CPA Exam - FAR (Financial Accounting and Reporting)Not-for-Profit EntitiesMedium
A not-for-profit entity prepared its Statement of Activities for the year ended December 31, Year 1. It reported an increase in net assets without donor restrictions of $150,000, and an increase in net assets with donor restrictions of $75,000. What is the total change in net assets that should be reported on the Statement of Financial Position at December 31, Year 1?
- A$225,000 decrease.
- B$150,000 increase.
- C$225,000 increase.
- D$75,000 increase.
Show answer & explanationAnswer & explanation
Correct answer: C. $225,000 increase.
The Statement of Activities reports the changes in each class of net assets. The Statement of Financial Position presents the ending balances of these net assets. The total change in net assets is the sum of the changes in net assets without donor restrictions and net assets with donor restrictions. $150,000 (unrestricted increase) + $75,000 (restricted increase) = $225,000 total increase.
Why the other options are wrong
- A. This incorrectly indicates a decrease and miscalculates the total.
- B. This only accounts for the change in net assets without donor restrictions.
- D. This only accounts for the change in net assets with donor restrictions.
Total Change in Net Assets
The aggregate increase or decrease in all classes of net assets (without donor restrictions and with donor restrictions) as reported on the Statement of Activities.
- Links the Statement of Activities to the Statement of Financial Position.
- Represents the overall financial performance of the NFP for the period.
- Reflects changes in equity for NFPs.
Memory trick: Activities flow into the Position, total change is the bridge.