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20 Cards in this Set
- Front
- Back
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Which of the following funds focuses on the measurement of economic resources using accrual accounting?
A) Agency. B) Private-purpose trust. C) Pension trust. D) All of the above. |
D) All of the above
All of these funds, as well as investment trust funds, are fiduciary funds. All fiduciary funds focus on the measurement of economic resources using the accrual basis of accounting. |
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Which of the following activities would likely be accounted for in a fiduciary fund?
A) A retirement plan for city employees. B) The city provides debt service for special assessment bonds for which the city assumes secondary responsibility for repayment. C) An endowed contribution is received for which earnings will be used to help maintain the city's parks. D) All of the above; that is, all of the above activities would be accounted for in a fiduciary fund. |
A) A retirement plan for city employees.
Choice B describes an activity for which a debt service fund would be used. Choice C describes an activity for which the beneficiary is the city's own citizens via the parks and recreation program. Thus, it would be accounted for in a permanent fund—a governmental fund type. |
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Which of the following funds has no net assets; that is, assets always equal liabilities?
A) Private-purpose trust. B) Agency. C) Pension trust. D) Investment trust fund. |
B) Agency
For agency funds, the assets always equal the fund's liabilities to private parties. Thus, an agency fund's net assets are always zero. |
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St. Bernard County levies and collects taxes for its own funds as well as several independent governments located within the county. State law permits the county to retain 1 percent of the amount of taxes collected for other governments to help defray the costs of tax administration. Which of the following would be recorded for collection fees retained by the county?
A) A debit by the Tax Agency Fund to Taxes Receivable. B) A debit by the General Fund to Taxes Receivable. C) A credit by the Tax Agency Fund to Revenues. D) A credit by the General Fund to Revenues. |
D) A credit by the General Fund to Revenues.
Collection fees would be credited to Revenues in the General Fund, the fund that provides budgeted resources for tax administration. Revenues are never recorded in an agency fund. |
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When Stoddard County levies taxes for certain of its funds, as well as for several independent governments located within the county, its tax agency fund should:
A) Credit Revenues—Property Taxes. B) Credit Estimated Uncollectible Current Taxes. C) Credit Due to Other Funds and Governments. D) Both A and B. |
C) Credit Due to Other Funds and Governments.
Recall that an agency fund has no net assets nor does it have additions and deductions. In fact, no fiduciary funds report revenues and expenses. Instead, fiduciary funds, other than agency funds, report additions and deductions. Additions and deductions are temporary accounts that are closed at year-end to net assets. Choices A and B represent the credit portions of the journal entries that would be made by the funds and governments for which the taxes are being levied. In the tax agency fund, the credit will be to Due to Other Funds and Governments as in Entry 1 on p. 310 of the text. |
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The state government received $10,000,000 in federal grants that must be distributed to cities and towns for social services based on an assessment of community need. Which of the following fund types would the state government use to account for the receipt and transfer of these monies to local governments?
A) Agency. B) Special revenue. C) Private-purpose trust. D) Any of the above would be acceptable. |
B) Special revenue.
The primary considerations are whether the state government has administrative involvement (i.e., monitoring responsibility, determination of eligibility, or has the ability to exercise discretion in how the funds are allocated) or direct financial involvement in terms of matching funds or making up disallowed costs. GASB standards indicate that there is administrative involvement if the recipient government determines eligibility, which is the situation here. Thus, a special revenue fund must be used here rather than an agency fund. The state government then recognizes revenues for the receipt of the resources and expenditures as grants are distributed to recipient governments. |
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An investment trust fund is used when:
A) There are governments participating in the investment trust fund other than the government sponsoring the fund. B) The funds participating in the investment trust fund are part of the government sponsoring the fund. C) Bond covenants require that sinking funds of the sponsoring government be established. D) All of the above. |
A) There are governments participating in the investment trust fund other than the government sponsoring the fund.
