Chap 015

Chapter 15 - Accounting for Colleges and Universities

CHAPTER 15: ACCOUNTING FOR COLLEGES AND UNIVERSITIES

OUTLINE

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

Questions:15-1 Financial statements Identify New15-2 Restricted gifts and grants Contrast 16-2 15-3 Net asset categories Distinguish 16-3 15-4 Bad debts Explain, compare New15-5 Grant revenue Explain, identify New15-6 Pledges Explain New15-7 Support functions Explain New15-8 Split-interest agreements Define, compare 16-8 15-9 UPMIFA Explain New15-10 Performance measures Describe 16-10

Cases:15-1 Annual report—Internet Examine Exercise 16-115-2 Comparison of public vs. private universities Analyze 16-2 15-3 UPMIFA Research, analyze New

Exercises/Problems:15-1 Various Multiple Choice 16-1 revised15-2 Private university transactions JEs, FS New15-3 Private university transactions JEs, FS 16-3 revised15-4 Public university transactions JEs, FS 16-4 15-5 Public and private university transactions JEs 16-5 revised15-6 Private university trial balance to FS Financial statements 16-6 revised15-7 Public university trial balance to FS Financial statements 16-7

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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.

GASB standards indicate that public colleges and universities are to prepare a statement of net position or a balance sheet; a statement of revenues, expenses, and changes in net position; and a statement of cash flows. Although the GASB does allow flexibility in preparation of the financial statements it provides more structure than the FASB. For example, public entities are required to identify operating and nonoperating activities on the statement of revenues, expenses, and changes in net position. Additionally, public entities are required to use the direct method when preparing the statement of cash flows.

15-2. Restricted gifts and grants are those subject to limitations placed on them by persons or organizations outside the institution in nonexchange transactions. Typically restricted gifts and grants of a college or university are restricted for research, scholarships and fellowships, loans, debt service, or acquisition of capital assets.

Public colleges and universities identify restricted gifts and grants as restricted net position. Restricted net position is further divided to identify nonexpendable or expendable assets. GASB standards provide additional guidance in accounting for nonexchange transactions.

Under the FASB standards employed by private colleges and universities, restricted gifts and grants are recorded as support in the period in which the gift is made, and then classified as to whether the contribution increases temporarily or permanently restricted net assets. As expenses are incurred for the purpose or time period stipulated by the donor, then net assets are “released from restrictions” and treated as an addition to unrestricted net assets of the current period.

15-3. The FASB requires that private colleges and universities identify donor/contributor restrictions on net assets as temporarily restricted or permanently restricted. The GASB does not utilize the same categories; however, it does provide that within the restricted category of net position, public colleges and universities should identify net position as nonexpendable or expendable. Nonexpendable net position includes those net resources required to be maintained in perpetuity; thus, it is similar to the permanently restricted net asset category used by private colleges and universities. Expendable net position includes those net resources restricted by external donors/contributors as to time or purpose (similar to temporarily restricted net assets). In addition, and unlike temporarily restricted net assets of private colleges and universities, expendable net position includes net position restricted by creditors, law, or regulation.

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Ch. 15, Answers (Cont’d)

15-4. Private colleges and universities follow FASB/NACUBO guidance and record bad debts as a direct deduction to the revenue account. Thus a private entity would debit Tuition and Fees for the estimated bad debts and credit an account such as Allowance for Doubtful Accounts. In contrast public colleges and universities use a contra-revenue account, such as Provision for Bad Debts, with a credit to an allowance account. The end result is that for reporting purposes, both private and public entities report a net revenue amount that has been adjusted for bad debts. The Tuition and Fees Receivable account would be shown net of the allowance for any uncollectible amounts.

Under FASB standards a for-profit college or university would record the estimated bad debts as an operating expense. The journal entry to record the bad debt would be a debit to Bad Debt Expense with a credit to Allowance for Uncollectible Accounts. In this situation, revenue has not been adjusted to reflect the estimated bad debts; however, the Tuition and Fees Receivable account would be shown net of the allowance for any uncollectible amounts. (Note: Although for-profit accounting is not covered in the textbook, students should be aware of how for-profit or corporate entities account for bad debt expense.)

