Chapter 2, Problem 11C

Accounting and Reporting Principles. (LO2-3) The financial statements of the Town of Fordville consist of a statement of cash receipts and a statement of cash disbursements prepared by the town treasurer for each of its three funds: the General Fund, the Road Tax Fund (special revenue fund), and the Sewer Fund (enterprise fund). As required by state law, the town submits its financial statements to the Office of the State Auditor; however, due to its small size, its financial statements have never had to be audited by an independent auditor.

Because of its growing population (nearing 20,000) and increasing financial complexity, the town has hired Emily Ramirez, who recently obtained her CPA license, to supervise all accounting and financial reporting operations. Having worked two years for a CPA firm in a nearby town, Ms. Ramirez gained limited experience auditing not-for-profit organizations, as well as compiling financial statements for small businesses. Although she has little knowledge of governmental accounting, she is confident that her foundation in business and not-for-profit accounting will enable her to handle the job.

Using her experience with not-for-profit organizations, for the year ended December 31, 2020, Ms. Ramirez prepared the following unaudited financial statements for the Town of Fordville. Assuming the city wants to prepare financial statements in accordance with GASB standards, study the financial statements and answer the questions that follow.

Required

1. a.      What basis of accounting does it appear Ms. Ramirez has used? Explain how you arrived at your answer.
2. b.      Given what you know about the town’s activities, what financial statements would the town be required to prepare using GASB standards?
3. c.       The financial statements presented appear to be most comparable to which two financial statements prepared using GASB standards? Using the information from the Financial Reporting Model section of the text and Illustrations A2-1 and A2-2, explain what modifications would be needed to make the two financial statements conform to the format of the financial statements you have identified.