“A special district?s 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.
a. It issued $20 million in long-term bonds.
b. It acquired several 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 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 transactions
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 district?s 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
changes in fund balance captures the district?s
cost of services. How can you justify such a
financial statement?