Problem 7

7.   The Geneva Housing Authority, a governmental entity, accounts for its activities on a modified accrual basis of accounting.  In the current period, it reports the following transactions:

·      The Authority issues $2.5 million in long-term bonds.

·      The Authority purchases 4 acres of land for $500,000 in cash.

·      It sells one of these acres of land for $125,000 in cash.

·      It made a $325,000 payment on the debt, consisting of $75,000 of interest and $250,000 in principal.

·      It lost a lawsuit filed by one of its renters and was ordered to pay $1 million in damages over 5 years. It made its first cash payment of $200,000.

1.       Prepare journal entries to record each of these transactions in the general fund.

1. Based on your entries, prepare a balance sheet and statement of revenues, expenditures, and changes in fund balance for the general fund.
2. Comment on how these statements capture the Authority’s economic resources and obligations. 
3. Comment on the extent to which the statement of revenues, expenditures, and changes in fund balances captures the Authority’s costs of services.
4. When the Authority prepares GAAP financial statements based on GASB Statement No. 34, what assets and liabilities would be added in the Authority’s government-wide Statement of Net Assets?  What gains and losses would be added in its government-wide Statement of Activities?