental in character. It does not appear, based on the information provided, that any of the criteria have been met. Careful application of the AICPA criteria to the fact situation in this case, leads one to reach the conclusion that the organization is nongovernmental in character and therefore should conform to FASB financial reporting standards if it expects to receive an unqualified (clean) audit opinion.

Solutions to Exercises and Problems

13-1. 1. b. 6. d.2. d. 7. d.3. c. 8. b.4. a. 9. c.5. c. 10. a.

13-8


Ch. 13, Solutions (Cont’d)

13-2.

1. a, f (g if the gift shop is 5. h not related to the

museum’s program)2. g 6. d

3. b, f 7. b (assuming the computers arecapitalized, if not also

include f)

4. c 8. a, c

13-3.

1. N 5. Y

2. Y 6. Y

3. N 7. N

4. N 8. Y

13-4.

1. Based on the information provided, it appears that the purpose,

audience, and content criteria are met for this activity to be

considered a bona fide activity. The joint costs should be allocated

between the functional program expenses and support expenses,

including fund-raising. The purpose of the door-to-door campaign

is to help accomplish the entity’s mission—to increase recycling.

The audience is targeted because it is not recycling much, rather

13-9


Ch. 13, Solutions, 13-4 (Cont’d)

than because it has a high likelihood of contributing to the

organization. The content of the campaign is to motivate the

audience to action, specifically to get the audience to recycle more.

2. The purpose and content criteria appear to be met; however, the

audience criteria are not met. The audience is targeted based on

the likelihood it will pay the high price of admission and

consequently make a charitable contribution. In this case, all the

costs of the activity should be reported as fund-raising costs.

3. This activity fails all three criteria to be considered a bona fide

activity under FASB ASC 958-720-45. The purpose of the

solicitation campaign is primarily to raise contributions (there is no

call to action), not to promote the mission of the organization. The

targeted audience is one that is middle-class and likely to

contribute; in fact, their children would most likely not qualify to

attend the camp. The content of the campaign does not motivate

people to action. Simply asking people to read an informational

pamphlet is not calling them to act in a way that advances the

mission of the organization.

13-5.

a. As the independent auditor, it would appear you would not be able to issue an

unqualified opinion on these financial statements. The statements appear to be

more appropriate for a business organization than for a not-for-profit

organization. Two major departures from GAAP are apparent:

13-10



1. Net assets are not classified on the balance sheet into the three required

categories of unrestricted, temporarily restricted, and permanently

restricted, as applicable, nor does the statement of activities show changes

in those categories of net assets.

2. Expenses are reported as natural rather than the required functional

classification.

Note that it is possible the balance sheet and statement of activities are in

conformity with GAAP if unrestricted and restricted net assets, and expenses by

functional classification are disclosed in the notes to the financial statements.

There is no indication, however, that such disclosures exist in this case.

Besides these non-GAAP issues with the two statements provided, there is no

indication that the two other required financial statements have been prepared

—a statement of cash flows and a statement of functional expenses.

In addition, although not required by GAAP, it would be helpful if assets and

liabilities on the balance sheet were classified as current and noncurrent.

Presenting a balance sheet rather than a statement of financial position is

permissible under FASB standards.

b. You should inform the organization’s director and/or board of directors that

the financial statements are not fairly presented in conformity with GAAP

and that you will have to issue an adverse opinion unless the statements are

revised to conform to FASB standards (ASC 958-205-45) and any FASB

pronouncements that may apply. If the organization insists on an

unqualified opinion, but is not willing to comply with FASB guidance, you

should not accept the engagement.

13-11



13-6.

a. No. The presented statement is not in proper form for a statement of

activities. A statement of activities should show changes in unrestricted,

temporarily restricted, and permanently restricted net assets. Additionally,

the statement should either display the expenses by function or note that

expenses by function are disclosed in the notes to the financial statements.

b. Some questions for the controller:

1. Were there no fund-raising expenses related to the solicitation of

$111,400 in contributions?

