For a number of years, a private not-for-profit entity has been preparing financial statements that do not necessarily conform to U.S. generally accepted accounting principles. At the end of the most recent year (Year 2), those financial statements show total assets of $900,000, total liabilities of $100,000, net assets without donor restriction of $400,000, and net assets with donor restrictions of $400,000. This last category is composed of $300,000 in net assets with purpose restrictions and $100,000 in net assets that must be permanently held. At the end of Year 1, financial statements show total assets of $700,000, total liabilities of $60,000, net assets without donor restriction of $340,000, and net assets with donor restrictions of $300,000. This last category is composed of $220,000 in net assets with purpose restrictions and $80,000 in net assets that must be permanently held. Total expenses for Year 2 were $500,000 and reported under net assets without donor restrictions.

Each part that follows should be viewed as an independent situation.

Part One

Assume that this entity is a private college that charged its students $600,000 for tuition in Year 2 but then provided $140,000 in financial aid. The $600,000 was reported as revenue. The $140,000 was reported as an expense. Both of these amounts were included in the net assets without donor restrictions. a. What is the appropriate amount that should be reported as net assets without donor restrictions at the end of Year 2?

b. What is the appropriate amount that should be reported as expenses for Year 2?

Part Two

Assume that during Year 1, the entity receives a cash gift of $80,000. The donor specified that this money be invested in U.S. government bonds with the income to be used to help pay the salaries of  he entity’s employees. The gift was recorded as an increase in net assets with donor restrictions. The investments earned $5,000 during Year 1 and $7,000 during Year 2. The entity reported these amounts on the statement of activities as increases in net assets without donor restrictions. In both cases, the money was immediately expended for salaries, amounts that were recorded as expenses within net assets without donor restrictions. No other journal entries were made in connection with this income and the income earned.

a. What was the appropriate amount of net assets without donor restrictions to be reported at the end of Year 2?

b. What was the appropriate amount of expenses to be reported under net assets without donor restrictions for the year ending December 31, Year 2?

c. What was the appropriate amount of net assets with donor restrictions to be reported at the end of Year 2?

Part Three

Assume that, at the beginning of Year 1, the entity received $50,000 in cash as a donation with the stipulation that the money be used to buy a bus or be returned to the donor. At that time, the entity increased cash and increased contributed revenue under net assets with donor restrictions. On the first day of Year 2, the $50,000 was spent on the bus. The entity reclassified $50,000 from net assets with donor restrictions to net assets without donor restrictions. At the end of Year 2, the entity recorded $5,000 as depreciation expense, a figure that was shown as a reduction under net assets without donor restrictions.

a. What was the appropriate amount of net assets with donor restrictions to be reported at the end of Year 1?

b. What was the appropriate amount of net assets without donor restrictions to be reported at the end of Year 2?

c. What was the appropriate amount of expenses to be reported under net assets without donor restrictions for the year ending December 31, Year 2?

d. What was the appropriate amount of net assets with donor restrictions to be reported at the end of Year 2?

Part Four

Assume that this entity charges its members $100,000 each year (Year 1 and Year 2). The members get nothing in return for their dues. The entity has consistently recorded the cash collections as an increase in cash and an increase in exchange revenues under net assets without donor restrictions. The board of trustees has had a policy for several years that 10 percent of the money collected be set aside and invested with the money held for emergency purposes. Cash is decreased and “investments held for emergencies” are increased with each purchase.

a. What was the appropriate amount of net assets without donor restrictions at the end of Year 1?

b. What was the appropriate amount of net assets without donor restrictions at the end of Year 2?

c. What was the appropriate amount of net assets with donor restrictions at the end of Year 2?

Part Five

Assume that on January 1, Year 2, several supporters of the entity spent their own time and money to construct a garage for the entity’s vehicles. It was donated for free. The labor had a fair value of $20,000, and the materials had a fair value of $50,000. It was expected to last for 10 years and have no residual value. On that day, the entity increased its contributed support under net assets without donor restrictions by $70,000 and increased its expenses under net assets without donor restrictions by the same amount. No further entry has ever been made.

a. What was the appropriate amount of net assets without donor restrictions at the end of Year 2?

b. What was the appropriate amount of total assets at the end of Year 2?

c. What was the appropriate amount of expenses for Year 2?

Part Six

Assume that the entity is a private not-for-profit hospital. During Year 2, the hospital has two portfolios:

patients with insurance and patients without insurance. Work with a standard charge of $2 million is done for the first group and work with a standard charge of $1 million is done for the second group. Insurance companies have contracts that create explicit price concessions. The hospital believes it has a 60 percent chance of collecting $1.5 million and a 40 percent chance of collecting $1.3 million. Because of the high cost of health care, uninsured patients receive a variety of implicit price concessions. The hospital believes it has a 70 percent chance of collecting $300,000 and a 30 percent chance of collecting $200,000. The hospital reported exchange revenue of $3 million and a provision for bad debt (a contra revenue account) of $1.2 million to drop the reported balance to the expected collection amount. Assume the hospital wants to use the most likely amount where possible even though the hospital historically collects 5 percent less than that figure.

a. What was the appropriate amount of net assets without donor restrictions at the end of Year 2?

b. How much should total revenue for Year 2 be increased or decreased to arrive at the appropriate balance?