Chapter 8: The Governmental Fund Accounting Cycle--Fiduciary Funds
Multiple Choice
1.Which of the following characteristics is true of fiduciary funds?
a.they report assigned fund balances
b.their net assets are unavailable to finance government programs
c.they prepare statements of cash flows for external reporting
d.their net assets cannot have debit balances under any circumstances
Answer:b
2.If a government participates in a defined contribution pension plan, which of the following always will be true?
a.the government will report expenditures/expenses for pension contributions
b.the government will maintain one or more pension trust funds
c.the government will record its pension transactions based on actuarial values
d.the government will have no liability for other postemployment benefits
Answer:a
3.Which of the following types of pension plans results in a government bearing the risk that investments do not yield an expected return?
DefinedDefined
BenefitContribution
a.nono
b.yesyes
c.noyes
d.yesno
Answer:d
4.Which of the following is not a fiduciary fund?
a.pension trust fund
b.permanent fund
c.private-purpose trust fund
d.agency fund
Answer:b
5.Which of the following is not a characteristic of a defined benefit pension plan?
a.Benefits are based on actual contributions plus amounts earned on the contributions
b.Benefits are linked to the number of years worked by the employee
c.Benefits are based on a formula that considers salaries earned by the employee
d.Benefits, rather than contributions, are guaranteed by the employer
Answer:a
6.On what basis are investments valued in the financial statements of a Pension Trust Fund?
a.at cost
b.at the lower of cost or market value of each individual security
c.at fair value
d.at actuarial value
Answer:c
7.Which of the following type of pension plans results in all the employers participating in the plan being liable for the accumulated liabilities of the plan?
a. sole-employer plan
b.multiple-employer plan
c.defined contribution plan
d.cost-sharing plan
Answer:d
8.Which of the following statements is true regarding an agent multi-employer pension plan?
a.the annual required pension contributions are unique to each participating employer
b.the annual required pension contributions are uniform for each participating employer
c.a participating government legally must make the required annual contribution in full each year
d.a participating government must account for its pension contributions using a pension trust fund
Answer:a
9.Under which of the following circumstances will a government maintain a Pension Trust Fund?
a.the government contributes to a defined benefit pension plan
b.the government sponsors a defined benefit pension plan
c.the government contributes to a defined contribution pension plan
d.the government has an unfunded actuarial pension liability
Answer:b
10.What are the two components of an actuary's calculation of the required annual contribution to a Pension Trust Fund?
a.the net pension obligation and the actuarial accrued liability
b.the regular cost and the normal cost
c.the amortization of the actuarial value of assets and the actuarial accrued liability
d.the normal cost and the amortization of the unfunded actuarial accrued liability
Answer:d
11.A Pension Trust Fund prepares two financial statements and two supplementary schedules. Where does the obligation (calculated by the actuary) for the total benefits earned by employees and retirees, as of a specific point in time, appear?
a.in the Statement of Fiduciary Fund Net Position
b.in the Schedule of Funding Progress
c.in both the Statement of Fiduciary Fund Net Position and the Schedule of Funding Progress
d.in the Statement of Changes in Fiduciary Fund Net Position
Answer:b
12.What can you learn from the "funded ratio" in the financial report of a Pension Trust Fund?
