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Jersey Published simultaneously in Canada Portions of this book have been reprinted from Financial and Accounting Guide for Not-for-Profit Organizations, 6th Edition, by Malvern J Gross, Jr., Richard F Larkin, and John H McCarthy, Copyright © 2000 by John Wiley & Sons, Inc Reprinted by permission of John Wiley & Sons, Inc Portions of this book have been reprinted from Wiley GAAP 2002, Interpretation and Application of Generally Accepted Accounting Principles, by Patrick R Delaney, Barry J Epstein, Ralph Nach, and Susan Weiss Budak, Copyright © 2001 by John Wiley & Sons, Inc Reprinted by permission of John Wiley & Sons, Inc Portions of this book have their origin in the AICPA Audit and Accounting Guide: Not-for-Profit Organizations (NFP Audit Guide) These are noted by reference in each chapter Copyright © by the American Institute of Certified Public Accountants, Inc., Harborside Financial Center, 201 Plaza 3, Jersey City, NJ 07311 Portions of this book have their origin in copyrighted materials from the Financial Accounting Standards Board These are noted by reference to the specific pronouncement Complete copies are available directly from the FASB Copyright © by the Financial Accounting Standards Board, 401 Merritt 7, P.O Box 5116, Norwalk, Connecticut 06856-5116, USA No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750–8400, fax (978) 646–8600, or on the Web at www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748–6011, fax (201) 748–6008, or online at www.wiley.com/go/permissions Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation You should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762–2974, outside the United States at (317) 572–3993, or fax (317) 572–4002 Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-on-demand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com ISBN 978-1-119-39618-5 (Paperback) ISBN 978-1-119-39620-8 (ePDF) ISBN 978-1-119-39619-2 (ePub) ISBN 978-1-119-39616-1 (obk) Printed in the United States of America 10 Contents Prefacevii About the Authors ix Not-for-Profit Accounting Literature xi Part Overview of Not-for-Profit Organizations Chapter Overview of Not-for-Profit Organizations Chapter Cash versus Accrual-Basis Accounting Part Basic Financial Statements 11 21 Chapter Statement of Financial Position 23 Chapter Statement of Activities 31 Chapter Statement of Cash Flows 41 Chapter Other Financial Statement Issues 57 Part Specific Not-for-Profit Accounting Topics 75 Chapter Fund Accounting 77 Chapter Net Assets 89 Chapter Contributions, Pledges, Noncash Contributions, and Exchange Transactions 99 Chapter 10 Investments 145 Chapter 11 Affiliated Organizations 165 Chapter 12 Split-Interest Agreements 187 Chapter 13 Fundraising and Joint Costs 197 Chapter 14 Functional Reporting 211 Chapter 15 Collections 217 Part Other Accounting-Related Not-for-Profit Topics 221 Chapter 16 Accounting for Specific Types of Not-for-Profits 223 Chapter 17 Importance of Budgets to a Not-for-Profit 237 Chapter 18 Principal Federal and State Tax Reporting and Regulatory Requirements 255 Part General Accounting Topics Applied to Not-for-Profit Organizations 317 Chapter 19 Current Assets and Current Liabilities 319 Chapter 20 Inventory 327 Chapter 21 Long-Lived Assets, Depreciation, and Impairment 335 Chapter 22 Intangible Assets 347 Chapter 23 Contingencies 355 v Contents vi Chapter 24 Mergers and Acquisitions 371 Chapter 25 Accounting for Pensions and Postretirement Benefits 387 Chapter 26 Long-Term Liabilities 423 Chapter 27 Accounting Changes 441 Chapter 28 Accounting for Leases 447 Chapter 29 Financial Instruments 483 Chapter 30 Capitalization of Interest Costs 495 Appendix: Disclosure Checklist 501 Index531 PREFACE Not-for-profit accounting is a specialized field of accounting that is receiving a growing level of attention Over one million not-for-profit organizations currently operating in the United States have unique accounting and financial reporting issues that must be understood by a growing number of not-for-profit organization financial statement preparers and users The Financial Accounting Standards Board (FASB) has issued a series of statements and accounting standards updates that have significantly affected how not-for-profit organizations account for and report their activities and financial position In 2016 the FASB issued an Accounting Standards Update that brings some important changes to certain aspects of the financial reporting model used by not-for-profit organizations The FASB has also been active in many areas that affect a broad range of business and other organizations, including not-forprofit organizations For example, financial instruments, intangible assets, pension obligations, fair value measurements, revenue recognition, and lease accounting have all been areas that have been impacted by recent FASB pronouncements All of these topics are examined in detail in this book This book incorporates the codification of accounting standards into the FASB Accounting Standards Codification (the “Codification” or “FASB ASC”) The FASB essentially eliminated the statements on standards and other accounting literature and replaced them with the FASB ASC, which is updated by Accounting Standards Updates as the mechanism of promulgating changes in generally accepted accounting principles Despite the steady stream of accounting pronouncements that affect not-for-profit organizations, it’s important to understand that accounting standards setting has been influenced by a great deal of recent change The Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board (PCAOB), which has responsibility for setting auditing and other standards for public companies Even with all of the new requirements and changes, the FASB continues to set generally accepted accounting principles for both public and nonpublic entities, including not-for-profit organizations However, the FASB’s agenda has focused more on issues affecting public companies, which has likely been influenced by the changes in the regulatory environment and issues highlighted by the numerous accounting shortcomings, and by the turmoil that was experienced in the financial markets This changed a bit as the FASB established a Not-for-Profit Advisory Committee, which has reexamined the reporting model used by not-forprofit organizations and has made suggestions to the FASB to improve the financial reporting of these organizations Some of these changes have been promulgated in an Accounting Standards Update issued in 2016 Additional changes may well result from future FASB deliberations In addition, the American Institute of CPAs (AICPA), through technical practice aids, industry risk alerts, and accounting and auditing guides, continues to be an important contributor to the body of accounting principles used by not-for-profit organizations It also significantly revised its accounting and audit guide for not-for-profit organizations in the recent past vii viii Preface This book is designed as a complete and easy-to-use reference guide for financial statement preparers and users, as well as for auditors of not-for-profit organizations It focuses on three key areas: • Distinguishing characteristics of not-for-profit organizations and their financial accounting and reporting; • Accounting areas that are unique to not-for-profit organizations; • General areas of accounting that are applicable to the accounting and financial reporting of not-for-profit organizations This book would not have been possible without the hard work and efforts