The chapters in this document are displayed in reversed order, with the last chapter appearing
first. This change ensures all chapters are included in the test bank.
Advanced Financial Accounting in Canada, 2Ce (Johnstone)
Chap 1 to 11 Included
Chapter 11 Accounting for Not-for-Profit Organizations
11.1 Explain the significant characteristics of not-for-profit organizations, how they differ from
profit-oriented organizations, and the basis for the not-for-profit organization accounting
standards (ASNPO).
1) Which of the following statements related to NFPOs is FALSE?
A) A NFPO may sell goods, for profit, in the same manner as a profit-oriented business.
B) A NFPO may have shareholders when specific criteria are met.
C) The NFPO may or may not meet the definition of a registered charity.
D) Contributors to a NFPO do not receive a financial return in return for their contribution.
Answer: B
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 11.1 Explain the significant characteristics of not-for-profit organizations, how they
differ from profit-oriented organizations, and the basis for the non-for-profit organization accounting
standards (ASNPO).
2) A contribution to a not-for-profit organization whose value must be retained is known as:
A) a contribution in kind.
B) a non-reciprocal transfer.
C) an endowment.
D) an investment.
Answer: C
Diff: 1 Type: MC
Taxonomy Category: Remembering
Learning Outcome: 11.1 Explain the significant characteristics of not-for-profit organizations, how they
differ from profit-oriented organizations, and the basis for the non-for-profit organization accounting
standards (ASNPO).
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,3) What is the definition of a not-for-profit organization (NFPO) and how does it differ from other
organizations?
Answer: NFPOs are entities with a specific purpose, normally without transferable ownership interests.
They are organized and operated exclusively for social, educational, professional, religious, health, or
other not-for-profit purposes. Members, contributors, and other resource providers, in such capacity, do
not receive any financial return directly from the organization. There are several differences between for
profit and not-for-profit organizations:
• A NFPO is set up for a specific purpose, rather than a profit-orientated purpose. A NFPO operates to
meet a specific need, be it societal, educational, or other.
• Unlike for-profit organizations, a NFPO does not typically have shareholders. The statement of
financial position of a NFPO would report the net assets rather than having a shareholders' equity
section.
• While a profit-oriented organization issues shares to shareholders, to which they must provide a
return on investment, contributors to a NFPO do not receive a direct financial return from the NFPO.
Diff: 1 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 11.1 Explain the significant characteristics of not-for-profit organizations, how they
differ from profit-oriented organizations, and the basis for the non-for-profit organization accounting
standards (ASNPO).
11.2 Explain what fund accounting presentation is and the reasons to use it.
1) Which of the following statements related to NFPOs is FALSE?
A) Fund accounting presents the net assets and net income in terms of funds.
B) A NFPO is not required to apply fund accounting.
C) A NFPO, choosing fund accounting, may establish funds based on programs, type of activities, or
another method that will provide the users of the statements useful information.
D) If a NFPO has more than one activity or program, it must use fund accounting.
Answer: D
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 11.2 Explain what fund accounting presentation is and the reasons to use it.
2) What is fund accounting, and how are the funds determined?
Answer: Fund accounting is a choice where the NFPO disaggregates the operations into smaller
components to provide users information related to specific areas such as programs, services, or
activities. When fund accounting is chosen by a NFPO, it must include a description of each fund. Funds
can be established by legal, contractual, or voluntary actions of an organization. Each fund is its own set
of self-balancing accounts. The NFPO has flexibility in how it establishes funds to best meet the objectives
of providing useful information.
Diff: 1 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 11.2 Explain what fund accounting presentation is and the reasons to use it.
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,11.3 Define contributions as established in not-for-profit accounting standards and describe the
three types of contributions.
1) Which of the following statements are TRUE?
A) Unrestricted contributions are contributions made in the current year and must be used to provide
services in the current year.
B) Restricted contributions must be used in the year the contributions are received and for a specific
purpose. If they are not used in the year of contribution, the contribution must be returned to the
contributor.
C) Restricted contributions are contributions that are required to be maintained in perpetuity. They are
invested and any investment earnings can be used for the organization's activities.
D) Unrestricted contributions can be used at the discretion of the organization and may be carried over to
future periods if not used up in the current year.
Answer: D
Diff: 1 Type: MC
Taxonomy Category: Remembering
Learning Outcome: 11.3 Define contributions as established in not-for-profit accounting standards and
describe the three types of contributions.
2) Explain what a contribution is to a not-for-profit organization (NFPO) and the types of contributions a
NFPO may receive.
Answer: A contribution is a non-reciprocal transfer to a NFPO of cash or other assets, including
government funding or cancellation of a liability. There are three types of contributions that NFPOs can
receive:
• Endowment contributions, where the NFPO must retain the contributions in perpetuity. The purpose
of an endowment is to generate investment earnings to fund the organization's activities.
• Restricted contributions, where the contributor imposes restrictions on how the funds must be used
to meet the organization's objectives.
