A special districts balance sheet may not capture its economic resources and obligations.

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, paid 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 on 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 transaction 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 districts 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 districts cost of services. How can you justify such a statement of revenues, expenditures, and other changes in fund balance?