FAR CPA Exam - Government and Not-for-Profit
Accounting
\ In Year 1, Gamma, a not-for-profit organization, deposited at a bank $1,000,000
given by a donor to purchase endowment securities. The securities were purchased
January 2, Year 2. At December 31, Year 1, the bank recorded $2,000 interest on
the deposit. In accordance with the bequest, this $2,000 was used to finance
ongoing program expenses in March of Year 2. At December 31, Year 1, what
amount of the bank balance should be included as current assets in Gamma's
statement of financial position? - answer-$2,000
At which of the following amounts should a nongovernmental not-for-profit entity
report investments in debt securities? - answer-Quoted market prices
Unrestricted earnings on specific-purpose fund investments that are part of a
hospital's central operations are reported as: - answer-general fund unrestricted
revenues.
Fenn Museum, a nongovernmental not-for-profit entity, had the following balances
in its expense categories for the statement of activities:
Education $300,000
Fundraising 250,000
Management and general 200,000
Research 50,000
What amount should Fenn report as expenses for support services? - answer-
$450,000
Supporting services expenses are separated into two categories:
Management and general
Fundraising
On December 31, 20X1, Dahlia, a nongovernmental not-for-profit entity, purchased
a vehicle with $15,000 unrestricted cash and received a donated second vehicle
having a fair value of $12,000. Dahlia expects each vehicle to provide it with equal
service value over each of the next five years and with no residual value. Dahlia has
an accounting policy implying a time restriction on gifts of long-lived assets. In
Dahlia's 20X2 statement of financial position, what amount of temporarily restricted
net assets would relate to the donated vehicle? - answer-one year's depreciation of
the donated vehicle ($12,000 ÷ 5 years, or $2,400) would reduce its residual value
to $9,600 ($12,000 - $2,400).
The director of Forkin Manor, a nongovernmental not-for-profit entity, wants the
financial statements formatted using terminology readily associated with for-profit
entities. The director believes that the term "equity" would be more meaningful to
the users of the financial statements than the term "net assets." Additionally, the
director believes that the amount of resources set aside by the board should be
displayed. How could the net assets section of the statement of financial position be
, presented to meet the director's wishes? - answer-The term "net assets" is
encouraged by the FASB Accounting Standards Codification; further, the
components could be identified in terms of donor restrictions and the unrestricted
component could be subdivided into "board designated" and "undesignated."
Maple Church has cash available for investments in various restriction categories.
Maple's policy is to maximize its financial resources. How may Maple pool its
investments? - answer-Maple may pool all investments, but must allocate realized
and unrealized gains and losses considering donor restrictions, board policy, and
relevant legislation.
A not-for-profit voluntary health and welfare entity received a $500,000 contribution
at the start of 20X2 with donor instructions to maintain the principal as a permanent
endowment and use all income for a mental health program; the donor stipulated
that investment gains remain part of the endowment. The endowment principal was
invested in a number of equity securities and mutual funds using an investment
management firm. The investment manager remits the proceeds of the investment
quarterly. At the end of 20X2, the investment value had increased to $530,000.
Dividends for the year totaled $20,000 and custodial and transaction fees were
$375. The increase in the investment value would be reported as an increase to
permanently restricted net assets and: - answer-the dividends may be reported as a
$19,625 increase in temporarily restricted net assets.
A city has a capital projects fund to account for the construction of a new public
safety facility, which is nearly complete. The construction contract was initially
encumbered for $17,500,000, but $15,000,000 of this encumbrance has been
removed due to progress payments to date. The Fund balance of the capital
projects fund is $4,600,000 after completing all steps of the closing process except
for encumbrances at year-end. When presenting the financial statements, the Fund
balance will be reported as follows: - answer-Of the fund balance, an amount
equivalent to the remaining outstanding encumbrances should be designated as
"committed" or "assigned" if this has not already been done. The remaining fund
balance, in excess of the amount needed to satisfy the eventual expenditure
currently represented by the encumbrance, would be shown as "assigned," because
all resources in the capital projects fund have been set aside for the capital
projects. Only the general fund would have "unassigned" fund balance. Fund
balance—committed, $2,500,000; Fund balance—assigned, $2,100,000
Cash receipts from grants and subsidies to decrease operating deficits should be
classified in which of the following sections of the statement of cash flows for
governmental not-for-profit entities? - answer-Noncapital financing
Reporting of general infrastructure assets by all public institutions that report as
special-purpose governments either engaged only in governmental activities or
engaged in both governmental and business-type activities is: - answer-required
using the full governmental model.
Which account should Spring Township credit when it issues a purchase order for
supplies? - answer-Reserve for encumbrances
