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National Association of Accountants
Author(s):
Anthony, Robert N.
Functional Area(s):
   Financial Accounting
Setting(s):
   Nonprofit
Difficulty Level: Beginner
Pages: 3
Teaching Note: Available. 
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First Page and the Assignment Questions:

Each December the incoming members of the board of directors of the National Association of Accountants (NAA) met in joint session with the outgoing board as a means of smoothing the transition from one administration to another. At the meeting in December 1995, questions were raised about whether the board had adhered to the general policies of the association. The ensuing discussion became quite heated.

NAA was a nonprofit professional association with 3,000 members. The association published two professional journals, arranged an annual meeting and several regional meetings, appointed committees that developed positions on various topics of interest to the membership, and represented the members before standards-setting bodies.

The operating activities of the association were managed by George Tremble, its executive secretary. Mr. Tremble reported to the board of directors. The board consisted of four officers and seven other members. Six members of the 1996 board (i.e., the board that assumed responsibility on January 1,1996) were also on the 1995 board; the other five members were newly elected. The president served a one-year term.

The financial policy of the association was that each year should “stand on its own feet”; that is, expenses of the year should approximately equal the revenues of the year. If there was a deficit in 1995, this amount would normally be made up by a dues increase in 1996.

At the meeting in December 1995, Mr. Tremble presented an estimated income statement for 1995 (Exhibit 1). Although some of the December transactions were necessarily estimated, Mr. Tremble assured the board that the actual totals for the year would closely approximate the numbers shown.

Wilma Fosdick, one of the newly elected board members, raised a question about the foundation grant of $54,000. She questioned whether this item should be counted as revenue. If it were excluded, there was a deficit; and this showed that the 1995 board had, in effect, eaten into reserves and thus made it more difficult to provide the level of service that the members had a right to expect in 1996. This led to detailed questions about items on the income statement, which brought forth the following information from Mr. Tremble.

  1. In 1995 NAA received a $54,000 cash grant from the Beckwith Foundation for the purpose of financing a symposium to be held in June 1996. During 1995 approximately $2,700 was spent in preliminary planning for this symposium and had been included in the line for Committee Meeting Expenses. When asked why the $54,000 had been recorded as revenue in 1995 rather than in 1996, Mr. Tremble said that the grant was obtained entirely by the initiative and persuasiveness of the 1995 president, so 1995 should be given credit for it. Further, although the grant was intended to finance the symposium, there was no legal requirement that the symposium be held; if for any reason it was not held, the money would be used for the general operations of the association.
  2. In early December 1995 the association took delivery of, and paid for, a new desktop publishing system costing $27,000. This system would greatly simplify the work . . .

Assignment

  1. Did the association have a surplus or a deficit in 1995?
  2. Should the amount of surplus or deficit in 1995 affect the decision to change the annual dues for 1996?