[Anonymous]

I don’t understand the following Q, could anyone explain how this is solved?

XYZ, a not-for-profit organization dedicated to animal welfare, received a $70,000 contribution at the start of 20X1 with donor instructions to maintain the original principal as a permanent endowment and use income and net gains for wildlife rehabilitation. The endowment principal was invested in a number of equity securities and mutual funds using an investment management firm. Investment performance and transactions were as follows in 20X1 and 20X2:

Dividends Securities Rehabilitation Year-End

Year Received Sold Expense Value

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20X1 $3,000 $1,000 $3,500 $72,000

20X2 2,500 0 3,500 69,000

XYZ believes that the donor intended for the endowment to remain at least at the original contributed value. What net asset values would be reported on the statement of financial affairs for 20X2 in relation to this endowment?

Correct Answer ->

Unrestricted net assets $(500), temporarily restricted net assets $0, permanently restricted net assets $70,000

I get the $70k balance for permanent assets but how do you arrive at ($500) Unrestricted net assets???

[Anonymous]

Hi there, I am having a hard time following how you laid out the numbers/transactions. Could you maybe present them a little differently?

[Anonymous]

Sorry about that, I just did copy / paste.

Div. Received -> $3000 (2001); $2,500 (2002)

Securities Sold -> $1000 (2001), $0 (2002)

Rehabilitation Expense -> $3,500 (2001), $3,500 (2002)

Year End Value -> $72,000 (2001), $69,000 (2002)

[Martha2013]

From my understanding (someone else feel free to chime in if I am way off) –

Because the principal is a permanent endowment it results in restricted net assets as you stated. The ($500) unrestricted net assets has to do with the change in value of the dividends received, since there is no restriction on the use of dividends it would be considered an unrestricted net asset. Because the amount of dividends the NFP is receiving decreases between 2001 and 2002 the 2002 balance in unrestricted net assets would be ($500).

Again I may be way off in my thinking…if so I would love to hear the right train of thinking for this problem!

[Author]

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