Answer the following questions with regard to preparation of fund financial statements. At fiscal year-end, city holds investment portfolio in its general fund which has fair market value of $15 million and historical cost of $28 million. Portfolio had fair value of $18 million at the starting of present fiscal year. Portfolio is composed of variety of bonds with face value $29 and due date five years in future. Bonds were acquired to meet a $29 million debt due five years in future. Though bonds have usual market risk, credit risk is minimal.
Required:
a) At what amount must the portfolio be valued on balance sheet?
b) What amount, if any, must appear on operating statement?
c) Defend valuation method required by GAAP.
d) Argue against valuation method required by GAAP.
e) At what amount would City want to record investments on their financial statements? Explain why?