Question 1

Investment trust funds and pension trust funds should be accounted for in the same manner as permanent funds.

Accepted Answer

Investment trust funds and pension trust funds have different characteristics and should be accounted for using different accounting methods than the methods used for permanent funds.

Question 2

When an investment pool is created,the assets of each fund entering the pool should be transferred to the pool at their fair value at the date of the transfer.

Accepted Answer

This statement is generally true. When funds are combined into an investment pool, the assets of each fund are typically transferred to the pool at their fair value at the date of transfer in order to create an accurate picture of the pool's overall value. However, there may be certain exceptions or variations depending on the specific circumstances of the investment pool.

Question 3

Trust funds should utilize the accrual basis of accounting.

Accepted Answer

Trust funds are permanent funds intended to provide benefits for designated beneficiaries over a long period of time. To ensure that the fund is managed effectively, the accrual basis of accounting should be used. This method ensures that income and expenses are recognized when earned or incurred, even if the cash has not been received or paid out yet. This allows for a more accurate representation of the financial position and performance of the trust fund.

Question 4

Earnings on pooled investments and changes in fair value of investments are allocated to the participants having an equity interest in the pool in proportion to their relative contributions to the pool.

Accepted Answer

This is the general principle of how earnings and changes in fair value are allocated in pooled investments.

Question 5

Most investment trust funds distribute investment earnings and changes in investment values on a daily basis.

Accepted Answer

Most investment trust funds do not distribute investment earnings and changes in investment values on a daily basis. Instead, they typically distribute dividends on a quarterly or semi-annual basis.

Question 6

Agency funds are used only if a government holds resources in a purely custodial capacity for others.

Accepted Answer

This is correct. Agency funds are used for funds held by a government in a purely custodial capacity for others, such as taxes collected by a city and held in trust for a school district. The government does not have a direct interest in these funds and is simply holding them on behalf of others.

Question 7

Agency funds should utilize the modified accrual basis of accounting.

Accepted Answer

Agency funds should use the accrual basis of accounting, as they are fiduciary funds and not governmental funds, which use the modified accrual basis.

Question 8

A common example of a private-purpose trust fund is a state-sponsored 529 savings plan,structured such that parents make after-tax contributions to an investment fund managed by the state government.

Accepted Answer

This is a correct description of a private-purpose trust fund, specifically a state-sponsored 529 savings plan.

Question 9

Fiduciary activities are reported only in the fiduciary fund financial statements; they have no effect on the governmental or business-type activities of the primary government reported in the government-wide financial statements.

Accepted Answer

Fiduciary activities are reported separately in the fiduciary fund financial statements because they involve assets held by the government in trust for others. These activities have no effect on the government's primary services or operations, which are reported in the government-wide financial statements.

Question 10

Pension trust funds should utilize budgetary accounts in the same manner that General Funds and special revenue funds do.

Accepted Answer

Pension trust funds do not use budgetary accounts like General Funds and special revenue funds because they are fiduciary funds, which focus on managing and investing resources for beneficiaries rather than on budgetary control.

Question 11

In accounting practice,the legalistic distinctions between trust funds and agency funds are not of major significance.

Accepted Answer

In accounting, both trust funds and agency funds are fiduciary funds, and the focus is on the stewardship and accountability of the resources rather than the legal distinctions.

Question 12

It is common for an agency fund to have relatively small net position balances.

Accepted Answer

The answer of It is common for an agency fund...

Question 13

An agency fund should be used to account for special assessment billing and collection,and related debt service of special assessment debt,if the government has no responsibility for the debt.

Accepted Answer

An agency fund is used only to account for assets held by a government in a trustee capacity, with no responsibility for the use of the assets other than to ensure that they are used for the purposes intended. If the government has no responsibility for the debt, an agency fund is appropriate to account for the special assessment billing and collection, and related debt service of special assessment debt.

Question 14

Fiduciary funds are sometimes identified in the annual reports of state and local governments as "Ancillary Funds."

Accepted Answer

Fiduciary funds are separate from ancillary funds in state and local governments' annual reports. Ancillary funds refer to non-major funds that are not fiduciary in nature, such as museum or park funds.

Question 15

In regard to pass-through grants,a recipient government has administrative involvement if it is responsible for filing paperwork under a grant agreement.

Accepted Answer

The answer of In regard to pass-through grants,a recipient government...

Question 16

It is common for a government that collects taxes on behalf of other governments to be authorized to withhold a certain percentage from the collections for each government.

Accepted Answer

This is known as tax withholding or tax retention and is commonly used in international tax agreements. It helps to ensure that each government receives the appropriate amount of taxes owed to them.

Question 17

Resources that are held in trust for the benefit of the government's own programs or its citizenry should be accounted for using a governmental fund rather than a fiduciary fund.

Accepted Answer

Governmental funds are used to account for resources held in trust for the benefit of the government's own programs or its citizenry. Fiduciary funds are used to account for resources held in trust for the benefit of individuals or other entities outside of the government. Therefore, resources held in trust for the government or its citizens should be accounted for using a governmental fund.

Question 18

The collection of taxes or other revenues by one government for several of the funds it operates and for other governments often results in the creation of a trust fund.

Accepted Answer

The answer of The collection of taxes or other revenues...

Question 19

Assets that are held in an agency fund belong to the party or parties for which the government acts as agent; however,the government retains legal right of ownership in the event of party's bankruptcy.

Accepted Answer

In an agency fund, the government acts as a custodian or agent for the assets, which belong to the party or parties for whom the government is acting. The government does not retain legal ownership of these assets.

Question 20

Trust funds often exist over a longer period of time than agency funds,represent and develop vested interests of a beneficiary to a greater extent,and involve more complex administration and financial accounting and reporting.

Accepted Answer

Trust funds are designed to last for a longer period of time and involve more complex administration and financial accounting and reporting than agency funds. They also represent and develop the vested interests of a beneficiary to a greater extent.

Quiz 8: Accounting for Fiduciary Activitiesagency and Trust Funds