Previously Atomic City had issued bonds with a face value of $10 million to construct a new city hall.Because the money will not be needed for several months, the city invested the bond proceeds in U.S.Government securities.Assuming that the city maintains its books and records in a manner that facilitates the preparation of the fund financial statements, what is the appropriate entry when the City receives interest on the investments?

Question

Quizplus · Accepted Answer

When the City receives interest on the investments, it should record it as revenue by debiting Cash (increasing an asset) and crediting Revenue (increasing retained earnings). Option A correctly reflects this entry. Option B is incorrect because Other Financing Source is used for an inflow of funds that are not considered revenues, such as proceeds from issuing bonds or selling assets. Option C is incorrect because Deferred Revenue is a liability account used to record funds received in advance of providing goods or services, which is not applicable in this scenario. Option D is incorrect because an appropriate entry is required for recording the revenue received.

Previously Atomic City Had Issued Bonds with a Face Value