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					ACCY 161 – Fall 2008                               Exam #3 KEY

SOME OF THESE ANSWER ARE NO LONGER VALID AFTER THE END OF 2008.
THOSE ITEMS ARE NOT ON OUR EXAM TOMORROW.

1. An audit of a government, conducted in accordance with generally accepted auditing standards (GAAS),
   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). It does this as well as generally accepted governmental auditing
       standards
   C. Tests for compliance with laws and regulations.
   D. Both B and C.
2. Government Auditing Standards (GAS) issued by the U.S. Comptroller General apply to
   A. Financial statement audits of federal organizations made by the Government Accountability Office.
   B. Financial statement audits of federal programs made by state auditors.
   C. Financial statements of federal grants made by independent CPAs.
   D. All of the above.
3. 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 (with 1996 Amendments) and the revised OMB
       Circular A-133.
   D. Financial and performance audits, and attestation engagements.
4. One of the primary purposes of the Single Audit Act of 1984 (amended in 1996) is to
   A. Detect fraud, waste and abuse in government entities.
   B. To promote the efficient and effective use of audit resources by consolidating audit activity into
       one organization-wide audit.
   C. Make audit activity legal at the federal level.
   D. Allow federal auditors greater access to government entities receiving federal funds.
5. 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.
6. Generally Accepted Government Auditing Standards (GAGAS)
   A. Establish the same scope as GAAS, but use wording appropriate to governmental entities instead of
       business organizations.
   B. Are set forth in the "Federal Government Red Book."
   C. Establish more extensive standards than those found in GAAS.
   D. Establish standard wording of auditor's reports on governmental financial statements.
7. 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.
8. A single audit conducted pursuant to the Single Audit Act Amendments of 1996 requires which of the
   following types of audits?
   A. Financial Audit: Yes; Performance Audit: No
   B. Financial Audit: No; Performance Audit: No
   C. Financial Audit: No; Performance Audit: Yes
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ACCY 161 – Fall 2008                               Exam #3 KEY

    D. Financial Audit: Yes; Performance Audit: Yes
9. Which of the following best describes the relationship between generally accepted auditing standards
    (GAAS) and government auditing standards (GAS)?
    A. GAAS apply to independent CPA auditors; GAS apply to governmental auditors.
    B. Audits conducted in conformity with the yellow book may also require the auditor to conform to GAAS.
    C. Audits done in accordance with GAS must also be done in accordance with GAAS.
    D. Audits of state and local governments always required that the audit be conducted in accordance with
        both GAAS and GAS.
10. Which of the following federal officials is a "principal" of the Joint Financial Management Improvement
    Program who considers and approves or disapproves accounting and reporting standards recommended by
    the Federal Accounting Standards Advisory Board?
    A. Chair of the Federal Accounting Standards Advisory Board.
    B. Secretary of the Interior.
    C. Comptroller General.
    D. All of the above.
11. Which of the following statements most accurately describes the dual-track accounting system used in
    federal agency accounting?
    A. Recording internal budgetary transactions along with financial transactions with external parties.
    B. Use of double-entry accounting.
    C. Maintaining self-balancing sets of proprietary and budgetary accounts and recording the effects of
        transactions on both available budgetary resources and proprietary accounts, the latter measured
        on the accrual basis to better promote agency management.
    D. Keeping separate books, one on a tax basis and the other on a GAAP basis.
12. Which of the following accounts used in state and local government accounting is most like the federal
    budgetary account "Undelivered Orders"?
    A. Encumbrance.
    B. Expenditure.
    C. Appropriation.
    D. Reserve for Encumbrance.
13. The Comptroller General of the United States is the head of the:
    A. Government Accountability Office.
    B. Office of the Management and Budget.
    C. Congressional Budget Office.
    D. Federal Accounting Standards Advisory Board.
14. 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.
15. All of the following are characteristics of not-for-profit organizations (NPOs) that distinguish them from
    business organizations except
    A. Contributions by resource providers who do not expect a return on investment.
    B. Ability to impose taxes on citizens.
    C. Operating purposes other than to earn a profit.
    D. Absence of ownership interests.
16. 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.
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ACCY 161 – Fall 2008                                 Exam #3 KEY

17. A good reason for an NPO to adopt fund accounting even though FASB standards do not require it is that
    A. The NPO provides more than one type of program service.
    B. The NPO's capital assets are significant.
    C. Restrictions have been placed on the use of certain of its assets by donors.
    D. The NPO's donated services are significant.
18. Accounting standards for NPOs require
    A. Full accrual accounting.
    B. Modified accrual accounting.
    C. Fund accounting.
    D. Capitalization of collections.
19. The purpose of a statement of functional expenses is to
    A. Report on the net income of each program compared to that of supporting the programs.
    B. Report on program expenses and supporting expenses.
    C. Report on the natural expenses (object-of-expense), as well as by program and support functions.
    D. Report on the cash flows of each program and that of supporting the programs.
20. 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.
21. Which of the following is a reason why an NPO might fail to qualify for tax-exempt status?
    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 education.
    D. It has unrelated business income.
22. A good measure of whether the NPO 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
       programs.
23. 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
24. 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. Governmental unit
    D. Governmental fund type except capital projects funds.
25. 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.
    B. Value of property lost due to crime.
    C. Hours of patrol.
    D. Number of personnel hours expended.
26. A cost that can be identified specifically with a particular cost objective is termed a (an)
    A. Common cost.
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ACCY 161 – Fall 2008                                 Exam #3 KEY

    B. Indirect cost.
    C. Direct cost.
    D. Sunk cost.
27. 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 28, 29, 30
    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
28. B_ A budget in which each activity and the amounts of resources requested for each activity must be
       justified each year
29. __D A budget that is derived from the current year budget by multiplying a factor across all line-items
30. C A budgeting approach popular in the 1960s that integrates various elements of the activity.
31. 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
32. 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.
33. 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.
34. A single audit would be done for:
    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.
35. 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
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ACCY 161 – Fall 2008                               Exam #3 KEY

        programs.
36. 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 Guide
    D. The GASB is responsible for establishing GAAP for public colleges and universities.
    E. Both A. and D. are correct.
37. 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.
38. Contractual adjustments is properly characterized as
    A. An expense.
    B. An other financing use.
    C. A liability.
    D. A deduction from revenues.
39. Fixed dollar amount of fees per person paid periodically by a third-party payor to a health care provider
    A. Premium mix
    B. Fee-based payment
    C. Head-count fee
    D. Capitation fee
    E. None of the above
40. 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
41. A case-mix classification scheme in the Medicare program to determine reimbursement for inpatient
    services
    A. Capitation fee
    B. Contract fee
    C. DRG fee
    D. Combined fee
    E. None of the above
42. 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.
43. The Nonprofit Integrity Act of 2004 has a requirement(s) for:
    A. Audit committees
    B. Annual financial audits
    C. Review of executive compensation
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ACCY 161 – Fall 2008                                Exam #3 KEY

    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.




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