Area 3: Technical Accounting and Reporting — CPA Practice Question 27

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1. Year 1: Receive cash -> Revenue (With Restrictions). 2. Year 2: Spend cash -> Restriction Met. 3. Action: Move (Reclassify) from 'With' to 'Without' restrictions.

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C.Reclassification from Net Assets With Donor Restrictions to Net Assets Without Donor Restrictions in Year 2.✓ Correct

Contributions restricted for the acquisition of long-lived assets are released from restriction when the asset is placed in service (Year 2). This is reported as 'Net Assets Released from Restrictions' on the Statement of Activities.

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Recognizing revenue in Year 2 (revenue is recognized when promised/received, not when spent).

A Not-for-Profit organization receives a donation of $100,000 in Year 1. The donor stipulates that the funds must be used to purchase a vehicle. The vehicle is purchased in Year 2. How is the release of restrictions reported?

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