Test 2, Gov & Non-Profit Acct Exam 2 - Study Set Chapter 5, Chapter 8, Chapter 7, Chapter 6, ACG 4501 Exam 2 chp 5, ACG4501 EXAM 1 (CH 1-2), Chapter 1-4 Study Guide, Chapter 4 Study Guide, Chapter 1 Study Guide, Chapter 4 Study Guide, Ch.4, Ch.3, Cha...

The following items were included in Castle City's General Fund expenditures for the year ended June. How much should be classified as capital assets in Castle City's General Fund balance sheet at June 30?

$0

The following items were included in Castle City's General Fund expenditures for the year ended June. ∙ Personal computer for the city treasurer: $6,000 ∙ Furniture for the mayor's office: $20,000 How much should be classified as capital assets in Castle City's General Fund balance sheet at June 30? A. $ 0. B. $ 6,000. C. $20,000. D. $26,000.

$0 Because Capital Assets are not recorded in governmental (general) funds.

During the year, a wealthy local merchant donated a building to the city of Rosewood. The original cost of the building was $300,000. Accumulated depreciation at the date of the gift amounted to $250,000. The appraised fair market value of the donation at the date of the gift was $600,000, of which $40,000 was the value of the land on which the building was situated. At what amount should Rosewood record this donated property in the General Fund? a. $50,000. b. $300,000. c. $600,000. d. $0.

$0 In General Fund: Donated assets are NOT recorded, FMV in General Fund zero

The following items were included in Castle City's General Fund expenditures for the year ended June. ∙ Personal computer for the city treasurer: $6,000 ∙ Furniture for the mayor's office: $20,000 How much should be classified as capital assets in Castle City's governmental-wide statement of net position at June 30? A. $ 0. B. $ 6,000. C. $20,000. D. $26,000.

$26,000 Add the total of general capital assets to be recorded in the governmental-wide statement of net position.

During the year, a wealthy local merchant donated a building to the City of Rosewood. The original cost of the building was $300,000. Accumulated depreciation at the date of the gift amounted to $250,000. The appraised fair market value of the donation at the date of the gift was $600,000, of which $40,000 was the value of the land on which the building was situated. At what amount should this contribution be recorded in the governmental activities accounts at the government-wide level? a. $50,000. b. $300,000. c. $600,000. d. $0.

$600,000 In government-wide: Donated assets are recorded at the FMV at the date of the donation: which is $600,000

A government enters into a capital lease for the purchase of a new snow plow. The present value of the future lease payments is $845,500 and there is a down payment at the inception of the lease of $25,000. The snow plow should be recorded in the government-wide statement of net position at:

$870,500

The City of Oak Park constructed a new storage facility using the city's own public works employees. Construction costs were incurred in the amount of $900,000, plus $25,000 in interest on short-term notes used to finance construction. What amount should be capitalized in the government-wide statements?

$900,000

The City of Oak Park constructed a new storage facility using the city's own public works employees. Construction costs were incurred in the amount of $900,000, plus $25,000 in interest on short-term notes used to finance construction. What amount should be capitalized in the government-wide statements? A. $900,000. B. $925,000. C. $875,000. D. $0.

$900,000

What is the difference between a compliance audit and an operational audit?

A compliance audit is an audit to determine whether the entity has conformed with regulations, rules, or processes, whereas an operational audit is an assessment of the economy, efficiency and effectiveness of an organization's operations.

At the inception of a capital lease for equipment the journal entry required in the capital projects fund will include which of the following?

A credit to Other Financing Uses-Capital Leases.

According to the profession's ethical standards, an auditor would be considered independent in which of the following instances?

A professional employee, who does not work on the audit, has a spouse who is a marketing manager for an audit client.

Which of the following statements is true about interpretations of the AICPA Code of Professional Conduct?

An AICPA member who departs from an interpretation has the burden of justifying a departure in any disciplinary hearing.

Which of the following is the best synthesis of the principles of professional skepticism and professional judgment?

Auditors should apply their experience in determining whether the financial information provided to them is complete and accurate.

How are attestation and assurance services similar?

Both involve improving the quality of information for decision makers.

If a management team needs to confirm best practices in designing internal control systems, they should consult the

Committee on Sponsoring Organizations of the Treadway Commission (COSO).