of many individuals John DeRemigis and Pam Reh contributed greatly to the production efforts over many years The authors are greatly appreciative of their efforts as well as those of the current editorial and production teams Richard F Larkin, CPA Marie DiTommaso February 2018 ABOUT THE AUTHORS Richard F Larkin is technical director of not-for-profit accounting and auditing for BDO USA, LLP, in McLean, Virginia Previously he was the technical director of the Not-for-Profit Industry Services Group in the national office of PricewaterhouseCoopers He is a certified public accountant with over forty years of experience serving not-for-profit organizations as independent accountant, board member, treasurer, and consultant He teaches, speaks, and writes extensively on not-for-profit industry matters and is active in many professional and industry organizations He has been a member of the Financial Accounting Standards Board Not-forProfit Advisory Task Force and the AICPA Not-for-Profit Organizations Committee, and chaired the AICPA Not-for-Profit Audit Guide Task Force He participated in writing both the third and fourth editions of Standards of Accounting and Financial Reporting for Voluntary Health and Welfare Organizations, and the AICPA Practice Aid, Financial Statement Presentation and Disclosure Practices for Not-for-Profit Organizations He graduated from Harvard College and has an MBA from Harvard Business School He is a coauthor of the fourth, fifth, and sixth editions of Financial and Accounting Guide for Not-for-Profit Organizations, which were published by John Wiley & Sons, Inc Marie DiTommaso has thirty years of experience in accounting and financial reporting in both the not-for-profit and commercial accounting environments She began her career with KPMG after graduating from Queens College of the City University of New York Later in her career, she joined the American Express Company and then Dun & Bradstreet Corporation, both to develop, write, and implement accounting policies and procedures After leaving these corporate organizations, Ms DiTommaso served as the chief financial officer of a not-for-profit organization Ms DiTommaso has served as President of the Bergen County chapter of the New Jersey Women Business Owners Association, and as an advisor to its Board of Directors ix NOT-FOR-PROFIT ACCOUNTING LITERATURE Cross-references between the FASB Accounting Standards Codification (ASC) and Previous Guidance As more fully described in Chapter 1, the source of all authoritative generally accepted accounting principles for not-for-profit organizations is now contained in the FASB Accounting Standards Codification (ASC) The following tables cross-reference several of the more common ASC sections with the prior FASB pronouncements to assist readers in navigating the ASC References in these charts to the AICPA Audit & Accounting Guide are to the 2012 edition of the Guide Some chapters have been rearranged in the 2013 edition An additional table in this section provides the reader with a list of the relatively recently issued (2013 through September 2015) Accounting Standards Updates (“ASUs,” which amend the ASC) issued by the FASB Most of the ASUs will not affect the accounting and financial reporting for many, if not all, not-for-profit organizations and are not discussed in this book However, it is important for the reader to be aware of the changes being made to the ASC so that any potential impacts of these changes can be evaluated Note that several ASUs beginning in 2014 are the result of consensus of the FASB’s Private Company Council, which provides a simplified method of accounting and reporting for certain transactions of private business entities These ASUs are not applicable to not-for-profit organizations Where a specific ASU is addressed in a chapter of this book, that chapter is indicated in the table ASC-from previous: ASC 958- Subject Matter 10 20 30 205 210 225 230 310 320 325 360 405 450 470 605 715 720 805 Overall Financially-interrelated entities Split-interest agreements Presentation of financial statements Balance sheet Income statement Statement of cash flows Receivables Investments—debt and equity securities Investments—other Property, plant, and equipment Liabilities Contingencies Debt Revenue recognition Compensation—retirement benefits Other expenses Combinations Previous Guidance (primarily) AAG (AICPA Audit Guide) Ch Para 15.04 FAS 136 AAG Ch DIG B-35 FAS 117, FSP 117-1, FAS 124 FAS 117 FAS 117, others FAS 117, AAG Ch FAS 116, AAG Ch & others FAS 124, AAG Ch FAS 124, FSP 124-1, AAG Ch FAS 116, FAS 93, AAG Ch 7, AAG Ch 10, 11, 13, EITF D-089 FAS 116, AAG Ch 10, AAG Ch 10 FAS 116, FAS 136, AAG Ch FAS 87, 88, 106, 132 (R), 158 FAS 117, SOP 98-2, AAG Ch 13 FAS 164 xi 528 Wiley Not-for-Profit GAAP 2018 Purchases, sales, issuances, and settlements (gross); _ Transfers in and/or out of Level (for example, transfers due to changes in the observability of significant inputs) _ d The amount of the total gains or losses for the period in subparagraph c.(1) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities) _ e Disclosures about inputs and valuation techniques A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements These disclosures are required for fair value measurements that fall in either Level or Level and include a description of the valuation technique (or multiple valuation techniques) used, such as the market approach, income approach, or the cost approach, and the inputs used in determining the fair values of each class of assets or liabilities If there has been a change in the valuation technique(s) (for example, changing from a market approach to an income approach or the use of an additional valuation technique), the reporting entity shall disclose that change and the reason for making it _ For assets and liabilities that are measured at fair value on a nonrecurring basis in periods subsequent to initial recognition (for example, impaired assets), has the following information for each interim and annual period (except as otherwise specified) separately for each class of assets and liabilities been disclosed? (FASB ASC 820-10-50) a The fair value measurements recorded during the period and the reasons for the measurements _ b The level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3) _ c For fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs _ d In annual periods only, the valuation techniques(s) used to measure fair value and a discussion of changes, if any, in the valuation techniques(s) used to measure similar assets and/or liabilities in prior periods _ e Disclosures about inputs and valuation techniques A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements These disclosures are required for fair value measurements that fall in either Level or Level and include a description of the valuation technique (or multiple valuation techniques) used, such as the market approach, income approach, or the cost approach, and the inputs used in determining the fair values of each class of assets or liabilities If there has been a change in the valuation technique(s) (for example, changing from a market approach to an income approach or the use of an additional valuation technique), the reporting entity shall disclose that change and the reason for making it _ The quantitative disclosures required by FASB ASC 820-10-50 should be presented using a tabular format Appendix: Disclosure Checklist 529 The reporting entity is encouraged, but not required, to combine the fair value information disclosed under this Statement with the fair