Final answer:
The correct answer is that the city should record the federal grant money in a Special Revenue Fund, as this fund is used to track revenues designated for specific purposes like homeless assistance.
Step-by-step explanation:
When a city received a federal grant for providing food and other assistance to the homeless, the money should have been recorded in a Special Revenue Fund. Special Revenue Funds are used by governmental entities to account for revenues from specific taxes or other earmarked sources that are designated to finance particular activities or objectives, such as grant money aimed at specific programs like homeless assistance. This is in line with the practice that state and local government budgets supply money for many services and programs, and they often benefit from federal expenditures through special grant programs.