CHAPTER 17

ACCOUNTING FOR COLLEGES AND UNIVERSITIES

ANSWERS TO QUESTIONS
Question 17-1
The GASB establishes GAAP for all government colleges and universities. The FASB establishes
standards for all other colleges and universities. (Private, not-for-profit colleges and universities
apply SFAS No. 116 and 117 and related literature.)
Question 17-2
The required financial statements for government colleges and universities engaged only in
business-type activities are a:

Statement of Nets Assets (or Balance Sheet)

Statement of Revenues, Expenses, and Changes in Net Assets
Statement of Cash Flows

Question 17-3
a.

b.

c.
d.

Fund-based statements for governmental funds

1. Statement of net assets (balance sheet)
2. Statement of revenues, expenditures, and changes in fund balances
3. General fund and major special revenue funds statement of revenues, expenditures, and
changes in fund balancesbudget and actual (This may be presented as required
supplementary information.)
Fund-based statements for proprietary funds
1. Statement of net assets (balance sheet)
2. Statement of revenues, expenses, and changes in net assets
3. Statement of cash flows (direct method required)
Fund-based statements for fiduciary funds and fiduciary component units
1. Statement of net assets (balance sheet)
2. Statement of changes in net assets
Government-wide financial statements
1. Government-wide statement of net assets
2. Government-wide statement of activities

Question 17-4
A government university uses the same fund structure as any other government organization.
Therefore, a university with both governmental and business-type activities would have a General
Fund and Enterprise Funds but would also probably have Special Revenue Funds, Debt Service
Funds, Capital Projects Funds, and Permanent Funds. It is very possible that a university will also
have Internal Service Funds and fiduciary funds.
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Question 17-5
Scholarship allowances are defined as differences between the stated charges for tuition and fees
and the amount required to be paid by students and/or third parties making payments on behalf of
students. Scholarships financed from general resources of the college or university, scholarships
from gifts provided to the university to finance scholarships awarded to students selected by the
university, and tuition and fee payments made from sources such as Pell grants (which are
reported as grant revenues) and used to cover tuition and fees are "scholarship allowances."
Any amounts from grants or from university resources that are paid to students, i.e., require
actual expenditure of university resources rather than reduction of charges, should be reported as
scholarship and fellowship expenses. In part, this is because the students typically are free to use
these resources however they please. Tuition waivers given as a result of employment by the
universitysuch as for staff or for graduate assistantsshould be reported as part of
compensation expense.
Question 17-6
The tuition charges would be reduced by the tuition waivers granted to students.
revenues of $2,900,000 would be reported.

Tuition

If the tuition waivers are for university employees, they represent a fringe benefit cost, not a
scholarship allowance. To reduce revenues by the tuition reductions would result in understating
both revenues and compensation expenses. Therefore, in this case tuition revenues of $3,000,000
should be reported and the $100,000 of tuition waivers would be reported as part of
compensation expense.
Question 17-7
If permanent endowment gifts are given to the college and are under its control, revenues should
be recognized in the period that the college or university begins to take the actions required by the
gift. In the case of a permanent endowment gift, therefore, revenues for the gift should be
recognized as soon as the institution begins to invest the resources (which usually is immediately).
If the principal of the endowment gift is given by the donor to others (as trustee) but the income is
available to the university, the gift is not recognized as revenues.
Question 17-8
An auxiliary enterprise is a self-sustaining activitysuch as a residence hall or bookstorethat
provides goods or services to students, faculty or staff for a fee, often related to the costs of the
goods or services provided. Auxiliary enterprises of government colleges and universities are
accounted for in separate self-balancing accounts. Auxiliary enterprise revenues and expenses are
reported in a manner that permits them to be distinguished from educational and general revenues
and expenses.
Question 17-9

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When the endowment income is recognized, and whether the endowment gift is recognized as
university revenues, depends upon whether the endowment principal was placed in the possession
of and under the control of the university or of a third party trustee. If the university is given
possession and control by the donor, the university recognizes contribution revenues for the
endowment gift in the period that it begins to invest the resources donated. It recognizes
endowment income, including unrealized changes in fair value of investments, under the same
guidance as for all other government investments. However, that investment income may affect
unrestricted net assets or restricted net assetsdepending on whether the income is restricted.
If the principal of the endowment gift is given by the donor to others (as trustee) but the income is
available to the university, the gift is not recognized as revenues. The endowment income that the
university receives should be reported as contributions revenues when received.
Question 17-10
The primary difference in accounting for an annuity gift and a life income gift is that the university
accepts a liability that must be accounted for in an annuity gift. The interest on the liability affects
the value of the original gift and of the amount of income generated by the gift.
Question 17-11
Revenues are reported by source and expenses by function. Typical revenue sources include:

