Under FASB, how should unrealized gains on the investment portfolio of a not-for-profit organization be recognized?

• A. Reported on the statement of activities.
• B. Included in net assets with donor restrictions.
• C. Recorded in the statement of financial position as an asset.
• D. Disclosed in notes to the financial statements only.

Answer: (A)

Unrealized gains or losses on a not-for-profit’s investments are treated as part of investment return in the period’s activities. In FASB reporting, investments are carried at fair value on the balance sheet, but the changes in that fair value (unrealized gains or losses) flow into the statement of activities as part of net assets, unless donor restrictions apply. This means the gains increase (or decrease) the organization’s net assets in the period, not as a separate line item on the balance sheet. If gains were restricted by donors, they would appear in net assets with donor restrictions, but absent such restrictions they go to unrestricted net assets and are shown in the statement of activities. They are not disclosed only in notes.