2. Were the contributions of $50,000 for the Abstract Exhibit temporarily

restricted by the donor, such that the $4,000 excess of revenues over

expenses will have to be returned or spent on the program?

3. Should the $5,000 of equipment for the Public Exhibits program be

capitalized and depreciated? What is the capitalization policy of the

organization?

c. The directors should apply for grants or solicit contributions of at least

$46,000, the total cost of operating a similar program. Too often not-for-

profit organizations request only the direct or variable costs of a program

and do not ask for indirect cost recovery. Note, however, that if the

contributions or grants are temporarily restricted for this purpose, then any

excess funds would be expected to be returned if not spent on the program.

d. A donor should request a full set of audited financial statements. A

statement of financial position and statement of cash flows will provide

additional information about the solvency of the organization and

13-12


managerial ability of the directors and managers of the organization. In

addition, the notes to the financial statements provide valuable

13-13



information that describes many of the elements of the financial statements,

such as contingent liabilities, investments, and volunteer services and in-

kind contributions.

13-7. THE SHANNON COMMUNITY KITCHENGENERAL JOURNAL

Debits Credits1. CASH 28,000

CONTRIBUTIONS—UNRESTRICTED 25,000

CONTRIBUTIONS—TEMPORARILY RESTRICTED 3,000

2. PROGRAM EXPENSES 100

CONTRIBUTIONS—UNRESTRICTED 100

3. NO TRANSACTION IS RECORDED – MEAL SERVICE AND PREPARATION

DOES NOT REQUIRE A SPECIALIZED SKILL

4. CASH 5,000


5. PROGRAM EXPENSES 4,100

CASH 4,100

NET ASSETS RELEASED—SATISFACTION OF

PURPOSE RESTRICTION—TEMPORARILY

RESTRICTED 3,000


PURPOSE RESTRICTION—UNRESTRICTED 3,000

13-14


Ch. 13, Solutions, (Cont’d)

13-8. a. SOLVE

GENERAL JOURNALDebits Credits

1. RENT EXPENSE 14,000


2. CASH 164,000



3. SALARIES & WAGES EXPENSE 111,000

CASH 95,000

SALARIES & WAGES PAYABLE 16,000

4. CONTRIBUTIONS RECEIVABLE 100,000


DISCOUNT ON CONTRIBUTIONS RECEIVABLE 6,600

5. EQUIPMENT & FURNITURE 12,600

CASH 5,000


13-15


Ch. 13, Solutions, 13-8 (Cont’d)SOLVE


6. TELEPHONE EXPENSE 5,200

PRINTING & POSTAGE EXPENSE 12,000

SUPPLIES EXPENSE 2,100

CASH 15,700

ACCOUNTS PAYABLE 3,600

7. NO TRANSACTION IS RECORDED – NO SPECIALIZED SKILL IS REQUIRED.

8. DEPRECIATION EXPENSE 1,760

ALLOWANCE FOR DEPRECIATION—EQUIPMENT

& FURNITURE 1,760

(Equipment: $5,000/5 years=$1,000; Furniture: $7,600/10 years=$760)

9. PUBLIC HEALTH EDUCATION PROGRAM 47,615

COMMUNITY SERVICE PROGRAM 40,312

MANAGEMENT & GENERAL 28,921

FUND-RAISING 29,212

SALARIES & WAGES EXPENSE 111,000

RENT EXPENSE 14,000

TELEPHONE EXPENSE 5,200

PRINTING & POSTAGE EXPENSE 12,000

SUPPLIES EXPENSE 2,100

DEPRECIATION EXPENSE 1,760

13-16



ALLOCATION OF NATURAL EXPENSES TO FUNCTIONS

SOLVEGENERAL JOURNAL

Debits Credits

Public Health Education

Community Service

Management & General Fund-raising Total

Salary & Wages Expense $38,850 $33,300 $16,650 $22,200 $111,000

Rent Expense 3,500 2,800 4,900 2,800 14,000

Telephone Expense 1,300 1,040 1,820 1,040 5,200

Printing & Postage Expense 3,000 2,400 4,200 2,400 12,000

Supplies Expense 525 420 735 420 2,100

Depreciation Expense 440 352 616 352 1,760

Total $47,615 $40,312 $28,921 $29,212 $146,060

10.NET ASSETS RELEASED—SATISFACTION OF


RESTRICTED 50,000



11.CONTRIBUTIONS—UNRESTRICTED 135,600

(trans. 1, 2 and 5)