a.the relationship between the amounts paid into the Pension Trust Fund by employers and the amounts that should have been paid into the Fund
b.the relationship between the amounts paid into the Pension Trust Fund by employers and the amounts paid into the Fund by the employees
c.the relationship between the actuarial value of assets in the Pension Trust Fund and the actuarial accrued liabilities of benefits earned by the employees
d.the relationship between the actuarial value of assets in the Pension Trust Fund and the total annual payroll of the employees covered by the pension plan
Answer:c
13.Two sets of ratios are shown in the schedule of funding progress prepared for Pension Trust Funds: (A) the funded ratio; and (B) the unfunded actuarial accrued liability as a percentage of covered payroll. The financial status of the pension fund is said to be improving when:
a.both A and B increase over time
b.both A and B decrease over time
c.A increases and B decreases over time
d.A decreases and B increases over time
Answer:c
14.Based on the GASB’s proposed new pension accounting standard, the net pension liability is:
a.the unfunded annual required contribution
b.the pension benefit that is due to retirees during the next fiscal year
c.the present value of projected benefit payments that is attributable to employees’ past periods of service, less the related pension plan’s net position
d.the actuarial value of a pension plan’s assets minus the actuarial present value of projected retiree pension benefits
Answer:c
15.A recent proposed changed in pension reporting is that:
a.a net pension liability is reported in an employer’s government-wide financial statements
b.the actuarial accrued liability is reported in an employer’s government-wide statement of net position
c.governments no longer have the option of reporting or not reporting the net pension liability in an employer’s government-wide statement of net position
d.changes in the net pension liability are reported as an expense in an employer’s government-wide statement of activities
Answer:a
16.When a donor makes a gift that is accounted for in a Private Purpose Trust Fund, which account should be credited?
a.Additions - donations
b.Deferred revenues
c.Net appreciation in fair value of investments
d.Transfers in to Private Purpose Trust Fund
Answer:a
17.The City of Altoona Pension Trust Fund has assets with an actuarial value of $4,000,000, an actuarial accrued liability of $5,000,000, and an annual covered payroll of $800,000.What is the Pension Trust Fund's funded ratio?
a.20 percent
b.80 percent
c.125 percent
d.500 percent
Answer:b
18.During its fiscal year, a Pension Trust Fund buys 1,000 shares of stock, for which it pays $33,000. At year end, the stock has a fair value of $28,000. How should this fact be reported in the Trust Fund's financial statements?
a.The investment should be reported at a value of $33,000
b.The investment should be reported at a value of $33,000, and the loss in market value should be reported in a footnote
c.The investment should be reported at a value of $30,500
d.The investment should be reported at a value of $28,000
Answer:d
19.WadsworthCounty maintains an investment pool in which it invests funds both for WadsworthCounty and for all legally separate school districts in the county. When it reports assets in the Investment Trust Fund's statement of fiduciary net position, whose assets should be reported?
a.only the assets of the legally separate school districts
b.only the assets belonging to WadsworthCounty
c.both the assets of the separate school districts and the assets belonging to WadsworthCounty
d.only the assets of the major school districts and the assets belonging to WadsworthCounty
Answer:a
20.The City of Albertville invests the assets of several neighboring cities through its Investment Trust Fund. What account should Albertville credit when it receives money from the neighboring cities for investment purposes?
a.Revenues
b.Additions –contributions from city
c.Additions - revenues
d.Additions - net increase in fair value of investments
Answer:b
21.Liberty County maintains an investment pool on behalf of certain cities within the county. When it prepares its statement of fiduciary net position at year-end, how should Liberty value the corporate securities that it holds on behalf of the cities?
a.at the amount of cash originally sent by the cities for investment
b.at the amount paid by the county to acquire the securities
c.at the fair value (at year-end) of the securities held on behalf of the cities
d.at the average value of the securities held during the year on behalf of the cities
Answer:c
22.In the statement of fiduciary net position prepared for an Investment Trust Fund, how should the equity of the participants in the investment pool be characterized?
a.as fund balance
b.as retained earnings
c.as the excess of additions over deductions
d.as net position held in trust
Answer:d
23.Securities held by an Investment Trust Fund and carried on the books at $100,000 are soldfor $110,000. On receiving the cash from the sale, how should the Investment Trust Fund account for the $10,000 gain?
a.as a direct credit to net position of the Fund participants
b.as a liability - due to Fund participants
c.as an addition - net increase in fair value of investments
d.as a gain - equity in investment pool
Answer:c
24.What is the distinction between Private Purpose Trust Funds and Permanent Funds?
