A Not-for-Profit organization receives a donation of $100,000 in Year 1. The donor stipulates that the funds must be used to purchase a vehicle. The vehicle is purchased in Year 2. How is the release of restrictions reported?

Answer options:

Revenue in Year 2.

Reclassification from Net Assets With Donor Restrictions to Net Assets Without Donor Restrictions in Year 1.

Reclassification from Net Assets With Donor Restrictions to Net Assets Without Donor Restrictions in Year 2.

No reclassification is needed; the asset remains restricted.

How to approach this question

1. Year 1: Receive cash -> Revenue (With Restrictions). 2. Year 2: Spend cash -> Restriction Met. 3. Action: Move (Reclassify) from 'With' to 'Without' restrictions.

Full Answer

C.Reclassification from Net Assets With Donor Restrictions to Net Assets Without Donor Restrictions in Year 2.✓ Correct

Contributions restricted for the acquisition of long-lived assets are released from restriction when the asset is placed in service (Year 2). This is reported as 'Net Assets Released from Restrictions' on the Statement of Activities.

Common mistakes

Recognizing revenue in Year 2 (revenue is recognized when promised/received, not when spent).

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