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?

Answer options:

Other Financing Sources: $10,200,000

Revenues: $10,200,000

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

Liability: $10,200,000

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

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.

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