Accounting for Bond Issues or
Debt Financing
Speaker: Linda W. Dufresne, CPA,
President, Dufresne & Associates, CPA, PA
Course Objectives
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Life of a bond issue
Proper entries to record your governmental fund and
proprietary fund bond transactions
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Practice example transaction
Disclosures
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Use of accounting funds
Recording bond issuance
Recording bond proceeds expenditures
Year end adjustments
Financial Statements
EMMA
Build America Bonds
Life of a Bond Issue
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Pre-issuance
 Inducement resolutions
 Bond documents drafted by bond counsel
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Bond documents reviewed and comments provided to bond
counsel by
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Trust indenture/ordinance/resolution – creates trust estate and establishes
legal foundation for tax exemption of interest on the bonds
Official statement – Offering document disclosing information required to
be disseminated to potential purchasers of the bonds
Loan agreement – Obligation to repay debt created by the bonds
Closing documents
Co-bond counsel
Issuer counsel
Disclosure counsel
Trustee counsel
Financial advisor
Issuer finance personnel and governing body
Award resolution
Life of a Bond Issue
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Pre closing
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Final corrections made to bond documents
All documents executed – be sure you leave the table with
what you need to record the transaction!
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Resolutions/ordinances
Closing memorandum
Arbitrage certificate
Closing
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Bonds delivered
Funds disbursed!!
Proper entries to record governmental
fund bond issuance transactions
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Identify transaction elements – refer to
resolutions/ordinances, closing memorandum and/or
arbitrage certificate
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Capital Project
Capitalized interest
Par value of bonds
Original issue discount or premium
Underwriter’s discount
Bond insurance costs, if any
Costs of issuance
Funded debt service reserve
Proper entries to record governmental
fund bond issuance transactions
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Potential governmental accounting funds
 Capital Projects Fund to expend proceeds
 Debt Service Fund to record capitalized interest and payment of
principal and interest; fund for reserves
 Debt Service Fund may be used to account for payment of
issuance costs – includes underwriter’s discount
 Separate fund to record long-term liability and capitalize
discount/premium & costs
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Discounts (OID)
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Proceeds received are less than face value
Record “Other Financing Uses” – do not net against “Other Financing
Sources”
Premiums (OIP)
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Proceeds received are greater than face value
Record separate “Other Financing Sources – Bond Premium” – do not add
to “Other Financing Sources”
When to use General Fund or Establish
Other Type of Governmental Fund
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Number of Funds Principle
 Care should be taken in applying the “number of funds principle” A
government should use the LEAST number of individual funds possible
 Governmental units should establish and maintain only those funds
required by law and sound financial administration
 Unnecessary funds result in inflexibility, undue complexity and inefficient
financial administration
 Distinguish “accounting” from “financial reporting”
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Accounting system must collect all data needed to ensure and demonstrate
legal compliance
Financial reporting is concerned with only those aspects of compliance that
are of importance to users of general purpose external financial reports
Not every “fund” used for internal accounting purposes should automatically
be classified as a fund in general purpose external financial reports
When to use General Fund or Establish
Other Type of Governmental Fund
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Capital Projects Fund
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Useful to report major capital acquisition and construction
separately from ongoing operations
Avoids distortions in financial resources trend information
GAAP provide for use of capital projects funds “to account
for financial resources to be used for the acquisition or
construction of major capital facilities (other than those
financed by proprietary funds and trust funds)”
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Decision to establish a capital projects fund does not mean
that ALL capital acquisition and construction MUST be
