CPA Exam - FAR (Financial Accounting and Reporting)Not-for-Profit EntitiesEasy
A not-for-profit theater group received a cash contribution of $100,000 from a donor with the stipulation that the funds must be used to produce a new play celebrating local history. The donor also specified that the play must be performed within the next two years. How should this contribution be classified in the Statement of Financial Position upon receipt?
- AAs net assets with donor restrictions.
- BAs permanently restricted net assets.
- CAs net assets without donor restrictions.
- DAs a deferred revenue liability.
Show answer & explanationAnswer & explanation
Correct answer: A. As net assets with donor restrictions.
This contribution has a donor-imposed purpose restriction (to produce a new play) and a time restriction (within two years). Both types of restrictions result in the classification as net assets with donor restrictions.
Why the other options are wrong
- B. Permanently restricted net assets are for perpetual restrictions, not those that expire.
- C. The donor specified how the funds must be used and by when, so it is not without donor restrictions.
- D. This is incorrect; it is an unconditional contribution with restrictions, not a conditional contribution or exchange transaction.
Net Assets With Donor Restrictions
Net assets whose use is limited by donor-imposed stipulations that either expire with the passage of time or can be satisfied by the actions of the organization.
- Result from donor-imposed purpose or time restrictions.
- Released when restrictions are met or expire.
- Reported separately from net assets without donor restrictions.
- Can be temporary or permanently restricted.
Memory trick: NFP net assets: free, fleeting, forever.