A local government issues $5,000,000 in general obligation bonds to finance the construction of a new police station. In the Governmental Funds financial statements (Capital Projects Fund), how is the receipt of the bond proceeds reported?

Answer options:

Revenue

Other Financing Source

Long-term Liability

Deferred Inflow of Resources

How to approach this question

Governmental Funds = Current Financial Resources Focus. Long-term debt is not a liability. Proceeds are an inflow. Classify as 'Other Financing Source'.

Full Answer

B.Other Financing Source✓ Correct

In governmental funds (modified accrual), long-term debt is not recognized as a liability. The proceeds from issuing the debt are reported as an 'Other Financing Source' on the Statement of Revenues, Expenditures, and Changes in Fund Balances.

Common mistakes

Recording as Liability (that's Gov-wide); Recording as Revenue.

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