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Clifford City has issued $10 million of revenue bonds to help finance a factory for Travis,...

Clifford City has issued $10 million of revenue bonds to help finance a factory for Travis, Inc., a private manufacturing company. The city owns the factory and leases it to the company. The bonds are payable exclusively from the lease payments. In the event the company defaults on its lease payments, the bondholders have claims only on the factory. The city has no obligation for the bonds other than to transmit to the bondholders the lease payments that it receives from the company. In its annual financial statements the city should report the bonds

on its government‐wide statement of net position but not in any fund statements

only in notes.

only as required supplementary information.

both on its government‐wide statement of net position and in its proprietary funds balance sheet.

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Answer #1

Answer: Option 2 (only in notes)

Explanation: Since the city has no obligation for the bonds other than to transmit to the bondholders the lease payments that it receives from the company, the disclosure for such bonds should be made only in the notes and won't have any impact on the financial statements.

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