Accounting For Not-for-Profit and Public Sector Organizations

Chapter 12 - Accounting for Not-for-Profit and Public Sector Organizations
Chapter 12
Accounting for Not-for-Profit and Public Sector Organizations
Multiple Choice Questions

1. Which of the following statements is correct?

A. Endowments are donations that are received with the provision that it will be invested and
only the investment income may be spent by the organization.
B. Endowments are unrestricted donations which can be used for any purposes that are
consistent with the goals and objectives of the not-for-profit organization.
C. Endowments are provided as donations which only allow a not-for-profit organization to
invest in other not-for-profit organizations only.
D. Endowments may be restricted and unrestricted funds which must be used in accordance
with the wishes of the contributor and only available during the life of the donor.
Accessibility: Keyboard Navigation

Blooms: Remember
Difficulty: Easy
Learning Objective: 12-02 Describe and apply the not-for-profit accounting and reporting practices currently mandated in the CPA Canada
Handbook.
Topic: 12-01 Not-For-Profit Reporting Today
Topic: 12-11 Section 4410 Contributions-Revenue Recognition

2. Which of the following statements is correct?

A. Unrestricted resources can be used for any purposes by a not-for-profit organization.
B. Unrestricted resources can be used for any purposes that are consistent with the goals and
objectives of the not-for-profit organization.
C. Restricted resources can only be used in the case of a serious financial deficit situation.
D. Both restricted and unrestricted funds must be used in accordance with the wishes of the
contributor.

Blooms: Remember
Difficulty: Easy
Handbook.

12-1
3. Which of the following statements is NOT correct?

A. A contribution receivable should be recognized as an asset when the amount can be
reasonably estimated and the ultimate collection is reasonably assured.
B. A contribution receivable should be recognized as an asset when the amount can be
reasonably estimated or the ultimate collection is reasonably assured.
C. Contribution revenue is a type of revenue where the contributor receives nothing directly in
return for his or her contribution.
D. Government grants typically qualify as a contribution.

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-12 Section 4420 Contributions Receivable

4. Which of the following is NOT an acceptable way of reporting for a not-for-profit entity
over which an organization has control?
A. By consolidating the controlled organization in its financial statements.
B. By providing the disclosure set out in paragraph 4450.22 of the Handbook.
C. If the controlled organization is one of a large number of individually immaterial
organizations, by adhering to the disclosure requirements set out in paragraph 4450.26 of the
CPA Canada Handbook.
D. By using the equity method.

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-17 Section 4450 Reporting Controlled and Related Entities by Not-For-Profit Organizations
Topic: 12-19 Control Over NFPOS

12-2
5. How may a not-for-profit organization account for a portfolio (i.e. non-strategic)

investment it has made in a profit-oriented entity?
A. By using fair value or the cost method
B. By using the equity method
C. By using proportionate consolidation
D. By consolidating the results of the profit-seeking entity with its own

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-17 Section 4450 Reporting Controlled and Related Entities by Not-For-Profit Organizations
Topic: 12-23 Economic Interest

6. Section 4433 contains a compromise provision applicable to small NFPOs. Which of the
following statements pertaining to a small NFPO is false?
A. A small NFPOs average of annual revenues recognized in the statement of operations for
the current and preceding period is less than $500,000.
B. The small NFPO is exempt from having to record donated capital assets at fair value.
C. A small NFPO is exempt from having to capitalize and amortize tangible capital assets.
D. A small NFPO can choose to expense a capital asset when it is acquired.

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-13 Section 4433 Tangible Capital Assets held by Not-For-Profit Organizations
Topic: 12-14 Small NFPOS

12-3
7. The maximum amortization period specified by Section 4433 with respect to capital assets
is:
A. 5 years.
B. 10 years.
C. 20 years.
D. No maximum amortization period is specified.

Blooms: Remember
Difficulty: Easy
Handbook.

8. When is the earliest a bequest can be recorded?

A. When the person making the bequests dies.
B. When the person making the bequest includes the amount of the donation in his or her will.
C. When the beneficiaries of the estate decide to pay out the bequest.
D. When the will has been probated and the time for appeal has passed.

Blooms: Remember
Difficulty: Easy
Handbook.

12-4
9. For a small NFPO to qualify for the exemption provided for in Section 4433, these
organizations must disclose all of the following EXCEPT:
A. Accounting policy for capital assets.
B. Information about capital assets not shown in the balance sheet.
C. The amount expensed in the current period if their policy is to expense capital assets when
acquired.
D. An appraised listing of the organization's capital assets, showing book values and
appraised market values.

Blooms: Remember
Difficulty: Easy
Handbook.

10. Collections are works of art that have been excluded from the definition of capital assets.
Which of the following statements is NOT a criterion which must be met before works of art
qualify as collections under Canadian accounting standards?
A. It must be possible to establish a useful life for the works and an appropriate amortization
period.
B. They are held for public exhibition, education, or research.
C. They are protected, cared for, and preserved.
D. They are subject to organizational policies that require any proceeds from their sale to be
used to acquire other items for the collection, or for the direct care of the existing collection.

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-16 Section 4441 Collections Held by Not-For-Profit Organizations

12-5
11. Which of the following financial statements are NOT required by not-for-profit

organizations for external reporting purposes?
A. A Statement of Financial Position.
B. A Statement of Changes in Members' Equity.
C. A Statement of Cash Flows.
D. A Statement of Operations.

