Question

The City of Dylan issues a 10-year bond payable of $1 million at face value on the first day of Year 1. Debt issuance costs of $10,000 are paid on that day. For government-wide financial statements, how is this debt issuance cost reported?

A. $10,000 is recorded as an asset.

B. $10,000 is recorded as an expense.

C. $1,000 is recorded as an expense and $9,000 is recorded as an asset.

D. $1,000 is recorded as an expense and $9,000 is recorded as a deferred outflow of resources.

Answer 1

B. $10,000 is recorded as an expense.

Step-by-step explanation:

When bonds are issued, the costs associated with it should be treated as a one-time expense, thus, for government-wide financial statements, debt issuance costs should be recorded as a $10,000 expense in the first year instead of being broken into parts to be paid every year.