Question

On November 30, Year 1, Justin Barlow, an alumnus of Murry School, a private, not-for-profit high school, contributed $15,000, with the stipulation that the donation be used for faculty travel expenses during Year 2. During Year 2, Murry spent all of the donation in accordance with Mr. Barlow's wishes. For the year ended December 31, Year 2, what was the effect of the donation on the two categories of net assets?

	Net assets without donor restriction	Net assets with donor restriction
	Increase	Decrease
	No effect	Decrease
	Increase	No effect
	No effect	No effect

You Answered Correctly! (Answer is B, No effect, Decrease)

Correct! The use of the cash donation for faculty travel in Year 1 is reported as a reclassification on the high school's statement of activities for Year 2. Reclassifications are reported on the statement of activities as "net assets released from restrictions." Net assets released from restrictions of $15,000 are reported as a negative amount for net assets with donor restriction in Year 2, while net assets released from restrictions of $15,000 are reported as a positive amount for net assets without donor restriction in Year 2. However, the $15,000 of travel expense is reported on the statement of activities as an expense for Year 2. All expenses are reported on the statement of activities as decreases in net assets without donor restriction. This means that the use of the donation for faculty travel had no effect on net assets without donor restriction in Year 2. Note that, when the donation was received in Year 1, net assets with donor restriction increased by $15,000 on the statement of activities prepared for Year 1.

I don't understand why there would be no effect on net assets without a donor restriction and a decrease on net assets with a donor restriction regardless of the explanation above? Can please provide easier simpler explanation so I can understand why this is the answer please?

Answer 1

Answer:  No effect ; Decrease

Net assets without donor restriction:- In Statement of Activities in case of without restriction the donation would have no effect in Year 1. So in Year 2 the donation of $15,000 will be added in net assets and the donation of $15,000 utilized as travel expense will be deducted from Net assets. So Net asset effect will be zero.

Net assets with donor restriction:- In Statement of Activities in case of with restriction the donation would have been added in the net assets in Year 1. So in Year 2 beginning balance, the net assets will be showing $15,000 extra. In Year 2 when the donation of $15,000 is utilized as travel expense. It will be deducted from Net assets. So Net asset in Year 2 will decrease the Net assets.

Kindly give me a ?.It helps me. Thanks!!