Question

The town of Gracie has established a permanent fund to account for numerous significant gifts intended to maintain a cemetery in perpetuity. Investment earnings from the permanent fund have been more than enough to maintain the cemetery. What fund balance classification should be used to account for unspent investment earnings that remain in the fund at year end?

a. Assigned fund balance
b. Restricted fund balance
c. Unassigned fund balance
d. Nonspendable fund balance
e. None of the above

Answer 1

The correct fund balance classification for unspent investment earnings intended for maintaining a cemetery permanently is 'Restricted fund balance.' These funds are constrained for a specific purpose by external parties or law.

Step-by-step explanation:

The student's question pertains to the appropriate fund balance classification for unspent investment earnings in a permanent fund for maintaining a cemetery. Given that the earnings are intended for a specific purpose and that the purpose is ongoing, the correct classification is b. Restricted fund balance. This category is used when constraints are placed on the use of resources either externally by creditors, grantors, contributors, or laws and regulations, or imposed by law through constitutional provisions or enabling legislation.