ExpertMedium1 markMultiple Choice
CPA · Question 05 · Area I: Financial Reporting
A city government levies a special property tax dedicated solely to the repayment of general obligation bonds issued to finance the construction of a new city hall. In which fund should the proceeds from this tax be recorded?
A city government levies a special property tax dedicated solely to the repayment of general obligation bonds issued to finance the construction of a new city hall. In which fund should the proceeds from this tax be recorded?
Answer options:
A.
General Fund
B.
Capital Projects Fund
C.
Special Revenue Fund
D.
Debt Service Fund
How to approach this question
Identify the purpose of the resource. If it is for principal and interest payments on general long-term debt, it belongs in the Debt Service Fund.
Full Answer
D.Debt Service Fund✓ Correct
D
GASB standards require the use of a Debt Service Fund when financial resources are being accumulated for principal and interest payments on general long-term debt. Since the tax is dedicated to bond repayment, it goes here.
Common mistakes
Confusing the fund for construction (Capital Projects) with the fund for repayment (Debt Service); using Special Revenue for debt service restricted funds.
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