CPA Financial Accounting and Reporting (FAR) : Statement of Activities
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #1 : Not For Profit Accounting
Healthy Families is a private, not-for-profit organization. In Year 2, Healthy Families receives a check for $30,000 to be used to help low-income families in the area access medical care. In Year 3, the money is paid to a local doctor who provided medical care for several families that could not afford the treatment themselves. What will Health Families report in unrestricted net assets in Year 3?
Both an increase and decrease of $30,000
An increase of $30,000
Nothing
A decrease of $30,000
Both an increase and decrease of $30,000
The receipt of the check will increase unrestricted net assets by $30K and the payment to the doctor would use and therefore decrease unrestricted net assets.
Example Question #2 : Not For Profit Accounting
A private, not-profit organization receives a cash gift of $2 million in Year 1. The donor of the funds specified that the money should be invested, with all earnings on the investment being used to pay the salaries of a team of social workers. In the first year, $100,000 was earned on the investment but it was not spent as specified until Year 2. How will this be reported in the statement of activities and changes in net assets in Year 2?
A reclassification is due to increase revenue by $100,000 and decrease restricted net assets by $100,000; an expense is also reported under restricted net assets for the same amount
A revenue reduction for $100,000 is reported under restricted net assets
A reclassification is done to decrease restricted net assets by $100,000 and increase unrestricted net assets by $100,000; an expense is also reported under restricted net assets for the same amount
An expense for $100,000 is reported under unrestricted net assets
A reclassification is done to decrease restricted net assets by $100,000 and increase unrestricted net assets by $100,000; an expense is also reported under restricted net assets for the same amount
When the $100K is earned, it is originally recorded as a restricted asset because it is restricted in its use. In Year 2, when the organization is ready to spend the earnings for their intended purposes, it reclasses the $100K to unrestricted assets before using the funds. The organization will record salaries expense for the social workers as well.
Example Question #3 : Not For Profit Accounting
A private, not-for-profit university receives a donation of a building in the beginning of Year 1 with a fair value of $1 million. The university plans to use the building as an office for student organizations, although the donor has not placed any restrictions on its use. The university's policy is to depreciate buildings via the straight line method over a 40 year life with no anticipated residual value. The university does not have a policy to place an assumed time restriction on these donations. Which of the following is true about this gift in Year 1?
There is no increase in the amount of net assets reported by the school
There will be a $1,000,000 increase in the amount of unrestricted net assets reported by the school
There will be a $25,000 increase in the amount of unrestricted net assets reported by the school
There will be a $1,000,000 increase in the amount of restricted net assets reported by the school
There will be a $1,000,000 increase in the amount of unrestricted net assets reported by the school
This asset is reported as an unrestricted net asset at its fair value because no restriction has been placed by the donor.
Example Question #4 : Not For Profit Accounting
A statement of financial position for a nongovernmental non for profit organization reports amounts for which of the following classes of net assets?
With donor restrictions
Long term
Conditionally restricted
Current
With donor restrictions
In the statement of financial position for a non for profit organization, net assets are classified as with or without donor restrictions.
Example Question #1 : Statement Of Activities
The ABC museum, a not for profit organization, received a contribution of historical artifacts. It need not recognize the contribution if the artifacts are to be sold and the proceeds used to:
Acquire other items for collections
Purchase buildings to house collections
Repair existing collections
Support general museum activities
Acquire other items for collections
An entity need not recognize contributions of works of art if the donated items are added to collections that are held for public exhibit, are protected, and are subject to organizational policies that require the proceeds of sale to be used to acquire other items for the collection.
Example Question #2 : Statement Of Activities
Of the following, which would be listed on a non for profit entity's balance sheet?
Net assets
All income items
All assets and liabilities
A non governmental non for profit entity does not have a balance sheet
A non governmental non for profit entity does not have a balance sheet
This is a trick question as the financial statements for non for profit entities and governmental entities are different from standard US GAAP corporate financial statements.
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