Académique Documents
Professionnel Documents
Culture Documents
CHAPTER 8:
Number
Topic
Type/Task
Status
(re: 15/e)
Questions:
8-1
8-2
8-3
8-4
8-5
8-6
8-7
8-8
8-9
8-10
Distinguish
Explain
Explain
Explain
Define, explain
Explain
Explain
Distinguish
Explain
Explain
Same
Same
New
Same
Same
Same
New
Same
Same
New
Locate, explain
Analyze
Analyze
Same
Case 8-3
New
Examine
Multiple Choice
Multiple Choice
Journal entries
JEs, analysis
Analysis
Journal entries
Calculate
Financial statements
Analysis
Same
8-2 revised
8-3 revised
Same
New
Case 8-2
8-7 revised
Same
8-9 revised
8-10 revised
Cases:
8-1
8-2
8-3
Exercises/Problems:
8-1
Examine the CAFR
8-2
Various agency and trust fund issues
8-3
Various agency and trust fund issues
8-4
Tax agency fund
8-5
Special assessment agency fund
8-6
Identification of fiduciary funds
8-7
Investment trust fund
8-8
Defined benefit pension plan
8-9
Defined benefit pension plan statements
8-10
Fiduciary financial statements
8-1
CHAPTER 8:
Answers to Questions
8-1.
Although in law there is a clear distinction between an agency relationship and a trust
relationship, in practice the legal distinctions are not sufficient to classify funds as agency
funds or trust funds. All factors, such as the enactment that created the fund and pertinent
regulations, must be examined to determine the nature of the fund and the transactions in
which it may engage. Generally, trust funds are more complicated than agency funds,
requiring greater representation and development of the beneficiarys interest.
8-2.
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 for and report the fund equity in pooled investments held by fund
participants who are external to the government operating the fund. Private-purpose trust
funds record and report principal and/or interest managed by a government for the benefit
of an individual, private organization, or another government. The distinguishing
characteristic is that the party benefiting from the trust must be external to the
government operating the trust. In pension and other employee benefits trusts a
government is managing benefits that belong to government employees. As can be seen,
in each case the government is acting as a fiduciary, or in the best interest of parties
outside the government.
8-3.
The GASB standards require two financial statements (a statement of plan net position
and a statement of changes in plan net position) and two schedules of historical trend
information (a schedule of funding progress and a schedule of employer contributions)
for pension financial reporting. In addition, notes to the financial statements and notes to
the required schedules disclose a number of descriptive items, including a plan
description, a summary of significant accounting policies, and description of
contributions and reserves.
8-4.
When an agency fund is used to account for assets, the assets belong to the party or
parties for whom the government acts as an agent, and not to the government itself. Thus,
agency fund assets are offset by liabilities equal in amount and no fund equity exists.
8-5.
A pass-through agency fund is one wherein a level of government (such as the state
government) serves as an intermediary, transferring resources to another level of
government (such as local government). For a pass-through agency fund to be
appropriate the government acting as the conduit must have no administrative or direct
financial involvement. If the pass-through government provides monitoring, is involved
in determining eligibility of fund recipients or programs, has discretion in allocating
funds, or finances some direct program costs a pass-through agency fund is not
appropriate.
8-2
8-6.
With an internal investment pool the pool participants are all within the same government.
While accounting for an internal investment pool often occurs in an agency fund; for
external financial reporting purposes each participant reports its proportionate share of
the pooled assets and liabilities. The agency fund of an internal investment pool is not
reported in external financial statements.
The accounting for an external investment pool differs in the type of fund used and the
manner in which the pools assets and liabilities are reported. An external investment
pool is reported in an investment trust fund and has participants that are outside the
government administering the investment pool. As such, the GASB standards require
that a trust fund be used to account for the investment pools resources. External
participants shares of net position of the fund and additions to and deductions from net
position are reported in the investment trust fund. Those participants have no claims on
specific assets of the trust.
8-7.
The GASB standards require that realized and unrealized gains and losses be reported in
aggregate as Change in Fair Value of Investments, which is a component of investment
income. While gains and losses are not reported as separate amounts in the financial
statements, they may be disclosed in the notes to the financial statements, if desired.
Governments may maintain a separate Allowance for Changes in Fair Value of Pooled
Investments account (a contra-asset account) to record all changes in fair value rather
than increasing and decreasing the balance of the investment accounts.
8-8.
8-9.
