Financial Statement Impact of Incurring General Long-term Debt on Behalf of Other Governments. Facts: The Bates County government issued $2.5 million of tax-supported bonds to finance a major addition to the Bates County Hospital, a legally separate organization reported as a discretely presented component unit of the county. At the end of the fiscal year in which the debt was issued and the project completed, the county commission was shocked to see a deficit of more than $2 million reported for unrestricted net assets in the Governmental Activities column of the government-wide statement of net assets, compared with a surplus of over $400,000 the preceding year. The commission is quite concerned about how creditors and citizens will react to this large deficit and have asked you, in your role as county finance director, to explain how the deficit occurred and what actions should be taken to eliminate it.
Required
a. Write a brief memo to the county commission explaining how the $2.5 million bond issue for the addition to the Bates County Hospital resulted in the large and apparently unexpected deficit in unrestricted net assets.
b. In your memo, explain what actions can be taken, if any, to eliminate the deficit in governmental activities unrestricted net assets, or at least make it less objectionable.