Special assessments levied for debt service of bonds issued for a special assessment capital project will be accounted for by a debt service fund under which situation?

• A. Yes Yes
• B. Yes No
• C. No Yes
• D. No No

Answer: (B)

Debt service funds exist to accumulate resources dedicated to paying the principal and interest on long‑term debt. When bonds are issued to finance a special assessment capital project and the special assessments are the pledged, dedicated source of funds for debt service, those resources should be accounted for in a debt service fund so the debt service can be paid from that separate fund. This setup ensures that debt service is funded solely from the special assessments and not mixed with other funds. If, however, the debt service isn’t funded solely by the special assessments—for example, if other revenues or general funds must back the payments—then a debt service fund isn’t the appropriate place for accounting. So the situation described is one where the special assessments are levied to cover debt service (thus going into a debt service fund), but not in scenarios where those assessments aren’t pledged to debt service.