Reference no: EM131774540

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?