CNE Financial Management & Fundraising 2 — Questions and Answers
Question 1: A nonprofit receives a $50,000 grant restricted for program delivery. Where should this be classified on the statement of financial position?
- Unrestricted net assets
- With donor restrictions net assets (Correct answer)
- Temporarily restricted liabilities
- Deferred revenue
Correct answer: With donor restrictions net assets
Grants with donor-imposed restrictions are classified as net assets with donor restrictions per ASC 958.
Question 2: Which fundraising cost ratio benchmark is commonly cited by watchdog organizations like Charity Navigator as a warning threshold?
- Fundraising costs above 5% of total expenses
- Fundraising costs above 35% of total expenses (Correct answer)
- Fundraising costs above 50% of total expenses
- Fundraising costs above 15% of total expenses
Correct answer: Fundraising costs above 35% of total expenses
Most watchdog groups flag fundraising costs exceeding 35% of total expenses as potentially inefficient.
Question 3: A planned giving program receives a bequest commitment from a living donor. How should this be recorded?
- As revenue immediately upon commitment
- Only upon receipt after the donor's death (Correct answer)
- As a conditional contribution when received
- As temporarily restricted revenue upon signing
Correct answer: Only upon receipt after the donor's death
Bequest intentions are not legally binding and should only be recognized as revenue when received.
Question 4: Under IRS regulations, what is the maximum percentage of a nonprofit's activities that can be lobbying before it risks losing 501(c)(3) status under the substantial part test?
- 5% of total activities
- No fixed percentage — 'substantial' is determined case by case (Correct answer)
- 25% of total activities
- 10% of total activities
Correct answer: No fixed percentage — 'substantial' is determined case by case
The IRS 'substantial part test' has no fixed percentage; it evaluates facts and circumstances rather than a bright-line rule.
Question 5: A nonprofit's current ratio is 0.8. What does this indicate?
- The organization has strong short-term liquidity
- Current liabilities exceed current assets, signaling liquidity risk (Correct answer)
- The organization is technically insolvent
- Revenue growth is outpacing expense growth
Correct answer: Current liabilities exceed current assets, signaling liquidity risk
A current ratio below 1.0 means current liabilities exceed current assets, indicating potential difficulty meeting short-term obligations.
Question 6: Which of the following best describes a 'challenge grant' in nonprofit fundraising?
- A grant awarded only after the nonprofit proves financial hardship
- A matching gift where a donor pledges funds contingent on the nonprofit raising a set amount from others (Correct answer)
- A government contract tied to specific performance outcomes
- A grant that must be repaid if program goals are not met
Correct answer: A matching gift where a donor pledges funds contingent on the nonprofit raising a set amount from others
A challenge grant incentivizes additional fundraising by pledging donor funds only if the organization raises a matching amount from other sources.
Question 7: When preparing IRS Form 990, Schedule B is used to report what information?
- Employee compensation above $100,000
- Schedule of contributors who gave $5,000 or more (Correct answer)
- Political expenditures during the fiscal year
- Grants made to other organizations
Correct answer: Schedule of contributors who gave $5,000 or more
Schedule B requires nonprofits to list contributors who gave $5,000 or more during the year, though it is generally not publicly disclosed.
CNE Financial Management & Fundraising 2
A nonprofit receives a $50,000 grant restricted for program delivery.
Where should this be classified on the statement of financial position?