Account For Fiduciary Funds
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CPA Financial Accounting and Reporting (FAR) › Account For Fiduciary Funds
A municipality operates an external investment pool for other governments and reports it as an investment trust fund. The pool’s year-end financial statements are prepared under the economic resources measurement focus and accrual basis of accounting, consistent with fiduciary fund reporting. Under GASB Statement No. 84, how should the municipality report the net position of the investment trust fund in its fiduciary fund financial statements?
Report retained earnings and operating income, consistent with enterprise fund reporting, because the pool charges fees.
Report only assets, deferred outflows, liabilities, and deferred inflows; do not present net position because fiduciary funds are not part of the basic financial statements.
Report net position and changes in net position in fiduciary fund statements, with net position generally representing amounts held in trust for external participants.
Report fund balance classified as nonspendable, restricted, committed, assigned, and unassigned, consistent with governmental fund reporting.
Explanation
This question tests the financial statement presentation requirements for investment trust funds under GASB Statement No. 84, which clarified fiduciary fund reporting. The key facts are an external investment pool reported as an investment trust fund using economic resources measurement focus and accrual basis. Answer B correctly requires reporting net position and changes in net position in fiduciary fund statements, with net position representing amounts held in trust for external participants. Answer A incorrectly suggests not presenting net position, but all fiduciary funds report net position under GASB 84. Answer C incorrectly applies governmental fund balance classifications, while fiduciary funds report net position (not fund balance). Answer D incorrectly applies proprietary fund terminology (retained earnings), while investment trust funds report fiduciary net position. The framework for investment trust fund reporting is: present a statement of fiduciary net position and statement of changes in fiduciary net position, report net position held in trust for pool participants, and use economic resources measurement focus with accrual accounting.
A city sponsors an external investment pool reported as an investment trust fund under GASB Statement No. 84. The city’s pool holds investments for participants and also holds $500,000 of the city’s own money in the pool (the city is a participant). For fiduciary fund reporting purposes, how should the city account for its own $500,000 participation in the pool?
Report the $500,000 as restricted fund balance in the general fund because the city’s money is restricted by the pool’s investment policy.
Exclude the city’s own $500,000 from the investment trust fund and report the city’s investment in its own pool in the appropriate governmental or proprietary fund, while the investment trust fund reports only external participants’ interests.
Include the city’s $500,000 in the investment trust fund and report it as part of amounts held in trust for external participants.
Report the $500,000 in a custodial fund because the city is holding cash temporarily for itself.
Explanation
This question tests GASB Statement No. 84's requirement for investment trust funds to report only external participants' interests, excluding the sponsoring government's own investments. The key facts are an external investment pool with $500,000 of the sponsoring city's own money participating in the pool. Answer B correctly requires excluding the city's $500,000 from the investment trust fund and reporting it in the appropriate governmental or proprietary fund, while the investment trust fund reports only external participants' interests. Answer A incorrectly includes the city's own investment in the trust fund, violating the principle that fiduciary funds report only resources held for others. Answer C incorrectly suggests custodial fund treatment for the city's own investment. Answer D incorrectly applies restricted fund balance in the general fund without considering which fund actually holds the investment. The principle for investment trust funds is: report only external participants' shares in the investment trust fund, report the sponsoring government's own participation in its governmental or proprietary funds as investments, and maintain clear separation between fiduciary resources and the government's own resources.
A county collects property taxes on behalf of a school district and a city and reports this activity in a custodial fund. At year-end, the county has collected $12.0 million that is legally required to be remitted to the other governments; $11.2 million has been remitted and $800,000 remains to be distributed. Under GASB Statement No. 84 (and related custodial fund reporting), how should the county report the $800,000 remaining at year-end in the custodial fund?
Report a liability (due to other governments) for $800,000 and report additions and deductions for collections and remittances in the custodial fund’s statement of changes in fiduciary net position.
Report $800,000 as a deferred inflow of resources in the custodial fund until the county remits the cash.
Report $800,000 as revenue and fund balance in the county’s general fund because the county is the collecting government.
Report $800,000 as an interfund payable from the general fund and eliminate it in the government-wide statements.
