Govt Chapter 13
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What key reporting options are available to government colleges and universities?
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Government universities may elect to report as special purpose entities engaging (1) only in business-type activities, (2) only in governmental activities, or (3) in both. If they elect to report as a government engaging in both business-type and governmental activities, they will have to present the full range of fund and government-wide statements. If they elect to report as a special purpose government engaging only in governmental activities they need also present both fund and government-wide statements, but can combine the two. If they elect to report as a government engaging only in business-type activities — as most government colleges and universities do — then they need present only a statement of net assets, statement of revenues and expenses, and a statement of cash flow. These would have to be on a full-accrual basis.
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What are the key reporting options for private colleges and universities?
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Private not-for-profit colleges and universities are subject to the same FASB standards as are other not-for-profit entities. Thus they have to follow the provisions of FASB Statement No. 117 as to the form and content of their financial statements. Hence the Statement of Net Assets must present the net assets according to the three categories of donor restrictiveness. Similarly, the Statement of Activities must indicate the amount of resources released from restriction and the statement of cash flows must be divided into three categories of receipts and disbursements.
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In what significant ways would each of the three major statements of a public university differ from those of a private university?
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Private not-for-profit universities have to follow the provisions of FASB Statement No. 117 as to the form and content of their financial statements. Hence the balance sheet of a private not-for-profit university but not that of a public (governmental) university, must display the three categories of donor restrictiveness. Most government colleges and universities can be expected to exercise the GASB Statement No. 34 option that permits them to account for their activities in enterprise funds. Similarly, the statement of changes in net asset must indicate the amount of resources released from restriction and the statement of cash flows must be divided into three categories of receipts and disbursements (operations, financing and investing) rather than the four categories required of public (governmental) universities (operations, capital financing, noncapital financing and investing). Thus, inasmuch as both government and not-for-profit colleges and universities will account for their activities on a full accrual basis, the differences are likely to be less pronounced than in the past.
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A public university receives approximately 20 percent of its revenue from state appropriations. In which category of revenues (operating or non-operating) should it report the state appropriations and why?
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State appropriations should be reported as non-operating revenues because they are intended to help cover an institution's operating expenses.
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Why are revenues presented on the financial statements net of scholarships and discounts?
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NACUBO indicates that colleges and universities should show tuition and fees net of any estimated uncollectible amounts and directly adjust the revenue account for the estimate. 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, such as athletic or academic excellence scholarships, do not require service to the university or college, so they are allowances and should be treated as reductions in revenue. Tuition reduction which is an employee benefit such as tuition waivers for work-study programs and graduate assistantships are treated as compensation expense.
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What are auxiliary enterprises? How are they accounted for?
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Auxiliary enterprises are the units of a college or university that carry out business-type activities and are funded mainly by user charges. They typically include intercollegiate athletics, dormitories, food services, and bookstores. They are accounted for as separate business-type entities.
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What are the three types of endowments? How are they presented on the financial statements of a public and a private college and university? Why are board-designated (or quasi) endowments always unrestricted?
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There are three types of endowments: permanent endowment, term endowments, and quasi endowments or board designated funds that function as endowments. Permanent endowments refer to amount that have been contributed with donor specified restrictions that the principle be invested in perpetuity; income from those investments may also be restricted by donors. These amounts are reported under permanently restricted net assets. Term endowments are similar to permanent endowments, except that the resources originally contributed become available to the entity at some future date or upon the occurrence of specified event for unrestricted or purpose restricted use. These amounts are reported as temporarily restricted net assets. Quasi endowments refer to resources designated by an entity's governing board to be retained for a specific purpose and are reported as unrestricted net assets. Quasi endowments are always unrestricted because they are resources that are designated to be retained for internally reporting purpose, and the entity's governing board has power to decide how and when to use these resources.
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How are investments, investment income, and gains and losses on these investments accounted for? Is there a difference in treatment for public as opposed to private colleges and universities?
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Investments and investment income can be accounted as permanently restricted, temporarily restricted, or unrestricted depending on their types or donor restrictions. These investments will be valued at fair value, and any gains or losses on these investments will also be accounted as permanently restricted, temporarily restricted, or unrestricted. There is no difference in treatment for public as opposed to private colleges and universities.
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A not-for-profit technical college trains computer specialists, most of whom have, in the past, received offers for high-paying jobs in Silicon Valley. What special concerns might you have as to the ability of the college to repay its long-term debts?
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A college or university that trains students for jobs in a particular industry faces the risk that owing to decline in the demand for its students enrollments will shrink. The risk is especially great when most of its students get positions in a particular geographical location.
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Near the end of its fiscal year, a not-for-profit university was awarded a $2 million National Science Foundation grant to conduct biological research. Yet, consistent with GAAP, the college made no accounting entries with respect to the grant until the following year. How can you defend accounting principle that permits an institution to avoid recording such a significant amount of revenue?
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Most government grants are reimbursement grants and hence conditioned on the grantee incurring allowable costs. Conditional grants should not be recognized as revenue until the grantee has met all eligibility requirements (e.g., by having incurred the allowable costs) and thereby satisfied all the required conditions.
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For the purposes of external reporting, private colleges and universities
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must adhere to all applicable FASB pronouncements
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Coleman College, a not-for-profit institution, issued $20 million in revenue bonds. Per the terms of the bond indenture, the college must maintain a cash reserve of $800,000- which is equal to six months of interest. The cash is set aside should be classified as
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unrestricted
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For purposes of internal reporting Briggs College accounts for its bookstore as an auxiliary enterprise. The college should classify the store's inventory as
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auxiliary unit assets
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A NFP university receives an unrestricted contribution of $200K. In its statement of cash flows, the contribution should be shown as a cash inflow from
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operating activities
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Which of the following expenses would least likely (least helpful) be a line item on the statement of activities of a NFP college?
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salaries and wages
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If a university receives a grant to test a product under a federal contract, bu the government retains the patent to the product, the grant should be classified as a:
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Exchange transaction
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A NFP university operates its college bookstore as an auxiliary enterprise. During the year the store has revenues of $20 million and expenses of $18 million. In its statement of activities the university should report
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operating revenues of $20 million
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Other factors held constant, which of the following colleges is likely to present the least risk that it will default on its bonds
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one which draws its student body almost exclusively from the top 5 percent of high school graduating classes throughout the country. p599
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Scholarships for which no services are recorded should be recorded as ________ and school scholarships for which services are required should be recorded as ________.
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revenue deductions, expenses
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During the year, Griffin University's board of trustees established a $200K fund to be retained and invested for scholarship grants. The fund earned $12K, which it had not been distributed by Dec 31. What amount should Griffin report in a Board designated (quasi) endowment fund's net assets at December 31.
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$312,000
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During the year, Le Blanc College received the following: unrestricted $70K pledge to e paid the following year, $35K cash gift restricted for study-abroad scholarships, A notice from a recent business school graduate that he has named the college as a beneficiary of $15K in his will... What amount of contribution revenue should LeBlanc report in its statement of activities?
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$105,000
