Premiums on tax-supported bonds are typically transferred to which fund to cover debt service?

• A. Debt Service Fund
• B. General Fund
• C. Capital Projects Fund
• D. Enterprise Fund

Answer: (A)

Bond premiums on tax-supported debt are resources meant to help fund debt service. In governmental accounting, the Debt Service Fund is the dedicated repository for accumulating resources to pay interest and principal on general obligation and other tax-supported debt. When bonds are issued at a premium, that premium increases the resources available for debt service, and it is typically transferred into the Debt Service Fund so it can be used to cover future debt service payments. The General Fund covers operating activities, the Capital Projects Fund finances large construction, and the Enterprise Fund handles business-type activities, so they’re not the normal destination for debt-service resources.