Explanation
This question tests custodial fund reporting under GASB Statement No. 84, which replaced agency funds and requires a statement of changes in fiduciary net position for custodial activities. The key facts are property tax collections for other governments with $800,000 remaining to be distributed at year-end. Answer A correctly requires reporting a liability (due to other governments) for the $800,000 and reporting additions for collections and deductions for remittances in the custodial fund's statement of changes. Answer B incorrectly suggests general fund revenue recognition, but resources collected for others are not revenues of the collecting government. Answer C incorrectly applies deferred inflow treatment, while custodial funds recognize liabilities for amounts due to others. Answer D incorrectly treats this as an interfund transaction, but custodial funds hold resources for external parties, not for the reporting government's own funds. The framework for custodial funds is: recognize additions when resources are collected, recognize deductions when distributed, report liabilities for undistributed amounts due to others, and never recognize revenues for resources that belong to other entities.
A local government reports a donor-restricted endowment in a private-purpose trust fund under GASB Statement No. 84. The donor agreement requires the government to distribute 4% of a rolling three-year average market value each year to a named private nonprofit; during the current year the required distribution is $120,000, but only $90,000 has been paid by year-end. What is the appropriate accounting treatment at year-end in the private-purpose trust fund?
Record the $120,000 as an expenditure in the general fund and record $90,000 as an interfund transfer to the private nonprofit.
Record the unpaid $30,000 as a deferred outflow of resources because it relates to future-period distributions.
Recognize a liability for $30,000 payable to the beneficiary and recognize the full $120,000 as deductions (distributions) when the requirement is met, regardless of payment timing.
Recognize deductions only for the $90,000 paid and disclose the unpaid $30,000 as a subsequent event because it will be paid after year-end.
Explanation
This question tests private-purpose trust fund accounting for required distributions under GASB Statement No. 84, focusing on the accrual basis recognition of obligations. The key facts are a donor-restricted endowment with a required 4% distribution ($120,000) where only $90,000 has been paid by year-end. Answer A correctly requires recognizing a $30,000 liability and the full $120,000 as deductions when the distribution requirement is met, regardless of payment timing, consistent with accrual accounting. Answer B incorrectly limits deductions to cash paid, contradicting accrual basis requirements. Answer C incorrectly applies governmental fund accounting and interfund transfers for external beneficiary payments. Answer D incorrectly uses deferred outflows, which are not appropriate for accrued distribution obligations. The principle for private-purpose trust distributions is: recognize deductions and corresponding liabilities when distribution requirements are met (not when paid), apply accrual basis accounting for all obligations, and report unpaid required distributions as liabilities to beneficiaries.
A local government received a $5.0 million donation to be held in a private-purpose trust fund, with the stipulation that investment earnings must be used only for scholarships to residents (the principal must remain intact). During the year, the trust earned $300,000 of investment income and paid $180,000 in scholarship awards. Under GASB fiduciary reporting principles (including GASB Statement No. 84), how should the government report the $300,000 earnings and the $180,000 awards in the private-purpose trust fund?
Report the $300,000 as general revenues in the governmental activities column and the $180,000 as education function expenses in the government-wide statement of activities.
Report the $300,000 as additions (investment income) and the $180,000 as deductions (scholarship disbursements) in the statement of changes in fiduciary net position.
Report the $300,000 as an increase to restricted fund balance in a special revenue fund and the $180,000 as expenditures of that special revenue fund.
Recognize the $300,000 as deferred inflows of resources until scholarships are awarded and recognize the $180,000 as a reduction of deferred inflows rather than deductions.
Explanation
This question tests private-purpose trust fund accounting under GASB Statement No. 84, which applies when a government holds resources in trust for specific external beneficiaries. The key facts are a $5.0M donation with principal preservation requirement, $300,000 investment earnings, and $180,000 scholarship payments to resident beneficiaries. Answer A correctly reports the $300,000 as additions (investment income) and $180,000 as deductions (scholarship disbursements) in the statement of changes in fiduciary net position, following the economic resources measurement focus. Answer B incorrectly suggests government-wide reporting, but fiduciary funds are excluded from government-wide statements per GASB 34. Answer C incorrectly applies governmental fund accounting (fund balance and expenditures), while private-purpose trust funds use economic resources measurement with net position. Answer D incorrectly applies deferred inflow treatment, which is not appropriate for investment income that is recognized when earned under accrual accounting. The decision framework for private-purpose trust funds is: report investment income as additions when earned, report distributions to beneficiaries as deductions when the eligibility requirements are met, and maintain the trust corpus if required by the donor.
A county uses a custodial fund to account for court-ordered collections held for individuals and other governments. During the year, the county collected $2.4 million and remitted $2.1 million; at year-end, $300,000 is held for remittance and $15,000 of collection fees (legally retained by the county’s general fund) has not yet been transferred. Under GASB Statement No. 84, how should the county report the $15,000 fee amount in relation to the custodial fund?