UNRESTRICTED NET ASSETS 10,460

PUBLIC HEALTH EDUCATION 47,615

COMMUNITY SERVICE 40,312


FUND-RAISING 29,212


(trans. 2 and 4)

TEMPORARILY RESTRICTED NET ASSETS 143,400

13-17



SOLVEGENERAL JOURNAL

Debits CreditsTEMPORARILY RESTRICTED NET ASSETS 50,000



RESTRICTED 50,000




13-18



b. SOLVESTATEMENT OF ACTIVITIES

FOR THE YEAR ENDED DECEMBER 31, 2014

TEMPORARILYUNRESTRICTED RESTRICTED TOTAL

REVENUE & OTHERSUPPORT:

CONTRIBUTIONS $135,600 $143,400 $279,000

NET ASSETS RELEASED

FROM RESTRICTION

SATISFACTION OF PURPOSE 50,000 (50,000) _______

TOTAL REVENUE & OTHER SUPPORT 185,600 93,400 279,000

EXPENSES:

PUBLIC HEALTH EDUCATION 47,615 47,615

COMMUNITY SERVICES 40,312 40,312

MANAGEMENT & GENERAL 28,921 28,921

FUND-RAISING 29,212 _______ 29,212

TOTAL EXPENSES 146,060 _______ 146,060

INCREASE IN NET ASSETS 39,540 93,400 132,940

BEGINNING NET ASSETS 0 0 0

ENDING NET ASSETS $ 39,540 $ 93,400 $132,940

13-19



c. SOLVESTATEMENT OF FINANCIAL POSITION

DECEMBER 31, 2014

ASSETS:

CASH $ 48,300

CONTRIBUTIONS RECEIVABLE (less

discount on contributions receivable of $6,600) 93,400

EQUIPMENT & FURNITURE (less allowance

for accumulated depreciation of $1,760) 10,840

TOTAL ASSETS $152,540

LIABILITIES:

ACCOUNTS PAYABLE $ 3,600

SALARIES PAYABLE 16,000

TOTAL LIABILITIES 19,600

NET ASSETS:

UNRESTRICTED 39,540

TEMPORARILY RESTRICTED 93,400

TOTAL NET ASSETS 132,940

TOTAL LIABILITIES AND NET ASSETS $152,540

13-20



d. SOLVESTATEMENT OF CASH FLOWS


CASH FLOWS FROM OPERATING ACTIVITIES:

CASH RECEIVED FROM CONTRIBUTIONS $164,000

CASH PAID TO EMPLOYEES (95,000)

CASH PAID TO SUPPLIERS (15,700)

NET CASH PROVIDED BY OPERATING ACTIVITIES 53,300

CASH FLOWS FROM INVESTING ACTIVITIES:

PURCHASE OF EQUIPMENT (5,000)

NET INCREASE IN CASH 48,300

BEGINNING CASH 0

ENDING CASH $ 48,300

RECONCILIATION OF CHANGES IN NET ASSETS TO

NET CASH PROVIDED BY OPERATING ACTIVITIES:

CHANGE IN NET ASSETS $132,940

ADJUSTMENTS TO RECONCILE CHANGES IN NET ASSETS

TO NET CASH PROVIDED BY OPERATING ACTIVITIES:

DEPRECIATION 1,760

INCREASE IN NET CONTRIBUTIONS RECEIVABLE (93,400)

INCREASE IN ACCOUNTS PAYABLE 3,600

INCREASE IN SALARIES & WAGES PAYABLE 16,000

GIFT OF FURNITURE (7,600)

