Homework Lance
Answer: In a merger, two or more not-for-profit entities combine to form a new not-for-profit entity and a new governing board is appointed. In an acquisition, one entity transfers consideration for value to obtain direct or indirect ability to determine the direction of management and policies of the other entity.
Learning Objective: 18-06
Topic: Mergers and acquisitions of NFP entities
Difficulty: 2 Medium
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
53. For May 2018, Carlington Hospital’s charges for patient services were $608,000, of which 80% was billed to third-party payors.
Required:
Prepare the journal entry to accrue patient charges for the month.
Answer:
Learning Objective: 18-07
Topic: NFP entities―Health care
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Use the following to answer questions 54 – 57:
REFERENCE: 18-02
For the month of December 2017, patient charges at Northfield Hospital (a not-for-profit hospital) were $2,720,000. Third-party payors were billed $1,800,000.
[QUESTION]
REFER TO: 18-02
54. Prepare the necessary journal entry to record the revenue and receivables.
Answer:
Accounts Receivable – Third-Party Payors
$1,800,000
Accounts Receivable – Patients
920,000
Patient Service Revenues
$2,720,000
Learning Objective: 18-07
Topic: NFP entities―Health care
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
REFER TO: 18-02
55. $520,000 of the $2,720,000 was expected to be uncollectible.
Required:
Prepare the necessary journal entry to record the anticipated uncollectible amount.
Answer:
Bad Debt Expense
$520,000
Allowance for Uncollectible Accounts
$520,000
Learning Objective: 18-07
Topic: NFP entities―Health care
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
REFER TO: 18-02
56. In this month, there were several patients that had no health insurance and due to their low income level, the hospital decided that $85,000 of receivables would not be collectible.
Required:
Prepare the necessary journal entry to reflect the decision to consider the $85,000 as charity care.
Answer:
Patient Service Revenues
$85,000
Accounts Receivable – Patients
$85,000
Learning Objective: 18-07
Topic: NFP entities―Health care
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
REFER TO: 18-02
57. The hospital estimated that contractual adjustments would reduce the amount collected from third-party payors to $1,710,000.
Required:
Prepare the necessary journal entry to record the contractual adjustments.
Answer:
Contractual Adjustments
$90,000
Allowance for Uncollectible Accounts
$90,000
Learning Objective: 18-07
Topic: NFP entities―Health care
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Use the following to answer questions 58 and 59:
REFERENCE: 18-03
Dura Foundation, a voluntary health and welfare entity dedicated to finding medical cures and supported by contributions from the general public, included the following costs in its Statement of Functional Expenses for the year ended December 31, 2018:
Fund-raising
$650,000
Administrative (including $90,000 for data processing)
390,000
Research
130,000
[QUESTION]
REFER TO: 18-03
58. What should Dura Foundation report as program service expenses?
Answer:
Program service expenses
Research: $130,000
Learning Objective: 18-02
Learning Objective: 18-03
Topic: Expense types―Program and Support
Topic: Statement of functional expenses
Difficulty: 2 Medium
Blooms: Analyze
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
REFER TO: 18-03
59. What should Dura Foundation report as supporting service expenses?
Answer:
Supporting service expenses
Fund raising
$ 650,000
Administrative
390,000
$1,040,000
Learning Objective: 18-02
Learning Objective: 18-03
Topic: Expense types―Program and Support
Topic: Statement of Functional Expenses
Difficulty: 2 Medium
Blooms: Analyze
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
60. During 2017, the Garfield Humane Society, a voluntary health and welfare entity, received cash donations of $892,000 and membership dues of $62,000. A member of the Humane Society donated services valued at $8,000 that would otherwise have been performed by a paid staff member. A pet food manufacturer donated dog food valued at $16,400. The Humane Society received a gift of $140,000, to be used in building a new animal shelter. Also during 2017, investments held by the Humane Society earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for contributions from public support for 2017.
Answer:
Garfield Humane Society
Schedule of Public Support
For the Year Ended December 31, 2017
Public support:
Unrestricted donations, cash
$ 892,000
Donated services
8,000
Donated materials
16,400
Gift for new animal shelter, restricted
140,000
$1,056,400
Learning Objective: 18-04
Topic: Distinguish NFP restriction categories
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
60. During 2017, the Garfield Humane Society, a voluntary health and welfare entity, received cash donations of $892,000 and membership dues of $62,000. A member of the Humane Society donated services valued at $8,000 that would otherwise have been performed by a paid staff member. A pet food manufacturer donated dog food valued at $16,400. The Humane Society received a gift of $140,000, to be used in building a new animal shelter. Also during 2017, investments held by the Humane Society earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for contributions from public support for 2017.
