ExpertHard1 markMultiple Choice
CPA · Question 04 · Area I: Financial Reporting
Riverview City received a $300,000 grant from the state government restricted exclusively for road repair and maintenance operations. Any unused funds must be returned to the state at the end of the fiscal year. The city also received $2,000,000 for construction of a new fire station.<br/><br/>How should Riverview City classify these two resources under GASB fund accounting?
Riverview City received a $300,000 grant from the state government restricted exclusively for road repair and maintenance operations. Any unused funds must be returned to the state at the end of the fiscal year. The city also received $2,000,000 for construction of a new fire station.<br/><br/>How should Riverview City classify these two resources under GASB fund accounting?
Answer options:
A.
Both in the General Fund
B.
Road repair grant in the Special Revenue Fund; fire station proceeds in the Capital Projects Fund
C.
Road repair grant in the Capital Projects Fund; fire station proceeds in the Special Revenue Fund
D.
Both in the Special Revenue Fund
How to approach this question
Identify the nature of each restriction: operating activities use Special Revenue Funds, capital construction projects use Capital Projects Funds. The General Fund is only for unrestricted resources.
Full Answer
B.Road repair grant in the Special Revenue Fund; fire station proceeds in the Capital Projects Fund✓ Correct
Under GASB Codification 1300, Special Revenue Funds account for resources that are restricted or committed for specific operating purposes. Capital Projects Funds account for financial resources restricted for the acquisition or construction of major capital facilities. The General Fund accounts for all activities not required to be reported in other funds.
Common mistakes
Confusing operating activities with capital projects, or thinking all restricted resources go to Special Revenue Funds
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