CASH PROVIDED BY OPERATING ACTIVITIES $ 53,300

13-21



e. SOLVESTATEMENT OF FUNCTIONAL EXPENSES


PROGRAM SERVICES SUPPORT SERVICES

Public Health

EducationCommunity

ServiceManagement & General

Fund-raising TOTAL

SALARY & WAGES

EXPENSE$ 38,850 $ 33,300 $ 16,650 $ 22,200 $111,000

RENT EXPENSE3,500 2,800 4,900 2,800 14,000

TELEPHONE EXPENSE1,300 1,040 1,820 1,040 5,200

PRINTING & POSTAGE

EXPENSE3,000 2,400 4,200 2,400 12,000

SUPPLIES EXPENSE525 420 735 420 2,100

DEPRECIATION

EXPENSE440 352 616 352 1,760

TOTAL$ 47,615 $ 40,312 $ 28,921 $ 29,212 $146,060

13-9.

a. For the volunteers’ time to be recorded as a contribution and related expense

the activities performed by the volunteers would (1) require specialized skill,

(2) be provided by someone with the specialized skill, and (3) would generally

be purchased by the Art League if not contributed. The problem indicates that

the volunteers are greeting visitors, handling security, and the sales of art

work. It would not appear that any of these activities would require a

specialized skill, which would be the basis for the auditor’s recommendation

not to record the volunteer services.

13-22



b. ART LEAGUEGENERAL JOURNAL

Debits Credits1. CASH 60,730


GRANTS RECEIVABLE 4,600

MEMBERSHIP DUES 16,285

TUITION & FEES 6,974

COMMISSION REVENUE 2,402

PAYABLE TO ARTISTS 9,608

2. CASH 1,955

INVESTMENT INCOME—UNRESTRICTED 686

INVESTMENT INCOME—TEMPORARILY RESTRICTED 1,269

3. GRANTS RECEIVABLE 5,200


DEFERRED REVENUE 1,900

4. RENT EXPENSE 18,000


5. SALARY EXPENSE 46,900

UTILITY EXPENSE 3,080

POSTAGE & SUPPLIES EXPENSE 1,310

MISCELLANEOUS EXPENSE 640

CASH 51,613

PREPAID EXPENSES 220

ACCOUNTS PAYABLE & ACCRUED EXPENSES 97

(Prepaid Expenses; $1,060-$840=$220 decrease: Accounts

13-23


Payable and Accrued Expenses; $2,746-$2,649=$97 increase)

Ch. 13, Solutions, 13-9 (Cont’d)ART LEAGUE


6. CASH 2,900

SHORT-TERM INVESTMENTS 2,900

EQUIPMENT 2,835

CASH 2,835

7. COMMUNITY ART EDUCATION 825

CASH 825



RESTRICTED 825


PURPOSE RESTRICTION—UNRESTRICTED 825

8. DEPRECIATION EXPENSE 1,642

ALLOWANCE FOR DEPRECIATION—EQUIPMENT 1,642



RESTRICTED 1,642



13-24




9. EXHIBITION PROGRAM 21,472

COMMUNITY ART EDUCATION PROGRAM 21,472


FUND-RAISING 10,735

RENT EXPENSE 18,000

SALARY EXPENSE 46,900

UTILITY EXPENSE 3,080

POSTAGE & SUPPLIES EXPENSE 1,310

MISCELLANEOUS EXPENSE 640

DEPRECIATION EXPENSE 1,642

10. PAYABLE TO ARTISTS 9,608

CASH 9,608

11. CONTRIBUTIONS—UNRESTRICTED 41,981

(trans. 1, 3 and 4)

MEMBERSHIP DUES 16,285

TUITION & FEES 6,974

COMMISSION REVENUE 2,402

INVESTMENT INCOME—UNRESTRICTED 686


EXHIBITION PROGRAM 21,472

COMMUNITY ART EDUCATION (trans. 7 and 9) 22,297


FUND-RAISING 10,735

INVESTMENT INCOME—TEMPORARILY RESTRICTED 1,269

13-25








RESTRICTED 2,467




13-26



c. ART LEAGUESTATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2014

Temporarily PermanentlyUnrestricted Restricted Restricted Total

REVENUE & OTHERSUPPORT:

