_____ On 5/5/05, a donor contributed an equity security having a $500,000 fair value. The donor stipulated that (a) the NPO may sell the equity security at any time and make other suitable investments, (b) the $500,000 endowment must remain intact in perpetuity, and (c) the income and gains may be spent only on diabetes research (no mention is made regarding the treatment of losses). (No dividends were received in any year.) In early 2006, a portion of the equity security was sold for $30,000 cash. The NPO spent $22,000 cash on diabetes research in 2006. The equity security had a fair value of $530,000 at 12/31/05, $480,000 at 12/31/06, and $555,000 at 12/31/07. What is the change in the various categories of net assets for 2007 as a result of the increase in the equity security's market value in 2007? A) Increase UR net assets by $20,000 and TR net assets by $55,000. B) Increase TR net assets by $75,000. C) Increase PR net assets by $12,000 and TR net assets by $63,000. D) Increase PR net assets by $20,000 and TR net assets by $55,000. E) Increase UR net assets by $12,000 and TR net assets by $63,000.

Question

Quizplus · Accepted Answer

The increase in fair value from $480,000 to $555,000 is $75,000. Since the endowment must remain intact, the increase is split between the unrestricted (UR) and temporarily restricted (TR) net assets. The UR net assets increase by $12,000 (the amount spent on research), and the remaining $63,000 increase is in TR net assets.

_____ on 5/5/05, a Donor Contributed an Equity Security Having a $500,000