Question

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?

a) General fund b) Private-purpose trust fund c) Agency fund d) Permanent fund

Answer 1

Hello there!

Your question asks what type of fund should the gift be accounted for.

Answer: D). Permanent fund

The reason why answer choice " ). Permanent fund" is the correct answer because the gift "restricts" the government in it's usage, due to the fact that the $200,000 gift and investment must be used to "beautify the city-owned parks."

The $200,000 gift and investments has a specific intention when being used.

The government would therefore keep some of the money from the gift and investments as a "principal" to make more money from it, while using the rest of the money for it's obligated "use" or "benefit".

This would also be known as a Permanent fund because the fund is being used for something that is owned by the government. In this context, the thing that is owned by the government would be the park, due to the fact that the park is "city-owned." The gift is obligated to be used for the "city-owned" park.

I hope this helps!

Best regards, MasterInvestor