Review for Final Exam

Question 1

Pension (or other employee benefit) trust funds

Answer 1

are used to report pension and other employee benefit plans that are held in a trust in which the reporting government is the trustee

Question 2

Investment trust fund

Answer 2

exists when the government is the sponsor of a multi-government investment pool. It is used to report the external portion of investment pools that are governed by a trust agreement.

Question 3

Private-purpose trust funds

Answer 3

are used when the government is in a fiduciary relationship governed by a formal trust agreement other than those reported in pension or investment trust funds.

Question 4

Custodial funds

Answer 4

report fiduciary activities that are not governed by formal trust arrangements.

Question 5

Which type of pension plan is required to pay a pension based on a percentage of salary upon retirement and the number of years of service?
A. Contributory
B. Defined contribution
C. Noncontributory
D. Defined benefit

Answer 5

A. Contributory - a type of pension plan where both the employee and employer contribute
B. Defined contribution - Retirement plans in which the amount to be paid at retirement is based on employee and employer contributions and investment income
C. Noncontributory - a type of pension plan where all the contributions are made by the employer
D. Defined benefit - a plan in which the plan is required to pay out a certain level of benefit, regardless of the amount available in the plan (e.g. 2 percent times the average salary over the past four years times the number of years worked)
The correct answer is D

Question 6

The state government maintains an investment trust for itself and local governments in the state. The investment pool received $22,000,000 from the state general fund, $5,000,000 from the state university system (an enterprise fund of the state), and $15,000,000 from local governments located in the state. What amount should be reported in the State’s Investment Trust Fund?

Answer 6

$15,000,000

Question 7

Which of the following is true of a city government’s pension activities?

A. Pension funds are reported in the fiduciary funds of the government only if the city acts as a trustee for the retirement plan
B. The net pension liability for a city administered pension plan is reported in the statement of fiduciary net position
C. Both choices are true
D. Neither choice is true

Answer 7

Answer is A

Question 8

The tax collection custodial fund of Fair Haven County collected $1,050,000 for the Fair Haven School District, $500,000 for the Village of Fair Haven, $600,000 for the Fair Haven Park District, and $375,000 for Fair Haven County. County General Fund employees handle the collections, and a 3.5% collection fee is charged all units except the county. How much revenue should be recognized by the General Fund as a result of these collection activities?
A. $75,250
B. $88,375
C. $70,875
D. $67,375

Answer 8

Answer is A because 500000+600000+1050000=2150000 x 3.5% = $75,250

Question 9

A state government establishes an investment pool and invites local governments to participate. It is not governed by a formal trust agreement. Which fund of the state government would report balances contributed by the local governments?
A. General
B. Custodial
C. Special Revenue
D. Investment Trust

Answer 9

Answer is B because fiduciary activities that are not governed by a formal trust agreement are reported in custodial funds

Question 10

Which of the following are required financial statements of fiduciary funds?

A. Fiduciary funds’ financial statements include the Statement of Fiduciary Net Position, and the Statement of Revenues, Expenditures and Changes in Fiduciary Net Position.

B. Fiduciary funds’ financial statements include the Statement of Fiduciary Net Position, the Statement of Changes in Fiduciary Net Position, and the Statement of Fiduciary Cash Flows.

C. Fiduciary funds’ financial statements include the Statement of Fiduciary Net Position, the Statement of Revenues, Expenditures and Changes in Fiduciary Net Position, and the Statement of Fiduciary Cash Flows.

D. Fiduciary funds’ financial statements include the Statement of Fiduciary Net Position, the Statement of Revenues, Expenditures and Changes in Fiduciary Net Position, and the Statement of Fiduciary Cash Flows.

Answer 10

The answer is D because fiduciary funds do not report a statement of cash flows. Fiduciary funds also do not record expenditures

Question 11

The terms used for classification of items on the Statement of Changes in Fiduciary Net Position are:

A. Additions and deductions
B. Revenues and expenditures
C. Revenues and expenses
D. Contributions and expenses

Answer 11

Answer is A because on the Statement of Changes in Fiduciary Net Position, the terms additions and deductions are used

Question 12

A citizen gave the following to the City of Belmont in order to establish a private-purpose trust:

Land – cost, $250,000; fair market value as of the date of the gift, $375,000.
Securities – cost, $800,000; fair market value as of the date of the gift, $1,220,000.

