Question

Lifeworks is a nongovernment not-for-profit organization that recently received a large gift from a donor in the amount of $3,000,000 in cash. The donor wishes to leave a legacy and therefore specified that Lifeworks cannot spend the $3,000,000 but can invest the $3,000,000 and use any earnings from the investments to support the organization. In the first year, $100,000 was earned but has not yet been spent. How would the $3,000,000 gift and the $100,000 in earnings impact the net assets of Lifeworks?

Answer 1

Step-by-step explanation:

The net assets would increase. This is because the $100,000 earnings from investments are additional cash inflows hence an increase in current assets. For the $3,000,000 if invested, it will be considered an asset. It is a cash donation invested to generate earnings for the non-profit organization. Thus, these two instances add onto the net asset value of Lifeworks.