AICPA Governmental Accounting 2 — Questions and Answers
Question 1: A government records an encumbrance in the General Fund when:
- Payment is made to a vendor
- A purchase order is issued (Correct answer)
- Goods are received
- The budget is adopted
Correct answer: A purchase order is issued
An encumbrance is recorded when a purchase order or contract is signed, reserving budget authority before the actual expenditure occurs.
Question 2: Infrastructure assets in government-wide statements may be accounted for using which alternative to depreciation?
- Cost depletion method
- Modified approach (Correct answer)
- Fair value approach
- Units of production method
Correct answer: Modified approach
GASB allows the modified approach for infrastructure assets where governments maintain them at an established condition level and report preservation costs rather than depreciation.
Question 3: Which fund type accounts for resources legally restricted to specified purposes other than debt service or capital projects?
- General fund
- Capital projects fund
- Special revenue fund (Correct answer)
- Permanent fund
Correct answer: Special revenue fund
Special revenue funds account for proceeds of specific revenue sources restricted or committed to expenditure for specified purposes other than debt service or capital outlay.
Question 4: Under GASB, which of the following would be reported as a fiduciary fund?
- Internal service fund
- Enterprise fund
- Pension trust fund (Correct answer)
- Capital projects fund
Correct answer: Pension trust fund
Fiduciary funds, including pension trust funds, account for assets held in a trustee or agency capacity for others and cannot be used to support the government's own programs.
Question 5: When a government transfers resources from the General Fund to a debt service fund, this is classified as a:
- Revenue
- Expenditure
- Transfer (Correct answer)
- Reimbursement
Correct answer: Transfer
Flows of resources between funds of the same government are classified as interfund transfers, not revenues or expenditures, to avoid double-counting.
Question 6: The net position section of a government-wide statement of net position does NOT include which component?
- Net investment in capital assets
- Restricted net position
- Unrestricted net position
- Reserved fund balance (Correct answer)
Correct answer: Reserved fund balance
Government-wide statements present net position as net investment in capital assets, restricted, and unrestricted — fund balance categories apply only to governmental fund statements.
Question 7: Under GASB No. 14, a component unit is included in a primary government's financial report primarily when:
- The primary government appoints a majority of the board
- The primary government is financially accountable to the component unit
- The component unit is financially accountable to the primary government (Correct answer)
- The organizations share a physical location
Correct answer: The component unit is financially accountable to the primary government
GASB No. 14 requires inclusion of a component unit when the primary government is financially accountable, considering board appointment authority and financial benefit/burden relationships.
AICPA Governmental Accounting 2
A government records an encumbrance in the General Fund when: