Governmental and notforprofit accounting solution of c12.docx
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Governmental and notforprofit accounting solution of c12.docx
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Governmentalandnotforprofitaccountingsolutionofc12
Chapter12
Not-for-ProfitOrganizations
QuestionsforReviewandDiscussion
1.(a)Resourcesrestrictedastopurpose:
mustbeusedforresearch;conferences;acquisitionofplantandequipment;
(b)Resourcesrestrictedastotime:
atermendowment—theprincipalmustremainintactforaspecifiedperiodoftime;thereafteritisavailableforexpenditure;pledgesreceivablethatwillnotbefulfilledinthesameperiod(sincetheresourcesareunavailableforexpenditureuntilthepledgeisfulfilled).
(c)Resourcesrestricteduntiltheoccurrenceofaspecificevent:
alifeannuity—theprincipalandincomemustbeusedtoprovideincomeforthedonoruntilthedonor’sdeath.Thereafteritcanbeexpended.
Resourcespermanentlyrestricted:
Anendowment—theprincipalofwhichmustbekeptintactpermanently;onlytheincomeisavailableforexpenditure.
2.Restrictedcontributionsshouldberecognizedasrevenueinarestrictedfundwhenthecontribution(evenifonlyapledge)isreceived.Expensesshouldberecognizedinanunrestrictedfundwhenthefundsareused.Asthecontributionsareused,therestrictionsaremet,andtheresourcesarereleasedfromtherestrictedtotheunrestrictedcategories.TheFASBreasonedthatdonorscontrolonlyhowcontributedresourcesmaybeused.Theydonotcontrolthetimingofexpensesorthespecificactivitiesinwhichtheorganizationengages.
3.Pledgesshouldberecognizedinarestrictedfunduponreceiptandshouldbemeasuredatthepresentvalueofestimatedfuturecashflowsusingariskfreerate.Hencetheuniversityshouldrecognizerevenueof$909,091(thepresentvalueof$1milliondiscountedforoneyearat10percent)uponreceivingthepledge.
Ifthepledgewereconditionaluponthedaughter’sgraduation,thenitshouldberecognizedasrevenueonlywhenthedaughtersatisfiedthestipulatedcondition—thatis,bybeinggraduated.
Manynot-for-profitsobjecttotherequirementthatpledgesberecognizedasrevenuebecauseuntilthedonationhasbeenreceived,itisnotavailableforexpenditure.Hence,theycontend,theentity’sfinancialstatementsleavetheimpressionthattheorganizationhascommandofgreaterresourcesthanitactuallydoes.
4.Theportionoftheduesrestrictedtocoveringthecostofthejournalappearstobemoretheresultofanexchangetransactionthanacontribution.Therefore,sinceitisnotdonorrestricted,itshouldbeclassifiedasunrestricted.
5.Unlikebusinesses,not-for-profitsarenotrequiredtodividetheirsecuritiesportfoliosintothethreecategories—tradingsecurities,availableforsaleandheld-to-maturity.Not-for-profits“mark”allofthesesecuritiestomarketvalue.
6.ThesocietyshouldgiverecognitiontotheCPA’sservicesasanaccountant,butnotasarecordingartist.Not-for-profitsshouldrecognizevolunteerservicesthatrequirespecializedskills,areprovidedbyindividualspossessingthoseskills,andwouldtypicallyneedtobepurchasedifnotprovidedbydonation.Thesetypesofskillsareprovidedby“professionalsandcraftsmen.”TheCPApossessesspecializedskillsasaprofessionalaccountant,butnotasareaderofnewspaperandmagazinearticles.
7.FASBStatementNo.116saysthatentitiesneednotrecognizecontributionsofcollectiblesaslongastheitemssatisfyallofthefollowingconditions:
∙Theyareheldforpublicexhibition,education,orresearchinfurtheranceofpublicserviceratherthanfinancialgain;
∙Theyareprotected,keptunencumbered,caredfor,andpreserved;
∙Theyaresubjecttoanorganizationalpolicythatrequiresproceedsfromsalesofcollectionitemstobeusedtoacquireotheritemsforcollections.
Hence,oneofthepaintingsmayhavesatisfiedtheseconditions,whereastheotherdidnot.Forexample,themuseummayhaveplannedtoselloneofthepaintingsanddisplaytheother.
8.Governmentsaccountfortheirbusiness-typeactivitiesinenterprisefunds,andnot-for-profitsinunrestrictedoperatingfunds.Inasmuchasgovernmententerprisefundsandnot-for-profitunrestrictedoperatingfundsareaccountedforonafullaccrualbasis,theaccountingpracticesaregenerallysimilar.
9.“Variancepower”istherighttounilaterallyredirecttheuseofresourcestoanotherbeneficiary.Ifthefoundationhassucharight,thenitcanrecognizethecontributionasrevenue(andthesubsequentdisbursementasanexpense).Ifitdoesn’t,thenitwouldrecognizethecontributionasaliability,apayabletothebeneficiary.
10.PerthestandardsoftheFASB,thecashflowstatementofanot-for-profitorganizationmustbeinthreecategoriesofactivities(operating,financingandinvesting)ratherthanthefourspecifiedbytheGASB(operating,noncapitalfinancing,capitalfinancingandinvesting).Moreover,theFASBencourages,butdoesnotrequire,thedirectmethodofpresentation;theGASBrequiresthedirectmethod.