Three indicators that are useful in assessing the financial health of a pension plan are the
unfunded actuarial accrued liability, the funded ratio, and the difference between the
required contribution and the amount actually contributed. Information about the
unfunded actuarial accrued liability and the funded ratio can be found on the schedule of
funding progress. If the unfunded actuarial accrued liability is growing or the funded
ratio is decreasing over time it indicates that sufficient resources are not being provided
to cover the benefits earned by employees. The schedule of employer contributions
8-3
provides information on the percentage of the required contribution that has actually been
contributed to the plan. If actual contributions are not keeping pace with the required
contributions the plans actuarial accrued liability will continue to grow. Thus, the two
required schedules provide useful information in assessing the financial health of a
pension plan. The health of a plan is best determined by looking at the trend in the
information rather than looking at a single year.
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
amount contributed to the plan during the year regardless of pension cost. In proprietary
funds and in the governmental activities journal at the government-wide level, employers
would recognize the pension cost on the accrual basis. Therefore, if the amount
contributed to the pension fund for the year is less than the annual pension cost, the
difference should be added to net pension obligation (NPO). If the contribution is greater
than the annual pension cost, the difference should be deducted from the NPO.
Solutions to Cases
8-1.
8-4
Following are answers based on the 2010 fiscal year CAFRs for the City and County of
Denver 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 2010 the DERP Health Benefits plan AAL was $141,643,000. Over the period
from 2008 to 2010 the funded ratio has somewhat declined. There was about a 6
percent decline from 2008 to 2009, and since that time the funded ratio had a net
decline of about 5.4 percent. If the DERP Health Benefits plan is compared to the
DERP (which is the pension plan) we see that the pension plan is better funded than
the Health Benefits Plan. The funded ratio for the pension has ranged from 88.4
percent to 98.2 percent during the four year time period, while the Health Benefits
Plan has ranged from 63.8 percent to 75.0 percent.
b. The most recent year for which the AAL was calculated (2007) indicates a liability of
$62,135,453,000 for the New York City Health Benefits Plan. For the same time
period the funded ratio is 4.2 percent. Over the period from 2005 to 2007 the funded
ratio ranged from 0 to 4.2 percent.
c. Based on the data available, it would appear that Denver has funded a relatively
greater percentage of its health benefit plan than New York City. As a result, the
future financial burden and cost related to the currently earned benefits may not be as
great for Denver as for New York City. The size of the programs and economic
factors also play a role in each citys ability to fund its plans.
8-3.
a. As defined on the issue briefs website, 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
accounts where the investments are selected by the employee from a list of options
provided by the plan. The benefit at retirement depends on the value in the
employees account. Under a defined benefit plan, the government hence taxpayers
bear responsibility for future benefit payments, as well as market and inflation risk.
Defined contribution plans shift all the risk and responsibilities from the employer to
the employee.
A hybrid plan combines elements of both defined benefit plans and defined
contribution plans. They are intended to spread the risks associated with the pension
payments between the employer and the employee. In some cases employees are
required to participate in both a defined benefit and a defined contribution plan.
8-5
Each student will have an annual report from a different government unit; therefore, the
answers to these questions will differ from student to student.
8-2.
1.
2.
3.
4.
5.
a.
b.
a.
d.
c.
6.
7.
8.
9.
10.
b.
d.
a.
d.
c.
8-3.
1.
2.
3.
4.
5.
d.
a.
d.
c.
b.
6.
7.
8.
9.
10.
c.
b.
b.
a.
c.
8-6
8-4. a.
LINCOLN COUNTY
TAX AGENCY FUND
GENERAL JOURNAL
Debits
1.
Credits
AND GOVERNMENTSCURRENT
DUE TO OTHER FUNDS AND GOVERNMENTS
2.
CASH
17,200,000
8,400,000
3.
8,400,000
8,400,000
1,414,560
2,245,320
3,825,360
4.
Shares:
COMPUTATION
County
Town
School
Townships
2,752,000/17,200,000 * 8,400,000
4,644,000/17,200,000 * 8,400,000
7,912,000/17,200,000 * 8,400,000
1,892,000/17,200,000 * 8,400,000
914,760
Taxes
Collected
= 1,344,000
= 2,268,000
= 3,864,000
= 924,000
1% Fee
+ 70,560
- 22,680
- 38,640
- 9,240
1,414,560
2,245,320
Agency's
Liability
1,414,560
2,245,320
3,825,360
914,760
3,825,360
914,760
CASH
8,400,000
8-7
b.
1.
LINCOLN COUNTY
GENERAL FUND
GENERAL JOURNAL
TAXES RECEIVABLECURRENT
Debits
2,752,000
82,560
REVENUES
2.
