Choice "D" is correct. Expenses are reported as decreases in unrestricted net assets.
Choice "c" is incorrect. Although expenses reduce a component of total net assets, they specifically reduce the unrestricted net assets classification. The call of the questions asks for the specific classification reduced. Total net assets is the sum of all classifications and is not, itself, a classification.
Choice "a" is incorrect. Expenses are reported as decreases in unrestricted net assets, no expenses are recorded to reduce temporarily restricted net assets. The focus of not for profit organization financial statements is the entity taken as a whole. Fund accounting is not used. The use of temporarily restricted assets for their intended purpose is not displayed as an expenditure of temporarily restricted funds. Satisfaction of temporarily restrictions are effected by reclassifications of net assets released from restrictions to unrestricted net assets and used for the central mission of the not for profit organization.
Choice "b" is incorrect. Permanently restricted net assets account for restricted corpus whose earnings are reclassified to either temporarily restricted or unrestricted categories for use. Expenses are not recorded for permanently restricted net assets.