a.Private Purpose Trust Funds account on the modified accrual basis; Permanent Funds account on the full accrual basis
b.The beneficiaries of Private Purpose Trust Funds are "outside" the government; the beneficiaries of Permanent Funds are the reporting government or its citizenry
c.Private Purpose Trust Funds are governmental fund types; Permanent Funds are fiduciary fund types
d.Investments of Private Purpose Trust Funds are valued at cost; investments of Permanent Funds are valued at fair value
Answer:b
25.Which of the following resources should be accounted for in a Private Purpose Trust Fund?
a.a gift received from a donor who stipulates in a formal trust agreement that the principal must be kept intact and the income must be used to beautify the state's parks
b.admissions fees that are legally required, based on state laws, to pay the debt service on the state's new museum and cultural center
c.dormant bank accounts that escheat to the state, with state laws requiring that the resources be held in perpetuity for the rightful owners
d.fees received by a state from insurance companies, representing charges for overseeing insurance companies located within the state
Answer:c
26.Assume a pension plan's actuarially-computed liabilities are greater than the actuarial value of the assets. How does this difference between assets and liabilities affect the actuarially determined contribution to the pension plan required for the following year?
a.It does not enter into the actuary's calculation if the actuarial value of plan assets exceeds their aggregate cost
b.It is not considered in establishing the required contribution, but it is disclosed in the schedule of funding progress
c.The entire amount of the unfunded actuarially accrued liability is included in the next year's required contribution to show "good faith" to retirees
d.A portion of the unfunded actuarial accrued liability is included in the next year's contribution by means of an amortization process
Answer:d
27.Which of the following resources should be accounted for in a Private Purpose Trust Fund?
a.sales taxes received by a state and held pending distribution to the local governments on whose behalf they were collected
b.a gift received from a donor who stipulates in a trust agreement that the principal must be kept intact and the income used for benefits to spouses of deceased uniformed officers
c.a grant received from a higher level government that stipulates that the grant can be used for no purpose other than to construct highways
d.employee contributions to a health care plan that will be used, together with government contributions, to pay employee health care benefits
Answer:b
28.Which of the following activities of a state should be accounted for in an Agency Fund?
a.a lottery, wherein half the revenues is used for prizes and the other half is used for lottery operating expenses and to enhance revenues available for education purposes
b.sales taxes collected on behalf of counties that elect to "piggy-back" their own sales tax onto the state sales tax, with the county portion to be remitted later to the counties
c.contributions from the state and from local governments that will be invested and paid out to state and local government employees in the form of pension benefits
d.highway taxes that will be used to finance improvements made to roads within the state
Answer:b
29.Which financial statements are prepared for an Agency Fund?
a.only a statement of fiduciary net position
b.only a statement of changes in fiduciary net position
c.a statement of fiduciary net position and a statement of changes in fiduciary net position
d.a statement of fiduciary net position, a statement of changes in fiduciary net position, and acash flow statement
Answer:a
30.Which of the following best summarizes the accounting equation for Agency Funds?
a.assets - liabilities = net position
b.assets = liabilities + net position
c.assets = liabilities + opening net position + (revenues - expenditures)
d.assets = liabilities
Answer:d
The following information pertains to questions 31 and 32
Bevo County levies a property tax of $10 million. Of this amount, $6 million pertains tothe activities of Bevo County's General Fund, while the other $4 million pertains to and will be remitted to the 10 villages within the County. The County anticipates that it will collect the entire $10 million that has been levied.
31.How much revenue should Bevo County recognize in its Agency Fund?
a.$0
b.$4 million
c.$6 million
d.$10 million
Answer:a
32.If Bevo County prepares an Agency Fund statement of fiduciary net position before it collects the property taxes, how much should it report as property taxes receivable?
a.$0
b.$4 million
c.$6 million
d.$10 million
Answer:b
33.Empire State collects personal income taxes both for its own activities and for cities in the state that have elected to "piggy-back" their own income taxes on top of the state taxes. As a fiduciary, the state temporarily invests all tax receipts pending determination of amounts to remit to the cities. The total investment income received by the state is $300,000, of which $100,000 will be sent to the cities. How much of the investment income should be recognized as revenue in the state's Agency Fund?