accounted for in that fund
Routine purchase of capitalizable items such as police
vehicles typically is reported in the general fund
Use this fund type when financial resources trend data would
be distorted if not reported separately from operations
When to use General Fund or Establish
Other Type of Governmental Fund
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Capital Projects Fund
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Especially common for major capital acquisition or
construction activities financed through borrowings or
contributions
Focus is on construction and acquisition
Should NOT be used as a “reserve” to accumulate
resources for future capital improvements
Unless a legal requirement exists to use a capital projects
fund, the fund type is permitted rather than required
A single capital projects fund may be sufficient for general
purpose external financial reporting provided that proper
level of detail is maintained in the government’s accounting
system
When to use General Fund or Establish
Other Type of Governmental Fund
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Debt Service Fund
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Normally “permitted” rather than “required”
Two specific instances where “required”
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Legally mandated
If financial resources are being accumulated for principal and
interest payments maturing in future years
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Generally interpreted to apply ONLY to accumulations of
resources in excess of a full year’s principal and interest
payments
Often a Debt Service Fund is used to account for issuance
costs
A single debt service fund may be sufficient for general
purpose external financial reporting provided that proper
level of detail is maintained in the government’s accounting
system
Post-closing – the REAL fun begins!
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Record bond issuance entries
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Governmental funds
Issuance scenario: City with 9/30 fiscal year issues general
government debt at 4.2% fixed rate on 3/1/2011 with a dated date
of 3/1/2011, first interest and principal payment date 9/1/2011 to
build a new City hall as follows:
Sources: $10,000,000 face amount
Uses: $300,000 capitalized interest, $432,000 original issue
discount, $200,000 underwriter’s discount, $160,000 costs of
issuance, $1,000,000 to be deposited to debt service reserve
account, $7,908,000 capital projects fund
2011 expenditures: $1,500,000 proceeds spent as of 9/30/2011 on
construction; $100,000 principal and $210,000 interest paid on
bonds on 9/1/2011
2011 government-wide expenses: $35,000 accrued interest as of
9/30/2011, $12,000 COI amortization; $14,400 OID amortization
Proper entries to record governmental
fund bond issuance transactions
All cash aspects of issuance transaction are recorded equal to face value of debt
Cash – Capital Projects Fund
Cash – Debt Service Fund
Reserve Account
Cash – Debt Service Fund
Capitalized Interest Account
Other Financing Uses –
Original Issue Discount
Other Financing Uses – Debt
Service Fund - Issuance Costs
Other Financing Sources –
Bond Proceeds
DR
7,908,000
CR
1,000,000
300,000
432,000
360,000
10,000,000
Proper entries to record governmental fund
bond transactions during the current period
DR
CR
Record monthly bond proceeds expenditures
Expenditures – capital outlay – city hall
3/31/2011
4/30/2011
5/31/2011
6/30/2011
7/31/2011
8/31/2011
9/30/2011
Cash – Capital Projects Fund
100,000
200,000
250,000
275,000
325,000
200,000
150,000
1,500,000
Proper entries to record governmental fund
bond transactions during the current period
DR
CR
Record 9/1/2011 debt principal payment
Cash
Other Financing Sources – transfers in – general fund
100,000
Cash with Fiscal Agent
Cash
100,000
Expenditures - Debt service – principal – general
government debt
Matured Principal Payable
Matured Principal Payable
Cash with Fiscal Agent
100,000
100,000
100,000
100,000
100,000
100,000
Proper entries to record governmental fund
bond transactions during the current period
DR
CR
Record 9/1/2011 debt interest payment
Cash is on hand in the debt service fund because bond proceeds were deposited into the debt
service fund for capitalized interest in the amount of $300,000. No transfer from the General
Fund is necessary to make this interest payment. However, once the capitalized interest on
deposit in the debt service fund is exhausted, transfers from the General Fund will be required.
Cash with Fiscal Agent
Cash
Expenditures - Debt service – interest – general
government debt
Matured Interest Payable
Matured Interest Payable
Cash with Fiscal Agent
210,000
210,000
210,000
210,000
210,000
210,000
Government-wide Conversion Entries
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Data must be converted from the current
financial resources measurement focus and
the modified accrual basis of accounting to
the economic resources measurement focus
