a) Suppose you were asked to propose accounting principles for external reporting that would capture the true economic nature of these measure-actions that, in substance, did not improve the city’s fiscal performance or condition. For each measure, indicate how you would require that it be accounted for and reported?
It reduced by $1 million the city's cash transfer to a “rainy day” reserve maintained to cover possible future reductions in tax collections attributable to a downturn in the region's economy
It sold securities that had been held as an investment. The securities had been purchased five years earlier at a cost of $2 million. Market value at the time of sale was $5 million.
b) Can you see any disadvantages to the principles that you propose?
Hillcrest Home Care Service Balance Sheet as of December 31 (in thousands)
1) As best as you can tell from the balance sheet, what are Hillcrest's measurement focus and basis of accounting? Explain
2) What is the most likely reason that some assets are classified as temporarily restricted and others as permanently restricted?
3) Suppose you are the independent CPA who audited the financial statements of Hillcrest. The comptroller of a town, also one of your clients, reviews the financial statements of Hillcrest and observes that they look remarkably like those of private businesses. He wonders why: