Reference no: EM13123913
Explain how governments use fiduciary and permanent funds.
The McCracken County Humane Society (MCHS), which is part of a county's reporting entity, established a permanent fund to provide support for its pet neutering program. As of the start of the year, the fund had a balance of $600.000, composed of both cash and marketable securities.
The program itself, which is accounted for in a special revenue fund, is funded by both direct contributions and the income from the permanent fund. At the start of the year, the special revenue fund had assets (all invested) of $26,000.
The following transactions and events happened in a recent year:
1. The MCHS conducted a Walk Your Pet Day fundraising drive. The event raised $120,000 of which $20,000 was in pledges expected to be collected shortly after year-end.
2. The society acquired food and medicine at a cost of $60,000 (cash). During the year it used $30,000 of these supplies. The society accounts for supplies on a consumption basis. It incurred other operating costs (all paid in cash) of $85,000.
3. The society earned interest of $45,000 on investments accounted for in the permanent fund.
4. During the year, the market value of the investments held by the permanent fund increased by $30,000. Per the terms of the agreement establishing the endowment, all capital gains, both realized and unrealized, must be added to principal.
5. During the year the value of investments held by the special revenue fund increased by $3,000.
6. The society transferred cash to the special revenue fund in the amount of the earnings of the special revenue fund.
a. Prepare journal entries to record the events and transactions. Be sure you indicate the fund in which they would be recorded.
b. In your opinion, should the unrealized gains on the investment held in the special revenue fund be expendable or nonexpendable? Explain.
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