and the accrual basis of accounting
Once all conversion entries have been made,
accounts originally described as
“expenditures” will actually represent
“expenses”; there is no need to establish
separate “expenses” accounts
Year End Adjustments to record
government-wide conversion entries
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Government-wide (full accrual) accounting:
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Record long-term General Obligation debt
Capitalize issuance costs
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Deferred Charges (issue costs)
Capitalize original issue discount
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DR Discount on Bonds Sold (OID)
Capitalize original issue premium
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CR Premium on Bonds Sold (OIP)
Reclassify expenditures for principal payments on debt
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DR General Obligation debt
Reclassify expenditures for acquisition and construction
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DR Construction in Progress
Record government-wide expenses
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Amortization of discounts/premiums, costs of issuance
Accrued interest payable
Year End Adjustments to record
government-wide conversion entries
ACTION NEEDED: The issuance of debt needs to be reflected on the government-wide
statement of net assets rather than in the government-wide statement of activities
DR
Record long-term debt
Other financing sources – bond proceeds
10,000,000
10,000,000
GENERAL OBLIGATION DEBT
Capitalize issuance costs
DEFERRED CHARGES
– ISSUANCE COSTS
Other financing uses – Debt Service –
issuance costs
DR
Capitalize original issue discount (OID)
DR
432,000
DEFERRED CHARGES – OID
Other Financing Uses –
Original Issue Discount
CR
CR
360,000
360,000
CR
432,000
Year End Adjustments to record
government-wide conversion entries
ACTION NEEDED: Remove debt service principal
payments and treat the amount paid as a
reduction of the balance of the related liability.
DR CR
Convert debt principal payment
to liability reduction
GENERAL OBLIGATION DEBT
Debt service – principal – general
government debt
100,000
100,000
Year End Adjustments to record
government-wide conversion entries
ACTION NEEDED: Remove expenditures incurred for the
acquisition or construction of capital assets and report
instead a capital asset for the items thus acquired on the
statement of net assets.
DR
CR
Convert capital outlay from
capital projects fund to capital assets
CONSTRUCTION IN PROGRESS
Expenditures - Capital Outlay – City Hall
1,500,000
1,500,000
Year End Adjustments to record
government-wide conversion entries
ACTION NEEDED: Discounts and deferred charges need to be amortized in the government-wide
statement of activities. Assume a 30 year bond, straight line amortization, full amortization in year of
issuance if bonds are outstanding > 6 months, no amortization in year of issuance if < 6 months.
DR
Record amortization of issuance costs
Expenditures – general government
12,000
DEFERRED CHARGES – ISSUANCE COSTS
Record amortization of
original issue discount (OID)
Debt Service – Interest
DEFERRED CHARGES – OID
CR
12,000
DR
CR
14,400
14,400
ACTION NEEDED: Expenses need to be accrued in connection with liabilities incurred
during the period, but not normally expected to be liquidated with current available
financial resources.
Record accrued interest payable
Debt Service - Interest
Matured Interest payable
DR
CR
35,000
35,000
Early Recognition of Debt Service Expenditures
in governmental debt service funds
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Exception to general rule that governmental funds should
NOT report expenditures and liabilities in connection with
unmatured long-term debt
Option exists to recognize an expenditure and a liability in
a debt service fund in the current period if:
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Debt service fund resources have been provided during the current
year; and
payment of principal and interest due early in the following year
Purpose is to allow governments to avoid inflating fund
balance in their debt service funds by allowing them to
recognize and expenditure and a liability in the current
period to balance the source and asset associated with
the transfer of resources to the debt service fund
Early Recognition of Debt Service Expenditures
in governmental debt service funds
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Early recognition is only an option – Must be consistently
applied from period to period
Applies only to situations where debt service payments
are made from a debt service fund – not all governments
use debt service funds, or make debt service from other
funds as well
Applies only to nondiscretionary transfer of dedicated
resources to a debt service fund resulting from a legal
obligation – voluntary transfers do not qualify for the early
recognition exception
Applies only to payments due within one month
Proprietary Fund Debt
