Well-known examples of current municipal financial problems, such as Jefferson County, Alabama and Harrisburg, Pennsylvania, may have surprised capital market participants and other observers. Perhaps the modified accrual basis of accounting and the use of separate funds to report financial results complicate analysis of the relations between a government's sources and uses of financial resources and changes in its levels of fixed assets and debt. Governmental funds financial statements use modified accrual accounting. Modestly inappropriate uses of fungible financial resources in these funds can mask impending financial difficulties. Consider the five years of selected data for a hypothetical municipality shown below.

Required
a. Explain what is meant by "fungible financial resources."
b. Identify and explain any signals these data provide regarding the evolving financial condition of this municipality.
c. Discuss how the use of modified accrual accounting, rather than full accrual accounting, reduces the ability to evaluate the financial condition of a municipality.

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(in thousands) 2010 2011 2012 2013 2014 Estimated revenue- general fund.... $3,400 $3,650 $3,800 $4,000 $4,100 3,570 3,7 3,820 3,900 500 Actual revenue-general fund Short-term borrowings. Change in long-term debt- ..3,360 200 250 310 370 capital projects funds... Expenditures--capital projects funds.... Fund balance (all governmental funds) 620 510 845 550 470 815 580 430 795 440 300 810 600 480 830