Question

How would a university account for funds received from an external donor that are to be retained and invested, with the related earnings restricted to the purchase of library books?

A. Temporarily restricted net assets in a private university.
B. Permanently restricted net position in a private university.
C. Unrestricted net assets/position in either a public or private university.
D. Nonspendable, endowment in a public university.

Answer 1

A university would account for funds received from an external donor that are to be retained and invested, with the related earnings restricted to the purchase of library books as Permanently restricted net position in a private university (Option B). This ensures that the funds are set aside and preserved for their intended purpose. Therefore, the correct option is B.

Step-by-step explanation:

A university would account for funds received from an external donor that are to be retained and invested, with the related earnings restricted to the purchase of library books as Permanently restricted net position in a private university (Option B).

When funds are received from an external donor and the restriction is permanent, the university would record the funds as permanently restricted net position on its financial statements. This means that the university cannot spend the principal of the funds, but can only use the earnings generated from the investment for the specified purpose of purchasing library books.

This accounting treatment ensures that the funds are set aside and preserved for their intended purpose and provides transparency to stakeholders.