- Description
ACC 497 Week 5 Final Examination
Which of the following is not a category found in the statistical section of the comprehensive annual financial report (CAFR)? |
Debt capacity information. |
Expenditure trend information. |
Demographic and economic information. |
Revenue capacity information. |
When reporting on comparative financial statements for a private company, which of the following circumstances should ordinarily cause the auditor to change the previously issued opinion on the prior year’s financial statements?
A scope limitation caused a qualified opinion on the prior year’s financial statements, but the current year’s opinion is properly unmodified.
A departure from generally accepted accounting principles caused an adverse opinion on the prior year’s financial statements, and those statements have been properly restated.
The prior year’s financial statements are restated following the purchase of another company in the current year.
A change in accounting principle causes the auditor to make a consistency modification in the current year’s audit report.
Which of the following would be considered Category (b) GAAP for state and local government auditees? |
GASB Implementation Guides. |
GASB Statements and Interpretations. |
GASB Technical Bulletins. |
AICPA Practice Bulletins if specifically made applicable to state and local governments by the AICPA and cleared by the GASB. |
For each of the following independent situations, indicate the reason for and the type of financial statement audit report that you would issue. Assume that all companies mentioned are private companies and that each item is at least material.
Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $39,000 of legal services for a client. Manny typically requires his clients to pay his bills immediately upon receipt. Assume Manny’s marginal tax rate is 40 percent this year and next year, and that he can earn an after-tax rate of return of 4 percent on his investments.
- What is the after-tax income if Manny sends his client the bill in December?
- Based on requirement a and b, should Manny send his client the bill in December or January?
Which of the following statements regarding audit findings is true? |
All of the above are true. |
A material weakness is a deficiency in internal control important enough to merit attention by those charged with governance. |
A significant deficiency is a deficiency in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. |
A deficiency exists when the design or operation of a control does not allow management or employees to prevent, or detect and correct misstatements on a timely basis. |
Select the key term that relate to single audits from the list that best matches with the following definition. |
Refer to the following selected financial information from Shakley’s Incorporated. Compute the company’s times interest earned for Year 2.
Year 2 | Year 1 | ||||
Net sales | $ 484,500 | $ 427,450 | |||
Cost of goods sold | 277,500 | 251,320 | |||
Interest expense | 10,900 | 11,900 | |||
Net income before tax | 68,450 | 53,880 | |||
Net income after tax | 47,250 | 41,100 | |||
Total assets | 319,500 | 295,200 | |||
Total liabilities | 175,400 | 168,500 | |||
Total equity | 144,100 | 126,700 | |||
6.3.
4.3.
7.3.
13.2.
5.3.
Which of the following circumstances would indicate that a potential component unit (PCU) should be included as part of the government financial reporting entity? |
Officials of the primary government appoint a majority of the members of the PCU’s governing board and the primary government is able to impose its will on the PCU. |
Officials of the primary government appoint a majority of the members of the governing board of the PCU. |
The primary government is entitled to the resources of the PCU. |
The primary government significantly influences the programs and activities of the PCU. |
Which of the following best describes the relationship between generally accepted auditing standards (GAAS) and generally accepted government auditing standards (GAGAS)? |
Audits of state and local governments always require that the audit be conducted in accordance with both GAAS and GAGAS. |
GAAS apply to independent CPA auditors; GAGAS apply to governmental auditors. |
Audits done in accordance with GAAS must also be done in accordance with GAGAS. |
Audits conducted in conformity with GAGAS may also require the auditor to conform to GAAS. |
Where should infrastructure assets and long-term liabilities issued to finance infrastructure be reported? |
Government-wide financial statements. |
Fund financial statements. |
Management’s discussion and analysis. |
Letter of transmittal. |
Which of the following is not considered an opinion unit requiring a materiality determination associated with a financial statement audit of a state or local government? |
Business-type activities. |
Each major governmental fund. |
Aggregate discretely presented component units. |
Management’s discussion and analysis (MD&A). |
Which of the following is a primary objective of financial reporting by state and local governments? |
To provide information that can be used for capital allocation decisions made by external investors. |
To report on the legal requirements imposed on the government by its elected officials. |
To provide information that can be used to assess a government’s accountability. |
To fulfill the government’s statutory duty to report on cash received and cash disbursed. |
Which of the following is NOT a primary source of GAAP?