2,669,440
CASH
1,414,560
TAXES RECEIVABLECURRENT
1,344,000
70,560
c.
1.
TOWN OF SMITHTON
GENERAL FUND
GENERAL JOURNAL
TAXES RECEIVABLECURRENT
4,644,000
139,320
REVENUES
2.
4,504,680
CASH
2,245,320
Credits
22,680
2,268,000
The tax agency fund can prepare a statement of tax agency fund net
position reflecting the asset and liability balances of the fund. Additionally,
the fund would be combined with any other agency funds that Lincoln
County has and the total of the assets and liabilities for the agency funds
would be shown in a single agency fund column on the statement of
fiduciary net position.
8-8
8-5.
a.
Since the city is providing administrative services for debt for which it has
no legal obligation, the GASB standards indicate the services should be
accounted for using an agency fund.
b.
1.
ASSESSMENTS RECEIVABLECURRENT
ASSESSMENTS RECEIVABLEDEFERRED
Debits
500,000
Credits
4,500,000
2.
CASH
5,000,000
750,000
500,000
ASSESSMENTS RECEIVABLECURRENT
DUE TO SPECIAL ASSESSMENT
BONDHOLDERSINTEREST
250,000
ASSESSMENTS RECEIVABLECURRENT
500,000
ASSESSMENTS RECEIVABLEDEFERRED
3.
500,000
500,000
250,000
CASH
750,000
8-9
c.
Assets and liabilities of the special assessment agency fund would appear
in a separate column on the statement of fiduciary net position but will
appear in no other basic financial statements. If there are several agency
funds, Foothills may opt to provide a combining statement of agency funds
in its CAFR. The combining statement would display the assets and
liabilities for each agency fund in a separate column.
d.
Since the City of Foothills is not obligated in any manner for the Green
Acres special assessment debt, the debt should not be reported in
Foothills financial statements; however, the notes to the financial
statements should disclose the amount of the debt, as well as the fact that
the government is in no way liable for repayment but is only acting as an
agent for the property owners in collecting the assessments, forwarding
the collections to bondholders, and initiating foreclosure proceedings, if
appropriate.
8-6.
e. Cultural Services and Facilities. Since the resources are funds of the
government, the program primarily benefits the government, and the
majority of resources are provided on an ongoing basis from
performing arts center and museum fees, it should be accounted for as
a special revenue fund.
f. Payroll Fund. Since payroll deductions are the assets of other
governments/organizations (e.g., federal government, state government,
pension funds), an agency fund is used to account for the deductions.
g. Telephone Commissions Fund. The city would use a special revenue
fund, since it primarily benefits from using the commissions to defray
the costs related to operation of the jail.
h. Block Grant Fund. Since the city is required to provide matching funds,
the grant would be reported in a special revenue fund.
i. Health Benefits Fund. This is a pension and other employee benefit
trust fund since the city is providing a retirement benefit to those
outside of government (employees).
j. Unclaimed Property Fund. Since the state is maintaining the property
until such time as a legal claimant can be found, a private-purpose trust
fund would be used. Until the property reverts to the state it is
considered a benefit to a party outside of government (the as yet
unfound claimant).
8-11
8-7. a.
GENERAL JOURNAL
Debits
Credits
900,000
INVESTMENTS
890,000
REVENUESCHANGE IN FAIR
VALUE OF INVESTMENTS
10,000
ALBERTVILLE SCHOOLS:
EQUITY IN POOLED INVESTMENTS
4,230,000
INVESTMENTS
4,200,000
REVENUESCHANGE IN FAIR
VALUE OF INVESTMENTS
30,000
RICHWOOD TOWNSHIP:
EQUITY IN POOLED INVESTMENTS
3,870,000
REVENUESCHANGE IN FAIR
VALUE OF INVESTMENTS
20,000
INVESTMENTS
3,890,000
8-12
Debits
b.
