Area III: State & Local Governments — CPA Practice Question 27

How to approach this question

Governmental funds: Bond proceeds = Other Financing Sources (OFS). Do not record Liability. Premium is also OFS. If premium must go to Debt Service, record Transfer Out.

Full Answer

C.Other Financing Sources (Face): $10,000,000; Other Financing Sources (Premium): $200,000 (followed by Transfer Out)✓ Correct

C

In the Capital Projects Fund, bond issuance results in Other Financing Sources. The face amount ($10M) and the premium ($200k) are both OFS. Since the premium is restricted for debt service, the CPF will likely record a Transfer Out to the Debt Service Fund immediately, but the initial recognition is OFS.

Common mistakes

Recording a liability in the governmental fund; recording proceeds as Revenue.

A municipality issues $10,000,000 in general obligation bonds at 102 to finance the construction of a new library. The premium of $200,000 is required by law to be used for debt service. In the Capital Projects Fund, how should the bond proceeds be reported?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 5

More questions from this exam