Test bank Chapter 7 12th ed PDF

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Chapter 7 Fiduciary Funds, Interfund Transactions Chapter 7 Fiduciary Funds, Interfund Transactions True/False Questions 1. The term “fiduciary funds” include agency, pension trust, investment trust, and private purpose trust funds. Answer: True 2. Fiduciary funds use the accrual basis of accounting. Answer: True 3. Fiduciary funds use the current financial resource measurement focus. Answer: False 4. Fiduciary Funds are not included in the government-wide financial statements. Answer: True 5. The Accrual Basis and Economic Resource Measurement Focus are used for PrivatePurpose, Investment Trust and Pension Funds. Answer: True 6. The categories on the Statement of Changes in Fiduciary Net Position are Additions and Deductions. Answer: True 7. Fiduciary Funds are used to account for assets held by a government acting as a trustee or agent for entities external to the governmental unit: Including individuals, organizations, and other governmental units. Answer: True 8. Assets held in trust that are restricted to benefit the citizenry in general or in support of the reporting government’s programs would be reported as private purpose trust funds. Answer: False 9. Assets held in trust that are restricted to benefit the citizenry in general or in support of the reporting government’s programs would be reported as permanent funds if 1

Chapter 7 Fiduciary Funds, Interfund Transactions nonexpendable. Answer: True 10. Fiduciary fund financial statements include the Statement of Fiduciary Net Position, Statement of Changes in Fiduciary Net Position, and Statement of Cash Flows. Answer: False 11.

Fiduciary Fund activities report in terms of Revenues and Expenses.

Answer: False 12.

Fiduciary Fund activities report in terms of Additions and Deductions.

Answer: True 13.

The Fiduciary Funds are included in the Government-Wide Financial Statements.

Answer: False 14. Agency fund assets belong to the party or parties for which the government acts as agent. Answer: True 15.

Agency fund assets are offset by liabilities equal in amount, so no fund equity exists.

Answer: True 16.

Agency funds report the excess of assets over liabilities as “Net Position”.

Answer: False 17.Fiduciary funds are reported only in the fund-basis financial statements. Answer: True 18.Donated resources that benefit individuals or private organizations are reported in a private-purpose trust fund. Answer: True

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Chapter 7 Fiduciary Funds, Interfund Transactions 19.The required financial statements for agency funds include a Statement of Fiduciary Net Position, and a Statement of Changes in Fiduciary Net Position. Answer: False 20.Unless use of an agency fund is mandated by law, by GASB standards, or by decision of the governing board of a government, an agency relationship may be accounted for within governmental and/or proprietary funds. Answer: True 21.If a government has no potential liability for payment of special assessment debt in the event of default by the property owners, then an agency fund may be used to account for the proceeds of the special assessment. Answer: True 22.Agency funds report no revenues, expenses, or fund equity accounts. Answer: True 23.If a government has a locally administered pension plan for which it is trustee, the government would report the locally administered plan as a pension trust fund in the basic financial statements. Answer: True 24.The purpose of a Statement of Fiduciary Net Position for a defined benefit pension plan is to enable the reader to determine whether the pension plan is sufficiently funded. Answer: False 25.The purpose of the Schedule of Changes in Net Pension Liability and Required Ratios (part of the required supplementary information) is to enable the reader to determine whether the pension plan is sufficiently funded. Answer: True 26.Governments offering postemployment benefits to their retired employees must present two financial statements related to their plans: the Statement of Fiduciary Net Position and the Statement of Changes in Fiduciary Net Position, as well as additional required supplementary information.