The amount to be recorded as additions for gifts by the private-purpose trust fund would be:

A. 1,175,000
B. 1,595,000
C. 1,470,000
D. 1,050,000

Answer 12

Answer is B because fair market value of land at the date of the gift is $375,000 while fair market value of the securities are $1,220,000. $375,000+$1,220,000 = $1,595,000

Question 13

A government offers a defined contribution pension plan for police and firemen. The General Fund makes its annual contribution to the pension trust. How should the receipt of this money be reported by the Pension Trust Fund?

A. As an addition
B. As an other financing source
C. As interfund Revenue
D. As a liability

Answer 13

Answer is A because employer (and member) contributions are reported as “additions” in the pension trust fund.

Question 14

The City of Naples has investments in bonds. These bonds have an carrying value of $3,997,000. At year end, the financial press reports a market value of $3,994,600 for these bonds. The original cost of the bonds was $3,993,000. The par value at maturity will be $4,000,000. The amount at which the investments would be reported is:

A. $3,993,000
B. $3,997,000
C. $3,994,600
D. $4,000,000

Answer 14

Answer is C because bonds would be recorded at fair value at year end. If the bond did not have a determinable fair value, it would be reported at carrying value

Question 15

Fiduciary funds are used to account for assets held by a government acting as a trustee or agent for entities external to the governmental unit, including individuals, organizations, and other governmental units. For this reason, fiduciary funds are often identified in governmental financial reports as Trust and Custodial Funds.

Answer 15

True - Fiduciary funds are often identified in governmental financial reports as Trust and Custodial Funds because fiduciary funds are used to account for assets held by a government acting as a trustee or agent for entities external to the governmental unit, including individuals, organizations, and other governmental units.

Question 16

Fiduciary funds use the current financial resource measurement focus.

Answer 16

False - fiduciary funds use the economic resources management focus and accrual basis of accounting

Question 17

Escheat property, often collected by the state, is to reported in the fund to which the property ultimately reverts

Answer 17

True - Escheat property generally should be reported as an asset in the governmental or proprietary fund to which the property ultimately reverts.

Question 18

Governments offering postemployment benefits to their retired employees must present two financial statements related to their plans: the Statement of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position, as well as additional required supplementary information.

Answer 18

True - The required statements are the Statement of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position, as well as additional required supplementary information. GASB standards require extensive note disclosures and RSI.

Question 19

The term “fiduciary funds” include custodial, pension trust, investment trust, and private purpose trust funds

Answer 19

True - they are all fiduciary funds

Question 20

Defined Benefit Pension Plans are required to pay retired employees an amount determined by formula, rather than the amount contributed to the plan.

Answer 20

True - A defined benefit plan is one in which the plan is required to pay out a certain level of benefit regardless of the amount in the plan.

Question 21

When a contributor and a government agree that the principle and/or income of trust assets is for the benefit of individuals, organizations, or other governments, a private-purpose trust has been formed.

Answer 21

True - Private-purpose trust fund results when a contributor and a government agree that the principal and/or income of trust assets is for the benefit of individuals, organizations, or other governments.

Question 22

Employers with defined contribution plans will report a pension liability if the required contribution has not been fully paid by year end.

Answer 22

True - Define contribution plans provide an individual retirement account for each participating employee and no obligation exists for pension benefits beyond what has been accumulated in each individual’s account

Question 23

If a derivative is effective in reducing a government’s exposure to identifiable risks, the changes in the value of the derivative are reflected as deferred outflows or deferred inflows in the period that the value changes.

Answer 23

True - The deferred gains or losses typically are recorded as deferred outflows or deferred inflows and continue to be reported this way until the hedged transaction occurs.

Question 24

Investments in a private-purpose trust fund should generally be reported at fair market value.

Answer 24

True - GASB standards require equity securities that have readily determinable fair values to be reported in the balance at fair value.

Question 25

A government’s Statement of Revenues, Expenditures, and Changes in Fund Balances reflected proceeds of bonds in the amount of $1,000,000. That statement also reflected expenditures for debt service in the amount of $3,000,000, including $2,600,000 for principal payments. Assuming no other changes, the effect, when moving from the change in fund balances in the governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the change in Net Position for governmental activities in the Statement of Activities would be a

A. $1,600,000 increase
B. $1,000,000 decrease
C. $1,600,000 decrease
D. $1,000,000 increase

Answer 25

Answer is A because bond proceeds of $1,000,000 would be a decrease and principle payments would be an increase $2,600,000 resulting in a net increase of $1,600,000.