value information disclosed under other accounting pronouncements in the periods in which those disclosures are required, if practicable The reporting entity also is encouraged, but not required, to disclose information about other similar measurements, if practicable (FASB ASC 820-10-50) The following disclosures are required by FASB ASC 820-10-50 for items measured at fair value under the option in this Statement As of each date for which a statement of financial position is presented, has the following been disclosed? a Management’s reasons for electing a fair value option for each eligible item or group of similar eligible items _ b If the fair value option is elected for some but not all eligible items within a group of similar eligible items: A description of those similar items and the reasons for partial election; _ Information to enable users to understand how the group of similar items relates to individual line items on the statement of financial position _ c For each line item in the statement of financial position that includes an item or items for which the fair value option has been elected: Information to enable users to understand how each line item in the statement of financial position relates to major categories of assets and liabilities presented; _ The aggregate carrying amount of items included in each line item in the statement of financial position that are not eligible for the fair value option, if any _ d The difference between the aggregate fair value and the aggregate unpaid principal balance of: Loans and long-term receivables (FASB ASC 320-10-15) that have contractual principal amounts and for which the fair value option has been elected _ Long-term debt instruments that have contractual principal amounts and for which the fair value option has been elected _ e For loans held as assets for which the fair value option has been elected: The aggregate fair value of loans that are 90 days or more past due; _ If the entity’s policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status; _ The difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both _ f For investments that would have been accounted for under the equity method if the entity had not chosen to apply the fair value option, the information required by FASB ASC 323-1, The Equity Method of Accounting for Investments in Common Stock _ For each period for which an income statement is presented, has the following about items for which the fair value option has been elected been disclosed? (FASB ASC 825-10-50) 530 Wiley Not-for-Profit GAAP 2018 a For each line item in the statement of financial position, the amounts of gains and losses from fair value changes included in earnings during the period and in which line in the income statement those gains and losses are reported (An entity is not precluded from meeting this requirement by disclosing amounts of gains and losses that include amounts of gains and losses for other items measured at fair value, such as items required to be measured at fair value.) _ b A description of how interest and dividends are measured and where they are reported in the income statement _ c For loans and other receivables held as assets: The estimated amount of gains or losses included in earnings during the period attributable to changes in instrument-specific credit risk _ How the gains or losses attributable to changes in instrument-specific credit risk were determined _ d For liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk: The estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; _ Qualitative information about the reasons for those changes; _ How the gains and losses attributable to changes in instrument-specific credit risk were determined _ The disclosure requirements in FASB ASC 825-10-50 not eliminate disclosure requirements included in other GAAP pronouncements, including other disclosure requirements relating to fair value measurement In annual periods only, have the methods and significant assumptions used to estimate the fair value of items for which the fair value option has been elected been disclosed? _ If an entity elects the fair value option at the time one of the events in FASB ASC 82510-25 occurs, has the following been disclosed in financial statements for the period of the election? a Qualitative information about the nature of the event _ b Quantitative information by line item in the statement of financial position indicating which line items in the income statement include the effect on earnings of initially electing the fair value option for an item _ Wiley Not-for-Profit GAAP 2018: Interpretation and Application of Generally Accepted Accounting Principles By Richard F Larkin and Marie DiTommaso Copyright © 2018 by John Wiley & Sons, Inc Index Note: page numbers followed by n indicate note numbers accelerated depreciation methods 337–338 accounting for monetary assets and liabilities, 428 for pensions and postretirement benefits, 387–422 push down, 379–380 for uncertainty in income taxes, 363–373 accounting changes  441–446 accounting estimates, 442, 445 accounting principles, 441–445 accounting requirements, 442–443 by affiliated organizations, 180–182 checklist, 502 disclosures, 446 equity securities, 161 error corrections, 446 interim reporting, 70 perspective and issues, 441–446 reporting entities, 442, 445–446 unrestricted contributions, 101 accounting principles  441–445 changes made in interim period, 444–445 checklist, 501 justification for change, 444 Accounting Standards Updates (ASUs) 7–10 2009-12, 151–152 2010-6, 112–113, 149 2010-07, 371 2010-11, 485–486 2010-17, 121 2010-28, 352 2010-29, 381, 384 2011-04, 149–150 2011-7, 34 2011-8, 352 2011-11, 324 2012-02, 350–351 2012-05, 51 2013-03, 491 2013-04, 359–360 2013-06, 110–111, 169 2013-10, 486 2013-12, 8, 74 2014-05, 455–456 2014-09, 121–122, 125 2014-15, 367–368 2014-17, 380 2015-01, 70 2015-02, 171 2015-04, 394 2015-5, 349–350 2015-07, 151, 152 2015-11, 333 2015-14, 125 2016-02, 448, 450 2016-07, 161 2016-10, 126-127 2016-14, 9–10, 25–26, 31, 59, 90, 97, 211, 320, 337 2016-15, 45 2016-18, 43–44 2017-01, 172 2017-02, 170 2017-04, 351 2017-07, 395 2017-12, 484 2018-01, 450 accrual basis accounting advantages, 15–16 versus cash, 11–19 combination with cash basis accounting, 16–17 requirements, 18 statement example, 12 accrued pension cost  389 accumulated benefit obligation 389 accumulated postretirement benefit obligation  389 acquisitions see mergers and acquisitions actual return on plan assets  389 actuarial present value  389 advertising 106–107 income, 275 affiliated organizations  165–185 accounting by beneficiaries, 180–182 531 affiliates of a common parent, 167 asset-holding affiliate, 166 concepts, rules, and examples, 166–168 consolidations and equity method guidance, 173–174 control checklist, 184–185 disclosures, 175–176, 183 financially interrelated not-forprofit organizations, 172–173 fundraising affiliate of a “parent” organization, 166 investments in for-profit entities, 170–172 pass-through gifts, 176–179 perspective and issues, 165 program activity affiliate, 166–167 recipient organization, 178–179 related-party disclosures, 168–169 reporting entity definition, 168 support, 213 transfer of assets that are not contributions, 182–183 types of relationships, 166–168 agency transactions reporting, 48 agent definition, 178 AICPA see American Institute of Certified Public Accountants American Institute of Certified Public Accountants (AICPA)  67 amortization  389, 398 assets, intangible, 348–349 of unrecognized amount at date of initial SFAS 87 application, 