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Chapter 7 Fiduciary Funds, Interfund Transactions Answer: True 27.GASB Standards require that IRS 457 Deferred Compensation Plans, if administered by the governmental unit, be reported as pension trust funds. Answer: True 28.An investment trust fund is used to account for the internal portion of a multi-government investment pool, when the reporting government is trustee. Answer: False 29.Governmental investments in equity securities that have a determinable fair value are to be reported at fair value and any unrealized gains and losses are to be reported separately from realized gains and losses in the governmental operating statements. Answer: False 30.Property that reverts to government ownership upon the death of the owner because of a lack of identifiable heirs is termed Escheat Property. Answer: True 31.Escheat property, often collected by the state, is to be reported either in a private-purpose trust fund or in the fund to which the property ultimately reverts. Answer: True 32. Property that has been abandoned or property whose owners cannot be found is turned over to the state government until the legal owners can be found is known as community property. Answer: False 33. Investment pools invested from external parties are recorded in Investment Trust Funds. Answer: True 34. Defined Benefit Pension Plans are required to pay retired employees an amount determined by formula, rather than the amount contributed to the plan. Answer: True

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Chapter 7 Fiduciary Funds, Interfund Transactions 35. Employers with defined contribution plans will report a pension liability if the required contribution has not been fully paid by year end. Answer: True 36. Governments with defined benefit pension plans will report a net pension liability in the government-wide Statement of Net Position if the amount the government anticipates paying to employees in the future is greater than the net fiduciary position of the pension trust fund. Answer: True 37. Pension trust funds are required to present a ten year Schedule of Changes in Net Pension Liability and Related Ratios as required supplementary information. Answer: True 38. Net pension liabilities are reported in statements prepared using the economic resource measurement focus and accrual basis of accounting. Answer: True 39. Governments should report the net pension liability in the governmental fund basis statements even if it is not expected to be paid from current financial resources. Answer: False 40.

Proprietary funds record the net pension liability as a fund liability.

Answer: True 41. Assume a government makes a change of assumption that results in an increase in its estimate of the net pension liability. This will be recorded in the government-wide statements as an increase in the net pension liability and an increase in deferred outflows of resources. Answer: True 42. Pension expenditures for governmental type funds are equal to the amounts paid to the pension fund for current year service plus any accruals for amounts to be paid from current financial resources. Answer: True

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Chapter 7 Fiduciary Funds, Interfund Transactions 43.

Investment Trust Funds account for only the external portion of investment pools.

Answer: True 44. An endowment to provide scholarships would be reported in a Private-purpose Trust Fund. Answer: True 45. An endowment that is for the benefit of individuals and not the government controlling the funds should be accounted for using a private-purpose trust fund. Answer: True 46. Investments in a private-purpose trust fund should generally be reported at fair market value. Answer: True 47. Investments in a pension trust fund should generally be reported using fair market value. Answer: True 48. Internal investment pools, which account for investments of the reporting entity, are to be reported within the funds providing the resources, when preparing financial statements. Answer: True 49. When a contributor and a government agree that the principle and/or income of trust assets is for the benefit of individuals, organizations, or other governments, a privatepurpose trust has been formed. Answer: True 50. When a contributor and a government agree that the principle and/or income of trust assets is for the benefit of individuals, organizations, or other governments, an agency trust fund has been formed. Answer: False 51. Equity investments should be recorded at fair market value unless a government has sufficient investments in a company to apply the equity method.

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Chapter 7 Fiduciary Funds, Interfund Transactions Answer: True 52. GASB requires that endowments report investments at fair value unless the investments are in real estate Answer: False 53. If a derivative is effective in reducing a government’s exposure to identifiable risks, the changes in the value of the derivative are reflected as deferred outflows or deferred inflows in the period that the value changes. Answer: True 54. For governmental-type funds, Statement 53 (reporting of derivatives) applies only to reporting at the government-wide level, not the fund-basis statements. Answer: True

55. Statement 53 (reporting of derivatives) does not apply to proprietary or fiduciary funds. Answer: False

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Chapter 7 Fiduciary Funds, Interfund Transactions Multiple Choice Questions 56.

Which of the following is not a fiduciary fund? A) Private-Purpose Trust Fund. B) Investment Trust Fund. C) Pension Trust Fund. D) Permanent Fund.

Answer: D. 57.Which is true regarding the basis of accounting for fiduciary funds? A) All four fiduciary fund types are accounted for using the same basis of accounting and measurement focus as proprietary funds. B) Agency funds are accounted for using the same basis of accounting and measurement focus as governmental funds, trust funds are accounted for using the same basis of accounting and measurement focus as proprietary funds. C) Trust funds are accounted for using the same basis of accounting and measurement focus as governmental funds, and agency funds are accounted for using the same basis of accounting and measurement focus as proprietary funds. D) All four fiduciary fund types are accounted for using the same basis of accounting and measurement focus as governmental funds. Answer: A. 58.

