Which statement about premium on the sale of bonds is correct?

Which statement about premium on the sale of bonds is correct?

• A. Premium is retained by the local unit.
• B. Premium is deposited into the Debt Service Fund.
• C. Premium is transferred to the Capital Fund Balance.
• D. Premium is transferred to the Current Fund prior to the end of the current year.

Answer: (C)

Premium from selling bonds is a financing source tied to a capital-asset financing activity. In governmental fund accounting, resources obtained from issuing bonds that exceed their par value are not treated as operating revenue. Instead, that extra amount is directed to increase the capital resources available for capital projects, so it is recorded as an addition to the Capital Fund Balance. This keeps the premium aligned with funding for capital assets rather than with current operations or debt-service activities. Hence, the premium is transferred to the Capital Fund Balance to support future capital expenditures.

Premium from selling bonds is a financing source tied to a capital-asset financing activity. In governmental fund accounting, resources obtained from issuing bonds that exceed their par value are not treated as operating revenue. Instead, that extra amount is directed to increase the capital resources available for capital projects, so it is recorded as an addition to the Capital Fund Balance. This keeps the premium aligned with funding for capital assets rather than with current operations or debt-service activities. Hence, the premium is transferred to the Capital Fund Balance to support future capital expenditures.