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									ACCY 161 – Spring 2007                              Exam #3                                          May 10th

Name:    KEY
Test Score: Part I __________/ 90         Part II __________/ 10          Test Total: ________/100
Part I: 90 points – 45 questions - two points each. Answer each question as indicated and put your answer
on the Scantron. I would also recommend that you put your answer on the exam as well. Choose what you
think is the best answer. If you think a question is unclear, put a comment on the exam under or next to the
question. Read each question slowly and carefully. Circle your answer on the exam if you want to record
you answer there as well as on the Scantron.

1. One of the emerging accounting and reporting issues for governmental entities is:
   a. the reporting of previously off-balance sheet assets
   b. the reporting of previously off-balance sheet liabilities
   c. use of modified accrual accounting
   d. both a. and b. are emerging issues
   e. a. and b. and c. are all emerging issues

2. Organizational types that are considered affiliates for not-for-profit entities are:
   a. asset holding affiliates
   b. limited liabilities corporations
   c. fund raising affiliates
   d. a. and b.
   e. a. and c.

3. One of the emerging accounting and reporting issues for not-for-profit entities is:
   a. new financing schemes
   b. adequate financial disclosure
   c. use of religious organizations in certain tax schemes
   d. both a. and c.
   e. both b. and c.

4.    An audit of a government, conducted in accordance with generally accepted governmental auditing
     standards (GAGAS), includes
     a. A determination of efficiency and effectiveness.
     b. An examination of financial statements and underlying records for conformance with generally
         accepted accounting principles (GAAP).
     c. Tests for compliance with laws and regulations.
     d. Both b and c.

5.    The single audit concept refers to
     a. All audits of state and local government reporting entities.
     b. Audits to determine efficiency and economy.
     c. Audits following the Single Audit Act of 1984 and the revised OMB Circular A-133.
     d. Financial and performance audits, and attestation engagements.
     e. All of the above

6. An internal control structure that is so weak that it does not reduce the risk of material noncompliance to
   an acceptably low level is called a (an)
   a. Material weakness and reportable condition.
   b. System design deficiency.
   c. Unacceptable reportable condition.

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ACCY 161 – Spring 2007                            Exam #3                                         May 10th
   d. Audit alert item.
7. A typical objective of a performance audit is for the auditor to

   a.   Determine whether the financial statements fairly present the entity's operational results.
   b.   Judge the appropriateness of an entity's program goals.
   c.   Make recommendations for improving performance.
   d.   Attest to whether the financial statements are prepared in accordance with generally accepted
        accounting principles.

8. An auditor would not render an opinion on a (an)
   a. Financial audit of financial statements.
   b. Performance audit.
   c. Audit to determine whether the entity has adhered to specific compliance requirements applicable to
      a major program.
   d. All of the above.

9. In single audit, the federal government’s representative is the:
   a. GAO
   b. OMB
   c. Congress
   d. cognizant agency
   e. none of the above

10. The Comptroller General of the United States is the head of the:
    a. Governmentat Accountability Office.
    b. Office of the Management and Budget.
    c. Congressional Budget Office.
    d. Federal Accounting Standards Advisory Board.

11. Which of the following describes the usual flow of budgetary authority through the budgetary accounts
    of a federal agency?
    a. Apportionment, allotment, appropriation, commitment, obligation, expended appropriation.
    b. Allotment, commitment, obligation, expended appropriation, apportionment.
    c. Appropriation, apportionment, allotment, commitment, obligation, expended appropriation.
    d. Commitment, obligation, appropriation, apportionment, allotment, expended appropriation.

12. Federal capital assets that possess educational, cultural, or natural characteristics are
    a. Governmental assets
    b. Stewardship assets
    c. Heritage assets
    d. Stewardship investments
    e. a. and. b. and c. are all correct

13. The GASB "Budgeting Principle" states that an annual budget should be adopted by (for) every
    a. Governmental fund type.
    b. Fund of a government.
    c. Government
    d. Governmental fund type except capital projects funds.
14. Which of the following might appropriately be termed an outcome indicator for a police department that
    reports service efforts and accomplishments (SEA) indicators?
    a. Number of crimes investigated.