Tuition and fees

Appropriations from various government units
Government grants and contracts
Private gifts, grants, and contracts
Endowment income
Sales and services of educational activities
Sales and services of auxiliary enterprises
Sales and services of hospitals

Typical expense classifications distinguish broadly among educational and general expenses and
Auxiliary enterprise expenses and hospital expenses. Educational and general expenses are
further classified by functions such as instruction, research, public service, academic support,
student services, institutional support, operation and maintenance of plant, and scholarships and
fellowships.
Question 17-12
As with other governments, uncollectible tuition and fees are deducted from revenues. Tuition
and fees must be reported net of uncollectible amounts, scholarship allowances, and similar
reductions.
SOLUTIONS TO EXERCISES
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Exercise 17-1
1. e
2. b
3. d
4. c
5. f
6. a
7. b
8. b
9. d
10. a
Exercise 17-2
1.

Accounts Receivable ...........................................................

RevenuesTuition and Fees ........................................
To record tuition.

3,700,000

Revenue DeductionsScholarship Allowances ...................

Revenue DeductionsUncollectible Accounts.....................
Accounts Receivable ....................................................
Allowance for Uncollectible Accounts ..........................
To record provision for uncollectible accounts and scholarships.
2.

Accounts ReceivableRestricted ........................................

RevenuesEducational and General ........................
To record levy of student fees.

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3,700,000
100,000
12,000
100,000
12,000
18,000
18,000

Exercise 17-3
1.

2.

3.

4.

5.

6.

7.

Cash........................................................................................
Accounts Receivable...............................................................
RevenuesEducational and General...............................
To record tuition revenues.

2,400,000
600,000

Revenue DeductionsScholarship Allowances......................

Revenue DeductionsUncollectible Accounts.......................
ExpensesEducational and General.......................................
Tuition and Fees Receivable............................................
Allowance for Uncollectible Accounts.............................
To record scholarship allowances, scholarship
waivers for employees, and bad debts.

80,000
50,000
20,000

Cash........................................................................................
RevenuesAuxiliary Enterprises-Sales and Services....................................................
To record bookstore sales.

400,000

ExpensesEducational and General.......................................

ExpensesAuxiliary Enterprises............................................
Cash.................................................................................
To record salaries.

1,215,000
85,000

Mortgage Payable...................................................................
ExpensesEducational and General (Interest).......................
Cash.................................................................................
To record payment on mortgage note and interest.

180,000
300,000

CashRestricted for Specific Programs.................................

RevenuesPrivate Gifts..................................................
To record gift revenues.

220,000

ExpensesEducational and General.......................................

CashRestricted for Specific Programs..........................
To record expenses incurred.

100,000

Equipment..............................................................................
CashRestricted for Capital Assets................................
Purchased equipment.

22,000

3,000,000

100,000
50,000

400,000

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1,300,000

480,000

220,000

100,000

22,000

Exercise 17-4 (a)

1/10/X8
CashRestricted for Specific Programs...............................
Deferred RevenuesFederally
Sponsored Research...............................................
To record receipt of restricted research grant.
During 20X8
ExpensesEducational and General ...................................
CashRestricted for Specific Programs.......................
To record expenses.
Deferred RevenuesFederally Sponsored Research............
RevenuesFederal Grants............................................
To record nonoperating revenues upon incurring
costs that satisfy the reimbursement eligibility
requirements.

100,000
100,000

72,000
72,000
72,000
72,000

Exercise 17-4 (b)

1/10/X8
CashPlant Expansion........................................................
Deferred RevenuesCapital Contributions ..................
To record capital grant received.
During 20X8
Construction in Progress .....................................................
CashPlant Expansion ................................................
To record construction costs incurred.
Deferred RevenuesCapital Contributions..........................
Revenues--Capital Contributions...................................
To record revenues from grants upon incurrence
of qualifying costs.

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100,000
100,000

72,000
72,000
72,000
72,000

Exercise 17-5
(a)

(b)

CashEndowments ............................................................
RevenuesEndowment Gifts ......................................
To record endowment gift.

2,000,000

InvestmentsEndowments .................................................
CashEndowments......................................................
To record purchase of investments with endowment funds.