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-08 Section 4400 Financial Statement Presentation by Not-For-Profit Organizations

12. How would the not-for-profit organization report each controlled profit-oriented

enterprise?
A. It is not required to report its interest in profit-oriented subsidiaries.
B. By disclosure in the notes to the financial statements of the not-for-profit organization.
C. By consolidating the controlled enterprise into its own financial statements or by using the
equity method and disclosing additional financial information.
D. By using the cost method together with appropriate note disclosure.

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-20 Control Over Profit-Oriented Companies

12-6
13. Section 4433 of the CPA Canada Handbook contains an exemption from capitalizing and
amortizing all fixed assets for an NFPO that has revenues below $500,000. If the NFPO's
revenues subsequently increase to over $500,000 over a two year period, which of the
following statements is TRUE?
A. The NFPO ceases to be a small NFPO but it is only required to capitalize and amortize if
the increase in revenue is sustained for a period of two years.
B. The NFPO ceases to be a small NFPO and it must capitalize and amortize on a retroactive
basis to allow for comparative financial statements.
C. The NFPO ceases to be a small NFPO but it does not need to adopt the policy of
capitalizing and amortizing if that policy does not meet the needs of the financial statement
users.
D. The NFPO ceases to be a small NFPO and must capitalize and amortize on a prospective
basis.

Blooms: Remember
Difficulty: Medium
Handbook.

14. Do-Good Inc. is a not-for-profit organization that was formed on January 1, 2020. Do-
Good has a December 31 year end. It has an accounting policy of capitalizing and amortizing
its capital assets. On April 1, 2020, Do-Good purchased equipment costing $8,000. The
equipment is estimated to have a useful life of 4 years, with no residual value at that time.
This transaction was the only transaction that took place to date.
The equipment was purchased from a restricted fund contribution of $8,400. In which fund
would the purchase and amortization of the asset be recorded?
A. The General Fund
B. The Operating Fund
C. The Capital Fund
D. The Endowment Fund

Blooms: Apply
Difficulty: Easy
Learning Objective: 12-03 Explain the objectives of fund accounting, and prepare financial statements using fund accounting.
Learning Objective: 12-04 Prepare journal entries and financial statements under the restricted fund method.
Topic: 12-28 Accounting for Contributions
Topic: 12-29 The Restricted Fund Method
Topic: 12-30 General Fund
Topic: 12-31 Capital Fund

12-7
The equipment was purchased from a restricted fund contribution of $8,400.
What would be the carrying value of the equipment on December 31, 2020?
A. $6,500
B. $6,000
C. $8,000
D. $8,400
Carrying value of equipment on Dec.31, 2020 = $6,500. ($8,000 cost - $1,500 accumulated
depreciation) Cost = $8,000. Annual depreciation = $8,000/4 years = $2,000 per year and
prorated for 9 months.
$2,000 ´ 9/12 = $1,500

Blooms: Apply
Difficulty: Medium

12-8
The equipment was purchased from a restricted fund contribution of $8,400.
What would be the balance in the Capital Fund on December 31, 2020?
A. ($1,600)
B. $400
C. $4,400
D. $6,900
Balance in capital fund Dec.31,2020 = $6,900. ($400 cash + $6,500 carrying value on
equipment) Cash = $400 = $8,400 contribution - $8,000 spent on equipment.
$2,000 ´ 9/12 = $1,500

Blooms: Apply
Difficulty: Medium

12-9
The equipment was purchased from an unrestricted contribution of $8,000.
In which fund would the purchase of the asset be recorded?

A. The general fund
B. The operating fund
C. The capital fund
D. The endowment fund

Blooms: Apply
Difficulty: Medium

12-10
In which fund would the receipt of the unrestricted contribution be recorded?

A. The general fund
B. The endowment fund
C. The capital fund
D. The encumbrance fund

Blooms: Apply
Difficulty: Medium

12-11
What would be the balance in the Capital Fund on December 31, 2020?
A. $8,000
B. $6,000
C. $6,500
D. $8,400
$2,000 ´ 9/12 = $1,500

Blooms: Apply
Difficulty: Medium

12-12
What would be the balance in the General Fund on December 31, 2020?
A. $0
B. $6,000
C. $6,400
D. $8,000
Balance in General Fund = $0; the transfer of $8,000 cash from the General Fund to the
Capital Fund would reduce the amount in the General Fund to $0.

Blooms: Apply
Difficulty: Medium
Topic: 12-33 Year 6 Events

21. A not-for-profit organization is required to record the donation of capital assets at:
A. replacement cost.
B. fair value.
C. net realizable value.
D. the original cost to the donor of the capital asset.

Blooms: Remember
Difficulty: Easy
Learning Objective: 12-05 Prepare journal entries and financial statements under the deferral method.
Topic: 12-36 Donated Capital Assets, Materials, and Services
Topic: 12-37 Donated Capital Assets

12-13
22. Where should be endowment contributions presented in the financial statements of a not-

for-profit organization under the deferral method?
A. They are reflected in the notes to the financial statements.
B. They are used to effect a reduction to a related expense account.
C. They are reflected in the statement of changes in net assets.
D. They are shown in the statement of operations.

Blooms: Remember
Difficulty: Easy
Topic: 12-34 The Deferral Method
Topic: 12-39 Donated materials and Services

23. Net assets could be broken down into any of the following categories EXCEPT:
A. internally restricted and other externally restricted net assets.
B. net assets maintained permanently in endowments.
C. unrestricted net assets.
D. net assets invested in operations.

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-08 Section 4400 Financial Statement Presentation by Not-For-Profit Organizations

24. Which of the following is NOT a type of contribution as identified by the Handbook?

A. Restricted.
B. Endowment.
C. Unrestricted.
D. Donated.

Blooms: Remember
Difficulty: Easy
Handbook.

