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FAR - Financial Accounting & Reporting (Forum Locked Forum Locked)
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Subject Topic: some not-for-profit questions (Topic Closed Topic Closed) Post ReplyPost New Topic
  
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Mangorange
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Posted: 22 Aug 2009 at 22:07 | IP Logged  

In 1991, Community Helpers, a private voluntary health and welfare organization, received a bequest of a $100,000 certificate of deposit maturing in 2001.  The testator's only stipulations were that this certificate be held until maturity and that the interest revenue be used to finance salaries for a preschool program.  Interest revenue for 2001 was $8,000.  When the certificate was redeemed, the board of trustees adopted a formal resolution designating $20,000 of the proceeds for the future purchase of equipment for the preschool program.
What should be reported in the 2001 year-end statement of financial position?

a. ......

b. Unrestricted net assets, $100,000.

c. Net assets temporarily restricted - designated for preschool program salaries, $8,000.  Unrestricted net assets, $100,000.

d. ......

The answer says "b" but I don't know why c is wrong. In the fact pattern it indicates in nowhere that the salaries were spent in 2001.

 

Another question:

In 1995, Gamma, a not-for-profit organization, deposited at a bank $1,000,000 given to it by a donor to purchase endowment securities.  The securities were purchased January 2, 1996.  At December 31, 1995, the bank recorded $2,000 interest on the deposit.  In accordance with the bequest, this $2,000 was used to finance ongoing program expenses in March 1996.  At December 31, 1995, what amount of the bank balance should be included as current assets in Gamma's classified balance sheet?

a. 0

b. 2,000

c. 1,000,000

d. 1,002,000

answer is Choice "b" is correct.  Since the external donor restricted the $1,000,000 gift for the purchase of endowment securities, that deposit is restricted cash and a non-current asset.  The earnings on the endowment is designated by the external donor for ongoing program expense.  As such, it is unrestricted cash and a current asset.

 

Why is the 2000 cash unrestricted? Only because it's to finance ongoing programs expenses? Then what about another question in becker:

During the current year, a voluntary health and welfare organization receives $300,000 in unrestricted pledges.  Of this amount, $100,000 has been designated by donors for use next year to support operations.  If 15% of the unrestricted pledges are expected to be uncollectible, what amount of unrestricted support should the organization recognize in its current-year financial statements?

a. 300,000

b. 270,000

c. 200,000

d. 170,000

answer is d. It's not including the $100,000 because the $100,000 "is effectively temporarily restricted by the time restriction limiting the use of the funds to the following year."

according to this logic, then that 2000 interest should also be restricted because of time (it's only going to be used the next year), but it's still considered current, is it because it's designated to be used the next year?

In conclusion:

1). if cash is rec'd and designated by donor to be used in programs and operations, it's considered unrestricted; even if it's restricted, it's because of time (e.g. will be used to support next year's operaitons);

2). whether restricted cash is current or not depends on when it will be used. if it's going to be used the next year then it's current, otherwise noncurrent.

Am I correct? If I'm correct then becker's explanation about the intrest is wrong, that's why I need confirmation.

Thank you. 


 



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optimistCPA
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Posted: 22 Aug 2009 at 22:54 | IP Logged  

In question 2. the call of the question is what should be
included as current asset? which can be restricted or
unrestricted. And as you said will be restricted due to
time constraint.

In question 3. the questions asks specifically for
unrestricted support during current year and thus only
170,000 is unrestricted.

And in ques.1 I would assume that salaries have to be given
every year and thus were expensed in the current year.

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optimistCPA
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Posted: 22 Aug 2009 at 23:01 | IP Logged  

The Current Asset has two groups - unrestricted and
restricted. Unrestricted current assetss include all funds
received for which the donor made no stipulation as to the
purposes for which they should be expended.

Restricted current assets are those available for financing
operations but which donors have stipulated to specific
purposes.

Hope this helps.

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Mangorange
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Posted: 23 Aug 2009 at 00:02 | IP Logged  

Hi optimist, do you mean that if the donor designates the cash to be used to finance operations, the cash is still restricted? And this cash is considered current because it's restricted for operations but nothing else? If that's the case, why is Becker's explanation saying the $2,000 interest is unrestricted?

I'm still confused...



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Tatka75
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Posted: 23 Aug 2009 at 02:22 | IP Logged  

1. I would agree with optimist assuming that 8000 was spent on salary in current year.

2. From my understanding (and Wiley book) in ASSET section only asset restricted for long term use (endowment, sinking funds etc) should be reported separately. So, $2000 will be reported as current asset, and $1000000 as cash restricted for endowment. But on the NET ASSET section $2000 would be reported as temp restricted net asset and $1000000 would be perm restricted net asset.

Bottom line - don't mix up Asset Section (very similar to for-profit Balance Sheet asset section - has Current assets, Asset restricted for long-term use, and other usual categories like A/R, PP&E etc.) and net asset (has unrestricted, temp restricted and perm restricted parts)

Hope it helps

 



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