[justinzayas]

I came across this question in the MCQs, correct answer in bold:

In 20X1, Ellen College, a private, not-for-profit entity, received a $100,000 grant for faculty research. The grant money was not spent until 20X2. For 20X1, Ellen College should report the contribution as:

A)Net assets with donor restriction.

B)Net assets without donor restriction.

C)Other operating revenue.

D)Other nonoperating revenue.

You Answered Correctly!
Correct! Since the contribution was not spent in the current year, it should be classified as a component of the net assets with donor restriction amount at the end of Year 20X1.

Shouldn’t this contribution also be classified as revenue as it was received in 20X1? Or am I missing something?

[Mike J]

The key to the question rests here: “…for faculty research. The grant money was not spent until 20X2.”

You cannot recognize the revenue until you take the donor-specified action. In this case, you need to spend money toward faculty research. Until you do in 20X2, in 20X1 the money stays in temporary restricted net assets.

In 20X1, Dr. Cash and Cr. Temp Restr Revenue upon receipt. At year end in 20X1, Dr. Temp Restr Revenue, Cr. Net Assets – Temp Restr. In 20X2, back-out the funds spent for faculty research. The entry is Dr. Asset, Cr. Cash and Dr. Temp Restr, Cr. Net Assets – Released from Restriction.

AUD - 90
BEC - 79
FAR - 77
REG - 77

They don't trust JUST ANYBODY to count beans

[Author]

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