Voters of Valdez School District, a Public School District, Approved

Voters of Valdez School District, a public school district, approved construction of a new high school at a cost not to exceed $20 million. The district will finance the construction by issuing $20 million of 6 percent term bonds payable in 20 years. Because the site had already been prepared, the school district began construction immediately but the bonds would not be issued for nearly a year. Shortly before the fiscal year-end, the school district borrowed $5 million from a local bank due in one year with interest at 6.2 percent. The note will be repaid from bond proceeds. The school district secured a financing agreement with the bank to convert the debt to a 10-year debt if the school district is unable to sell the bonds by the due date. At year-end, how should the $5 million note be displayed in the governmental fund financial statements?

A) Capital projects fund-Notes payable $5 million; Nothing in the schedule of changes in long-term obligations.
B) Capital projects fund-Notes payable $5 million; $15 million in the schedule of changes in long-term obligations.
C) Capital projects fund-Encumbrances of $5 million; $15 million in the schedule of changes in long-term obligations.
D) Nothing in the capital projects fund AND $5 million notes payable in the schedule of Changes in long-term obligations.