ACCY 161 Spring 2010

Chapter Eight Study Quiz with Answers

1. Fiduciary funds are sometimes identified in the annual reports of state and local governments as "Trust and Agency Funds." TRUE Fiduciary funds account for assets held by a government under a trust relationship or an agency relationship. 2. If a state or local government is a party to an agency relationship, it must automatically create an agency fund in order to be in conformity with generally accepted accounting principles. FALSE An agency fund must be created only if required by law or GASB standards. In other instances an agency fund may be created by administrative decision. If not required by law or administrative decision, an agency relationship may be accounted for by the General Fund (or other fund) if the agency relationship is incidental to the primary purposes of the General Fund (or other fund), the amounts tend to be small in relation to total expenditures of the General Fund, and the agency relationship is ordinarily discharged on a rather current basis. 3. An agency fund accounts for assets held by a government for the long-term in the capacity of a trustee for an individual, organization, other fund, or other government. FALSE Agency funds are used when the government holds assets temporarily as an agent for an individual, organization, or other government, not for a long period of time. 4. An agency relationship that usually necessitates the creation of an agency fund is the collection of revenues by one government for several of its funds and/or for other governments and their funds. TRUE Agency funds of this nature, particularly for assessment and collection of property taxes, are commonly found at the county level. 6. It is common for an agency fund to have relatively small net asset balances. FALSE Since all of the assets of an agency fund are offset by liabilities there are no net assets. 8. If a state or local government acts as an intermediary between the federal government and beneficiary recipients in processing grant or entitlement resources, those resources should be accounted for in an agency fund. FALSE A "pass-through" agency fund should be used by the intermediary government only if the government has no administrative or direct financial involvement in determining to whom, how, and/or for what purposes the monies are to be used. If there is administrative or direct financial involvement, a special revenue fund must be used.

97281171.doc

ACCY 161 Spring 2010

Chapter Eight Study Quiz with Answers

9. Effective management of cash and investments of individual funds may be enhanced by placing the cash and investments in a pool under the control of the treasurer of the government or other official. TRUE The objective of pool creation is to professionalize the management of cash and investments and thereby improve both the safety of the principal and the earnings on the investments. 10. When a cash and investments 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. TRUE Assets such as investments should be revalued to fair value (market value) as of the date the fund enters the pool, and any investments already in the pool should be revalued to fair value as of the same date, so that earnings, gains, and losses on pooled investments may be distributed equitably. 11. Investment trust funds should be accounted for in the same manner as permanent funds. FALSE Fiduciary funds focus on the measurement of economic resources using the accrual basis of accounting because their objective is to measure net income on a going-concern basis. A permanent fund is a governmental fund, and as such, focuses on the measurement of current financial resources using the modified accrual basis of accounting.

97281171.doc