On January 1, 20X7, Clyde County issued $100 million of 5%, 20-year bonds at 102. Interest is payable semiannually. The proceeds were restricted for the construction of a new county water purification plant for its Water Enterprise Fund.

Assume that at the fiscal year-end the capital project had not yet begun, thus the debt proceeds were still unspent. What classifications of net assets would be affected by this fact?

a. Invested in capital assets, net of related debt, would be reduced because no capital assets have been added to offset the new capital-related debt.

b. Restricted net assets would include the unspent cash as well as the outstanding liability.

c. Unrestricted net assets would reflect an increase due to the cash received from the debt issuance, but invested in capital assets, net of related debt, would decrease by the amount of unspent debt proceeds.

d. None—net asset classifications are not affected by the issuance of long-term debt.