12-14
25. If a not-for-profit organization has revenues in excess of $500,000, how must it report its
capital assets?
A. All asset purchases must be immediately and entirely expensed.
B. All capital assets must be capitalized and amortized.
C. All capital assets must be capitalized but not amortized.
D. All capital assets must be disclosed in a note to the financial statements.

Blooms: Remember
Difficulty: Easy
Handbook.

26. An NFPO may exercise significant influence over the strategic operating, investing, and
financing activities of another NFPO. Which of the following is NOT a factor in determining
significant influence?
A. Ability to place members on the board of directors
B. Substantial transactions between the organizations
C. Percentage of share ownership
D. Sharing of senior personnel

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-22 Significant Influence

12-15
27. NFPOs receive different types of contributions. Which of the following is a contribution

with a restriction that the contribution cannot be spent, but must be maintained permanently?
A. Unrestricted contribution
B. Endowment contribution
C. Restricted contribution
D. Operating contribution

Blooms: Remember
Difficulty: Easy
Handbook.

28. Which of the following is NOT among the choices available to a not-for-profit

organization with two-year average annual revenues of less than $500,000?
A. Capitalize and amortize capital assets.
B. Capitalize and not amortize capital assets.
C. Expense capital assets when acquired.
D. Make no entries when capital assets are acquired.

Blooms: Remember
Difficulty: Medium
Handbook.

12-16
29. Which of the following is NOT a requirement for a not-for-profit organization to record

donated materials and services?
A. The fair value of the donation can be determined.
B. The organization uses the deferral method of accounting for contributions.
C. The materials or services would normally have been used in the organization's operations.
D. The not-for-profit organization would have purchased the goods or services if they had not
been donated.

Blooms: Remember
Difficulty: Easy
Handbook.

30. If a not-for-profit organization uses the restricted fund method of reporting and has an
endowment fund, how should an endowment contribution be reported?
A. As revenue in the general fund.
B. As revenue in the endowment fund.
C. As a direct increase in net assets in the general fund.
D. As a direct increase in net assets in the endowment fund.

Blooms: Remember
Difficulty: Medium

12-17
31. If a not-for-profit organization uses the restricted fund method of reporting and has a
capital fund, how should a donation of cash restricted to the purchase of land be reported?
A. As revenue in the general fund.
B. As revenue in the capital fund.
D. As a direct increase in net assets in the capital fund.

Blooms: Remember
Difficulty: Medium

32. Assuming a not-for-profit organization used the restricted fund method and had separate
funds for the purpose for which donations were intended, how should investment income
earned on donation revenue be accounted for if the donation revenue was a restricted
contribution but there was no restriction placed on the use of the investment income?
A. As investment income in the general fund.
B. As investment income in the restricted fund.
C. As donation revenue in the restricted fund.
D. As a direct increase in net assets in the restricted fund.

Blooms: Remember
Difficulty: Medium
Topic: 12-26 The Basics of Fund Accounting
Topic: 12-27 Example 3

12-18
33. How should that portion of investment income earned from the investment of endowment
contributions that is required to be used to maintain the purchasing power of the endowment
be accounted for if the not-for-profit organization uses the restricted fund method of reporting
and has an endowment fund?
A. As investment income in the general fund.
B. As investment income in the endowment fund.
D. As a direct increase in net assets in the endowment fund.

Blooms: Remember
Difficulty: Medium

34. How should that portion of investment income earned from the investment of endowment
contributions that is required to be used to maintain the purchasing power of the endowment
be accounted for, if the not-for-profit organization uses the deferred contribution method of
accounting?
A. As investment income.
B. As a deferred contribution.
C. As a direct increase in net assets.
D. As donation revenue.

Blooms: Remember
Difficulty: Medium

12-19
35. How should investment income earned from the investment of endowment contributions
be accounted for if the not-for-profit organization uses the deferral method of accounting for
contributions and the use of the investment income is restricted to a specific purpose?
A. As investment income.
B. As a deferred contribution.
C. As a direct increase in net assets.
D. As donation revenue.

Blooms: Remember
Difficulty: Medium

36. How should investment income earned from the investment of endowment contributions
be accounted for if the not-for-profit organization uses the restricted fund method of
accounting and the use of the investment income is restricted to a specific purpose for which
the not-for-profit organization has a restricted fund?
A. As investment income in the endowment fund
B. As a deferred contribution
C. As investment income in the general fund
D. As investment income in the specific restricted fund

Blooms: Remember
Difficulty: Medium
Topic: 12-32 Endowment Fund

12-20
37. A not-for-profit organization receives a restricted contribution of $20,000 to be used for a

specific project. During the current year, $14,000 is spent toward the project with the balance
to be spent next year. How much donation revenue should the not-for-profit organization
recognize in the current year, if the organization uses the deferral method of reporting?
A. $6,000
B. $14,000
C. $20,000
D. $34,000
Under the deferral method, when the $20,000 contribution was received it would be credited
to a deferred revenue (liability) account. As it is used, it would be transferred to contribution
revenue. Thus, in this case, at the end of the current year, the deferred revenue (liability)
account would have a balance of $6,000 [$20,000 contribution - $14,000 used in current
year], and the income statement would show contribution revenue of $14,000 (the amount
earned during the year).

Blooms: Apply
Difficulty: Medium

12-21

to be spent next year.
What should be the balance in the deferred contribution account at the end of the year, if the
organization uses the deferred contribution method of reporting?
A. $20,000
B. $6,000
C. $14,000
D. Nil
Under the deferral method, when the $20,000 contribution was received it would be credited
to a deferred revenue (liability) account. As it is used, it would be transferred to earned
revenue. Thus, in this case, at the end of the current year, the deferred revenue (liability)
account would have a balance of $6,000 [$20,000 contribution - $14,000 used in current
year], and the income statement would show contribution revenue of $14,000 (the amount
earned during the year).

