FAR 73 - Proprietary and Fiduciary Funds Flashcards Preview

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Flashcards in FAR 73 - Proprietary and Fiduciary Funds Deck (26):
1

Shared revenues received by an Enterprise Fund of a local government for operating purposes should be recorded as:
A. Operating Revenues.
B. Non-operating Revenues.
C. Other Financing Sources.
D. Interfund Transfers.

B. An Enterprise Fund is a type of Proprietary Fund.
Shared Revenues received by a Proprietary Fund for operating purposes should be recorded as Non-Operating Revenues in the period in which they are earned and become measurable.

FYI: Shared Revenues are revenues levied by one government but shared on a predetermined basis with another governmental unit. Since Shared Revenues are not the result of the on-going activities of the fund, they should not be classified as Operating Revenues.

2

Which of the following fund types or account group should account for fixed assets in a manner similar to a "for profit" organization?
A. Special Revenue Fund.
B. Capital Projects Fund.
C. General fixed assets account group.
D. Enterprise Fund.

D. Proprietary Funds account for the activities of government that are similar to those found in the private sector. These funds use accrual accounting in measuring financial position and operating results. Proprietary Funds account for their own fixed assets in a manner similar to a "for profit" organization.

3

T/F: A government entity considers an investment a cash equivalent if it matures within three months of the date it was purchased.

True

4

What are the 4 sections of the statement of cash flows for an Enterprise Fund?

The statement of cash flows for an Enterprise Fund has four sections:
(1) cash flows from operating activities,
(2) cash flows from noncapital financing activities,
(3) cash flows from capital and related financing activities, and
(4) cash flows from investing activities.

5

Which of the following statements is the most significant characteristic in determining the classification of an enterprise fund?
A. The predominant customer is the primary government.
B. The pricing policies of the activity establish fees and charges designed to recover its cost.
C. The activity is financed by debt that is secured partially by a pledge of the net revenues from fees and charges of the activity.
D. Laws or regulations require that the activity's costs of providing services including capital costs be recovered with taxes or similar revenues.

B. There are two types of proprietary funds: (1) Internal Service Funds and (2) Enterprise Funds. Both use accrual accounting. They differ in terms of the primary user of their services and the pricing policy to set fees. Other governmental agencies/departments are the primary user of services provided by an internal service fund and the pricing policy is some portion of routine operating costs (e.g., from 50% to 100%). Motor pools, data processing, and self insurance are some examples of Internal Service Funds. External users are the primary users of services provided by an enterprise fund and the pricing policy is to recover operating costs, depreciation, and to provide for capital maintenance. This answer is correct.

6

Which format must an Enterprise Fund use to report cash flow operating activities in the Statement of Cash Flows?
A. Indirect method, beginning with operating income.
B. Indirect method, beginning with Change in Net Position.
C. Direct method.
D. Either direct or indirect method.

C. According to GASB Codification Section 2450.128, governments are required to use the direct method to report cash flow from operating activities in the Statement of Cash Flows. The government should also report, in an accompanying schedule, the reconciliation between Operating Income and Cash Flow from Operating Activities [GASB Codification Section 2450.129].

7

Through an Internal Service Fund, New County operates a centralized data processing center to provide services to New's other governmental units. In 2005, this Internal Service Fund billed New's Parks and Recreation Fund $150,000 for data processing services.

What account should New's Internal Service Fund credit to record this $150,000 billing to the Parks and Recreation Fund?
A. Data Processing Department Expenses.
B. Intergovernmental Transfers.
C. Interfund Exchanges.
D. Operating Revenues Control.

D. New's Internal Service Fund is a Proprietary Fund type and uses the accrual basis of accounting. It should recognize revenues when they are earned, not when cash is received.

When New's Internal Service Fund bills New's parks and recreation department for services rendered, it should record the following entry:

Due from Other Funds-Parks and Recreation 150,000
Operating Revenues 150,000

8

An Enterprise Fund would be used when the government body requires that:

I. Accounting for the financing of an agency's services to other government departments be on a cost-reimbursement basis.
II. User charges cover the costs of general public services.
III. Net income information be provided for an activity.

