A government receives a gift of cash and investments with a fair value of $200,000. The donor specified that the earnings from the gift must be used to beautify city-owned parks and the principal must be re-invested. The $200,000 gift should be accounted for in which of the following funds?

Question

Quizplus · Accepted Answer

The correct answer is D) Permanent fund. This is because the principal amount of the gift must be preserved (re-invested), and only the earnings from the gift are to be used for a specific public purpose, which is to beautify city-owned parks. Permanent funds are used to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes supporting the reporting government's programs—that is, for the benefit of the government or its citizenry.

A Government Receives a Gift of Cash and Investments with a Fair