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Must meet two criteria
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Direct relationship – Debt must be directly related to a given
proprietary fund to be reported as debt of that fund; and
Proprietary fund financing - Debt must be intended to be repaid
with resources of a proprietary fund
Debt can be backed by full faith and credit of the general
government and still meet the “proprietary fund financing”
rule
If only a portion of debt is expected to be repaid from
resources of a proprietary fund, then only that portion
should be reported as proprietary fund debt
Proprietary Funds
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Issuance scenario: City with 9/30 fiscal year issues proprietary
fund (water and sewer system) debt at 5.4% fixed rate on
2/15/2011 with a dated date of 2/1/2011, first interest payment
date 8/1/2011, first principal payment date 2/1/2012 for
upgrades, expansion, repairs and maintenance to the water
and sewer system as follows:
Sources: $5,000,000 principal, $108,000 original issue premium,
14 days purchased accrued interest $10,356
Uses: $40,000 underwriter’s discount, $32,000 costs of issuance,
$200,000 capitalized interest, $500,000 to be deposited to debt
service reserve account
2011 expenditures: $1,000,000 proceeds spent as of 9/30/2011 on
acquisition and construction; $50,000 principal and $135,000
interest paid on bonds on 8/1/2011, $45,000 accrued interest as of
9/30/2011, $2,400 COI amortization; $3,600 OIP amortization
Proper entries to record proprietary fund
bond issuance transactions
All cash aspects of issuance transaction are recorded equal to face value of debt
DR
5,046,356
Restricted Cash (*)
Deferred Charges –
Issuance Costs
72,000
Unamortized Premium on Bonds
Bonds Payable
Purchased Accrued Interest
CR
108,000
5,000,000
10,356
(*) Your policies and procedures, or the bond documents, may
require more specific identification such as “Restricted Assets –
revenue bond construction account, Restricted Assets –
revenue bond debt service account”, etc.
Proper entries to record proprietary fund
bond transactions during the current period
DR
CR
Record monthly bond proceeds expenditures
Construction in progress – water and sewer system
3/31/2011
4/30/2011
5/31/2011
6/30/2011
7/31/2011
8/31/2011
9/30/2011
Restricted Cash
100,000
100,000
100,000
100,000
200,000
200,000
200,000
1,000,000
Proper entries to record proprietary fund
bond transactions during the current period
DR
CR
Record 8/1/2011 debt interest payment
Cash with Fiscal Agent
Restricted Cash
135,000
Non-operating Expenses - Interest
Purchased Accrued Interest
Matured Interest Payable
124,644
10,356
Matured Interest Payable
Cash with Fiscal Agent
135,000
135,000
135,000
135,000
Year End Adjustments to record accrual entries
ACTION NEEDED: Discounts and deferred charges need to be amortized. Assume a 30 year bond, straight line
amortization, full amortization in year of issuance if bonds are outstanding > 6 months, no amortization in year of
issuance if < 6 months.
DR
Record amortization of issuance costs
Non-operating expenses – issuance costs 2,400
DEFERRED CHARGES – ISSUANCE COSTS
Record amortization of
original issue discount (OIP)
Unamortized Premium on Bonds
Non-operating expenses – Interest
DR
3,600
CR
2,400
CR
3,600
ACTION NEEDED: Expenses need to be accrued in connection with liabilities
incurred during the period.
Record accrued interest payable
Non-operating expenses - Interest
Accrued Interest payable
DR
45,000
CR
45,000
Refunding issues
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A refunding issue is a transaction in which refunding bonds are issued and
proceeds deposited to an irrevocable escrow
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A current refunding uses all refunding bond proceeds within ninety days
An advance refunding transaction utilizes proceeds beyond ninety days
The irrevocable escrow cash flow will produce the amounts necessary to pay
when due the principal, interest and redemption premium, if any, on the
refunded bonds
Economic gain/loss is the difference between the present value of the debt
service stream on the refunded bonds and the present value of the debt
service stream on the refunding bonds
Refundings may be utilized to remove restrictive bond covenants even if
there is an economic loss
GAAP require that the notes to the financial statements include:
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Brief description of refunding transaction
Aggregate difference in debt service between the refunded debt and the refunding
debt
Economic gain or loss on the transaction
Any amounts of debt defeased in substance but still outstanding at the end of the
fiscal year
Advance Refunding issues – Governmental funds
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Issuance scenario: City with 9/30 fiscal year issues $1,950,000
general government refunding bonds on 9/1/2011 to realize
economic gain of $180,000 attributable to significantly lower
interest rates currently available for its outstanding $2,000,000
