A special district accounts for its general fund (its only fund) on a modied accrual basis. In

Question:

A special district accounts for its general fund (its only fund) on a modiﬁed accrual basis. In a particular period it engaged in the following transactions:

• It issued $20 million in long-term bonds.

• It acquired several tracts of land at a total cost of $4 million, paying the entire amount in cash.

• It sold a portion of the land for $1 million, receiving cash for the entire amount. The tract sold had cost $0.8 million.

• It repaid $2 million of the bonds.

• It lost a lawsuit and was ordered to pay $9 million over three years. It made its ﬁrst cash payment of $3 million.

1. Prepare journal entries to record the transactions in the general fund.

2. Based on your journal entries, prepare a balance sheet and a statement of revenues, expenditures, and other changes in fund balance.

3. Comment on the extent to which the balance sheet captures the district’s economic resources and obligations. How can you justify such a balance sheet?

4. Comment on the extent to which the statement of revenues, expenditures, and other ﬁnancing sources captures the district’s cost of services. How can you justify such a statement of revenues, expenditures, and other changes in fund balance?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...