CONTRIBUTIONS $ 41,981 $ 41,981

MEMBERSHIP DUES 16,285 16,285

TUITION & FEES 6,974 6,974

COMMISSION REVENUE 2,402 2,402

INVESTMENT INCOME 686 $ 1,269 1,955

NET ASSETS RELEASED

FROM RESTRICTION

SATISFACTION OF PURPOSE 2,467 (2,467) _______

TOTAL REVENUE & OTHER

SUPPORT 70,795 (1,198) _______ 69,597

EXPENSES:

EXHIBITION PROGRAM 21,472 21,472

COMMUNITY ART EDUCATION 22,297 22,297

MANAGEMENT & GENERAL17,893 17,893

FUND-RAISING 10,735 _______ _______ 10,735

TOTAL EXPENSES 72,397 _______ _______ 72,397

DECREASE IN NET ASSETS (1,602) (1,198) (2,800)

BEGINNING NET ASSETS 9,011 13,245 5,767 28,023

ENDING NET ASSETS $ 7,409 $ 12,047 $ 5,767 $ 25,223

13-27



d. ART LEAGUESTATEMENT OF FINANCIAL POSITION

JUNE 30, 2014

ASSETS:

CASH (BB, trans. 1, 2, 5, 6, 7, and 10) $ 3,719

SHORT-TERM INVESTEMENTS (BB and trans. 1) 9,211

GRANTS RECEIVABLE (BB, trans. 1 and 3) 5,020

PREPAID EXPENSE (trans. 5) 840

ASSETS RESTRICTED:

FOR ENDOWMENT:

INVESTMENTS 5,767

EQUIPMENT (less allowance

for accumulated depreciation of $4,068) (trans 8) 8,112

TOTAL ASSETS $32,669

LIABILITIES:

ACCOUNTS PAYABLE & ACCRUED EXPENSES (trans. 5) $ 2,746

DEFERRED REVENUE (BB, trans. 3) 4,700

TOTAL LIABILITIES 7,446

NET ASSETS:

UNRESTRICTED 7,409

TEMPORARILY RESTRICTED 12,047

PERMANENTLY RESTRICTED 5,767


TOTAL LIABILITIES AND NET ASSETS $ 32,669

13-28



13-10.

a. CHILDREN’S COUNSELING CENTER STATEMENT OF FINANCIAL POSITION

JUNE 30, 2014

ASSETS LIABILITIES AND NET ASSETS

CASH $ 126,500 ACCOUNTS PAYABLE $ 13,520

PLEDGES RECEIVABLE($41,000 less uncollectible

pledges of $4,100) 36,900

INVENTORY 2,800

INVESTMENTS (at fair value) 178,000

NET ASSETS:

UNRESTRICTED 204,080

FURNITURE AND EQUIPMENT, TEMPORARILY RESTRICTED 76,600

($210,000 net of Accumulated PERMANENTLY RESTRICTED 100,000

Depreciation of $160,000) 50,000


TOTAL LIABILITIES AND

TOTAL ASSETS $394,200 NET ASSETS $394,200

13-29


Ch. 13, Solutions, 13-10 (Cont’d)CHILDREN’S COUNSELING CENTER

STATEMENT OF FUNCTIONAL EXPENSESYEAR ENDED JUNE 30, 2014

b.