Answer:
Garfield Humane Society
Schedule of Public Support
For the Year Ended December 31, 2017
Public support:
Unrestricted donations, cash
$ 892,000
Donated services, unrestricted
8,000
Donated materials, unrestricted
16,400
Gift for new animal shelter, temporarily restricted
140,000
$1,056,400
Note: Interest earned on investments is not public support.
Learning Objective: 18-04
Topic: Distinguish NFP restriction categories
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
61. During 2018, the Garfield Humane Society, a voluntary health and welfare entity, received cash donations of $892,000 and membership dues of $62,000. A member of the Humane Society donated services valued at $8,000 that would otherwise have been performed by a paid staff member. A pet food manufacturer donated dog food valued at $16,400. The Humane Society received a gift of $140,000, to be used for building a new animal shelter. Also during 2018, investments held by the Humane Society earned interest of $2,000.
Required:
Prepare a schedule showing the amount that the Garfield Humane Society should have recorded for contributions from public support for 2018, according to ASU 2016-14.
Answer:
Garfield Humane Society
Schedule of Public Support
For the Year Ended December 31, 2017
Public support:
Cash donations, without restriction
$ 892,000
Donated services, without restriction
8,000
Donated materials, without restriction
16,400
Gift for new animal shelter, with restriction
140,000
$1,056,400
Note: Interest on investment is not public support.
Learning Objective: 18-04
Topic: Distinguish NFP restriction categories
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
62. The Yelton Center is a voluntary health and welfare entity. During 2017, unrestricted pledges of $780,000 were received by the Yelton Center, sixty percent of which were fulfilled in 2017. Officials estimated that fifteen percent of the original amount of pledges will be uncollectible. The remainder of the amount expected to be collected from pledges will be received in 2018 (for use in 2018).
Required:
1) Show with appropriate amounts how the Yelton Center would present the pledges on its Statement of Financial Position on the day the pledges are recorded in 2017.
2) Show with appropriate amounts the effect on net assets the Yelton Center would report for contributions for 2017.
Answer:
1) Contributions receivable
$780,000
Allowance for uncollectible pledges (15%)
( 117,000)
Net realizable value of pledges
$663,000
2) Increase in unrestricted net assets in 2017 – contributed support (60% x $780,000)
$458,000,
Increase in temporarily restricted net assets in 2017 – contributed support (Net amount expected to be collected of $663,000 less amount collected and released from restriction in 2017 of $458,000)
$205,000
Learning Objective: 18-04
Topic: Contributions―Pledges
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
63. A local social worker, earning $12 per hour working for the state government, contributed 600 hours of time at no charge to the Sunny Homeless Shelter, a voluntary health and welfare entity. If not for these donated services, an additional staff person would have been hired by the entity.
Required:
How should the Sunny Homeless Shelter record the contributed services?
Answer:
Donated services would be valued at $7,200 and recognized as an increase in Unrestricted Net Assets as contributed support. At the same time, a salary expense is also recognized for this same amount which serves as a decrease in Unrestricted Net Assets. Therefore, no overall impact would be created but the impact of the donation is reflected.
Learning Objective: 18-04
Topic: Contributions―Contributed services
Difficulty: 2 Medium
Blooms: Analyze
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
64. A not-for-profit entity receives a computer as a donation (valued at $2,000). Prepare the journal entry for the transaction.
Answer:
Furniture – Office
$2,000
Unrestricted Net Assets – Contributions
$2,000
Learning Objective: 18-02
Learning Objective: 18-04
Topic: Distinguish NFP financial statements
Topic: Distinguish NFP revenues
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Use the following to answer questions 65 and 66:
REFERENCE: 18-04
A not-for-profit entity (Charity A) raises money for other charitable entities. Charity A receives $10,000 to distribute to Charity B.
[QUESTION]
REFER TO: 18-04
65. Assume there are no donor rights to revoke or redirect the gift.
Prepare the journal entries for Charity A when the gift is received, and for Charity A and Charity B when the gift is distributed.
