Question 1

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 have additional liability to a defined benefit pension plan if the plan becomes underfunded in the future. In such cases, the employer may be required to make additional contributions to the plan to ensure that it remains fully funded.

Question 2

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

Accepted Answer

This statement is true. Permanent funds typically focus on measuring current financial resources and use a modified accrual basis of accounting, which means that they record revenues when they are measurable and available, and expenditures when they are incurred.

Question 3

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.

Question 4

Not-for-profits report all investment gains and losses on endowments as additions to temporarily restricted net assets, regardless of donor-imposed restrictions.

Accepted Answer

Not-for-profits report investment gains and losses on endowments based on donor-imposed restrictions, which can be classified as permanently restricted, temporarily restricted, or unrestricted.

Question 5

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

Accepted Answer

This is because permanent funds are established for specific long-term purposes, and their principal must be maintained to ensure the funds are available for those purposes. Only the income generated by the principal can be spent, while the principal remains intact.

Question 6

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 7

The $200,000 gift would be reported in a (an):
A)Special revenue fund.
B)Private-purpose trust fund.
C)Agency fund.
D)Permanent fund.

Accepted Answer

Private-purpose trust funds are used to account for assets that are held in trust for the benefit of specific individuals or private organizations. The $200,000 gift would likely be held in a private-purpose trust fund if it is designated for a specific individual or organization.

Question 8

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

According to GASB standards, investments of defined benefit pension plans must be reported at fair market value regardless of the actuary's valuation used for determining employer contribution requirements.

Question 9

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

This is true, as the employer's obligation is limited to the annual contribution specified in the plan.

Question 10

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 11

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

Accepted Answer

The gift is restricted to the principal being invested and only the earnings being used for a specific purpose, which is to beautify city-owned parks. Therefore, it should be accounted for in a permanent fund. The other options do not fit the criteria for this gift. The general fund is for the government's day-to-day operations, a private-purpose trust fund is used for managing trusts that benefit specific individuals or organizations, and an agency fund is used for holding assets for other entities.

Question 12

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?
A)Special revenue fund.
B)Private-purpose trust fund.
C)Agency fund.
D)Permanent fund.
Use the following information to answer Questions #3-4
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.

Accepted Answer

The answer of In previous years, Boze City had received...

Question 13

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

Accounting for the employer's contribution to a defined benefit pension plan is not straight forward, because it involves complex actuarial calculations to determine the amount of funding needed to meet the plan's future obligations to retirees.

Question 14

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 15

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

Accepted Answer

The answer of The concept of major versus nonmajor funds...

Question 16

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

Accepted Answer

In contrast to the statement, most government plans are actually defined benefit plans, where the retirement benefits are based on a formula that takes into account factors such as years of service and earnings history, rather than on contributions made to an individual account.

Question 17

During the current year the private-purpose trust fund will recognize, related to earnings:
A)$24,000 revenues.
B)$20,000 revenues.
C)$24,000 addition to net position.
D)$20,000 addition to net position.

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 18

The $20,000 transfer would be reported by the fund that made the transfer as a (an)
A)Transfer-out.
B)Expenditure.
C)Deduction from net position-benefits.
D)Expense.
Use the following information to answer Questions #5-6.
In the current year, Loma City earned $24,000 on the principal of a private-purpose trust fund but disbursed only $20,000.

Accepted Answer

The answer of The $20,000 transfer would be reported by...

Question 19

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

Accepted Answer

Fiduciary funds focus on assets held in trust or for others, rather than the government's own resources. As a result, they use the modified accrual basis of accounting, rather than the full accrual basis.

Question 20

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.

Quiz 10: Pensions and Other Fiduciary Activities