Blooms: Apply
Difficulty: Medium

12-22

recognize in the current year, if the organization uses the restricted fund method for reporting
and had a fund for this project?
A. $20,000
B. $6,000
C. $14,000
D. Nil
Under the restricted fund method, the entire $20,000 contribution received during the year
would be reported as revenue in the restricted fund, with any amount unspent being reported
as a restricted net asset balance (surplus of $6,000 [$20,000 contribution - $14,000 utilized
during year]).

Blooms: Apply
Difficulty: Medium

12-23

to be spent next year. What will the net asset balance in the restricted fund be at the end of the
year if the organization uses the restricted fund method for reporting and had a fund for this
project?
A. $20,000
B. $6,000
C. $14,000
D. Nil
Under the restricted fund method, the entire $20,000 contribution received during the year
would be reported as revenue, with any amount unspent being reported as a restricted net
asset balance (surplus of $6,000 [$20,000 contribution - $14,000 utilized during year]).

Blooms: Apply
Difficulty: Medium

12-24

recognize in the current year, if the organization uses the restricted fund method of reporting
and did not have a fund for this project?
A. $6,000
B. $14,000
C. $20,000
D. $34,000
The $14,000 spent and utilized for the project during the current year would be reported on
the income statement as donation revenue. The remaining unspent funds would be deferred
(i.e. using the deferral method) until they are spent and utilized for the project.

Blooms: Apply
Difficulty: Medium

42. A not-for-profit organization received unrestricted pledges of $200,000, and believes

based on past experience that 95% of them will be paid. What entry should be made to record
the pledges?
A.
Debit Credit
Pledges Receivable $190,000
Donation Revenue $190,000
B.
Debit Credit
Provision for Uncollectible Pledges $10,000
12-25
C.
Debit Credit
Bad Debt Expense $10,000
Provision for Uncollectible Pledges $10,000
D.
Debit Credit
Cash $190,000
As with accounts receivable in the profit-oriented sector, the full amount of the pledge
receivable should be setup with the uncollectible portion offsetting the receivable as a
doubtful/uncollectible account. No bad debt expense is recorded as the pledge is not legally
binding.

Blooms: Apply
Difficulty: Medium
Handbook.

12-26
43. What reporting choices are given to Canadian private not-for-profit organizations?

A. They may report under the Accounting Standards for Private Enterprises (ASPE) found in
Part II of the CPA Canada Handbook without modification.
B. They may report using the standards found in Part III of the CPA Canada Handbook and
apply Part II (ASPE) to the extent that the Part II standards address topics not addressed in
Part III.
C. They may report under the International Financial Reporting Standards (IFRS) modified by
the standards found in Part III of the CPA Canada Handbook.
D. If the NFPO was formed prior to 2010, they may continue to report in accordance with the
Canadian standards for not-for-profit enterprises that existed prior to 2011-2012.

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-02 Section 1001 Financial Statement Concepts for Not-For-Profit Organizations
Topic: 12-03 Section 1101 Generally Accepted Accounting Principles for Not-For-Profit Organizations

44. How should a not-for-profit organization value inventories which are held for distribution
at no charge or for a nominal charge or for consumption in the production process of goods
which will be distributed at no charge or for a nominal charge?
A. At cost.
B. At fair value.
C. At the lower of cost and net realizable value.
D. At the lower of cost and current replacement cost.
An NFPO measures inventories at the lower of cost and current replacement cost (instead of
net realizable value), when they are held for distribution at no charge or for a nominal charge
or for consumption in the production process of goods to be distributed at no charge or for a
nominal charge.

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-06 Section 3032 Inventories Held by Not-For-Profit Organizations

12-27
45. When a not-for-profit organization uses the deferral method of revenue recognition and
receives a donation restricted to the purchase of land, when should the donation be recognized
as revenue?
A. When the cash is received.
B. When the land is purchased.
C. When the land is put into service by the organization.
D. It should not be recognized as revenue at all.

Blooms: Remember
Difficulty: Medium

46. A statement of changes in net assets in the financial statements of a not-for-profit

organization corresponds most closely to which of the following in the financial statements of
a profit-oriented business which reports under IFRS?
A. The statement of financial position.
B. The statement of cash flows.
C. The income statement.
D. The statement of changes in shareholders' equity.

Blooms: Remember
Difficulty: Easy
Handbook.
Topic: 12-02 Section 1001 Financial Statement Concepts for Not-For-Profit Organizations
Topic: 12-03 Section 1101 Generally Accepted Accounting Principles for Not-For-Profit Organizations

12-28
Short Answer Questions

47. The following are selected transactions from Helpers Cooperative which uses the
restricted fund method. Helpers has an operating fund, a capital fund and an endowment fund:
Pledges amounting to $400,000 were received for operations, of which $80,000 applies to the
operations of the following year. It is estimated that 2% of the pledges will be uncollectible.
The association purchased office equipment at a cost of $6,000.
Pledges of $300,000 were collected, while pledges amounting to $4,000 were written off as
uncollectible.
A local newspaper agreed to donate to Helpers a full-page in the newspaper for advertising.
This had an estimated value of $5,000. Helpers had planned to advertise the fundraising event
it had scheduled for later in the month.
Interest and dividends received amounted to $15,000 on endowment fund investments. These
earnings are considered unrestricted.
Depreciation for the year amounted to $40,000.
Required:
Prepare journal entries to record the above transactions. Also, indicate which fund will be
used for each entry.
12-29
Operating Fund:
Allowance for Uncollectible Pledges $8,000
Contribution Revenue $313,600
Deferred Contribution Revenue $78,400
Capital Fund:
Office Equipment $6,000
Cash $6,000
Operating Fund:
Cash $300,000
Allowance for Uncollectible Pledges $4,000
Advertising Expense $5,000
Contribution Revenue–donated $5,000
Cash $15,000
Interest and Dividend Revenue $15,000
Capital Fund:
Depreciation Expense $40,000
Accumulated Depreciation $40,000

