Question

A city received a $1,000,000 cash contribution under a trust agreement in which both the principal of the trust and any earnings thereon can be used to acquire works of art for public buildings. This contribution should be recorded in a (an):

Answer 1

The $1,000,000 cash contribution received under the trust agreement for acquiring works of art for public buildings should be recorded in a Special Revenue Fund.

Step-by-step explanation:

Under governmental accounting principles, funds are established to segregate resources for specific purposes or activities. In this case, the trust agreement specifies that the principal and earnings are designated for acquiring works of art for public buildings. Therefore, the contribution would be recorded in a Special Revenue Fund.

Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted or committed for particular purposes, apart from major capital projects or debt service. Contributions or resources with restrictions or limitations, like the trust agreement specifying the use of funds for artworks, align with the concept of a Special Revenue Fund.

This ensures transparent accounting and tracking of these resources separately from other governmental funds, allowing for proper management and reporting of the funds designated for art acquisitions for public buildings.