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1. ACC 497 Final Exam Guide (New, 2020) For more classes visit www.snaptutorial.com 1. An unmodified audit opinion rendered on a governmental unit's basic financial statements means those statements: Have been certified as free from error. Present the entity's financial position fairly in conformity with GAAP. Did not require modifications by the auditor. All of the above. 2 Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething Inc., that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond. Assume Melinda’s marginal tax rate is 25 percent. (Leave no cells blank - be sure to enter "0" wherever required.) a. What is her after-tax rate of return for the City of Heflin bond?

2. 3. One of the primary purposes of the Single Audit Act of 1984 (amended in 1996) is to: Promote the efficient and effective use of audit resources. Make audit activity legal at the federal level. Allow federal auditors greater access to government entities receiving federal funds. Detect fraud, waste and abuse in government entities. 4. Tech Company has disclosed an uncertainty due to pending litigation. The auditor’s decision to issue a qualified opinion on Tech’s financial statements would most likely result from: the entity’s lack of experience with such litigation. an inability to estimate the amount of loss. a lack of sufficient evidence. a lack of insurance coverage for possible losses from such litigation. 5. The goal(s) of a performance audit include(s) assessment of: Economy. Internal control compliance. Program effectiveness. All of the above.

3. 6. Eagle Company, a public company, had a computer failure and lost part of its financial data. As a result, the auditor was unable to obtain sufficient audit evidence relating to Eagle’s inventory account. Assuming the inventory account is at least material, the auditor would most likely choose either: a qualified opinion with no explanatory paragraph or a qualified opinion with an explanatory paragraph. an unqualified opinion with no explanatory paragraph or an unqualified opinion with an explanatory paragraph. a qualified opinion or an adverse opinion. a qualified opinion or a disclaimer of opinion. 7. Which of the following funds is a governmental fund-type? Enterprise fund. Internal service fund. Permanent fund. Private-purpose trust fund. 8. Which of the following is true regarding financial reporting for internal service funds?

4. Internal service funds are generally reported in the Governmental Activities column of the government-wide financial statements. Internal service funds are generally reported in the Business-type Activities column of the government-wide financial statements. Internal service funds are aggregated and reported as a major fund in the proprietary fund financial statements. Internal service funds are reported in the governmental fund financial statements. 9. The body that has the responsibility to set generally accepted accounting principles in Canada is the: AcSB. OSC. FASB. IASC. 10. Under GASB standards, where are nonmajor funds reported? In aggregate amounts in a single column in the fund financial statements. In a note disclosure following the financial statements. In the government-wide financial statements. In the management's discussion and analysis preceding the financial statements. 11.

5. For each of the following scenarios, indicate how they would be classified for fund balance reporting purposes by selecting from the list of classification. 12. Which of the following would be considered Category (b) GAAP for state and local government auditees? GASB Statements and Interpretations. AICPA Practice Bulletins if specifically made applicable to state and local governments by the AICPA and cleared by the GASB. GASB Technical Bulletins. GASB Implementation Guides. 13. The estate of Monique Chablis earned $450 of income this year. Is the estate required to file an income tax return? No, because the estate's gross income is less than $600, the estate is not required to file an income tax return. 14. The essential characteristic(s) of accounting is (are): communication of financial information to interested persons, communication of financial information about economic entities, and

6. identification, measurement, and communication of financial information. communication of financial information about economic entities. communication of financial information to interested persons. identification, measurement, and communication of financial information. 15. For each of the following independent situations, indicate the type of financial statement audit report that you would issue and briefly explain your reasoning. Assume that all companies mentioned are private companies and that each item is at least material. a. Barefield Corporation, a wholly owned subsidiary of Sandy, Inc., is audited by another CPA firm. As the auditor of Sandy, Inc., you have assured yourself of the other CPA firm’s independence and professional reputation. However, you are unwilling to take complete responsibility for its audit work. b. The management of Bonner Corporation has decided to exclude the statement of cash flows from its financial statements because it believes that its bankers do not find the statement to be very useful. c. You are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the year ended September 30. On September 1, one of its manufacturing plants caught fire, releasing nerve gas into the surrounding area. Two thousand people were killed and numerous others paralyzed. The company’s legal counsel indicates that the company is liable and that the amount of the liability can be reasonably estimated, but the company refuses to disclose this information in the financial statements.

