Deck 8: Accounting for Fiduciary Activities-Agency and Trust Funds

Question 1

An agency fund accounts for assets held by a government for the long-term in the capacity of a trustee for an individual,organization,other fund,or other government.

Answer 1

False
Explanation: Agency funds are used when the government holds assets temporarily as an agent for an individual, organization, or other government, not for a long period of time.

Question 2

When a cash and 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.

Answer 2

True
Explanation: Assets such as investments should be revalued to fair value (market value) as of the date the fund enters the pool, and any investments already in the pool should be revalued to fair value as of the same date, so that earnings, gains, and losses on pooled investments may be distributed equitably.

Question 3

Public Employee Retirement Systems should utilize the modified accrual basis of accounting.

Answer 3

False
Explanation: GASB standards provide that public employee retirement systems (PERS) use the accrual basis of accounting.

Question 4

All fiduciary funds report transactions between the fund and both internal and external parties.

Question 5

Public employee retirement systems should label the difference between assets and liabilities on the statement of plan net position as "fund balance available for member benefits."

Question 6

If a state or local government is a party to an agency relationship,it must automatically create an agency fund in order to be in conformity with generally accepted accounting principles.

Question 7

Employer (and employee,if applicable)contributions to public employee retirement systems should be based on actuarial computations.

Question 8

Effective management of cash and investments of individual funds may be enhanced by placing the cash and investments in a pool under the control of the treasurer of the government or other official.

Question 9

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.

Question 10

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

Question 11

An agency relationship that usually necessitates the creation of an agency fund is the collection of revenues by one government for several of its funds and/or for other governments and their funds.

Question 12

Tax agency funds assume liability for gross levies,not for the amounts the levying funds or units expect to collect.

Question 13

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.

Question 14

If the fair value of stock received by a private-purpose trust fund differs from the par value of the stock,the premium or discount should be amortized over the remaining life of the stock.

Question 15

If a state or local government acts as an intermediary between the federal government and beneficiary recipients in processing grant or entitlement resources,those resources should be accounted for in an agency fund.

Question 16

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.

Question 17

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

Question 18

Public employee retirement systems should utilize budgetary accounts in the same manner that General Funds and special revenue funds should.

Question 19

Pension plans are required to report two schedules,a schedule of funding progress and a schedule of employer contributions as required supplementary information (RSI)in their stand-alone financial reports and in pension plan financial information reported in the CAFR of sponsoring government.

Question 20

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

Question 21

Which of the following statements regarding the financial reporting of agency funds is not true?

A) Fiduciary activities are reported only in the fiduciary fund financial statements.
B) Agency fund financial information is reported in a separate column of the government-wide statement of activities.
C) Agency funds are not included in the statement of changes in fiduciary net position.
D) GASB standards do not require disclosure of the assets and liabilities of individual agency funds.

Question 22

Which of the following is a valid reason for establishing a tax agency fund and charging a collection fee to other governments?

A) To help eliminate a General Fund deficit.
B) To increase the total amount of taxes levied.
C) To avoid overlapping taxes.
D) To realize administrative efficiencies from centralizing tax billing and collection activities.

Question 23

The cash and investment pool of Lake City allocates dividends,interest,and capital gains and losses on a periodic basis.When the cash and investment pool accrues interest earned on investments in debt securities,pending allocation to participating funds,it would credit which of the following accounts?

A) Interfund Loans.
B) Revenues.
C) Undistributed Earnings on Pooled Investments.
D) Interfund Receivables.

Question 24

Billing and collection of special assessments and payment of debt principal and interest on special assessment debt for which the city is not obligated in any manner should be recorded in a(an):

A) Debt service fund.
B) Special assessment fund.
C) Agency fund and private-purpose trust fund.
D) Agency fund.

Question 25

When a cash and investment pool of a certain city was established,the debt service fund transferred investments to the pool having a cost of $3,000,000 but a current fair market value of $3,100,000.To record this transaction,the journal entry made by the debt service fund will include:

A) A debit to Equity in Pooled Cash and Investments in the amount of $3,000,000.
B) A credit to Revenues-Change in Fair Value of Investments in the amount of $100,000.
C) A debit to Investments in the amount of $3,000,000.
D) A credit to Investments in the amount of $3,100,000.

Question 26

Which of the following is the most reliable means of distinguishing a trust relationship from an agency relationship for purposes of deciding which type of fiduciary fund should be used?

A) Examine the amount of money involved; agency relationships generally involve smaller amounts.
B) Examine the aggregate of factors,such as the enactment that brought the relationship into existence,statutes,regulations,etc,that help define the nature of the relationship.
C) Examine the length of time assets will be held; agency relationships are generally in existence longer than trust relationships.
D) Examine the wording of any agreements to determine if the word "trust" or "agency" is used.

