Multiple Choice

1.For not-for-profit entities, external financial reporting focuses on:

a.individual funds

b.fund groups

c.the organization as a whole

d.major funds

2.When a not-for-profit entity’s funds are classified as restricted, who has imposed the restrictions?

a.the entity’s board of trustees

b.donors

c.the bondholders

d.government regulators

3.Under which of the following circumstances would a not-for-profit organization’s net assets be classified as temporarily restricted?

a.donors impose stipulations on the use of resources that expire with the passage of time or that can be fulfilled by actions of the organization

b.donors stipulate that resources must be held intact in perpetuity, but that the income from the gift may be used for any purpose desired by the organization’s trustees

c.the entity’s board of directors requires that unrestricted resources be set aside for a specific purpose

d.the bank lending money to the organization requires a percentage of maximum debt service to be set aside in a sinking fund

4.In which classification of net assets are expenses reported?

a.only in unrestricted net assets

b.only in temporarily restricted net assets

c.either in unrestricted or temporarily restricted net assets

d.either in unrestricted, temporarily restricted, or permanently restricted net assets

5.The FASB requires not-for-profits to report net assets and resource inflows and outflows in which categories?

a.Current and noncurrent

b.Unrestricted, temporarily restricted, or permanently restricted depending on the existence and nature of donor restrictions

c.Unrestricted, temporarily restricted, or permanently restricted depending on the existence and nature of donor and creditor restrictions

d.Unrestricted, temporarily restricted, or permanently restricted depending on the existence and nature of creditor, donor, and supplier restrictions

6.A not-for-profit organization receives $3,400,000 of pledges in its annual telethon. When should the organization recognize contribution revenue?

a.when cash is received

b.when the pledges are received, provided they are in written form

c.when the pledges are received, less an appropriate allowance for uncollectible pledges

d.when the pledges are received, provided the entity classifies the pledges as unrestricted

7.A not-for-profit organization enters into an agreement with a local bank to provide it with a letter of credit for a building project. The bank requires the organization to put aside 10% of pledges collected for the building project in a separate account as a good faith deposit for the line of credit.  At year-end, the organization has $255,000 in this separate account.  How should the $255,000 of net assets be classified?

a.As unrestricted net assets because the restriction is from a creditor relationship

b.As temporarily restricted net assets until the money is used on the building project

c.As temporarily restricted net assets until the line of credit is repaid and the separate account closed.

d.As restricted net assets

8.Ken Labich promises to give a not-for-profit university $2 million for a new library, but only if the university is able to raise an equal amount in cash from other donors. When should the university recognize Ken’s promise as revenue?

a.when it receives Ken’s promise

b.when it receives Ken’s promise, provided it also fully discloses (in notes to the financial statements) the conditions set forth in Roger’s promise regarding other contributions

c.gradually; that is, each time it receives cash from another donor, the entity would recognize a portion of Ken’s promise as revenue

d.when the conditions imposed by Ken are substantially met; that is, when it receives approximately $2 million in cash from other donors

9.Ruth Richter gives a not-for-profit entity $25,000 in cash. She tells the entity that it may use the gift for particular research project but only after it receives at least $20,000 cash from other donors to help complete the project. If the entity fails to raise the additional $20,000, it must return Ruth’s gift. What account should the entity credit when it receives Ruth’s gift?

a.Unrestricted support – contributions

b.Temporarily restricted support – contributions

c.Refundable advance (deferred revenue)

d.Allowance for uncollectible contributions

10.The Turtle Island Singers receive three gifts during the year 2012: (a) $3,000, which may be used for any purpose at any time; (b) $5,000, which must be used for a special concert in a nursing home; and (c) $1,000, which may be used for any purpose, but only in the year 2013. When it receives the gifts, how should the entity classify them:

a.$3,000 as unrestricted revenue and $6,000 as temporarily restricted revenue

b.$4,000 as unrestricted revenue and $5,000 as temporarily restricted revenue

c.$8,000 as unrestricted revenue and $1,000 as temporarily restricted revenue

d.$9,000 as unrestricted revenue



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