Question 26

A governmental fund’s Statement of Revenues, Expenditures, and Changes in Fund Balances reported expenditures for capital outlay in the amount of $5,000,000. Capital assets for that government cost $110,000,000, including $20,000,000 in land. Depreciable assets are amortized over 20 years, on average. The reconciliation from the governmental funds changes in fund balances to the governmental activities change in Net Position would reflect a(an):

A. Increase of $500,000
B. Decrease of $500,000
C. Increase of $250,000
D. Decrease of $250,000

Answer 26

Answer is A because (110,000,000-20,000,000)/20 = $4,500,000 and capital outlays are $5,000,000. 5,000,000 - 4,500,000 = $500,000

Question 27

Governmental investments in equity securities that have a determinable fair value are to be reported at fair value and any unrealized gains and losses are to be reported separately from realized gains and losses in the governmental operating statements.

Answer 27

False - GASB standards require equity securities that have readily determinable fair values to be reported in the balance at fair value. If a government has sufficient investments in a company to justify the equity method of accounting, then the equity method of accounting would be used. Realized gains and losses are not reported separately from unrealized gains and losses in the Statement of Changes in Fiduciary Net Position.

Question 28

Investment pools (not governed by trust agreements) invested from external parties are recorded in Investment Trust Funds.

Answer 28

False - Custodial funds report fiduciary activities that are not governed by formal trust arrangements.

Question 28

The Accrual Basis and Economic Resource Measurement Focus are used for Private-Purpose, Investment Trust and Pension Funds.

Answer 28

True - The economic resources measurement focus and accrual basis of accounting are used for Custodial, Private-Purpose, Investment and Pension trust funds.

Question 28

An endowment to provide scholarships would be reported in a Private-purpose trust fund.

Answer 28

True - Private-purpose trust funds account for trust agreements where principal and/or income benefit individuals, private organizations, or other governments. The benefit is limited to specific private, rather than general public, purposes. An endowment to provide scholarships would benefit individuals and would be accounted for in a private-purpose trust fund.

Question 29

Equity investments should be recorded at fair market value unless a government has sufficient investments in a company to apply the equity method.

Answer 29

True - GASB standards require equity securities that have readily determinable fair values to be reported in the balance at fair value. If a government has sufficient investments in a company to justify the equity method of accounting, then the equity method of accounting would be used.

Question 30

If a government has a locally administered pension plan for which it is trustee, the government would report the locally administered plan as a pension trust fund in the basic financial statements.

Answer 30

True - If a government has a locally administered pension plan for which it is trustee, the government would report the locally administered plan as a pension trust fund in the basic financial statements which would be included in the CAFR.

Question 31

Fiduciary fund financial statements include the Statement of Fiduciary Net Position, Statement of Changes in Fiduciary Net Position, and Statement of Cash Flows.

Answer 31

False - Fiduciary fund required statements are the Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position. Custodial funds are not included in the Statement of Changes in Net Position because they have no revenues (additions) or expenses (deductions).

Question 32

For governmental-type funds, Statement 53 (reporting of derivatives) applies only to reporting at the government-wide level, not the fund-basis statements.

Answer 32

True - GASB rules for reporting for derivatives applies to governmental financial statements prepared using the accrual basis of accounting, including government-wide statements, proprietary funds, and fiduciary funds.

Question 33

Custodial funds report the excess of assets over liabilities as “Net Position”.

Answer 33

True - Custodial funds are fiduciary funds and report the excess of assets over liabilities as Net Position.

Question 34

A private-purpose trust fund is created when the government is the sponsor of a multi-government investment pool and accounts for the external portion of those trust assets.

Answer 34

False - The government that manages the multi-government investment pool should report the external portion in an investment trust fund.

Question 35

The government-wide and proprietary fund’s Statement of Net Position report the net pension liability as a liability.

Answer 35

True - The government-wide and proprietary fund’s Statement of Net Position report the net pension liability as a liability. Both use accrual accounting and the economic resources measurement focus.

Question 36

Defined benefit plans may have unfunded actuarial liabilities, and defined contribution plans do not.

Answer 36

True - A defined benefit plan is one in which the plan is required to pay out a certain level of benefit based on a formula. The benefit is paid out regardless of the amount available in the plan. It is possible for the fund to have unfunded liabilities. A defined contribution plan provides an individual retirement account for each participating employee and no obligation exists for pension benefits beyond what has been accumulated in each individual’s account.

Question 37

Property that has been abandoned or property whose owners cannot be found is turned over to the state government until the legal owners can be found is known as community property.

