Question 1

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

Accepted Answer

Agency fund financial information is not reported in a separate column of the government-wide statement of activities. They are not reported in the government-wide financial statements as they do not use resources in a way that demands detection in the government-wide financial statements. Agency funds are reported only in the fiduciary fund financial statements, they are not included in the statement of changes in fiduciary net position and GASB standards do not require disclosure of the assets and liabilities of individual agency funds.

Question 2

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

Accepted Answer

The valid reason for establishing a tax agency fund and charging a collection fee to other governments is to realize administrative efficiencies from centralizing tax billing and collection activities. This helps to avoid duplication of efforts and resources, resulting in cost savings for all participating governments. A tax agency fund is not used to eliminate a General Fund deficit or increase the total amount of taxes levied.

Question 3

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?

Accepted Answer

The undistributed earnings on pooled investments account is used to temporarily hold income earned on investments while it is pending allocation to participating funds. Therefore, when the cash and investment pool accrues interest earned on investments in debt securities, it would credit the undistributed earnings on pooled investments account.

Question 4

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):

Accepted Answer

Agency funds are used to account for resources held by a government in a purely custodial capacity, such as when the city is not obligated for the debt.

Question 5

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:

Accepted Answer

The answer of When a cash and investment pool of...

Question 6

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?

Accepted Answer

Examining the aggregate of factors that define the relationship, such as the establishing enactment, statutes, regulations, etc., is the most reliable means of distinguishing a trust relationship from an agency relationship. The amount of money involved and the length of time assets will be held are not reliable indicators, and the wording of agreements may not always accurately reflect the true nature of the relationship.

Question 7

Which of the statements concerning agency funds is true?

Accepted Answer

Agency funds are a type of fiduciary fund that account for assets held by a government in a trustee capacity for individuals, organizations, or other governments. They are reported only on the statement of fiduciary net position, which reports the assets, liabilities, and net position of the government's fiduciary funds. Agency funds use the same basis of accounting as general funds and special revenue funds (modified accrual basis) and use the temporary accounts Cash and Investments (assets) and Due to/Due from Other Funds (liabilities). They can receive cash, such as taxes or fees collected on behalf of another entity.

Question 8

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

Accepted Answer

In an agency fund, the appropriate account to credit for special assessment receivables is "Due to Special Assessment Bondholders" because the agency fund acts as a custodian for resources that are to be paid to bondholders.

Question 9

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

Accepted Answer

The $15,000 gift is given for a specific purpose of paying the utility bills of persons below the poverty level. Therefore, the best option for the city would be to account for it in a private-purpose trust fund. This type of fund is used to account for resources where the principal and income must be used for the benefit of specific individuals or organizations, in this case, those below the poverty level.

Question 10

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

Accepted Answer

This is the definition of annual required contribution (ARC).

Question 11

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

Accepted Answer

An agency fund is used to account for assets held by a government unit in a trustee or custodial capacity, such as collecting and disbursing taxes or holding funds for a specific purpose. Assets held for special assessment debt repayment would fall under this category as the government unit is acting as a trustee/custodian and does not have ownership of the assets.

The other options do not fit the definition of an agency fund. Option A would be recorded in a private-purpose trust fund, option B would be recorded in a custodial fund, and option D would be recorded in an investment trust fund.

Question 12

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

Accepted Answer

Agency funds do not have a net position because they are simply a custodial arrangement in which the government holds and manages assets on behalf of another party, without any ownership or beneficial interest in the assets. The assets and liabilities of an agency fund always offset each other, resulting in a net position of zero.

Question 13

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

Accepted Answer

Tax agency funds receive and distribute taxes, so they are unlikely to have their own revenues. The other accounts listed are all possible for a tax agency fund.

Question 14

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.

Accepted Answer

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

Question 15

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

Accepted Answer

The answer of Which basis of accounting best maintains the...

Question 16

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

Accepted Answer

GASB standards require accounting and reporting for OPEB in a manner essentially the same as for defined benefit pension plans.

Question 17

Which of the following is not a fiduciary fund?

Accepted Answer

Public-purpose trust funds are not considered fiduciary funds; they are typically governmental funds used for specific public purposes.

Question 18

Each of the following are reported as fiduciary funds except

Accepted Answer

All options except for A are reported as fiduciary funds. A permanent fund is a governmental fund that is used to account for resources that are legally restricted to be used only for the purpose of providing income to support a government's programs.

Question 19

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

Accepted Answer

A pass-through agency fund should be used when the city is simply a conduit for the grant money between the granting agency and the ultimate recipient. Option A describes this scenario, as 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. The other options describe situations where the city is directly responsible for the use or administration of the grant funds, so they would not be appropriate for a pass-through agency fund.

Question 20

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

Accepted Answer

This is consistent with material discussed in Chapter 8 of the text.

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