Problem 3. On December 31, 2017, the City of Danville received a gift of $10,000,000 to endow a new public library. Terms of the gift provide that the principal be held intact and invested in appropriate securities. The donor specifies that income is to be used for library acquisitions.

On January 2, 2018, the gift was invested in securities having an annual yield of 3 percent, payable quarterly. Library acquisitions costing $250,000 were made during 2018; $30,000 remains unpaid at year-end, December 31, 2018.

Instructions:

a. Identify the fund in which the above events would be recorded.

b. Prepare appropriate journal entries (including closing entries) for 2017 and 2018.

c. Present the fund financial statements for 2018.