15-5. Not all grants are recorded as nonexchange transactions or contributions. If the grant requires performance on the part of the college or university the receipt of the grant would be recorded as an exchange or revenue transaction. An example would be a research grant from the federal government in which the government retains the rights to any patents or other products produced by the grant.

15-6. The assumption is that the multi-year pledge meets the conditions for recognition. If it does, the multi-year pledge is reported as an asset that can be divided into a current portion (due within one year of the fiscal year end) and a long-term portion (to be received after one fiscal year). For the current portion, the college can report the pledge at its net realizable value (i.e., the gross amount less an estimated uncollectible amount). Generally, the long-term portion of the pledge would be reported at fair value. FASB ASC 820 or 825-10 provides several fair value methods that can be used to report pledges. Multi-year pledges would be considered temporarily restricted net assets.

15-7. Although the NACUBO chart of accounts does not clearly identify program and support functions, under FASB standards private colleges and universities are still required to provide program and support information. FASB allows that if the information about program and support is not provided on the face of the financial statements it should be provided in the notes. NACUBO recommends that those using its chart of accounts provide disclosure information that clearly identifies program and support functions.

15-8. An annuity agreement is a type of split-interest agreement. Under the agreement the donor provides assets to the college or university, and the college or university periodically pays a fixed amount to the donor or other designated beneficiary for a specified period or lifetime of the beneficiary. A life interest fund is also a type of split-interest agreement; however, the amount the donor or designated beneficiary receives

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Ch. 15, Answers, 15-8 (Cont’d)

under a life interest fund is variable and limited to the income generated by the donated assets. The designated beneficiary (or donor) will receive income until the beneficiary or donor’s death, at which time the income reverts to the college or university.

15-9. UPMIFA stands for the Uniform Prudent Management of Investment Funds Act. The Act provides legal guidance to not-for-profit organizations on the management, investment and expenditure of funds held by the organizations for what the UPMIFA terms charitable purposes (this includes endowment funds). UPMIFA is important to colleges and universities since they are likely bound by its requirements, given that 47 states have adopted UPMIFA and most colleges and universities have endowment funds and/or are associated with NFP foundations. There are many provisions in UPMIFA that 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.

No, UPMIFA generally applies to not-for-profit organizations that receive funds for charitable purposes; therefore, many organizations other than colleges and universities are affected by UPMIFA.

15-10. The financial community evaluates the viability, return on “investment,” and leverage of colleges and universities that issue tax-exempt debt as measures of financial performance. Nonfinancial measures that can be used include faculty productivity, number of graduates, satisfaction of alumni, or job placements. Most informative for users, would be outcome measures of the “value added” to the student through the educational process. These measures would include items such as performance on national tests (e.g., the CPA exam), or other such assessments of the knowledge and skills that make up the institution’s educational goals.

Solutions to Cases

15-1. 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 position separated into operating and nonoperating activities; and a statement of cash flows prepared using the direct method and four categories of cash flows.If the school is a private college or university it should be following FASB standards. Again, there are many ways a student could identify FASB standards

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Ch. 15, Solutions, Case 15-1 (Cont’d)

from the financial reports, including: a statement of financial position with the net asset categories permanently restricted, temporarily restricted, and unrestricted; a statement of activities identifying changes to net asset categories and identifying net assets released from restrictions; and a statement of cash flow prepared using three categories of cash flows.

b. There will probably be a mix of answers for this question. A number of colleges and universities appear to use a combination of NACUBO and other classifications for reporting revenues and expenses. Students should be able to identify instances when NACUBO is applied from the information provided in the chapter.

c. 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. For an example of how to calculate the percentage of tuition and fees to total revenues see the solution for Case 15-2. The percentage of student discounts and/or scholarships to tuition and fees should be calculated as student discounts and scholarships divided by gross tuition and fees. The discounts and scholarships should be displayed on the face of the financial statements or in the notes to the financial statements.

e. 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.

f. This will vary by college and university. The information for this calculation should be available in the net position/assets section of the statement of net position or statement of financial position.

g. Published annual reports should include an audit of the financial statements or a statement indicating that the financial statements are unaudited.

