A not-for-profit organization received a $100,000 contribution from a donor with the stipulation that the funds must be used to purchase a specific piece of medical equipment. The organization purchased the equipment for $100,000 during the same fiscal year. How should this contribution be reported in the Statement of Activities?
- AAs a contribution without donor restrictions, as the restriction was met in the same period.
- BAs a contribution with donor restrictions, then released from restriction when the equipment is purchased, resulting in zero net impact for the year.
- CAs a contribution with donor restrictions, and remain as such until the equipment is fully depreciated.
- DAs an increase in permanently restricted net assets.
Show answer & explanationAnswer & explanation
Correct answer: B. As a contribution with donor restrictions, then released from restriction when the equipment is purchased, resulting in zero net impact for the year.
Contributions with donor restrictions are recognized as 'with donor restrictions' revenue when received. When the restriction is met (e.g., the equipment is purchased), a 'release from restrictions' is reported, reclassifying the net assets from 'with donor restrictions' to 'without donor restrictions'. If the restriction is met in the same period as the contribution, the net effect on 'net assets with donor restrictions' for the contribution and release is zero, but both events are reported.
Why the other options are wrong
- A. Even if the restriction is met in the same period, it was initially a donor-restricted contribution and must be reported as such, with a corresponding release.
- C. Restrictions related to capital assets are typically released when the asset is placed in service, not over its depreciation period, unless specifically stated by the donor.
- D. This is a temporary restriction (for a specific purpose), not a permanent restriction, so it does not affect permanently restricted net assets.
Contributions with Donor Restrictions (NFP)
Contributions to a not-for-profit organization that are subject to donor-imposed stipulations on their use. These restrictions can be temporary (e.g., for a specific program, time, or purpose) or permanent (e.g., endowment funds).
- Initially recorded as 'net assets with donor restrictions'.
- Released from restriction when donor stipulations are met.
- Release typically reclassifies to 'net assets without donor restrictions'.
Memory trick: Restricted Funds: Received, Then Released When Purpose Achieved.