Blooms: Apply
Difficulty: Medium

12-30
48. The following are selected transactions for HELP-ON-US (HOU), an NFPO for 2020.
HOU uses the restricted fund method of accounting for contributions. HOU has an operating
fund, a capital fund and an endowment fund.
On January 1, the organization purchased fixed assets at a cost of $10,000. The assets were
estimated to have a useful life of 5 years with no residual value. Straight-line amortization is
used.
Assuming that the assets were purchased from a restricted contribution that was made on
January 1, 2020 in the amount of $11,000, prepare the required journal entries for 2020,
indicating the fund or funds to be used.
Capital Fund:
Cash $11,000
Equipment $10,000
Cash $10,000
Amortization Expense $2,000
Accumulated Amortization $2,000

Blooms: Apply
Difficulty: Medium

12-31
used.
Assuming that the assets were purchased from unrestricted contribution that was made on
January 1, 2020, prepare the required journal entries for 2020, indicating the fund or funds to
be used.
Operating Fund:
Cash $10,000
Transfer to Capital Fund $10,000
Cash $10,000
Capital Fund:
Cash $10,000
Transfer from Operating Fund $10,000
Equipment $10,000
Cash $10,000
The purchase could also be recorded in the Capital Fund as:
Capital Fund:
Equipment $10,000
Transfer from Operating Fund $10,000
12-32

Blooms: Apply
Difficulty: Medium

used.
Prepare journal entries for these transactions, assuming HOU is using the deferral method for
the $11,000 restricted contribution made on January 1, 2020 that was used to acquire the fixed
assets. Indicate the fund or funds used.
Operating fund:
Cash $11,000
Deferred Contributions-Fixed Asset Purchases $11,000
Equipment $10,000
Cash $10,000
Deferred Contribution–Equipment Purchases $10,000
Deferred Contribution–Fixed Assets $10,000
Deferred Contributions–Fixed Assets $2,000
12-33

Blooms: Apply
Difficulty: Medium

51. XYZ is a local charity that commenced operations on January 1, 2020. XYZ uses the
restricted fund method of accounting for contributions. XYZ has a general fund, a capital fund
and an endowment fund.
For the following partial data provided, prepare the journal entry to record that transaction.
Specify which fund or funds must be used to record the entry.
a) Revenue deferred earlier in the year in the amount of $5,000 was recognized.
b) Pledges receivable in the amount of $10,000 were collected in full.
c) Accounts payable and wages payable amounting to $10,000 and $5,000 were paid.
d) Government grants amounted to $50,000, half of which was received. The balance is
expected by late 2021. The grants may be applied to any of the organization's programs.
e) Total Wage costs amounted to $60,000 which breaks down as follows:
Program A $40,000
Program B $10,000
Administration $10,000
25% of these expenses are still payable at the end of 2020.

f) A wealthy local businessman donated $100,000 to be held in endowment, with the interest
earned to be unrestricted.
g) The investments in an endowment fund earned interest in the amount $3,000.
h) Amortization expense for the year amounted to $10,000.
12-34
a)
General Fund
Deferred Revenue $5,000
Revenue $5,000
b)
General Fund
Cash $10,000
c)
General Fund
Accounts Payable $10,000
Wages Payable $5,000
Cash $15,000
d)
General Fund
Cash $25,000
Government Grants Receivable $25,000
Revenue–Government Grant $50,000
12-35
e)
General Fund
Expenses–Program A $40,000
Expenses–Program B $10,000
Expenses–Administration $10,000
Cash $45,000
Wages Payable $15,000
f)
Endowment Fund
Cash $100,000
Revenue–Contribution $100,000
g)
General Fund
Cash $3,000
Revenue–Investment Income $3,000
h)
Capital Fund
12-36

Blooms: Apply
Difficulty: Medium

52. Buana Fide is a local charity which received the following donations during 2020:
· A local radio station donated air time valued at $20,000. If the air time had not been
donated, Buana Fide would have purchased it and used it for advertising a fundraising event
and silent auction.
· An anonymous donor donated land with a fair value of $50,000 as well as machinery valued
at $4,000.
· During a recent fund-raising campaign, volunteers spent roughly 1,000 hours soliciting
donations from the public. The minimum hourly wage rate in Buana Fide's main area of
operation is $8.00 per hour.
Prepare the necessary journal entries to record these transactions assuming that the deferral
method of accounting for contributions is used. Note: if a journal entry is not needed, state
your reason.
Donation of air-time:

12-37
Although Buana Fide has the option of reporting or not reporting the donated air time, it is
best to report it for budget reasons. Furthermore, it can report the air time as the fair value can
be determined, the services would normally be used in the organization's operations, and
Buana Fide would have purchased these services had they not been donated.
Donation of Land and Machinery:
Land $50,000
Net assets–donated land $50,000
Machinery $4,000
Deferred Contributions–Capital Assets $4,000
Fundraising by volunteers:
No entry required.
Section 4410 also makes it clear that the fair value of the services of volunteers is normally
not recognized due to the difficulty in determining such values.

