Choice "D" is correct. Depreciation is recorded in accordance with generally accepted accounting principles. Operating expenses, such as depreciation, are recorded as unrestricted and serve to decrease unrestricted net assets.
Choice "b" is incorrect. Depreciation is recorded in not-for-profit financial statements.
Choice "c" is incorrect. Depreciation does not impact temporarily restricted net assets. Depreciation does not reflect a reclassification of temporarily restricted net assets.
Choice "a" is incorrect. Depreciation expense would not be reclassified from unrestricted into temporarily restricted. In fact, assets rarely "move to the right" to increasingly restricted classifications. Occasionally, assets held by not-for-profits in which the grantor/donor holds a reversionary interest over a period of time (e.g., the asset reverts back to the donor if the restrictions are not met) will experience a temporarily restricted asset released from restriction in the same amount as the depreciation expense. Depreciation expense itself is still unrestricted. This transaction (the expiration of a reversionary interest) represents a reclassification from temporarily restricted to unrestricted. Assuming a reversionary interest, depreciation amounts would simultaneously measure gradual expiration of the restriction and depreciation expense.