Credits
900,000
CERTIFICATES OF DEPOSIT
8,100,000
900,000
ADDITIONSDEPOSITS IN POOLED
INVESTMENTSALBERTVILLE SCHOOLS
4,230,000
ADDITIONSDEPOSITS IN POOLED
INVESTMENTSRICHWOOD TOWNSHIP
3,870,000
30,000
3,000
ADDITIONSINVESTMENT EARNINGS
ALBERTVILLE SCHOOLS
14,100
ADDITIONSINVESTMENT EARNINGS
RICHWOOD TOWNSHIP
12,900
CASH
3,010,000
CERTIFICATES OF DEPOSIT
3,010,000
3,010,000
CASH
3,010,000
3. CASH
50,000
UNDISTRIBUTED EARNINGS ON
POOLED INVESTMENTS
50,000
8-13
Debits
4. ACCRUED INTEREST RECEIVABLE
Credits
28,000
UNDISTRIBUTED EARNINGS ON
POOLED INVESTMENTS
28,000
5. UNDISTRIBUTED EARNINGS ON
POOLED INVESTMENTS
78,000
11,700
ADDITIONSINVESTMENT EARNINGS
ALBERTVILLE SCHOOLS
54,990
ADDITIONSINVESTMENT EARNINGS
RICHWOOD TOWNSHIP
COMPUTATION:
EQUITY AT BEGINNING OF YEAR
11,310
Citys GF
$900,000
Schools
$4,230,000
Township
$3,870,000
TOTAL
$9,000,000
10.00%
47.00%
43.00%
100.00%
12,900
$ 30,000
$ 3,010,000
$ 3,010,000
% INTEREST
TREASURY NOTE DISTRIBUTION
3,000
14,100
WITHDRAWAL
$4,244,100
c.
15.00%
70.50%
$
$ 11,700
54,990
872,900
$6,020,000
14.50%
100.00%
11,310
78,000
3,000
REVENUESINVESTMENT EARNINGS
3,000
ALBERTVILLE SCHOOLS:
EQUITY IN POOLED INVESTMENTS
REVENUESINVESTMENT EARNINGS
8-14
14,100
14,100
Debits
Credits
RICHWOOD TOWNSHIP:
EQUITY IN POOLED INVESTMENTS
12,900
REVENUESINVESTMENT EARNINGS
CASH
12,900
3,010,000
d.
3,010,000
11,700
REVENUESINVESTMENT EARNINGS
11,700
ALBERTVILLE SCHOOLS:
EQUITY IN POOLED INVESTMENTS
54,990
REVENUESINVESTMENT EARNINGS
54,990
RICHWOOD TOWNSHIP:
EQUITY IN POOLED INVESTMENTS
11,310
REVENUESINVESTMENT EARNINGS
e.
11,310
The investment trust fund would not report the General Funds interest in
the pool since the General Fund is an internal participant. The General
Fund would report its interest in the investment pool in its financial
statements. Since the school is an external participant, the investment
trust fund would report the schools interest in the statement of fiduciary
net position and in the statement of changes in fiduciary net position.
8-15
8-8.
$ 606,700
37,499
(268,920)
$ 375,279
$ 375,279
(385,000)
(9,721)
535,700
$ 525,979
8-16
8-9.
Credits
Debits
a.
INVESTMENTS
58,800
b.
58,800
STATE OF NODAK
PUBLIC EMPLOYEE RETIREMENT SYSTEM
STATEMENT OF CHANGES IN PLAN NET POSITION
FOR THE YEAR ENDED JUNE 30, 2014
(IN THOUSANDS OF DOLLARS)
ADDITIONS:
CONTRIBUTIONS
PLAN MEMBERS
EMPLOYER
112,100
197,800
TOTAL CONTRIBUTIONS
309,900
INVESTMENT INCOME
NET CHANGE IN FAIR VALUE OF INVESTMENTS
INTEREST AND DIVIDENDS
58,800
199,700
258,500
TOTAL ADDITIONS
568,400
DEDUCTIONS:
ANNUITY BENEFITS
53,900
DISABILITY BENEFITS
14,000
28,800
ADMINISTRATIVE EXPENSES
8,800
TOTAL DEDUCTIONS
105,500
NET INCREASE
462,900
1,577,000
$2,039,900
8-17
c.
STATE OF NODAK
PUBLIC EMPLOYEE RETIREMENT SYSTEM
STATEMENT OF PLAN NET POSITION
AS OF JUNE 30, 2014
ASSETS:
CASH
16,000
33,200
2,002,000
$25,200
22,100
3,100
TOTAL ASSETS
2,073,300
LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUALS
NET POSITION HELD IN TRUST FOR PENSION BENEFITS
33,400
$2,039,900
d.
If the fund uses modified accrual the employer (Nodak) would report an
expenditure for the actual contribution made to the pension plan. If the fund
uses accrual accounting an expense would be reported for the annual
pension cost, with any difference between the amount actually contributed
to the plan and the annual pension cost increasing or decreasing the net
pension obligation.
8-18
8-10.
8-19