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    PracticeCPA®CPA BAR Practice Exam 5Question 49
    Easy1 markMultiple Choice
    Area III: State & Local GovernmentsGovernmental AccountingFund Accounting

    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?

    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
    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).
    Question 48All questionsQuestion 50

    Practice the full CPA BAR Practice Exam 5

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