Blooms: Apply
Difficulty: Medium

12-38
53. Buana Fide is a local charity which received the following donations during 2020:
· A local radio station donated air time valued at $20,000. If the air time had not been
donated, Buana Fide would have purchased it and used it for advertising a fundraising event
and silent auction.
· An anonymous donor donated land with a fair value of $50,000 as well as machinery valued
at $4,000.
· During a recent fund-raising campaign, volunteers spent roughly 1,000 hours soliciting
donations from the public. The minimum hourly wage rate in Buana Fide's main area of
operation is $8.00 per hour.
Prepare the necessary journal entries to record these transactions assuming that the restricted
fund method of accounting for contributions is used and the organization has a general fund, a
capital fund and an endowment fund. Note: if a journal entry is not needed, state your reason.
Donation of air-time:
General Fund
Although Buana Fide has the option of reporting or not reporting the donated air time, it is
best to report it for budget reasons. Furthermore, it can report the air time as the fair value can
be determined, the services would normally be used in the organization's operations, and
Buana Fide would have purchased these services had they not been donated.
Donation of Land and Machinery:
Capital Fund
Land $50,000
Contributions–Donated Land $50,000
Machinery $4,000
Contributions–Donated Machinery $4,000
12-39
Fundraising by volunteers:
No entry required.
Section 4410 also makes it clear that the fair value of the services of volunteers is normally
not recognized due to the difficulty in determining such values.

Blooms: Apply
Difficulty: Medium

54. A capital asset (equipment) with a fair value of $1,500,000 and land with a fair value of
$2,000,000 is donated to a not-for-profit organization on January 1, 2020. The equipment has
a ten year useful life. The organization will use the equipment in its operations. The NFPO
has a December 31 year end.
Prepare the journal entries (including amortization) if the organization uses the:
a) the deferral method for contributions.

b) the restricted fund method with a capital fund.
a) If the deferral method is being used and the asset is subject to amortization, the journal
entry recording the donation of the equipment is:
Equipment $1,500,000
Deferred contributions–capital $1,500,000
assets
12-40
The following entries will be prepared each year to record the annual amortization and
recognition of the deferred contribution:
Amortization expense $150,000

Accumulated amortization $150,000
Deferred contributions–capital assets $150,000
Contribution revenue $150,000
No deferral of land as no expenses associated with it. Reflected in the statement of net assets
as follows:
Land $2,000,000
Net assets–donated land $2,000,000
b) If the restricted fund method is being used, the fair value of the donated capital asset is
recorded as revenue in the capital fund:
Capital Fund
Equipment $1,500,000
Contribution revenue–donated $1,500,000
equipment
Land $2,000,000
Contribution revenue–donated land $2,000,000
12-41
The following entry will be prepared each year to record the annual amortization in the capital
fund.
Amortization expense $150,000

Accumulated amortization $150,000

Blooms: Apply
Difficulty: Medium

55. Describe what fund accounting is and why is it used for not-for-profit organizations.
Fund accounting comprises the collective accounting procedures resulting in a self-balancing

set of accounts for each fund established by legal, contractual or voluntary actions of an
organization. Elements of a fund can include assets, liabilities, net assets, revenues and
expenses (and gains and losses where appropriate). Fund accounting involves an accounting
segregation, although not necessarily a physical segregation, of resources.
It has been used successfully to keep track of restricted resources and to convey information
through financial statements about the restrictions placed on an organization's resources.
Given that not-for-profit organizations often have a stewardship role over assets, fund
accounting has facilitated the reporting, implementation and execution of this stewardship
role.

Blooms: Understand
Difficulty: Medium

12-42
56. The Rift Valley Minor Hockey Association was established in the village of Rift Valley in
early 2019. It was established to promote hockey in the village and surrounding territory. With
the support of the provincial government, local business people and many individuals, the
association raised sufficient funds to build an indoor hockey arena and also established an
endowment fund to cover maintenance costs. The association is required by the provincial
government to prepare financial statements in accordance with generally accepted accounting
principles.
The board has decided that its year end will be June 30 and that capital assets will be
capitalized and amortized over their expected useful lives. They have decided not to use the
restricted fund method of accounting but will account for restricted donations using the
deferral method of accounting for contributions. The first set of financial statements will
cover the eighteen month period from the establishment of the association to June 30, 2020.
From the bank statements, you determine the following:
Cash receipts:
Government grant for operating purposes $60,000
Government grant for construction of the 400,000
arena
Corporate donations for the construction 520,000
of the arena
Minor hockey player registration fees 70,000
Endowment fund contributions 100,000
Ice rental and concession revenue 90,000
Interest income received 6,000 $1,246,000
Payments:
Cost of construction of arena $920,000
Operating expenses–minor hockey 90,000
program
Purchases of inventory for the concession 60,000
Other operating costs 50,000
Investment of endowment fund 100,000
contributions
Maintenance costs 3,000 1,223,000
Bank balance, June 30, 2020 $23,000
12-43
Additional information:
1. The new arena was completed and officially opened on Canada Day (July 1) of 2019. It has
an estimated forty year life with no residual value.
2. A long-term resident of Rift Valley donated the land upon which the arena was constructed.
The land was valued at $120,000 and the association issued a receipt in that amount. Another
resident donated ice-making and ice-cleaning equipment to the association. The equipment
has an estimated useful life of six years and no residual value and was estimated to have a
value of $66,000 when donated.
3. The endowment contribution was received at the opening celebration and was invested for
one year at 5% interest. The terms of the endowment were that the income earned from its
investment could be used only for maintenance costs for the arena. $3,000 of such costs were
incurred and paid for in May 2020. (The other $1,000 in interest income was earned on the
balances in the bank account.)
4. The government had agreed to provide funding of $10,000 per month for the eight months
of the minor hockey season (September 1 to April 30 each year). The amount was payable at
$7,500 per month during the season and the final $20,000 upon submission of the annual
financial statements to the government.
5. Registration fees for minor hockey players cover the season from September to April.
$10,000 of the fees received were payments in advance for the 2020-2021 season.
6. An inventory count was taken at the concession stand at the end of June 2020 and the
inventory on hand was valued at $6,000 (lower of cost or realizable value). The concession
stand sold snacks and drinks during minor hockey games and other events.
7. At June 30, 2020, unpaid invoices were $3,000 for concession purchases, $2,000 for
hockey clinics held and $1,000 for miscellaneous other costs.
Prepare a statement of operations for the Rift Valley Minor Hockey Association for the
eighteen month period ended June 30, 2020.
Rift Valley Minor Hockey Association

