The city of Nancy is installing a lighting system in the Harvey Subdivision, which is considered to be a major general government capital project for the city. The system is being financed by levying $500,000 of special assessments on benefitted property owners and transferring $750,000 (in the next year) from the General Fund. $100,000 of these assessments were due and collected during the current year. Also, as of the end of the fiscal year, the city had incurred expenditures of $750,000 on the project.

Assume that instead of levying the special assessments to finance a portion of the project, the city issued $500,000 of five-year, 6%, notes payable six months before the end of the fiscal year. The net effect of the note issuance, as well as the incurred expenditures, on the net change in fund balance of the Capital Projects Fund for the fiscal year would be

a. a decrease of $750,000 because the notes payable would be reported as a direct fund liability in the Capital Projects Fund.

b. an increase of $500,000. The incurred expenditures would actually be reported as an increase to assets as the system will be a capitalized asset when it is completed.

c. a decrease of $265,000. Expenditures as of the end of the fiscal year would include six months of accrued interest on the debt.

d. a decrease of $250,000.