[Anonymous]

XYZ, a not-for-profit organization dedicated to animal welfare, received a $70,000 contribution at the start of 20X1 with donor instructions to maintain the original principal as a permanent endowment and use income and net gains for wildlife rehabilitation. The endowment principal was invested in a number of equity securities and mutual funds using an investment management firm. Investment performance and transactions were as follows in 20X1 and 20X2:

Dividends / Securities / Rehabilitation / Year-End

Year Received / Sold / Expense / Value

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20X1 $3,000 / $1,000 / $3,500 / $72,000

20X2 2,500 / 0 / 3,500 / 69,000

XYZ believes that the donor intended for the endowment to remain at least at the original contributed value. What net asset values would be reported on the statement of financial affairs for 20X2 in relation to this endowment?

A. Unrestricted net assets $(500), temporarily restricted net assets $0, permanently restricted net assets $70,000

B. Unrestricted net assets $0, temporarily restricted net assets $(1,500), permanently restricted net assets $70,000

C. Unrestricted net assets $(1,500), temporarily restricted net assets $0, permanently restricted net assets $69,000

D. Unrestricted net assets $0, temporarily restricted net assets $(500), permanently restricted net assets $69,000

Answer A. FASB ASC 958-205-45-14 directs that each source of an endowment fund—original amount, gains and loss, and dividends and interest—must be evaluated separately in light of the donor’s wishes and relevant law. Unless contravened by law or donor instruction, net losses shall reduce temporarily restricted net assets to the degree any remain from previous gains or investment earnings and then reduce unrestricted net assets. In this case, the donor’s wishes indicate that the principal amount should not fall below $70,000. The excess of expenses and losses over revenues would be shown as a reduction in unrestricted net assets. The investments are being managed by an outside firm, so any mid-year investment transactions would not be recorded directly by the not-for-profit. XYZ would record the dividends received and the ending investment value as reported by the management firm.

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Why isn’t the answer D? It states that the donor wants the income used for wildlife rehabilitation, so shouldn’t it be temporary restricted instead of unrestricted?

[EuroAddict]

I'm not really following the #'s listed but it couldn't be D b/c the donation of $70,000 is considered permanent due to the fact that only the income can be used.

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BEC - 77, 03/2015 (first try)
FAR - 79, 05/2015 (second try)
REG - 83, 12/2015 (first try)
AUD - 84, 03/2015 (first try)

I got 99 problems but the CPA ain't one.

[Author]

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