Statement of Operations
For the eighteen month period to June 30, 2020
12-44
Revenues:
Government grant for operations (8 × $10,000) $80,000
Hockey player registrations ($70,000 – $10,000) 60,000
Rental and concession revenue 90,000
Interest income 1,000
Deferred contributions recognized ($23,000 + $11,000 + $3,000) 37,000 $268,000
Expenses:
Operating expenses – minor hockey ($90,000 + $2,000) $92,000
Cost of sales – concessions ($60,000 + $3,000 – $6,000) 57,000
Other operating costs ($50,000 + $1,000) 51,000
Maintenance costs 3,000
Amortization of arena and equipment ($23,000 + $11,000) 34,000 237,000
Excess of revenues over expenses $31,000

Blooms: Apply
Difficulty: Hard

12-45
57. The Rift Valley Minor Hockey Association was established in the village of Rift Valley in
early 2019. It was established to promote hockey in the village and surrounding territory. With
the support of the provincial government, local business people and many individuals, the
association raised sufficient funds to build an indoor hockey arena and also established an
endowment fund to cover maintenance costs. The association is required by the provincial
government to prepare financial statements in accordance with generally accepted accounting
principles.
The board has decided that its year end will be June 30 and that capital assets will be
capitalized and amortized over their expected useful lives. They have decided not to use the
restricted fund method of accounting but will account for restricted donations using the
deferral method of accounting for contributions. The first set of financial statements will
cover the eighteen month period from the establishment of the association to June 30, 2020.
From the bank statements, you determine the following:
Cash receipts:
Government grant for operating purposes $60,000
Government grant for construction of the 400,000
arena
Corporate donations for the construction 520,000
of the arena
Minor hockey player registration fees 70,000
Endowment fund contributions 100,000
Ice rental and concession revenue 90,000
Interest income received 6,000 $1,246,000
Payments:
Cost of construction of arena $920,000
Operating expenses–minor hockey 90,000
program
Purchases of inventory for the concession 60,000
Other operating costs 50,000
Investment of endowment fund 100,000
contributions
Maintenance costs 3,000 1,223,000
Bank balance, June 30, 2020 $23,000
12-46
Additional information:
1. The new arena was completed and officially opened on Canada Day (July 1) of 2019. It has
an estimated forty year life with no residual value.
2. A long-term resident of Rift Valley donated the land upon which the arena was constructed.
The land was valued at $120,000 and the association issued a receipt in that amount. Another
resident donated ice-making and ice-cleaning equipment to the association. The equipment
has an estimated useful life of six years and no residual value and was estimated to have a
value of $66,000 when donated.
3. The endowment contribution was received at the opening celebration and was invested for
one year at 5% interest. The terms of the endowment were that the income earned from its
investment could be used only for maintenance costs for the arena. $3,000 of such costs were
incurred and paid for in May 2020. (The other $1,000 in interest income was earned on the
balances in the bank account.)
4. The government had agreed to provide funding of $10,000 per month for the eight months
of the minor hockey season (September 1 to April 30 each year). The amount was payable at
$7,500 per month during the season and the final $20,000 upon submission of the annual
financial statements to the government.
5. Registration fees for minor hockey players cover the season from September to April.
$10,000 of the fees received were payments in advance for the 2020-2021 season.
6. An inventory count was taken at the concession stand at the end of June 2020 and the
inventory on hand was valued at $6,000 (lower of cost or realizable value). The concession
stand sold snacks and drinks during minor hockey games and other events.
7. At June 30, 2020, unpaid invoices were $3,000 for concession purchases, $2,000 for
hockey clinics held and $1,000 for miscellaneous other costs.
Prepare a statement of financial position for the Rift Valley Minor Hockey Association as at
June 30, 2020.
Rift Valley Minor Hockey Association

Statement of Financial Position
as at June 30, 2020
12-47
Assets:
Cash ($1,246,000 – $1,223,000) $23,000
Grant receivable ($80,000 – $60,000) 20,000
Investments 100,000
Inventory 6,000
Capital assets:
Land $120,000
Arena 920,000
Ice-making equipment 66,000
Less: accumulated amortization (34,000) 1,072,000
Total Assets $1,221,000
Liabilities and Net Assets:
Accounts payable $6,000
Fees received in advance 10,000
Deferred contributions:
Arena 897,000
Ice-making equipment 55,000
Maintenance 2,000
970,000
Net assets:
Unrestricted $31,000
Restricted: donated land 120,000
Endowment 100,000 251,000
Total Liabilities and Net Assets $1,221,000