400 of unrecognized prior service cost, 399–400 annual information return  266 annuities 166 charitable gift annuity, 193 annuity contract  389–390, 396 appropriation accounting  225 asset-holding affiliate  166 532 assets accounting, 428 acquired with gifts or grants, 499x checklist for intangible, 517–518 current, 319–326 elements of change in net assets, 32–33 expropriation, 358 gifts of long-lived, 52 long-lived checklist, 516–517 mergers and acquisitions, 375–377 noncurrent, 322 offsetting, 26–28 purchases of long-term, 49 receipts and disbursements, 179 sales of long-term, 50 assets, intangible  347–353 amortization, 348–349 concepts, rules, and examples, 347–353 disclosure requirements, 353 goodwill, 351 internally developed, 348, 349–351 perspective and issues, 347 recognition and measurement of an impairment loss, 351–352 recording, 347–348 useful life determination, 348 zero or negative reporting units, 352–353 assets, long-lived  335–346 to be disposed of, 342, 345–346 changes in depreciation calculations, 340 concepts, rules, and examples, 336–345 contributed, 336–337 cost, 336 depreciation and, 345 depreciation methods, 337–338 disclosure requirements, 345–346 example, 343–344 impaired, 345 impairment, 340 partial-year depreciation, 339 perspective and issues, 335 recoverability, 340–342 retirement obligations, 343–345, 346 Index associations see also trade associations appropriation accounting, 225 functional reporting, 224 section or group reporting, 224–225 separate charitable organizations, 225 assumptions  390, 407 ASUs see Accounting Standards Updates attribution 36 attribution period  390 balance sheet sample, 87–88 bargain purchases  101, 450 bargain renewal option  450, 457 beneficiaries accounting by affiliated organizations, 180–182 bequests 119–120 see also contributions board-designated funds  81 budgets, 250 boards of directors  board-created fund, 79–80 board-designated endowments, 91 bonds 423–427 bookkeepers 226 books value, 228 borrowing interfund, 85–86 budgets action by the board, 250 allocation of annual budget to monthly or quarterly periods, 242–243 alternate presentation, 246–247 comparisons, 246, 248 deviations from, 249–250 expense, 243–244, 245–246 five-year master plan, 251–253 functions of, 237–238 importance, 237–254 interim statements, 244 levels of reserves, 239–241 monthly and quarterly, 242–244 perspective and issues, 237 preparation, 238–241 responsibility for preparation, 241 statement of income and expenses, 248 variable, 247, 249 business combination accounting 468 callable obligations  325 capitalization of interest costs 495–500 amount of interest capitalized, 496–498 assets acquired with gifts or grants, 499 concepts, rules, and examples, 495–499 disclosure requirements, 500 land, 499 perspective and issues, 495 requirements, 499 on tax-exempt borrowings, 499 time period, 498 capital leases  456–461 capital shares clubs, 227 career-average-pay formula  390 cash basis accounting versus accrual basis accounting, 11–19 advantages, 13–15 churches, 226 combination with accrual statements, 16–17 concepts, rules, and examples, 11–18 conversion to accrual basis statement example, 17 definition, 43–44 legal requirements, 18–19 modified, 17–18 operating activities, 47–48 perspective and issues, 11 predominance principle, 46 statement example, 12 cash flows checklist, 523–524 direct method statement, 52–53 from financing activities, 51 gross and net, 49–51 hedges, 489 indirect method statement, 53–54 from investing activities, 49 charitable gift annuity  193 charitable lead trust  191–192 charitable organizations  225 Federal and State tax reporting and regulatory requirements, 259–261 Index 533 charitable remainder annuity trusts (CRAT)  192 charitable remainder trust 192–193 charitable remainder unitrusts (CRUT) 193 charities  167, 267–269 contribution acknowledgment, 267 excise taxes, 268 individual tax deductions, 268–269 solicitation disclosures, 267–268 churches see also religious organizations adequacy of bookkeeping staff, 226 cash basis accounting, 226 fixed assets and depreciation, 226 clubs 226–228 see also country clubs capital shares, 227 fixed asset accounting, 227 initiation fees, 227 unrelated business income, 228 CMO see collateralized mortgage obligation Codification 7 collateralized mortgage obligation (CMO)  146 collections 217–220 see also museum collections capitalized after adoption of SFAS 116, 219 capitalized items, 218–219 checklist, 518 concepts, rules, and examples, 218–219 disclosure requirements, 219–220 items not capitalized, 219 perspective and issues, 217–218 colleges 155–156 community foundations  231n1, 233 comparative financial information 57–58 concepts, rules, and examples, 58 disclosure requirements, 58 perspective and issues, 57 conduit debt obligors  74 consolidations 173–174 contingencies 355–369 accounting for uncertainty in income taxes, 363–364 checklist, 504–505 concepts, rules, and examples, 356–363 consideration payments, 45 disclosure requirements, 365–369 financial statements, 71 gain, 363 going concern, 367–368 loss, 356–362 obligations, 323 perspective and issues, 355–356 contingent consideration payments 45 contingent rentals  450 contracts costs of obtaining, 125 costs to fulfill, 125–126 definition, 122 for goods or services from restricted grants, 130–131 performance obligations, 122–123 recording of revenue, 234 termination costs, 437 contributed facilities  229 contribution disclosures  267 checklist, 521–522 contributions  50, 99–143 see also bequests; pledges accounting for contributions received checklist, 132 accounting for unrestricted contributions, 101 acknowledgment, 267 concepts, rules, and examples, 100–127 costs to fulfill contract with customer, 125–126 disclosure requirements, 142–143 donor-restricted, 33 exchange transactions, 120–125 fair value, 111, 118 fundraising, 203–204 gifts-in-kind, 106–113 perspective and issues, 99–100 program ownership checklist, 141–142 purpose-restricted checklist, 128–129 reporting on a gross basis, 101–102 restricted, 51, 103–106 support not currently expendable, 113–120 troubled debt restructurings, 127 unrestricted, 100–103 contributory plan  390, 407 control 173 affiliated organization checklist, 184–185 definition, 172, 184 corporate-owned life insurance policies proceeds, 45 cost flow assumptions, 330 costumes 230 country clubs see also clubs membership shares, 52 coupon interest rates  45 CRAT see charitable remainder annuity trusts creditors 127 FASB ASC 314-10, 434–435 credit risk  489–490 CRUT see charitable remainder unitrusts current assets  319–326 classification, 320–321 description, 320–321 offsetting, 323–324 current liabilities  319–326 callable obligations, 325 offsetting, 323–324 perspective and issues, 319–320 current restricted fund  81 current unrestricted fund  80 curtailment 390 dealer  451, 454 death see bequests debt checklist, 520–521 conduit obligors, 74 extinguishment costs, 45, 427, 429 long-term, 51 prepayment, 45 restructurings, 430–436 settlement, 431 short-term, 51 debtors 430–431 debt securities definition, 146 deferred compensation contracts 410 534 defined benefit pension plan  388, 390 defined contribution pension plan  388, 390, 418 Definition of a Public Business Entity—an Addition to the Master Glossary 8 depreciation 335–346 accelerated method, 337–338 assets and, 345 changes in calculations, 340 checklist, 516–517 churches, 226 group (composite) method, 338 methods, 337–338 partial-year, 339 replacement method, 338 retirement method, 338 straight-line method, 337 depreciation accounting private