Question 27

Which of the statements concerning agency funds is true?

A) Agency funds use the same basis of accounting as permanent funds.
B) Agency funds are reported only on the statement of fiduciary net position.
C) Agency funds use the temporary accounts Additions and Deductions.
D) Agency funds never receive cash.

Question 28

If special assessment receivables are recorded in the accounts of an agency fund,the appropriate account(s)to credit is(are):

A) Contributions to Net Position.
B) Revenues and Deferred Revenues.
C) Due to Special Assessment Bondholders.
D) Interfund Transfers In.

Question 29

A local civic organization gave the city government $15,000 cash to be used to pay the utility bills of persons whose incomes were below the poverty level.The city should account for the $15,000 gift in

A) An investment trust fund.
B) The General Fund.
C) A permanent fund.
D) Private-purpose trust fund.

Question 30

Annual pension cost is the actuarially determined amount that an employer should contribute in the current year to maintain adequate funding status.

Question 31

Which of the following activities would most appropriately be recorded by an agency fund?

A) Assets held for college scholarships to be awarded to the children of police officers.
B) Deposits held for customers of a city-owned electric utility.
C) Assets held for special assessment debt repayment.
D) Assets held for investment,the earnings from which are used for maintenance of the City Cemetery.

Question 32

Which of these fiduciary fund types always has zero net position?

A) Agency funds.
B) Pension trust funds.
C) Investment trust funds.
D) Private-purpose trust funds.

Question 33

Which of the following accounts is least likely to be used by a tax agency fund?

A) Cash.
B) Revenues.
C) Taxes receivable for other funds and units.
D) Due to other funds and units.

Question 34

When one participant in an investment pool withdraws part of its equity from the pool,that participant's proportionate interest is decreased and all other participants' proportionate interest is increased.

Question 35

Which basis of accounting best maintains the original principal of a trust?

A) Accrual basis.
B) Cash basis.
C) Modified accrual basis.
D) Legal basis.

Question 36

Other postemployment benefits (OPEB)are not reported by governments since their costs are not fully known until payments are made.

Question 37

Which of the following is not a fiduciary fund?

A) Agency fund.
B) Investment trust fund.
C) Public-purpose trust fund.
D) Pension trust fund.

Question 38

Each of the following are reported as fiduciary funds except

A) A permanent fund.
B) An investment trust fund.
C) An agency fund.
D) A private-purpose trust fund.

Question 39

Which of the following grants received by a city would most appropriately be recorded in a "pass-through" agency fund?

A) A federal grant for which the ultimate allocation and use of the money will be decided by the state government.The city will serve as a conduit for the money between the state government and various not-for-profit organizations who will use the money.
B) A state grant to a local not-for-profit organization for summer employment of juveniles.
C) A federal grant made directly to a county for repairing and overhauling bridges.
D) A federal grant via the state government for which the city will be responsible for upgrading low-rent housing.

Question 40

Other postemployment benefits (OPEB)include benefits other than pensions,such as health care,life insurance,and long-term care.

Question 41

Which of the following is the appropriate basis of accounting for an agency fund?

A) Cash basis.
B) Modified cash basis.
C) Accrual basis.
D) Modified accrual basis.

Question 42

A local golfer contributed $100,000 to the city stipulating that the money be invested and that the earnings thereon be used for maintenance of the city golf course.The $100,000 would most appropriately be recorded in a(an)

A) Agency fund.
B) A permanent fund.
C) Private-purpose trust fund.
D) Investment trust fund.

Question 43

Employer contributions to a public employee retirement system (PERS)should be reported as

A) An expense of the General Fund for employees paid by the General Fund.
B) Another financing use of a proprietary fund for employees paid by a proprietary fund.
C) A revenue of the PERS.
D) An addition to net position of the PERS.

Question 44

Kirby County established a tax agency fund to collect property taxes for the City of Kix,the City of Denton,and Kirby County School District.Total tax levies of the three governmental units were $200,000 for the year,of which $60,000 was for the City of Kix,$40,000 for Denton,and $100,000 for the School District.The tax agency fund charges a 2% collection fee that it transfers to the general fund of the County in order to cover costs incurred for agency fund operations.During the year the tax agency fund collected and remitted $150,000 of the $200,000 levies to the various governmental units.Collection fees associated with the $150,000 were remitted to Kirby County's general fund prior to year end.
Required
Prepare the journal entries to record tax collections and remittances for the Kirby County Tax Agency Fund.

Question 45

Explain the difference between an internal cash and investment pool and an external cash and investment pool and describe some of the differences in accounting treatment between the two.