2,000,000

2,000,000

2,000,000

The investments are reclassified as unrestricted. Unrestricted net assets increase and
restricted net assets decrease by the amount of the principal of the term endowment. The
following entry would be made.
Investments..........................................................................
InvestmentsEndowments..........................................
To record reclassification of investments
upon expiration of endowment term.

2,000,000
2,000,000

Exercise 17-6
3/25/X8
CashConstruction ............................................................
Bonds Payable ..............................................................
To record issuance of bonds for construction.
During 20X8
Construction in Progress .....................................................
CashConstruction .....................................................
Contracts PayableRetained Percentage .....................
To record construction costs incurred.
During 20X9
Construction in Progress .....................................................
CashConstruction .....................................................
Contracts PayableRetained Percentage .....................
To record construction costs incurred.
Buildings .............................................................................
Construction in Progress ..............................................
To record completed buildings.

14,000,000
14,000,000

3,200,000
3,040,000
160,000

10,800,000
10,260,000
540,000
14,000,000

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14,000,000

SOLUTIONS TO PROBLEMS
Problem 17-1
1.
2.
3.
4.
5.
6.
7.

c
b
a
e
c
c
a

(The response in the first printing is incorrect because the nonexpendable restricted net
assets given should have been $1,000,000, and $500,000 of unrestricted net assets.)

8. a
9. d
10. a
Problem 17-2
1.

2.

3.

4.

5.

Cash ....................................................................................
RevenuesTuition and Fees ........................................
RevenuesPrivate Gifts and Contributions .................
RevenuesSales and Services of
Educational Activities ...........................................
RevenuesOther Sources ...........................................
Accounts Receivable ....................................................
To record cash receipts.

2,270,000

Accounts Receivable ...........................................................

RevenuesTuition and Fees ........................................
To record receivable and revenue.

29,000

Revenue DeductionsUncollectible Accounts ....................

Allowance for Uncollectible Accounts ..........................
To increase Allowance for Uncollectible Accounts to $3,000.

1,000

1,930,000
170,000
115,000
25,000
30,000

29,000

1,000

Cash ....................................................................................
RevenuesSales and Services of
Auxiliary Enterprises .............................................
To record auxiliary enterprise revenues and
cash receipts.

300,000

Inventory of Materials and Supplies .....................................

Cash .............................................................................
Vouchers Payable .........................................................
To record materials and supplies purchased.

550,000

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300,000

500,000
50,000

Problem 17-2 (continued)

6.

7.

8.

9.

10.

ExpensesInstitutional Support .........................................

ExpensesResearch ...........................................................
ExpensesInstruction .........................................................
ExpensesAcademic Support ............................................
ExpensesOther .................................................................
ExpensesAuxiliary Enterprises .........................................
Inventory of Materials and Supplies .............................
To record materials and supplies used.

30,000
5,000
305,000
7,000
53,000
110,000

ExpensesInstitutional Support .........................................

ExpensesResearch............................................................
ExpensesInstruction .........................................................
ExpensesAcademic Support.............................................
ExpensesOther .................................................................
ExpensesAuxiliary Enterprises .........................................
Cash .............................................................................
To record salaries and wages paid.

170,000
63,000
1,212,000
80,000
85,000
90,000

ExpensesInstitutional Support .........................................

ExpensesResearch ...........................................................
ExpensesInstruction .........................................................
ExpensesAcademic Support ............................................
ExpensesOther .................................................................
ExpensesAuxiliary Enterprises..........................................
Cash .............................................................................
To record other expenses.

10,000
2,000
53,000
3,000
7,000
20,000

ExpensesInstitutional Support .........................................

Cash .............................................................................
To record interest expenditures.

3,000

Vouchers Payable ................................................................

Cash .............................................................................
To record vouchers paid.

40,000

510,000

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1,700,000

95,000

3,000

40,000

Problem 17-3
1.

2a.

2b.

3.

Cash ....................................................................................
RevenuesEndowment GiftsInstitutional
Support and Research ...........................................
RevenuesPrivate GiftsResearch ............................
Deferred RevenuesFederal Grants
Instruction .............................................................
Deferred RevenuesState Grant
Student Services ....................................................
RevenuesAuxiliary Enterprises .................................
To record cash receipts.

415,000

ExpensesInstitutional Support .........................................

ExpensesResearch ...........................................................
ExpensesInstruction .........................................................
ExpensesStudent Services ...............................................
ExpensesAuxiliary Enterprises .........................................
Cash .............................................................................
To record expense and cash disbursements.

40,000
30,000
125,000
20,000
90,000

Deferred RevenuesFederal GrantsInstruction ..............

