Preston Village engaged in the following transactions: It issued $20 million in bonds to purchase a new municipal office building. The proceeds were recorded in a capital projects fund.

It acquired the building for $20 million. It recognized, as appropriate, $300,000 of depreciation on municipal vehicles

. It transferred $2,060,000 from the general fund to a debt service fund. It paid $60,000 in interest on long-term debt and repaid $2 million of principal on the same long-term debt

. It sold for $5 million village land that had been acquired for $4 million. The proceeds were recorded in the general fund.

Instructions: Answer the following question based on the transactions outlined above.

1.For each of the transactions, prepare journal entries to record them in appropriate governmental funds (which are accounted for on a modified accrual basis).

2.Prepare journal entries to reflect how the transactions would be reflected in government-wide statements (which are prepared on a full accrual basis).

3.How can governments justify preparing two sets of financial statements, each on a different basis?