Choice "A" is correct. Unrestricted net assets would increase by the amount of the reclassification of temporarily restricted net assets whose restrictions have been satisfied and then reduced by scholarship expense. The net impact of the July 26 transaction is a simultaneous increase and decrease in unrestricted net assets.The tuition fees from students should be recognized as gross revenue regardless of whether they are funded by scholarships (an increase in unrestricted net assets), while scholarships to the students are considered expenses (a reduction in unrestricted net assets). The exchange transaction of providing credit hours for tuition is usually recognized at gross revenue, with scholarships being recognized as expenses. The journal entries to record the satisfaction of temporary donor restrictions and issuance of scholarships would include:
| Debit (Dr) | Credit (Cr) |
|---|
| Satisfaction of program restrictions, temporarily restricted | $ 100,000 | |
| Satisfaction of program restrictions, unrestricted | | $ 100,000 |
To record satisfaction of donor restricted contributions used for scholarships.
| Debit (Dr) | Credit (Cr) |
|---|
| Scholarship expense | $ 100,000 | |
| Tuition revenues | | $ 100,000 |
To record award of scholarships.Choice "d" is incorrect. Although unrestricted net assets decrease in response to the recognition of scholarship expense, they are also increased by the satisfaction of restrictions.
Choice "c" is incorrect. The satisfaction of donor restrictions is displayed on the financial statements in addition to being disclosed.
Choice "b" is incorrect. Satisfaction of donor restrictions is fully reported.
