[agripper]

Alpha Hospital, a large not-for-profit entity, has adopted an accounting policy that does not imply a time restriction on gifts of long-lived assets. Alpha received investments subject to the donor’s requirement that investment income be used to pay for outpatient services. Indicate the manner in which this transaction affects Alpha’s financial statements.

A.

Increase in unrestricted revenues, gains, and other support

Incorrect B.

Increase in temporarily restricted net assets

C.

Increase in permanently restricted net assets

D.

No required reportable event

You answered B. The correct answer is C.

When investments are donated and the principal of those funds cannot be expended, those investments are permanently restricted. Therefore, Alpha must record an increase in its permanently restricted net assets.

[taxgeek83]

You're right in that the funds are restricted; however, there is no time restriction (note the first sentence in the problem). Therefore the funds are permanently restricted and can only be used for outpatient services for as long as they are available.

[Author]

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