Quick question for all,
Why in this question answer is B, why not C. Since $8000 is temporary restricted. can anyone explain the reason.
Question CPA-01342
In Year 1, Community Helpers, a private voluntary health and welfare organization, received a bequest of
a $100,000 certificate of deposit maturing in Year 11. The testator's only stipulations were that this
certificate be held until maturity and that the interest revenue be used to finance the ongoing salaries for
a currently operating preschool program. Interest revenue for Year 11 was $8,000. When the certificate
was redeemed, the board of trustees adopted a formal resolution designating $20,000 of the proceeds for
the future purchase of equipment for the preschool program.
What should be reported in the Year 11 year end statement of financial position?
A. Temporarily restricted net assets (for purchase of equipment), $20,000; unrestricted net assets,
$80,000.
B. Unrestricted net assets, $100,000.
C. Net assets temporarily restricted―designated for preschool program salaries, $8,000. Unrestricted net
assets, $100,000.
D. Temporarily restricted assets―designated for preschool program, $28,000; Net assets unrestricted,
$80,000.
Explanation
Choice “B” is correct. The Year 11 yearend
statement of financial position should report unrestricted net
assets of $100,000. Community Helpers fully satsfied the temporary time restrictions associated with the
bequest by the end of Year 11 and would have reclassified the $100,000 from temporarily restricted to
unrestricted. Unrestricted net assets would have increased by $100,000 and display a balance of
$100,000 as follows:
Unrestricted net assets $100,000
Choice “A” is incorrect. The $20,000 board of trustee's resolution designating $20,000 for future purchase
of equipment is still considered “unrestricted net assets” because the board can change its mind. Only
contributions from donors may be permanently or temporarily restricted and only by donors.
Choice “C” is incorrect. Although the $100,000 would be displayed as unrestricted net assets, the $8,000
earnings from the investment are temporarily restricted by the donor, not designated by the notforprofit
itself.
Choice “D” is incorrect per the above explanations.