2-11. Accounting and Reporting Principles. (LO2-30 The financial statements of the Town of Fordville consist of a statement of cash receipts and a statement of cash disbursements prepared by the town treasurer for each of its three funds: the General Fund, the Road Tax Fund (special revenue fund), and the Sewer Fund (enterprise fund). As required by state law, the town submits its financial statements to the Office of the State Auditor, however, due to its small size, its financial statements have never had to be audited by an independent auditor. Because of its growing population (nearing 20.000) and increasing financial complexity, the town has hired Emily Ramirez, who recently obtained her CPA license, to supervise all accounting and financial reporting operations. Having worked two years for a CPA firm in a nearby town, Ms. Ramirez gained limited experience auditing not-for-profit organizations, as well as compiling financial statements for small businesses. Although she has little knowledge of governmental accounting, she is confident that her foundation in business and not-for-profit accounting will enable her to handle the job. Using her experience with not-for-profit organizations, for the year ended December 31, 2020, Ms. Ramirez prepared the following unaudited financial statements for the Town of Fordville. Assuming the city wants to prepare financial statements in accordance with GASB standards, study the financial statements and answer the questions that follow. Page 59 TOWN OF FORDVILLE Balance Sheet December 31, 2020 (unaudited) Assets Cash $ 1,740 18.555 Taxes receivable Investments 7,468 28,766 Due from other governments Land, buildings, and equipment (net of accumulated depreciation of $132,640) 287,580 Total assets $344,109 Liabilities and Net Assets $ 3,892 11.943 Accounts payable Due to other governments Total liabilities Net assetswithout donor restrictions Net assetswith donor restrictions 15.835 299,893 28.381 Total net assets 328,274 Total liabilities and net assets $344,109 Statement of Activities Year Ended December 31, 2020 (unaudited) Revenues Property taxes Charges for services Sewer fees Investment income $ 121.290 3,580 6.859 239 Total revenues 131.968 Expenses Government services 115,958 Sewer services 7,227 Miscellaneous 8.462 131.647 321 Total expenses Increase in net assets Net assets, January 1, 2020 Net assets, December 31, 2020 327.953 $ 328,274 Required a. What basis of accounting does it appear Ms. Ramirez has used? Explain how you arrived at your answer. b. Given what you know about the town's activities, what financial statements would the town be required to prepare using GASB standards? c. The financial statements presented appear to be most comparable to which two financial statements prepared using GASB standards? Using the information from the Financial Reporting Model Q section of the text and Illustrations A2-12 and A2-2 2, explain what modifications Page 60 would be needed to make the two financial statements conform to the format of the financial statements you have identified