CPA Exam - FAR (Financial Accounting and Reporting)State and Local GovernmentsMedium
A county government issued $15,000,000 in general obligation bonds at par to finance the construction of a new courthouse. The bonds have a 20-year maturity. How should the bond proceeds be recorded in the governmental funds?
- AAs a liability in the Government-Wide Statement of Net Position.
- BAs 'Other Financing Sources' in the Capital Projects Fund.
- CAs a liability in the General Fund.
- DAs revenue in the Debt Service Fund.
Show answer & explanationAnswer & explanation
Correct answer: B. As 'Other Financing Sources' in the Capital Projects Fund.
Proceeds from general long-term debt issuances are recorded as 'Other Financing Sources' in the governmental fund receiving the proceeds (typically a Capital Projects Fund) under the modified accrual basis of accounting.
Why the other options are wrong
- A. While true for government-wide statements, the question specifically asks for governmental funds accounting.
- C. Long-term debt is not recorded as a liability in the General Fund; it's a government-wide liability.
- D. The Debt Service Fund accounts for debt payments, not the initial bond proceeds.
Bond Proceeds in Governmental Funds
In governmental funds, proceeds from the issuance of general long-term debt, such as bonds, are recorded as 'Other Financing Sources' rather than liabilities, reflecting the modified accrual basis of accounting.
- Recorded as 'Other Financing Sources'
- Typically in Capital Projects Fund
- Reflects modified accrual accounting
Memory trick: Modified accrual means bond proceeds are 'Other Financing' for big projects.