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Not-for-profit accounting — CPA FAR practice questions

20 multiple-choice questions and 17 flashcards on Not-for-profit accounting, about 5% of the CPA FAR bank. Every one carries a written rationale.

Written and maintained by Nick Burton · last updated 2026-08-22 · how we write and review questions

What this chapter covers

Not-for-profit accounting is one of 6 chapters in CoStudy's CPA — Financial Accounting & Reporting (FAR) [Core] bank, and it holds 20 of the bank's 410 multiple-choice questions — roughly 5% of the total. That proportion is not arbitrary: chapters follow the certifying body's published exam outline, and the number of questions in each is set by that domain's published weight, so the share of your practice time this chapter takes matches the share of the real exam it accounts for.

Studying by chapter is worth doing once you have a diagnostic score. A single overall percentage tells you whether you are close; it does not tell you which domain is dragging. Working a weak chapter in isolation, and re-testing it in isolation, is the fastest way to move a score that has stalled — and it is why the mock exams in CoStudy report by domain rather than as one number.

Free Not-for-profit accounting practice questions

5 questions drawn from this chapter, with the full rationale shown — the controlling principle behind the right answer, and why each wrong option tempts and fails.

Under ASU 2016-14, an NFP's net assets are classified as:

  1. Restricted, temporarily restricted, and permanently restricted assets
  2. With donor restrictions and without donor restrictions collectively
  3. Board-designated, endowment, and general operating assets
  4. Current, noncurrent, and permanent equity components collectively

Answer: B — With donor restrictions and without donor restrictions collectively

A) That is the pre-2016-14 three-class model. B) Correct - the current two-class model. C) Board designations sit within without-donor-restrictions. D) Those are commercial categories.

In a split-interest agreement where a not-for-profit is the trustee, changes in the value of trust assets and revised actuarial assumptions about the life-income beneficiary's payments are recognized as:

  1. An adjustment to contribution revenue in the year the trust agreement terminates
  2. Change in the value of split-interest agreements in the statement of activities
  3. A direct adjustment of net assets without donor restrictions, bypassing activities
  4. A note disclosure only, deferred until the trust is settled with the beneficiary

Answer: B — Change in the value of split-interest agreements in the statement of activities

B) correct - both the trust assets and the beneficiary liability are remeasured each period, and the net effect is reported in the statement of activities. A) Deferring the true-up to termination leaves every interim period stale. C) Adjusting net assets directly would bypass the statement that reports the change. D) Disclosure without recognition understates the reported obligation and interest.

An NFP's spending policy allows appropriation from an endowment fund based on a percentage of a trailing multi-year average fair value (a 'total return' spending approach). This spending policy is:

  1. A permissible application of UPMIFA's prudence standard, subject to donor restrictions
  2. Prohibited by UPMIFA, which limits spending to current-year realized investment income
  3. Without effect on net asset classification or on the required endowment disclosures
  4. A change in accounting principle to be reported whenever the averaging period changes

Answer: A — A permissible application of UPMIFA's prudence standard, subject to donor restrictions

A) correct - a total-return rate applied to a smoothed multi-year value is a common way to exercise the prudence judgment the statute calls for. B) Confining spending to current realized income describes the older regime UPMIFA replaced. C) The spending policy must be disclosed and interacts with appropriation of restricted amounts. D) Applying an established formula is not a change in accounting principle.

Under ASU 2016-14, an NFP must report expenses by:

  1. Natural classification only (salaries, occupancy, supplies, etc.)
  2. Functional classification only (program, management, and fundraising)
  3. Only in the notes without any statement-level classification required
  4. Both natural and functional classifications in the financial statements

Answer: D — Both natural and functional classifications in the financial statements

D) Correct - expenses must be analyzed by both nature and function, in a statement, a schedule, or the notes. A) Natural detail alone hides how resources served the mission. B) Functional detail alone hides the nature of the spending. C) Some presentation of the analysis is required.

Under ASU 2020-07, contributed nonfinancial assets are measured for recognition purposes at:

  1. Fair value, the measurement basis for contributions that the standard left unchanged
  2. The donor's adjusted tax basis in the asset immediately before the contribution
  3. The lower of the donor's original cost and the recipient's estimated resale value
  4. Net realizable value, based on the proceeds the organization expects on disposal

Answer: A — Fair value, the measurement basis for contributions that the standard left unchanged

A) correct - the standard changed presentation and disclosure only; contributed nonfinancial assets are still recognized at fair value. B) The donor's tax basis is not a GAAP measurement for the recipient. C) A lower-of-cost-or-resale rule does not exist for contributions. D) Expected disposal proceeds do not set the initial recognition amount.

Not-for-profit accounting flashcards

4 cards from the 17 in this chapter.

Net asset classifications?

Without donor restrictions, with donor restrictions.

What disclosures does ASU 2020-07 require by category of gift-in-kind?

Whether the assets were monetized or utilized (and how), any donor restrictions, valuation techniques/inputs used, and the organization's monetization/utilization policy.

What must NFPs disclose about underwater endowments under ASU 2016-14?

Aggregate fair value, aggregate original gift amount (or level required), aggregate deficiency, and the organization's spending policy for such funds.

Remeasuring a split-interest liability each period?

Changes in trust value/actuarial assumptions flow through the statement of activities as change in value of split-interest agreements.

Practise the full chapter

These are a sample. The full Not-for-profit accounting chapter runs 37 items with per-chapter progress tracking, on the web and in the iOS app.

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