How does a nongovernmental nonprofit, account for money, raised at a benefit auction that is restricted by the donors for capital improvements? 1. The balance sheet will report the donations as a part of permanently restricted net assets. 2. The statement of activities will report the donations as an increase in temporarily restricted net assets. 3. The money is reported in a separate capital projects fund. 4. Each donor will receive an itemized accounting of how the money is spent.