21 Fischer10e SM Ch18 Final

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CHAPTER 18
UNDERSTANDING THE ISSUES
1. Separating the accounting for current activities from the sale of goods or services, and realized
into restricted and unrestricted funds allows for and unrealized earnings from investments.
detailed reporting of resources and spending.
4. A contribution is a nonreciprocal transaction
This is often done to satisfy donors and/or
where one part gives something of value and
grantors who require detailed reporting of in-
does not expect something in return. An agen-
flows and outflows. In addition, the information
cy transaction is where one party gives some-
generated assists in the overall financial report-
thing of value to an intermediary organization
ing that requires net assets to be shown as re-
(e.g., a foundation) that receives this gift on be-
stricted, temporarily restricted, and permanently
half of another organization. In the first exam-
restricted.
ple, public support is recorded at the fair value
2. Users of not-for-profit financial information are of the contribution. In the second example, a
interested in the fair value of investments re- liability to the ultimate recipient is recorded.
gardless of their trading status. Not-for-profits,
5. A VHWO must include a statement of functional
particularly foundations and pension plans,
expense as part of its financial statements in
have large portfolios. Up-to-date information on
order to detail the total expenses in each pro-
the status of investments in these portfolios is
gram and supporting services reported on the
necessary for donors, governments, and other
statement of activities. This allows users of the
grantors in their funding decisions. Thus, FASB
financial statements, including donors, potential
Statement No. 124 does not differentiate
donors, grantors, lenders, and governments, to
among investment categories.
better evaluate spending and identify detailed
3. Public support captures all forms of donations expense patterns by program.
to a not-for-profit organization, including direct
6. (Appendix) A VHWO may wish to present its
contributions of all types (cash, assets, servic-
financial information on a fund basis rather than
es, reduced liabilities, free rent, reduced rates,
simply on an organization-wide basis if this de-
etc.), net proceeds from fund-raising events,
tailed presentation was requested or helpful to
gifts from legacies and bequests, and indirect
the users. Since historically this information
giving from umbrella charitable campaigns,
was presented in funds-based statements,
e.g., United Way. Revenue captures amounts
keeping some notion of funds in the reporting
earned from exchange transactionswhere
may be useful to board members, lenders, and
both parties gain and something of value is giv-
other oversight bodies. Many VHWOs still use
en or returned. Examples of revenue are dues
funds-based financial systems that can easily
and subscriptions, membership fees, proceeds
generate this detailed information.
749
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Ch. 18Exercises
EXERCISES
EXERCISE 18-1
Note to Instructor: You might wish to have students look for information on not-for-profit organizations in
your community and compare what links, if any, are found to state or national organizations (both foun-
dations and not-for-profit centers or portals).
EXERCISE 18-2
(1) C There is a permanent restriction on this donation.
(2) B Income from a permanent endowment is classified as temporarily restricted or permanently re-
stricted, depending on the donor stipulation.
(3) A If there is no law regarding recognition of unrealized gains/losses, an organization may recog-
nize them as unrestricted if they occur in the same period as the restrictions are met, consis-
tent with the organizations policy of recognizing all contributions as unrestricted if donated in
the same period restrictions are met.
(4) B Investment income from donor-restricted permanent endowments is recognized as temporarily

