Question 1

A special district's balance sheet mayn't capture its economic resources as well as 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

a. It issued $20 million in long-term bonds

b. It acquired numerous tracts of land at a total cost of $4 million paying the entire amount in cash

c. It sold a portion of the land for $1 million receiving cash for the entire amount. The tract sold had cost $0.8 million

d. It repaid $2 million of the bonds

e. It lost a lawsuit as well as was ordered to pay $9 million over three years. It made its first cash payment of $3 million

1. Make journal entries to record the transactions in the general fund

2. On the basis of your journal entries prepare a balance sheet as well as a statement of revenues, expenditures as well as other changes in fund balance

3. Comment on the extent to which the balance sheet apprehensions the district's economic resources and obligations. How can you validate such a balance sheet?

4. Comment on the degree to which the statement of revenues, expenditures and other changes in fund balance captures the district's cost of services. How can you validate such a financial statement?