A city entered into a contract with World Wide Construction Company (WWCC) to design, construct and operate a tunnel for a period of 30 years. Once the tunnel was completed, WWCC had complete responsibility for all aspects of tunnel operations, including the ability to set, collect, and retain tolls. At the conclusion of the agreement, WWCC will transfer ownership of the tunnel to the city.

The actual cost of constructing the tunnel was $3 billion. WWCC estimated the useful life of the tunnel to be 40 years.
The company depreciates its assets on a straight-line basis.
1. Prepare any journal entries the city should make in its full-accrual financial statements at the commencement of the agreement.
2. Prepare any journal entries it should make each year of the arrangement.
3. Prepare any journal entries it should make at the end of the arrangement.
4. Suppose instead that the city had the right to establish toll rates and various other operating policies. Describe any significant differences in how the arrangement would be accounted for by the city.