ACCT 4421 EXAM #3 REVIEW
QUESTIONS WITH VERIFIED
ANSWERS
In contrast to most private-sector pension plans, most government plans are defined
contribution plans - ANSWER-F
Permanent funds focus on measuring current financial resources and use a modified
accrual basis of accounting - ANSWER-T
A government receives a gift of cash and investments with a fair value of $200,000.
The donor specified that the earnings from the gift must be used to beautify city-
owned parks and the principal must be re-invested. The $200,000 gift should be
accounted for in which of the following funds?
A. General fund
B. Private-purpose trust fund
C. Agency fund
D. Permanent fund - ANSWER-D
In previous years, Boze City had received a $400,000 gift of cash and investments.
The donor had specified that the earnings from the gift must be used to beautify city-
owned parks and the principal must be re-invested. During the current year, the
earnings from this gift were $24,000. The earnings from this gift should generally be
considered revenue to which of the following funds?
A. Special revenue fund
B. Private-purpose trust fund
C. Agency fund
D. Permanent fund - ANSWER-D
Carl City received $200,000 to help maintain a local art museum that is owned and
operated by a not-for-profit organization. During the year the city transferred net
earnings of $20,000 to the appropriate entity/fund.
The $200,000 gift would be reported in a (an)
A. Special revenue fund
B. Private-purpose trust fund
C. Agency fund
D. Permanent fund - ANSWER-B
Carl City received $200,000 to help maintain a local art museum that is owned and
operated by a not-for-profit organization. During the year the city transferred net
earnings of $20,000 to the appropriate entity/fund.
The $20,000 transfer would be reported by the fund that made the transfer as a (an)
A. Transfer-out
B. Expenditure
C. Deduction from net position—benefits
,D. Expense - ANSWER-C
In the current year, Loma City earned $24,000 on the principal of a private-purpose
trust fund but disbursed only $20,000.
During the current year the private-purpose trust fund will recognize, related to
earnings
A. $24,000 revenues
B. $20,000 revenues
C. $24,000 addition to net position
D. $20,000 addition to net position - ANSWER-C
In the current year, Loma City earned $24,000 on the principal of a private-purpose
trust fund but disbursed only $20,000.
During the current year the private-purpose trust fund will recognize, related to the
cash outflow
A. $20,000 transfer-out
B. $20,000 expenses
C. $24,000 deduction from net position
D. $20,000 deduction from net position - ANSWER-D
Which of the following activities of a government should be accounted for in a
fiduciary fund?
A. Funds received from the federal government to support public transportation
activities
B. Funds received from an individual who specified that the principal must be kept
intact but the income can be used to support families of police officers killed in the
line of duty
C. Funds received from the state government that must be used to purchase capital
assets
D. Funds received from a contractor to assist with the development of utility
infrastructure - ANSWER-B
What basis of accounting is used to account for transactions of a government's
private-purpose trust fund?
A. Full accrual basis of accounting
B. Modified accrual basis of accounting
C. Cash basis of accounting
D. Budgetary basis of accounting - ANSWER-A
In which of the following funds would a government report depreciation expense?
A. Private-purpose trust fund
B. Agency fund
C. Permanent fund
D. None of the above - ANSWER-A
Which of the following would NOT be accounted for in a fiduciary fund of a
government?
A. Nonexpendable resources held for the benefit of other governments
,B. Nonexpendable resources held for the benefit of the government holding the
resources
C. Expendable resources held for the benefit of other governments
D. Funds held as an agent for other entities - ANSWER-B
Permanent funds are classified as
A. Governmental funds
B. Proprietary funds
C. Fiduciary funds
D. Trust funds - ANSWER-A
Which of the following is NOT a fiduciary fund?
A. Pension trust fund
B. Investment trust fund
C. Permanent fund
D. Private-purpose trust fund - ANSWER-C
What basis of accounting is used to account for the transactions of a government's
permanent fund?
A. Full accrual basis of accounting
B. Modified accrual basis of accounting
C. Cash basis of accounting
D. Budgetary basis of accounting - ANSWER-B
Previously a local private-sector charity received a $1 million gift, the income from
which was restricted to support activities for senior citizens. During the current year
the endowment earned $40,000 of interest revenues, of which the charity designated
$30,000 to support senior citizen activities.
On its year-end statement of activities, the charity would report interest revenues of
A. $0
B. $30,000
C. $40,000
D. None of the above - ANSWER-C
Previously a local private-sector charity received a $1 million gift, the income from
which was restricted to support activities for senior citizens. During the current year
the endowment earned $40,000 of interest revenues, of which the charity designated
$30,000 to support senior citizen activities.
