CPA Exam - FAR (Financial Accounting and Reporting)State and Local GovernmentsEasy
A county government received a state grant specifically designated for the construction of a new public library. The grant terms stipulate that the funds are to be used only for capital expenditures related to the library project. In which fund would the county government most appropriately account for the financial resources received and expended for this project?
- AGeneral Fund
- BCapital Projects Fund
- CSpecial Revenue Fund
- DPermanent Fund
Show answer & explanationAnswer & explanation
Correct answer: B. Capital Projects Fund
Capital Projects Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds or trust funds). The grant for a new library fits this description perfectly.
Why the other options are wrong
- A. The General Fund accounts for general government operations, not specific capital projects.
- C. Special Revenue Funds account for specific revenue sources that are legally restricted or committed to finance particular operations, not typically major capital projects.
- D. Permanent Funds account for resources legally restricted so that only earnings, not principal, may be used to support programs benefiting the government or its citizenry.
Capital Projects Fund
A governmental fund type used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds or trust funds).
- Accounts for major capital expenditures.
- Examples include buildings, roads, bridges.
- Uses modified accrual accounting.
Memory trick: Governments Can't Speak Properly Forever.