**Case Study: Government Accounting in the City of Rivertown**

**Background:** The City of Rivertown is a medium-sized municipality facing various challenges in managing its finances and providing essential services to its residents. As a local government entity, the city is required to adhere to governmental accounting standards and principles. The city's financial structure includes various funds, such as the General Fund, Special Revenue Funds, and Enterprise Funds, each serving distinct purposes.

**Scenario:** In the fiscal year ending June 30, 2023, the City of Rivertown encountered several financial events and transactions that necessitate careful consideration in accordance with governmental accounting principles. Some of the notable occurrences include:

1. **Infrastructure Projects:** The city embarked on significant infrastructure projects, including the construction of a new bridge and the renovation of public parks. Explore how these capital projects are accounted for in governmental funds and the associated financial reporting requirements.

2. **Property Taxes and Grants:** Rivertown relies heavily on property taxes as a primary revenue source. Additionally, the city received grants from the state for specific community development initiatives. Analyze the accounting treatment of property taxes and government grants, considering any restrictions imposed by the funding sources.

3. **Pension Liabilities:** The city's workforce is entitled to various pension benefits. Examine how the city accounts for pension liabilities in its financial statements, including the use of actuarial valuations and the impact on the city's long-term financial sustainability.

4. **Emergency Response Expenditures:** Rivertown faced unexpected expenses due to a natural disaster, requiring the city to allocate funds for emergency response efforts. Investigate the accounting implications of such unforeseen events and how they are reflected in the city's financial records.

5. **Enterprise Fund Operations:** The city operates an Enterprise Fund for its water utility services. Explore the differences in accounting for Enterprise Funds compared to governmental funds, focusing on the recognition of revenues, expenses, and capital assets.

**Question:** Given the complexities in the City of Rivertown's financial landscape as outlined in the case study, identify and discuss one specific challenge that the city may encounter in preparing its financial statements. Consider the implications of this challenge on transparency, accountability, and the overall financial health of the municipality. Additionally, propose a solution or strategy that the city could adopt to address the identified challenge.