_____ On 5/5/05, a donor contributed an equity security having a $500,000 fair value. The donor stipulated that (a) the NPO may sell the equity security at any time and make other suitable investments, (b) the $500,000 endowment must remain intact in perpetuity, and (c) the income and gains may be spent only on diabetes research (no mention is made regarding the treatment of losses). The equity security had a fair value of $530,000 at 12/31/05. (No dividends were received in 2005.) Which of the following categories of net assets is impacted at 12/31/05? A) Increase TR net assets by $30,000. B) Increase UR net assets by $30,000. C) Increase PR net assets by $30,000. D) Do not increase any category of net assets by $30,000.

Question

Quizplus · Accepted Answer

The increase in fair value of the equity security from $500,000 to $530,000 represents an unrealized gain of $30,000. Since the donor stipulated that the original endowment of $500,000 must remain intact in perpetuity and only the income and gains may be spent on diabetes research, this gain increases temporarily restricted (TR) net assets. Temporarily restricted net assets are those that are subject to donor-imposed stipulations that will be met by the actions of the nonprofit organization and/or the passage of time. In this case, the gain is restricted for diabetes research until it is spent for that purpose.

_____ on 5/5/05, a Donor Contributed an Equity Security Having a $500,000