15-2. a. The private college reports on changes in unrestricted, temporarily restricted, and permanently restricted net assets presented in three columns. Von College uses a single-step format, wherein a total for all revenues is adjusted for the total of all expenses. The public university reports on the changes in total (both unrestricted and restricted) net position, distinguished by operating and nonoperating revenues

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and expenses. All expenses of the private school are presented in the unrestricted column, while revenues and expenses of Boca Bay State University are displayed in one column.

b. The proportion of total revenue from tuition and fees, state appropriations, and other sources are calculated below:

Von College Boca Bay StateTuition and fees 44% 22%State appropriations 0% 22%Gifts and contributions 12% 4%

Calculations:Von CollegeTuition and fees (net): $321,070/$726,124 = 44%State appropriation: = 0%Contributions: $90,699/$726,124 = 12%

Boca Bay State CollegeTuition and fees (net): $160,978/($405,624+$319,398+$19,392) = 22%State appropriation: ($247,895+$104)/($405,624+$319,398+$19,392) = 33%Contributions: ($26,591+$237)/($405,624+$319,398+$19,392) = 4%

Clearly the private university is more dependent on tuition as the primary source of revenue. As shown, one source of additional income is contributions, which is a much larger source of income for Von College than Boca Bay. Because a major source of income for Boca Bay is state appropriations, dependence on tuition and fees is lower. In general, dependence on state appropriations is decreasing as state institutions seek their own sources of revenues, either through tuition increases or increases in grants and contributions.

c. It appears that less than 1 percent ($237/($78,826+$67,742+$26,591+$19,051+$237)) of Boca Bay’s reported contributions and grants are from endowments. The assumption is that the additions to endowments are from outside contributors and not permanently restricted gains relating to increases in the value of endowment assets. Von College received 29 percent ($45,135/($90,699+$66,730)) of its contributions and grants for endowments. It is not possible to tell how much either school earns on its endowment because endowment income may be restricted or unrestricted by the donor, and in the case of Boca Bay it is reported with all other investment earnings in the account “net investment income.” This information is tracked by NACUBO in its annual Endowment Study in which tables report returns and payout percentages on endowment assets.

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d. Students will find different ways to compare the two schools and the results of their operations. Von College had a 5 percent increase in its total net assets ($57,766/$1,239,667) while Boca Bay had a 15 percent increase in its net position ($132,287/$856,857). A better comparison would be to measure Von College’s change in net assets prior to the cumulative effect of a change in accounting principle. This is a one time event that is not reflective of ongoing performance. If this was done, Von College would show a 7 percent increase in its unrestricted net assets ($81,849/$1,239,667). Similarly, measuring Boca Bay’s change in net position before “other changes in net position” would make the measure more comparable to Von College’s unrestricted net asset figure. When this is done, Boca Bay shows a 13 percent increase in net position ($112,895/$856,857).

Students should debate whether the financial goals of a university include increasing net assets/position. At what point would the increase be considered excessive? You would expect students (who support the university in the form of tuition and fees) to have a different perspective than the financial community (who are concerned that the university can pay the interest and principal of debt). It would be important to have the full set of audited financial statements, including notes, as well as comparative numbers from the previous year to adequately address this question.

15-3. a. Yes, organizations in Michigan are subject to UPMIFA. Michigan is one of the 47 or more states that has adopted the UPMIFA.

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

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:

1. Duration and preservation of the endowment fund.2. The purposes of the institution and the endowment fund.3. The general economic conditions.4. The effect of inflation or deflation.5. The expected total return from income and the appreciation of investments.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 Michigan fossils. However, given that it is

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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 could be made is that allowing the anthropology or the archeology department to benefit from the income would be in line with donor intent. The age of the endowment (50 years) might also be used if the endowment is small enough (less than $25,000).

Solutions to Exercises and Problems

15-1. 1. d. 6. a.2. a. 7. b.3. c. 8. d.4. c. 9. a.5. b. 10. d.