debt as follows:
Sources: $1,950,000 principal, $50,000 on deposit in refunded
bonds debt service reserve account, $20,000 excess on deposit in
refunded bonds debt service principal and interest account
Uses: $1,933,000 escrow securities purchase, $30,000
underwriter’s discount, $52,000 costs of issuance, $5,000 to
purchase surety bond in lieu of cash funding debt service reserve
account
Proper entries to record governmental
fund refunding bond issuance transactions
DR
CR
Record receipt of bond proceeds net of costs of issuance
Cash
Expenditures – debt service other –
refunding bond issuance costs
Other Financing Sources –
Refunding Bond Proceeds
1,863,000
87,000
1,950,000
Record payment to refunded bond escrow agent
Other Financing Uses – Payment
to Refunded Bond Escrow Agent
Expenditures – debt service other –
advance refunding escrow
Cash
1,863,000
70,000
1,933,000
Year End Adjustments to record
government-wide conversion entries
ACTION NEEDED: The refunding of debt needs to be reflected on the government-wide
statement of net assets rather than in the government-wide statement of activities. Note
that refunded debt balance would be included in the prior year ending balance to which the
conversion entries are applied.
DR
CR
Remove refunded long-term debt balance
GENERAL OBLIGATION DEBT
Deferral - Refunding (*)
Other Financing Uses – Payment
to Refunded Bond Escrow Agent
Expenditures – other – advance
refunding escrow
2,000,000
67,000
1,863,000
70,000
(*) The disparity between the net carrying value of the refunded debt and its reacquisition price is
treated as a deduction from or an addition to the new debt liability in the GW statement of net
assets and subsequently amortized over the life of the refunding or refunded debt, whichever is
shorter.
Year End Adjustments to record
government-wide conversion entries
DR
CR
Record long-term debt
Other financing sources –
refunding bond proceeds
1,950,000
1,950,000
GENERAL OBLIGATION DEBT
Capitalize issuance costs
DEFERRED CHARGES – REFUNDING
BONDS ISSUANCE COSTS
Expenditures – Debt Service other –
refunding bonds issuance costs
87,000
87,000
NOTE: THE ISSUE DATE OF THE REFUNDING BONDS WAS 9/1. THERE ARE NO AMORTIZATIONS
RECORDED FYE 9/30/2011 IN ACCORDANCE WITH THE CITY’S POLICIES BECAUSE THE BONDS
ARE OUTSTANDING LESS THAN 6 MONTHS. AMORTIZATIONS WILL BE REQUIRED FYE 9/30/2012
FOR THE BALANCES RECORDED IN THE FOLLOWING TWO ACCOUNTS: DEFERRAL –
REFUNDING AND DEFERRED CHARGES – REFUNDING BOND ISSUANCE COSTS.
Current Refunding issues – Proprietary funds
Issuance scenario: In order to remove restrictive revenue bond covenants,
City with 9/30 fiscal year issues general obligation current refunding bonds
expected to be repaid with water and sewer authority’s revenues on
2/1/2011.
Face - $4,250,000
Issuance costs - $50,000
Bonds extinguished - $4,290,000
Accrued interest extinguished - $224,000
Current portion of revenue bonds outstanding that is not part of the refunding
but is paid with restricted assets on hand - $265,000
Unamortized issuance costs on refunded debt - $50,000
Remaining assets in restricted debt service accounts to be applied to refunding
- $950,000
Reacquisition price exceeds net carrying amount of old debt – 471,000
Economic gain - $150,000
Reduction in future debt service payments - $230,000
Proper entries to record proprietary fund
current refunding bond issuance transactions
DR
CR
Record sale of general obligation bonds for current refunding
Cash
4,200,000
Deferred charge – general obligation
bond issuance costs
50,000
General Obligation Bonds Payable
4,250,000
Reclassify assets no longer restricted by bond covenants
Cash
Restricted assets – revenue
bond renewal and
replacement account
1,000,000
1,000,000
Proper entries to record proprietary fund
current refunding bond issuance transactions
DR
CR
Record extinguishment of revenue bonds
Revenue bonds payable –
restricted assets
265,000
Accrued interest payable –
restricted assets
224,000
Revenue bonds payable
4,290,000
Unamortized charge –
refunding bonds
471,000
Cash
Restricted assets – revenue bond
debt service accounts
Deferred charge – revenue bond issuance costs
4,250,000
950,000
50,000
NOTE THAT TRANSACTIONS OCCURRING FYE 9/30/2011 AND YEAR END ACCRUALS
AND AMORTIZATIONS AS PREVIOUSLY DISCUSSED WILL BE APPLICABLE TO
THE REFUNDING BONDS.
Practice Exercise
Financial Statement Presentation
GASB 34
 Information about long-term liabilities should
include:
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Beginning and end-of-year balances
Increases and decreases (separately presented)
The portions of each item that are due within one
year of the statement date
Financial Statement Presentation
GASB 38
 Debt service requirements to maturity,
separately identifying principal and interest
for each of the subsequent five years and in
five-year increments thereafter
 Interest requirements for variable-rate debt
computed using the rate effective at year-end
 Terms of interest rate changes for variablerate debt
Secondary Market Disclosure/EMMA

