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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 6 – Bonded Indebtedness
Reporting of Issuance of Long-Term Debt – Governmental Funds

Issuance of Long-Term Debt

The issuance of long-term debt is treated as an other financing source rather than as revenue. The amount reported equals the face value of the debt.

Bond Issuance Premium/Discount

The following occurs when debt is issued at a premium:

  • Stated rate of interest is higher than the comparable market rate on interest at time of issuance
  • Proceeds received are more than face value
  • Reported as a separate other financing source (for example, premium on bonds issued)

The following occurs when debt is issued at a discount

  • Stated rate of interest is lower than the comparable market rate on interest at time of issuance
  • Proceeds received are less than face value
  • Reported as a separate other financing source (for example, discount on bonds issued)

The other financing sources for premiums are not netted against the other financing sources for discounts. Neither is netted against the debt itself. Both must be reported separately.

Issuance Costs

GASB 65 paragraph 15, eliminates the amortization of issuance costs, except for prepaid insurance. A portion of the proceeds of long-term debt may be withheld for issuance costs (for example, underwriter’s fees) due in connection with the debt issuance. Discounts resulting from the withholding of underwriter’s fees are reported as expenditures, and are not netted against the other financing source reported to record the debt issuance.

Example

An agency issues bonds with a face value of $10,000. The agency received $9,600 in proceeds from the sale. The balance of $400 represents the amount withheld for underwriter’s fees ($350) and a discount resulting from a disparity between the market rate of interest and the stated rate of interest on the debt ($50). Below is the appropriate journal entry to record the receipt of the debt proceeds in these circumstances:

DR CR
(debit) cash    $9,600  
(debit) expenditures – issuance costs         350  
(debit) other financing use – bond issuance discount           50  
(credit) other financing source – bond issuance      $10,000
Glenn Hegar
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.texas.gov
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