The Jones family lost its home in a fire. On December
25, 1994, a philanthropist sent money to the Society to
purchase furniture for the Jones family. During January
1995, the Society purchased this furniture for the Jones
family. The Society, a not-for-profit, elected early
adoption of FASB Statement No. 116, Accounting for
Contributions Received and Made. How should the Society
report the receipt of the money in its 1994 financial
statements?
A: as an unrestricted contribution
B: as a temporarily restricted contribution
C: as a permanently restricted contribution
D: as a liability
The correct answer is B. The explanation is : "This
contribution would be a temporarily restricted
contribution in 1994, the year received.
I thought that it would be a permanent restriction, since
they can only buy furniture with. Why is it temporary?
Thanks.
Joined: 13 Sep 2010 Location: United States
Online Status: Offline Posts: 4
Posted: 03 Nov 2010 at 21:53 | IP Logged
Temporarily restricted contributions are contributions restricted based upon conditions such as time or use. In this case, the contribution is restricted based on use (because it is made for the sole purpose of purchasing furniture). Permanent restrictions are contributions that cannot be spent. Therefore, since the money was spent in 1995, in 1994 it is still considered temporarily restricted. In 1995, at the time of expenditure, the total amount of contribution would be reallocated from Temporarily restricted to unrestricted and then deducted from unrestricted as an expense causing a decrease in temporarily restricted assets and no effect on unrestricted assets. Hope this helps!
Temporarily restricted contributions are
contributions restricted based upon conditions such as
time or use. In this case, the contribution is restricted
based on use (because it is made for the sole purpose of
purchasing furniture). Permanent restrictions are
contributions that cannot be spent. Therefore, since the
money was spent in 1995, in 1994 it is still considered
temporarily restricted. In 1995, at the time of
expenditure, the total amount of contribution would be
reallocated from Temporarily restricted to unrestricted
and then deducted from unrestricted as an expense causing
a decrease in temporarily restricted assets and no effect
on unrestricted assets. Hope this helps!
It does help. I didn't think of temporary restriction as
being eliminated by use, just time or condition. Thanks!
Joined: 01 Apr 2009 Location: United States
Online Status: Offline Posts: 413
Posted: 04 Nov 2010 at 14:41 | IP Logged
The correct answer is D
Yes, the contribution is temporally restricted (until the time of the furniture purchase) but it was contributed for the explicit purpose of purchasing furniture to for the family and therefore is a liability to the society. The society is only acting as an agent.
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Topic: Temporarily Restricted Assets
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