ExpertHard1 markMultiple Choice
CPA · Question 08 · Area I: Financial Reporting
A nongovernmental NFP incurred the following expenses:<br/>- Printing of annual report: $10,000<br/>- Unsolicited mailing including an appeal for funds and educational materials (mission-related): $25,000<br/>- Salary of the CEO: $150,000<br/><br/>The mailing does NOT meet the criteria for allocating joint costs (purpose, audience, content). How should these expenses be reported by function?
A nongovernmental NFP incurred the following expenses:<br/>- Printing of annual report: $10,000<br/>- Unsolicited mailing including an appeal for funds and educational materials (mission-related): $25,000<br/>- Salary of the CEO: $150,000<br/><br/>The mailing does NOT meet the criteria for allocating joint costs (purpose, audience, content). How should these expenses be reported by function?
Answer options:
A.
Program Services: $185,000; Supporting Services: $0
B.
Program Services: $0; Supporting Services: $185,000
C.
Program Services: $25,000; Supporting Services: $160,000
D.
Program Services: $0; Supporting Services: $185,000 (assuming CEO is M&G)
How to approach this question
If a fundraising appeal contains educational material but fails the 'criteria for joint costs' (Purpose, Audience, Content), ALL costs are classified as Fundraising (Supporting Services).
Full Answer
D.Program Services: $0; Supporting Services: $185,000 (assuming CEO is M&G)✓ Correct
Because the mailing included an appeal for funds and did not meet the criteria for allocating joint costs (specifically Purpose, Audience, or Content), the entire $25,000 must be classified as Fundraising (a Supporting Service). The annual report is Management & General (Supporting). The CEO salary is typically M&G unless specified otherwise. Thus, all $185,000 are Supporting Services.
Common mistakes
Allocating the educational portion of the mailing to Program Services despite failing the criteria.
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