ExpertEasy1 markMultiple Choice
CPA · Question 49 · Area III: State & Local Governments
A government issues $5,000,000 of bonds. The bond covenant requires the government to set aside $500,000 in a separate fund for future debt service. Which fund should be used?
A government issues $5,000,000 of bonds. The bond covenant requires the government to set aside $500,000 in a separate fund for future debt service. Which fund should be used?
Answer options:
A.
General Fund
B.
Capital Projects Fund
C.
Debt Service Fund
D.
Permanent Fund
How to approach this question
Debt Service Fund = Piggy bank for paying off debt.
Full Answer
C.Debt Service Fund✓ Correct
C
The Debt Service Fund is created to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest.
Common mistakes
Using the General Fund (which can pay debt, but restricted accumulations usually go to DSF).
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