CPA Exam - FAR (Financial Accounting and Reporting)Not-for-Profit EntitiesEasy
A not-for-profit (NFP) organization received a cash contribution of $150,000 to be used specifically for the construction of a new community center. The NFP also received an unrestricted cash donation of $50,000. How should these contributions be reported in the Statement of Activities?
- AThe $150,000 contribution should be reported as an increase in net assets with donor restrictions, and the $50,000 as an increase in net assets without donor restrictions.
- BThe $150,000 contribution should be reported as an increase in net assets without donor restrictions, and the $50,000 as an increase in net assets with donor restrictions.
- CBoth contributions should be reported as increases in net assets with donor restrictions.
- DBoth contributions should be reported as increases in net assets without donor restrictions.
Show answer & explanationAnswer & explanation
Correct answer: A. The $150,000 contribution should be reported as an increase in net assets with donor restrictions, and the $50,000 as an increase in net assets without donor restrictions.
Contributions with donor-imposed restrictions are recognized as increases in net assets with donor restrictions. Unrestricted contributions are recognized as increases in net assets without donor restrictions. Therefore, the construction fund is restricted, and the other donation is unrestricted.
Why the other options are wrong
- B. This is incorrect as the types of restrictions are reversed for both contributions.
- C. This is incorrect because the $50,000 contribution is explicitly stated as unrestricted.
- D. This is incorrect because the $150,000 contribution has a donor-imposed restriction for a specific purpose.
Donor-Restricted Contributions
Contributions that have donor-imposed stipulations on their use, which must be reported as increases in net assets with donor restrictions until the conditions are met.
- Donor-imposed restrictions dictate how funds are used.
- Reported as 'net assets with donor restrictions'.
- Released to 'net assets without donor restrictions' when restrictions are met.
Memory trick: Donors' wishes dictate where the gifts go on the financial statements.