CPA Exam — REG (Regulation)Federal Taxation of EntitiesMedium
A client, a publicly supported tax-exempt organization, received a substantial gift from a donor. The gift was unrestricted and will be used for the organization's general operating expenses. In which net asset classification should this gift be reported on the organization's financial statements?
- ANet Assets without Donor Restrictions
- BTemporarily Restricted Net Assets
- CPermanently Restricted Net Assets
- DNet Assets with Donor Restrictions
Show answer & explanationAnswer & explanation
Correct answer: A. Net Assets without Donor Restrictions
Unrestricted contributions, intended for general operating expenses, are classified as Net Assets without Donor Restrictions. The terms 'Temporarily Restricted' and 'Permanently Restricted' are no longer used in current FASB ASC 958, but rather fall under 'Net Assets with Donor Restrictions'.
Why the other options are wrong
- B. Incorrect. This terminology is outdated; 'Net Assets with Donor Restrictions' is the current term.
- C. Incorrect. This terminology is outdated; 'Net Assets with Donor Restrictions' is the current term.
- D. Incorrect. This category is for assets with specific donor-imposed restrictions.
NFP Net Asset Classification (Unrestricted)
Net Assets without Donor Restrictions include contributions and other resources that are not subject to donor-imposed stipulations.
- Used for general operations or board-designated purposes
- Formerly called 'Unrestricted Net Assets'
- Reflects resources available for current use without external constraint
Memory trick: NFP's asset pie: no strings, or with strings, for all to see.