Mr. Generous donated $100,000 to Excel Private School and specified that the principal amount not be spent but be maintained permanently. Interest on the invested funds can be used to award scholarships to those who excel in drama. How should the $100,000 contribution be presented on Excel Private School's financial statements?

Question

Quizplus · Accepted Answer

The $100,000 contribution is intended to be maintained permanently and only the interest on the invested funds can be spent. This means that the contribution should be recorded as revenue of the endowment fund, as it is a donor-restricted contribution with permanent restrictions. Recording it as a direct increase in net assets of the endowment fund (Choice A) would not accurately reflect the purpose of the contribution. Recording it as revenue of the operating fund (Choice B) or deferred revenue of the operating fund (Choice D) would also not be appropriate as the contribution is not intended to be spent on operating expenses but on scholarships for a specific purpose.

Mr Generous Donated $100,000 to Excel Private School and Specified