restricted if the donor restricts the income as to use or specific time period.
(5) B The gain is not permanently restricted unless there is a donor stipulation or legal requirement.
The income is temporarily restricted because it is to be expended in a future period.
EXERCISE 18-3
(1) The measurement focus of state and local governments government-type activities is flows of fi-
nancial resources, whereas the measurement focus of voluntary health and welfare organizations
(VHWOs) is flows of economic resources. Some financial activities of a government, such as those
of operating a utility, may be better reported (i.e., the financial information may be more useful) us-
ing a flow of economic resources measurement focus given their similarity to business enterprises
where goods and services are provided for fees. For these operations, governments use the ac-
crual basis of accounting. The financial activities of a VHWO, on the other hand, are more similar to
government-type activities where the relationship between revenues and costs of goods and ser-
vices provided is vague. Were VHWOs under the jurisdiction of the GASB, they would be included
under the standard guiding them to use the flows of financial resources measurement focus and to
report revenues and expenditures on an accrual basis. Financial reporting standards for VHWOs,
however, under the auspices of the FASB, require VHWOs to use the flows of economic measure-
ment focus and accrual basis of accounting.
750
Ch. 18Exercises
Exercise 18-3, Concluded
(2) State and local governments present revenues and expenditures for the governmental funds sepa-
rate from the proprietary funds. In addition, government-wide financial statements are prepared.
VHWOs are not required to report their activities by funds. Financial reporting for organization-wide
activities of both governments and VHWOs includes a statement of activities and a statement of net
assets (called the statement of financial position for VHWOs).
(3) Depreciation expense is reported in the statement of activities of a government. Accumulated de-
preciation is reported in the statement of net assets. VHWOs report depreciation expense in the
statement of activities and accumulated depreciation in the statement of financial position.
(4) A voluntary health and welfare organization may use a separate fund to account for fixed assets
called the Plant Fund or Land, Building, and Equipment Fund.
If capital assets are purchased by the Plant Fund, the usual entry is made as follows:
Land, Building, and Equipment ................................................. xxx
Cash or Some Payable ....................................................... xxx
The purpose of a voluntary health and welfare organization is to provide a service to the com-
munity. Because there are usually numerous voluntary health and welfare organizations competing
for donations, it is only proper that donors be able to evaluate the cost of the services provided in
an effort to see which organizations use donations most efficiently. The use of fixed assets in an
organization represents a cost of providing a service, and so it is appropriate for a voluntary health
and welfare organization to show depreciation as a cost of providing its service to the community.
The Land, Building, and Equipment Fund records any gain or loss on the sale of fixed assets
as revenue of the fund. If the proceeds of the sale are not legally required to be reinvested in fixed
assets, the funds should be transferred to the unrestricted fund by entries reflected as direct addi-
tions and reductions to the respective fund balances.
Governmental units, on the other hand, do not create a separate fund for fixed assets. If fixed
assets are acquired for use in a trust, an enterprise, or an internal service fund, these assets are
included within the fund and depreciated in a similar manner and for the same purpose as in a
commercial enterprise.
If fixed assets are acquired for use by a fund other than the above funds within a governmental
unit, the assets are recorded in the general fixed assets account group (not a fund). The general
fixed assets account group is a memorandum record of fixed assets maintained for stewardship
purposes only.
In governmental accounting, except in the three types of funds mentioned earlier, the cost of a
fixed asset is matched against revenues in the period of acquisition. This is done to reflect the out-
flow of funds (stewardship concept) within a given period. Because the cost of the fixed asset is
matched with revenues in this manner, depreciation is not necessary.
751
Ch. 18Exercises
EXERCISE 18-4
(1) d Donated works of art, historical treasures, or similar objects that are not held for public inspec-
tions, education, or research, are not protected and preserved, and are not subject to the pro-
vision that all proceeds from their sale be used to acquire other items for the collection must be
capitalized.
(2) b All contributions are valued at fair value.
(3) b Contributed services must be provided by persons possessing specialized skills that would
need to be purchased if not donated. There is no licensing requirement.
(4) b If a donor receives something of value in exchange, then the transaction is not a contribution.
(5) b Rather than requiring restricted contributions to first be classified as restricted and then re-
leased as the restrictions are met, this exception is allowed if both happen in the same report-
ing period.
EXERCISE 18-5
Supporting schedule
Drug Alcohol Weight Fund General and Total
Rehabilitation Recovery Control Raising Administrative Amount
Secretarial salary ....................... $ 0 $ 0 $ 0 $ 0 $ 5,000 $ 5,000
Office supplies ........................... 1,200 600 600 600 3,000
6,000
Printing ....................................... 800 800 1,600 4,000 800
8,000
Depreciation............................... 800 800 800 0 1,600
4,000
Instruction .................................. 2,700 2,250 3,150 900 0 9,000
Rent ........................................... 3,000 2,000 3,000 0 2,000 10,000
Total .................................... $8,500 $6,450 $9,150 $5,500 $12,400 $42,000
752
Ch. 18Exercises
Better Life Clinic

Statement of Activities
For Year Ended December 31, 20X9
Temporarily Total All
Unrestricted Restricted Funds
Public support and revenue:
Public support ............................................................. $ 35,000 $ 35,000
Revenue...................................................................... 12,000 12,000
Net assets released from restriction:
Satisfaction of equipment acquisition restrictions ....... 4,000 $ (4,000)
0
Total public support and revenues .................................... $ 51,000 $ (4,000) $
47,000
Expenses:
Program services:
Drug rehabilitation ................................................. $ 8,500 $ 8,500
Alcohol recovery.................................................... 6,450 6,450
Weight control ....................................................... 9,150 9,150
Total program services ............................................... $ 24,100 $ 24,100
Supporting services:
General and administrative ................................... $ 12,400 $ 12,400
Fund raising .......................................................... 5,500 5,500
Total supporting services ............................................ $ 17,900 $ 17,900
Total expenses ................................................................. $ 42,000 $ 42,000
Change in net assets ........................................................ $ 9,000 $ (4,000) $
5,000
Net assets, January 1, 20X9 ............................................. 12,000 30,000 42,000
Net assets, December 31, 20X9 ....................................... $ 21,000 $ 26,000 $ 47,000
EXERCISE 18-6
(1) Cash ............................................................................................... 9,000