15-2. a. ERIKSTEIN COLLEGE

GENERAL JOURNAL Debits Credits

1. TUITION AND FEES RECEIVABLE 195,800

TUITION & FEES DISCOUNT AND ALLOWANCES 48,700

TUITION AND FEES—UNRESTRICTED 244,500

2. CASH 2,415

PLEDGES RECEIVABLE 550

CONTRIBUTIONS—UNRESTRICTED 2,080

CONTRIBUTIONS—TEMPORARILY RESTRICTED 550

CONTRIBUTIONS—PERMANENTLY RESTRICTED 335

3. CASH 168,600

TUITION AND FEES RECEIVABLE 168,600

4. DEPOSITS HELD IN CUSTODY FOR OTHERS 10

CASH 10

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Ch. 15, Solutions, 15-2 (Cont’d)ERIKSTEIN COLLEGEGENERAL JOURNAL

Debits Credits

5. INSTRUCTION EXPENSE 86,100

ACADEMIC SUPPORT EXPENSE 23,300

STUDENT SERVICES EXPENSE 37,700

INSTITUTIONAL SUPPORT EXPENSE 28,500

CASH 170,300

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 5,300

NET ASSETS RELEASED FROM RESTRICTIONS—

TEMPORARILY RESTRICTED 7,320


UNRESTRICTED 7,320

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 3,200

CASH 3,200

($20,130 BB + $5,300 trans. 6 - $22,230 EB)

7. CASH 3,960

INVESTMENT INCOME—UNRESTRICTED 1,890

INVESTMENT INCOME—TEMPORARILY RESTRICTED 2,070

8. CONTRIBUTIONS—TEMPORARILY RESTRICTED 20

ALLOWANCE FOR DOUBTFUL PLEDGES 20

INSTRUCTION EXPENSE 18,480


ACCUMULATED DEPRECIATION 26,400

TUITION AND FEES—UNRESTRICTED 10

DEFERRED REVENUE 10

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Debits Credits

INVESTMENTS 4,700

UNREALIZED GAIN ON INVESTMENTS—

UNRESTRICTED 2,300


TEMPORARILY RESTRICTED 790


PERMANENTLY RESTRICTED 1,610

9. To close nominal accounts

TUITION AND FEESUNRESTRICTED (trans. 1 & 8) 244,490

CONTRIBUTIONSUNRESTRICTED 2,080

INVESTMENT INCOME—UNRESTRICTED 1,890

UNREALIZED GAIN ON INVESTMENTS

UNRESTRICTED 2,300


INSTRUCTION EXPENSE (trans. 5 & 8) 104,580

ACADEMIC SUPPORT EXPENSE (trans. 5 & 8) 31,220



NET ASSETS—UNRESTRICTED 60

CONTRIBUTIONS—TEMPORARILY RESTRICTED 530

(trans 2 & 8)

INVESTMENT INCOME—TEMPORARILY RESTRICTED 2,070

UNREALIZED GAIN ON INVESTMENTS—TEMPORARILY

RESTRICTED 790

NET ASSETS—TEMPORARILY RESTRICTED 3,390

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Debits Credits

CONTRIBUTIONS—PERMANENTLY RESTRICTED 335

UNREALIZED GAIN ON INVESTMENTS—PERMANENTLY

RESTRICTED 1,610

NET ASSETS—PERMANENTLY RESTRICTED 1,945

To reclassify Net Assets:



UNRESTRICTED 7,320

NET ASSETS—UNRESTRICTED 7,320



15-11


Ch. 15, Solutions, 15-2 (Cont’d)

b. ERIKSTEIN COLLEGESTATEMENT OF ACTIVITIESYEAR ENDED JUNE 30, 2014

Temporarily Permanently

Unrestricted Restricted Restricted Total

Revenues and gains: Student tuition and fees (net)* $195,790 $195,790 Contributions 2,080 $ 530 $ 335 2,945 Investment income 1,890 2,070 3,960 Unrealized gain on investments 2,300 790 1,610 4,700 Net assets released from restrictions 7,320 (7,320) 0 Total revenues and gains 209,380 (3,930) 1,945 207,395

Expenses and losses: Educational and general expenses: Instruction 104,580 104,580 Academic support 31,220 31,220 Student services 37,700 37,700 Institutional support 28,500 28,500 Total expenses and losses 202,000 202,000Total change in net assets 7,380 (3,930) 1,945 5,395Net assets, beginning of the year 174,000 33,040 53,980 261,020Net assets, end of the year $181,380 $29,110 $55,925 $266,415

