Test Your Might: FAR – Not For Profit Accounting

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    Topic
  • #175802
    jeff
    Keymaster

    Everyone’s favorite topic…

    Carlson Hospital, a nonprofit hospital affiliated with Carlson College, had the following cash receipts for the year ended December 31, 2012:

    Collections of health care receivables $850,000

    Contribution from donor for term endowment $150,000

    Tuition from nursing school $50,000

    Dividends permanent endowment investment $75,000

    The dividends received are restricted by the donor for hospital building improvements. No improvements were made during 2012.

    On the hospital’s statement of cash flows for the year ended December 31, 2012, what amount of these cash receipts would be included in the amount reported for net cash provided (used) by operating activities?

    a. $1,050,000

    b. $900,000

    c. $975,000

    d. $850,000

    Source: Wiley Test Bank

Viewing 4 replies - 1 through 4 (of 4 total)
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  • #393089
    Anonymous
    Inactive

    I would go with B

    #393090
    jamesb
    Member

    B.

    because operating activities include “UN-restricted” trans. (cash receipts, or donation). All endowments are “restricted”

    AUD: TBA-
    FAR Done
    BEC Done

    Becker
    NINJA for AUD

    #393091
    sandy
    Participant

    It is B

    #393092
    jeff
    Keymaster

    Nicely done

    b. This answer is correct. The cash flows from revenues, gains, and other support, which are reported on the hospital’s statement of operations, would be included in the net cash provided (used) by operating activities on the statement of cash flows. Both are included in the amount reported for revenue, gains, and other support on the hospital’s statement of operations. Accordingly, cash received from patient service revenue and from tuition revenue are both included in the amount reported for cash flows from operating activities.

    The cash received for the term endowment as well as the cash received from dividends would not be included in the amount reported for net cash provided (used) by operating activities. Both of these cash receipts would be reported as increases in cash flows provided by financing activities. Cash contributions that are donor-restricted for long-term purposes are reported as financing activities on the statement of cash flows.

    In addition, the AICPA Audit and Accounting Guide, Health Care Organizations, states that cash received for long-term purposes, for example, the cash received for the term endowment and the building improvements, is not reported as a current asset. So that the statement of cash flows will reconcile with the change in cash and cash equivalents reported as current assets on the balance sheet, an amount equal to the cash received for the two financing activities is included in the amount reported for cash flows from investing activities.

    For Carlson Hospital, this would mean that $225,000, the sum of the $150,000 for the term endowment and the $75,000 of restricted dividends, is reported as a negative amount in the investing activities’ section of the statement of cash flows. Note that both of these amounts are reported as investing activities whether the cash was spent this period or in subsequent period(s).

Viewing 4 replies - 1 through 4 (of 4 total)
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