# ASC 470-954-25: Debt — Health Care Entities — 25 Recognition

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/470/954/#25-recognition)

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## ASC 470-954-25: 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/470/954/#25-recognition)

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#### Financing Authorities

##### [470-954-25-1](https://asc.understandingaccounting.org/asc/470/954/#470-954-25-1)

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When a financing authority issues tax-exempt bonds or similar debt instruments and uses the proceeds for the benefit of a health care entity, the obligation shall be reported as a liability in the entity's balance sheet if the health care entity is responsible for repayment. In some cases, this obligation may take the form of a liability arising from a lease. If a health care entity has no obligation to make payments of principal and interest on the debt or lease payments on related buildings or equipment, the entity shall not reflect the liability on its balance sheet. In such circumstances, proceeds from the bond issue shall be reported as [contributions](https://asc.understandingaccounting.org/glossary/c/#contribution "An unconditional transfer of cash or other assets, as well as unconditional promises to give, to an entity or a reduction, settlement, or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner. Those characteristics distinguish contributions from:Exchange transactions, which are reciprocal transfers in which each party receives and sacrifices approximately commensurate valueInvestments by owners and distributions to owners, which are nonreciprocal transfers between an entity and its ownersOther nonreciprocal transfers, such as impositions of taxes or legal judgments, fines, and thefts, which are not voluntary transfers. In a contribution transaction, the resource provider often receives value indirectly by providing a societal benefit although that benefit is not considered to be of commensurate value. In an exchange transaction, the potential public benefits are secondary to the potential direct benefits to the resource provider. The term contribution revenue is used to apply to transactions that are part of the entity's ongoing major or central activities (revenues), or are peripheral or incidental to the entity (gains). See also Inherent Contribution and Conditional Contribution.") from the sponsoring entity.

#### Arbitrage Rebate Liabilities

##### [470-954-25-2](https://asc.understandingaccounting.org/asc/470/954/#470-954-25-2)

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Internal Revenue Service (IRS) regulations concerning tax-exempt debt prohibit the yield realized from the investment of the proceeds of such debt from exceeding the interest rate to be paid on such debt. Whenever a provider invests tax-exempt bond proceeds and the ultimate yield is higher than the interest rate on the bonds, the provider may be subject to an arbitrage rebate liability. The arbitrage determination is made as of the date of the issue; however, intentional acts undertaken after the date of the issue can disqualify the issue retroactively. The earnings in excess of interest expense represent a liability that must be paid to the U.S. Treasury in order for the bonds to maintain their tax-exempt status. The arbitrage rebate liability may be a substantial amount if the bond proceeds are not spent as quickly as planned. For example, this may occur if a provider encounters a delay in a major construction project.