* net of $48,700 in Tuition & Fees Discount and Allowances

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c. ERIKSTEIN COLLEGESTATEMENT OF FINANCIAL POSITION

JUNE 30, 2014

Assets

Cash and cash equivalents $ 8,665Tuition and fees receivable (net of doubtful accounts of $90) 28,630Pledges receivable (net of doubtful pledges of $300) 6,650Prepaid expenses and other assets 2,000Investments (at fair value, cost of $162,000) 163,100Property, plant and equipment (net of accumulated depreciation of $130,640) 234,200 Total assets $443,245

Liabilities and Net Assets

Liabilities: Accounts payable and accrued liabilities 22,230 Deposits held in custody for others 4,690 Deferred revenue 910 Bonds payable 149,000 Total liabilities 176,830

Net Assets: Unrestricted 181,380 Temporarily restricted 29,110 Permanently restricted 55,925 Total net assets 266,415 Total liabilities and net assets $443,245

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Ch. 15, Solutions (Cont’d)

15-3. a. ELIZABETH COLLEGEGENERAL JOURNAL

Debits Credits

1. TUITION RECEIVABLE 5,254,000



TUITION AND FEES—UNRESTRICTED 5,600,000

2. TUITION AND FEES—UNRESTRICTED 101,670

TUITION RECEIVABLE 101,670

3. CASH 2,466,200

INVESTMENTS 1,000,000

CONTRIBUTIONS—UNRESTRICTED 1,891,000

CONTRIBUTIONS—TEMPORARILY RESTRICTED 575,200

CONTRIBUTIONS—PERMANENTLY RESTRICTED 1,000,000

4. PLEDGES RECEIVABLE 1,090,000


CONTRIBUTIONS—PERMANENTLY RESTRICTED 300,000

(Note: pledges are collected in the future; therefore, pledges are subject to a

time (temporary) restriction)

5. CASH 94,370

AUXILIARY ENTERPRISES—UNRESTRICTED 94,370

6. CASH 5,080,000

TUITION RECEIVABLE 5,080,000

7. INVESTMENTS 1,000,000

CASH 1,000,000

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Ch. 15, Solutions, 15-3 (Cont’d)ELIZABETH COLLEGEGENERAL JOURNAL

Debits Credits

8. EQUIPMENT 10,580

CASH 10,580

9. INSTRUCTION EXPENSE 3,566,040

ADADEMIC SUPPORT EXPENSE 1,987,000



AUXILIARY ENTERPRISES EXPENSE 92,410

CASH 6,234,560

10. INSTRUCTION EXPENSE 450,000

CASH 450,000




UNRESTRICTED 450,000


ALLOWANCE FOR DOUBTFUL ACCOUNTS 7,200

INVESTMENTS 11,540


UNRESTRICTED 8,500



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Ch. 15, Solutions, 15-3 (Cont’d)ELIZABETH COLLEGEGENERAL JOURNAL

Debits Credits


AUXILIARY ENTERPRISES EXPENSE 41,000



12. To close nominal accounts:

TUITION AND FEESUNRESTRICTED 5,491,130

(trans. 1, 2 & 11)

CONTRIBUTIONSUNRESTRICTED 1,891,000

AUXILIARY ENTERPRISES—UNRESTRICTED 94,370


UNRESTRICTED 8,500


INSTRUCTION EXPENSE (trans. 1 & 9-11) 4,327,190

ACADEMIC SUPPORT EXPENSE (trans. 9 & 11) 1,999,450



AUXILIARY ENTERPRISES EXPENSE (trans. 9 & 11) 133,410


CONTRIBUTIONSTEMPORARILY RESTRICTED 1,365,200

(trans. 2 & 3)

NET ASSETS—TEMPORARILY RESTRICTED 1,365,200

CONTRIBUTIONSPERMANENTLY RESTRICTED 1,300,000

(trans. 2 & 3)



NET ASSETS—PERMANENTLY RESTRICTED 1,303,040

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ELIZABETH COLLEGEGENERAL JOURNAL

Debits Credits

To reclassify Net Assets:







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b.

