Area I: Financial Reporting — CPA Practice Question 04

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In governmental funds, bond proceeds are 'Other Financing Sources' (OFS). The gross amount received is recorded. If the premium is transferred to another fund (like Debt Service), it is an 'Other Financing Use' (OFU).

Full Answer

C.Other Financing Sources: $2,020,000; Other Financing Uses: $20,000✓ Correct

C

1. **Issuance:** The Capital Projects Fund (CPF) records the issuance of debt. Proceeds are OFS. Entry: Debit Cash $2,020,000; Credit OFS-Bond Proceeds $2,000,000; Credit OFS-Bond Premium $20,000. (Total OFS = $2,020,000). 2. **Transfer:** The premium is transferred to the Debt Service Fund. Entry: Debit OFU-Interfund Transfer Out $20,000; Credit Cash $20,000. Result: OFS of $2,020,000 and OFU of $20,000.

Common mistakes

Netting the premium immediately; classifying bond proceeds as Revenue; forgetting the transfer entry.

City of Oakville issued $2,000,000 in general obligation bonds at 101 to finance the construction of a new police station. The premium was transferred to the Debt Service Fund. How should the Capital Projects Fund report these events?

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Practice the full CPA FAR Practice Exam 5

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