7. d. During your audit of Cuccia Coal Company, the controller, Tracy Tricks, refuses to allow you to confirm accounts receivable because she is concerned about complaints from her customers. You are unable to satisfy yourself about accounts receivable by other audit procedures and you are concerned about Tracy’s true motives. e. On January 31, Asare Toy Manufacturing hired your firm to audit the company’s financial statements for the prior year. You were unable to observe the client’s inventory on December 31. However, you were able to satisfy yourself about the inventory balance using other auditing procedures. f. Gelato Bros., Inc., leases its manufacturing facility from a partnership controlled by the chief executive officer and major shareholder of Gelato. Your review of the lease indicates that the rental terms are in excess of rental terms for similar buildings in the area. The company refuses to disclose this related-party transaction in the footnotes. g. Johnstone Manufacturing Company has used the double-declining balance method to depreciate its machinery. During the current year, management switched to the straight-line method because it felt that it better represented the utilization of the assets. You concur with its decision. All information is adequately disclosed in the financial statements. 16. 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?

8. Auditor’s Opinion section. Other Information section Other Matters section. Auditor’s Responsibility section. 17. Award Use the following selected information from Wheeler, LLC to determine the 2017 and 2016 trend percentages for net sales using 2016 as the base. 66.0% for 2017 and 64.6% for 2016. 54.2% for 2017 and 56.1% for 2016. 36.1% for 2017 and 40.4% for 2016. 120.3% for 2017 and 100.0% for 2016. 116.2% for 2017 and 100.0% for 2016. 2017: $279,200 / $232,000 × 100 = 120.3% 2016: $232,000 / $232,000 × 100 = 100.0% 18 A company reports basic earnings per share of $4.30, cash dividends per share of $1.65, and a market price per share of $65.15. The company's dividend yield equals: 2.62%.

9. 3.82%. 15.50%. 2.53%. 6.45%. 19 Refer to the following selected financial information from McCormik, LLC. Compute the company's days' sales in inventory for Year 2. (Use 365 days a year.) 45.2. 115.2. 49.1. 82.2. 43.6. 20 Capital assets used by an enterprise fund should be accounted for in the Business-type activities journal but no depreciation on the capital assets should be recorded. Governmental activities journal and depreciation on the capital assets should be recorded.

10. Enterprise fund but no depreciation on the capital assets should be recorded. Enterprise fund and depreciation on the capital assets should be recorded. 21. For each of the following definitions, indicate the key term from the list that best matches by placing the appropriate terms. 22. Which of the following statements regarding audit findings is true? A material weakness is a deficiency in internal control important enough to merit attention by those charged with governance. All of the above are true. 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. 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. 23. Which of the following would be reported as a nonspendable fund balance?

11. Assets whose use is limited. Restricted assets. Capital assets. Inventory. 24. For the following items that require reconciliation between governmental funds financial statements and governmental activities financial statements at the government-wide level according to GASB standards, indicate which is the best appropriate terms. A) Always be subtracted from fund balances—governmental funds. B) Always be added to fund balances—governmental funds C) May be added to or subtracted from fund balances—governmental funds in arriving at net position of governmental activities. 25. Martinez Corporation reported Net sales of $777,000 and Net income of $130,000. The Profit margin is: 83.27%. 1.67%. 5.98%. 598.0%. 16.73%.

12. 26. Selected current year company information follows: 27. Some governments provide to their citizens highly condensed financial information, budget summaries, and narrative descriptions. This report is called a(an) Popular report. Required supplementary information. Basic financial statements. Comprehensive annual financial report. 28. A corporation reported cash of $25,600 and total assets of $454,000 on its balance sheet. Its common-size percent for cash equals: 5.64%. 100.00%. 17.73%. 1773%. 56.40%. 29. Refer to the following selected financial information from Shakley's Incorporated. Compute the company's profit margin for Year 2.

13. 17.1%. 32.5%. 9.8%. 14.2%. 12.1%. 30. An organization that has not published financial accounting standards is the: Institute of Chartered Accountants. Emerging Issues Committee. Certified Management Accountants of Canada. International Accounting Standards Committee. ************************************************** ACC 497 Week 3 Knowledge Check (2 Set) (2020 Syllabus) For more classes visit

14. www.snaptutorial.com 1 The estate of Monique Chablis earned $450 of income this year. Is the estate required to file an income tax return? 2. Paula could not reach an agreement with the IRS at her appeals conference and has just received a 90-day letter. If she wants to litigate the issue but does not have sufficient cash to pay the proposed deficiency, what is her best court choice? 3. Jonah has the choice of paying Rita $7,000 today or $14,000 in 10 years. Assume Jonah can earn a 4 percent after-tax rate of return. Which should he choose? Use Exhibit 3.1.

