Question

An alumnus donates securities to a private college and stipulates that the principal be held in perpetuity and income from the securities be used for faculty travel. Dividends received from the securities should be recognized as increases in:

A. Endowments.
B. Unrestricted net assets.
C. Permanently restricted net assets.
D. Temporarily restricted net assets.

Answer 1

The correct answer is (D)

Step-by-step explanation:

Dividends are the payments which are received from investing in securities. The dividend in the above case can be considered as temporarily restricted net assets. There is a restriction on the dividend that it can only be used for faculty travel. The assets that have special restrictions are known as temporarily restricted assets. Overall, these restrictions are not usually permanent, and donor agency can change or remove the restrictions after a certain time.