schools, 235 derivative instruments  483–486 checklist, 525–526 definition, 484 split-interest agreements, 194–195 Derivatives Implementation Group (DIG)  188, 194 DIG see Derivatives Implementation Group direct costing inventory, 329 disaggregation level, 112 disclosures accounting changes, 446 affiliated organizations, 175–176, 183 assets, intangible, 353 assets, long-lived, 345–346 capitalization of interest costs, 500 checklist, 501–530, 529–530 collections, 219–220 comparative financial information, 58 contingencies, 365–369 contributions, 142–143 fair value of services received but not recognized, 143 Financial Accounting Standards Board, 402–403 financial instruments, 486–489, 490–491 full, 410–413 functional reporting, 214–215 Index fundraising, 207 guarantees, 368–369 inventory, 334 investments, 152–153, 162–164 lease checklist, 503 leases, 478–481 long-term liabilities, 438 net assets, 94–95, 95–97 pensions and postretirement benefits, 410–422 reduced requirements for nonpublic entities, 416–422 related-party, 16–169 solicitation, 267–268 split-interest agreements, 196 statement of activities, 39–40 statement of cash flows, 53–54 statement of financial position, 30 discounts measurement, 150–151 dividend income, 50 donations inventory, 333 versus purchase checklist, 133–134 donor-restricted contributions  33 investments, 153–154 donors deductibility of charitable contributions, 269 name of donor fund, 82 stipulations, 97 dues public broadcasting stations, 236 economic interest  173 definition, 172 election dates  492 employers see also multiemployer plans with two or more postretirement plans, 416 endowments board-designated, 91 donor-restricted funds, 153–154 gains and losses, 64 gifts, 113 net assets reporting, 93–94 quasi-endowment fund, 79–80 restricted income, 65, 81 environmental remediation liability 438–439 EPBO see expected postretirement benefit obligation equity method  164 accounting, 159 affiliated organizations, 173–174 calculations, 161–162 changes, 161 distributions, 45–46 equity securities application, 160–162 definition, 146 impairment, 156–159 error corrections  446 estimated residual value  458 exchange transactions  120–125 allocation of transaction price, 124 contract with customer, 122 performance obligations in the contract, 122–123 revenue, 124–125 transaction price determination, 123 excise tax  262–263, 262n6 charities, 268 private foundation, 363 executory costs  451, 457 exempt status  270 expected long-term rate of return on plan assets  391, 398 expected postretirement benefit obligation  391, 406–410 expected return on plan assets  391, 399 expendable current support 100–106 unrestricted contributions, 100–103 expenses analysis, 66 budgets, 245 classification, 33–34 example of analysis, 66 gross amounts, 34 performing arts organizations, 229–230 recognition, 68–69 statement of activities, 33 explicit approach to assumptions 391 facilities use  110 fair value  264n9 assets, intangible, 351 checklist, 527–530 definitions, 111–112, 147, 391 disclosures, 148–151, 490–491 financial instruments, 490–491 Index 535 hedges, 489 leased property, 451, 455–456 measurement in premiums and discounts, 150–151 measurement option, 491–493 mergers and acquisitions, 376–377 reporting changes, 493 services received but not recognized, 143 FASB see Financial Accounting Standards Board FASB ASC  715–20 accounting requirements for pensions and postretirement benefits, 401–410 Federal and State tax reporting and regulatory requirements 255–315 annual information returns, 277 charitable organizations, 259–261 importance of reporting requirements, 256–258 initial registration, 276–277 intermediate sanctions, 257 noncharitable exempt organizations, 270–273 organizations exempt from tax, 258–259 principal federal tax forms filed, 278–283 private foundations, 261–266 private inurement, 258 private operating foundations, 266–267 registration and requirements, 276–277 reports by recipients of federal support, 277–278 return inspection, 277 state compliance requirements, 283–285 title-holding companies, 272–273 trade associations, 272 unrelated business income, 273–276 FIFO see first-in  first out final-pay formula  391 finance cash flows, 51 Financial Accounting Standards Board (FASB)  business combinations, 403–404 disclosure requirements, 402–403 funded status of a singleemployer defined benefit postretirement plan, 401–402 measurement date of plan assets and benefit obligations, 402 multiemployer plans that provide benefits, 414–416 multiemployer plans that provide postretirement benefits other than pensions, 416 non-US pension arrangements, 403 other pension considerations, 403–404 plan settlements and curtailments, 404–405 postretirement benefits other than pensions, 405–406 termination benefits, 405 financial assets definition, 492 financial instruments  483–493 checklist, 524–525 concepts, rules, and examples, 483–493 credit risk concentration, 489–490 derivative instruments, 483–486 disclosure requirements, 486–489 election dates, 492 fair value disclosures, 490–491 fair value measurement option, 491–493 perspective and issues, 483 reporting changes in fair value, 493 financial liability definition, 492 financial position checklist, 512 financial statements  5–6 available to be issued, 73 changes in individual funds, 65 columnar presentations, 61, 62 comparison with last year’s figures, 64 complexity, 59–60 contingent items, 71 contributions, 104 disclosure requirements, 71 expense budgets, 245 financial position, 64–65 fourth quarter adjustments, 71 fund accounting, 83–85 income and expenses, 248 interim reporting, 66–71, 333–334 internal, 80 issued, 73 net assets, 94–95 performing arts organizations, 230 presentation, 35–39 religious organizations, 233 split-interest agreements, 190 supplementary, 63 financing activities  43 noncash, 52 nonrecourse, 453, 469–470 financing agreement  325 first-in, first out (FIFO)  330–331 fiscal years differences, 161 discrepancies, 161–162 501(c)(2) 272–273 501(c)(3)  257, 363 501(c)(4) 257 five-year master plan  251–253 development, 251 estimating costs, 251–252 example, 253 illustrative, 252 income plan, 252 procedures, 251–252 setting goals, 251 fixed asset accounting clubs, 227 museum collections, 229 performing arts organizations, 230 fixed asset fund  81–82 fixed assets  106 churches, 226 public broadcasting stations, 236 flat-benefit formula  391 Form 990  257, 278–282, 286–311 Form 990-EZ  282, 298–315 Form 990-EZ, short form  282, 312–315 Form 990-N, e-postcard  282 Form 990-PF  266, 306–311 Form 990-PF, return of private foundation 282–283 Form 990-T, exempt organization business income tax return  283 Form K-1s  274 for-profit organizations affiliated organization investments, 170–172 536 foundations see private foundations excise tax, 363 fourth quarter adjustments  71 fraternities 167 “Friends of ” organizations 166 full absorption costing inventory, 328–329 full eligibility (for benefits)  391 functional reporting  211–215 affiliated organizations, 213 associations, 224 checklist, 522–523 classification of expenses for more than one function, 213–214 concepts, rules, and examples, 212–214 cost of sales of contributed inventory, 214 disclosure requirements, 214–215 functional classifications, 212–214 perspective and issues, 211 professional societies, 224 program services, 212 reporting example, 214, 215 supporting services, 212–213 fund 391 definition, 78 fund accounting  77–88 alternative fund groupings, 82–83 board created, 79–80 categories of funds, 80–82 concepts, rules, and examples, 79–88 elimination of funds