PROGRAM SERVICES SUPPORTING SERVICES ALL SERVICES

Counsel-ing

Services

Profes-sional

Training

CommunityServices

TOTAL Mgmt &General

Fund-Raising

TOTAL TOTAL

Salaries And Fringes $114,564 $42,961 $28,641 $186,166 $71,603 $28,641 $100,244 $286,410Occupancy And Utility 15,360 5,760 3,840 24,960 9,600 3,840 13,440 38,400Supplies 2,776 1,041 694 4,511 1,735 694 2,429 6,940Printing And Publishing 1,676 629 419 2,724 1,047 419 1,466 4,190Telephone And Postage 1,400 525 350 2,275 875 350 1,225 3,500Unrealized Loss 0 0 0 0 2,000 0 2,000 2,000Depreciation 4,200 4,200 4,200 12,600 4,200 4,200 8,400 21,000 TOTAL EXPENSES $139,976 $55,116 $38,144 $233,236 $91,060 $38,144 $129,204 $362,440

13-30


Ch. 13, Solutions 13-10, (Cont’d)c.

CHILDREN’S COUNSELING CENTERSTATEMENT OF ACTIVITIESYEAR ENDED JUNE 30, 2014

UnrestrictedTemporarilyRestricted

PermanentlyRestricted Total

REVENUES, GAINS, & OTHER SUPPORT: CONTRIBUTIONS $338,820 $48,100 $386,920 INVESTMENT INCOME 9,200 9,200 TEMPORARILY RESTRICTED NET ASSETS RELEASED FROM RESTRICTIONS 22,000 (22,000) 0

TOTAL REVENUES, GAINS & OTHER SUPPORT 370,020 26,100 396,120

EXPENSES AND LOSSES: PROGRAM SERVICES: COUNSELING SERVICES 139,976 139,976 PROFESSIONAL TRAINING 55,116 55,116 COMMUNITY SERVICE 38,144 _ _____ _______ 38,144 TOTAL PROGRAM EXPENSES 233,236 233,236

SUPPORT EXPENSES: MGMT & GENERAL 91,060 91,060 FUND-RAISING 38,144 38,144 TOTAL SUPPORT EXPENSES 129,204 ______ __ ____ 129,204 TOTAL EXPENSES & LOSSES 362,440 0 0 362,440

CHANGE IN NET ASSETS 7,580 26,100 0 33,680NET ASSETS, JULY 1, 2013 196,500 50,500 100,000 347,000 NET ASSETS, JUNE 30, 2014 $204,080 $76,600 $100,000 $380,680

13-31


Ch. 13, Solutions 13-10 (Cont’d)

d.

CHILDREN’S COUNSELING CENTERSTATEMENT OF CASH FLOWS

YEAR ENDED JUNE 30, 2014

CASH FLOWS FROM OPERATING ACTIVITIES:

CASH RECEIVED FROM CONTRIBUTORS $ 310,800CASH RECEIVED AS INVESTMENT INCOME 9,200 CASH PAID TO EMPLOYEES (286,410)CASH PAID FOR OPERATING EXPENSES (86,504)

NET CASH PROVIDED BY OPERATING ACTIVITIES (52,914)

CASH FLOWS FROM INVESTING ACTIVITIES:

PURCHASE OF FURNITURE AND EQUIPMENT (22,000)

CASH FLOWS FROM FINANCING ACTIVITIES:

PROCEEDS FROM CONTRIBUTIONS RESTRICTED FOR:INVESTMENT IN CAPITAL ASSETS 48,100

NET INCREASE IN CASH (26,814) CASH, JULY 1, 2013 153,314 CASH, JUNE 30, 2014 $ 126,500

RECONCILIATION OF CHANGES IN NET ASSETS TO NET CASHUSED FOR OPERATING ACTIVITIES:

CHANGE IN NET ASSETS $ 33,680 ADJUSTMENTS TO RECONCILE CHANGE IN NET ASSETS

TO NET CASH PROVIDED BY OPERATING ACTIVITIES:DEPRECIATION 21,000 UNREALIZED LOSS ON INVESTMENTS 2,000INCREASE IN NET PLEDGES RECEIVABLE (6,000)INCREASE IN INVENTORY (1,000)DECREASE IN ACCOUNTS PAYABLE (102,594)

CASH PROVIDED BY OPERATING ACTIVITIES $ (52,914)

13-32

Chap 013

Documents

Transcript of Chap 013