ExpertHard1 markMultiple Choice
CPA · Question 03 · Area I: Financial Reporting
A nongovernmental not-for-profit organization received the following contributions during Year 1:<br/><br/>1. $50,000 cash restricted by the donor for the purchase of equipment. The equipment was purchased in January Year 2.<br/>2. $20,000 cash restricted by the donor for a specific summer camp program. The program was held in July Year 1.<br/>3. A pledge of $10,000 to be received in Year 2, with no other donor restrictions.<br/><br/>What amount should be reported as an increase in net assets without donor restrictions for Year 1?
A nongovernmental not-for-profit organization received the following contributions during Year 1:<br/><br/>1. $50,000 cash restricted by the donor for the purchase of equipment. The equipment was purchased in January Year 2.<br/>2. $20,000 cash restricted by the donor for a specific summer camp program. The program was held in July Year 1.<br/>3. A pledge of $10,000 to be received in Year 2, with no other donor restrictions.<br/><br/>What amount should be reported as an increase in net assets without donor restrictions for Year 1?
Answer options:
A.
$0
B.
$20,000
C.
$30,000
D.
$70,000
How to approach this question
Identify which contributions were initially with restrictions. Then, determine if any restrictions were met (satisfied) during the year. When a restriction is met, net assets are released from 'with donor restrictions' to 'without donor restrictions'.
Full Answer
B.$20,000✓ Correct
B
1. **$50,000 Equipment:** Restricted for purpose. Equipment bought in Year 2. Remains 'With Donor Restrictions' in Year 1.<br/>2. **$20,000 Summer Camp:** Restricted for purpose. Program held in Year 1. Restriction satisfied. Initially recorded as 'With Donor Restrictions', then reclassified to 'Without Donor Restrictions' upon satisfaction. Net impact on 'Without Donor Restrictions' is an increase of $20,000 (via Net Assets Released from Restrictions).<br/>3. **$10,000 Pledge:** Time-restricted (implied by due date Year 2). Remains 'With Donor Restrictions' in Year 1.<br/><br/>Total increase in Net Assets Without Donor Restrictions = $20,000 (from the release).
Common mistakes
Counting the initial receipt of restricted cash as unrestricted; failing to recognize the release of restrictions when the condition is met.
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