15. 4. Congress would like to increase tax revenues by 16 percent. Assume that the average taxpayer in the United States earns $51,000 and pays an average tax rate of 30 percent. a. If the income effect is in effect for all taxpayers, what average tax rate will result in a 16 percent increase in tax revenues? (Round your answer to 2 decimal places.) b. This is an example of what type of forecasting? Dynamic

16. 5. Molto Stancha Corporation had zero earnings this fiscal year; in fact, they lost money. Must they file a tax return? 6. The estate of Monique Chablis earned $450 of income this year. Is the estate required to file an income tax return? 7. Scot and Vidia, married taxpayers, earn $96,500 in taxable income and $5,000 in interest from an investment in City of Tampa bonds. (Use the U.S. tax rate schedule for married filing jointly). (Do not round intermediate calculations. Round your answer to 2 decimal places.) a. If Scot and Vidia earn an additional $91,250 of taxable income, what is their marginal tax rate on this income?

17. 8. Song earns $180,000 taxable income as an interior designer and is taxed at an average rate of 30 percent (i.e., $54,000 of tax). a. If Congress increases the income tax rate such that Song’s average tax rate increases from 30 percent to 40 percent, how much more income tax will she pay assuming that the income effect is descriptive? (Round your intermediate calculations and final answer to 2 decimal places.) b. If the income effect is descriptive, the tax base and the tax collected will increase. 9

18. Fergie has the choice between investing in a State of New York bond at 7.5 percent and a Surething bond at 10.6 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, in which bond should she invest? Fergie Should Invest in: State of New york Bond 10. Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $26,000 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 9 percent on his investments. a. What is the after-tax income if Manny sends his client the bill in December? b. What is the after-tax income if Manny sends his client the bill in January? Use Exhibit 3.1.

19. c. Based on requirement a and b, should Manny send his client the bill in December or January? 1. The estate of Monique Chablis earned $450 of income this year. Is the estate required to file an income tax return? 2. Congress would like to increase tax revenues by 5 percent. Assume that the average taxpayer in the United States earns $40,000 and pays an average tax rate of 20 percent. a. If the income effect is in effect for all taxpayers, what average tax rate will result in a 5 percent increase in tax revenues? (Round your answer to 2 decimal places.) b. This is an example of what type of forecasting?

20. 3. Molto Stancha Corporation had zero earnings this fiscal year; in fact, they lost money. Must they file a tax return? 4. Scot and Vidia, married taxpayers, earn $187,500 in taxable income and $5,000 in interest from an investment in City of Tampa bonds. (Use the U.S. tax rate schedule for married filing jointly). (Do not round intermediate calculations. Round your answer to 2 decimal places.) If Scot and Vidia earn an additional $82,750 of taxable income, what is their marginal tax rate on this income? a. How would your answer differ if they, instead, had $82,750 of additional deductions? b.

21. 5. 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”? 6. Hyundai is considering opening a plant in two neighboring states. Option 1: One state has a corporate tax rate of 10 percent. If operated in this state, the plant is expected to generate $1,435,000 pretax profit. Option 2: The other state has a corporate tax rate of 2 percent. If operated in this state, the plant is expected to generate $1,360,000 of pretax profit.

22. a. What is the after state taxes profit in the state with the 10% tax rate? b. What is the after state taxes profit in the state with the 2% tax rate? Which state should Hyundai choose? 7. Song earns $130,000 taxable income as an interior designer and is taxed at an average rate of 25 percent (i.e., $32,500 of tax). If Congress increases the income tax rate such that Song’s average tax rate increases from 25 percent to 35 percent, how much more income tax will she pay assuming that the income effect is descriptive? a.

23. b. If the income effect is descriptive, the tax base and the tax collected will increase. 8. Dennis is currently considering investing in municipal bonds that earn 4.05 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 5.4 percent. a. If Dennis’s tax rate is 20 percent, which bond should he choose? b. Which bond should he choose if his tax rate is 30 percent?

24. c. At what tax rate would he be indifferent between the bonds? d. What strategy is this decision based upon? 9. Jonah has the choice of paying Rita $15,000 today or $75,000 in 10 years. Assume Jonah can earn a 4 percent after-tax rate of return. Which should he choose? Use Exhibit 3.1. 10. Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething Inc., that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond.

25. Assume Melinda’s marginal tax rate is 25 percent. (Leave no cells blank - be sure to enter "0" wherever required.) a. What is her after-tax rate of return for the City of Heflin bond?