ACC 410 Week 8 Quiz – Strayer
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6 Chapter 10 and 11
Chapter
10
Permanent Funds and Fiduciary
Funds
TRUE/FALSE (CHAPTER 10)
1. Per GASB Statement No. 34, permanent funds
are classified as fiduciary funds.
2. In accounting for permanent funds only the
income can be spent; the principal must be preserved intact.
3. Fiduciary funds focus on current financial
resources and use a full accrual basis of accounting.
4. Fiduciary funds are excluded from the
government-wide statements.
5. The concept of major versus nonmajor funds
does not apply to fiduciary funds, as it does to governmental and proprietary
funds.
6. Accounting for the employer’s contribution
in a defined contribution plan is straight forward, because the employer is
obligated only to make annual contributions in the amount specified in the plan
terms.
7. Accounting for the employer’s contribution
in a defined benefit plan is straight forward,
because the employer is obligated only to make annual contributions in
the amount specified in the plan terms.
8. Most public pension plans are defined
benefit plans.
9. An employer may have a liability to a
defined benefit plan other than for its annual required contributions,
depending on the future financial health of the plan.
10. In an agency fund, assets always equals fund
balance because there are no liabilities.
MULTIPLE CHOICE (CHAPTER 10)
1. A governmental entity 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)
Investment trust fund.
b)
Private-purpose trust fund.
c)
Agency fund.
d)
Permanent fund.
2. In previous years, Center 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.
3. Which of the following activities of a
governmental entity should be accounted for in a fiduciary fund?
a)
Funds received from the federal government to support public
transportation activities.
b)
Funds received from an individual who specified that the principal must
be kept intact but the income can be used to support families of police
officers killed in the line of duty.
c)
Funds received from the state government that must be used to purchase
capital assets.
d)
Funds received from a contractor to assist with the development of
utility infrastructure.
4. What basis of accounting is used to account
for transactions of a governmental private-purpose trust fund?
a)
Full accrual basis of accounting.
b)
Modified accrual basis of accounting.
c)
Cash basis of accounting.
d)
Budgetary basis of accounting.
5. Which of the following would NOT be
accounted for in a fiduciary fund of a governmental entity?
a)
Nonexpendable resources held for the benefit of other governmental
units.
b)
Nonexpendable resources held for the benefit of the government holding
the resources.
c)
Expendable resources held for the benefit of other governmental units.
d)
Funds held as an agent for other entities.
6. Permanent funds are classified as
a)
Governmental funds.
b)
Proprietary funds.
c)
Fiduciary funds.
d)
Trust funds.
7. Which of the following is NOT a
fiduciary fund?
a) Pension trust funds.
b)
Investment trust funds.
c)
Permanent funds.
d)
Private-purpose trust funds.
8. What basis of accounting is used to account
for transactions of a government permanent fund?
a)
Full accrual basis of accounting.
b)
Modified accrual basis of accounting.
c)
Cash basis of accounting.
d)
Budgetary basis of accounting.
Use the following information to answer
#9-#12
Previously
a city received a $1 million gift, the income from which was restricted to
support maintenance of city-owned parks.
During the current year the endowment earned $70,000 of which $50,000 was transferred to the City Park
Special Revenue Fund.
9. On the year-end fund financial statement,
the endowment fund would report revenues of:
d)
None of the above.
10. On the
year-end fund financial statement, the endowment fund would report the $50,000
transferred to the Special Revenue Fund as:
a)
A reduction of revenues.
b)
A nonreciprocal transfer out.
c)
A reduction of equity.
d)
An expenditure.
11. On the year-end financial statements, the
endowment fund would report, as a result of these transactions, a fund balance
(net assets) of:
a)
$1,000,000
b)
$1,070,000
c)
$1,050,000
d)
$1,020,000
13. Cedar City has a permanent fund that reported
current year investment earnings (realized and unrealized) of $80,000. The endowment principal is $800,000 and the
city council has adopted a policy of considering only the inflation adjusted
rate of return to be available for transfer to the recipient fund. During the current year the Council declared
the inflation-adjusted rate of return to be 8%.
How much revenue would be
recognized in the permanent fund?
a)
$ 0.
b)
$ 64,000.
c)
$ 80,000.
d)
Unable to determine.
14. At the beginning of the year, the permanent
fund of Rapid City had an investment
portfolio with a historical cost of $200,000 and a fair value of $220,000. There were no purchases or sales of
securities during the year. At year end
the portfolio had a fair value of $240,000.
At the end of the year Rapid City will account for this increase in fair
value in which of the following ways?
a)
Credit Investment Income, $20,000.
b)
Credit Investment Income, $40,000.
c)
Credit Fund Balance, $20,000.
d)
No entry is made to recognize increase in fair value.