Answer 37

False - Property that has been abandoned or property whose owners cannot be found is turned over to the state government until the legal owners can be found is known as escheat property

Question 38

An endowment that is for the benefit of individuals and not the government controlling the funds should be accounted for using a private-purpose trust fund

Answer 38

True - Private-purpose trust funds account for trust agreements where principal and/or income benefit individuals, private organizations, or other governments. The benefit is limited to specific private, rather than general public, purposes. An endowment to provide scholarships would benefit individuals and would be accounted for in a private-purpose trust fund.

Question 39

Pension trust funds are required to present a ten-year Schedule of Changes in Net Pension Liability and Related Ratios as required supplementary information.

Answer 39

True - When a government provides employees a defined benefit pension plan, the government is required to present a ten-year Schedule of Changes in Net Pension Liability and Related Ratios as required supplementary information

Question 40

When a contributor and a government agree that the principle and/or income of trust assets is for the benefit of individuals, organizations, or other governments, a custodial trust fund has been formed.

Answer 40

False - Private-purpose trust fund results when a contributor and a government agree that the principal and/or income of trust assets is for the benefit of individuals, organizations, or other governments.

Question 41

The Fiduciary Funds are included in the Government-Wide Financial Statements

Answer 41

False - Fiduciary funds never appear in the government-wide statements

Question 42

Fiduciary Funds are used to account for assets held by a government acting as a trustee or agent for entities external to the governmental unit: Including individuals, organizations, and other governmental units.

Answer 42

True - Fiduciary Funds are used to account for assets held by a government through a trust agreement in which the government is not the beneficiary and the assets are protected from the government’s creditors or another agreement in which the government does not have direct administrative or financial involvement. Examples of such agreements include pass through grants or tax collections for other governments.

Question 43

The purpose of the Schedule of Changes in Net Pension Liability and Required Ratios (part of the required supplementary information) is to enable the reader to determine whether the pension plan is sufficiently funded.

Answer 43

True - GASB standards require extensive note disclosures and RSI. Among the RSI schedules is a ten-year schedule displaying changes in the net pension liability and related ratios.

Question 44

Fiduciary Fund activities report in terms of Revenues and Expenses

Answer 44

False - Fiduciary funds use the economic resources measurement focus and accrual basis of accounting. The terms additions and deductions are used instead of revenues and expenses.

Question 45

Fiduciary funds are reported only in the fund-basis financial statements.

Answer 45

True - Fiduciary funds are not included in the government-wide statements because governments merely have custody, not ownership, of fiduciary resources.

Question 46

The required financial statements for custodial funds include a Statement of Fiduciary Net Position, and a Statement of Changes in Fiduciary Net Position.

Answer 46

True - Fiduciary fund required statements are the Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position.

Question 46

GASB requires that endowments report investments at fair value unless the investments are in real estate.

Answer 46

False - GASB requires that endowments report investments including real estate at fair value.

Question 46

Property that reverts to government ownership upon the death of the owner because of a lack of identifiable heirs is termed Escheat Property.

Answer 46

True - If property is abandoned or if legal owners cannot be found, the property is turned over to state government until the legal owners can be contacted. Some property is never claimed and is eventually used by the government.

Question 47

Custodial funds report no revenues, expenses, or fund equity accounts.

Answer 47

True - Custodial fund assets are offset by liabilities in equal amount; no fund equity exists. Custodial fund assets and liabilities are to be recorded at the time the government become responsible for the assets. Custodial funds are not included in the Statement of Changes in Net Position because they have no revenues (additions) or expenses (deductions).

Question 48

An investment trust fund is used to account for the internal portion of a multi-government investment pool, when the reporting government is trustee.

Answer 48

False - Internal investment pools are not separate funds and the resources continue to be reported by the funds providing the resources.

Question 49

Assets held in trust that are restricted to benefit the citizenry in general or in support of the reporting government’s programs would be reported as permanent funds if nonexpendable.

Answer 49

True - If the activity benefits the general citizenry or the overall government, it is classified as a permanent fund. If the activity benefits individuals or private organizations, it is classified as a private-purpose trust fund

Question 50

Fiduciary funds are separately stated in the government-wide financial statements.

Answer 50

False - Fiduciary funds are not included in the government-wide statement because governments merely have custody, not ownership, of fiduciary resources.

Question 51

Donated resources held in trust that benefit individuals or private organizations are reported in a private-purpose trust fund.

Answer 51

True - Private-purpose trust funds account for trust agreements where principal and/or income benefit individuals, private organizations, or other governments. The benefit is limited to specific private, rather than general public, purposes. In some cases, these trusts are created when individuals or organizations contribute resources with the agreement that principal and/or income will be used to benefit others.