Question

Several years ago a city established a sinking fund to retire an issue of general obligation bonds. This year the city made a 550,000 contribution to the sinking fund from general revenues and realized 515,000 in revenue from securities in the sinking fund. The bonds due this year were retired. These transactions require accounting recognition in which of the following funds? (AICPA adapted)
a. General Fund
b. Debt Service Fund
c. Debt Service Fund and General Fund
d. Capital Projects Fund, Debt Service Fund, and General Fund
e. None of the above

Answer 1

Answer: c. Debt Service Fund and General Fund

Explanation:

The Sinking fund is a Debt Service Fund as it was created to retire some general obligation bonds. Every transaction that had to do with the retirement of debt as well as contribution to the retirement of debt would go in this account.

The General fund is also needed because this is the main fund of a Government entity. Everything that does not go through special funds is recorded here. This Fund therefore would show that the city made a $550,000 contribution to the sinking fund.