Question

The City issued $2 million in general obligation bonds to acquire a fleet of vehicles for the Central Motor Pool Internal Service Fund At the date of issue, the appropriate entry in the proprietary fund is a $ 2 million debit to cash and a $2 million credit to a) Bonds Payable. b) Contribution Capital (Revenues). c) Contributed Capital (Revenues) AND show $2 million as an addition to the Schedule of Changes in Long-Term Obligations. d) No entry in the proprietary fund. Show $2 million as an addition to the Schedule of Changes in Long-Term Obligations.

Answer 1

Answer:

a) Bonds Payable.

Explanation:

Since there is an issue of bonds as against cash, which need to be paid back in future, amount received will be credited to bonds payable.

Further the purpose of bonds will always be to acquire a capital asset as bonds are issued for long term finance generally, therefore, the bonds will be credited as bonds payable, rather than capital contributions.

Though a general note in notes to account can be added clearly specifying the purpose of issue of bonds.

a) Bonds Payable.