In 2009, Beech City issued $400,000 of bonds, the proceeds of which were restricted to the financing of a capital project.  The bonds will be paid wholly from special assessments against benefited property owners.  However, Beech is obligated to provide a secondary source of funds for repayment of the bonds in the event of default by the assessed property owners.  In Beech's basic financial statements, this $400,000 special assessment debt should

LT general liability is only reported on goverment-wide statements as it's not liability to be covered by current resources.

I think entries for this would be in captial project fund:

Cash 400,000

       Other financial sources 400,000

Entries in debt fund  would be when payments are due for principal and interest

and on GW, would be like for a regular  bond

Cash 400,000

     Bonds Payable 400,000

So, leads to answer C

If the city was not obligated to pick up the debt if defaulted, then, the whole thing would be reported in agency fund.