CPA Bar Question of the Day

Practice CPA Bar with the production-style question-of-the-day selection for this public URL.

Question 1

During the year, the City of Brookfield issued 10,000,000 general obligation bonds to build a new fire station. The proceeds and construction outlays were accounted for in a capital projects fund. As of year-end, 6,500,000 of construction costs had been incurred, and 120,000 of bond interest had accrued but was not yet due. The fire station will be owned and used by the City's fire department. Brookfield reports under GASB standards. The capital projects fund had no remaining encumbrances, and no debt service fund payments were due until the following year.

Which classification is correct across fund and government-wide statements?

In the capital projects fund, report bond proceeds as revenues; in government-wide, no liability is reported until due; accrue interest expenditure in the capital projects fund.
In government-wide statements, report bond proceeds as other financing sources and construction as expenditures.
Capitalize the fire station in the capital projects fund and recognize interest payable in that fund.
Report bond proceeds as other financing sources in the capital projects fund; in government-wide, record a long-term liability for bonds, capitalize construction costs, and accrue interest.

Explanation: Under GASB 34 and GASB 54, governmental funds report bond proceeds as other financing sources, not revenue, while capital assets and long-term debt appear only in government-wide statements. Government-wide statements capitalize construction and recognize interest accruals; governmental funds generally recognize interest as due. Capital assets are not recorded in governmental funds.

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CPA Bar

CPA Bar Question of the Day

Practice CPA Bar with the production-style question-of-the-day selection for this public URL.

Question 1

During the year, the City of Brookfield issued 10,000,000 general obligation bonds to build a new fire station. The proceeds and construction outlays were accounted for in a capital projects fund. As of year-end, 6,500,000 of construction costs had been incurred, and 120,000 of bond interest had accrued but was not yet due. The fire station will be owned and used by the City's fire department. Brookfield reports under GASB standards. The capital projects fund had no remaining encumbrances, and no debt service fund payments were due until the following year.

Which classification is correct across fund and government-wide statements?

In the capital projects fund, report bond proceeds as revenues; in government-wide, no liability is reported until due; accrue interest expenditure in the capital projects fund.
In government-wide statements, report bond proceeds as other financing sources and construction as expenditures.
Capitalize the fire station in the capital projects fund and recognize interest payable in that fund.
Report bond proceeds as other financing sources in the capital projects fund; in government-wide, record a long-term liability for bonds, capitalize construction costs, and accrue interest.

Explanation: Under GASB 34 and GASB 54, governmental funds report bond proceeds as other financing sources, not revenue, while capital assets and long-term debt appear only in government-wide statements. Government-wide statements capitalize construction and recognize interest accruals; governmental funds generally recognize interest as due. Capital assets are not recorded in governmental funds.