Assume that a wealthy alumnus donated $1 million to Chavis University to provide loans to qualifying students. Though not required by the donor, the university’s Board of Trustees voted to supplement the initial establishment of the loan fund with a $500,000 dedication of its own unrestricted resources. Further assume that any interest earned on the loan funds is to be added to the underlying principal of the fund and that both the original principal and that from earnings may be loaned.

How would this loan fund be reported in the net asset classifications?

a. As nonexpendable restricted net assets, $500,000, and unrestricted net assets, $500,000.

b. As expendable restricted net assets, $500,000, and unrestricted net assets, $500,000.

c. As reserved fund balance..

d. As designated fund balance.