| Course | ACC 497 Advanced Topics in Accounting Research (ACC/497) |
|---|---|
| Week | 4 |
| Paper type | Nonprofit reporting research memo |
| Length | about 1,047 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 497 Week 4
Selling a Painting to Fix the Roof: Researching Collection Accounting, the Direct Care Question and What a Composite Art Museum Must Disclose if the Board Proceeds
[Student Name]
University of Phoenix
ACC/497: Advanced Topics in Accounting Research
Week 4 Assignment
[Instructor Name]
[Date]
The museum, the painting and all figures are composites written for a model paper; standards and research findings come from the sources listed.
A composite regional art museum holds about 11,000 works, mostly American paintings, prints and decorative arts. Its roof over the gallery wing and collection storage leaks in heavy rain, and a replacement will cost $1.9 million. The museum's operating reserves are thin after two years of reduced attendance. A trustee proposed selling a large 19th-century river scene, rarely exhibited because it is outside the museum's current focus, which an auction house estimates would bring about $2.8 million. The accounting question is narrow, but its answer tells the board what it would be giving up besides a painting. This paper researches the reporting consequences.
Why the Collection Is Not on the Balance Sheet
Nonprofits may choose not to recognize contributed collection items as assets if the collection meets three conditions: the items are held for public exhibition, education or research in furtherance of public service rather than financial gain; they are protected, kept unencumbered, cared for and preserved; and the organization is subject to a policy that requires the proceeds from sales of collection items to be used to acquire other items, for direct care of existing collections or both (FASB ASC 958-360-25-3; Financial Accounting Standards Board, 2025). The museum has never capitalized its collection, consistent with most art museums, and its financial statements disclose that policy.
The 2019 Update
Before 2019, the third condition referred to acquisitions only, and museums differed on whether proceeds could be used for conservation. The FASB amended the definition of collections to allow proceeds to be used for the direct care of existing collections and to require organizations to disclose their policy for the use of proceeds, including whether proceeds may be used for direct care (Financial Accounting Standards Board, 2019). The update did not define direct care; it left that to each organization's policy.
The museum's board adopted a policy in 2020 stating that proceeds may be used for acquisitions and for direct care, defined as conservation, restoration and other expenditures that preserve or enhance the physical condition of collection objects. The policy states that general building maintenance and operating costs are not direct care.
Is the Roof Direct Care?
The trustee argues that the roof protects the collection, since water threatens works in storage. That connection is real, but the museum's policy distinguishes spending on objects from spending on the building. A roof serves the whole building, including offices and the café, and is general building maintenance under the policy's own words. The accounting guidance does not prevent a museum from defining direct care more broadly, but the museum has already defined it, disclosed that definition and relied on it to keep its collection off the balance sheet. Using proceeds for the roof would depart from the policy.
Path One: Sell the Painting and Use Proceeds Within Policy
If the board sells the painting and restricts the $2.8 million for acquisitions and conservation, the museum reports the proceeds as a separate line, proceeds from sale of collection items, in the statement of activities. Because the policy restricts their use, the museum classifies them in a manner consistent with that restriction and discloses the sale. The roof still needs funding from another source, such as a capital campaign or borrowing.
Path Two: Sell the Painting and Use Proceeds for the Roof
If proceeds are used for the roof, the museum no longer meets the condition that proceeds be used only for acquisitions or direct care under its policy. Its election not to capitalize would be called into question, and it could be required to capitalize its collection, an enormous and costly valuation exercise. It would also have to disclose the departure. The professional standards of museum associations, which consider using proceeds for general operations a serious breach, could lead to sanctions such as loan embargoes from other museums.
Timing and Measurement of the Sale
If the sale proceeds, the museum records no gain or loss in the usual sense, because the painting has no carrying amount. The full proceeds, less the auction house's commission, are reported in the period of sale. The auction is scheduled for May, after the museum's March 31 year end, so the sale would appear in next year's statements; this year's notes would disclose the board's decision as a subsequent event if it is made before the statements are issued. The appraisal used for insurance, $2.5 million, is not recorded anywhere in the statements, but the difference between it and the auction estimate is a useful reminder that collection values are uncertain until tested in a sale.
Donors
The painting was given in 1968 by a local family whose descendants remain members. The gift carried no legal restriction, but the museum's gift agreement at the time stated an intention to keep the work in the public trust. The executive director recommends contacting the family before any sale. Krishnan et al. (2006) found evidence that some nonprofits manage reported ratios to appeal to donors, a reminder that donor trust is built on consistent reporting as well as on programs.
Recommendation
The museum should not use collection proceeds for the roof. If the board still wishes to sell the painting because it falls outside the collecting plan, it should do so through its deaccession process, restrict the proceeds for acquisitions and conservation as its policy requires and disclose the sale. The roof should be financed separately; a capital campaign emphasizing protection of the collection is likely to attract donors, and a short-term loan could bridge the timing.