RevenueDues ....................................................................... 9,000
To record receipt of membership dues.
(2) Cash ............................................................................................... 22,000

Pledges Receivable ........................................................................ 32,000
ContributionsUnrestricted ..................................................... 54,000
To record cash and pledges received.
(3) Provision for Uncollectible Pledges ................................................ 3,200

Allowance for Uncollectible Pledges ......................................... 3,200
To provide for uncollectible pledges.
753
Ch. 18Exercises
(4) Cash ............................................................................................... 12,000

Special Events Support ............................................................ 12,000
To record gross revenues from the fund-raising dinner.
Cost of Special Events ................................................................... 6,500
Cash ......................................................................................... 6,500
To record payment of costs [($15 420) + $200].
(5) Car for Resale ................................................................................ 75,000

ContributionsTemporarily Restricted ..................................... 75,000
To record the receipt of a classic car to be auctioned
next period.
(6) Cash ($70,000 $20,000) .............................................................. 50,000

Fund-Raising Expense ................................................................... 20,000
To record result of professional fund-raising group.
Provision for Uncollectible Pledges ................................................ 1,500
Allowance for Uncollectible Pledges ......................................... 1,500
To record estimated uncollectibles at 5% of gross of
$30,000.
EXERCISE 18-7
(1) Cash ............................................................................................... 20,000

To record contribution to be used when building addition
is completed.
(2) Cash ............................................................................................... 10,000

Accumulated Depreciation.............................................................. 9,000
Land, Building, and Equipment ................................................. 17,000
Gain on Sale of Plant AssetsUnrestricted ............................. 2,000
To record sale of equipment.
(3) Depreciation Expense .................................................................... 9,000

Accumulated Depreciation ........................................................ 9,000
To record depreciation expense.
754
Ch. 18Exercises
(4) Land, Building, and Equipment....................................................... 18,000

Accounts Payable (or Vouchers Payable) ................................ 18,000
To record purchase of equipment, terms n/30.
Reclassification OutTemporarily Restricted
Satisfaction of Equipment Acquisition ...................................... 18,000
Reclassification InUnrestrictedSatisfaction
of Equipment Acquisition ................................................ 18,000
(5) Accounts Payable (or Vouchers Payable) ...................................... 18,000

Cash ......................................................................................... 18,000
To record payment.
EXERCISE 18-8
(1) Cash ............................................................................................... 200,000

Legacies and BequestsPermanently Restricted ................... 200,000
To record legacy received.
Endowment Investments ................................................................ 200,000
Cash ......................................................................................... 200,000
To record investment in 8% bonds.
(2) Cash ............................................................................................... 103,500

Investments .............................................................................. 100,000
Gain on Sale of EndowmentsUnrestricted ............................ 1,000
Investment RevenueTemporarily Restricted ......................... 2,500
To record sale of $50,000 of bonds plus $2,500 interest.
(3) Cash ............................................................................................... 6,000

To record temporarily restricted earnings on endowments.
(4) Increase in Carrying Value ............................................................. 3,500

Unrealized Gain in InvestmentsUnrestricted ......................... 3,500
755
Ch. 18Problems
PROBLEMS
PROBLEM 18-1
(1) d Fund raising and administrative and general expenses are classified as supporting services.
(2) c Amounts received (or promised) and restricted for future periods are recorded as public sup-
porttemporarily restricted. $680,000 federated campaign + $90,000 current year pledges not
received = $770,000 (unrestricted).
(3) a Amounts not available to spend until 20X9 are classified as temporarily restricted. $30,000
cash designated for operations + $25,000 pledges for next year = $55,000 (temporarily re-
stricted).
(4) c The asset would be recorded at fair value, which would become the basis for depreciation
computation.
(5) a Contributions are $500,000 shown in the statement of activities as follows:

