Deck 8: Fiduciary Funds

Question 1

With a defined contribution pension arrangement, an employer promises to provide a retiree a defined future pension benefit over a future time period.

Answer 1

False

Question 2

With a defined contribution pension arrangement, a government typically contributes a certain percentage of an employee's salary to an account in the employee's name.

Answer 2

True

Question 3

Because governments bear the risk of unknown economic factors when providing retirement benefits through defined benefit pension plans, more governments are shifting to providing pension benefits through defined contribution plans.

Answer 3

True

Question 4

A distinguishing characteristic of OPEB plans that are designed to provide healthcare benefits to retirees is that governments typically advance fund these plans so retirees can be assured that their health care needs during retirement will be met.

Question 5

Pension or OPEB plans typically have one of three structures: single-employer; agent multiple-employer; or commercial-supported government employer.

Question 6

To determine the total pension liability for a defined benefit pension plan, an actuary projects the future benefits that will be paid to or for the benefit of retirees; discounts the projected future benefits to determine their actuarial present value; and attributes the actuarial present value to future and past periods of employee service. The total pension liability is the amount of the actuarial present value attributed to past periods of employee service.

Question 7

If a pension plan has not established an irrevocable trust to account for defined benefit pension plan contributions and distributions, a government participating in the plan would report its net pension liability in its proprietary fund and government-wide financial statements.

Question 8

The net pension liability for a government that administers its defined benefit pension plan using a trust that meets GASB requirements is the total pension liability less the related pension plan's net position.

Question 9

An employer records a net pension liability related to its defined contribution arrangements in much the same manner as it records its net pension liability for its defined benefit arrangements.

Question 10

Pension Trust Funds are used to report fiduciary activities that are administered through trusts for which employer contributions to the trust are irrevocable; plan assets are dedicated to providing pension benefits to retirees; and plan assets are legally protected from creditors.

Question 11

In a Pension Trust Fund, a debit is made to an expenditures account for liabilities that are incurred for administrative costs.

Question 12

The required financial statements for Pension Trust Funds are a statement of fiduciary net position and a statement of changes in fiduciary net position.

Question 13

In a Pension Trust Fund, realized and unrealized gains from investments are reported separately in the statement of changes in fiduciary net position.

Question 14

For financial reporting purposes, Investment Trust Funds are used to account for both internal and external investment pools.

Question 15

When a city invests in an external investment pool run by a state government, an additions account would be credited in the state's Investment Trust Fund.

Question 16

A state's Investment Trust Fund's statement of changes in fiduciary net position likely will have include a deduction for distributions to pool or fund participants.

Question 17

Assets associated with a fiduciary activity accounted for in a Private-Purpose Trust Fund are administered through a trust where the principal and earnings are maintained to benefit those outside the government-individuals, private organizations, or other governments.

Question 18

Private Purpose Trust Funds follow the current financial resources measurement focus and the modified accrual basis of accounting.

Question 19

One of the most common uses for Private Purpose Funds is as a clearing mechanism for recording property taxes collected by one government on behalf of other governments.

Question 20

A liability is reported in fiduciary funds when an event occurs that compels a government to disburse fiduciary resources.

Question 21

Which of the following funds does not require that a trust agreement exist?

A) Pension Trust Fund
B) Investment Trust Fund
C) Private-Purpose Trust Fund
D) Custodial Fund

Question 22

A distinguishing characteristic of an OPEB when compared to a pension is that:

A) OPEB plans are typically better funded than pension plans.
B) OPEB calculations require an actuary to make fewer assumptions than an actuary makes for pensions.
C) OPEB may include retiree health care benefits that are not included with pension plans.
D) All of the above are distinguishing characteristics.
E) None of the above are distinguishing characteristics.

Question 23

Which of the following statements is true regarding an agent multiple-employer pension plan?

A) A separate account is maintained for each employer so that only an individual employer's share of pooled assets is available to pay the benefits of its retirees.
B) Agent multiple-employer plans pool the administrative function for multiple employers.
C) Plan assets from multiple participating employers are pooled for investment purposes.
D) All of the above.
E) None of the above.

Question 24

Pension reporting for state and local governments that have established a qualifying irrevocable trust require 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 have an 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 is reported as pension expense in an employer's government-wide statement of activities.