The Accountant's Role
The controller's role is to explain the reporting consequences, not to make the board's decision. The memo lays out both paths, their disclosures and the risk to the museum's accounting policy, so trustees can decide with full information.
Conclusion
Research in Subtopic 958-360 and the 2019 update shows that the museum's ability to keep its collection off the balance sheet rests on its policy for using sale proceeds. The roof is not direct care under that policy. Selling the painting for the roof would undermine the policy and the museum's standing; selling it within policy, and funding the roof another way, preserves both.
References
Financial Accounting Standards Board. (2019). Not-for-profit entities (Topic 958): Updating the definition of collections (Accounting Standards Update No. 2019-03).
Financial Accounting Standards Board. (2025). FASB Accounting Standards Codification. https://asc.fasb.org
Krishnan, R., Yetman, M. H., & Yetman, R. J. (2006). Expense misreporting in nonprofit organizations. The Accounting Review, 81(2), 399-420. https://doi.org/10.2308/accr.2006.81.2.399
What the ACC 497 Week 4 instructions ask
The ACC 497 Week 4 assignment generally presents a nonprofit organization facing a reporting decision and asks students to research the guidance, analyze the options and recommend a course of action. Typical topics include contributions and conditions, donor restrictions and their release, collections and their capitalization, split-interest agreements, functional expense allocation and net asset classification. Students usually state the facts and issue, locate the relevant Codification paragraphs and updates, analyze how each option would be reported, consider stakeholders such as donors, boards and regulators and conclude with a recommendation. Citations should be at the paragraph or update level, with research on nonprofit reporting where relevant.
How this ACC 497 Week 4 example is built
A museum's proposal to sell art for building repairs is a real and recurring controversy, and the accounting guidance on collections speaks directly to it. The paper starts with why most museums do not capitalize their collections and the conditions that allow that choice. It then examines the 2019 update that tied those conditions to a written policy on the use of sale proceeds and introduced the phrase direct care. The roof proposal is tested against that language. Two paths follow, with their reporting consequences described in the statement of activities and notes. The recommendation considers donors, the professional museum community and the museum's own policy, and a closing note addresses the role of the accountant in a board decision.
ACC 497 Week 4 grading rubric: where the points go
The grading for nonprofit dilemmas usually rewards a precise statement of the issue, correct identification of the governing guidance, analysis of each option's reporting effects and a recommendation that weighs stakeholders. Faculty check that the conditions for not capitalizing collections are stated, that the use-of-proceeds policy and its disclosure are addressed, that the effect of using proceeds outside the policy is analyzed and that net asset classification and presentation of sale proceeds are correct. Balanced treatment of the board's financial need earns credit. Paragraph-level citations, a professional tone, attention to donors and references to relevant updates and research complete the rubric.
ACC 497 Week 4 help: mistakes to avoid
A common ACC 497 Week 4 mistake is treating the museum's collection like any other asset and discussing depreciation. Most museums elect not to capitalize collections, and the conditions for that election are the heart of the case. Another is assuming that any building repair counts as care of the collection. Read the policy and the update's language, and explain why general building costs usually do not qualify. Students also forget that the museum must disclose its policy on proceeds. Analyze both options, including what happens if the museum departs from its policy. Consider donors who gave the painting. Finally, remember that the accountant's role is to inform the board, not to make the decision.
Related ACC 497 sample papers
Other ACC 497 week samples
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- ACC 497 Week 2: Researching a Revenue Issue
- ACC 497 Week 3: Acceptable Alternatives in GAAP
- ACC 497 Week 5: A Comprehensive Research Memo
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ACC 497 Week 4 questions, answered
What does ACC/497 Week 4 usually cover?
It usually covers a nonprofit reporting dilemma, such as collections, donor restrictions or contributions, requiring research, analysis of options and a recommendation.
Where can I find a free ACC 497 Week 4 sample paper?
The art museum collection memo on this page, covering capitalization, the direct care question and disclosure, is free to read with margin notes. Send your own nonprofit case and the opening draft costs nothing.
Do museums have to capitalize their collections?
No, if the items are held for public exhibition, education or research, are protected and cared for and the proceeds from sales are used for acquisitions or direct care of existing collections under the museum's policy.
What is direct care of collections?
The phrase refers to spending that directly preserves or enhances the collection items themselves, such as conservation; the museum's policy must define it, and general operating or building costs usually fall outside it.
How are proceeds from selling uncapitalized collection items reported?
As a separate line in the statement of activities, classified as with or without donor restrictions depending on donor stipulations and the museum's policy.
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