Accounting for Governmental and Nonprofit Entities, 18e (Reck)
1) According to the GASB, control of an asset means the government must have the asset in its
possession.
2) By definition a fiduciary fund that does not meet the definition of a trust fund is a custodial fund.
3) Resources that are held in trust for the benefit of the government’s own programs or its citizenry
should be accounted for using a governmental fund rather than a fiduciary fund.
4) Custodial funds are used only if a government holds resources in a custodial capacity for others.
5) Unless otherwise prohibited custodial relationships can be reported in the General Fund rather
than a custodial fund.
6) The collection of taxes or other revenues by one government for several of the funds it operates
and for other governments often results in the creation of a trust fund.
7) Because a government does not have any administrative decision making, a custodial fund
would not prepare a statement of net position.
8) A custodial fund should be used to account for special assessment billing and collection, and
related debt service of special assessment debt, if the government has no responsibility for the
debt.
9) It is common for a government that collects taxes on behalf of other governments to be
authorized to withhold a certain percentage from the collections for each government.
10) In regard to pass-through grants, a recipient government has administrative involvement if it is
responsible for filing paperwork under a grant agreement.
11) On the statement of changes in net position, custodial funds need to display on separate lines
each type of addition made to the fund.
12) Each trust fund type must be reported in its own column on the fiduciary fund financial
statements.
13) An investment pool could be reported as a custodial fund on the fiduciary fund financial
statements.
14) When an investment pool is created, the assets of each fund entering the pool should be
transferred to the pool at their fair value at the date of the transfer.
15) Investment trust funds and pension trust funds should be accounted for in the same manner as
permanent funds.
16) Custodial funds should utilize the modified accrual basis of accounting.
17) Trust funds should utilize the accrual basis of accounting.
18) Pension trust funds should utilize budgetary accounts in the same manner as the General Fund
and special revenue funds.
19) Fiduciary activities are reported only in the fiduciary fund financial statements; they have no
effect on the governmental or business-type activities of the primary government reported in the
government-wide financial statements.
20) Earnings on pooled investments and changes in fair value of investments are allocated to the
participants having an equity interest in the pool in proportion to their relative contributions to the
pool.
21) Most investment trust funds distribute investment earnings and changes in investment values
on a daily basis.
22) A common example of a private-purpose trust fund is a state-sponsored 529 savings plan,
structured such that parents make after-tax contributions to an investment fund managed by the
state government.
23) A defined benefit plan specifies the amount or rate of contribution that the employer and
employees must contribute to the members’ accounts in the pension plan.
24) Other postemployment benefits (OPEB) include benefits other than pensions, such as health
care, life insurance, and long-term care.
25) GASB standards provide comprehensive guidance on pension accounting and financial
reporting for defined benefit pension plan employers, but the FASB provides guidance for plan
sponsors.
26) 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.
27) Defined benefit pension plans are classified as either single-employer pension plans or
multiple-employer pension plans.
28) Accounting for other postemployment benefits is similar to accounting for defined
contribution pension plans.
29) A government needs to establish an investment policy for its investment trust fund to ensure
compliance with the GASB standards.
30) An investment policy should help an investment trust fund achieve maximum returns within
the defined boundaries of safety and liquidity.
31) The GASB requires disclosures related to three types of credit risk.
32) The Internal Revenue Service limits the amount of earnings a government can make when
investing the proceeds from its general obligation bonded debt.
33) Each of the following are reported as fiduciary funds except:
A) A permanent fund.
B) An investment trust fund.
C) An custodial fund.
D) A private-purpose trust fund.
34) Which of the following statements regarding the financial reporting of custodial funds is not
true?
A) Custodial activities are reported only in the fiduciary fund financial statements.
B) Custodial fund financial information is reported in a separate column of the government-wide
statement of activities.
C) Custodial funds are included in the statement of changes in fiduciary net position.
D) GASB standards allow reporting on individual custodial funds in a government’s combining
fiduciary fund financial statements.