Report the $15,000 as an expense of the custodial fund and as an expenditure of the general fund upon transfer.
Report the $15,000 as a deferred inflow of resources in the custodial fund until the cash is transferred to the general fund.
Report the $15,000 as an addition in the custodial fund and as revenue of the custodial fund because the fee was earned on fiduciary activity.
Exclude the $15,000 from custodial fund net position by recognizing it as a liability due to the county’s general fund (or as a reduction of amounts held for others), with the county recognizing the fee as general fund revenue when measurable and available.
Explanation
This question tests the treatment of administrative fees in custodial funds under GASB Statement No. 84, specifically how fees retained by the administering government are reported. The key facts are court-ordered collections in a custodial fund with $15,000 in collection fees legally retained by the county but not yet transferred to the general fund. Answer B correctly requires excluding the $15,000 from custodial fund net position by recognizing it as a liability due to the county's general fund (or reducing amounts held for others), with the county recognizing fee revenue in the general fund when measurable and available. Answer A incorrectly treats fees as custodial fund revenue, but custodial funds don't recognize revenues for the administering government. Answer C incorrectly applies deferred inflow treatment for what is actually a liability. Answer D incorrectly suggests expense/expenditure treatment for what is actually fee revenue to the general fund. The framework for custodial fund fees is: segregate fees earned by the administering government from amounts held for others, report fees as liabilities to the government's general fund (not as custodial fund revenue), and recognize fee revenue in the appropriate governmental fund.
A state government administers a defined benefit pension plan in a pension trust fund. The plan’s investments include equity securities and debt securities that are required to be reported at fair value; during the year, the plan had $600,000 of realized gains and $400,000 of unrealized gains. Under GASB pension plan reporting (including GASB Statement No. 67), which transaction should be recorded as net investment income in the pension trust fund?
Record both gains as program revenues in the state’s government-wide statement of activities because the plan is component of the state.
Record the $1.0 million total gain as an increase to restricted net position without affecting the statement of changes in fiduciary net position.
Both the $600,000 realized gains and the $400,000 unrealized gains should be included in net investment income as part of the change in fair value of investments.
Only the $600,000 realized gains should be recorded as net investment income; the $400,000 unrealized gains should be excluded until sold.
Explanation
This question tests GASB Statement No. 67's requirement for pension trust funds to report investments at fair value and include all changes in fair value as investment income. The key facts are a pension trust fund with $600,000 realized gains and $400,000 unrealized gains on investments required to be measured at fair value. Answer B correctly requires both realized ($600,000) and unrealized ($400,000) gains to be included in net investment income as part of the change in fair value of investments, consistent with GASB 67's comprehensive income approach. Answer A incorrectly excludes unrealized gains, contradicting GASB's requirement to include all fair value changes in investment income. Answer C incorrectly bypasses the statement of changes in fiduciary net position, while all investment gains must flow through as additions. Answer D incorrectly suggests government-wide reporting, but pension trust funds are fiduciary funds excluded from government-wide statements. The principle for pension investment reporting is: measure all investments at fair value, include both realized and unrealized gains/losses in net investment income, and report the total change in fair value as additions in the statement of changes in fiduciary net position.
A state government administers a defined benefit plan in a pension trust fund and prepares fiduciary fund financial statements under GASB guidance. The plan has a significant concentration of investments in a single issuer’s equity securities and also uses a securities lending program. Under GASB pension plan reporting principles (including GASB Statement No. 67) and fiduciary fund disclosure requirements, what disclosures are required in the pension trust fund’s notes related to these items?
Disclose investment-related risks (such as concentration of credit risk, credit risk, interest rate risk, and custodial credit risk as applicable) and disclose securities lending collateral and related obligations consistent with GASB investment disclosure guidance.
Disclose only the total contributions and benefit payments; investment risk disclosures are optional for pension trust funds.
No note disclosures are required because fiduciary funds are excluded from the government-wide financial statements.
Disclose the concentration and securities lending activity only in the state’s general fund notes because the general fund is the primary operating fund.