On its year-end statement of financial position, the charity would report temporarily
restricted net assets of
A. $40,000
B. $0
C. $30,000
D. $1.04 million - ANSWER-A
Previously a local private-sector charity received a $1 million gift, the income from
which was restricted to support activities for senior citizens. During the current year
, the endowment earned $40,000 of interest revenues, of which the charity designated
$30,000 to support senior citizen activities.
On its year-end statement of financial position, the charity would report permanently
restricted net assets of
A. $1 million
B. $1.04 million
C. $1.03 million
D. $1.01 million - ANSWER-A
Maple City has a permanent fund that reported current-year investment earnings
(realized and unrealized) of $80,000. The endowment principal is $800,000 and the
city council has adopted a policy of considering only the inflation-adjusted rate of
return to be available for transfer to the recipient fund. During the current year the
council declared the inflation-adjusted rate of return to be 8 percent. How much
revenue would be recognized in the permanent fund?
A. $0
B. $64,000
C. $80,000
D. Insufficient information to determine - ANSWER-C
During the year, a state-owned university received a $5 million gift. The donor
specified that the principal of the gift must be held intact for 3 years, but the earnings
from the gift can be used to support technology improvements in the college of
business. At the end of the 3 years, the donor together with the university president
and the college dean will decide how the $5 million gift can be used. The university
will report the gift in what type of fund?
A. Permanent fund
B. Private-purpose trust fund
C. Special revenue fund
D. Plant fund - ANSWER-A
A wealthy citizen provided in her will for a gift of cash and other assets to Balsa city.
The will specified that the gift was to be kept intact and that the earnings from the gift
were to be used to support public parks. At the time of the donation, the gift had a
book value in the hands of the donor of $300,000 and a fair value of $500,000. When
recording this gift the city would credit
A. Contributions revenues $500,000
B. Other financing sources—contributions $500,000
C. Contributions revenues $300,000
D. Other financing sources—contributions $300,000 - ANSWER-A
At the beginning of the year, the permanent fund of Rose City had an investment
portfolio with a historical cost of $300,000 and a fair value of $330,000. There were
no purchases or sales of securities during the year. At the end of the year the
portfolio had a fair value of $360,000. At year-end, the city s account for this increase
in fair value in which of the following ways?
A. Credit Investment income, $30,000
B. Credit Investment income, $60,000
C. Credit Fund balance, $30,000
QUESTIONS WITH VERIFIED
ANSWERS
In contrast to most private-sector pension plans, most government plans are defined
contribution plans - ANSWER-F
Permanent funds focus on measuring current financial resources and use a modified
accrual basis of accounting - ANSWER-T
A government receives a gift of cash and investments with a fair value of $200,000.
The donor specified that the earnings from the gift must be used to beautify city-
owned parks and the principal must be re-invested. The $200,000 gift should be
accounted for in which of the following funds?
A. General fund
B. Private-purpose trust fund
C. Agency fund
D. Permanent fund - ANSWER-D
In previous years, Boze City had received a $400,000 gift of cash and investments.
The donor had specified that the earnings from the gift must be used to beautify city-
owned parks and the principal must be re-invested. During the current year, the
earnings from this gift were $24,000. The earnings from this gift should generally be
considered revenue to which of the following funds?
A. Special revenue fund
B. Private-purpose trust fund
C. Agency fund
D. Permanent fund - ANSWER-D
Carl City received $200,000 to help maintain a local art museum that is owned and
operated by a not-for-profit organization. During the year the city transferred net
earnings of $20,000 to the appropriate entity/fund.
The $200,000 gift would be reported in a (an)
A. Special revenue fund
B. Private-purpose trust fund
C. Agency fund
D. Permanent fund - ANSWER-B
Carl City received $200,000 to help maintain a local art museum that is owned and
operated by a not-for-profit organization. During the year the city transferred net
earnings of $20,000 to the appropriate entity/fund.
The $20,000 transfer would be reported by the fund that made the transfer as a (an)
A. Transfer-out
B. Expenditure
C. Deduction from net position—benefits
,D. Expense - ANSWER-C
In the current year, Loma City earned $24,000 on the principal of a private-purpose
trust fund but disbursed only $20,000.
During the current year the private-purpose trust fund will recognize, related to
earnings
A. $24,000 revenues
B. $20,000 revenues
C. $24,000 addition to net position
D. $20,000 addition to net position - ANSWER-C
In the current year, Loma City earned $24,000 on the principal of a private-purpose
trust fund but disbursed only $20,000.
During the current year the private-purpose trust fund will recognize, related to the
cash outflow
A. $20,000 transfer-out
B. $20,000 expenses
C. $24,000 deduction from net position
D. $20,000 deduction from net position - ANSWER-D
Which of the following activities of a government should be accounted for in a
fiduciary fund?