Deferred RevenuesState Grant
Student Services.....................................................
RevenuesFederal GrantsInstruction ......................
RevenuesState GrantStudent Services...................
To record revenue recognition upon expenditure of
restricted resources.

125,000

Investments .........................................................................
Cash .............................................................................
To record cash investment.

100,000

75,000
40,000
150,000
20,000
130,000

305,000

20,000
125,000
20,000

100,000

Problem 17-4
1.

2.

CashEndowments ...........................................................
RevenuesEndowment GiftsEndowment X ............
RevenuesEndowment GiftsEndowment Y ............
To record cash receipts to establish Endowment
Funds X and Y.

1,500,000

Investments in Securities .....................................................

Premiums on Investments in Securities ................................
CashEndowments ....................................................
To record investment in securities. (The problem
assumes that fair value accounting is not required
for this investment.)

1,000,000
10,000

900,000
600,000

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1,010,000

Problem 17-4 (continued)

3.

4.

5.

6.

7.

8.

Investments in Securities .....................................................

Accrued Interest Receivable ................................................
Discounts on Investments in Securities .........................
CashEndowments .....................................................
To record investment in securities. (The problem
assumes that fair value accounting is not required
for this investment.)

191,500
500

Investments in Securities .....................................................

RevenuesEndowment Z ............................................
To record receipt of investments to establish
Endowment Fund Z.

300,000

CashEndowments.............................................................
RevenuesPooled Investment Income ........................
Accrued Interest Receivable .........................................
To record dividends and interest cash receipts.

75,500

Discounts on Investments in Securities ................................

RevenuesPooled Investment Income ...............................
Premiums on Investments in Securities .........................
To record amortization of investment premiums
and discounts.

100
400

CashEndowments ............................................................
Investments in Securities ..............................................
RevenuesGain on Sale of Securities ..........................
To record sale of investment securities.

32,400

RevenuesPooled Investment Income................................

RevenuesGain on Sale of Securities .................................
Net AssetsEndowment X .........................................
Net Assets Endowment Y ........................................
Net Assets Endowment Z..........................................
To allocate investment earnings to
Endowment Funds X, Y, and Z.

74,600
2,400

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2,000
190,000

300,000

75,000
500

500

30,000
2,400

42,350
28,259
6,391

Problem 17-4 (continued)

Calculation:

Fund X

Fund Y

Fund Z

9.

10.

11.

12.

Investment
Earnings

Earnings Division:
900,000
1
1,500,00 x 2 +
0

900,000
1
1,800,00 x 2 =
0

55% x 77,00
0

$ 42,350

600,000
1
1,500,00 x 2 +
0

600,000
1
1,800,00 x 2 =
0

36.7% x 77,00
0

28,259

1
x 2 +

300,000
1
1,800,00 x 2 =
0

8.3 x 77,00
%
0
100.00
%

6,391

Cash.....................................................................................
CashEndowments .....................................................
To record minimum annual amount made available
for unrestricted use.

75,000

Land ....................................................................................
Buildings .............................................................................
Equipment ...........................................................................
RevenuesEndowment GiftsEndowment N ............
To record receipt of assets to establish
Endowment Fund N.

80,000
500,000
220,000

CashDesignated for Endowment ......................................

Cash .............................................................................
To record receipt of cash establishing
Quasi-Endowment Fund O.

150,000

$ 77,000

75,000

800,000

150,000

No entry because the university does not possess and control the principal of the
endowment.

Problem 17-5
1.

2.

CashRestricted for Loans .................................................

RevenuesPrivate Gifts ..............................................
To record donation received for the purpose of
setting up Loan Fund.

150,000

InvestmentsRestricted for Loans ......................................

50,000

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150,000

CashRestricted for Loans .........................................

To record cash investment.

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50,000

Problem 17-5 (continued)

3.

4.

5.

Loans Receivable .................................................................

CashRestricted for Loans .........................................
To record loans made.

60,000

CashRestricted for Loans..................................................

RevenuesInvestment Income ....................................
To record receipt of interest payment.

300

Loss on Uncollectible Loans ................................................

Loans Receivable .........................................................
To write off loan as uncollectible.

1,000

60,000

300

1,000

Problem 17-6
1.

2.

3.

4.

5a.

5b.

CashRestricted for Building Additions .............................

RevenuesCapital Contributions..................................
To record donation for financing additions to
business and public administration building.

40,000

Investments Restricted for Building Additions..................

CashRestricted for Building Additions .....................
To record cash investment.

40,000

CashRestricted for Debt Service.......................................