Securities and Exchange Commission amended rule 15c2-12
 Barred broker-dealers from buying municipal securities unless
the issuer has agreed, in writing, to provide ongoing disclosure
 With certain exceptions the rule requires bond issuers to prepare
and disseminate to Nationally Recognized Municipal Securities
Information Repositories ("NRMSIRs") BUT NOW TO EMMA
"Annual Financial Information" and notices of material events.
 The issuer's written agreement to provide ongoing disclosure
may take the form of a covenant in the trust indenture, bond
ordinance or bond resolution or there may be a separate written
agreement.
 Annual Financial Information means financial information or
operating data, provided at least annually.
 Annual Financial Information is to "mirror" the type of quantitative
financial information and operating data contained in the final
official statement.
Secondary Market Disclosure/EMMA

Securities and Exchange Commission amended rule
15c2-12


At the time bonds are offered, the issuer must outline the type
of Annual Financial Information it will provide annually and the
terms of its continuing disclosure agreement.
Must describe (i) the type of information to be provided as
part of the Annual Financial Information, (ii) the accounting
principles used to prepare the financial statements and the
timing of such statements, (iii) the date in each year by which
the Annual Financial Information will be provided and to
whom, and (iv) who will be providing the information.
Secondary Market Disclosure/EMMA
In addition to Annual Financial Information, eleven "material
events" require notice as follows:
1.
2.
3.
4.
5.
Principal and interest payment delinquencies;
Non-payment related defaults;
Unscheduled draws on debt service reserves;
Unscheduled draws on credit enhancement;
Substitution of credit or liquidity providers, or their failure to
perform;
6. Adverse tax opinions or events affecting the tax-exempt status
of the security;
7. Modifications to rights of security holders;
8. Bond calls;
9. Defeasances;
10. Release, substitution, or sale of property securing repayment
of the securities; and
11. Rating changes
Secondary Market Disclosure/EMMA

Securities and Exchange Commission amended rule
15c2-12



Issuers with less than an aggregate of $10 million in
outstanding securities are exempt from the Annual Financial
Information requirement if they make a "limited undertaking"
specifying the type of financial information and operating
data they will make available, on a request basis at least
annually.
Small issuers must also provide material events disclosure.
The $10,000,000 exemption takes into account all types of
the issuers' outstanding tax-exempt debt. General obligation
bonds, revenue bonds, lease obligations and notes are all
aggregated in the $10,000,000 limit.
Primary issues that are exempt from Rule 15c2-12 are also
exempt for purposes of secondary market disclosure. In
addition, issues which are outstanding 18 months or shorter
are exempt from secondary market disclosure.
Secondary Market Disclosure/EMMA

Securities and Exchange Commission amended rule 15c2-12 again
 Electronic Municipal Market Access system (“EMMA”) has been
designated as the central repository for continuing disclosure
documents.
 Issuers required to provide continuing disclosure documents to
EMMA rather than to each Nationally Recognized Municipal
Securities Information Repository (“NRMSIR”) or the central
repository known as DisclosureUSA.
 Small issuers will be required to submit the financial information
and data to EMMA (except with respect to issues less than
$1,000,000 and certain private placements).
 All disclosure documents must be submitted in electronic format
(PDF Files).
 Beginning January 1, 2010, PDF files submitted to EMMA must be
word searchable.
 Issuers can submit continuing disclosure documents to EMMA or
can do so indirectly through an indenture trustee or a designated
agent.
Accounting for Build America Bonds
including Recovery Zone Economic
Development Bonds (Direct Payment)