Question 46

Ingham County collects,in addition to its own taxes,taxes for other units.Tax levied for 2014 were as follows:
Collections from the 2014 levies amounted to $3,550,000 and were distributed in proportion to the original levies,less a 1% collection fee charged Mason City and the Mason School District.Collection fees are remitted to the Ingham County General Fund.
Required
1)Record the tax levies in the Ingham County Tax Agency Fund.
2)Record the collection from the 2014 tax levies in the Ingham County Tax Agency Fund and the specific liabilities owed each fund and unit (Round all amounts to the nearest whole dollar.)
3)Record in the Ingham County Tax Agency Fund the transfer of collected taxes to each fund and unit.

Question 47

In financial reporting for proprietary funds and at the government-wide level,the employer's pension expense for the period is equal to:

A) The employer's contribution.
B) Annual required contribution.
C) Annual pension cost.
D) The change in net pension obligation.

Question 48

Which of the following is the appropriate measurement focus for agency funds?

A) Economic resources.
B) Current financial resources.
C) Cash and cash equivalents.
D) Accrual basis.

Question 49

Fiduciary funds are accounted for in a manner similar to which of the following funds?

A) Permanent funds.
B) Special revenue funds.
C) Enterprise funds.
D) Debt service funds.

Question 50

If a city has a fiduciary responsibility for assets entrusted to it,describe the factors that the city would consider in deciding whether to account for the assets in an agency fund or a trust fund.

Question 51

Which of the following activities would be accounted for by a trust fund?

A) Deposits held for customers of a city-owned electric utility.
B) Assets passed-through the state government to the local government.
C) Assets held for special assessment bondholders for which the city has no liability.
D) Assets which are used to assist in the preservation of a private residence that is of historical significance to the city.

Question 52

Explain the purpose of an investment trust fund and describe its accounting treatment.

Question 53

A statement of cash flows should be prepared for which of the following fiduciary fund types?

A) Fiduciary funds do not provide a statement of cash flows.
B) Agency.
C) Pension trust.
D) Private-purpose trust.

Question 54

Explain the purpose of the account "undistributed change in fair value of investments" used in a cash and investment pool and describe how it should be reported in the government's financial statements.

Question 55

On January 1,Forrester County is holding investments for Tinsel Town valued at $500,000 in an investment pool,accounted for in an investment trust fund.On January 1,Valley School District invests $1,500,000 in the pool.Earnings on pooled investments for the six months ended June 30 totaling $300,000 were received in cash.
Required
1)What percentage interest in the pool is held by the town and the school district?
2) (a)Show the entry in the Investment Trust Fund to record the School District's investment in the pool.
(b)Show the entry in the Investment Trust Fund to summarize the collection of interest for the six-month period.
(c)Show the entry in the Investment Trust Fund to record the liability to the funds for interest earned on pooled investments,assuming that the interest will be paid to the town and school district.
(d)Independent of part (c),show the entry in the Investment Trust Fund to record the distribution of the interest earned on pooled investments,assuming that the interest will be reinvested by the town and school district.

Question 56

The financial position of the Policemen's Pension Fund administered by a city should be reported in the city's basic financial statements as a column in the

A) Statement of assets,liabilities,and fund balances.
B) Statement of fiduciary net position.
C) Balance sheet-governmental funds.
D) Government-wide statement of net position.

Question 57

In which of the following circumstances would it be inappropriate to report the assets in the fiduciary fund financial statements?

A) When assets are held for the families of the government's police officers killed in the line of duty.
B) When assets are held for other funds of the same government.
C) When assets are held for other governments in an investment pool.
D) When assets are held for Internal Revenue Code Section 457 deferred compensation plans.

Question 58

A donor contributed $100,000 to the city stipulating that the money be invested and that the earnings thereon be used for maintenance of the city municipal swimming pool.The $100,000 would most appropriately be recorded in a(an)

A) Agency fund.
B) Private-purpose trust fund.
C) Endowment fund.
D) Permanent fund.

Question 59

Which of the following statements is true regarding termination benefits?

A) Voluntary termination benefits occur when employers provide an incentive to hasten an employee's voluntary termination of employment,such as a one-time payout.
B) Voluntary terminations relate to layoffs or reductions in workforce.
C) Employers incur expenses related to voluntary terminations but not to involuntary terminations.
D) Expenses related to voluntary terminations may be avoided by hiring replacement employees within 60 days of the terminations.

Question 60

Under current GASB standards,how are other postemployment retirement benefits (OPEB)reported?

A) By disclosing information about OPEB in the notes to the financial statements,but without display of OPEB expenses or liabilities on the face of the financial statements.
B) In a manner that is quite similar to the reporting requirements for pension plans.
C) Using two different methods,one for health care plans and a second for other types of OPEB.
D) By using a modified accrual basis,which requires only expenditures of the current period be reported.

Question 61

Describe the types of pension plans most often found in governmental entities and the differences between them.Do you expect that most governmental employers sponsor a "single-employer plan" or participate in a public employee retirement system (PERS)?