Salvador County Issued $25 Million of 5 Percent Demand Bonds

Salvador County issued $25 million of 5 percent demand bonds for construction of a county maintenance building. The county has no take-out agreement related to the debt. It estimates that 20 percent of the bonds would be demanded (called) by the buyers if interest rates increased by at least one percentage point. At year-end, rates on comparable debt were 7 percent. How should these demand bonds be reported in the governmental fund financial statements at year-end?

A) $25 million in the capital projects fund.
B) $5 million in the capital projects fund AND $20 million would be reported in the schedule of changes in long-term obligations.
C) $20 million in the capital projects fund AND $5 million would be reported in the schedule of changes in long-term obligations.
D) $25 million in the schedule of changes in long-term obligations.