Requirements: Explain the way a nongovernmental, not-for-profit organization must report the following items in its statement of activities:
A. Receipt of unrestricted contributions
B. Pledges restricted to a specific program
C. Collections, in a subsequent year, of pledges restricted to a specific purpose
D. Pledges restricted to fixed asset construction
E. Earnings on restricted investments

Question

Quizplus · Accepted Answer

The Answer is A. Unrestricted contributions received in cash are reported as revenues in the changes in unrestricted net assets section of the statement of activities in the period received. If the unrestricted contributions are pledges that are not received by year end, a time restriction is implied unless the donor specifies that the resources are contributed to support the current period. Because of the implied time restrictions, the pledges would be reported as contributions at their present value or at their net realizable value in the changes in temporarily restricted net assets section. When collected, net assets released from restrictions is reported as an increase in the changes in unrestricted net assets and as a decrease in the changes in temporarily restricted net assets section.
B. Pledges restricted to a specific program are reported as contributions in the changes in temporarily restricted net assets section of the statement of activities, either at present value or at net realizable value. When the pledge has been received and expenses incurred for the restricted purpose, net assets released from restrictions is reported as an increase in the changes in unrestricted net assets and as a decrease in the changes in temporarily restricted net assets sections.
C. This collection is not reflected in the statement of activities. There are two restrictions in this case when the pledges are made-a time restriction implied and a use restriction. Collection removes the time restriction, but the use restriction remains. Hence, the assets are not yet released from restrictions.
D. Pledges restricted to fixed asset construction are reported as contributions in the changes in temporarily restricted net assets section of the statement of activities, either at present value or at net realizable value. When construction costs are incurred for the restricted purpose, an organization must adopt one of two polices. Under the first approach, when construction costs are incurred, net assets released from restrictions is reported as an increase in the changes in unrestricted net assets and as a decrease in the changes in temporarily restricted net assets sections. Under the second approach, when construction costs are incurred, there is no change in net assets. As the assets are used up depreciated, depreciation expense is reported in unrestricted net assets and net assets released from restrictions is reported as an increase in the changes in unrestricted net assets and as a decrease in the changes in temporarily restricted net assets sections.
The depreciation expense and the net assets released from restrictions are not necessarily equal in amount. For instance, while they may be recognized over the same period, residual value would not be taken into account in computing the net assets released from restrictions-even if the same time period is appropriate.
E. Earnings on restricted investments are considered unrestricted unless the donor specifically restricted their use. Therefore, these earnings are reported as investment income in the changes in unrestricted net assets section.

Requirements: Explain the Way a Nongovernmental, Not-For-Profit Organization Must Report