ELIZABETH COLLEGESTATEMENT OF ACTIVITIESYEAR ENDED JUNE 30, 2014



Revenues and gains: Student tuition and fees (net)* $5,421,530 $ 5,421,530 Contributions 1,891,000 $1,365,200 $1,300,000 4,556,200 Auxiliary enterprise sales and services 94,370 94,370 Unrealized gain on investments 8,500 3,040 11,540 Net assets released from restrictions 450,000 (450,000) 0 Total revenues and gains 7,865,400 915,200 1,303,040 10,083,640

Expenses and losses: Educational and general expenses: Instruction 4,327,190 4,327,190 Academic support 1,999,450 1,999,450 Student services 87,980 87,890 Institutional support 501,130 501,130 Total educational and general expense 6,915,750

6,915,750

Auxiliary enterprises 133,410 133,410 Total expenses and losses 7,049,160 7,049,160 Total change in net assets 816,240 915,200 1,303,040 3,034,480 Net assets, beginning of the year 7,518,000 200,000 5,000,000 12,718,000 Net assets, end of the year $8,334,240 $1,115,200 $6,303,040 $15,752,480

* net of $69,600 in Tuition & Fees Discount and Allowances

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15-4 a. GREEN TREE STATE UNIVERSITYGENERAL JOURNAL

Debits Credits

1. CASH 3,000,000

ACCOUNTS RECEIVABLE—TUITION AND FEES 362,000

REVENUES—TUITION AND FEES 2,500,000

DEFERRED REVENUE—TUITION AND FEES 138,000

2. DEFERRED REVENUE—TUITION AND FEES 25,000

REVENUES—TUITION AND FEES 25,000

3. NO JOURNAL ENTRY IS RECORDED—THE ELIGIBILITY REQUIREMENT

HAS NOT BEEN MET.

4. CASH 60,000

REVENUES—STATE APPROPRIATIONS 60,000

5. CAPITAL ASSETS 225,000

CASH 225,000

6. CASH 200,000

REVENUES—GIFTS AND GRANTS 200,000

7. EXPENSES—INTEREST 48,000

CASH 48,000

8. CASH 31,000

INVESTMENTS 25,000

REVENUES—CHANGES IN FAIR VALUE OF

INVESTMENTS 6,000

15-19


Ch. 15, Solutions, 15-4 (Cont’d)GREEN TREE STATE UNIVERSITY

GENERAL JOURNALDebits Credits

INVESTMENTS 40,000

CASH 40,000

CASH 18,000

REVENUES—INVESTMENT INCOME 18,000

9. EXPENSES—GENERAL 2,500,000

EXPENSES—RESEARCH 37,000

ACCOUNTS PAYABLE 2,537,000

ACCOUNTS PAYABLE 2,567,000

CASH 2,567,000

($105,000 + $2,537,000 - $75,000)

GRANT RECEIVABLE 37,000


10. ACCRUED LIABILITIES 40,000

CASH 40,000

11. EXPENSES—DEPRECIATION 90,000


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Debits Credits

INTEREST RECEIVABLE 1,250



INVESTMENTS 3,000

INVESTMENTS 3,000

PROVISION FOR BAD DEBTS 2,000


12. REVENUES—TUITION AND FEES 2,525,000

REVENUES—STATE APPROPRIATIONS 60,000



INVESTMENTS 3,000


EXPENSES—DEPRECIATION 90,000

PROVISION FOR BAD DEBTS 2,000

EXPENSES—INTEREST 48,000

EXPENSES—GENERAL 2,500,000

EXPENSES—RESEARCH 37,000

NET POSITION—UNRESTRICTED 167,250

To reclassify Net Position:


