The premium on bonds issued for a capital project is typically recorded as:

• A. Revenue in the Capital Projects Fund
• B. A deduction from the project cost
• C. A transfer to the General Fund
• D. Is transferred to the Debt Service Fund

Answer: (D)

When bonds are issued to finance a capital project, the premium received on those bonds is not treated as revenue for the capital project. Instead, it is a financing source that is typically directed toward debt service needs. The usual accounting approach is to transfer the bond premium to the Debt Service Fund so that those extra resources can help fund future principal and interest payments. This keeps the capital project accounts focused on the project cost itself while the Debt Service Fund accumulates resources to meet debt obligations.

So the premium isn’t revenue for the capital project, and it isn’t used to reduce the project cost or moved to the General Fund. It’s directed to the Debt Service Fund to support debt service requirements.