Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-1
CHAPTER 8: ACCOUNTING FOR FIDUCIARY ACTIVITIES—
CUSTODIAL AND TRUST FUNDS
OUTLINE
Number
Topic
Type/Task
Status
(re: 17/e)
Questions:
8-1
Determining a fiduciary relationship
Explain
New
8-2
Distinction between custodial and trust funds
Distinguish, compare
8-1 revised
8-3
Identifying trust funds and their purpose
Explain
8-2
8-4
Tax custodial funds
Explain
8-3
8-5
Fiduciary and governmental fund reporting
Compare
8-4
8-6
“Pass-through” funds
Define, explain
8-5
8-7
External investment pools
Explain
New
8-8
Private purpose trusts
Explain, compare
New
8-9
Total and net pension liability
Explain
Same
8-10
Accounting for pension expenses/expenditures
Explain
Same
8-11
OPEB
Explain
New
Cases:
8-12
Research Case—CalPERS
Locate, interpret
Revised
8-13
Research—OPEB Plans
Analyze
Updated
8-14
Policy Issues Relating to Employee Pension
Plans
Analyze
Revised
8-15
Fiduciary Activities Standard
Explain
New
Exercises/Problems:
8-16
Examine the CAFR
Examine
8-15
8-17
Various custodial and trust fund issues
Multiple Choice
8-16 items 1
and 12-15 are
new
8-18
Various agency and trust fund issues
Multiple Choice
8-17
8-19
Tax custodial fund
Journal entries
8-18 revised
8-20
Special assessment debt
JEs, analysis
8-19 revised
8-21
Identification of fiduciary funds
Analysis
8-20
8-22
Investment trust fund
Journal entries
8-21
8-23
Pass-through custodial fund
Journal entries
8-22 revised
8-24
Fiduciary financial statements
Financial statements
8-23
8-25
Fiduciary financial statements
Financial statements
New
8-26
Pension calculations
Calculate
8-24
8-27
Investment risk exposure
Apply
New
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-2
CHAPTER 8: ACCOUNTING FOR FIDUCIARY ACTIVITIES—
AGENCY AND TRUST FUNDS
Answers to Questions
8-1. To establish a fiduciary relationship, GASBS 84 identifies three criteria that need to be
met. The three criteria are: (1) the assets related to the activity must be controlled by the
General Problem Information: Determining a fiduciary relationship
Learning Objective: 8-1
Topic: Identifying Fiduciary Activities
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
8-2. All fiduciary funds hold assets that benefit individuals, private organizations, or other
governments that are not a part of the reporting entity. However, a fiduciary trust fund
only exists if the fund meets certain requirements identified by the GASB, which include:
General Problem Information: Distinction between custodial and trust funds
Learning Objective: 8-1, 8–2, 8-3, 8-4
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-3
Ch. 8, Answers, Question 8-2 (Cont’d)
Topic: Identifying Fiduciary Activities, Custodial Funds, Trust Funds
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
8-3. There are many different types of trust funds. For reporting purposes the GASB classifies
trust funds as investment trusts, private-purpose trusts, and pension trusts (also referred to
as pension and other employee benefit trusts). An investment trust fund is used to account
General Problem Information: Identifying trust funds and their purpose
Learning Objective: 8-3
Topic: Trust Funds
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
8-4. A tax custodial fund is necessary when one government collects taxes for multiple
General Problem Information: Tax agency funds
Learning Objective: 8-2
Topic: Custodial Funds
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-4
Ch. 8, Answers (Cont’d)
8-5. Fiduciary funds are never included in the government-wide financial statements. Instead,
their activities are reported in a set of fiduciary fund financial statements. The
General Problem Information: Fiduciary and governmental fund reporting
Learning Objective: 8-4
Topic: Custodial Funds, Trust Funds, Illustrative Financial Statements
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
8-6. A pass-through custodial fund is one wherein a level of government (such as the state
government) serves as an intermediary, transferring resources to another level of
General Problem Information: “Pass-through” funds
Learning Objective: 8-3
Topic: Custodial Funds
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
8-7. External investment pool activities will be reported in one of two ways. If the external
investment pool is a trust and meets the criteria for a trust as indicated in GASBS 84, the
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-5
Ch. 8, Answers, Question 8-7 (Cont’d)
General Problem Information: External investment pools
Learning Objective: 8-3
Topic: Investment & Private–Purpose Trust Funds
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
8-8. A private-purpose trust fund is a fiduciary fund administered by a government entity for
beneficiaries external to the administering government, such as individuals,
General Problem Information: Private purpose trusts
Learning Objective: 8-3
Topic: Investment & Private-Purpose Trust Funds
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
8-9. Total pension liability represents the present value of future retirement payments that are
General Problem Information: Total and net pension liability
Learning Objective: 8-5
Topic: Pension Trust Funds
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
8-10. A government employer reports pension expenditures in a governmental fund on the
modified accrual basis of accounting. Thus, the amount recognized will be the actual
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-6
Ch. 8, Answers, Question 8-10 (Cont’d)
General Problem Information: Accounting for pension expenses/expenditures
Learning Objective: 8-5
Topic: Pension Trust Funds
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
8-11 OPEB stands for other postemployment benefits and includes retirement benefits other
General Problem Information: OPEB
Learning Objective: 8-6
Topic: Other Postemployment Benefits (OEB)
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
Solutions to Cases
8-12. a. CalPERS was established in 1932.
b. As of June 30, 2016, 3,021 employers contribute to CalPERS, including state
agencies, cities, special purpose governments, and schools.