for reporting purposes, 86–88 perspective and issues, 77–78 sample balance sheet, 87–88 typical financial statements, 83–85 fund balance definition, 78 funding policy  391 fundraising  106–107, 197–209 concepts, rules, and examples, 198–207 contributed items, 203–204 disclosure requirements, 207 joint costs, 198–204 perspective and issues, 197–198 Index reporting no fundraising expenses, 206–207 reporting special events, 204–206 gain 391 gain (loss) component of net pension cost  399 gain contingencies  363 gain or loss component (of net periodic pension cost)  391–392 gains classification, 33–34 endowment, 64 statement of activities, 33 generally accepted accounting principles 7–10 gifts annuities, 166 capitalization of interest costs, 499 charitable gift annuity, 193 conditional versus restricted checklist, 138–140 endowment, 113 fund accounting, 81 long-lived assets, 52 pass-through, 176–179 gifts-in-kind 106–113 disclosures about valuation techniques, 113 fixed assets, 106 fundraising, 106–107 museum collections, 106 services provided by other organizations, 110–113 use of facilities, 110 valuation techniques, 111–113 volunteer services, 107–109 goodwill assets, intangible, 351 impairment test, 351–352 mergers and acquisitions, 377–378, 379 grants capitalization of interest costs, 499 contracts for goods or services, 130–131 prepayment versus cost-reimbursement, 105 private foundations, 231–233 public broadcasting stations, 235 research and scientific organizations, 234 for specific projects, 105–106 group (composite) depreciation method 338 guarantee of residual value  452, 457 guarantees loss contingencies, 360–362 the Guide see Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies “haircuts,” 150 health care organizations  182 functional reporting, 211 health organizations  156 hedges cash flow, 489 fair value, 489 IFRS see International Financial Reporting Standards impairment 335–346 recognition and measurement of a loss, 351–352 implicit interest rate  451 inception of the lease  451, 457 income distribution, 263–265 dividend, 50 interest, 50 recognition of pledges, 119 restricted income from endowments, 65 unrelated business income, 228 income taxes accounting for uncertainty contingencies, 363–364 checklist, 527 interim reporting, 70 investments, 161 uncertainty in provisions, 275–276 incremental borrowing rate  451 initial direct costs  451–452, 451n1 initial direct leasing costs  461 initiation fees  227 insurance claims loss contingencies, 358 proceeds from settlement, 45 insurance contract  390n1 intangible assets checklist, 517–518 interest cost component capitalization of interest costs, 495–500 Index 537 of new periodic pension cost, 392 interest-free loans  101 interest income  50 interest rates coupon, 45 example of applying effective interest method, 426–427 factors affecting, 424 implicit, 451 interfund borrowing  85–86 interim reporting  66–71 accounting changes, 70 concepts, rules, and examples, 67–71 disclosure requirements, 71 discontinued operations and extraordinary items, 70 inventories, 69 perspective and issues, 66–67 public entities, 73–74 revenue and expense recognition, 68–69 subsequent events, 72–73 unrelated business income taxes, 70 intermediary definition, 177–178 Internal Revenue Code (IRC)  225, 258 Internal Revenue Service (IRS) 240–241 International Financial Reporting Standards (IFRS)  27, 150 inurement, private  258 inventories interim reporting, 69 inventory 327–334 checklist, 515 concepts, rules, and examples, 328–334 cost flow assumptions, 330 direct costing, 329 disclosure requirements, 334 donated, 333 first-in, first-out, 330–331 full absorption costing, 328–329 functional reporting of cost of sales of contributed inventory, 214 interim financial statements, 333–334 last-in, first-out, 331–333 lower of cost or market, 331–332 perspective and issues, 327–328 valuation, 328 values in business combinations, 334 investing activities  42 noncash, 51–54 investment income  154–156 excise tax, 262–263 unrestricted, 60 investments  50, 145–164 accounting rules, 159–160 alternative, 156 cash flows, 49 checklist, 512–515 concepts, rules, and examples, 146–162 disclosure requirements, 162–164 disclosures, 152–153 donor-restricted endowment funds, 153–154 equity method of accounting, 159 expenses, 154–155 fair value disclosures, 148–151 impairment of equity securities reported at cost, 156–159 income, 51 liquidity restrictions, 152–153 loans acquired in a transfer, 153 net asset value per share, 151–152 noncash, 50, 51–52 perspective and issues, 145 pooling, 155–156 reporting realized gains and losses, 147 sale, 147 investment securities  106 IRC see Internal Revenue Code irrevocable split-interest agreements 189–190 recognition during agreement’s term, 190 recognition upon termination of agreement, 190 unconditional, 189–190 IRS see Internal Revenue Service joint costs  198–204 allocation checklist, 208–209 audience criterion, 202–203 criteria, 201 guidance, 199–200 incidental activities, 203 program functions, 201–202 purpose criterion, 201 understanding, 199 kick-out rights  171–172 land capitalization of interest costs, 499 last-in, first-out (LIFO)  69, 331–333 LCM see lower of cost or market leases 447–481 accounting for changes in lease agreements resulting from refunding of tax-exempt debt, 469 accounting in a business combination, 468 change in residual value, 466 changes in provisions, 466–467 checklist, 503 classification, 453–454 components, 449–450 concepts, rules, and examples, 453–478 definitions of terms, 449, 450–453 description, 452 direct costs, 461–462 direct financing, 454–456, 463–466 disclosure requirements, 478–481 effective date, 450 extension, 453 failure to renew, 457 inception, 451 lessee accounting, 448–449 lessor accounting, 449 leveraged, 454–456, 466 operating, 456, 461 perspective and issues, 447–450 real estate, 473–478 related and unrelated parties in leasing transactions, 453 between related parties, 468 renewal, 453 renewal or extension of existing lease, 467–468 reporting, 478 sale-leaseback transactions, 471–474 538 leases (continued ) sale or assignment to third parties, 469–470 sales-type, 454–456, 462 sublease accounting, 470–471 termination, 467 transfers of residual value, 470 lease term  452 legalities for cash basis accounting, 18–19 legislation Pension Protection Act of 2006, 257 Taxpayer Relief Act of 1997, 257 Tax Reform Act of 1969, 259–260 Tax Reform Act of 1976, 258n1 Uniform Management of Institutional Funds Act of 1972, 94 Uniform Prudent Management of Institutional Funds Act of 2006, 93–94 lessee accounting  448–449 classification, 453–454 disclosure requirements, 478–479 leases involving land and building, 475 leases involving land only, 474–475 real estate, 478 lessor accounting  449, 475–477 classification, 454 disclosure requirements, 480–481 real estate, 474–475, 478 “letter of the law” accounting standards 4–5 liabilities accounting, 428 current, 319–326 long-term, 423–439 noncurrent, 322–323 offsetting, 26–28 libraries 228 life insurance proceeds, 45 LIFO see last-in, first-out liquidity 24–26 investments, 152–153 restrictions in investments, 152–153 litigation loss contingencies, 359 Index loan guarantees  101 loans acquired in a transfer, 153 receivable, 50 lobbying expenses  272 long-term assets purchases, 49 sales, 50 long-term debt  51 long-term liabilities  423–439 accounting for costs associated with exit or disposal activities, 435–438 concepts, rules, and examples, 423–435 contract termination costs, 437 disclosures, 438 environmental remediation liability, 438–439 extinguishment