II and III. An Enterprise Fund is a Proprietary Fund. Its measurement focus is on income determination and its customers are the general public.

"I" is incorrect because services provided by one governmental unit to other governmental units on a cost-reimbursement basis are accounted for in an Internal Service Fund.

9

T/F: In its Statement of Cash Flows, the City Motor Pool Fund, an internal service fund, would report proceeds from a long-term loan used to purchase additional vehicles under Financing Activities.

False.
4 categories on the statement of cash flows:
1. Operations - from the production of goods and services only using the direct method.
2. Non-capital financing - from debtor activities not clearly related to capital transactions.
3. Capital financing - from the acquisition or disposal of capital assets or borrowing and repayment clearly related to capital activities, which can include advances from other funds for the purpose of financing capital acquisitions.
4. Investing - from G/L on investments and creditor activities and interest.

10

T/F: Tisdale County's Stores Fund provides supplies to all of the county's administrative units. When supplies are purchased from the Stores Fund, the Stores Fund recognizes Operating Revenue.

True

11

T/F: Restricted assets are separately reported on an Enterprise Fund statement of net position.

True

12

A government establishes an Investment Trust Fund. During 20x9, it receives $1,000,000 to invest from other governmental entities. The Investment Trust Fund should report this activity in the Statement of Changes in Net Position as:
A. Revenues.
B. Additions.
C. Other Financing Sources.
D. Investment Earnings.

B. The funds received from other governmental entities are reported as additions (from contributions) in the Investment Trust Fund Statement of Changes in Net Position.

13

A government makes a contribution to its pension plan in the amount of $10,000 for year 1. The actuarially-determined annual required contribution for year 1 was $13,500. The pension plan paid benefits of $8,200 and refunded employee contributions of $800 for year 1. What is the pension expenditure for the general fund for year 1?

$10,000
Because the question is about the General Fund, which uses the modified accrual basis of accounting, only the $10,000 contribution to the pension plan, which is a use of financial resources in year 1, is recognized as pension expenditure. The Pension Trust Fund would report the $10,000 received from the General Fund as an "Addition" and not as revenue.

14

The principal of a Private-Purpose Trust Fund:
A. Must be nonexpendable in nature.
B. Must be expendable in nature.
C. Must never fall below a pre-determined threshold that is determined by generally accepted accounting principles.
D. May be expendable or nonexpendable in nature.

D. A Private-Purpose Trust Fund may be either expendable or nonexpendable. It is expendable if the principal of the trust gift, as well as the earnings, is expendable. A nonexpendable Private-Purpose Trust occurs when the principal must be maintained intact and only the earnings are expendable, or neither the principal nor the earnings are expendable (e.g., loan funds)

15

The City of Scarmont manages $200,000 in securities given to it in trust by the Citizens for City Beautification (CCB), a not-for-profit organization. Each year, the CCB receives proposals for beautification projects from various individuals and groups and selects two to three projects for funding. The City is responsible for managing the investment and disbursing the funds in accordance with the CCB request. The City accounts for the securities in a separate fund.

During the year, the City received $10,000 in investment earnings on the securities, $1,000 of which was related to earnings from the previous year, which were not received 60 days after the fiscal year end. At the end of the year, the market value of the securities was $208,000. How much revenue should be recognized in the fund in conjunction with these activities?

$17,000
The endowment securities should be maintained in a Private-Purpose Trust Fund and would therefore be measured on the full accrual basis.

Under the full accrual basis, only the $9,000 in investment earnings earned this year would be recognized in the current period (the $1,000 from the previous year would have been accrued and recognized in the prior year).

GASB also requires that the $8,000 appreciation in the endowment investment be recognized as income during the period of the appreciation.

16

In a Tax Agency Fund, revenues must be recognized:
A. When measurable and available.
B. On the cash basis.
C. To extent fund expenditures.
D. None of the above. Revenues are not reported in Agency Funds.

