Question

A local philanthropist gave the city government $1,000,000 which is to be permanently invested. Earnings, measured on the accrual basis, will be used to provide financial relief to the families of firefighters and police officers killed in the line of duty. The city should account for this endowment and its operation in a (an)

A) Investment trust fund.
B) Special revenue fund.
C) A private-purpose trust fund.
D) A permanent fund.

Answer 1

The city should use a permanent fund to manage the $1,000,000 endowment, as it is intended for the public benefit and the principal must remain intact with only the earnings being used.

Step-by-step explanation:

The city should account for the endowment and its operation in a permanent fund. This type of fund is specifically designed to handle situations where the principal amount is to remain intact, and the earnings are to be used for public purposes, such as providing financial relief to families of firefighters and police officers killed in the line of duty. Permanent funds are used by government entities to manage resources that are required to be used to benefit the public and are not part of the government's regular operations, unlike pension funds, which are for the benefit of government employees and their beneficiaries.