Explanation
This question tests disclosure requirements for pension trust funds under GASB Statement No. 67 and general GASB investment disclosure standards. The key facts are a pension trust fund with concentration risk in a single issuer and a securities lending program. Answer B correctly requires disclosing investment-related risks (concentration of credit risk, credit risk, interest rate risk, and custodial credit risk) and securities lending collateral/obligations, consistent with GASB investment disclosure requirements that apply to all funds including fiduciary funds. Answer A incorrectly claims no disclosures are required, but fiduciary funds have extensive disclosure requirements despite exclusion from government-wide statements. Answer C incorrectly limits required disclosures and makes investment risk disclosures optional, contradicting GASB requirements. Answer D incorrectly places fiduciary fund disclosures in general fund notes rather than with the pension trust fund. The framework for pension trust fund disclosures is: apply all GASB investment disclosure requirements including deposit and investment risks, provide specific disclosures for securities lending programs, and present these disclosures in the notes to the fiduciary fund financial statements.
A municipality sponsors a defined benefit pension plan reported in a pension trust fund. During the year, the plan received $8.0 million in employer contributions and $2.0 million in employee contributions, paid $7.5 million in benefits, and recognized $1.2 million of net investment income. Under GASB pension guidance (including GASB Statement No. 67) and fiduciary fund reporting, what is the appropriate accounting treatment for these activities in the pension trust fund?
Record employer and employee contributions and net investment income as additions, record benefit payments as deductions, and report investments at fair value with changes in fair value included in investment income.
Report employer contributions as program revenues in the governmental activities column and record benefit payments as general government expenses in the government-wide statement of activities.
Measure plan investments at amortized cost and recognize only realized gains and losses in net investment income.
Defer employer and employee contributions as deferred inflows of resources until benefits are paid, and recognize benefit payments as a reduction of deferred inflows rather than deductions.
Explanation
This question tests GASB Statement No. 67 requirements for pension trust fund financial reporting, which mandates the economic resources measurement focus and accrual basis of accounting. The key facts are that this is a defined benefit pension plan reported in a pension trust fund with employer contributions ($8.0M), employee contributions ($2.0M), benefit payments ($7.5M), and net investment income ($1.2M). Answer A correctly states that contributions and investment income are reported as additions, benefit payments as deductions, and investments at fair value with changes included in investment income, consistent with GASB 67's statement of changes in fiduciary net position format. Answer B incorrectly suggests reporting in government-wide statements, but fiduciary funds are excluded from government-wide reporting under GASB 34. Answer C incorrectly applies deferred inflow treatment, which is not appropriate for pension trust fund contributions that are recognized when due. Answer D incorrectly requires amortized cost measurement, while GASB requires fair value for pension plan investments with all changes (realized and unrealized) included in net investment income. The decision rule for pension trust funds is: report all contributions and investment income (including fair value changes) as additions, all benefit payments and administrative expenses as deductions, and measure investments at fair value.
A city administers an external investment pool for several legally separate school districts and reports the activity in an investment trust fund. At year-end, the pool’s investments had a $900,000 increase in fair value, and the city distributed $250,000 of earnings to the participating districts based on their share of the pool. Under GASB fiduciary standards (including GASB Statement No. 84) and fair value guidance, how should the city report the $900,000 fair value change and the $250,000 distribution in the investment trust fund?
Report both the $900,000 fair value change and the $250,000 distribution in the city’s government-wide statement of activities because the city is the sponsor of the pool.
Recognize the $900,000 fair value change as a direct increase to fund balance and recognize the $250,000 distribution as an expense of the city’s general fund.
Recognize the $900,000 as net investment income (including change in fair value) and recognize the $250,000 as a deduction/distribution to participants, with a corresponding reduction of amounts due to participants.
Recognize the $900,000 fair value change only when realized and report the $250,000 distribution as an interfund transfer to the participating districts.
Explanation
This question tests GASB Statement No. 84's requirements for investment trust funds, which are used to report external investment pools where the sponsoring government holds resources in trust for other legally separate entities. The key facts are an external investment pool with a $900,000 fair value increase and $250,000 distribution to participating districts. Answer A correctly requires recognizing the fair value change as net investment income (consistent with GASB fair value measurement) and the distribution as a deduction with a corresponding reduction in amounts due to participants. Answer B incorrectly suggests recording in fund balance and general fund expense, but investment trust funds report net position (not fund balance) and distributions are deductions in the fiduciary fund. Answer C incorrectly defers fair value recognition until realized, contradicting GASB's fair value requirements for investments. Answer D incorrectly places these transactions in government-wide statements, but fiduciary activities are excluded from government-wide reporting. The framework for investment trust funds is: report all investment income (including fair value changes) as additions, report distributions to participants as deductions, and maintain the pool's activity separate from the sponsor's governmental activities.