The following information pertains to a city government. a) Thecity (1) purchased a 3-year, 7 percent U.S. Treasury note (2) usedthe note to enter into a 90-day short-term loan transaction thatincorporated an interest rate of 6 percent and (3) used theproceeds from the short-term loan transaction to purchase another3-year 7 percent U.S. Treasury note. What are the benefits andrisks of the city’s investment practices? b) In 2015 the cityconstructed a new highway at a cost of $120 million. In the yearsfollowing 2015, the city did not record a depreciation charge onthe highway – not even in its government-wide statements. Can theomission of the depreciation charge be justified under GASBstandards? Explain.