15. Several years ago, a donor gave $5 million to
the City and specified that the principal was to be kept intact but the
earnings were to be used to support operations of the city parks. During the current year, the City earned
$300,000 on the gift. To what type of
fund should the City transfer accountability for the $300,000 earnings.
a)
It should not transfer accountability.
The $300,000 should remain in the Permanent Fund.
b)
A special revenue fund.
c)
The General Fund.
d)
An enterprise fund.
16. A defined contribution pension plan is one in
which the employer agrees to which of the following?
a)
The employer agrees to make specific payments to a specified pension
plan with no guarantee of a specific pension amount to be paid to the employee.
b)
The employer agrees to make specific payments to a specified pension
plan AND guarantees that the employee will receive a specified pension (usually
determined by length of service and salary).
c)
The employer agrees to make necessary payments to a specified pension
plan that guarantees that the employee will receive a specified pension
(usually determined by length of service and salary).
d)
The employer agrees to pay a specified amount (usually determined by
length of service and salary) to the employee, but the employer makes no
specific guarantee to make payments to the specified pension plan.
18. During the fiscal year ended December 31,
2001, the Highland City General Fund contributed $48 million to a defined
benefit pension plan for its employees.
On February 27, 2002, Highland made an additional $2 million contribution
related to the 2001 pension contribution requirements. The actuarially determined contribution
amount for 2001 is $52 million. The
amount of pension expenditure recognized by Highland City General Fund for 2001
should be:
19.
The Schedule of Changes in Long-Term Obligations contains an account Net
Pension Obligation. Which of the
following describes the event that gave rise to this account?
a)
The actual contribution by a proprietary fund was less than the
actuarially required contribution.
b)
The actual contribution by a governmental fund was less than the
actuarially required contribution.
c)
The actuarially computed pension liability exceeded the pension plan
assets.
d)
The pension plan assets exceeded the actuarially computed pension
liability.
20. Required disclosure by a government General
Fund related to its pension plan does NOT include which of the following?
a)
The employer’s funding policy.
b)
The components of the pension cost.
c)
The key assumptions used in determining the pension costs.
d)
The present value of the future benefits to be paid.
a)
The actuarially-determined plan cost over the actual contribution.
b)
The actuarially-determined plan cost over the plan assets.
c)
The actuarially-determined pension liability over the plan assets.
d)
The actuarially-determined pension liability over the total
contributions.
22. Citizens within a defined geographic area of
Hill City created a special assessment district to facilitate the construction
of sidewalks. Hill City was responsible
for overseeing the entire construction project.
Hill City issued bonds in its own name to pay the contractor for the
construction. However, Hill City was
not responsible in any manner for the bonds.
The bonds were secured by the special assessments which would be levied against
the property within the special assessment district. Collections of special assessments would be
recorded in which of the following funds of Hill City?
a)
Special Assessment Fund.
b)
Agency Fund.
c)
Special Revenue Fund.
23. The City of Highland Hills receives a federal
grant to assist in nutrition (feeding) programs for senior citizens. The City will select the contractors to
provide the feeding and approve the participants in the program. The proceeds of this grant should be
accounted for in which of the following funds of the City?
a)
General Fund.
b)
Special Revenue Fund.
c)
Agency Fund.
d)
Expendable Trust Fund.
24. The City of Highland Hills receives a federal
grant to assist in nutrition (feeding) programs for senior citizens. Senior citizens whose income is below a
specified amount (the amount was specified by the Federal government) are
eligible to participate in the program.
Monthly checks of $100 (this amount was specified by the Federal
government) will be mailed to eligible senior citizens. The proceeds of this grant should be
accounted for in which of the following funds of the City?
a)
General Fund.
b)
Special Revenue Fund.
c)
Agency Fund.
d)
Expendable Trust Fund.
b)
Amortized cost.
c)
Fair value on the date of the financial statements.
d)
Fair value computed by a weighted-average approach.
PROBLEMS
(CHAPTER 10)
1. Name the two financial statements and two
schedules of required supplementary information required by GASB Statement No.
25 for each defined benefit pension plan.
2. The City of Shane received a cash gift of
$125,000 from a citizen who specified that the gift must be used to support
recreational activities for youth of the City.
The City accounted for this gift in the appropriate fund. During the year the City engaged in the
following activities. Prepare the
appropriate journal entries.
a)
The City accepted the donation.
b)
The City engaged in a fund-raising effort to provide additional funds to
support youth recreational activities.
The City raised $6,000 in pledges.