An investment trust fund is needed when the participants are other governments and organizations. |
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Lincoln School District transferred U.S. Treasury bonds from investments held in its debt service fund to the Lincoln County Investment Pool. At the date of the transfer, the bonds had a fair market value of $1,040,000, but the carrying value in the School District's debt service fund was $1,000,000. The debt service fund of the School District would record the transfer of these securities to the investment pool with a:
A) Debit to Equity in Pooled Investments for $1,000,000. B) Credit to Investments—U.S. Treasury Bonds for 1,040,000. C) Credit to Revenues—Change in Fair Value of Investments for $40,000. D) Credit to Investments—U.S. Treasury Bonds for $40,000. |
C) Credit to Revenues—Change in Fair Value of Investments for $40,000.
The full entry (see Entry 1a on p. 316) would be to debit Equity in Pooled Investments for $1,040,000 and credit Investments—U.S. Treasury Bonds for $1,000,000 and credit Revenues—Change in Fair Value of Investments for $40,000. |
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Using the information from the preceding question (question 8) how would the Lincoln County Investment Trust Fund record the receipt of U.S. Treasury bonds transferred to it by the School District's debt service fund? (Recall that at the date of transfer the fair value of the bonds was $1,040,000 and the carrying value was $1,000,000.)
A) Credit Additions—Deposits in Pooled Investments—Lincoln School District for $1,000,000. B) Credit Additions—Deposits in Pooled Investments—Lincoln School District for $1,040,000. C) Debit Investments—U.S. Treasury Bonds for $1,000,000. D) Both B and C are correct. |
B) Credit Additions—Deposits in Pooled Investments—Lincoln School District for $1,040,000.
The entry required here would be to debit Investments—U.S. Treasury Bonds for $1,040,000 and credit Additions—Deposits in Pooled Investments—Lincoln School District for $1,040,000. |
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The City of Ashland Investment Pool has three participants, X, Y, and Z. Their relative equities in the pool at a particular point in time were 45 percent, 30 percent, and 25 percent, respectively. At the end of the year, additional investment earnings were accrued in the investment pool in the amount of $100,000 and a report of the earnings was sent to participants X, Y, and Z. To record its share of the accrued interest, participant Y will:
A) Debit Accrued Interest Receivable for $30,000. B) Debit Equity in Pooled Investments for $30,000. C) Credit Revenues—Investment Earnings for $30,000. D) Both B and C are correct. |
D) Both B and C are correct.
Participant Y's journal entry would be to debit Equity in Pooled Investments and credit Revenues—Investment Earnings, both in the amount of $30,000 ($100,000 times Y's 30 percent share). |
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From question 10 recall that the City of Ashland Investment Pool has three participants, X, Y, and Z. Their relative equities in the pool at a particular point in time were 45 percent, 30 percent, and 25 percent, respectively. Near the end of the year, participant X withdrew $1,000,000 from the pool after which its share of the pool fell to 40 percent. Which of the following is a true statement after X made its withdrawal?
A) Participant Y's equity in dollars is unchanged. B) Participant Y's percentage share of future investment earnings and changes in fair value of investments has increased. C) Participant Z's percentage share of future investment earnings and changes in fair value of investments has increased. D) All of the above. |
D) All of the above.
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A local philanthropist gave the city government $1,000,000 which is to be permanently invested and earnings thereon, measured on the accrual basis, will be used to provide financial relief to the families of firefighters and police officers killed in the line of duty. The city should account for this endowment and its operation in a(n):
A) Investment trust fund. B) Special revenue fund. C) A private-purpose trust fund. D) A permanent fund. |
C) A private-purpose trust fund.
The facts in this case indicate that the endowment is intended to benefit private individuals. Since the endowment neither supports the government nor an ongoing public-purpose program of the government the use of a private-purpose trust fund would be appropriate. |
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The financial position of the City Employee Retirement Fund administered by the city should be reported in the city's basic financial statements as a column in the:
A) Balance sheet—governmental funds. B) Statement of fiduciary net assets. C) Statement of net assets at the government-wide level. D) Both B and C. |
B) Statement of fiduciary net assets.
Fiduciary activities are reported in fiduciary fund financial statements but not at the government-wide level. |
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Employer contributions to a Public Employee Retirement System (PERS) should be reported as:
A) An expenditure of the General Fund for employees paid by the General Fund. B) An expense of a proprietary fund for employees paid by a proprietary fund. C) An addition in the PERS. D) All of the above. |
D) All of the above.
