ExpertMedium1 markMultiple Choice
CPA · Question 06 · Area I: Financial Reporting
A nongovernmental not-for-profit organization received a $100,000 cash contribution in Year 1 restricted by the donor for the acquisition of equipment. The equipment was purchased in Year 2. Under ASC 958, how should this contribution be reported in the Statement of Cash Flows for Year 1?
A nongovernmental not-for-profit organization received a $100,000 cash contribution in Year 1 restricted by the donor for the acquisition of equipment. The equipment was purchased in Year 2. Under ASC 958, how should this contribution be reported in the Statement of Cash Flows for Year 1?
Answer options:
A.
Operating activity
B.
Financing activity
C.
Investing activity
D.
Noncash financing activity
How to approach this question
Recall the specific rule for NFP Cash Flows: Cash contributions with donor restrictions for long-term purposes (like buying a building or endowment) are Financing activities.
Full Answer
B.Financing activity✓ Correct
ASC 958-230 requires that cash contributions restricted for the purpose of acquiring, constructing, or improving long-lived assets be classified as financing activities in the statement of cash flows.
Common mistakes
Classifying all contributions as operating; confusing the receipt of cash (financing) with the purchase of the asset (investing).
Practice the full CPA FAR Practice Exam 3
50 questions · hints · full answers · grading
More questions from this exam
Q01Dunn Corp. is preparing its Year 1 balance sheet. The following issues were identified during the...HardQ02On October 1, Year 1, Host Co. approved a plan to dispose of a component of its business. The dis...HardQ03Selected financial information for Zeno Corp. for the year ended December 31, Year 1:<br/>- Cost ...MediumQ04Parch Co. owns 80% of Scribe Inc. During Year 1, Parch sold inventory to Scribe for $500,000. The...HardQ05A company had the following equity transactions in Year 1:<br/>- Jan 1: 100,000 shares outstandin...Hard