The City collected $2,000 in cash with the remaining pledges collectible
shortly after the end of the year.
c)
The City temporarily invested $50,000 of the gift in marketable
securities.
d)
The City spent $26,000 on goal posts, nets, etc., for the soccer field.
e)
The City received $2,000 in dividends and interest earned on the
temporary investment.
f)
At year-end the temporary investments had a market value of $51,000.
g)
The City closed the revenue and expense accounts.
3. Assume a state government qualifies as a
“cash conduit” on a $1 million pass-through grant from the federal government
to a local government. Record the
following transactions in the state’s Pass-Through Agency Fund.
a)
Receipt of the $1 million in cash.
b)
Cash disbursement of $1 million to the local government.
ESSAYS (CHAPTER 10)
1. Explain the difference between
public-purpose trusts and private-purpose trusts.
2. Agency funds are excluded from the face of
the external financial statements for a governmental entity. What are agency funds? Should they be presented on the face of the
government's financial statements?
Could, or should, they be presented elsewhere?
3. Why do agency funds have no fund equity or
operating accounts?
Chapter 11
Issues of Reporting, Disclosure,
and Financial Analysis
TRUE/FALSE (CHAPTER 10)
1. Governments must incorporate their blended
component units into both the fund and government-wide statements.
2. Governments must incorporate their
discretely presented component units into both the fund and the government-wide
statements.
3. A related organization is a contractual
arrangement, whereby two or more participants agree to carry out a common
activity and share its risks and rewards.
4. A related organization must be incorporated
into the primary government’s financial statements.
5. The comprehensive annual financial report
(CAFR) is divided into three main sections:
the table of contents section, the auditors’ report section, and the
financial section.
6. The typical audit is designed to cover all
information included in the CAFR.
7. There are only two government-wide
statements: the statement of net assets
and the statement of activities.
8. Required notes are an essential element of
the basic financial statements.
9. Required supplementary information (RSI) is
considered part of the basic financial statements.
10. Public colleges and universities must adhere
to the same GASB pronouncements as other types of governments.
MULTIPLE
CHOICE (CHAPTER 11)
1. Which of the following is NOT a primary
government?
a)
A state government.
b)
A general purpose local government with the ability to determine its own
budget.
c)
A general purpose local government whose tax levies must be approved by
the state.
d)
A special purpose local government whose tax levies must be approved by
the state.
2. Which of
the following is NOT required for a special purpose local government to be
considered a primary government?
a)
It must have a separately elected governing body.
b)
It must have the power to issue tax exempt debt.
c)
It must be legally separate from other primary governments.
d)
It must be fiscally independent of other governments.
3. Which of the following is NOT a necessary
condition for a governmental entity to be considered fiscally independent?
a) It must be able to determine its own budget.
b)
It must be able to levy taxes and/or set rates for its services.
c)
It must be able to issue bonds.
d)
It must be able to issue bonds that are tax-exempt.
4. Which of the following is NOT a necessary
characteristic of a component unit?
a)
It is legally separate from the other government.
b)
The other government appoints a voting majority of the component unit’s
governing body or a voting majority of the unit's governing body is composed of
officials of the other government.
c)
The other government can impose its will on the unit or the unit has the
potential to provide a financial benefit to or impose a financial burden on the
other government.
d)
The other government provides services that are used by both
governments.
5. The Marsh
River School District, a legally separate school district that has a separately
elected governing body, cannot enter into any debt agreements without the
approval of the County Commission.
Marsh River School District would be considered a:
a) Primary government.
6. The County
Commission appoints a voting majority of the members of the Board of a
particular organization. The County
Commission cannot impose its will upon the organization. There is no potential for the organization to
provide any financial benefit to the County nor is there is any potential for
the organization to impose any financial burden on the county. The organization is an example of a:
a) Primary government.
7. The State has a legally separate State
Building Authority which has a board appointed by the Governor. The Authority issues debt in its own name,
holds title to buildings in its own name, and leases its building exclusively
to the State. The authority would be
considered a
8. The State has a legally
separate State Building Authority which has a board appointed by the Governor. The Authority issues debt in its own name,
holds title to buildings in its own name, and leases its building exclusively
to the State. In what manner would the
Authority be included in the State’s Basic Financial Statements?
a) Blended.
b)
Discretely presented.
c)
Note disclosure only.
d)
Not included in any manner.
9. The City created a legally
separate Housing Authority to provide low-income housing to residents of the
City. The City issues debt for the Housing
Authority in the name of the City, but the Housing Authority is responsible for
repayment of the debt. The Housing
Authority is governed by a board composed of all 5 members of the City Council. Actions can be taken by the Authority upon
receiving an affirmative vote by a simple majority of the board. The Housing Authority would be considered a:
a)
Primary government.
b)
Component unit.
c)
Related organization.
d)
Affiliated organization.