Section 1401 of American Recovery and
Reinvestment Act (ARRA)
Refundable credit subsidy equal to 45 percent
(35% for Build America Bonds that are NOT
RZEDB) of the total coupon interest payable to
investors
Report issuance of the bonds on IRS Form
8038-G, Information Return for Tax-Exempt
Governmental Obligation
Accounting for Build America Bonds including
Recovery Zone Economic Development Bonds
(Direct Payment)


8038-G must be filed at least 30 days before the first Form 8038CP is filed to request payment with respect to an interest
payment date
 generally under guidance of bond counsel at time of closing
8038-CP filing procedures to receive subsidies are:

Variable rate debt:


Fixed rate debt:



quarterly reimbursements must be filed no later than the 45th day after
the last interest payment date within the quarterly period for which
reimbursement is requested
contemporaneous basis by the 45th day before the applicable interest
payment date of the RZEDB bonds; and
not earlier than the 90th day before the applicable interest payment date.
federal government stated that issuers should expect to receive
requested payments within 45 days of the date that a processible
Form 8038-CP is filed with the IRS
Accounting for Build America Bonds
including Recovery Zone Economic
Development Bonds (Direct Payment)

Question regarding reporting of the federal
subsidy - should it be reported as a revenue
or a reduction of an expenditure

GASB is advising that the federal subsidy be
reported as revenue under GASB 33 guidance for
non-exchange transactions
Accounting for Build America Bonds
including Recovery Zone Economic
Development Bonds (Direct Payment)

Question regarding reporting of the federal
subsidy - should it be reported as a revenue
or a reduction of an expenditure

GASB is advising that the federal subsidy be
reported as revenue under GASB 33 guidance for
non-exchange transactions
Accounting for Build America Bonds including
Recovery Zone Economic Development Bonds
(Direct Payment) Interest Reimbursement
Governmental Fund Journal Entries
1 Bond Interest Expenditure
Cash
Record semi-annual interest payment
Debit
$100,000
Credit
$100,000
2 Interest Receivable
$ 45,000
Federal Bond Interest Subsidy-revenue
Record Federal Subsidy
$ 45,000
3 Cash
Interest Receivable
Record receipt of federal subsidy
$ 45,000
$ 45,000
Accounting for Build America Bonds including
Recovery Zone Economic Development Bonds
(Direct Payment) Interest Reimbursement

Proprietary Funds



Economic resources measurement focus basis of
accounting
Most governmental units record accrued interest
expense
Proportional amount of the subsidy should also be
accrued as a current year receivable
Accounting for Build America Bonds including
Recovery Zone Economic Development Bonds
(Direct Payment) Interest Reimbursement
Proprietary Fund Journal Entries
Debit
Bond Interest Expenditure
$100,000
Cash
Record semi-annual interest payment during fiscal year
Credit
1
2
Interest Receivable
Federal Bond Interest Subsidy-revenue
Record Federal Subsidy during fiscal year
$ 45,000
3
$ 45,000
Cash
Interest Receivable
Record receipt of federal subsidy during fiscal year
$100,000
$ 45,000
$ 45,000
Accounting for Build America Bonds including
Recovery Zone Economic Development Bonds
(Direct Payment) Interest Reimbursement
Proprietary Fund Journal Entries
Debit
4 Interest Receivable
$ 14,850
Federal Bond Interest Subsidy
Bond Interest Expense
33,000
Interest Payable
To Accrue Year-end interest and subsidy
Credit
$ 14,850
33,000
Accounting for Build America Bonds
including Recovery Zone Economic
Development Bonds (Direct Payment)
Government-wide Journal Entries


If the bonds are accounted for in a governmental fund (as opposed
to an enterprise fund), at year-end the governmental unit will have to
make entries to convert the accounting from the current financial
resources basis of accounting to the economic resources
measurement focus basis of accounting for government-wide
statement presentation.
Entries similar to Proprietary Fund journal entry number four above
would be used to accrue both subsidy revenue and interest
expense.