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Which of the following is part of the required supplementary information (RSI) for pension funds?
A) Schedule of employer contributions. B) Statement of changes in plan net assets. C) Schedule of plan assets. D) Statement of sources and uses of funds—all pension funds. |
For RSI, the term "schedule" is usually used rather than statement, so you should have quickly eliminated B and D. Choice D is a fictitious statement. Choice C is a basic financial statement that has inappropriately been labeled a schedule. Choice B is also a basic financial statement. The schedule of employer contributions is one of the two RSI schedules.
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Based on the preceding information, and assuming the interest rate applicable to the NPO is 8 percent, Elm City's annual pension cost for the year 2011 is:
Net Pension Obligation (NPO), 1-1-11 (arising from prior contribution deficiencies)=$2,800,000 Annual Required Contribution (ARC)= 6,000,000 Actual contribution for FY 2011= 5,700,000 Discounted present value of NPO, 1-1-11= 152,000 A) $6,328,000. B) $6,276,000. C) $6,072,000. D) Some other amount. |
C) $6,072,000.
The solution to this question is (see Illustration 8-13): $6,000,000 + (0.08 X $2,800,000) - $152,000 = $6,072,000. |
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The city's net pension obligation as of 12-31-11 is:
Net Pension Obligation (NPO), 1-1-11 (arising from prior contribution deficiencies) = $2,800,000 Annual Required Contribution (ARC) = 6,000,000 Actual contribution for FY 2011 = 5,700,000 Discounted present value of NPO, 1-1-11 = 152,000 A) $3,172,000. B) $3,100,000. C) $2,592,000. D) Some other amount. |
A) $3,172,000.
The solution to this question is to add the change in NPO (annual pension cost of $6,072,000 minus actual contribution of $5,700,000) to beginning of the year NPO ($2,800,000), obtaining $3,172,000. |
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Which of the following is a correct statement concerning the evaluation of a pension trust fund?
A) The actuarial value of the plan assets reported on the pension's schedule of funding progress equals the fair value of the plan assets reported on the pension's statement of plan assets. B) An employer contribution that consistently equals the annual required contribution is generally an indication that the pension plan is being sufficiently funded. C) A funded ratio (actuarial value of assets/actuarial accrued liability) of less than 100 percent indicates a financially troubled (unsound) pension plan. D) All of the above statements are correct. |
B) An employer contribution that consistently equals the annual required contribution is generally an indication that the pension plan is being sufficiently funded.
As indicated on p. 332, consistently funding the pension plan at the level of the annual required contribution, indicates a sound funding policy that should help ensure a sufficiently funded pension plan. Due to actuarial efforts to smooth short-term volatility, the actuarial value and fair value of plan assets are often not equal, making Choice A incorrect. Choice C is incorrect since one rule of thumb is that a funded ratio of 80 percent or greater indicates a financially sound pension plan (see p. 332) |
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At the government-wide level, the amount reported as pension expense each year should be the same as the:
A) Annual pension cost. B) Net pension obligation. C) Actual contribution made for the year. D) Annual required contribution. |
A) Annual pension cost.
Per the discussion on p. 337, the pension expense for the year should be the same as the calculated annual pension cost. |
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A sound investment strategy would:
A) Prohibit investments in derivatives. B) Maximize the portfolio return by investing general obligation bond proceeds in the highest yielding investments until such time as the bond proceeds are needed (e.g., to pay construction expenditures). C) Provide a benchmark for total return on the portfolio. D) All of the above are indications of a sound investment strategy. |
C) Provide a benchmark for total return on the portfolio.
A sound investment strategy focuses on identifying risk tolerance, rather than specific types of investment (making Choice A incorrect). Choice B is incorrect since Internal Revenue Code arbitrage rules would indicate that a good strategy would focus on preventing violations of the arbitrage rules, rather than focusing on the highest possible return (see p. 339). Choice C is correct since a sound strategy should focus on providing a benchmark against which to evaluate the total return or yield of the investment portfolio (see p. 339) |