10. The City
created a legally separate Housing Authority to provide low-income housing to
residents of the City. The City issues
debt for the Housing Authority in the name of the City, but the Housing
Authority is responsible for repayment of the debt. The Housing Authority is governed by a board
composed of all 5 members of the City Council.
Actions can be taken by Authority upon receiving an affirmative vote by
a simple majority of the board. In what
manner would the Authority be included in the City’s Basic Financial Statements?
11. The County created a legally separate County
Hospital authority. Members of the
board of the County Hospital are elected in county-wide elections. The hospital receives no financial support
from the County, except that the County pays the hospital bills for county
indigents. All revenues of the Hospital
are user fees. The County Hospital would
be considered a
a)
Primary government.
b)
Component unit.
c)
Related organization.
d)
Affiliated organization.
12. The County
created a legally separate County Hospital authority. Members of the board of the County Hospital
are elected in county-wide elections.
The hospital receives no financial support from the County, except that
the County pays the hospital bills for county indigents. All revenues of the Hospital are user
fees. In what manner would the Hospital
be included in the County’s Basic Financial Statements?
a) Blended.
b)
Discretely presented.
c)
Note disclosure only.
d)
Not included in any manner.
13. The City created a legally separate Port
Authority. Members of the board of the
Port Authority are elected in general city elections. The Port Authority receives no tax dollars;
it is supported entirely by user fees.
The Port Authority determines its budget, sets user fees, and has the
power to issue bonded debt. The
Authority would be considered a
a)
Primary government.
b)
Component unit.
d)
Affiliated organization.
14. The City
created a legally separate Port Authority.
Members of the board of the Port Authority are elected in general city
elections. The Port Authority receives
no tax dollars; it is supported entirely by user fees. The Port Authority determines its budget,
sets user fees, and has the power to issue bonded debt. In what manner would the Port Authority be
included in the City’s Basic Financial Statements?
a)
Blended.
b)
Discretely presented.
c)
Note disclosure only.
d)
Not included in any manner.
15. The City created a legally
separate entity to operate a County Hospital.
The City Council appoints a voting majority of the board of the
Hospital. The City cannot impose its
will on the Hospital and there is no potential for a financial benefit or
financial burden to the City. The County
Hospital would be a
a)
Primary government.
b)
Component unit.
c)
Related organization.
d)
Affiliated organization.
16. The City created a legally
separate entity to operate a County Hospital.
The City Council appoints a voting majority of the board of the
Hospital. The City cannot impose its
will on the Hospital and there is no potential for a financial benefit or
financial burden to the City. In what
manner would the Hospital be included in the City’s Basic Financial Statements?
a)
Blended.
b)
Discretely presented.
c)
Only by note disclosure of the relationship.
d)
Not included in any manner.
17. A Comprehensive Annual Financial Report for
the City of Highland Hills need not include which of the following sections?
a)
Condensed summary data.
b)
Introductory section.
c)
Financial section.
d)
Statistical section.
a)
Table of Contents.
b)
Letter of Transmittal.
c)
Auditor’s Opinion on the Basic Financial Statements.
d)
GFOA Certificate of Achievement.
19. The financial section of a
CAFR does not include:
b)
MD&A and Other RSI.
c)
Basic Financial Statements.
d)
Notes to the financial statements.
20. Which of
the following statements is not a required part of the General Basic Financial
Statements of the City of Highland Hills?
a)
Government-wide Statement of Net Assets.
b)
Statement of Revenues, Expenditures, and Changes in Fund Balances for
all Governmental Funds.
c)
Statement of Revenues, Expenses, and Changes in Net Assets for all
Proprietary and Fiduciary Funds.
d)
Statement of Cash Flows for all Proprietary Funds.
21. The auditor’s report
generally includes an opinion on which of the following sections of the CAFR?
a)
The introductory section, the financial section, and the statistical
section.
b)
The introductory and the financial sections only.
c)
The statistical and the financial sections only.
d)
The financial section only.
22. Government-wide financial statements include
which of the following?
b)
Balance Sheet; Income Statement; Statement of Cash Flows.
d)
Statement of Net Assets; Statement of Activities; Statement of Cash Flows;
Statement of Changes in Long-Term Obligations.
23. Fund Financial Statements include which of
the following for a proprietary fund?
a)
Balance Sheet; Statement of Revenues, Expenses, and Changes in Net
Assets.
b)
Statement of Net Assets; Statement of Revenues, Expenses, and Changes in
Net Assets; Statement of Cash Flows.
c)
Statement of Net Assets; Statement of Changes in Net Assets.
d)
Statement of Net Assets; Statement of Changes in Net Assets; Statement
of Cash Flows.
