Question

When a city received a private donation of $1,000,000 stipulating that the principal donation would be preserved but allowing the interest income to be spent on building a city park with access for disabled children, which fund should the money be recorded in?

A. the General Fund.
B. an Expendable Trust Fund.
C. a Permanent Fund.
D. an Agency Fund.
E. a Special Revenue Fund.

Answer 1

The appropriate fund for the donated amount with a requirement to preserve the principal and spend the interest on a public park is a Permanent Fund. This aligns with the fund's purpose to hold resources indefinitely and use earnings for public benefit.Thus the correct option is c.

Step-by-step explanation:

When a city receives a donation of $1,000,000 with the stipulation that the principal amount must be preserved but the interest income can be spent on building a city park accessible for disabled children, the appropriate fund to record this money is a Permanent Fund. Permanent Funds are used to report resources that are required to be held in perpetuity with only the earnings being used for purposes that benefit the public, such as the park described in the question. Since the principal is not to be spent and thus preserved indefinitely, this situation perfectly aligns with the use of a Permanent Fund.