[JR Battle]

Hello, I am confused why the correct answer is B for this question. I picked A. I understand this is a support service, since it is not a program service. However, per the textbook, “all expenses, other than investment expenses, are reported as decreases in net assets without donor restrictions.” Choice A seems to be the best answer.

Thanks in advance for any feedback.

Question:
Environs, a community foundation, incurred $10,000 in management and general expenses during 1991. In Environs’ statement of activity for the year ended December 31, 1991, the $10,000 should be reported as:

a. A direct reduction of net assets – without donor restrictions.

b. Part of supporting services.

c. Part of program services.

d. A contra account to offset revenue and support.

Explanation:
Choice “b” is correct. Part of supporting services. “Management and general” expenses incurred by a community foundation should be reported as part of supporting services in the statement of activity.

[Anonymous]

Ok, so I'm not sure if its the answer you are looking for but B is the better choice here. While it is true that all expenses (other than investment) are reported as decreases in NA w/o restrictions, it's not always directly. For example, assume that a grant had been given specifically to pay management fees. In this case, the $10,000 would be shown as a release of assets w/ restriction to assets w/o restrictions, and then a reduction of NA w/o restrictions. From the question, we cannot tell for sure that this will be a DIRECT reduction in NA w/o donor restrictions since we don't know where the funds were paid from. However, we know for certain that Mgmt and general expenses are supporting services.
– I don't think its a great question btw, but that is why B is the answer.

[Author]

Replies