Question

The City of Fargo issued general obligation bonds to finance construction of a new fire station. The bonds were issued at a premium. In the fire station capital projects fund, the premium should be transferred to:

A. an agency fund.
B. a special revenue fund.
C. a debt service fund.
D. an expendable trust fund.

Answer 1

C, a debt service fund

Step-by-step explanation:

A debt service fund is is a cash reserve that is used to pay for some principals and interests on some debts.

A debt service fund is calculated by dividing the net operating income by the debt.

In the case of the question, the premium of the fire station capital projects funds should be transferred to the debt service fund because should the contruction work not have enough fund to continue it, the premium will be used to continue and complete the construction work.

Cheers.