How are Fiduciary Funds presented in the Government-wide Financial Statements? A) Combined with Internal Service Funds. B) Combined with Business activities. C) Combined with governmental activities. D) None of the Above.

Answer: D 59.Which of the following is true regarding fiduciary funds? A) Fiduciary funds are included in the fund basis statements but not in the government-wide. B) Fiduciary funds are reported by fund type, not as major funds. C) Both of the above. D) Neither of the above. Answer: C

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Chapter 7 Fiduciary Funds, Interfund Transactions 60.

Which of the following is true regarding fiduciary funds? A) Fiduciary funds use the economic resources measurement focus and accrual accounting. B) Fiduciary funds include pension (and other employee benefit) trust, investment trust, agency, and permanent funds. C) Both of the above. D) Neither of the above.

Answer: A 61.Which of the following is true regarding fiduciary funds? A) Fiduciary funds are not included in the government-wide financial statements. B) Fiduciary funds include agency, pension (and other employee benefit) trust, private-purpose trust, and investment trust funds. C) Both of the above. D) Neither of the above. Answer: C 62.______ funds are created when individuals or organizations contribute resources with the agreement that principal and/or income will be used to benefit individuals or private organizations. A) Agency B) Investment trust C) Private-purpose trust D) Permanent Answer: C 63.______ funds are created when individuals or organizations contribute resources with the agreement that the income will be used to the citizenry or the government’s programs. A) Agency B) Investment trust C) Private-purpose trust D) Permanent Answer: D 64. The terms used for classification of items on the Statement of Changes in Fiduciary Net Position are: A) Revenues and Expenses. B) Additions and Deductions. C) Revenues and Expenditures. D) Contributions and Expenses.

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Chapter 7 Fiduciary Funds, Interfund Transactions Answer: B 65. A fund that is used to account for assets held by a government temporarily acting as agent for one or more other governments units or for individuals or private organizations is a(n): A) Agency fund B) Private-Purpose Trust Fund C) Investment Trust Fund D) Pension Trust Fund Answer: A 66. A fund that is the result of an agreement between a contributor and a government that the principal and/or income of trust assets is for the benefit of individuals, organizations, or other governments is a(n): A) Agency fund B) Private-Purpose Trust Fund C) Investment Trust Fund D) Pension Trust Fund Answer: B 67. A fund that exists when the government is the sponsor of a multigovernment investment pool and accounts for the external portion of the trust assets is a(n): A) Agency fund B) Private-Purpose Trust Fund C) Investment Trust Fund D) Pension Trust Fund Answer: C 68. A fund that exists when a government is the trustee for a defined benefit pension plan, or a defined contribution pension plan is a(n): A) Agency fund B) Private-Purpose Trust Fund C) Investment Trust Fund D) Pension Trust Fund Answer: D

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Chapter 7 Fiduciary Funds, Interfund Transactions 69.

Which of the following is not an example of the function of an Agency Fund? A) Payment of pension benefits to retired government employees B) Collection of local government sales taxes by the state government C) Collection of property taxes for the school district by an elected county government official. D) Periodic distribution by the state government of county sales taxes

Answer: A 70.

Which type of pension plan most commonly results in an unfunded actuarial liability? A) Defined benefit plan. B) Defined contribution. C) Both A and B. D) Neither A or B.

Answer: A 71.

Which of the following statements is not correct with respect to Agency Funds? A) Agency funds use modified accrual accounting B) Assets accounted for in an agency fund belong to the party or parties for which the government acts as agent. C) Assets are offset by an equal amount of liabilities. D) Assets and liabilities are recognized at the time the government becomes responsible for the assets.