D. Agency Funds act as intermediaries in the process of disbursing monies from one governmental entity to another. The government has no claim on the resources in the Agency Fund and does not recognize revenues when it receives the monies or recognize expenses when the monies are disbursed.

17

T/F: Private-Purpose Trust Funds report all changes in Net Position, as either additions or deductions.

True

18

McCallum County pools any excess cash from its governmental and Proprietary Funds and invests the monies in marketable securities. The County also permits other governmental entities within the county limits to invest their resources in the pool.

The market value of its investments at the beginning of the year was $2,000,000; with $1,500,000 of the investment attributable to County funds and the $500,000 balance attributable to other governmental entities. The market value at the end of the year was $2,200,000.

During the year, the county had received $100,000 in earnings on these investments. None of the earnings had been distributed, and no additions or withdrawals occurred during the year.

What amount should McCallum report as total assets in its Investment Trust Fund?

$575,000
The County reports the $500,000 in resources contributed by external entities plus both the $50,000 in unrealized appreciation on the investments ($200,000 total increase x 25% of the total assets invested in the pool, which are attributable to external entities) and the $25,000 in investment earnings ($100,000 total increase x 25% of total assets invested in the pool, which are attributable to external entities) in its Investment Trust Fund.

19

T/F: A Private-Purpose Trust Fund is used to account for resources, both expendable and non-expendable, which either must be used for a non-governmental purpose or the earnings from which have to be used for a non-governmental purpose.

True

20

Which financial statement is required for a Tax Agency Fund?

Agency Funds prepare a Statement of Net Position and a Statement of Changes in Net Position. Since Agency Fund assets are always completely offset by liabilities, they do not report Net Position (assets - liabilities = 0). Agency Funds collect and distribute funds (e.g., property taxes) and do not recognize either revenues or expenditures.

21

The funded ratio of a pension plan compares:
A. Actual employer contributions to the unfunded actuarial accrued pension liability.
B. The fair value of plan assets to the actuarial value of plan assets.
C. Actual employer contributions to the accumulated required employer contributions.
D. The actuarial value of plan assets to the actuarial accrued pension liability.

D. The funded ratio compares the actuarial value of plan assets to the actuarial accrued pension liability.

22

T/F: An Investment Trust Fund must be used whenever external entities contribute to a governmental entity's Investment Pool.

True

23

T/F: All Long City employees are covered by a single-employer, defined benefit pension plan. When employees are paid from general fund resources, the full amount of the required annual pension contribution is recognized as an expenditure in the general fund, regardless of amount actually contributed to the pension plan.

False
Gvmt Funds recognize pension cost on the modified accrual basis: employers report the portion of the annual pension cost that has been or will be funded with current resources of the gvmt funds as expenditures. This amount may be more or less than the current period's annual pension cost.

24

T/F: Securities held by the investment pool are reported at historical cost on the financial statements of the Investment Trust Fund.

False
Securities held by the investment pool are reported at FV. The pool is revalued whenever investment income is distributed to the participants and whenever a participating entity adds to or withdraws resources from the pool.

25

T/F: The City of Blue Bayou sponsors a number of capital projects that are funded in part through special assessments. The City typically issues special assessment bonds to finance construction. Since the City is not secondarily obligated to pay for these bonds in the event that the property owners default on their special assessment payments, the liability for the bonds should be reported in an Agency Fund.

False
When the gvmt entity doesn't assume secondary liability for the debt and merely acts as an agent for the bondholders by collecting the special assessment levy from the property owners and remitting payments for interest and principal to the bondholders. In these cases, the levy of the special assessment and the payments to the bondholders are accounted for in an Agency Fund and the special assessment debt is not reported with other general LT debt.

26

T/F: Meyers County uses an Agency Fund to record the receipt of federal entitlement monies which are subsequently disbursed to municipalities within the county according to a formula specified by the federal government. When these monies are received, the Agency Fund records a debit to Cash and a credit to Revenues.

False.
Dr. Cash
Cr. Taxes Receivable for Other Gvmts

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