Final answer:
The liability for bonds issued to finance the cost of a new city hall would be recorded in the Capital Projects Fund.
Step-by-step explanation:
The principal amount of bonds issued to finance the cost of a new city hall would be recorded as a liability in the Capital Projects Fund. The Capital Projects Fund is used to account for financial resources that are designated for the acquisition or construction of major capital facilities, such as a city hall, which are not financed by proprietary or trust funds.
When a city or any governmental entity issues bonds for such projects, they are effectively borrowing money that will be repaid over time, thus creating a liability that is recorded in the Capital Projects Fund.