Question

A contribution from a donor who requires that the original (principal) amount of the assets remain intact but allows all earnings from the assets to be spent at the discretion of the organization should be accounted for as an:

A) Increase to unrestricted net assets.
B) Increase to temporarily restricted net assets.
C) Increase to permanently restricted net assets
D) Increase to both permanently restricted net assets and unrestricted net assets.

Answer 1

A contribution from a donor who requires that the original amount of the assets remain intact but allows all earnings from the assets to be spent at the discretion of the organization should be accounted for as an (B) increase to temporarily restricted net assets.

Step-by-step explanation:

A contribution from a donor who requires that the original (principal) amount of the assets remain intact but allows all earnings from the assets to be spent at the discretion of the organization should be accounted for as an increase to temporarily restricted net assets.

This is because the donor has restricted the use of the principal amount, meaning it cannot be spent, but has allowed the organization to use the earnings generated by the assets. These earnings are considered temporarily restricted, as they must be used in accordance with the donor's restrictions.