In government accounting, the premium on a bond issue for a capital project is typically treated as:

• A. Recorded as revenue in the Capital Projects Fund
• B. Recorded as an offset to the cost of the project
• C. Transferred to the Debt Service Fund
• D. Recognized as a reduction of the bond proceeds

Answer: (C)

Bond premium represents extra financing obtained when bonds are issued above their face value. In a Capital Projects Fund, this premium is not treated as revenue. Instead, it is a financing source that increases the resources available for the project. If the premium isn’t needed directly for the project, it’s common to move those funds to the Debt Service Fund to support future debt service payments. That’s why the typical treatment is to transfer the premium to the Debt Service Fund rather than recording it as revenue, reducing the bond proceeds, or offsetting the project cost.