• Unrestricted contributions, where the contributions can be used at the discretion of the NFPO to meet
its objectives.
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 11.3 Define contributions as established in not-for-profit accounting standards and
describe the three types of contributions.
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, 11.4 Account for contributions using the deferral method.
1) Mental Health Inc. is a not-for-profit organization that provides mental health services to low-income
individuals in Northern Manitoba. The not-for-profit organization uses the deferral method. How would
Mental Health Inc. account for unrestricted contributions?
A) Unrestricted contributions are deferred and recognized when expenses are incurred.
B) Unrestricted contributions are deferred.
C) Unrestricted contributions are a direct increase to the net assets.
D) Unrestricted contributions are recognized as revenue immediately.
Answer: D
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 11.4 Account for contributions using the deferral method.
2) Jordan contributed $500,000 to MusicForAll (MFA), a not-for-profit organization. Jordan stipulated that
the contribution be invested and cannot be spent. The investment income can be used to provide music
lessons, instruments, etc. to indigenous children living in Northern Canada. MFA uses the deferral
method and reports using fund accounting but does not have an endowment fund. How should MFA
account for the $500,000 contribution?
A) The $500,000 contribution would be recorded as a direct increase to net assets in the general fund.
B) MFA must create an endowment fund and recognize the $500,000 contribution as revenue within that
newly created endowment fund.
C) The $500,000 contribution would be recorded as deferred revenue in the general fund.
D) MFA must create an endowment fund and recognize the $500,000 contribution as deferred revenue
within that newly created endowment fund.
Answer: A
Diff: 2 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 11.4 Account for contributions using the deferral method.
3) Laval Home Services is a not-for-profit organization providing home services to low-income seniors in
Laval, Quebec. Laval Home Services uses the deferral method of accounting for contribution revenues
and has a December 31 year end. On November 20, 2027, it received a contribution restricted for use in
paying staff salaries for the current and future periods. How should the contribution be reported in the
current year?
A) Recognize the full amount as revenue in the current year.
B) Defer the full amount, showing a deferred contribution liability on the SFP.
C) Recognize the full amount as a direct increase in net assets.
D) Recognize revenue to the extent of the salary expense in the current year, and defer the remaining
balance as a deferred contribution liability on the SFP.
Answer: D
Diff: 2 Type: MC
Taxonomy Category: Evaluating
Learning Outcome: 11.4 Account for contributions using the deferral method.
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first. This change ensures all chapters are included in the test bank.
Advanced Financial Accounting in Canada, 2Ce (Johnstone)
Chap 1 to 11 Included
Chapter 11 Accounting for Not-for-Profit Organizations
11.1 Explain the significant characteristics of not-for-profit organizations, how they differ from
profit-oriented organizations, and the basis for the not-for-profit organization accounting
standards (ASNPO).
1) Which of the following statements related to NFPOs is FALSE?
A) A NFPO may sell goods, for profit, in the same manner as a profit-oriented business.
B) A NFPO may have shareholders when specific criteria are met.
C) The NFPO may or may not meet the definition of a registered charity.
D) Contributors to a NFPO do not receive a financial return in return for their contribution.
Answer: B
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 11.1 Explain the significant characteristics of not-for-profit organizations, how they
differ from profit-oriented organizations, and the basis for the non-for-profit organization accounting
standards (ASNPO).
2) A contribution to a not-for-profit organization whose value must be retained is known as:
A) a contribution in kind.
B) a non-reciprocal transfer.
C) an endowment.
D) an investment.
Answer: C
Diff: 1 Type: MC
Taxonomy Category: Remembering
Learning Outcome: 11.1 Explain the significant characteristics of not-for-profit organizations, how they
differ from profit-oriented organizations, and the basis for the non-for-profit organization accounting
standards (ASNPO).
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,3) What is the definition of a not-for-profit organization (NFPO) and how does it differ from other
organizations?
Answer: NFPOs are entities with a specific purpose, normally without transferable ownership interests.
They are organized and operated exclusively for social, educational, professional, religious, health, or
other not-for-profit purposes. Members, contributors, and other resource providers, in such capacity, do
not receive any financial return directly from the organization. There are several differences between for
profit and not-for-profit organizations:
• A NFPO is set up for a specific purpose, rather than a profit-orientated purpose. A NFPO operates to
meet a specific need, be it societal, educational, or other.
• Unlike for-profit organizations, a NFPO does not typically have shareholders. The statement of
financial position of a NFPO would report the net assets rather than having a shareholders' equity
section.
• While a profit-oriented organization issues shares to shareholders, to which they must provide a
return on investment, contributors to a NFPO do not receive a direct financial return from the NFPO.
Diff: 1 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 11.1 Explain the significant characteristics of not-for-profit organizations, how they
differ from profit-oriented organizations, and the basis for the non-for-profit organization accounting
standards (ASNPO).
11.2 Explain what fund accounting presentation is and the reasons to use it.
1) Which of the following statements related to NFPOs is FALSE?