24. Fund Financial Statements include which of
the following for a governmental fund?
b)
Statement of Net Assets; Statement of Changes in Net Assets; Statement
of Cash Flows.
c)
Balance Sheet; Statement of Revenue, Expenditures, and Changes in Fund
Balance; Statement of Cash Flows.
d)
Balance Sheet; Statement of Revenue, Expenditures, and Changes in Fund
Balance.
25. Fund financial statements for Fiduciary Funds
include which of the following?
a)
Balance Sheet; Income Statement.
b)
Balance Sheet; Income Statement; Statement of Cash Flows.
c)
Statement of Fiduciary Net Assets; Statement of Changes in Fiduciary Net
Assets.
d)
Statement of Fiduciary Net Assets; Statement of Changes in Fiduciary Net
Assets; Statement of Cash Flows.
26. With regard to combining statements, which of
the following statements is true?
a)
Combining statements for nonmajor governmental funds are optional.
b)
Combining statements for nonmajor governmental funds are required.
c)
Combining statements for nonmajor internal service funds are optional.
d)
Combining statements for all internal service funds is optional.
27. With regard to MD&A, which of the
following is true?
a)
Is necessary to understanding a government’s financial standing.
b)
Is necessary to provide information not already provided by the basic
financial statements.
c)
Is necessary to provide information not already provided by the CAFR.
d)
Should not be required.
PROBLEMS
(CHAPTER 11)
1.
For each of the following independent cases state whether or not the
entity described should be included in the financial statements of the primary
government and if so, how? Be concise
but adequately defend your answer using GASB criteria.
a)
The Planning and Development Authority is a separate legal entity with a
five-member board appointed as follows:
one member appointed by the School District, one member appointed by the
City, one member appointed by the County, and two members elected by the three
appointed members. The Planning and
Development Authority borrowed $50,000 from the City. The money was used to make loans to
businesses agreeing to relocate to the immediate area. Repayments of the principal and interest by
borrowers is available for lending to new entities.
b)
The State created a Public Building Authority, a separate legal
entity. The Governor appoints a voting
majority of the board of the Authority.
The Authority issues bonds, backed by the assets financed with the
proceeds. The Authority leases the
buildings to the State and use the proceeds of the leases to service the debt
on the bonds.
c)
Bane County Hospital is built on land donated to the hospital by the US
Bureau of Land Management. The hospital
board members elect replacements to the Board without outside nominations. The hospital is entirely supported by
revenues generated by the hospital. The
County Commission must approve the budget each year, but the County Commission
has never questioned any item in the budget.
d)
The State University board of trustees are elected in a statewide
general election. The State provides
approximately half of the operating revenues necessary to fund University
programs. State laws apply to the
conduct of business at the University.
2. Outline the required parts of a
Comprehensive Annual Financial Report.
ESSAYS
(CHAPTER 11)
1. The state established the State Housing
Authority to finance construction of low-income housing. The Authority, a state-owned corporation, is
governed by an independent board of directors, the members of which are
appointed by the governor. They can be
removed only for cause. The board of
directors has complete control over the Authority’s operations. The Director is hired by the Board and
reports to the Board; the Director cannot be removed by the Governor. Although
the State Constitution limits the State to $2 million of bonds, the Authority
issued $970 million in bonds to finance construction projects. Older debt issues are issued by the Authority
but are backed by the taxing power of the State. The newer bonds are issued by the Authority
but are revenue bonds only.
The Authority uses the proceeds of its debt to make
loans to finance housing construction.
Debt is serviced from monies received in repayment of loans made by the
Authority.
Do you believe the State should include the Authority
in its reporting entity? If so,
how? Justify your answer using the GASB
Financial Reporting Entity criteria.
2. A
Comprehensive Annual Financial Report includes a Statistical Section. What kinds of information are found in the
statistical section? To what use would
a reader put the information found in the statistical section? In your opinion, is the statistical section
worth the effort put into its preparation?
3.
GASB reporting standards require that legally separate component units
be included on the face of the financial statements of the primary
government. Small City created a
legally separate City Utility Service.
The Small City Council appoints the Utility board members, authorizes
the bonds of the Utility, and approves its budget. Small City’s general fund revenues are $58
million; the revenues of the Public Utility are $100 million (the Public
Utility owns a generating plant and sells its excess power to other
communities). Discuss the appropriate
reporting for the Public Utility. Do you
think that this presentation is meaningful?
Why or why not?
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