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Which of the following is not true about a merger of two not-for-profit entities?

A) The two entities will continue to legally exist but there will be a new governing board.

B) Neither entity is considered to be acquired.

C) Identifiable assets and liabilities are not adjusted to their fair values at the date of the merger.

D) The two entities will together form an entirely new entity with a new governing board.

E) There will be no acquisition value or goodwill determination.

Answer: A

Learning Objective: 18-06

Topic: Mergers and acquisitions of NFP entities

Difficulty: 2 Medium

Blooms: Understand

AACSB:  Reflective Thinking

AIPCA: BB Industry

AICPA: FN Measurement

[QUESTION]

35. Which entry would be the correct entry to record that a hospital has provided patient services for $200,000, of which 25% will be billed to a third party?

DEBIT                                                             CREDIT         

A) Accounts Receivable-Patients $200,000                 Patient Service Revenue $200,000

B) Accounts Receivable-Patients $150,000                 Patient Service Revenue $200,000

     Accounts Receivable-Third Party $50,000                                                                      

C) Accounts Receivable-Patients $50,000                   Accounts Receivable-Third Party $150,000

                                                                                    Patient Service Revenue $200,000

D) Accounts Receivable-Patients $200,000                 Patient Service Revenue $50,000

                                                                                    Accounts Receivable – Third Party $150,000

E) Patient Service Revenue $200,000                          Accounts Receivable-Patients $150,000

                                                                                    Accounts Receivable-Third Party $50,000 

Answer: B 

Learning Objective: 18-07

Topic: NFP entities―Health care

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Industry

AICPA: FN Measurement

Feedback: A/R Patients $150,000 + A/R Third Party Providers $50,000 = Patient Service Revenue Recognized $200,000

[QUESTION]

36. What is the appropriate account to debit when reducing net patient service revenue as a result of arrangements with third party payors?

A) Contractual Adjustments.

B) Allowance for uncollectible and reduced accounts.

C) Patient Service Revenues.

D) Account Receivable-Patients.

E) Accounts Receivable-Third Party.

Answer: A 

Learning Objective: 18-07

Topic: NFP entities―Health care

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Industry

AICPA: FN Measurement

 

[QUESTION]

37. What is the appropriate account to credit when estimating a portion of health care entity’s receivables that will prove to be uncollectible?

A) Bad Debt Expense.

B) Allowance for Uncollectible Accounts.

C) Patient Service Revenues.

D) Accounts Receivable.

E) Contractual Adjustments.

Answer: B 

Learning Objective: 18-07

Topic: NFP entities―Health care

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA: BB Industry

AICPA: FN Measurement  

[QUESTION]

38. Not-for-profit entities that are eligible to obtain tax-exempt status under Internal Revenue Code section 501(c)(4) are

A) Those promoting literacy.

B) Those promoting scientific research.

C) Chambers of Commerce.

D) Professional sports leagues.

E) Those functioning exclusively to promote social welfare.

Answer: E 

Learning Objective: 18-05

Topic: Tax-exempt status for NFP entities

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: BB Legal

[QUESTION]

39. Which of the following topics are not included in the Form 990 which tax-exempt entities file to maintain their tax-exempt status?

A) Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees and Independent Contractors.

B) Donor Disclosure: Identification of Every Donor by Name, Contribution Value & Contribution Type.

C) Statement of Revenue.

D) Balance Sheet.

E) Statement of Functional Expenses.

Answer: B 

Learning Objective: 18-05

Topic: Tax-exempt status for NFP entities

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: BB Legal

Essay:

[QUESTION]

40.  Give several examples, by name, of specific not-for-profit entities that are voluntary health and welfare entities.

Answer: Examples of specific not-for-profit entities that are voluntary health and welfare entities include:  (i) Save the Children; (ii) The United Way; (iii) The March of Dimes; (iv) The Boy Scouts of the United States of America; (v) The Girl Scouts of the United States of America; (vi) The YMCA of the USA; (vii) The YWCA of the USA; and (viii) The American Cancer Society. 

Learning Objective: 18-02

Topic: NFP entities―Voluntary health and welfare

Difficulty: 1 Easy

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: FN Measurement

[QUESTION]

41.  What are the objectives of accounting for a not-for-profit entity?

Answer: The objectives of accounting for a not-for-profit entity are: (i) to provide contributors and potential contributors with a means of evaluating the use of resources by the entity; and (ii) to disclose how resources have been acquired, and how they have been used to accomplish the objectives of the entity. 

