Final answer:
An NFP should recognize revenue rather than a liability if it is required to transfer all contributions to a specified beneficiary organization with which it has no affiliation. This suggests the NFP is acting as an intermediary without variance power, indicating an obligation to pass the funds along. Option A is correct..
Step-by-step explanation:
When considering whether an NFP (non-profit organization) acting as an intermediary should recognize revenue rather than a liability for contributions it has received, it's important to look at the stipulations surrounding the use of those funds. Generally, if the NFP has discretion over how the funds are used or has variance power to decide whether and how to distribute the funds, it might recognize the funds as revenue. However, if the NFP is merely acting as an intermediary with no variance power and is required to transfer all contributions to a specified beneficiary organization, especially one with which it has no affiliation, this typically indicates a liability.
The answer to the given question is A) The NFP is required to transfer all contributions to a specified beneficiary organization with which it has no affiliation. This situation clearly outlines that the NFP does not have the power to redirect or decide on the funds' usage, implying an obligation rather than revenue recognition.Situations B and C, where the NFP conducts fund drives on behalf of other organizations, whether affiliated or not, usually do not immediately indicate revenue recognition unless it’s shown that the NFP has the appropriate variance power over the funds collected.