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ACCY 161 – Spring 2007                                 Exam #3                                         May 10th
  b. Value of property lost due to crime.
  c. Hours of patrol.
  d. Number of personnel hours expended.

15. A cost that can be identified specifically with a particular cost objective is termed a (an)
    a. Common cost.
    b. Indirect cost.
    c. Direct cost.
    d. Sunk cost.

16. Which of the following systems of cost allocation is most common in governmental accounting?
    a. Direct
    b. ABC
    c. Overhead allocation
    d. Step-down

The following are key terms in governmental budgeting. Use them for questions 17, 18, 19.

      A.   Planning-programming-budgeting system
      B.   Zero-based budgeting
      C.   Program budgeting
      D.   Incremental budgeting
      E.   Object budgeting

For each of the following definitions, indicate the key term from the list above that best matches by placing
the appropriate letter in the blank space next to the definition and on your Scantron

17.        __B_ A budget in which each activity and the amounts of resources requested for each activity must
           be justified each year

18.        _D__ A budget that is derived from the current year budget by multiplying a factor across all line-

19.        __C__ A budgeting approach popular in the 1960s that integrates various elements of the activity.

20. Responsibility for promulgating generally accepted accounting principles for nongovernmental, not-for-
    profit entities rests with the:

      a.   IRS
      b.   FASB
      c.   GASB
      d.   GAO
      e.   the state in which the entity is incorporated

21. Statement of Financial Accounting Standards (SFAS) No. 116 on contributions received and
    contributions made describes measurement and reporting rules for
    a. Exchange transactions, such as membership dues and charges for services.
    b. Nonexchange transactions, such as unrestricted and restricted gifts.
    c. Gains and losses on investment income.
    d. All of the above.

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ACCY 161 – Spring 2007                           Exam #3                                        May 10th
22. Statement of Financial Accounting Standards (SFAS) No. 117 requires the following financial reporting
    perspective for not-for-profit organizations
    a. Dual tracking
    b. Fund
    c. Aggregate
    d. both a. and c.
    e. a. and b. and c.

23. Depreciation expense in a not-for-profit organization should be
    a. Allocated to the functions to which it relates.
    b. Reported as a functional support expense under management and general.
    c. Disclosed in the notes to the financial statements.
    d. Allocated to program but not support functions.

24. A good reason for a not-for-profit organization to adopt fund accounting is that
    a. The not-for-profit organization provides more than one type of program service.
    b. The not-for-profit organization 's capital assets are significant.
    c. Restrictions have been placed on the use of certain of its assets by donors.
    d. The not-for-profit organization 's donated services are significant.

25. Accounting standards for not-for-profit organizations require
    a. Full accrual accounting.
    b. Modified accrual accounting.
    c. Fund accounting.
    d. Capitalization of collections.

26. Which of the following is a not a true statement about tax-exempt organizations?
    a. They must be organized to serve the charitable needs of the public at large.
    b. They must first become a not-for-profit corporation or charitable trust.
    c. They are permitted to do some political lobbying if guidelines are met.
    d. Their unrelated business income is taxed at corporate income tax rates.

27. Which of the following is a reason why a not-for-profit organization might fail to qualify for tax-exempt
    a. It is operated primarily for the benefit of its members.
    b. Its officers are paid excessive wages.
    c. Its primary purpose is to promote the passage of legislation favorable to institutions of higher
    d. It has unrelated business income.

28. The income most likely to be considered unrelated business income of a human service organization that
    provides immunizations to children in the community is
    a. Rental of extra space in the building.
    b. Regular sale of sweatshirts with the organization's logo on it at a price considerably above cost. –
    c. Interest and dividend income on investments.
    d. Gain on the sale of equipment no longer needed by the organization.

24. The incorporating documents that have an external focus and describe the purpose of the organization
    without being too restrictive are called
    A) By-laws.

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ACCY 161 – Spring 2007                             Exam #3                                           May 10th
  B) IRS Form 990.
  C) Articles of incorporation.
  D) Minutes of the Board meetings.

29. A single audit would be done by:
    a. all governmental entities
    b. only certain governmental entities that meet certain criteria
    c. nonprofit entities that meet certain criteria
    d. b. and c.
    e. a. and c.

