Option # 1: Transactions for Fund Statements and Government-wide Statements
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.
- For each of the transactions, prepare journal entries to record them in appropriate governmental funds (which are accounted for on a modified accrual basis).
- Prepare journal entries to reflect how the transactions would be reflected in government-wide statements (which are prepared on a full accrual basis).
- How can governments justify preparing two sets of financial statements, each on a different basis?
- Submit your responses to the following questions in a 1-2 page document in MS Word. Label each question clearly. Please include computations in a table.
Solution-1Modified accrual basisS.No.1. 2. 3.4. 5. 6. Account Titles & ExplanationCashProceeds from borrowing(To record the issuance of bonds)Expenditure (Building)Cash(To record the…