Multiple Choice Questions

1. A government university opts to report as a special-purpose government that is engaged in only business-type activities. Therefore it need not present a

a. Government-wide statement of net assets

b. Statement of revenues and expenses for major funds

c. Management’s discussion and analysis

d. Statement of cash flows

2. In reporting gross revenue, a hospital should include

a. Both charity care and third-party discounts

b. Charity care, but not third-party discounts

c. Third-party discounts, but not charity care

d. Neither charity care nor third-party discounts

3. A not-for-profit college receives a $1 million endowment, the income from which is restricted to student scholarships. During a particular year, the endowment earns $60,000 in income and dividends, none of which has been spent by year-end. However, the market value of the endowment declines by $45,000. At year-end, the university should report permanently and temporarily restricted net assets, respectively, of

Permanently restricted Temporarily restricted

a. $1,000,000 ....... $60,000

b. $ 955,000 ...... . $60,000

c. $1,000,000 ...... $15,000

d. $ 955,000 ....... $60,000

4. A not-for-profit hospital agrees to pay $480,000 for a malpractice insurance policy that covers April 1, 2013 to March 31, 2014. In January 2014, prior to preparing its 2013 financial statements, it is notified by its insurance company that, in accord with provisions of the policy, it has to pay an additional $80,000 in premiums, owing to unexpectedly high claims in October and November. For its fiscal year ending December 31, 2013, the hospital should report insurance expense relating to this policy of

a. $360,000

b. $440,000

c. $480,000

d. $560,000

5. In October 2013 the sociology department of a not-for-profit university is awarded a grant by the U.S. Science Foundation to conduct research on rural poverty. The foundation agrees to reimburse the department for all direct expenses incurred, up to $1 million, plus overhead of 40%—a total of $1,400,000. During 2013 the department incurs $100,000 in allowable direct expenses and is reimbursed a total of $60,000. For the year ending December 31, 2013, the university should recognize grant revenue of

a. $60,000

b. $100,000

c. $140,000

d. $1,400,000

6. Which of the following expenses is least likely to be found on the statement of activities of a not-for-profit college that reports expenses by function?

a. Sponsored research

b. Student services

c. Operation and maintenance of plant

d. Faculty salaries

7. A not-for-profit hospital held the following endowments:

$4 million, specified by the donor as permanently nonexpendable

$2 million, specified by a donor as expendable only upon his death

$1 million, specified by the hospital’s governing board as permanently nonexpendable

The amount that the hospital should report as permanently nonexpendable is

a. $3 million

b. $4 million

c. $6 million

d. $7 million

8. The plant funds (maintained for internal accounting purposes only) of a not-for-profit college include plant and equipment of $500 million and cash and investments of $40 million. The cash and investments represent the proceeds from bonds issued to renovate classroom and lab facilities. The amount that the college should report as unrestricted funds is

a. $0

b. $40 million

c. $500 million

d. $540 million

9. A government university, in contrast with a not-for-profit university,

a. Does not have to divide its resources into three categories of donor restrictiveness

b. Must present a statement of functional expenses

c. Does not have to depreciate long-lived assets

d. Must divide its statement of cash flows into three categories rather than four

10. A not-for-profit university receives a $4 million cash grant from an automobile manufacturer to carry out research on long-lived batteries. Per the terms of the grant, the automobile manufacturer has the exclusive rights to any patents and must approve any publications that may result from the research. Upon receiving the grant, the university should credit a

a. Revenue account in a unrestricted fund

b. Deferred revenue account in an unrestricted fund

c. Revenue account in a temporarily restricted fund

d. Deferred revenue account in a temporarily restricted fund