Chapter 15 - Accounting for Colleges and Universities CHAPTER 15: ACCOUNTING FOR COLLEGES AND UNIVERSITIES
OUTLINE
NumberTopic Type/Task Status
(re: 15/e)
Questions:
15-1Financial statements Identify New
15-2Restricted gifts and grants Contrast 16-2 15-3Net asset categories Distinguish 16-3 15-4Bad debts Explain, compare New
15-5Grant revenue Explain, identify New
15-6Pledges Explain New
15-7Support functions Explain New
15-8Split-interest agreements Define, compare 16-8 15-9UPMIFA Explain New
15-10Performance measures Describe 16-10
Cases:
15-1Annual report—Internet Examine Exercise 16-1
15-2Comparison of public vs. private universities Analyze 16-2 15-3UPMIFA Research, analyze New
Exercises/Problems:
15-1Various Multiple Choice 16-1 revised
15-2Private university transactions JEs, FS New
15-3Private university transactions JEs, FS 16-3 revised
15-4Public university transactions JEs, FS 16-4 15-5Public and private university transactions JEs 16-5 revised
15-6Private university trial balance to FS Financial statements 16-6 revised
15-7Public university trial balance to FS Financial statements 16-7
15-1 Chapter 15 - Accounting for Colleges and Universities 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. 15-2 Chapter 15 - Accounting for Colleges and Universities 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 15-3