Question 25

A government has a single-employer defined benefit pension plan for its firefighters. At its December 31, 2019 fiscal year-end, the government had a total pension liability for the plan of $1,200,000 and the related pension's plan net position was $800,000. On December 31, 2020, the government had a total pension liability for the plan of $1,300,000 and the related pension's plan net position was $780,000.
What is the government's net pension liability in its government-wide financial statements on December 31, 2019?

A) $400,000
B) $520,000
C) $1,200,000
D) $1,300,000

Question 26

A government has a single-employer defined benefit pension plan for its firefighters. At its December 31, 2019 fiscal year-end, the government had a total pension liability for the plan of $1,200,000 and the related pension's plan net position was $800,000. On December 31, 2020, the government had a total pension liability for the plan of $1,300,000 and the related pension's plan net position was $780,000.
Assuming no net pension liability had been recorded in the General Fund on December 31, 2018, what journal entry does the government need to make to record the government's net pension liability on December 31, 2019 in its General Fund?
a.
$\begin{array}{llr} \text { Pension expense} &400,000\\ \text { Net pension liability } &&400,000\\\end{array}$

b.
$\begin{array}{llr} \text { Expenditures--pension} &400,000\\ \text { Net pension liability} &&400,000\\\end{array}$

c.
$\begin{array}{llr} \text { Pension expense } &520,000\\ \text { Net pension liability } &&520,000\\\end{array}$

d.
$\begin{array}{llr} \text { Expenditures--pension } &120,000\\ \text { Net pension liability } &&120,000\\\end{array}$

e. None of the above.

Question 27

A government has a single-employer define benefit pension plan for the employees of its Electric Utility Enterprise Fund. At its December 31, 2019 fiscal year-end, the government had a total pension liability for the plan of $1,200,000 and the related pension's plan net position was $800,000. On December 31, 2020, the government had a total pension liability for the plan of $1,300,000 and the related pension's plan net position was $780,000. Assuming no net pension liability had been recorded in its Enterprise Fund on December 31, 2018 and there is no pension related deferred inflows or outflows of resources, what journal entry does the government need to make to record the government's net pension liability on December 31, 2019 in its Enterprise Fund?
a.
$\begin{array}{llr} \text { Pension expense} &400,000\\ \text { Net pension liability } &&400,000\\\end{array}$

b.
$\begin{array}{llr} \text { Expenditures--pension} &400,000\\ \text { Net pension liability} &&400,000\\\end{array}$

c.
$\begin{array}{llr} \text { Pension expense } &520,000\\ \text { Net pension liability } &&520,000\\\end{array}$

d.
$\begin{array}{llr} \text { Expenditures--pension } &120,000\\ \text { Net pension liability } &&120,000\\\end{array}$

e. None of the above.

Question 28

A government has a single-employer defined benefit pension plan for the employees of its Electric Utility Enterprise Fund. At its December 31, 2019 fiscal year-end, the government had a total pension liability for the plan of $1,200,000 and the related pension's plan net position was $800,000. On December 31, 2020, the government had a total pension liability for the plan of $1,300,000 and the related pension's plan net position was $780,000. Assuming the net pension liability had been recorded in its Enterprise Fund on December 31, 2018 and there is no pension related deferred inflows or outflows of resources, what journal entry does the government need to make to record the government's net pension liability on December 31, 2020 in its Enterprise Fund?
a.
$\begin{array}{llr} \text { Pension expense} &500,000\\ \text { Net pension liability } &&500,000\\\end{array}$

b.
$\begin{array}{llr} \text { Pension expense} &400,000\\ \text { Net pension liability} &&400,000\\\end{array}$

c.
$\begin{array}{llr} \text { Pension expense } &120,000\\ \text { Net pension liability } &&120,000\\\end{array}$

d.
$\begin{array}{llr} \text { Pension expense } &520,000\\ \text { Net pension liability } &&520,000\\\end{array}$

e. None of the above.

Question 29

A government has a single-employer defined benefit pension plan for its firefighters. At its December 31, 2019 fiscal year-end, the government had a total pension liability for the plan of $1,200,000 and the related pension's plan net position was $800,000. On December 31, 2020, the government had a total pension liability for the plan of $1,300,000 and the related pension's plan net position was $780,000. What is the government's net pension liability in its government-wide financial statements on December 31, 2020?