Answer:
Charity A, upon receipt:
Cash
$10,000
Liability to Charity B
$10,000
Charity A, when gift is distributed:
Liability to Charity B
10,000
Cash
10,000
Charity B
Cash
10,000
Contribution Revenue
10,000
Learning Objective: 18-04
Topic: Contributions―Holding for others
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
REFER TO: 18-04
66. Assume that the donor retains the right to revoke or redirect the gift.
Prepare the journal entries for Charity A and Charity B. The entries should be for the gift when received by Charity A, and when the gift is distributed for Charity B.
Answer:
Charity A, upon receipt:
Cash
$10,000
Refundable Advance from Donor
$10,000
Charity B, upon receipt by Charity A:
Contribution Receivable
10,000
Contribution Revenue
10,000
Charity A, when gift is distributed:
Refundable Advance from Donor
10,000
Cash
10,000
Charity B, when gift is received from Charity A:
Cash
10,000
Contribution Receivable
10,000
Learning Objective: 18-04
Topic: Contributions―Holding for others
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
67. A not-for-profit entity provides the following information for the year 2017:
Required: Prepare the journal entries for these transactions for the year 2017.
Answer:
Cash
20,000
Contributions Receivable
125,000
Allowance for Uncollectible Pledges
12,500
Unrestricted Net Assets – Contributions
112,500
Permanently Restricted Net Assets – Contributions
20,000
Cash
75,000
Allowance for Uncollectible Pledges
3,000
Contributions Receivable
78,000
Learning Objective: 18-04
Topic: Contributions―Pledges
Difficulty: 3 Hard
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
Use the following to answer questions 68 – 70:
REFERENCE: 18-05
Wakefield Home is a private not-for-profit health care entity offering services for a fee. In the first quarter of 2017, Wakefield Home rendered services of $300,000 to patients. Of this amount, patients bear responsibility for 75% and the remaining amount is to be paid by third-party insurance providers. However, at the end of 2017, Wakefield Home realizes that $25,000 of the patients’ responsibility to pay their share of the billed amounts is estimated to be uncollectible and $3,000 of the amounts from the third-party payors will not be collected.
[QUESTION]
REFER TO: 18-05
68. Record the journal entries that reflect all of this information.
Answer:
Accounts Receivable-Patients
$225,000
Accounts Receivable-Third Party
75,000
Patient Service Revenues
$300,000
Provision for Bad Debts
$25,000
Allowance for Uncollectible and Reduced Accounts
$25,000
Contractual Adjustments
$3,000
Allowance for Uncollectible and Reduced Accounts
$3,000
Learning Objective: 18-07
Topic: NFP entities―Health care
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
REFER TO: 18-05
69. A local business donated medical supplies to Wakefield Home with a value of $40,000.
Prepare the journal entry for the receipt of these supplies.
Answer:
Inventory of Medical Supplies
$40,000
Unrestricted Net Assets-Contribution of Materials
$40,000
Learning Objective: 18-04
Topic: NFP entities―Health care
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
REFER TO: 18-05
70. The Wakefield Home incurred the following liabilities that need to be recorded at the end of 2017: $110,000 salaries, $30,000 medical equipment, $10,000 utilities expense.
Prepare the journal entries for these transactions.
Answer:
Salaries Expense
$110,000
Salaries Payable
$110,000
Medical Equipment
30,000
Accounts Payable
30,000
Utilities Expense
10,000
Utilities Payable
10,000
Learning Objective: 18-07
Topic: NFP entities―Health care
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
[QUESTION]
71. Turnaround Childcare Agency is a private not-for-profit entity providing child care for a fee. The agency has a permanent endowment and the income may be used to sponsor families that are unable to pay for services but the principal must be preserved. In addition, various fundraising activities take place during the year.
When the agency held its annual holiday fundraiser in 2017, pledges of $50,000 were received. The administration expected 5% of the pledges to be uncollectible.
In addition, income of $10,000 was received from the permanent endowment to sponsor children to be placed with foster families.
Prepare the journal entries for these transactions.
Answer:
Contributions Receivable
$50,000
Unrestricted Net Assets-Contributions
$47,500
Allowance for Uncollectible Pledges
2,500
Cash
10,000
Unrestricted Net Assets-Contributions
10,000
Learning Objective: 18-02
Learning Objective: 18-04
Topic: Distinguish NFP restriction categories
Topic: Contributions―Pledges
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
AICPA: BB Industry
AICPA: FN Measurement
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