Final answer:
The liability for general obligation bonds issued for a governmentally owned electric utility, which are serviced by its earnings, should be recorded in an enterprise fund, as these utilities operate in a business-like manner.
Step-by-step explanation:
The liability for general obligation bonds issued for the benefit of a governmentally owned electric utility and serviced by its earnings should be recorded in an enterprise fund. An enterprise fund is used by government entities to track resources that are provided mainly through the use of sales and service charges to parties external to the government. When the electric utility is operated in a manner similar to private businesses, the accounting for its bonds appropriately aligns with the use of an enterprise fund.
Bonds are a common mechanism for borrowing and represent a promise to pay back borrowed funds with interest. Governmentally owned utilities, such as an electric utility, issue general obligation bonds that are serviced by the earnings from the utility. These bonds are recorded in an enterprise fund because the utility operates like a business, aiming to be self-sufficient through user charges. Moreover, in a broader accounting context, these activities may be reported as part of the business-like activities accounts.