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Normally the principal portion of an endowment will be classified as _________________ net assets.
- a)Temporarily restricted
- b)Unrestricted
- c)Permanently restricted
- d)None
Correct answer is option 'C'. Can you explain this answer?
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Normally the principal portion of an endowment will be classified as _...
Explanation:
Endowment refers to the funds or assets donated to a nonprofit organization with the purpose of providing long-term financial support. Endowment funds are invested to generate income that can be used to support the organization's operations or specific programs. The principal portion of an endowment is the original amount donated, and it is classified as permanently restricted net assets.
Permanently restricted net assets:
Permanently restricted net assets are funds that have been donated to an organization with the restriction that they cannot be used for any other purpose than what the donor has specified. The principal portion of an endowment is considered permanently restricted because it cannot be spent, and only the investment income generated by the principal can be used to support the organization's operations.
Unrestricted and Temporarily restricted net assets:
Unrestricted net assets are funds that are not subject to any donor restrictions and can be used for any purpose that the organization deems necessary. Temporarily restricted net assets are funds that have been donated with the restriction that they can only be used for a specific purpose or time frame. Once the restriction is met, the funds become unrestricted.
In conclusion, the principal portion of an endowment is classified as permanently restricted net assets because it cannot be spent, and only the investment income generated by the principal can be used to support the organization's operations.
Endowment refers to the funds or assets donated to a nonprofit organization with the purpose of providing long-term financial support. Endowment funds are invested to generate income that can be used to support the organization's operations or specific programs. The principal portion of an endowment is the original amount donated, and it is classified as permanently restricted net assets.
Permanently restricted net assets:
Permanently restricted net assets are funds that have been donated to an organization with the restriction that they cannot be used for any other purpose than what the donor has specified. The principal portion of an endowment is considered permanently restricted because it cannot be spent, and only the investment income generated by the principal can be used to support the organization's operations.
Unrestricted and Temporarily restricted net assets:
Unrestricted net assets are funds that are not subject to any donor restrictions and can be used for any purpose that the organization deems necessary. Temporarily restricted net assets are funds that have been donated with the restriction that they can only be used for a specific purpose or time frame. Once the restriction is met, the funds become unrestricted.
In conclusion, the principal portion of an endowment is classified as permanently restricted net assets because it cannot be spent, and only the investment income generated by the principal can be used to support the organization's operations.
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Normally the principal portion of an endowment will be classified as _________________ net assets.a)Temporarily restricted b)Unrestricted c)Permanently restrictedd)NoneCorrect answer is option 'C'. Can you explain this answer?
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