60) In financial reporting for proprietary funds and at the government-wide level, the employer’s
pension expense for the period is equal to:
A) The employer’s contribution.
B) Annual required contribution.
C) The change in the net pension liability adjusted for various factors including amortization of
amounts related to changes in pension assumptions and differences between projected and actual
earnings.
D) All of these are correct.
61) Which of the following statements is true regarding termination benefits?
A) Voluntary termination benefits occur when employers provide an incentive to hasten an
employee’s voluntary termination of employment, such as a one-time payout.
B) Voluntary terminations relate to layoffs or reductions in workforce.
C) Employers incur expenses related to voluntary terminations but not to involuntary terminations.
D) Expenses related to voluntary terminations may be avoided by hiring replacement employees
within 60 days of the terminations.
62) Other postemployment benefits may include:
A) Health care.
B) Life insurance.
C) Long-term care.
D) All of these answers are correct.
22
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63) In pension accounting, the employer’s net pension liability:
A) Is measured as the total pension liability less the amount of fiduciary net position held for future
pension payments.
B) Represents the portion of the present value of projected benefit payments to be provided
through the pension plan to current active and inactive employees that is attributed to those
employees’ past periods of service.
C) Is the same as the net pension obligation.
D) Is based on actuarial valuations generally required to be performed at least every five years.
64) Which of the following types of risk is related to the financial ability and dependability of the
issuer of debt securities?
A) Custodial risk.
B) Concentration risk.
C) Solvency risk.
D) Credit risk.
65) Which of the following statements is true regarding management of investments?
A) Arbitrage rules apply only to general obligation bonds issued by governments.
B) Derivatives are reported at fair value on the financial statements.
C) Total return targets should be determined based solely on maximizing return.
D) A sound investment strategy focuses on long-term returns of the fund.
66) Select the key term that relate to accounting for pension plans from the list that best matches
with the following definition.
A. Agent multiple-employer pension plan
B. Cost-sharing multiple-employer pension plan
C. Covered payroll
D. Defined benefit plan
E. Defined contribution plan
F. Net pension liability
G. Service cost
H. Total pension liability
________ 1. A pension plan which specifies the amount or rate of contribution that the employer
and employees must contribute to the members’ accounts in the pension plan.
________ 2. The portion of the present value of projected benefit payments to be provided through
the pension plan to current active and inactive employees that is attributed to those employees’
past periods of service.
________ 3. The portion of the actuarial present value of projected benefit payments that is
attributed to the current year, interest on the total pension liability, benefit payments, and other
changes to the total pension liability.
________ 4. The pension obligations of many employers are pooled and plan assets can be used to
pay the benefits of the employees of any employer that provides pensions through the pension
plan.
________ 5. Plan assets of numerous employers are pooled for investment purposes but accounts
are maintained for the individual employer participants.
67) If a city has a responsibility for endowed resources, how would city management decide
whether to account for the resources in a permanent fund or a trust fund? How does financial
reporting of the funds differ?
68) Briefly explain the difference between a custodial fund and a trust fund.
69) Explain the purpose of the account “undistributed change in fair value of investments” used in
an investment pool.
70) Describe the types of pension plans most often found in governments and the differences
between them.
71) Kirby County established a tax custodial fund to collect property taxes for the City of Kix, the
City of Denton, and Kirby County Independent School District. Total tax levies of the three
governments were $200,000 for the year, of which $60,000 was for the City of Kix, $40,000 for
Denton, and $100,000 for the School District.
The tax custodial fund charges a 2% collection fee that it transfers to the General Fund of the
County in order to cover costs incurred for custodial fund operations. During the year the tax
custodial fund collected and remitted $150,000 of the $200,000 levies to the various governments.
Collection fees associated with the $150,000 were remitted to Kirby County’s General Fund prior
to year end.
For the Kirby County Tax Custodial Fund prepare the journal entries to record the taxes collected
during the year and the remittances made to participating governments. (If no entry is required
for a transaction/event, select “No Journal Entry Required” in the first account field.)
28
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Tax
Percent of
total
Collection
allocated
Distribution
Kix
$ 60,000
30%
$ 45,000
$ 44,100
Denton
40,000
20%
30,000
29,400
School
district
100,000
50%
75,000
73,500
Totals
$200,000
$150,000
$147,000
Difficulty: 3 Hard
Topic: Custodial Funds
Learning Objective: 08-02 Explain the purpose, accounting, and financial reporting for
commonly used custodial funds.
Bloom’s: Understand
AACSB: Knowledge Application
AICPA: FN Reporting
72) On January 1, Forrester County is holding investments for Tinsel Town valued at $500,000 in
an investment pool, accounted for in an investment trust fund. On January 1, Valley School
District invests $1,500,000 in the pool. Earnings on pooled investments for the six months ended
June 30 totaling $300,000 were received in cash.
1) What percentage interest in the pool is held by the town and the school district?
2) (a) Show the entry in the Investment Trust Fund to record the School District’s investment in the
pool. (If no entry is required for a transaction/event, select “No Journal Entry Required” in
the first account field.)
(b) Show the entry in the Investment Trust Fund to summarize the collection of interest for the
six-month period. (If no entry is required for a transaction/event, select “No Journal Entry
Required” in the first account field.)
(c) Show the entry in the Investment Trust Fund to record the distribution of the interest earned on
pooled investments, assuming that the interest will be reinvested by the town and school district.
(If no entry is required for a transaction/event, select “No Journal Entry Required” in the
first account field.)
Answer:
1) The town’s interest in the pool is 25% ($500,000 / [$500,000 + $1,500,000]); the school
district’s interest is 75%.
FORRESTER COUNTY
INVESTMENT TRUST FUND
GENERAL JOURNAL
Debits
Credits
2(a)
CASH 1,500,000
1,500,000
ADDITIONS–DEPOSITS IN POOLED
INVESTMENTS–VALLEY SCHOOL BOARD
DISTRICT
1,500,000
(b)
CASH
300,000
UNDISTRIBUTED EARNINGS ON POOLED
INVESTMENTS
300,000
(c)
UNDISTRIBUTED EARNINGS ON POOLED
INVESTMENTS
300,000
ADDITIONS–DEPOSITS IN POOLED
INVESTMENTS–VALLEY SCHOOL DISTRICT
225,000
ADDITIONS–DEPOSITS IN POOLED
INVESTMENTS–TINSEL TOWN
75,000
Difficulty: 3 Hard
Topic: Investment and Private-Purpose Trust Funds
Learning Objective: 08-04 Prepare fiduciary fund financial statements.
Bloom’s: Apply
AACSB: Knowledge Application
AICPA: FN Reporting