NFP Test UPDATED ACTUAL Exam
Questions and CORRECT Answers
Describe the source of accounting standards for nongovernment nonbusiness organizations
(NNOs). - CORRECT ANSWER - in 1979, FASB assumed responsibility for setting
accounting standards for all nonbusiness organizations, except government units. Government
units follow the direction of the GASB.
Identify the three basic statements for NNOs - CORRECT ANSWER - -Statement of
financial position (balance sheet)
-statement of activities
-statement of cash flows
Describe the basic funds used by nongovernment nonbusiness organizations - CORRECT
ANSWER - 1. Current Funds (restr. & unrestr.)
2. Plant Funds
3. Endowment Funds
4. Loan Funds
5. Agency (custodial) Funds
6. Annuity (Life income) Funds
Distinguish between a current restricted fund and an unrestricted fund - CORRECT
ANSWER - Current Restricted: Resources that can only be expended in accordance with
externally imposed restrictions.
Current Unrestricted: Resources that may expended at the discretion of the governing board.
Explain the term "assets whose used is limited" - CORRECT ANSWER - The governing
board may designate resources of the current unrestricted fund for specific purposes, projects, or
investments.
, Distinguish between a mandatory and a nonmandatory transfer - CORRECT ANSWER -
Specifically for colleges and universities.
Mandatory Transfers: Interfund transfers made because of binding legal agreements or
agreements made in receiving grants.
Nonmandatory Transfers: Includes any other transfer from the current funds to other funds made
at the discretion of the governing board.
Explain how contributions are recorded by NNOs - CORRECT ANSWER - Contributions,
including unconditional promises, are recognized as revenue in the period received.
Understand how donated services are recorded - CORRECT ANSWER - If certain
conditions are met, donated services are recognized as both revenue and expense.
Describe the funds used to account for property, plant, and equipment - CORRECT
ANSWER - Plant funds may include an unexpended plant fund (to account for resources
used to purchase plant and equipment), funds for renewals and replacement, funds for retirement
of indebtness, and investment in plant (to account for the assets and the related debt)
Explain the basic accounting used by endowment funds - CORRECT ANSWER - When
the endowment fund receives interest or dividends on endowment investments, the cash is
recorded against a "due to fund" account. When the appropriate fund receives the cash, it is
recognized as income for that fund. Also, any expenditures paid with the income of the
endowment is recognized as an expense of the fund that incurred that expenditure.
Indicate how equity investments are reported in the financial statements - CORRECT
ANSWER - Equity investments (less that 20% ownership) and all debt investments are
reported at fair value with any unrealized gains and losses reported on the Statement of
Activities.
Explain the change in accounting for loan funds brought about by new standards - CORRECT
ANSWER - Loan funds are typically revolving in that repayments of loan balances and
Questions and CORRECT Answers
Describe the source of accounting standards for nongovernment nonbusiness organizations
(NNOs). - CORRECT ANSWER - in 1979, FASB assumed responsibility for setting
accounting standards for all nonbusiness organizations, except government units. Government
units follow the direction of the GASB.
Identify the three basic statements for NNOs - CORRECT ANSWER - -Statement of
financial position (balance sheet)
-statement of activities
-statement of cash flows
Describe the basic funds used by nongovernment nonbusiness organizations - CORRECT
ANSWER - 1. Current Funds (restr. & unrestr.)
2. Plant Funds
3. Endowment Funds
4. Loan Funds
5. Agency (custodial) Funds
6. Annuity (Life income) Funds
Distinguish between a current restricted fund and an unrestricted fund - CORRECT
ANSWER - Current Restricted: Resources that can only be expended in accordance with
externally imposed restrictions.
Current Unrestricted: Resources that may expended at the discretion of the governing board.
Explain the term "assets whose used is limited" - CORRECT ANSWER - The governing
board may designate resources of the current unrestricted fund for specific purposes, projects, or
investments.
, Distinguish between a mandatory and a nonmandatory transfer - CORRECT ANSWER -
Specifically for colleges and universities.
Mandatory Transfers: Interfund transfers made because of binding legal agreements or
agreements made in receiving grants.
Nonmandatory Transfers: Includes any other transfer from the current funds to other funds made
at the discretion of the governing board.
Explain how contributions are recorded by NNOs - CORRECT ANSWER - Contributions,
including unconditional promises, are recognized as revenue in the period received.
Understand how donated services are recorded - CORRECT ANSWER - If certain
conditions are met, donated services are recognized as both revenue and expense.
Describe the funds used to account for property, plant, and equipment - CORRECT
ANSWER - Plant funds may include an unexpended plant fund (to account for resources
used to purchase plant and equipment), funds for renewals and replacement, funds for retirement
of indebtness, and investment in plant (to account for the assets and the related debt)
Explain the basic accounting used by endowment funds - CORRECT ANSWER - When
the endowment fund receives interest or dividends on endowment investments, the cash is
recorded against a "due to fund" account. When the appropriate fund receives the cash, it is
recognized as income for that fund. Also, any expenditures paid with the income of the
endowment is recognized as an expense of the fund that incurred that expenditure.
Indicate how equity investments are reported in the financial statements - CORRECT
ANSWER - Equity investments (less that 20% ownership) and all debt investments are
reported at fair value with any unrealized gains and losses reported on the Statement of
Activities.
Explain the change in accounting for loan funds brought about by new standards - CORRECT
ANSWER - Loan funds are typically revolving in that repayments of loan balances and