of debt, 427, 429 notes and bonds, 423–427 one-time termination benefits, 436–437 perspective and issues, 423 recognition, 436 restructuring with gain/loss recognized, 431–432 restructuring with no gain/loss recognized, 432–433 scope, 435–436 statement of activities presentation, 437–438 troubled debt restructurings, 430–435 loss 391 loss contingencies  356–362 allowance for uncollectible receivables, 358 claims-made insurance policies, 358 contract revenue concentration, 367 contributor concentration, 367 expropriation of assets, 358 general rules, 356–357 guarantees, 360–362 joint and several liability, 359–360 litigation and claims, 359 noncompliance with donor or grantor restrictions, 357–358 revenue concentration, 366 risks and uncertainties, 365 uninsured risks, 360 vulnerability, 366 losses classification, 33–34 endowment, 64 statement of activities, 33 lower of cost or market (LCM) 331–332 majority voting interest definition, 174 managed fund groups  83 manufacturer  451, 454 market-related value of plan assets  392, 398 master plan see five-year master plan measurement date  392, 407 mergers and acquisitions 371–385 accounting for a merger, 373–374 accounting for an acquisition, 374–378 assets required and liabilities assumed, 375–377 consideration transferred, 378 definitions, 372 determining acquisition date, 375 disclosures for a merger, 380–381 disclosures for an acquisition, 381–385 distinguishing between, 372–373 goodwill acquired, 377–378, 379 goodwill previously recognized, 379 identifying the acquirer, 374–375 measurement period, 379 perspective and issues, 371 presentation, 379 push down accounting, 379–380 minimum lease payments  452, 456–457 minimum rental payments  452, 457 mortality rate  392 multiemployer plans  418 that provide benefits, 414–416 that provide postretirement benefits other than pensions, 416 museum collections  106, 228–229 see also collections contributed facilities, 229 fixed asset accounting, 229 Index 539 valuing the collection as an asset, 228–229 national charities  167 net assets  89–97 board-designated endowment, 91 classification reported in a prior year, 93 concepts, rules, and examples, 90–95 disclosure requirements, 95–97 elements of change, 32–33 endowment fund reporting, 93–94 financial statement presentation, 94–95 permanently restricted, 92–93 perspective and issues, 89–90 presentation of information, 58–66 temporarily restricted, 92 unrestricted, 90–92 net pension expense  392 net periodic pension cost  392 NFP see not-for-profit organizations noncancelable lease  453, 457 noncharitable exempt organizations 270–273 noncurrent assets  322 noncurrent liabilities  322–323 “nonexchange” transactions  nonmonetary transactions checklist, 501 nonrecourse financing  453, 469–470 notes 423–427 example of accounting for note exchanged for property, 425–426 noncash transactions, 425 receivable, 50 used for cash, 424–425 Not-for-Profit Entities (Topic 958) Presentation of Financial Statements of Not-for-Profit Entities  9, 23, 96, 319–320 not-for-profit (NFP) organizations affiliations with other organizations, 165–185 boards of directors, differences between profit organizations and, 5–6 disclosure of fair value of services received but not recognized, 143 financially interrelated, 172–173 financial statements, 5–6 generally accepted accounting principles, 7–10 importance of budgets, 237–254 information about, 35 overview, 3–10 ownership interest, 172 perspective and issues, 3–10 purpose, seasonality, 71 specific types, 223–236 obligations callable, 325 contingent, 323 disclosure requirements, 326 expected to be refinanced, 325–326 OPEB see other postemployment benefits operating activities  43 adjustments, 48–49 direct method presentation, 46–47 indirect method presentation, 47–48 interim reporting of discontinued operations, 7070 reporting discontinued, 48 operating lease  461 other postemployment benefits (OPEB)  388–389, 405–406 ownership interest  172 definition, 172 parent organization  166 pass-through gifts  176–179 PBGC see Pension Benefit Guaranty Corporation penalty 453 Pension Benefit Guaranty Corporation (PBGC)  396 Pension Protection Act of 2006 257 pensions and postretirement benefits 387–422 accounting requirements of FASB ASC 715-20, 401–410 amendments, 396 checklist, 506–510 commitment, 396 concepts, rules, and examples, 393–401 defined benefit, 388, 390 defined contribution, 388, 390 definitions of terms, 389–393 disclosure requirements, 410–422 disclosure standards, 389 interest cost component, 397 other postemployment benefits, 388–389 perspective and issues, 387–389 service costs, 396 summary of net periodic pension costs, 400–401 vested benefit obligations, 395 performance obligation definition, 122 performing arts organizations 229–230 costumes and stage scenery as fixed assets, 230 expense recognition, 229–230 financial statement presentation, 230 ticket revenue, 230 perpetual trust held by third party, 192 plan amendment  392 pledges 113–119 see also contributions allowance for uncollectible, 117–118 assessment checklist, 135–137 checklist, 518–520 conditional versus restricted checklist, 138–140 conditions versus restrictions, 114–115 discounted to present value, 115–117 discounting cash contributions, 118–119 for extended periods, 117 public broadcasting stations, 236 recognition as income, 119 recording as asset, 114 pooled (life) income fund 193–194 pooling of investments  155–156, 168 postretirement benefits  392 see also pensions and postretirement benefits predominance principle  46 premiums measurement, 150–151 prepaid pension cost  392 540 prior service cost  392 Private Company DecisionMaking Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies 8 private foundations  231–233 annual information return, 266 community, 233 distribution of income, 263–265 excise tax on investment income, 262–263 Federal and State tax reporting and regulatory requirements, 261–266 investments that jeopardize exempt functions, 266 prohibited expenditures, 266 prohibited transactions, 265 recording liability for grants awarded, 231–233 self-dealing, 266 tax consequences of gifts of securities, 263 private operating foundations 266–267 advantages, 267 qualifying tests, 266–267 private schools  234–235 accounting manual, 235 depreciation accounting, 235 professional societies appropriation accounting, 225 functional reporting, 224 section or group reporting, 224–225 separate charitable organizations, 225 profit organizations differences between not-forprofit organizations and, 5–6 pro forma information, supplemental 383–384 program activity affiliate 166–167 projected benefit obligation  392 promise to give see pledges property economic life, 451 residual value, 451 public broadcasting stations 235–236 accounting guidance, 235 donated services of volunteers, 236 fixed assets, 236 Index grants received/program underwriting, 235 member dues/pledges, 236 program production costs, 236 public entities conduit debt obligors, 74 definition, 74 interim reporting, 73–74 mergers and acquisitions, 383 push down accounting mergers and acquisitions, 379–380 quasi-endowment fund  79 real estate leases, 473–478 leases involving equipment and, 477 leases involving land and building—­lessee accounting, 475 leases involving land only—­ lessee accounting, 475 leases involving only part of building, 477 sale-leaseback accounting, 473–474 recipient organization  178–179 reclassifications  33–34, 60 statement of activities, 33 recognition expenses, 68–69 revenues, 68–69 refinancing short-term obligations, 325–326 registration requirements 276–277 