A) $400,000
B) $520,000
C) $1,200,000
D) $1,300,000

Question 30

A government has a single-employer defined benefit pension plan for its firefighters. At its December 31, 2019 fiscal year-end, the government had a total pension liability for the plan of $1,200,000 and accumulated assets to pay the liability of $800,000. On December 31, 2020, the government had a total pension liability for the plan of $1,300,000 and accumulated assets to pay the liability of $780,000. The assets to pay the liability are reported as a part of the General Fund's committed fund balance. What amount will the government report as its pension liability in its government-wide financial statements on December 31, 2020?

A) $400,000
B) $520,000
C) $1,200,000
D) $1,300,000

Question 31

A government has a single-employer defined benefit pension plan for the employees of its Electric Utility Enterprise Fund. On December 31, 2020, the government had a total pension liability for the plan of $1,300,000 and accumulated pension plan assets to pay the liability of $780,000. The assets to pay the liability are reported as a part of the Enterprise Fund's unrestricted fund balance.
Assuming no pension liability had been recorded in the Enterprise Fund on December 31, 2019 and there is no pension related deferred inflows or outflows of resources, what journal entry does the government need to make to record the government's pension liability on December 31, 2020 in its Enterprise Fund?
a.
$\begin{array}{llr} \text { Pension expense} &520,000\\ \text { Net pension liability } &&520,000\\\end{array}$

b.
$\begin{array}{llr} \text { Pension expense} &520,000\\ \text { Total pension liability} &&520,000\\\end{array}$

c.
$\begin{array}{llr} \text { Pension expense } &1,300,000\\ \text { Total pension liability } &&1,300,000\\\end{array}$

d.
$\begin{array}{llr} \text { Pension expense } &1,300,000\\ \text { Net pension liability } &&1,300,000\\\end{array}$

Question 32

Assume a pension plan's total pension liability is greater than the related pension plan's net position. How should this be reported in the government-wide financial statements?

A) It is not reported if the actuarial value of plan assets exceeds their aggregate cost.
B) The excess of the total pension liability over the related pension plan's net position should be reported as a deferred inflow of resources in the government-wide financial statements.
C) The excess of the total pension liability over the related pension plan's net position should be reported as a liability in the government-wide financial statements.
D) Nothing is reported in the government-wide financial statements but fund reporting is required.

Question 33

A government has a defined contribution plan for its General Fund employees. During the year, it contributed $1,080,000 to its employees' individual defined contribution retirement accounts. At its fiscal year-end, the government still owes $180,000 to its employees' individual defined contribution retirement accounts according to the benefit terms of the defined contribution plan. How much should the government report as expenditures for pensions for its current fiscal year?

A) $0
B) $180,000
C) $1,080,000
D) $1,260,000

Question 34

A government has a defined contribution plan for its General Fund employees. During the year, it contributed $1,080,000 to its employees' individual defined contribution retirement accounts. At its fiscal year-end, the government still owes $180,000 to its employees' individual defined contribution retirement accounts according to the benefit terms of the defined contribution plan. How much should the government report as its pension liability at its fiscal year-end?

A) $0
B) $180,000
C) $1,080,000
D) $1,260,000

Question 35

A Pension Trust Fund purchased corporate stock during the year for $48,000. At year-end, the Pension Trust Fund still holds the stock that has a year-end fair value of $54,000. What journal entry, if any, should be made at year-end in relation to the Pension Trust Fund's investment in corporate stocks?
a.
$\begin{array}{llr} \text { Investments-corporate stocks } &6,000\\ \text { Additions - net increase in fair value of investments } &&6,000\\\end{array}$

b. $\begin{array}{llr} \text { Investments-comorate stocks } &6,000\\ \text { Cash } &&6,000\\\end{array}$

c. $\begin{array}{llr} \text { Investments-corporate stocks} &6,000\\ \text {Revenue-net increase in fair value of irvestments } &&6,000\\\end{array}$

d.
$\begin{array}{llr} \text {Investments-corporate stocks } &54,000\\ \text { Revenue-net increase in fair value of irvestments} &&54,000\\\end{array}$

e. No entry is required.

Question 36

A Pension Trust Fund pays $1,200,000 of retirement benefits. What journal entry would be necessary to record this transaction?
a.
$\begin{array}{llr} \text {Expenditures-retirement benefits } &1,200,000\\ \text { Cash } &&1,200,000\\\end{array}$

b.
$\begin{array}{llr} \text { Expenditures-retirement benefits } &200,000\\ \text { Cash } &&1,200,000\\\end{array}$

c.
$\begin{array}{llr} \text { Deductions-retirement benefits} &1,200,000\\ \text { Cash } &&1,200,000\\\end{array}$

d.
$\begin{array}{llr} \text { Other financing use-retirement benefits } &1,200,000\\ \text {Cash } &&1,200,000\\\end{array}$

Question 37

A Pension Trust Fund for a single-employer plan prepares two financial statements and three supplementary schedules. Where does the actuarially determined contribution for a specific year appear?