Accounting Guidelines issued by the AcSB.
Accounting sections of the CPA Handbook, PART II.
Accounting sections of the CPA Handbook, PART I.
FASB accounting standards.
An unmodified audit opinion rendered on a governmental unit’s basic financial statements means those statements: |
All of the above. |
Have been certified as free from error. |
Did not require modifications by the auditor. |
Present the entity’s financial position fairly in conformity with GAAP. |
King, CPA, was engaged to audit the financial statements of Chang Company, a private company, after its fiscal year had ended. King neither observed the inventory count nor confirmed the receivables by direct communication with debtors but was satisfied that both were fairly stated after applying appropriate alternative procedures. King’s financial statement audit report most likely contained a(n):
unmodified opinion with an emphasis-of-matter paragraph.
qualified opinion.
unmodified opinion.
disclaimer of opinion.
In which section of the standard audit report does the auditor inform financial statement users that certain information, such as combining statements or budgetary comparison schedules may not have been subject to the comprehensive audit procedures? |
Auditor’s Opinion section. |
Auditor’s Responsibility section. |
Other Matters section. |
Other Information section |
Which of the following is the highest in the hierarchy of generally accepted accounting principles for federal government entities? |
FASB emerging issues task force reports. |
AICPA Audit and Accounting Guide. |
GASB statements. |
FASAB statements. |
Juanita, a Texas resident (5th Circuit), is researching a tax question and finds a 5th Circuit case ruling that is favorable and a 9th Circuit case that is unfavorable. Which circuit case has more “authoritative weight”?
Refer to the following selected financial information from McCormik, LLC. Compute the company’s working capital for Year 2.
Year 2 | Year 1 | ||||||
Cash | $ | 38,200 | $ | 32,950 | |||
Short-term investments | 97,000 | 63,500 | |||||
Accounts receivable, net | 89,000 | 83,000 | |||||
Merchandise inventory | 124,500 | 128,500 | |||||
Prepaid expenses | 12,800 | 10,400 | |||||
Plant assets | 391,500 | 341,500 | |||||
Accounts payable | 109,900 | 111,300 | |||||
Net sales | 714,500 | 679,500 | |||||
Cost of goods sold | 393,500 | 378,500 | |||||
$154,600.
$162,600.
$238,800.
$251,600.
$127,100.
Which of the following would be reported as a nonspendable fund balance? |
Assets whose use is limited. |
Capital assets. |
Inventory. |
Restricted assets. |
Which of the following would not be included within the financial section of the comprehensive annual financial report (CAFR)? |
Independent auditor’s report. |
Required supplementary information (RSI). |
Management’s discussion and analysis (MD&A). |
Letter of transmittal. |
In accounting for state and local governments the modified accrual basis is required for |
Governmental and internal service funds. |
Proprietary and fiduciary funds. |
Governmental funds. |
Governmental and fiduciary funds. |
A corporation reports the following year-end balance sheet data. The company’s debt-to-equity ratio equals:
Cash | $ | 56,000 | Current liabilities | $ | 92,000 | ||
Accounts receivable | 72,000 | Long-term liabilities | 25,000 | ||||
Inventory | 77,000 | Common stock | 117,000 | ||||
Equipment | 162,000 | Retained earnings | 133,000 | ||||
Total assets | $ | 367,000 | Total liabilities and equity | $ | 367,000 | ||
0.32
1.39
2.23
0.68
0.47
For each fund or government-wide category, select the letter(s) of the applicable fund type or characteristic. Multiple letters may apply to each category. (Select all that apply.) |
Fund Type or Characteristic | |
a. | Operational accountability |
b. | Modified accrual |
c. | Agency funds |
d. | Statement of cash flows |
e. | Fiscal accountability |
f. | Debt service funds |
g. | Current and noncurrent assets and liabilities |
h. | Internal service funds |
i. | Integrated budgetary accounts |
j. | Revenues and expenses |
k. | Additions and deductions |