Public support:
Contributionsunrestricted ................................... $500,000
The $60,000 provision for uncollectible pledges is considered an expense.
(6) c Printing an annual report is an administrative function.
PROBLEM 18-2
(1) b To be recognized as donated services, the service must be of a skilled nature and purchased
by the organization if not provided by volunteers. Since the volunteers were doing the work of a
previously-paid secretary, that salary ($10,000) is included along with the $150,000 salaries
paid.
(2) b Management and general expenses are part of supporting services.
(3) a Depreciation expense is included as an element of expense shown in the statement and is al-
located to program and support services.
(4) b The cost should be allocated between the two activities. If no bona fide program exists, all
costs are reported as fund raising.
(5) c Both unrestricted and restricted contributions are recognized in the period made. ($200,000 +
$150,000) x 90% = $315,000.
756
Ch. 18Problems
PROBLEM 18-3
(1) e Both are recorded as a contribution increasing public support in the period received. The en-
dowment is classified as permanently restricted. The donation for the child care center is tem-
porarily restricted until spent on the donor-specified purpose.
(2) b The contributions have not yet been expended. They are part of resources and temporarily re-
stricted for acquisition of fixed assets. Restrictions are released either (1) when fixed assets
are acquired or (2) over the useful life of the asset to match depreciation.
(3) a The entry given is the typical journal entry to record board-designated intentions for future ac-
tions. Because the entry debits Unrestricted Net AssetsUndesignated, the unrestricted net
asset class has been internally designated, not externally donor-restricted.
(4) d Not-for-profit organizations may choose to record unrealized gains/losses on marketable secur-
ities in a separate account, Net Increases (or Decreases) in Carrying Value of Investments.
(5) d When investments are carried at fair value, changes in total fair value are recorded periodically
in Net Decrease (Increase) in Carrying Value of Investments, which is shown in the revenue
section of the statement of activities. These (losses) gains may be unrestricted, temporarily re-
stricted, or permanently restricted.
PROBLEM 18-4
(1) Event
(a) Accounts Receivable............................................................... 2,200,000
Patient Service Revenue ................................................... 2,200,000
Provision for Uncollectible Accounts Receivable .................... 92,000
Allowance for Uncollectibles and Contractual
Adjustments................................................................. 92,000
Contractual Adjustments ......................................................... 120,000
Allowance for Uncollectibles and Contractual
Adjustments................................................................. 120,000
(b) Allowance for Uncollectibles and Contractual Adjustments .... 60,000

Accounts Receivable ......................................................... 60,000
(c) Investments ............................................................................. 75,000

ContributionsTemporarily Restricted ............................. 75,000
(d) Furniture .................................................................................. 45,000

Cash .................................................................................. 45,000
757
Ch. 18Problems
Problem 18-4, Continued
(e) Assets Whose Use Is LimitedCash ..................................... 50,000

Cash .................................................................................. 50,000
Note: No outside restriction exists. An additional entry
to designate the unrestricted net assets may
also be recorded:
Unrestricted Net Assets .......................................................... 50,000
Unrestricted Net AssetsDesignated ............................... 50,000
(f) Cash ........................................................................................ 20,000

Pledges Receivable ................................................................ 60,000
Nonoperating RevenueUnrestricted Contributions ........ 80,000
Provision for Uncollectible Pledges ......................................... 6,000
Allowance for Uncollectible Pledges ................................. 6,000
Expiration of Time Restrictions.......................................... 10,000
Reclassification InUnrestrictedExpiration
of Time Restrictions ................................................ 10,000
(g) Plant and Equipment ............................................................... 250,000

Accounts Payable.............................................................. 250,000
(h) Nursing Services Expenses .................................................... 1,120,000

Dietary Services Expenses ..................................................... 230,000
Maintenance Services Expenses ............................................ 115,000
Administrative Services Expenses .......................................... 285,000
Interest Expense ..................................................................... 160,000
Depreciation Expense ............................................................. 60,000
Cash .................................................................................. 1,657,000
Accounts Payable (or Accrued Expenses) ........................ 253,000
Allowance for Depreciation................................................ 60,000
Satisfaction of Equipment Acquisition
Restrictions ....................................................................... 20,000
of Equipment Acquisition Restrictions ..................... 20,000
758
Ch. 18Problems
Problem 18-4, Concluded
(2) Fall Nursing Home, Inc.