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-7
Ch. 8, Solutions, Case 8-12 (Cont’d)
General Problem Information: Research Case – CalPERS
Learning Objective: 8-5
Topic: Pension Trust Funds
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
8-13. Following are answers based on the 2016 fiscal year CAFRs for the City of Boston and
New York City. The answers to the questions will vary with the year of the CAFRs
examined; therefore, the answers provided serve as a guide to what should be considered
in the analysis.
a. For 2016 (based upon 2015 valuations) the unfunded actuarial accrued liability
(UAAL) was $2,164,978,000 for the OPEB-City and $2,262,558,000 for the OPEB-
b. For 2016 (based upon 2015 valuations) the UAAL was $73,045,872,000 for the City
of New York’s OPEB. The funded ratio is 4.4%, and UAAL is 341.4% of covered
General Problem Information: OPEB Plans
Learning Objective: 8-6
Topic: Other Postemployment Benefits
Bloom’s Taxonomy: Analyze
Accreditation Skills tag: AACSB: Analytical Thinking, AICPA: FN Reporting
Level of Difficulty: Medium
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-8
Ch. 8, Solutions (Cont’d)
8-14. a. As defined by the publications, a defined benefit plan provides governmental
employees with lifetime retirement income based upon years of service and final
average salary. Defined contribution plans are similar to individual retirement savings
b. When evaluating whether to shift from a defined benefit to a defined contribution
c. Since the financial crisis states have been increasingly moving more of the
responsibility for retirement planning to the individual. However, many of the plans
General Problem Information: Policy Issues Relating to Employee Pension Plans
Learning Objective: 8-5
Topic: Pension Trust Funds
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-9
Ch. 8, Solutions (Cont’d)
8-15. a. Due to inconsistent reporting under GASBS 14 (as amended), the GASB determined it
was necessary to issue a standard related to fiduciary activities. GASBS 14 instructed
governments to report activities of organizations that didn’t meet the requirements for
General Problem Information: Fiduciary Activities Standard
Learning Objective: 8-1
Topic: Identifying Fiduciary Activities
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Reflective thinking, AICPA: FN Critical thinking
Level of Difficulty: Medium
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-10
Solutions to Exercises and Problems
8-16. Each student will have an annual report from a different government unit; therefore, the
answers to these questions will differ from student to student.
General Problem Information: Examine the CAFR
Learning Objective: 8-2, 8–3, 8-4, 8-5
Topic: Various
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
8-17.
1. c. 6. b. 11. c.
General Problem Information: Various fiduciary and trust fund issues
Learning Objective: 8-1 through 8-6
Topic: Various chapter topics
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Medium
8-18. 1. b. 6. c.
General Problem Information: Various agency and trust fund issues
Learning Objective: 8-1 through 8-5
Topic: Various chapter topics
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: FN Reporting
Level of Difficulty: Medium
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
Ch. 8, Solutions (Cont’d)
8-19. a. SUNCOAST COUNTY
TAX CUSTODIAL FUND
GENERAL JOURNAL
Debits Credits
1. TAXES RECEIVABLE FOR OTHER FUNDS
2. CASH 13,700,000
3. DUE TO OTHER FUNDS AND GOVERNMENTS 13,700,000
DUE TO COUNTY GENERAL FUND 5,818,294
DUE TO TOWN OF BAYSHORE 2,629,046
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-12
Ch. 8, Solutions, Exercise 8-19 (Cont’d)
Debits Credits
4. DUE TO COUNTY GENERAL FUND 5,818,294
DUE TO TOWN OF BAYSHORE 2,629,046
5. DEDUCTIONS—ADMINISTRATIVE FEE 120,025
DEDUCTIONS—PAYMENTS OF PROPERTY
b. SUNCOAST COUNTY
GENERAL FUND
GENERAL JOURNAL
1. TAXES RECEIVABLE⎯CURRENT 10,333,000
4. CASH 5,818,294
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-13
Ch. 8, Solutions, Exercise 8-19 (Cont’d)
c. TOWN OF BAYSHORE
GENERAL FUND
GENERAL JOURNAL
Debits Credits
1. TAXES RECEIVABLE⎯CURRENT 4,840,000
4. CASH 2,629,046
d. The tax custodial fund would prepare a statement of tax custodial fund net
position reflecting the asset and liability balances of the fund. It would also
prepare a statement of changes in tax custodial net position to reflect the
General Problem Information: Tax agency fund
Learning Objective: 8-2
Topic: Custodial Funds
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: Financial
Reporting
Level of Difficulty: Medium
Chapter 08 – Accounting for Fiduciary Activities—Custodial and Trust Funds
8-14
Ch. 8, Solutions (Cont’d)
8-20.
a. Since the city is providing administrative services for debt for which it has
b. LOCAL IMPROVEMENT DISTRICT FUND
GENERAL JOURNAL
Debits Credits
1. ASSESSMENTS RECEIVABLE⎯CURRENT 500,000
2. CASH 750,000
ASSESSMENTS RECEIVABLE⎯CURRENT 500,000
3. DUE TO SPECIAL ASSESSMENT
BONDHOLDERS⎯PRINCIPAL 500,000