A) In the schedule of contributions
B) In the schedule of changes in the net pension liability
C) In the statement of fiduciary fund net position
D) In the statement of changes in fiduciary fund net position

Question 38

Two pieces of trend information contained in the required supplementary schedules for Pension Trust Funds are (A) the plan fiduciary net position as a percentage of the total pension liability; and (B) the contribution deficiency in relation to the actuarially determined contribution. 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.

Question 39

When an Investment Trust Fund makes an unsolicited distribution to a government that is participating in an investment pool, which account should be debited?

A) Expenditures-distributions to pool participants
B) Expense-distributions to pool participants
C) Pool participant payable
D) Deductions-distributions to pool participants

Question 40

Which of the following criteria must be met for an activity to be accounted for in a Private Purpose Trust Fund?

A) The assets are administered through a trust in which the sponsoring government is not a beneficiary.
B) Assets in the trust are dedicated to provide benefits to recipients according to the benefit terms.
C) Assets in the trust are legally protected from the creditors of the sponsoring government.
D) All of the above.

Question 41

Which of the following activities of a state should be accounted for in a Custodial 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 by a state 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

Question 42

Which financial statements are prepared for a Custodial 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 a cash flow statement

Question 43

Which of the following best summarizes the accounting equation for Custodial Funds?

A) Assets - Liabilities = Net position
B) Financial Assets = Near-term Liabilities + Net Position
C) Assets = Net Position
D) Assets = Liabilities

Question 44

Bevo County levies a property tax of $10 million for 10 villages within the County. The County anticipates that it will collect the entire $10 million that has been levied. How much revenue should Bevo County recognize in its Custodial Fund?

A) $0
B) $4 million
C) $6 million
D) $10 million

Question 45

Bevo County levies a property tax of $10 million for 10 villages within the County. The County anticipates that it will collect the entire $10 million that has been levied. What journal entry should Bevo County make for its Custodial Fund when the tax is levied?
a.
$\begin{array}{llr} \text {Property taxes receivable for County } &10,000,000\\ \text { Revenues-property taxes } & &10,000,000\\\end{array}$

b.
$\begin{array}{llr} \text { Property taxes receivable for County } &10,000,000\\ \text { Additions-property taxes collected for other governments } &&10,000,000\\\end{array}$

c.
$\begin{array}{llr} \text { Property taxes receivable for County } &10,000,000\\ \text { Other financing source-property taxes } & &10,000,000\\\end{array}$


d. No entry is required until the property taxes are collected.

Question 46

Bevo County levies a property tax of $10 million for 10 villages within the County. If Bevo County prepares a Custodial Fund statement of fiduciary net position before it collects property taxes, how much should it report as property taxes receivable?

A) $0
B) $4 million
C) $6 million
D) $10 million

Question 47

Listed immediately below are the 4 generic fiduciary funds. Following these are 11 statements. Match each fund with the statements that best correspond to each fund. No statement applies to more than 1 fund.
1) Used to account for fiduciary activities other than for pensions and external investment pools when a trust exists
2) Does not require that a trust agreement exist
3) Allows smaller governments to tap special financial expertise of larger governments
4) Assets in the fund benefit individuals and the government does not have administrative or direct financial involvement with the assets.
5) Requires that a schedule of contributions be prepared
6) Often used to account for tax collections
7) Must have outside governments participating in a pool
8) Typically involves the services of an actuary
9) May or may not have other governments as participants
10) Participants record their contributions in a "pool investment" asset account
11) May be used to account for fiduciary activities that benefit individuals outside the government, such as a trust established by a private individual with the assets of the activity controlled by the government to help children in the community have school supplies.