11.TheAICPAstatementofpositionwasdirectedatnot-for-profitorganizationsthatclaimtobespendingresourcesonprogrammaticactivitieswhentheyare,infact,spendingthemonfund-raising.TheSOPrequiresthatallcostsofmaterialsandactivitiesthatincludeafund-raisingappealbeconsideredfund-raisingcosts,unlessthreecriteriaaresatisfied:
∙Purpose.Akeypurposeofthecombinedactivityistofulfillaprogram,management,orgeneralfunctioninadditiontofundraisingandpubliceducation.
∙Audience.Theaudienceforthematerialsoractivitiesisselectedprincipallyonitsneedfortheprogramorforitsabilitytoadvanceprogramgoalsinwaysotherthanbyfinancialsupport.
∙Content.Ifthematerialsoractivitiesareinsupportofaprogram,thentheymustcallforspecificactionthatwillhelpaccomplishtheentity’smissionbeyondprovidingfinancialsupport.
12.Thefundraisingratioindicatestheproportionofrevenuesspentonfundraisingactivities.Itisofconcerntodonorsbecausevirtuallyalldonorswanttheircontributionstosupportthemainmissionoftheentity,notexcessivefundraisingexpenditures.Itisofconcerntofinancialanalystsbecauseifdonorsreducetheirdonations,thenthefiscalhealthoftheorganizationmaybeinjeopardy.
Exercises
EX12-1
1.b
2.c
3.c
4.d
5.d
6.d
7.a
8.a
9.a
10.b
11.d
12.c
EX12-2
1.b
2.a
3.c
4.b
5.a
6.c
7.b
8.c
9.a
10.a
EX12-3
Possibility#1—theletterprovidesnoindicationthatthegiftisrestrictedforanyspecificprogramsoractivities.
a.
Pledgesreceivable$100,000
Revenuefromcontributions$100,000
Torecordthereceiptofanunrestrictedcontribution(temporarilyrestrictedfundinasmuchasthepledgewouldnotbefulfilledinthesameperiod)
b.
Programexpenses$100,000
Cash$100,000
Torecordtheexpensesincurredinthelegalassistanceprogram(unrestrictedfund)
c.
Cash$100,000
Resourcesreleasedfromrestriction$100,000
Torecordthereceiptofthecashpreviouslypledged(unrestrictedfund)
Resourcesreleasedfromrestriction$100,000
Pledgesreceivable$100,000
Toreleasetheresourcesfromrestrictionuponreceiptofcash(temporarilyrestrictedfund)
Possibility#2—thelettermakesclearthatthegiftisrestrictedforaspecificprogram.
a.
Pledgesreceivable$100,000
Revenuefromcontributions$100,000
Torecordthereceiptofarestrictedcontribution(temporarilyrestrictedfundinasmuchasthegift’spurposeisrestricted)
b.
Programexpenses$100,000
Cash$100,000
Torecordtheexpensesincurredinthelegalassistanceprogram(unrestrictedfund—allexpensesarerecognizedinanunrestrictedfund)
c.
Cash$100,000
Resourcesreleasedfromrestriction$100,000
Torecordthereceiptofthecashpreviouslypledged(unrestrictedfund)
Resourcesreleasedfromrestriction$100,000
Pledgesreceivable$100,000
Toreleasetheresourcesfromrestrictionuponreceiptofcash(temporarilyrestrictedfund)
Possibility#3—Contributionisconditionaluponestablishingaspecificprogram.
a.
Noentrywouldbenecessarytorecordthepledgebecauseoftheconditionimposed.
b.
Programexpenses$100,000
Cash$100,000
Torecordtheexpensesincurredinthelegalassistanceprogram(unrestrictedfund)
c.
Cash$100,000
Revenuefromcontributions$100,000
Torecordthereceiptofcashuponsatisfyingtheconditionsofthecontribution(unrestrictedfund)
d.Minordifferencesinwordingdeterminewhetherthegiftisunrestricted(inwhichcaseitcanberecognizedwhenthepledgeismadeandinanunrestrictedfund—unless,asinthissituation,thepledgewouldnotbefulfilledinthesameperiodasitisreceived),whetheritisrestricted(inwhichcaseitcanberecognizedwhenthepledgeismadebutonlyinarestrictedfund)orwhetheritisconditional(inwhichcaseitcanberecognizedonlywhentheconditionsaresatisfiedand,inasmuchasitisnolongerrestrictedwhenrecognizedasrevenue,inanunrestrictedfund).
EX12-4
1.Advertising
Advertisingexpense$1,000
Revenuefromcontributedservices$1,000
(Torecognizerevenueandtherelatedexpensefromcontributedservices)
Contributionsencompassallnonreciprocalreceiptsofassetsorservices.Theyincludedonationsofcash,marketablesecurities,propertyandequipment,utilities,supplies,intangibleassets(suchaspatentsandcopyrights)andtheservicesofprofessionalsandcraftsmen.Thedonationofairtimeclearlyqualifiesasanassetorservicereceivedinanonreciprocaltransaction.
2.Deliveryofmeals
Noentry.Theorganizationshouldnotrecognizethecontributedservicesofvolunteersasrevenuebecausetheyarenotofaprofessionalnatureandofthetypewhichtheorganizationwouldotherwisehavepurchased.
3.Account
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