NET POSITION—NET INVESTMENT IN

CAPITAL ASSETS 135,000


NET POSITION—RESTRICTED 200,000

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b. GREEN TREE STATE UNIVERSITYSTATEMENT OF NET POSITION

JUNE 30, 2014

ASSETS

CASH $ 729,000

ACCOUNTS RECEIVABLE (NET OF

DOUBTFUL ACCOUNTS OF $17,000) 6,000

INTEREST RECEIVABLE 1,250

GRANT RECEIVABLE 37,000

INVESTMENTS 262,000

CAPITAL ASSETS $1,975,000

ACCUMULATED DEPRECIATION (365,000) 1,610,000

TOTAL ASSETS 2,645,250

LIABILITIES

ACCOUNTS PAYABLE 75,000

DEFERRED REVENUE 138,000

BONDS PAYABLE 600,000

TOTAL LIABILITIES 813,000

NET POSITION

NET INVESTMENT IN CAPITAL ASSETS 1,010,000

RESTRICTED 415,000


TOTAL NET POSITION $ 1,832,250

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15-5 a. PRIVATE UNIVERSITY

Debits Credits

1. GRANT RECEIVABLE 500,000


2. TUITION AND FEES RECEIVABLE 1,550,000


TUITION AND FEES—UNRESTRICTED 2,500,000

TUITION AND FEES—UNRESTRICTED 325,000

CASH 325,000

3. LAND IMPROVEMENTS 1,980,000

CASH 1,980,000

4. CASH 500,000

CONTRIBUTIONS—PERMANENTLY RESTRICTED 500,000



b. PUBLIC UNIVERSITY

1. The grant can not be used until 2015; therefore, the time requirement has

not been met and recognition is deferred.

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Debits Credits

2. ACCOUNTS RECEIVABLE—TUITION AND FEES 1,550,000


REVENUE—TUITION AND FEES 2,500,000

REVENUE—TUITION AND FEES 325,000

CASH 325,000

(Note that while different account titles are used, tuition and fees

accounting for private and public colleges and universities is essentially

the same.)

3. INFRASTRUCTURE 1,980,000

CASH 1,980,000

(Note that public colleges and universities have a separate capital asset

classification for infrastructure.)

4. CASH 500,000

REVENUE—GIFTS AND GRANTS 500,000

(Note that public colleges and universities do not recognize the restriction

in the recording, but would report the $500,000 as restricted net position,

nonexpendable.)

5. PROVISION FOR BAD DEBTS 1,670


(Note that private colleges and universities directly adjust the revenue

account for bad debts while public colleges and universities typically use a

contra-revenue account.)

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15-6. a. ALLEN UNIVERSITYSTATEMENT OF ACTIVITIESYEAR ENDED JUNE 30, 2014



Revenues and gains: Student tuition and fees (net)* $ 963,750 $ 963,750 Contributions 310,200 $177,000 $150,000 637,200 Grants and contracts 324,000 324,000 Investment income 50,500 29,500 80,000 Auxiliary enterprise sales and services 153,560 153,560 Gain on sale of investments 70,000 70,000 Unrealized gain on investments 125,440 17,920 35,840 179,200 Other revenue 13,250 13,250 Net assets released from restrictions 426,850 (426,850) 0 Total revenues and gains 2,113,550 121,570 185,840 2,420,960

Expenses and losses: Educational and general expenses: Instruction 1,044,630 1,044,630 Research 571,800 571,800 Academic support 240,560 240,560 Student services 193,000 193,000 Institutional support 203,360 203,360 Total educational and general expense 2,253,350

2,253,350

Auxiliary enterprises 158,700 158,700 Total expenses and losses 2,412,050 2,412,050 Total change in net assets (298,500) 121,570 185,840 8,910 Net assets, beginning of the year 3,353,110 340,600 980,000 4,673,710 Net assets, end of the year $3,054,610 $462,170 $1,165,840 $4,682,620

* net of $327,000 in Tuition & Fees Discount and Allowances.

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b.

ALLEN UNIVERSITYSTATEMENT OF FINANCIAL POSITION

JUNE 30, 2014

Assets

Cash and cash equivalents $ 516,600Tuition and fees receivable (net of doubtful accounts of $75,600) 296,800Pledges receivable (net of doubtful pledges of $79,000) 144,000Investments (at fair value) 3,200,000Property, plant and equipment (net of accumulated depreciation of $658,720) 1,537,440 Total assets $5,694,840

Liabilities and Net Assets

Liabilities: Accounts payable 103,000 Accrued liabilities 37,500 Deposits held in custody for others 17,570 Deferred revenue 62,150 Bonds payable 792,000 Total liabilities 1,012,220

Net Assets: Unrestricted 3,054,610 Temporarily restricted 462,170 Permanently restricted 1,165,840 Total net assets 4,682,620 Total liabilities and net assets $5,694,840

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Ch. 15, Solutions, 15-6 (Cont’d)c.

