Which statement about accrued interest is true when settlement occurs during the last six months and no interest is payable this year?

Which statement about accrued interest is true when settlement occurs during the last six months and no interest is payable this year?

• A. Accrued interest is transferred to the Current Fund.
• B. Accrued interest is transferred to the Capital Fund Balance.
• C. Accrued interest remains in the Accrued Interest on Bonds account.
• D. Accrued interest is treated as revenue for the year.

Answer: (A)

Accrued interest on bonds is an amount that has been earned but not yet paid, recorded as a payable in the fund’s accounts. When settlement occurs in the last six months and no interest is payable in the current year, that accrued amount is reclassified to the Current Fund because the current-year funds are responsible for settling the debt service with the bondholders. This aligns the accrual with the fund that handles operating and debt-service payments for the year, rather than keeping it tied up in a separate accrual account or moving it to a capital-related balance. It also isn’t revenue, since the government is paying interest owed, not earning income. Moving it to the Capital Fund Balance would misplace the transaction, since it concerns current-year debt service rather than capital projects.

Accrued interest on bonds is an amount that has been earned but not yet paid, recorded as a payable in the fund’s accounts. When settlement occurs in the last six months and no interest is payable in the current year, that accrued amount is reclassified to the Current Fund because the current-year funds are responsible for settling the debt service with the bondholders. This aligns the accrual with the fund that handles operating and debt-service payments for the year, rather than keeping it tied up in a separate accrual account or moving it to a capital-related balance. It also isn’t revenue, since the government is paying interest owed, not earning income. Moving it to the Capital Fund Balance would misplace the transaction, since it concerns current-year debt service rather than capital projects.