Governmental and Nonprofit Accounting: Theory and Practice, 9e Update (Freeman)

Chapter 17 Accounting for Colleges and Universities

1) Charges for tuition for the current semester of a local college totaled $300,000. Academic
scholarships were awarded to students in the amount of $25,000 and tuition wavers were given to
children of employees in the amount of $10,000. The college should report
A) Revenues $300,000.
B) Expenses of $35,000.
C) Revenues of $275,000, net of $25,000 in allowances.
D) Expenses of $10,000.
E) Both items A and B.
F) Both items C and D.
Answer: F

2) A college has a June 30 fiscal year end. Assume that tuition revenue for the summer session
that begins June 1, 20X8, and ends August 31, 20X8 totals $270,000. Tuition is billed and is due
at the beginning of the session term. How much revenue should be reported as of the fiscal year
ended June 30, 20X8?
A) $270,000
B) $90,000
C) $180,000
D) $135,000
E) $0
Answer: B

3) If a government university provides loans to qualifying students for tuition and fees, the loans
should be reported on the statement of cash flows as
A) Operating activities.
B) Noncapital financing activities.
C) Capital and related financing activities.
D) Investing activities.
E) Loans are not reported on the statement of cash flows.
Answer: A

4) A government university that chooses to report as a business-type special purpose

government, purchases land for a planned dormitory by securing a ten year bank loan. The entry
to record the purchase and procurement of funding would include
A) A DEBIT to assets.
B) A CREDIT to notes payable.
C) A DEBIT to expenditures.
D) A CREDIT to other financing sources.
E) Both items A and B.
F) Both items C and D.
Answer: E

5) A wealthy alum donated land to be used for a new athletics facility at the local state

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university. The land has a fair market value of $250,000. The donor purchased the land ten years
ago at a cost of $75,000. The entry to record the receipt of the donation would be
A) dr cr
Land $250,000
Capital Contributions $250,000
B) dr cr
Land $250,000
Other Financing Sources $250,000
C) dr cr
Land $75,000
Capital Contributions $75,000
D) dr cr
Land $250,000
Special Item $250,000
E) dr cr
Land $75,000
Special Item $75,000
Answer: A

6) Stock valued at $15,000 was donated to a college. The donor stipulated that the stock was to
be immediately sold and the proceeds used toward college's capital campaign. The entry to
record the receipt of the gift would be
A) dr cr
Restricted Assets — Capital Campaign $15,000
Deferred Revenue $15,000
B) dr cr
Restricted Assets — Capital Campaign $15,000
Capital Contributions $15,000
C) dr cr
General Investments $15,000
Deferred Revenue $15,000
D) dr cr
General Investments $15,000
Special Item $15,000
Answer: B

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7) A university received a restricted donation from one of their trustees. The donation was to be
used to pay debt service costs for one year on the new athletic field. When received, the donation
will be reported on the statement of cash flows as
A) Operating activities.
B) Noncapital financing activities.
C) Capital and related financing activities.
D) Investing activities.
E) None of the above.
Answer: C

8) A university's endowment fund has investments that were purchased for $400,000. As of the
end of the fiscal year, the fair value of the investments decreased by $33,000. What journal entry
is required to reflect the change in the fair market value of the investments?
A) dr cr
Loss on Endowment Investments $33,000
Endowment Investments $33,000
B) dr cr
Interest Expense $33,000
Endowment Investments $33,000
C) dr cr
Interest Revenues $33,000
Endowment Investments $33,000
D) dr cr
Interest Expense $33,000
Deferred Revenue $33,000
E) None of the above.
Answer: C

9) A college was the recipient of an annuity gift. The elderly alum donated cash of $110,000 and
investments of $610,000 with the restriction that the college pay them a sum of $50,000 per year
for five years. If the annuity payable has been actuarially valued at $305,000, the college should
report revenues upon receipt of the gift in the amount of
A) $0.
B) $120,000.
C) $370,000.
D) $415,000.
E) $720,000 .
Answer: D

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10) If actuarial assumptions change such that the annuity payable is actually less than originally
recorded, the change should be reported
A) Immediately as a reduction in the annuity payable.
B) Immediately as an expense.
C) As an expense at the time the annuity obligations are fulfilled.
D) As a reduction of annuity payable at the time the annuity obligations are fulfilled.
E) None of the above.
Answer: A

11) Which of the following statements are true?

A) All colleges and universities report under the same GAAP guidelines.
B) Private colleges and universities must report using FASB guidance. Government colleges and
universities are permitted to follow that guidance or the guidance in the AICPA's college and
university audit guide.
C) Private colleges and universities must report using the FASB guidance. Government colleges
and universities must report using GASB guidance.
D) Government colleges and universities must report as special purpose governments engaged
only in business-type activities.
Answer: C

12) The balance sheet of government colleges and universities engaged only in business-type
activities would not report which component of net assets?
A) Unrestricted net assets
B) Temporarily restricted net assets
C) Invested in capital assets, net of related debt
D) Restricted net assets
Answer: B

13) The balance sheet of nongovernment, not-for-profit colleges and universities would report
which component of net assets?
A) Unrestricted net assets
B) Temporarily restricted net assets
C) Permanently restricted net assets
D) All of the above.
Answer: D