Temporarily Permanently
Unrestricted Restricted Restricted Total
Patient service revenue (net of $120,000 contractual
adjustments) .......................................................... $2,020,000
$2,020,000
Net assets released from restrictions:
Satisfaction of equipment acquisition restrictions
(depreciation) .................................................... 20,000 $(20,000)
0
Expiration of time restrictions
(term endowment expired) ................................ 10,000 (10,000)
0
Total revenue and other support ........................... $2,050,000 $(30,000)
$2,020,000
Operating expenses:
Nursing services .................................................... $1,120,000
$1,120,000
Dietary services ..................................................... 230,000 230,000
Maintenance services ............................................ 115,000 115,000
Administrative services .......................................... 285,000 285,000
Interest expense .................................................... 160,000 160,000
Depreciation ........................................................... 60,000 60,000
Provision for uncollectible patient accounts........... 92,000 92,000
Provision for uncollectible pledges ........................ 6,000 6,000
Total operating expenses ................................. $2,068,000 $ 0 $ 0
$2,068,000
Loss from operations .................................................. $ (18,000) $ (30,000)
$ (48,000)
Contributions............................................................... 80,000 75,000 $ 0 155,000
Change in net assets .................................................. $ 62,000 $ 45,000 $ 0 $ 107,000
759
Ch. 18Problems
PROBLEM 18-5
(1) Land, Building, and Equipment ...................................................... 200,000

Cash ......................................................................................... 40,000
Mortgage Payable .................................................................... 160,000
To record purchase of land and building.
Accounts Payable ..................................................................... 9,000
To record purchase of office furniture on open
account.
To record donation of partitions and increase in
temporarily restricted net assets.
(4) Mortgage Payable ......................................................................... 10,000
Interest Expense (14% $160,000) ............................................... 22,400
Cash ......................................................................................... 32,400
To record payment of mortgage interest and
payment on principal.
(5) Cash ............................................................................................... 1,800
Accumulated Depreciation.............................................................. 2,000
Miscellaneous Revenue (or Gain on Sale of
Plant Assets)Unrestricted................................................ 800
To record sale of office equipment.
(6) Accumulated Depreciation.............................................................. 7,000
To remove fully depreciated asset.
To record annual depreciation.
Reclassification OutTemporarily Restricted Satisfaction
of Equipment Acquisition Restrictions ...................................... 20,000
Reclassification InUnrestricted Satisfaction
of Equipment Acquisition Restrictions........................... 20,000
To record expiration of restriction to match
depreciation expenses over life of asset.
Cash ......................................................................................... 75,000
To record theater installation. Reclassification of
temporarily restricted net assets will occur over
life of asset.
(9) Accounts Payable ........................................................................... 9,000
Cash ......................................................................................... 9,000
To record payment.
760
Ch. 18Problems
PROBLEM 18-6
(1) Pledges Receivable ........................................................................ 800,000

Cash ............................................................................................... 95,000
Assets Restricted to Long-Term Investment .................................. 1,000
ContributionsPermanently Restricted ................................... 1,000
(2) Cash ............................................................................................... 470,000

Pledges Receivable .................................................................. 470,000
(3) Cash ............................................................................................... 35,000

Special Events SupportUnrestricted ..................................... 12,000
Legacies and BequestsUnrestricted ..................................... 10,000
Membership DuesUnrestricted ............................................. 8,000
Investment RevenueUnrestricted .......................................... 5,000
(4) Medical Services Program ............................................................. 60,000

Community Information Services Program ..................................... 15,000
Vouchers Payable .................................................................... 75,000
(5) Management and General Services ............................................... 150,000

Fund-Raising Services ................................................................... 200,000
Vouchers Payable .................................................................... 350,000
(6) Buildings and Equipment ................................................................ 18,000

Cash ......................................................................................... 18,000
Reclassification OutTemporarily RestrictedSatisfaction
of Equipment Acquisition in Restrictions .................................. 18,000
Reclassification InUnrestrictedSatisfaction of
Equipment Acquisition Restrictions............................... 18,000

Medical Services Program.............................................................. 4,000
Community Information Services Program ..................................... 3,000
Management and General Services ............................................... 6,000
Depreciation Expense .............................................................. 15,000
(8) Vouchers Payable .......................................................................... 330,000

Cash ......................................................................................... 330,000
761
Ch. 18Problems
PROBLEM 18-7
(1) Event Journal Entry Debit Credit

(a) Cash ........................................................................................ 20,000
RevenueAnnual Dues .................................................... 20,000
(b) Cash ........................................................................................ 31,000

RevenueSnack Bar and Soda Fountain ........................ 31,000
(c) Cash ........................................................................................ 6,000

Investment RevenueUnrestricted .................................. 6,000
(d) ExpenseHouse .................................................................... 17,000

ExpenseSnack Bar and Soda Fountain............................... 26,000
ExpenseGeneral and Administrative ................................... 11,000
Accounts Payable.............................................................. 54,000
(e) Accounts Payable ................................................................... 55,000

Cash .................................................................................. 55,000
(f) Assessments Receivable ........................................................ 10,000

Public SupportContributionsTemporarily Restricted .. 10,000
(g) Cash ........................................................................................ 5,000