30. A good measure of whether the not-for-profit organization is spending too much on overhead, such as
    general and administrative expenses, is
    a. Percentage of unrestricted net assets to operating expenses.
    b. Current ratio.
    c. Total revenues divided by total expenses.
    d. Percentage of total expenses spent on the program function as opposed to supporting the

31. Which of the following statements is true regarding generally accepted accounting principles (GAAP) for
    colleges and universities?
    a. The FASB has set standards for private colleges and universities
    b. The National Association of Colleges and University Business Officers set the standards with the
        approval of the GASB and the FASB.
    c. Public and private colleges and universities must comply with the AICPA Audit and Accounting
    d. The GASB is responsible for establishing GAAP for public colleges and universities.

32. Which of the following is not a condition that would permit a public college or private college or
    university to avoid accounting recognition of the value of its collections of art, historical treasures, and
    similar assets?
    a. The assets are held for public exhibition, education, or research in furtherance of public service rather
       than financial gain.
    b. The assets are protected, kept unencumbered, cared for, and preserved.
    c. The assets are subject to an organizational policy that ensures the proceeds of sales of collectible
       assets are used for operations of the organization.
    d. None of above; all three items are conditions that will avoid accounting recognition.

33. Are public and private colleges and universities required to report depreciation expense in their financial
    a. Public: No; Private: No
    b. Public: Yes; Private: No
    c. Public: Yes; Private: Yes
    d. Public: No; Private: Yes

34. Which of the following is a typical classification of a functional expense in a college or university?
    a. Recreation and culture.
    b. Public safety.
    c. Academic support.
    d. Depreciation.

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ACCY 161 – Spring 2007                             Exam #3                                         May 10th

35. Charity service and bad debts in a public hospital that follows business-type accounting are reported
    a. The same, both as deductions from gross patient revenue in arriving at net patient revenue.
    b. The same, both are reported as expenses.
    c. Differently, charity service is reported as a deduction from gross patient revenue and bad debts are
       reported as an expense.
    d. Differently, charity service is merely disclosed in the notes to the financial statements, and bad
       debts are reported as a deduction from revenue.

36. Contractual adjustments is properly characterized as
    a. An expense.
    b. An other financing use.
    c. A liability.
    d. A deduction from revenues.

37.    Fixed dollar amount of fees per person paid periodically by a third-party payor to a health care
      a. Premium mix
      b. Fee-based payment
      c. Head-count fee
      d. Capitation fee
      e. None of the above

38.    The difference between the gross patient service revenue and the negotiated payment by third-party
       payors in arriving at net patient service revenue
       a. Bad debt expenses
       b. Per member fee
       c. Contractual discount
       d. Member fee
       e. None of the above

39.     A case-mix classification scheme in the Medicare program to determine reimbursement for inpatient
      a. Capitation fee
      b. Contract fee
      c. DRG fee
      d. Combined fee
      e. None of the above

40. The tax exempt status for a not-for-profit organization means that:
    a. it is exempt from federal income tax only
    b. it is exempt from both federal and state income taxes
    c. it could be exempt from state stales taxes
    d. a. and c. are correct
    e. b. and c. are correct.

41. The oversight of the not-for-profit organizations is at:
    a. the federal level by the IRS
    b. the state level by the attorney general’s office
    c. the local level by the district of attorney

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ACCY 161 – Spring 2007                             Exam #3                                          May 10th
42. The majority of the federal taxes comes from:
    a. corporate taxes
    b. individual taxes
    c. there is no one source of tax revenue that is a majority source of revenue for the federal government

43. The Nonprofit Integrity Act of 2004 has a requirement(s) for:
    a. Audit committees
    b. Annual financial audits
    c. Review of executive compensation
    d. both a. and c.
    e. a. and b. and c.

44. The cornerstone of accounting and financial reporting for not-for-profit organizations is:
    a. accountability
    b. sustainability
    c. visibility
    d. c. and b.

45. The pubic generally has access to the following records of a tax-exempt not-for-profit organization:
    a. tax returns
    b. articles of incorporation
    c. board minutes
    d. only a. and c.
    e. a. and b. and c.

Part II: - Short Essay (10 points). Answer one of the following two questions. Include in your answer
why it relates to accounting and/or reporting for not-for-profits entities. Use an example in your

See text for answers.

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