Blooms: Apply
Difficulty: Hard

12-48
58. On January 1, 2020, some residents of the community of Kiterup, B.C., formed the
Kiterup Winter Sports Association (KWSA) which was organized as a not-for-profit
organization which has as its purposes encouraging participation in outdoor winter sports. In
its first year, the board decided to restrict its activities to ice skating and skiing.
Initial funding was provided by a wealthy individual who made an endowment contribution of
$200,000 which was invested in bonds and generated income during the year of $8,000. The
donor placed no restrictions on the use of the income produced by the investment of the
endowment contribution which were to be divided evenly between all programs undertaken
by the Association.
During the year donations of $750,000 were received and a further $150,000 of pledges was
outstanding of which the board estimated $130,000 would be collected. It was agreed that
such donations, all of which were unrestricted, would be divided evenly between the skating
and skiing programs. As a practical matter, donations not yet received at year-end were
considered to be restricted for use in the following year. A special fund drive was undertaken
to raise money to provide skates to needy youngsters and skiing equipment to needy senior
citizens. During the year $25,000 was received in contributions for skates and $15,000 for
contributions towards purchasing skis.
During the year ended December 31, 2020, the organization incurred the following costs.
Ice Skating Skiing

Program Program
Wages and salaries $193,000 $81,000
Ice skates 8,000
Skiing equipment 9,000
Other equipment and supplies 58,000 75,000
Transportation 43,000 35,000
Rent 15,000 15,000
Other expenses 35,000 39,000
$352,000 $254,000
12-49
At December 31, 2020, the only outstanding payables were for $30,000 relating to the skiing
program (the costs are included in the table above). The ice skates and skiing equipment were
paid for out of the funds raised by the special fund drive and were expensed as acquired.
KWSA does not use fund accounting but uses the deferral method to account for restricted
donations and uses programmatic reporting to report the results of its activities.
Prepare journal entries to record the transactions of the Kiterup Winter Sports Association for
the year ended December 31, 2020. Closing entries are not required.
Cash $200,000
Net assets–endowment $200,000
Investment in bonds $200,000
Cash $200,000
Cash $8,000
Investment income $8,000
Cash $750,000
Contribution revenue–skating programs $375,000
Contribution revenue–skiing programs $375,000
Pledges receivable $150,000
Allowance for doubtful pledges $20,000
Deferred contributions–2021 programs $130,000
Cash $40,000
Deferred contributions–skates $25,000
Deferred contributions–skis $15,000
Program costs–skating program $352,000
Program costs–skiing program $254,000
Cash $576,000
Deferred contributions–skates $8,000
Deferred contributions–skiing $9,000
Contribution revenue–skating programs $8,000
Contribution revenue–skiing programs $9,000
12-50

Blooms: Apply
Difficulty: Hard

by the Association.
12-51
Ice Skating Skiing

Program Program
Ice skates 8,000
Rent 15,000 15,000
$352,000 $254,000
Prepare a statement of operations for the Kiterup Winter Sports Association for the year ended
December 31, 2020.
Kiterup Winter Sports Association

Statement of Operations
For the year ended December 31, 2020
Ice Skating Skiing Programs Total

Programs
Revenues:
Contributions $383,000 $384,000 $767,000
Interest income 4,000 4,000 8,000
387,000 $388,000 $775,000
Expenses: 352,000 254,000 606,000
Excess of revenues over $35,000 $134,000 $169,000
expenses
12-52

Blooms: Apply
Difficulty: Hard

by the Association.
12-53
Ice Skating Skiing

Program Program
Ice skates 8,000
Rent 15,000 15,000
$352,000 $254,000
Prepare a statement of financial position of the Kiterup Winter Sports Association as at

December 31, 2020. Statements for the individual programs are not required.
Kiterup Winter Sports Association

Statement of Financial Position
As at December 31, 2020
12-54
Assets:
Cash $222,000
Pledges receivable (net) 130,000
Investments 200,000
Total Assets $552,000
Liabilities and Net Assets:
Deferred contributions–2021 programs 130,000
Deferred contributions–skates 17,000
Deferred contributions–skiing equipment 6,000
183,000
Net assets:
Unrestricted $169,000
Endowment 200,000 369,000
Total Liabilities and Net Assets $552.000

Blooms: Apply
Difficulty: Hard

12-55

Accounting For Not-for-Profit and Public Sector Organizations

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Chapter 12 - Accounting for Not-for-Profit and Public Sector Organizations

Multiple Choice Questions

1. Which of the following statements is correct?

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2. Which of the following statements is correct?

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3. Which of the following statements is NOT correct?

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5. How may a not-for-profit organization account for a portfolio (i.e. non-strategic)

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8. When is the earliest a bequest can be recorded?

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11. Which of the following financial statements are NOT required by not-for-profit

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12. How would the not-for-profit organization report each controlled profit-oriented

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The equipment was purchased from a restricted fund contribution of $8,400.

$2,000 ´ 9/12 = $1,500

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The equipment was purchased from a restricted fund contribution of $8,400.

$2,000 ´ 9/12 = $1,500

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The equipment was purchased from an unrestricted contribution of $8,000.

In which fund would the purchase of the asset be recorded?

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The equipment was purchased from an unrestricted contribution of $8,000.

In which fund would the receipt of the unrestricted contribution be recorded?

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The equipment was purchased from an unrestricted contribution of $8,000.

$2,000 ´ 9/12 = $1,500

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The equipment was purchased from an unrestricted contribution of $8,000.

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22. Where should be endowment contributions presented in the financial statements of a not-

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24. Which of the following is NOT a type of contribution as identified by the Handbook?

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27. NFPOs receive different types of contributions. Which of the following is a contribution

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28. Which of the following is NOT among the choices available to a not-for-profit

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29. Which of the following is NOT a requirement for a not-for-profit organization to record

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