A. Funds received from the federal government to support public transportation
activities
B. Funds received from an individual who specified that the principal must be kept
intact but the income can be used to support families of police officers killed in the
line of duty
C. Funds received from the state government that must be used to purchase capital
assets
D. Funds received from a contractor to assist with the development of utility
infrastructure - ANSWER-B
What basis of accounting is used to account for transactions of a government's
private-purpose trust fund?
A. Full accrual basis of accounting
B. Modified accrual basis of accounting
C. Cash basis of accounting
D. Budgetary basis of accounting - ANSWER-A
In which of the following funds would a government report depreciation expense?
A. Private-purpose trust fund
B. Agency fund
C. Permanent fund
D. None of the above - ANSWER-A
Which of the following would NOT be accounted for in a fiduciary fund of a
government?
A. Nonexpendable resources held for the benefit of other governments
,B. Nonexpendable resources held for the benefit of the government holding the
resources
C. Expendable resources held for the benefit of other governments
D. Funds held as an agent for other entities - ANSWER-B
Permanent funds are classified as
A. Governmental funds
B. Proprietary funds
C. Fiduciary funds
D. Trust funds - ANSWER-A
Which of the following is NOT a fiduciary fund?
A. Pension trust fund
B. Investment trust fund
C. Permanent fund
D. Private-purpose trust fund - ANSWER-C
What basis of accounting is used to account for the transactions of a government's
permanent fund?
A. Full accrual basis of accounting
B. Modified accrual basis of accounting
C. Cash basis of accounting
D. Budgetary basis of accounting - ANSWER-B
Previously a local private-sector charity received a $1 million gift, the income from
which was restricted to support activities for senior citizens. During the current year
the endowment earned $40,000 of interest revenues, of which the charity designated
$30,000 to support senior citizen activities.
On its year-end statement of activities, the charity would report interest revenues of
A. $0
B. $30,000
C. $40,000
D. None of the above - ANSWER-C
Previously a local private-sector charity received a $1 million gift, the income from
which was restricted to support activities for senior citizens. During the current year
the endowment earned $40,000 of interest revenues, of which the charity designated
$30,000 to support senior citizen activities.
On its year-end statement of financial position, the charity would report temporarily
restricted net assets of
A. $40,000
B. $0
C. $30,000
D. $1.04 million - ANSWER-A
Previously a local private-sector charity received a $1 million gift, the income from
which was restricted to support activities for senior citizens. During the current year
, the endowment earned $40,000 of interest revenues, of which the charity designated
$30,000 to support senior citizen activities.
On its year-end statement of financial position, the charity would report permanently
restricted net assets of
A. $1 million
B. $1.04 million
C. $1.03 million
D. $1.01 million - ANSWER-A
Maple City has a permanent fund that reported current-year investment earnings
(realized and unrealized) of $80,000. The endowment principal is $800,000 and the
city council has adopted a policy of considering only the inflation-adjusted rate of
return to be available for transfer to the recipient fund. During the current year the
council declared the inflation-adjusted rate of return to be 8 percent. How much
revenue would be recognized in the permanent fund?
A. $0
B. $64,000
C. $80,000
D. Insufficient information to determine - ANSWER-C
During the year, a state-owned university received a $5 million gift. The donor
specified that the principal of the gift must be held intact for 3 years, but the earnings
from the gift can be used to support technology improvements in the college of
business. At the end of the 3 years, the donor together with the university president
and the college dean will decide how the $5 million gift can be used. The university
will report the gift in what type of fund?
A. Permanent fund
B. Private-purpose trust fund
C. Special revenue fund
D. Plant fund - ANSWER-A
A wealthy citizen provided in her will for a gift of cash and other assets to Balsa city.
The will specified that the gift was to be kept intact and that the earnings from the gift
were to be used to support public parks. At the time of the donation, the gift had a
book value in the hands of the donor of $300,000 and a fair value of $500,000. When
recording this gift the city would credit
A. Contributions revenues $500,000
B. Other financing sources—contributions $500,000
C. Contributions revenues $300,000
D. Other financing sources—contributions $300,000 - ANSWER-A
At the beginning of the year, the permanent fund of Rose City had an investment
portfolio with a historical cost of $300,000 and a fair value of $330,000. There were
no purchases or sales of securities during the year. At the end of the year the
portfolio had a fair value of $360,000. At year-end, the city s account for this increase
in fair value in which of the following ways?
A. Credit Investment income, $30,000
B. Credit Investment income, $60,000
C. Credit Fund balance, $30,000