The primary reason that not-for-profit (NFP) organizations should report expenses incurred for program purposes separately from those for supporting services such as management and general and fund-raising is that:

Donors, potential donors, oversight bodies, and others need to know what percentage of total expenses are being incurred for carrying out the NFP's programs, rather than for overhead and fund-raising.

Organization- Wide Financial Statements Management's Discussion and Analysis (MD&A) Annual Performance Report Absence of Defined Ownership Interests Standards set by FASAB Standards focused on both internal and external users of financial information

Federal Government

What are the components that are included in the minimum requirements for general purpose external financial reporting?

MD&A government-wide financial statements, notes to the financial statements and RSI.

Molly Morton works at a firm that services clients in her local area, as well as in other locations. Her firm has a significant presence nationally but is not one of the largest firms. Her firm has more than 50 partners. Molly most likely works at which tier firm?

Mid-tier

Organization- Wide Financial Statements Reporting of program expenses separate from supporting expenses Absence of defined ownership interests Standards set by FASB

Nongovernmental Not-for-profit Organizations

Organization- Wide Financial Statements Management's Discussion and Analysis (MD&A) Modified Accrual Absence of defined ownership interest Standards set by GASB

State and Local Governments

Jerry works for a small sporting goods store. He suspects a colleague of misappropriating assets. When Jerry discusses this with his wife, Amy, she tells him that since the sporting goods store is audited each year by the local accounting firm, this can't be the case. Which of the following is the most likely unrealistic expectation in this example?

The auditor will definitely find any and all fraud.

Which of the following is an example of a qualitative materiality factor?

The client is experiencing a slowdown in sales and is struggling to pay vendors on time.

Which of the following is not a characteristic of an assurance service?

The subject matter is limited to financial information.

T/F: Capital projects funds do not report long-term obligations in the fund.

True

T/F: Governments are required to integrate budgetary account information in their debt service and capital projects funds only when control cannot readily be established by means other than a budget.

True

T/F: The resources to service all general long-term debts of the governmental entity are typically accounted for in debt service funds.

True

T/F: When bonds are issued at a premium, the capital projects fund can transfer those excess resources to the debt service fund.

True

T/F: When governments establish capital projects funds, they may choose to maintain a separate fund for each major project, or they may choose to combine two or more projects in a single fund.

True

A CPA who is a "covered person" purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child. The trust securities were not material to the CPA but were material to the child's personal net worth. Would the independence of the CPA be considered impaired with respect to the client?

Yes, because the stock would be considered a direct financial interest and, consequently, materiality is not a factor.

2. In which fund type would a governmental entity's capital projects fund be found? a) Governmental fund type. b) Proprietary fund type. c) Fiduciary fund type. d) Governmental activities

a

3. General fixed assets are excluded from governmental funds because a) The measurement focus of governmental funds is on financial resources. b) They are not used to used generate revenues. c) The basis of accounting is accrual. d) None of the above.

a

5. In governmental fund financial statements, the assets acquired under a capital lease would be reported at a) They are not reported in the fund financial statements. b) The present value of the required lease payments. c) The undiscounted total of required lease payments. d) The total of all payments required under the lease

a

5. With regard to the resources dedicated to the acquisition of fixed assets that will be used in general government activities, which of the following is true? a) Governments must maintain capital projects funds for resources that are legally restricted to the acquisition of fixed assets. b) Governments may maintain capital projects funds for resources that are legally restricted to the acquisition of fixed assets. c) Governments may account for any resources dedicated (whether legally or not) to the acquisition of fixed assets in any of the governmental funds. d) Government must account for all resources set aside for fixed asset acquisition in a capital projects fund

a

In which fund type would a governmental entity's debt service fund be found? a) Governmental fund type. b) Proprietary fund type. c) Fiduciary fund type. d) Governmental activities

a

A CPA would violate the AICPA rule on integrity and objectivity if:

a CPA in industry knowingly misrepresented the earnings of the company he worked for. a CPA in public practice represented both the buyer and seller in helping the parties negotiate the sale (purchase) of a business. a CPA who was an audit staff member subordinated his or her judgment to that of the audit partner.

An attitude of professional skepticism means:

any indicator of fraud is properly investigated.

Operational (performance) audits are useful because they:

are concerned with the economy, efficiency, and effectiveness of an organization's activities.

Companies use profitability measures to assess performance and to:

assess their ability to compete.

The risk assessment phase of an audit does not include:

audit execution and reporting.

