When a government issues general obligation bonds at a premium, the premium is amortized over the life of the bond. Under the full accrual basis used in the government-wide financial statements (e.g., Statement of Activities), this amortization reduces the reported interest expense over time.
The fund financial statements (e.g., Statement of Revenues, Expenditures, and Changes in Fund Balance) follow the modified accrual basis and generally do not account for amortization of bond premiums.
GASB Statement No. 65 – Items Previously Reported as Assets and Liabilities
GFOA – Debt Reporting Best Practices
Answer: B. Statement of Activities as a component of interest expense
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