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—————————————-—Chapter 8——————————————–
REVIEW QUESTIONS
Q8-1 No. A government can offer benefits to its employees by participating in
Q8–2 A defined benefits plan is a plan that specifically identifies the formula
that will be used to calculate future pension benefits for employees as
long as they live. A defined contribution pension plan is a plan that
Q8-3 Actuaries have special expertise in calculating the long-term cost of risk.
Q8-4 A pension contribution is the actual amount of cash paid by an employer
government to a pension plan for the benefit of the government’s
Q8-5 Pension accounting should change when the GASB issues a new pension
Statement in 2012. A major change likely will be reporting a pension
Q8-6 Pension Trust Funds prepare a statement of changes in fiduciary fund
Q8-7 Two schedules are prepared for Pension Trust Funds: a schedule of
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plan and the unfunded actuarial liability as a percentage of the covered
Q8-8 Other postemployment benefits are benefits included in pension plans
Q8–10 The financial statements that are prepared for an Investment Trust Fund
Q8–11 Securities in Investment Trust Funds are valued at fair value. Changes in
Q8–12 Private Purpose Trust Funds are used to account for resources held by a
Q8–13 Private Purpose Trust Funds are controlled through the trust agreement,
Q8–15 An agency relationship is a situation in which an entity is the custodian
of resources that belong to some other organization. In governmental
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Q8–16 An operating statement is not prepared for an Agency Fund because it
does engage in “operations,” as the term is used in accounting.
DISCUSSION SCENARIOS AND ISSUES
D8-1 Ms. J.S. Moneybaggs should make a gift to the City of Metropolis as a
Private Purpose Trust Fund. Any income derived from investing the
principal should be dedicated to caring for small children in the City. If
this is done, the original principal will be maintained in tact for
D8-2 John is correct in that the principal should be accounted for in a
Permanent Fund. Income from the Permanent Fund could be used
directly for library operations or earnings could be transferred to and
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control over the use of the income from the investments would be better
accounted for in a separate Special Revenue Fund. This would permit a
D8-3 The City of Macroville could establish a property tax Agency Fund. Each
of the special districts and the City could combine their tax rates and
issue one bill for the total. If billing, collecting, and accounting are
centralized, the cost of collecting and disbursing the tax monies would be
D8-4 Borrowing resources from any source will not create revenues to help
balance the budget of Aaronsborough. If the City’s charter permits
balancing the budget using fund balance accumulated over prior years,
Mr. Smith should check his balance sheet from the beginning of the
D8-5 Assuming the board of directors of the fund control its investment
activities, Mr. Smith could obtain board approval for his plan. It is not an
EXERCISES
E8-1 ( 20 minutes)
E8-2 (15 minutes)
1. Cash 700,000
2. Deductions—investment management fees 500
Cash 500
4. Deductions—depreciation on fund capital assets 800
Accumulated depreciation on fund capital assets 800
6. Cash 3,900
E8-3 (15 minutes)
1. Defined benefit plan—a pension plan that specifically identifies the amount an
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2. Defined contribution plan—a pension plan that does not guarantee a specific
amount of retirement benefits. Instead, the employee’s retirement benefits are
3. Other postemployment benefits—benefits, other than pension benefits, to be
4. Annual required contribution—the amount that an actuary determines should be
contributed by an employer government to a defined benefit plan, usually on an
5. Unfunded actuarial accrued liability—the excess of the actuarial accrued liability
6. Net pension obligation—the liability for an employer’s pension or OPEB that is
E8-4 (15 minutes)
1. Cash 100,000
3. Cash 8,000
Additions—investment income 8,000
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6. Deductions—distribution to pool participants 10,000
Cash 10,000
E8-5 (20 minutes) Seggen County
Fiduciary Fund
Investment Trust Fund
Statement of Changes in Fiduciary Net Position
For the Year Ended December 31, 2013
Additions
Contributions from participating governments $100,000
Investment earnings:
Seggen County
Fiduciary Fund
Investment Trust Fund
Statement of Fiduciary Net Position
December 31, 2013
Assets
Cash $21,500
E8-6 (10 minutes)
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1. A larger fund may attract better qualified fund managers.
3. The larger the fund, the greater diversity that can be attained,
E8-7 (10 minutes)
2. Investments 420,000
Cash 420,000
4. Cash 20,000
Additions—interest income 20,000
5. Additions—donations 500,000
E8-8 (8 minutes)
E8-9 (10 minutes)
1. economic resources; accrual
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E8-10 (15 minutes)
Major similarities:
1. Both are controlled by the trust agreement and state and local laws
Major differences: (ITF= Investment Trust Fund; PPTF = Private Purpose Trust Fund)
1. With a PPTF, the resources are managed and invested by the
government to generate income for beneficiaries outside the
E8-11 (20 minutes)
The answer to this situation will vary from student to student, but the following
points should be made:
There should be a provision for protection of the principal.
E8–12 (8 minutes)
1. d
E8–13 (10 minutes)
1. fiduciary
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E8-14 (10 minutes)
1. e (usually the General Fund)
E8–15 (15 minutes)
1. Cash 750,000
Deposits payable to contractors 750,000
4. Cash 32,500
Investments 32,500
PROBLEMS
P8-1 (Moderate, 60 minutes)
(a)
1. Cash 750,000
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3. Cash 210,000
Investment income receivable 210,000
4. Deductions—retirement benefits 3,500,000
Cash 3,500,000
6. Accrued expenses 12,000
Cash 12,000
7. Cash 600,000
(b)
City of Green Meadows
Pension Trust Fund
Employees Retirement Fund
Statement of Changes in Fiduciary Net Position
For the Year Ending December 31, 2012
Additions
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Contributions:
Employer $ 491,250
Plan members 258,750
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(c)
City of Green Meadows
Pension Trust Fund
Employees Retirement Fund
Statement of Fiduciary Net Position
December 31, 2012
Assets:
Cash $ 640,500
P8-2 (Moderate, 30 minutes)
Russellville
Pension Trust Fund
Employees Retirement Fund
Statement of Fiduciary Net Position
June 30, 2012
Assets:
Cash $ 180,000
P8-3 (Moderate, 60 minutes)
(a)
1. Cash 125,000
2. Investments—certificates of deposit 65,000
3. Cash 37,500
Additions—interest income 37,500
4. Cash 71,000
6. Cash 17,500
Additions—interest income 17,500