Public SupportUnrestricted Bequests ............................ 5,000
(h) Investments ............................................................................. 7,000

Unrealized Gain on InvestmentsUnrestricted ................ 7,000
(i) Depreciation ExpenseHouse ............................................... 9,000

Depreciation ExpenseSnack Bar and Soda
Fountain ............................................................................ 2,000
Depreciation ExpenseGeneral and Administrative .............. 1,000
Accumulated DepreciationBuilding ................................ 4,000
Accumulated DepreciationFurniture
and Equipment .............................................................. 8,000
(j) ExpenseSnack Bar and Soda Fountain ............................... 4,000

Inventories ......................................................................... 4,000
(k) Cash ........................................................................................ 25,000

ContributionsTemporarily Restricted ............................. 25,000
(l) Pledges Receivable ................................................................ 100,000

Public SupportContributionsPermanently Restricted . 100,000
762
Ch. 18Problems
(2) Mayfair Sports Club

For Year Ended March 31, 20X9
Public support:
Contributions .............................................. $35,000 $100,000 $135,000
Unrestricted bequests ................................ $ 5,000 5,000
Total public support ............................... $ 5,000 $35,000 $100,000 $140,000
Revenue:
Annual dues ............................................... $ 20,000 $ 20,000
Snack bar and soda fountain sales............ 31,000 31,000
Investment revenue ................................... 6,000 6,000
Unrealized gain on investments ................. 7,000 7,000
Total revenue ........................................ $ 64,000 $ 0 $ 0 $ 64,000
Total public support and revenue ........................ $ 69,000 $35,000 $100,000 $204,000
Expenses:
Snack bar and soda fountain .......................... $ 32,000 $ 32,000
House.............................................................. 26,000 26,000
General and administrative ............................. 12,000 12,000
Total expenses........................................... $ 70,000 $ 0 $ 0 $ 70,000
Change in net assets ........................................... $ (1,000) $35,000 $100,000 $134,000
Net assets, April 1, 20X8 ..................................... 12,000 52,000 400,000 464,000
Net assets, March 31, 20X9 ................................ $ 11,000 $87,000 $500,000 $598,000
PROBLEM 18-8
(1) Total of allocable operating expenses financed by donor-restricted contributions:

Salaries and payroll taxes .................................................................... $ 23,000
Telephone and miscellaneous .............................................................. 2,000
Nursing and medical fees ..................................................................... 50,000
Educational seminars ........................................................................... 20,000
Research .............................................................................................. 16,000
Medical supplies ................................................................................... 22,000
Rent ...................................................................................................... 10,000
Total ................................................................................................ $143,000
Allocation of total operating expenses:

60% to Alcohol and Drug Abuse Program ........................................... $ 85,800
40% to Outreach to Teens Program .................................................... 57,200
Total allocated to programs ............................................................ $143,000
763
Ch. 18Problems
Problem 18-8, Continued
Journal entry:
Alcohol and Drug Abuse Program ............................................ 85,800
Outreach to Teens Program ..................................................... 57,200
Salaries and Payroll Taxes ................................................. 23,000
Telephone and Miscellaneous Expenses ........................... 2,000
Nursing and Medical Fees .................................................. 50,000
Educational Seminars Expense .......................................... 20,000
Research Expense ............................................................. 16,000
Medical Supplies Expense.................................................. 22,000
Rent Expense ..................................................................... 10,000
To assign allocable operating expenses to
programs and to close expense accounts.
(2) Caring Clinic

Allocation of Expenses Financed by Unrestricted Resources
Programs Supporting Services
Total Alcohol and Outreach Manage- Fund
Expense Allocated Amount Drug Abuse to Teens ment Raising
Salaries and payroll taxes ........................ $ 63,000 $ 18,900 $ 12,600 $18,900 $12,600
Telephone and miscellaneous .................. 10,000 2,000 2,000 1,500 4,500
Nursing and medical fees ......................... 70,000 49,000 21,000
Educational seminars ............................... 46,000 13,800 27,600 4,600
Research .................................................. 137,000 82,200 54,800
Medical supplies ...................................... 65,000 58,500 6,500
Provision for uncollectible pledges ........... 26,000 26,000
Total expenses ................................... $417,000 $224,400 $124,500 $20,400 $47,700
(3) Alcohol and Drug Abuse Program .................................................. 224,400

