Agovernment defeased in substance $5,000,000 of outstanding general obligation bonds several years prior to their maturity. the government paid $6,000,000 into an irrevocable trust to accomplish the defeasance in substance. the payment included $3,000,000 of proceeds from new bonds issued that were to provide resources for the bond defeasance. the other $3,000,000 had been accumulated over previous years from taxes and interest earnings in the debt service fund. the government should report the payment in its debt service fund as?

The government should report the payment in its Debt Service Fund as:

Other financing use of $3,000,000 and expenditure of $3,000,000

Explanation:

Because the resources of $6 million for defeased in substance in bond balance sheets must be set aside offset thus if the resources come from 2 different entries should be net off in 2 different entries.

Thus $3 million of proceeds from new bonds is expenditure while another $3 million  accumulated over previous years from taxes and interest earnings is other financing use.

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