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1. ACC 497 Final Exam Guide (New, 2017) NEW
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ACC 497 Final Exam Guide (New, 2017) NEW
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. 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?
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.

3. 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.
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

4. 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.

5. Which of the following is true regarding financial reporting for
internal service funds?
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.

6. 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.
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.

7. 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 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.

8. 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

9. liability can be reasonably estimated, but the company refuses to
disclose this information in the financial statements.
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.

10. 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?
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.

11. 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%.
3.82%.
15.50%.
2.53%.
6.45%.
19

12. 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.

13. Governmental activities journal and depreciation on the capital
assets should be recorded.
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.

14. 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?
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

15. 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%.
26.
Selected current year company information follows:

16. 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%.

17. 56.40%.
29.
Refer to the following selected financial information from
Shakley's Incorporated. Compute the company's profit margin for
Year 2.
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.