CashRestricted for Plant Improvements............................
CashRestricted for Plant Additions...................................
RevenuesPrivate Gifts...............................................
RevenuesCapital Contributions..................................
To record cash donations.

20,000
15,000
15,000

Equipment............................................................................
CashRestricted for Plant Additions............................
To record equipment acquired.

10,000

CashConstruction ............................................................
Notes Payable ...............................................................
To record loan from Last National Bank to finance
addition to business and public administration
(BPA) building.

1,000,000

Construction in Process .......................................................

CashConstruction .....................................................
To record BPA addition expenditures.

600,000

40,000

40,000

20,000
30,000

10,000

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1,000,000

600,000

Problem 17-6 (continued)

6.

7.

8.

9.

10.

Buildings .............................................................................
CashRestricted for Plant Improvements.....................
To record expenditures to remodel art building
classroom.

13,000

CashRestricted for Debt Service.......................................

RevenuesPrivate Gifts...............................................
To record donation for paying part of the mortgage.

75,000

Mortgage Payable.................................................................
Interest Expense...................................................................
CashRestricted for Debt Service................................
To record payment of mortgage installment.

10,000
25,000

Loss on Disposal of Equipment ...........................................

Accumulated DepreciationEquipment ..............................
Equipment ....................................................................
To record destruction of equipment.

3,000
2,000

Depreciation Expense...........................................................
Accumulated DepreciationBuildings .........................
Accumulated DepreciationEquipment ......................
To record the annual provision for depreciation.

390,000

13,000

75,000

35,000

5,000

270,000
120,000

(b)
Computation of Net Asset--Invested in Capital Assets at August 31, 20X1
Land................................................................................................................
Buildings ($3,300,000 + $13,000)..................................................................
Accumulated DepreciationBuildings ($900,000 + $270,000)......................
Equipment ($1,200,000 + $10,000 -$5,000)...................................................
Accumulated DepreciationEquipment
($300,000 + 120,000 - $2,000)..................................................................
Construction in progress.................................................................................
Note Payable less amount equal to unexpended proceeds
($1,000,000 - $400,000)............................................................................
Mortgage Payable ($250,000 - $10,000)........................................................
Net AssetsInvested in Capital Assets.....................................................

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$ 200,000
3,313,000
(1,170,000)
1,205,000
(438,000)
600,000
(600,000)
( 240,000)
$2,870,000

Problem 17-7
JONIMATT STATE UNIVERSITY
Statement of Revenues, Expenses, and Changes in Net Assets
For the Year Ended June 30, 20X7
Revenues
Operating Revenues
Student tuition and fees (net of scholarship allowances)........................ $ 7,300,000
Private grants and contracts.................................................................. 4,062,000
Sales and services of educational departments.......................................
500,000
Sales and services of auxiliary enterprises.............................................. 3,000,000
Total operating revenues.................................................................. 14,862,000
Expenses
Operating Expenses
Educational and General
Instruction...................................................................................... 6,590,000
Research........................................................................................ 1,810,000
Public service................................................................................. 2,300,000
Academic support.......................................................................... 2,000,000
Student services.............................................................................
925,000
Institutional support....................................................................... 2,500,000
Operation and maintenance of plant............................................... 3,125,000
Scholarships and fellowships..........................................................
355,000
Depreciation...................................................................................
800,000
Total educational expenses.......................................................... 20,405,000
Auxiliary Enterprises.............................................................................
2,660,000
Total operating expenses.............................................................
23,065,000
Operating income (loss)....................................................... (8,203,000)
Nonoperating Revenues (Expenses)
State appropriations ($5,920,000 + $340,000)...................................... 6,260,000
Federal grants........................................................................................ 1,600,000
Gifts ($2,950,000 + $320,000 + $1,800,000 + $40,000 + $160,000).... 5,270,000
Investment income ($220,000 + $195,000 +
250,000 + $78,000 + 30,000)........................................................
773,000
Interest on capital asset-related debt...................................................... (340,000)
Loss of sale of capital assets..................................................................
(9,000)
Net nonoperating revenues..........................................................
13,554,000
Income before other revenues and expenses.........................
5,351,000
Capital appropriations...........................................................................
500,000
Capital grants and gifts ($400,000 + 850,000)...................................... 1,250,000
Additions to permanent endowments....................................................
4,300,000

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Total other revenues...................................................................

6,050,000
Increase in net assets............................................................. 11,401,000
Net Assets, July 1, 20X6.........................................................................
27,000,000
Net Assets, June 30, 20X7.......................................................................
$38,401,000

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