Outreach to Teens Program ........................................................... 124,500
Management and General Services ............................................... 20,400
Fund-Raising Services .................................................................. 47,700
Salaries and Payroll Taxes ....................................................... 63,000
Telephone and Miscellaneous Expenses ................................. 10,000
Nursing and Medical Fees ....................................................... 70,000
Educational Seminars Expenses ............................................. 46,000
Research Expense ................................................................... 137,000
Medical Supplies Expense ...................................................... 65,000
Provision for Uncollectible Pledges .......................................... 26,000
To assign allocable operating expenses financed
by unrestricted funds to program and support
services and to close expense accounts.
764
Ch. 18Problems
(4) Alcohol and Drug Abuse Program .................................................. 12,000

Outreach to Teens Program ........................................................... 2,400
Management and General Services .............................................. 7,200
Interest Expense ....................................................................... 4,000
Depreciation Expense .............................................................. 20,000
To allocate expenses relating to plant on the basis
of the percentages given (50/10/30/10) and to
close expenses.
PROBLEM 18-9
(1) Caring Clinic

Public support:
Contributions ........................................................... $407,000 $ 254,000
$661,000
Special events support
(net of direct costs of $18,000)............................. 30,000 30,000
Legacies and bequests............................................ $ 30,000 30,000
Total public support ................................................. $407,000 $ 284,000$ 30,000
$721,000
Revenue:
Investment revenue ................................................. $ 13,000 $ 11,000 $
24,000
Gain on sale of investments .................................... 8,000 $ 25,000 33,000
Total revenue ....................................................... $ 13,000 $ 19,000 $ 25,000 $
57,000
Net assets released from restriction:
Satisfaction of program restrictions ...................... $143,000 $(143,000) $
0
Satisfaction of equipment acquisition
restrictions ......................................................... 20,000 (20,000)
0
Total net assets released from restriction ............ $163,000 $(163,000) $ 0 $
0
Total public support, revenue, and other support ............ $583,000 $ 140,000 $ 55,000 $778,000
Expenses:
765
Ch. 18Problems
Alcohol and Drug Abuse Program .............................. $322,200

$322,200
Outreach to Teens Program ....................................... 184,100
184,100
Management and general services ............................ 27,600
27,600
Fund-raising services.................................................. 50,100
50,100
Total expenses ................................................................ $584,000 $ 0 $ 0
$584,000
Change in net assets ....................................................... $ (1,000) $ 140,000$ 55,000
$194,000
Net assets, January 1, 20X9 ........................................... 202,000 196,000 201,000
599,000
Net assets, December 31, 20X9...................................... $201,000 $ 336,000 $256,000
$793,000
766
Ch. 18Problems
(2) Closing entries:

Investment RevenueUnrestricted .......................................... 13,000
of Program Restrictions ...................................................... 143,000
of Equipment Acquisition Restrictions ................................ 20,000
Unrestricted Net Assets ............................................................ 1,000
Alcohol and Drug Abuse Program ...................................... 322,200
Outreach to Teens Program ............................................... 184,100
Management and General Services ................................... 27,600
Fund-Raising Services........................................................ 50,100

Special Events SupportTemporarily Restricted .................... 48,000
Gain on Sale of InvestmentsTemporarily Restricted ............. 8,000
Cost of Special Events........................................................ 18,000
Satisfaction of Program Restrictions ............................. 143,000
Satisfaction of Equipment Acquisition Restrictions ....... 20,000
Temporarily Restricted Net Assets ..................................... 140,000
Legacies and BequestsPermanently Restricted ................... 30,000

Gain on Sale of InvestmentsPermanently Restricted............ 25,000
Permanently Restricted Net Assets .................................... 55,000
767
Ch. 18Problems
PROBLEM 18-10
Caring Clinic
Statement of Functional Expenses
Program Services Supporting Services**
Total Alcohol and Outreach Total Manage- Fund Total
All Funds Drug Abuse to Teens Programs ment Raising Supporting
Salaries and payroll taxes* ........ $ 86,000 $ 32,700 $ 21,800 $ 54,500 $18,900
$12,600 .................. $31,500
Telephone and miscellaneous
expenses............................... 12,000 3,200 2,800 6,000 1,500 4,500
6,000
Nursing and medical fees .......... 120,000 79,000 41,000 120,000
Educational seminars expenses 66,000 25,800 35,600 61,400 4,600

4,600
Research expense ..................... 153,000 91,800 61,200 153,000
Medical supplies expense ......... 87,000 71,700 15,300 87,000