ALLEN UNIVERSITYSTATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JUNE 30, 2014

Cash Flows from Operating Activities:Increase in net assets: $ 8,910Adjustments to reconcile increase in net assets to net cash

used by operating activities:Increase in tuition and fees receivable (net) (9,460)Decrease in pledges receivable 1,560 Decrease in accounts payable (2,900)Decrease in accrued liabilities (1,120)Increase in deferred revenue 6,200Depreciation 30,070Gain on sale of investments (70,000)Unrealized gain on investments (143,360)

Unrealized gains restricted for endowment (35,840)Contributions restricted for endowment (150,000 )

Net cash used by operating activities (365,940)

Cash Flows from Investing Activities:Purchase of equipment (33,000)Purchases of investments (1,250,000)Proceeds from sale of investments 1,500,000

Net cash provided by investing activities 217,000

Cash Flows from Financing ActivitiesContributions restricted for endowments 150,000 Repayment of bonds (100,000)

Net cash used for financing activities 50,000

Net decrease in cash and cash equivalents (98,940)Cash and cash equivalents, beginning of the year 615,540Cash and cash equivalents, end of the year $ 516,600

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Ch. 15, Solutions (Cont’d).

15-7. a. SHERLOCK STATE COLLEGESTATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION

FOR THE YEAR ENDED JUNE 30, 2014(AMOUNTS IN THOUSANDS)

Revenues: Operating revenues: Student tuition and fees (net of discount & allowances) $ 22,530 Grants and contracts 18,196 Auxiliary enterprises 14,595 Total operating revenue 55,321 Expenses: Operating expenses: Academic support 58,940 Institutional support 26,268 Scholarships and fellowships expenses 7,664 Depreciation expense 5,580 Auxiliary enterprises expense 12,197 Total operating expenses 110,649 Operating loss (55,328)Nonoperating revenues (expenses): State appropriation 44,894 Investment income 1,745 Interest expense (378 ) Net nonoperating revenues 46,261 Income before other revenues, expenses, gains or losses (9,067 ) Capital appropriations 12,785 Increase in net position 3,718Net position, beginning of the year 204,075 Net position, end of the year $207,793

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b. SHERLOCK STATE COLLEGESTATEMENT OF NET POSITION

AS OF JUNE 30, 2014(AMOUNTS IN THOUSANDS)

AssetsCurrent assets: Cash and cash equivalents $ 3,278 Investments 29,387 Accounts receivable (net of allowance for uncollectible accounts of $137) 1,820 Due from state 79,626 Total current assets 114,111 Noncurrent assets: Cash and cash equivalents 26,716 Restricted investments 2,383 Depreciable capital assets (net of accumulated depreciation of $28,850) 120,864 Nondepreciable capital assets 55,481 Other noncurrent assets 26 Total noncurrent assets 205,470 Total assets 319,581

Liabilities and Net PositionCurrent liabilities: Accounts payable 2,306 Accrued liabilities 2,039 Deferred revenue 13,789 Bonds payable—current portion 1,538 Total current liabilities 19,672

Bonds Payable 92,116 Total liabilities 111,788 Net position: Net investment in capital assets 82,691 Restricted for expendable: Debt service 1,307 Capital projects 52,272 Unrestricted 71,523 Total net position $207,793

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c. SHERLOCK STATE COLLEGESTATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JUNE 30, 2014(DOLLARS IN THOUSANDS)

Cash Flows from Operating Activities

Cash received for tuition and fees (net) $ 23,609 Grants and contracts 12,940 Cash received from auxiliary enterprises 13,765 Payments to employees (58,220) Payments to vendors (21,711) Payments for scholarships and fellowships (7,664 ) Net cash used in operating activities (37,281 )Cash Flows from Noncapital Financing Activities State appropriations 39,894 Cash Flows from Capital and Related Financing Activities Capital appropriations 20,540 Purchases of capital assets (20,634) Interest paid on capital debt (2,095 ) Net cash used in capital and related financing activities (2,189 )Cash Flows from Investing Activities Investment income 1,503 Net increase in cash 1,927Cash and cash equivalents, beginning of the year 1,351 Cash and cash equivalents, end of the year $ 3,278

Reconciliation of Net Operating Revenues (Expenses) to NetCash Used by Operating Activities

Operating loss $(55,328)Adjustments to reconcile net loss to net cash used by operating activities:Depreciation expense 5,580Change in assets and liabilities: Accounts receivable, net (2,574) Due from state 14,842 Accounts payable and accrued liabilities 1,962 Deferred revenue (1,763 ) Net cash used in operating activities $(37,281)

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Chap 015

Documents

Transcript of Chap 015