Town of Brewster issued the following during the year: 1) $600,000 in bonds for installation of new street lights in the downtown corridor, and 2) $800,000 in bonds for construction of a public golf course to be self-supported from fees collected from golf course users. How much should be accounted for through debt service funds for payments of principal over the life of the bonds?

• A. 0.
• B. 600,000.
• C. 800,000.
• D. 1,400,000.

Answer: (B)

Debt service funds are used to accumulate resources specifically for paying principal and interest on long-term debt that is not serviced by an enterprise fund. Here, the street lights bonds are a governmental activity financed by general revenues, so their principal payments will be made from a debt service fund. The golf course bonds, however, are designed to be self-supported from the golf course’s user fees, meaning they are enterprise debt funded from the enterprise fund’s revenues, not from a separate debt service fund. Therefore, only the street lights debt’s principal—600,000—belongs in a debt service fund.