If a governmental fund issues debt to finance a capital acquisition, how should the proceeds of the debt be recorded?
A) Long-term liability.
B) Revenue.
C) Other financing source.
D) Not reported by the governmental fund; only reported at the government-wide level.

Question

Quizplus · Accepted Answer

The proceeds of the debt should be recorded as an other financing source in the governmental fund. This indicates that the fund has received money from borrowing, which will be used for capital acquisition. The long-term liability option is incorrect because it reflects how the debt will be paid back rather than how the money was received. Revenue is also incorrect because the proceeds of the debt are not considered revenue. The option stating that it would not be reported by the governmental fund is incorrect as it should be recorded as an other financing source.

If a Governmental Fund Issues Debt to Finance a Capital