Question 1

Fiduciary funds focus on current financial resources and use the modified accrual basis of accounting.

Accepted Answer

Fiduciary funds focus on external parties and use the accrual basis of accounting, not the modified accrual basis.

Question 2

Carl City received $200,000 to help maintain a local art museum that is owned and operated by a not-for-profit organization. During the year the city transferred net earnings of $20,000 to the appropriate entity/fund. 
-The $200,000 gift would be reported in a (an):

Accepted Answer

The $200,000 gift would be reported in a Private-purpose trust fund because it is a donation intended to benefit a specific purpose, in this case, the maintenance of a local art museum operated by a not-for-profit organization. Private-purpose trust funds are used to report resources that are required to be used for the benefit of specific individuals, private organizations, or other governments.

Question 3

An employer may have a liability to a defined benefit pension plan other than for its annual required contributions, depending on the future financial health of the plan.

Accepted Answer

An employer may be liable for additional contributions to a defined benefit pension plan if the plan's assets are insufficient to meet its future obligations to retirees, depending on the plan's funding status and the terms of the pension agreement.

Question 4

Employers that provide postemployment healthcare benefit plans should account for them in private-purpose trust funds.

Accepted Answer

Employers that provide postemployment healthcare benefits typically account for them in an OPEB (Other Post-Employment Benefits) trust fund, not in private-purpose trust funds. Private-purpose trust funds are used for other specific purposes.

Question 5

In an agency fund, assets always equal fund balances because there are no liabilities.

Accepted Answer

In an agency fund, assets equal liabilities plus fund balances because the fund acts as a custodian, holding assets for others, which are owed as liabilities until disbursed.

Question 6

Accounting for the employer's contribution to a defined benefit pension plan is straight forward, because the employer is obligated only to make annual contributions in the amount specified in the plan terms.

Accepted Answer

In a defined benefit pension plan, the employer's obligation is to provide a specified level of pension benefits to employees upon retirement, which means the employer must contribute enough to the plan to ensure it can meet these future obligations. This requires actuarial calculations to estimate future benefit payments and can be complex, not simply making annual contributions of a specified amount.

Question 7

In the current year, Loma City earned $24,000 on the principal of a private-purpose trust fund but disbursed only $20,000.
-During the current year the private-purpose trust fund will recognize, related to earnings:

Accepted Answer

Private-purpose trust funds recognize earnings as additions to net position rather than as revenues, so the correct answer is the amount that corresponds to earnings, which is $24,000.

Question 8

In contrast to most private-sector pension plans, most government plans are defined contribution plans.

Accepted Answer

Most government pension plans are defined benefit plans, which promise a specified monthly benefit at retirement, unlike defined contribution plans where benefits depend on investment returns.

Question 9

A government receives a gift of cash and investments with a fair value of $200,000. The donor specified that the earnings from the gift must be used to beautify city-owned parks and the principal must be re-invested. The $200,000 gift should be accounted for in which of the following funds?

Accepted Answer

The correct answer is D) Permanent fund. This is because the principal amount of the gift must be preserved (re-invested), and only the earnings from the gift are to be used for a specific public purpose, which is to beautify city-owned parks. Permanent funds are used to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes supporting the reporting government's programs—that is, for the benefit of the government or its citizenry.

Question 10

Pension and OEB trust funds, custodial funds and internal service funds are examples of fiduciary funds

Accepted Answer

Pension and OEB trust funds are fiduciary funds, but custodial funds and internal service funds are not. Custodial funds are a type of fiduciary fund, but internal service funds are proprietary funds.

Question 11

In accounting for permanent funds only the income can be spent; the principal must be preserved intact.

Accepted Answer

Permanent funds are a type of fiduciary fund used by governments to account for resources that are legally restricted in a way that only earnings, and not principal, can be spent for purposes that support the reporting government's programs—this means the principal must be preserved intact.

Question 12

Accounting for the employer's contribution to a defined contribution pension plan is straight forward, because the employer is obligated only to make annual contributions in the amount specified in the plan terms.

Accepted Answer

In a defined contribution pension plan, the employer's obligation is limited to making the specified contributions as per the plan terms, making the accounting process straightforward since it involves recording these contributions as they are made.

Question 13

Per GASB Statement No. 34, permanent funds are classified as fiduciary funds.

Accepted Answer

Permanent funds are actually classified under governmental funds, not fiduciary funds, according to GASB Statement No. 34. Fiduciary funds are used to account for assets held in a trustee or agency capacity for others and cannot be used to support the government's own programs.

Question 14

Permanent funds focus on measuring current financial resources and use a modified accrual basis of accounting.

Accepted Answer

Permanent funds are governmental funds that use the modified accrual basis of accounting, which focuses on current financial resources.

Question 15

In previous years, Boze City had received a $400,000 gift of cash and investments. The donor had specified that the earnings from the gift must be used to beautify city-owned parks and the principal must be re-invested. During the current year, the earnings from this gift were $24,000. The earnings from this gift should generally be considered revenue to which of the following funds?

Accepted Answer

The earnings from the gift should be considered revenue to a Permanent fund because the principal amount is to be preserved (re-invested) while the earnings are used for a public purpose, in this case, to beautify city-owned parks. Permanent funds are used to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government's programs—that is, for the benefit of the public.

Question 16

The concept of major versus nonmajor funds does not apply to permanent funds, as it does to governmental and proprietary funds.

Accepted Answer

The concept of major versus nonmajor funds applies to all governmental funds, including permanent funds, as well as proprietary funds.

Question 17

Colleges that use a fixed rate of return approach to manage the distribution of income from their endowments must apply the same rate to determine how much investment income to report in their financial statements.

Accepted Answer

Colleges that use a fixed rate of return approach to manage the distribution of income from their endowments can apply a different rate for financial reporting purposes. Financial statement reporting is governed by accounting standards, which may require the use of fair value or other methods to determine investment income, separate from the institution's endowment distribution policy.

Question 18

Carl City received $200,000 to help maintain a local art museum that is owned and operated by a not-for-profit organization. During the year the city transferred net earnings of $20,000 to the appropriate entity/fund. 
-The $20,000 transfer would be reported by the fund that made the transfer as a (an)

Accepted Answer

The answer of Carl City received $200,000 to help maintain...

Question 19

GASB standards require a defined benefit pension plan to report investments at fair market value even if the plan's actuary uses a different value in determining the employer's contribution requirements.

Accepted Answer

GASB (Governmental Accounting Standards Board) standards indeed require that a defined benefit pension plan report its investments at fair market value in its financial statements, regardless of the value used by the plan's actuary for determining employer contribution requirements. This approach ensures transparency and comparability in the financial reporting of pension plan investments.

Question 20

Fiduciary funds are excluded from the government-wide financial statements.

Accepted Answer

Fiduciary funds are excluded from government-wide financial statements because they are not considered to be resources that support the government's own programs. These funds are held in a trustee or agency capacity for others and cannot be used to support the government's own programs.

Quiz 10: Pensions and Other Fiduciary Activities