Question 48

A city has a single-employer defined benefit pension plan to provide retiree pension benefits to its Water Utility Enterprise Fund employees. The plan is administered in a trust that meets the GASB requirements. Assume that the actuary for the city's Electric Utility Enterprise Fund measures its net pension liability on December 31, 2019, which is its fiscal year-end. The actuary provides the following additional information in its reporting package to the city's accounting department for its use in preparing the Water Utility Enterprise Fund's December 31, 2019 financial statements.
$\begin{array}{lr}& \text { Fiscal Year Ending } & \text { Fiscal Year Ending } \\\text { Actuarial P rovided Account Inform ation } & \text { December 31,2018 } & \text { December 31, 2019 }\\ \hline\text { Net pension liability } & \$ 4,600,000 & \$ 4,600,000 \\\text { Deferred inflow of resources-investment } \\\text { gain } & 90,000&60,000\\\text { Deferred outflow of resources-economic } \\\quad \text { factors } & 150,000 &120,000 \\ \text { Deferred outflow of resources- } & \\\text { demographic factors }&160,000&120,000\end{array}$ The city contributed $1,000,000 cash to the pension plan during the fiscal year ending December 31, 2019. Prepare the journal entry to record the pension related activity, including the pension expense, for the city's Water Utility Enterprise Fund for its 2019 fiscal year.

Question 49

The employees of a city's Water and Sewer Enterprise Fund are participants in a defined contribution pension plan. During 2019, the city made $700,000 in cash contributions to its employees' individual defined contribution pension retirement accounts. Based on benefit terms, the city needed to contribute an additional $50,000 during 2019, which had not been contributed by year end. Make the journal entries to (a) record the cash contributions and (b) to record any required year-end accrual.

Question 50

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 retirement 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.

Question 51

Smith County operates an external investment pool that invests idle cash on behalf of school districts within the county. Prepare journal entries to record the following transactions.
a. The pool receives cash deposits from District 1 ($100,000) and District 3 ($300,000).
b. The pool invests the $400,000 in certificates of deposit (CDs) maturing in three months.
c. The CDs mature and the pool receives $402,000, which includes $2,000 interest.
d. The pool remits the interest to Districts 1 and 3.
e. District 3 needs some cash. In accordance with District 3's request, the pool returns $250,000 cash to the District.
f. The pool invests the remaining $150,000 in another CD.
g. At year-end, interest earned but not received on the $150,000 CD, amounts to $1,000.

Question 52

A state collects sales taxes for counties that have elected to "piggy-back" their taxes on the state sales tax.
Prepare entries to record these transactions in a Custodial Fund.
a. The state collects sales taxes totaling $7,000,000 for participating counties.
b. The fund pays the state $20,000 in administrative costs.
c. The state distributes the $6,800,000 in tax collections to the counties.

Question 53

A city has a Private Purpose Trust Fund that it is used to account for resources donated to provide the payment of tuition and fees necessary for the college education of the children of police or fire personnel who are disabled or killed. The fund is used to collect and invest deposits made by contributors for the purpose of financing tuition on behalf of particular children in the future. Record the following transactions in the College Education Private Purpose Trust Fund. Also, prepare (1) a statement of changes in fiduciary net position and (2) a statement of fiduciary net position for the Fund for the year ended December 31, 2020. This is the first year of operation for the College Education Private Purpose Trust Fund.
a. Rachel Smith, noted philanthropist, donates marketable securities worth $600,000 to the city, stipulating that all earnings on the securities be used for awarding scholarships to the children of disabled or killed police or fire personnel.
b. Corporate securities of $570,000 are purchased as an investment.
c. The fund receives dividends on the securities in the amount of $15,000.
d. A distribution in the amount of $20,000 is made for the college tuition of a child of a disabled police officer.
e. When the District prepares financial statements at the end of the year, the corporate securities have a fair value of $590,000.

Question 54

A city uses a Property Tax Collection Custodial Fund to account for the collection of property taxes for itself, a county, and a school district. Prepare journal entries to record the following transactions and events for city's Custodial Fund during calendar year 2020. Also, prepare a statement of fiduciary net position for the Property Tax Collection Fund on December 31, 2020.
a. During 2020, property taxes were levied for the city ($6,000,000), the county ($3,000,000) and school district ($9,000,000). Assume taxes collected by the Custodial Fund for the city will be paid to the city's General Fund.
b. Property taxes in the amount of $13,500,000 are collected. The percentage collected for each entity is in the same proportion as the original levy.
c. The amount owed to the city, the county, and the school district is recognized. The city charges an administrative fee to the county ($80,000) and the school district ($240,000) to collect the taxes, which reduces the amount owed to county and school district.
d. The Custodial Fund distributes the amount owed to the three governments.