related-party definition, 169 disclosures, 168–169 leases between, 468 related entities, checklist, 510–511 transactions checklist, 501–502 religious organizations  167 see also churches allocations from other organizations, 233 financial statements, 233 other than churches, 233 remainder trusts  166 replacement depreciation method 338 reporting see also Federal and State tax reporting and regulatory requirements contributions on a gross basis, 101–102 elimination of funds for reporting purposes, 86–88 interim, 66–71 investments, 147 reporting entity definition, 168 research and scientific organizations 233–234 recording future grant awards, 234 timing of recording contract revenue, 234 reserves 239–241 restricted endowment fund  81 retirement conditional asset retirement obligation, 343–344 depreciation method, 338 long-lived asset obligations, 343, 346 retroactive benefits  392 revenues classification, 33–34 gross amounts, 34 recognition, 68–69 statement of activities, 32–33 timing of recording, 234 revocable split-interest agreements 188 “right of setoff,”  27 risks checklist, 511 uninsured, 360 sale-leaseback accounting  49, 471–474 sanctions 257 schools see private schools scientific organizations see research and scientific organizations seasonality 71 SEC see United States Securities and Exchange Commission securities equity, 156–159 securitization transactions  46 segment disposal  405 self-dealing 266 service cost component (of net periodic pension cost)  393 service efforts  392 statement of activities, 35 Index 541 services to affiliated organizations, 213 program services, 212 provided by other organizations, 110–113 supporting, 212–213 settlement 393 SFAS  116, 219 short-term debt  51 short-term obligations expected to be refinanced, 325–326 sick leave  326k social and recreation clubs exempt status, 270 Federal and State tax reporting and regulatory requirements, 270–273 membership shares, 52 substantiation requirements, 270–271 unrelated business income, 271–272 solicitation disclosures  267–268 sororities 167 special events  204–206 special-purpose entities (SPEs) 174 SPEs see special-purpose entities split-interest agreements  187–196 see also trusts charitable gift annuity, 193 charitable lead trust, 191–192 charitable remainder trust, 192–193 concepts, rules, and examples, 188–195 description, 188 disclosure requirements, 196 with embedded derivative instruments, 194–195 examples, 191 financial statement presentation, 190 irrevocable, 189–190 perpetual trust held by third party, 192 perspective and issues, 187–188 pooled (life) income fund, 193–194 revocable, 188 stage scenery  230 standalone selling price  124 state compliance requirements 283–285 registration for organizations having assets within the state, 284–285 registration for organizations soliciting funds, 284 statement of activities  31–40, 60 checklist, 521 classification of revenues, expenses, gains and losses, and reclassifications, 33–34 concepts, rules, and examples, 32–35 contributions, 102 disclosure requirements, 39–40 elements of change in net assets, 32–33 financial statement presentation, 35–39 information about an organization’s operations, 35 information about an organization’s service efforts, 35 information about gross amounts of revenues and expenses, 34 long-term liabilities, 437–438 perspective and issues, 31 volunteer services, 109 statement of cash flows  41–55 cash and cash equivalents, 43–46 classification, 42–43, 44 concepts, rules, and examples, 42–54 direct method statement, 52–53 disclosure requirements, 54–55 from financing activities, 51 gross and net, 49–51 indirect method statement, 53–54 from investing activities, 49 noncash investing and financing activities, 51–52 operating activities presentation, 46–49 perspective and issues, 41–42 statement of financial position 23–30 acceptable formats, 28–29 classified, 29 concepts, rules, and examples, 23–29 disclosure requirements, 30 liquidity, 24–26 offsetting assets and liabilities, 26–28 perspective and issues, 23 sequenced, 28–29 statements accrual-basis, 12 cash-basis, 12 straight-line depreciation method 337 sublease accounting  470–471 subsequent events  72–73 checklist, 505 definition, 72 nonrecognized, 72–73 recognized, 72 subsidiary purchase or sale, 50 substantive plan  393 support not currently expendable, 113–120 taxes see Federal and State tax reporting and regulatory requirements advice, 275 consequences of gifts of securities, 263 excise, 262–263, 262n6, 268 on income of a taxable subsidiary of a nonprofit organization, 364 individual deductions, 268–269 organizations exempt from, 258–259 tax-exempt borrowings, 499 on unrelated business income, 363 Taxpayer Relief Act of 1997  257 tax rates estimate, 70 unrelated business income, 275 Tax Reform Act of 1969  259–260 Tax Reform Act of 1976  258n1 ticket revenue  230 title-holding companies  272–273 unrelated business income, 273 Topic 958 see Not-for-Profit Entities (Topic 958) Presentation of Financial Statements of Not-forProfit Entities trade associations Federal and State tax reporting and regulatory requirements, 272 lobbying expenses, 272 unrelated business income, 272 trade shows  275 Index 542 transactions “nonexchange,” price, 123 transition obligation  393, 407 troubled debt restructurings 127 trustee definition, 178 third party, 191 trusts see also split-interest agreements perpetual, 192 remainder, 166 20% accounting method rule  160 UBI see unrelated business income UMIFA see Uniform Management of Institutional Funds Act of 1972 underwriting public broadcasting stations, 235 unfunded accumulated benefit obligation 393 unfunded accumulated postretirement benefit obligation  393 unguaranteed residual value  453 Uniform Management of Institutional Funds Act of 1972 (UMIFA) 94 Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA) 93–94 United States Securities and Exchange Commission (SEC)  7, 66 universities 155–156 unrecognized net gain or loss  393, 398 unrecognized prior service cost 393 unrelated business income (UBI)  273–276, 363–364 caveats, 275 definition, 273–275 exclusions, 274–275 need for competent tax advice, 275 tax rates, 275 title-holding companies, 273 uncertainty in income tax provisions, 275–276 unrelated parties  453 unrestricted investment income 60 UPMIFA see Uniform Prudent Management of Institutional Funds Act of 2006 vacation 326 valuation change in provisions of lease, 466–467 change in residual value, 466 disclosures about techniques used, 113 estimated residual value, 458 guarantee of residual value, 452, 457 inventory, 328 techniques, 111–113 transfers of residual lease value, 470 unguaranteed residual value, 453 values in business combinations 334 volunteer services  107–109 functional reporting, 211 public broadcasting stations, 236 statement of activities, 109 voting interest  173 definition, 174 welfare organizations  156 functional reporting, 211 “write-ups,” 150 zero-coupon debt instruments settlement, 45 ... 2017-15 2018- 01 2018- 02 11 22 25 10 29 28 Part Overview of Not- for- Profit Organizations Wiley Not- for- Profit GAAP 2018: Interpretation and Application of Generally Accepted Accounting Principles. .. enquiry @wiley. com.sg Wiley Not- for- Profit GAAP 2018 Interpretation and Application of GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Richard F Larkin Marie DiTommaso Cover design and image: Wiley Copyright... Wiley Not- for- Profit GAAP 2018 Typically, not- for- profit organizations are controlled by boards of directors composed of individuals who generally volunteer their time The size of not- for- profit