a.$0
b.$100,000
c.$200,000
d.$300,000
Answer:a
Problems
34.(MatchingBfiduciary fund concepts)
Listed immediately below are the 4 generic fiduciary funds. Following these are 12 statements. Match each fund with the 3 statements that best correspond to each fund. No statement applies to more than 1 fund
Pension trust fundPrivate purpose trust fund
Investment trust fund
Agency fund
1.May be used to account for escheat property
2.Has no operating statement
3.Allows smaller governments to tap special financial expertise of larger governments
4.Has no fund balance
5.Requires that a schedule of funding progress be prepared
6.Often used to account for tax collections
7.Must have one or more outside participants
8.Typically involves the services of an actuary
9.Scope of operations is specified by trust agreement
10.May or may not have other governments as participants
11.Participants record their contributions in a "pool investment" asset account
12.Often associated with a philanthropic purpose
Answer:
Pension trust fund / 5 / 8 / 10Private purpose trust fund / 1 / 9 / 12
Investment trust fund / 3 / 7 / 11
Agency fund / 2 / 4 / 6
35.(Journal entries for a Pension Trust Fund)
Moody Village maintains a Pension Trust Fund for its employees. At the start of the year, the Fund holds cash of $150,000 and investments that have a fair value of $4,000,000. The Fund has the following transactions. Prepare entries to record them in the Fund's accounts
a.Bills the General Fund $200,000 for the required annual contribution. The pension plan does not require contributions from the employees
b.Receives payment of $200,000 from the General Fund
c.Receives interest and dividend income of $150,000 in cash on its investment portfolio
d.Receives $215,000 from selling investments carried on the books at $200,000
e.Makes new investments totaling $275,000
f.Pays annuity benefits of $325,000 to retirees or their spouses
g.Pays administrative expenses of $100,000 in cash
h.The investments held by the Fund have a fair value of $4,100,000 at year-end.
Answer:
a.Due from General Fund200,000
Additions - pension contributions - employer200,000
b.Cash200,000
Due from General Fund200,000
c.Cash150,000
Additions - investment interest and dividends150,000
d.Cash215,000
Investments200,000
Additions - net appreciation in fair value of investments15,000
e.Investments275,000
Cash275,000
f.Deductions - retirement annuities325,000
Cash325,000
g.Deductions - administrative expenses100,000
Cash100,000
h.Investments25,000
Additions - net appreciation in fair value of investments25,000
Note - The net appreciation in fair value of investments in entry h. is the difference between the carrying value of investments before revaluation ($4,075,000) and the new fair value ($4,100,000). The carrying value before revaluation is the opening carrying value ($4,000,000) and the changes resulting from transactions d. and e.
36.(Preparation of Pension Trust Fund schedule of funding progress)
Based on the following data elements (not all of which are relevant to this problem) calculate (a) the funded ratio and (b) the unfunded actuarial accrued liability as a percentage of covered payroll for Elisa County's schedule of funding progress at December 31, 2013.
Total investments, at fair value, January 1, 2013 $11,500,000
Actuarial accrued liability at December 31, 2013 $15,750,000
Pension benefits paid during the year 2013 $3,100,000
Actuarial value of assets at December 31, 2013 $13,800,000
Total payroll for year 2013, including overtime $4,000,000
Covered payroll for year 2013 $3,800,000
Answer:
a)Funded ratio at December 31, 2013:
Actuarial value of assets / Actuarial accrued liability
$13,800,000 / $15,750,000 =87.6 %
b)Unfunded actuarial accrued liability as a percent of covered payroll at December 31, 2013:
Unfunded actuarial accrued liability / Covered payroll
$ 1,950,000 / $ 3,800,000 =51.3 %
Note - The unfunded actuarial accrued liability at December 31, 2013, is the difference between the actuarial accrued liability ($15,750,000) and the actuarial value of assets ($13,800,000), or $1,950,000