Learning Objective: 18-01

Topic: Basics required for NFP financial statements

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: FN Measurement

  

[QUESTION]

42.  What term is often used  by voluntary health and welfare entities as a category for resources received from contributions, as opposed to those from providing goods or services?

Answer: The term used by voluntary health and welfare entities for contributions is public support. 

Learning Objective: 18-02

Topic: Distinguish NFP financial statements

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: FN Measurement

 

[QUESTION]

43.  What two classifications are used for the expenses incurred by voluntary health and welfare entities?

Answer: The two classifications of expenses incurred by voluntary health and welfare entities are: (i) program (program service) expenses; and (ii) support  (supporting service) expenses. 

Learning Objective: 18-02

Topic: Expense types―Program and Support

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: FN Measurement

[QUESTION]

44.  What is the main source of financial support for most voluntary health and welfare entities?

Answer: Contributions (public support) represents the main source of financial support for most voluntary health and welfare entities. These contributions can come from sources such as individuals, foundations, government grants, and allocations from the United Way.

Learning Objective: 18-02

Topic: NFP entities―Voluntary health and welfare

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: FN Measurement

 

[QUESTION]

45.  What criteria must be met before a not-for-profit entity can recognize contributed services as a means of support?

Answer: The criteria that must be met for a not-for-profit entity to recognize contributed services as a means of support are both of the following, if the work:

1. Creates or enhances a nonfinancial asset.

2.  Requires a specialized skill possessed by the contributor that would typically need to be purchased if not donated.

 Learning Objective: 18-04

Topic: Contributions―Contributed services

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: FN Measurement

[QUESTION]

46.  For a not-for-profit entity, what are supporting services expenses?

Answer: Supporting services expenses are the costs of running a not-for-profit entity that are not directly related to its program services, or may be related to program services but not viewed as an actual cost of providing that service.  Supporting services expenses are usually split into two subgroups:  (i) administrative costs (management and general expenses); and (ii) fund-raising expenses. 

Learning Objective: 18-02

Topic: Expense types―Program and Support

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: FN Measurement

[QUESTION]

47.  What financial statements would normally be prepared by a voluntary health and welfare entity?

Answer: A voluntary health and welfare entity would prepare the following financial statements:

(A) Statement of Financial Position

(B) Statement of Activities

(C) Statement of Cash Flows

(D) Statement of Functional Expenses 

Learning Objective: 18-02

Topic: Distinguish NFP financial statements

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: FN Measurement

[QUESTION]

48.  What are third party payors?  Why are their interests important in accounting for health care entities?

Answer: Third party payors are entities that guarantee payment for a patient’s services, and include insurance companies and Federal programs such as Medicare and Medicaid. 

Third-party payors pay health care entities for a high percentage of the services provided to patients in the United States and amounts and the amounts they pay are usually less than the health care entity’s full established rates for those services.  Thus, the large amount of payments from third-party payors for health care, as well as the large amounts of adjustments the health care entity must make for the amounts received that are less than the established rates makes disclosure of third-party payors important in the financial reporting of  health care entities. 

Learning Objective: 18-07

Topic: NFP entities―Health care

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: FN Measurement

[QUESTION]

49.  How does a not-for-profit entity account for: 1) cash contributions, and 2) donated goods that are received for operating purposes?  What types of revenues are recognized by voluntary health and welfare entities?

Answer: Contributions are recorded as increases in net assets and often reported as public support. Contributions arise from voluntary nonreciprocal transactions and are not revenues from providing goods or services, or from membership or sponsorship fees. They are recognized in the period the .  Donated materials are also accounted for as public support.  Revenues a voluntary health and welfare entity could recognize include: (i) membership dues; (ii) interest and dividends earned on investments; and (iii) gains on the sale of property and investments. 

Learning Objective: 18-04

Topic: Distinguish NFP revenues

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: FN Measurement

 

[QUESTION]

50.  For a not-for-profit entity, when is recognition of contributions of artworks and historical treasures not required?

Answer: GAAP for not-for-profit entities allows gifts of artworks and historical treasures to not be recorded if: (i) they are added to a collection for public exhibition, education, or research; (ii) they are protected and preserved; and (iii) if they are ever sold, any receipts will be used to acquire other collection items. 

Learning Objective: 18-04

Topic: Contributions―Art and Historical

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA: BB Industry

AICPA: FN Measurement

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