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14) Which financial statements are required for government colleges and universities engaged
only in business-type activities?
A) Balance sheet, statement of revenues, expenditures, and other changes, and statement of cash
flows
B) Balance sheet, statement of revenues, expenses, and changes in net assets, and statement of
cash flows
C) Balance sheet, statement of revenues, expenses, and changes in net assets, and statement of
changes in net assets
D) Balance sheet, statement of activities, and statement of cash flows
Answer: B

15) Which financial statements are required for nongovernment, not-for-profit colleges and
universities?
A) Balance sheet, statement of revenues, expenditures, and other changes, and statement of cash
flows
B) Balance sheet, statement of revenues, expenses, and changes in net assets, and statement of
cash flows
C) Balance sheet, statement of revenues, expenses, and changes in net assets, and statement of
changes in net assets
D) Balance sheet, statement of activities, and statement of cash flows
Answer: D

16) The statement of cash flows of nongovernment, not-for-profit colleges and universities
would report which category of cash flows?
A) Investing
B) Noncapital financing
C) Capital and related financing
D) All of the above.
Answer: A

17) The statement of cash flows of government colleges and universities engaged only in
business-type activities would report which category of cash flows?
A) Investing
B) Noncapital financing
C) Capital and related financing
D) All of the above.
Answer: D

18) Tuition revenues of government colleges and universities are reported

A) Net of bad debts, scholarships and fellowships.
B) Net of bad debts.
C) Net of scholarships and fellowships.
D) At the gross amount of the standard tuition and fees.
Answer: A

19) Government colleges and universities must recognize donations received with purpose

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restrictions as
A) Deferred revenue until the restrictions are met.
B) Operating revenues.
C) Nonoperating revenues.
D) None of the above.
Answer: C

20) Purchase of capital assets by government colleges and universities engaged only in business
would be reported as
A) Expenditures.
B) Transfers to capital assets.
C) Reclassifications.
D) Does not change total net assets.
Answer: D

21) Management's discussion and analysis must be reported by

A) All colleges and universities.
B) Nongovernment not-for-profit colleges and universities.
C) All government colleges and universities.
D) Only government colleges and universities that report as special purpose governments
engaged only in business-type activities.
Answer: C

22) Government colleges and universities engaged only in business-type activities would report
state appropriation as
A) Operating revenues.
B) Special items.
C) Other financing sources.
D) Nonoperating revenues.
Answer: D

23) A state university assessed its students $2,000,000 of tuition and fees. However, only
$1,500,000 was expected to be collected because of an estimated uncollectible amount of
$25,000, scholarship allowances of $400,000, and tuition waivers to staff of $75,000. What
amount of net tuition and fees revenue should be reported in the statement of revenues, expenses
and changes in net assets?
A) $1,500,000
B) $1,575,000
C) $1,600,000
D) $2,000,000
Answer: B

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24) A government university received a cash donation $1,000,000 to create an endowment. The
income of the endowment can be used to support any activity of the university. In the balance
sheet, the $1,000,000 endowment should be included in which component of net assets?
A) Unrestricted net assets
B) Restricted — nonexpendable net assets
C) Invested in capital assets, net of related debt
D) Permanently restricted net assets
Answer: B

25) Chase Foundation establishes a $1,000,000 trust for a government university. The local bank
is appointed as trustee of the fund. The income of the trust can be used to support any activity of
the university. In the university's balance sheet, the $1,000,000 trust should be included in which
component of net assets?
A) Not reported
B) Unrestricted net assets
C) Restricted — nonexpendable net assets
D) Permanently restricted net assets
Answer: A

26) Which type of split-interest gifts would normally not be reported by a government
university?
A) Annuity gifts
B) Life income gifts
C) Trust held by others
D) All of the above
Answer: C

27) A state college receives an annuity gift of $200,000 from an individual. The individual is to
receive $18,000 a year for 10 years. The present value of the payments to the individual is
$150,000. How much revenues should the college report from this transaction?
A) $0
B) $20,000
C) $50,000
D) $200,000
Answer: C

28) Which measurement focus is used by governmental universities that report as a business-type
special purpose government?
A) Cash measurement focus
B) Current financial resources measurement focus
C) Economic resources measurement focus
D) None of the above
Answer: C

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29) Which of the following likely would be found on the balance sheet of a governmental
university that reports as a business-type activity?
A) Restricted net assets.
B) Unrestricted net assets.
C) Capital assets.
D) All of the above.
E) None of the above.
Answer: D

30) Which fund used by colleges and universities is most like a local government's general fund?
A) Unrestricted current fund.
B) Restricted current fund.
C) Unexpended plant fund.
D) Agency funds.
E) None of the above.
Answer: A

31) Governmental universities typically report as

A) General purpose governments.
B) Special purpose governments engaged in only business-type activities.
C) Special purpose governments engaged in only governmental activities.
D) None of the above.
Answer: B

32) Jim Catlett establishes a trust that is administered by Mansfield National Bank in the amount
of $750,000. Jim has promised that he will donate an additional $50,000 a year to the trust in
each of the next 5 years. The income from the trust will go to the state university. How much
should the university record as income in the year that the trust is established?
A) $1,000,000
B) $750,000
C) $750,000 plus the present value of the five $50,000 donations
D) $0
Answer: D

33) Which of the following statements are true regarding life income gifts?
A) Require the amount of the payment to the beneficiary to vary based on the earnings of the
trust.
B) Require a fixed-dollar payment to be made annually to a designated recipient.
C) Assets are recorded at fair value when donated.
D) Both A and B.
E) Both A and C.
Answer: E

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