Answer: A 72.Which of the following is true regarding the financial statements of fiduciary funds? A) Fiduciary funds' financial statements include the Statement of Fiduciary Net Position, the Statement of Changes in Fiduciary Net Position, and the Statement of Fiduciary Cash Flows. B) Fiduciary funds are accounted for using the economic resources measurement focus and accrual basis of accounting. C) Both of the above. D) Neither of the above. Answer: B

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Chapter 7 Fiduciary Funds, Interfund Transactions 73.Which of the following is true regarding agency funds? A) Agency funds report assets and liabilities, but not net position, revenues or expenses. B) Agency funds are often used to account for property tax collections by county governments for other governments. C) Both of the above. D) Neither of the above. Answer: C

74.Which of the following is true regarding fiduciary funds? A) Investment trust funds account for the internal portion of an investment pool, when a government is trustee for that pool. B) Private-purpose trust funds account for resources that are administered by a government for the benefit of others, such as a fund held to distribute resources to local not-for-profit charities. C) Both of the above. D) Neither of the above. Answer: B 75.In an agency fund, assets are equal to: A) Liabilities + Net Position B) Net Position C) Liabilities D) There are no assets in an Agency Fund Answer: C 76.Which of the following statements is not true regarding agency funds? A) Agency funds use modified accrual accounting. B) Agency funds report only assets and liabilities; no fund equities, revenues, or expenditures are recorded. C) Agency funds are reported in the fiduciary funds Statement of Fiduciary Net Position. D) None of the above; all are true. Answer: A

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Chapter 7 Fiduciary Funds, Interfund Transactions 77.The tax agency fund of Orange County collected $7,000,000 for a school district, $3,000,000 for the county General Fund, and $5,000,000 for a municipality located in the County. County General Fund employees handle the collections, and a 2.5 percent collection fee is charged all units except the county. The total amount of revenue recognized by the county General Fund would be: A) $ 390,000. B) $3,300,000. C) $3,390,000. D) $15,300,000. Answer: B 78.Which of the following statements about agency funds is true? A) An agency relationship that commonly results in the creation of an agency fund is the collection of taxes and other revenues by an official of one governmental unit for other governmental units. B) GASB mandates that governments report special assessment resources in an agency fund only if the reporting government has no obligation to assume debt service on special assessment debt in the event property owners' default but merely perform the functions of billing and collecting the special assessments and paying interest and principal on the special assessment debt. C) Both of the above. D) Neither of the above. Answer: C 79.The operations of agency funds will be included in which of the following statements? A) The fiduciary funds Statement of Fiduciary Net Position B) The Statement of Changes in Fiduciary Net Position C) The Government-wide Financial Statements D) All of the above Answer: A 80.

Agency fund assets and liabilities are to be recognized : A) At the time the government becomes responsible for the assets. B) When they are available and measurable. C) Only in the government-wide financial statements. D) When the earnings process is complete and collection is reasonably assured.

Answer: A

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Chapter 7 Fiduciary Funds, Interfund Transactions 81. What is the correct journal entry for a Tax Agency Fund to record tax levies of other governments certified to it? A) Taxes Receivable - Current Revenues Control B) Taxes Receivable - Current Due from Other Governments C) Taxes Receivable Transfer Out D) Taxes Receivable for Other Governments Due to Other Governments Answer: D 82.The tax agency fund of Eden County collected $2,000,000 for the Eden School District, $1,000,000 for the Village of Edenton, $1,200,000 for the Eden Park District, and $700,000 for Eden County. County General Fund employees handle the collections, and a 3 percent collection fee is charged all units except the county. The amount to be remitted to the county General Fund would be: A) $126,000. B) $147,000. C) $747,000. D) $826,000. Answer: D 83.The City of Sycamore has investments in bonds. These bonds have an amortized cost of $1,996,000. At year end, the financial press reports a market value of $2,002,000 for these bonds. The original cost of the bonds was $1,992,000. The par value at maturity will be $2,000,000. The amount at which the investments would be reported is: A) $2,002,000 B) $2,000,000 C) $1,996,000 D) $1,992,000 Answer: A

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Chapter 7 Fiduciary Funds, Interfund Transactions 84.Which of the following is true regarding accounting for investments by state and local governmental units? A) Investments in securities accounted for under the equity method are to be reported at fair value. B) Realized gains and losses are to be reported separately from unrealized gains and losses in...