The city of Lora issued $5,000,000 of general government, general obligation, 8%, 20-year bonds at 103 on April 1, 20X7, to finance a major general government capital project. Interest is payable semiannually on each October 1 and April 1 during the term of the bonds. In addition, $250,000 of principal matures each April 1.

If Lora’s fiscal year-end is March 31 and Lora accumulates dedicated resources in the DSF by fiscal year-end sufficient to pay the principal and interest due on April 1 of the subsequent fiscal year, what amount of debt service expenditures should Lora report for the fiscal year ended March 31, 20X8?

a. $200,000.

b. $400,000.

c. $650,000.

d. $200,000 or $650,000, depending on the city’s policy on accrual of debt service.