A Tobacco Company Agrees to Pay a State $1 Billion

A tobacco company agrees to pay a state $1 billion a year over the next ten years to settle the state's claim that the tobacco had harmed the health of its citizens. The state "sells" the future revenue stream to a consortium of banks for the present value of the $10 billion, and deposits the cash in its General Fund to balance its current-year budget. How should the financial condition analyst view this financial arrangement?

A) The analyst should ignore it, provided the state has classified the revenues as an extraordinary item in its operating statement
B) The analyst should ignore it because the present value of the future revenue stream is equivalent to the revenue stream itself
C) The analyst should assess the effect of the revenue as a "one-shot" item that balanced the current year's budget, but that might leave a gap in future year budgets
D) The analyst should assess the effect of the arrangement on the auditor's report, the notes to the financial statements, and Management's Discussion and Analysis.