A) Fund accounting presents the net assets and net income in terms of funds.
B) A NFPO is not required to apply fund accounting.
C) A NFPO, choosing fund accounting, may establish funds based on programs, type of activities, or
another method that will provide the users of the statements useful information.
D) If a NFPO has more than one activity or program, it must use fund accounting.
Answer: D
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 11.2 Explain what fund accounting presentation is and the reasons to use it.
2) What is fund accounting, and how are the funds determined?
Answer: Fund accounting is a choice where the NFPO disaggregates the operations into smaller
components to provide users information related to specific areas such as programs, services, or
activities. When fund accounting is chosen by a NFPO, it must include a description of each fund. Funds
can be established by legal, contractual, or voluntary actions of an organization. Each fund is its own set
of self-balancing accounts. The NFPO has flexibility in how it establishes funds to best meet the objectives
of providing useful information.
Diff: 1 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 11.2 Explain what fund accounting presentation is and the reasons to use it.
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,11.3 Define contributions as established in not-for-profit accounting standards and describe the
three types of contributions.
1) Which of the following statements are TRUE?
A) Unrestricted contributions are contributions made in the current year and must be used to provide
services in the current year.
B) Restricted contributions must be used in the year the contributions are received and for a specific
purpose. If they are not used in the year of contribution, the contribution must be returned to the
contributor.
C) Restricted contributions are contributions that are required to be maintained in perpetuity. They are
invested and any investment earnings can be used for the organization's activities.
D) Unrestricted contributions can be used at the discretion of the organization and may be carried over to
future periods if not used up in the current year.
Answer: D
Diff: 1 Type: MC
Taxonomy Category: Remembering
Learning Outcome: 11.3 Define contributions as established in not-for-profit accounting standards and
describe the three types of contributions.
2) Explain what a contribution is to a not-for-profit organization (NFPO) and the types of contributions a
NFPO may receive.
Answer: A contribution is a non-reciprocal transfer to a NFPO of cash or other assets, including
government funding or cancellation of a liability. There are three types of contributions that NFPOs can
receive:
• Endowment contributions, where the NFPO must retain the contributions in perpetuity. The purpose
of an endowment is to generate investment earnings to fund the organization's activities.
• Restricted contributions, where the contributor imposes restrictions on how the funds must be used
to meet the organization's objectives.
• Unrestricted contributions, where the contributions can be used at the discretion of the NFPO to meet
its objectives.
Diff: 2 Type: ES
Taxonomy Category: Understanding
Learning Outcome: 11.3 Define contributions as established in not-for-profit accounting standards and
describe the three types of contributions.
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, 11.4 Account for contributions using the deferral method.
1) Mental Health Inc. is a not-for-profit organization that provides mental health services to low-income
individuals in Northern Manitoba. The not-for-profit organization uses the deferral method. How would
Mental Health Inc. account for unrestricted contributions?
A) Unrestricted contributions are deferred and recognized when expenses are incurred.
B) Unrestricted contributions are deferred.
C) Unrestricted contributions are a direct increase to the net assets.
D) Unrestricted contributions are recognized as revenue immediately.
Answer: D
Diff: 1 Type: MC
Taxonomy Category: Understanding
Learning Outcome: 11.4 Account for contributions using the deferral method.
2) Jordan contributed $500,000 to MusicForAll (MFA), a not-for-profit organization. Jordan stipulated that
the contribution be invested and cannot be spent. The investment income can be used to provide music
lessons, instruments, etc. to indigenous children living in Northern Canada. MFA uses the deferral
method and reports using fund accounting but does not have an endowment fund. How should MFA
account for the $500,000 contribution?
A) The $500,000 contribution would be recorded as a direct increase to net assets in the general fund.
B) MFA must create an endowment fund and recognize the $500,000 contribution as revenue within that
newly created endowment fund.
C) The $500,000 contribution would be recorded as deferred revenue in the general fund.
D) MFA must create an endowment fund and recognize the $500,000 contribution as deferred revenue
within that newly created endowment fund.
Answer: A
Diff: 2 Type: MC
Taxonomy Category: Analyzing
Learning Outcome: 11.4 Account for contributions using the deferral method.
3) Laval Home Services is a not-for-profit organization providing home services to low-income seniors in
Laval, Quebec. Laval Home Services uses the deferral method of accounting for contribution revenues
and has a December 31 year end. On November 20, 2027, it received a contribution restricted for use in
paying staff salaries for the current and future periods. How should the contribution be reported in the
current year?
A) Recognize the full amount as revenue in the current year.
B) Defer the full amount, showing a deferred contribution liability on the SFP.
C) Recognize the full amount as a direct increase in net assets.
D) Recognize revenue to the extent of the salary expense in the current year, and defer the remaining
balance as a deferred contribution liability on the SFP.
Answer: D
Diff: 2 Type: MC
Taxonomy Category: Evaluating
Learning Outcome: 11.4 Account for contributions using the deferral method.
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