2. A governmental entity may record long-term assets in which of the following funds or account groups? a) General Fund b) Internal service funds. c) Capital Project Fund d) Debt Service Fund

b

2. To seek protection under the federal Bankruptcy Code, a governmental entity must a) Be unable to provide the level of services it has provided in the recent past. b) Be unable to pay its debt in its current year. c) Have budgeted expenditures in excess of revenues. d) Both (b) and (c).

b

1. A governmental entity that is unable to satisfy claims against it a) Is prohibited from filing bankruptcy. b) May seek protection under the federal Bankruptcy Code, using the same section that is used by businesses. c) May seek protection under the federal Bankruptcy Code, using a special section directed to governments. d) Is automatically placed under the jurisdiction of a higher level of government.

c

1. The capital projects fund of a governmental entity is accounted for using which of the following bases of accounting? a) Budgetary basis. b) Cash basis. c) Modified accrual basis. d) Accrual basis.

c

4. Jefferson County bought a new backhoe using General Fund cash. When the asset was acquired, what was the appropriate entry that was made in the General Fund, assuming that the entity maintains its books and records in a manner to facilitate the preparation of fund financial statements? a) Debit Equipment; Credit Cash. b) Debit Equipment; Credit Investment in fixed assets. c) Debit Expenditure; Credit Cash. d) Debit Expenditure; Credit Investment in fixed assets

c

4. When the proceeds of long term debt are reported in governmental fund financial statements a) They are reported only as an increase in liabilities in the funds. b) They are reported only as revenues in the funds. c) They are reported only as an other financing source—debt proceeds. d) They are reported only as an other financing use—debt proceeds

c

5. The City of Shiloh sold a used police car. The police car had a historical cost of $25,000, a fair value of $18,000, and was sold for $10,000. Assuming that the City maintains its books and records in a manner to facilitate the preparation of the fund financial statements, what is the appropriate entry in the General Fund to record this sale? a) Debit Cash $10,000; Credit Revenue $10,000. b) Debit Cash $10,000 and Loss on sale $8,000; Credit Automotive equipment $18,000. c) Debit Cash $10,000; Credit Other financing sources—sale of asset $10,000. d) Debit Cash $10,000; Credit Automotive equipment $10,000

c

The debt service fund of a governmental entity is accounted for using which of the following bases of accounting? a) Budgetary basis. b) Cash basis. c) Modified accrual basis. d) Accrual basis.

c

An assurance service that determines whether the entity has conformed with regulations, rules or processes is a (an):

compliance audit.

When gaining an understanding of the client at the industry level, the auditor will:

consider the level of demand for the goods provided by companies in the industry.

1. The objectives of financial reporting for fixed assets should be to provide information a) About a governmental entity's physical resources. b) That can be used to assess the service potential of a governmental entity's physical resources. c) To help users assess a government's long- and short-term capital needs. d) All of the above

d

3. General long-term debt of a governmental entity includes a) All future financial obligations. b) All future financial obligations that result from past transactions. c) All future financial obligations that result from past transactions for which the government has already received a benefit. d) All future financial obligations that are backed by the government's general credit and revenue raising power and that result from past transactions for which the government has already received a benefit

d

Premiums received on tax-supported bonds are generally transferred to what fund?

debt service

When gaining an understanding of the client's sources of financing, the auditor:

determines if the client is meeting principal and interest payments when they are due.

When gaining an understanding of the client, the auditor will consider:

related party identification. the appropriateness of the client's system of internal controls to mitigate identified business risks. controls over the technology used to process and store data electronically.

Common uses of analytical procedures include all of the following except:

test of internal controls.

When gaining an understanding of the client, the auditor will identify the geographic location of the client because:

the auditor may plan to use staff from affiliated offices to visit overseas locations.

If a prospective new audit client does not allow the auditor to contact its existing auditor:

the auditor should consider that a negative factor on the integrity of client management.

A key aspect of the "concern for the public interest" definition of a professional is:

the fact that there are situations where professionals must put the interest of society ahead of the interest of their clients or their own well-being.

In the conceptual framework to the AICPA Code of Professional Conduct, a self-interest threat is:

the threat that a CPA could benefit, financially or otherwise, from an interest in, or a relationship with, a client or persons associated with the client.

An auditor will identify accounts and related assertions at risk of material misstatement:

to plan the audit to focus on those accounts.