Revenues that are legally restricted for expenditure on specified operating purposes that should be accounted for in special revenue funds include which of the following?

• A. Gasoline taxes to finance road repairs
• B. Federal highway grants for capital projects
• C. Property taxes for debt service
• D. Fees for enterprise water service

Answer: (A)

The main idea here is that special revenue funds are used for revenues that are legally restricted to specific operating purposes. Gasoline taxes that are dedicated to financing road repairs fall into this category because the restriction targets maintenance and other operating costs for roads. They’re not meant for general purposes, capital projects, debt service, or operating through an enterprise fund, so they’re shown in a special revenue fund.

Federal highway grants restricted for capital projects belong in capital projects funds since they’re designated for long-term assets and capital outlays. Property taxes earmarked for debt service go into a debt service fund. Fees for enterprise water service are typically accounted for in an enterprise fund as part of a business-type activity.