Rent expense (60/40 to
programs) ............................ 10,000 6,000 4,000 10,000
Interest expense (50/10/30/10).. 4,000 2,000 400 2,400 1,200 400
1,600
Provision for uncollectible
pledges ................................. 26,000 26,000
26,000
Total before depreciation
expense .......................... $564,000 $312,200 $182,100 $494,300 $21,600 $48,100
$69,700
Depreciation expense
(50/10/30/10) ....................... 20,000 10,000 2,000 12,000 6,000 2,000
8,000
Total expenses ......................... $584,000 $322,200 $184,100 $506,300 $27,600 $50,100
$77,700
*Each of the first six expenses
has its allocation determined
using the process illustrated
for salaries:
From unrestricted resources
(Use solution of Problem
18-8 or percentage
allocations in Problem
18-8.) ................................... $ 63,000 $ 18,900 $ 12,600 $ 31,500 $18,900
............................... $12,600 $31,500
From donor-restricted
contributions (split 60/40
to programs only) ................ 23,000 13,800 9,200 23,000
768
Ch. 18Problems
Totals ............................... $ 86,000 $ 32,700 $ 21,800 $ 54,500 $18,900

$12,600 ............... $31,500
**Because no part of the expenses funded by donor-restricted resources was allocated to supporting services, the
portion assigned to supporting services consists only of the allocated expenses funded by unrestricted reve-
nues as shown in the solution to Problem 18-8 or determined by use of the percentages stated in that problem.
The total expenses assigned to the individual programs and supporting services must agree with those shown in
the statement of activities in the solution to Problem 18-9.
769

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UNDERSTANDING THE ISSUES

(1) C There is a permanent restriction on this donation.

(4) B Investment income from donor-restricted permanent endowments is recognized as temporarily

Exercise 18-3, Concluded

(2) b All contributions are valued at fair value.

Exercise 18-5, Concluded

Better Life Clinic

(1) Cash ............................................................................................... 9,000

(2) Cash ............................................................................................... 22,000

(3) Provision for Uncollectible Pledges ................................................ 3,200

Exercise 18-6, Concluded

(4) Cash ............................................................................................... 12,000

(5) Car for Resale ................................................................................ 75,000

(6) Cash ($70,000 $20,000) .............................................................. 50,000

(1) Cash ............................................................................................... 20,000

(2) Cash ............................................................................................... 10,000

(3) Depreciation Expense .................................................................... 9,000

Exercise 18-7, Concluded

(4) Land, Building, and Equipment....................................................... 18,000

(5) Accounts Payable (or Vouchers Payable) ...................................... 18,000

(1) Cash ............................................................................................... 200,000

(2) Cash ............................................................................................... 103,500

(3) Cash ............................................................................................... 6,000

(4) Increase in Carrying Value ............................................................. 3,500

(5) a Contributions are $500,000 shown in the statement of activities as follows:

(6) c Printing an annual report is an administrative function.

(2) b Management and general expenses are part of supporting services.

(b) Allowance for Uncollectibles and Contractual Adjustments .... 60,000

(c) Investments ............................................................................. 75,000

(d) Furniture .................................................................................. 45,000

Problem 18-4, Continued

(e) Assets Whose Use Is LimitedCash ..................................... 50,000

(f) Cash ........................................................................................ 20,000

(g) Plant and Equipment ............................................................... 250,000

(h) Nursing Services Expenses .................................................... 1,120,000

Problem 18-4, Concluded

(2) Fall Nursing Home, Inc.

(1) Land, Building, and Equipment ...................................................... 200,000

(1) Pledges Receivable ........................................................................ 800,000

(2) Cash ............................................................................................... 470,000

(3) Cash ............................................................................................... 35,000

(4) Medical Services Program ............................................................. 60,000

(5) Management and General Services ............................................... 150,000

(6) Buildings and Equipment ................................................................ 18,000

(7) Depreciation Expense .................................................................... 15,000

(8) Vouchers Payable .......................................................................... 330,000

(1) Event Journal Entry Debit Credit

(b) Cash ........................................................................................ 31,000

(c) Cash ........................................................................................ 6,000

(d) ExpenseHouse .................................................................... 17,000

(e) Accounts Payable ................................................................... 55,000

(f) Assessments Receivable ........................................................ 10,000

(g) Cash ........................................................................................ 5,000

(h) Investments ............................................................................. 7,000

(i) Depreciation ExpenseHouse ............................................... 9,000

(j) ExpenseSnack Bar and Soda Fountain ............................... 4,000

(k) Cash ........................................................................................ 25,000

(l) Pledges Receivable ................................................................ 100,000

Problem 18-7, Concluded

(2) Mayfair Sports Club

(1) Total of allocable operating expenses financed by donor-restricted contributions:

Allocation of total operating expenses:

Problem 18-8, Continued