ACC497 Final Exam 1) Scot and Vidia, married taxpayers, earn $96,500 in taxable income and $5,000 in interest from an investment in City of Tampa bonds

Question

ACC497 Final Exam

1) 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?

b. How would your answer differ if they, instead, had $91,250 of additional deductions?

Users of financial statements can generally be broken down into which of the following two categories:

External users and preparers.

Government and investors.

Government and external users.

Creditors and Investors.

Which of the following would decrease the governmental activities balance in Net Position-Net Investment in Capital Assets?

Receipt of a capital grant that has not been expended at fiscal year-end.

An increase in accumulated depreciation.

Acquisition of a capital lease.

Sale of a fully depreciated capital asset.

Jones Corp. reported current assets of $185,000 and current liabilities of $129,000 on its most recent balance sheet. The current assets consisted of $63,600 Cash; $45,400 Accounts Receivable; and $76,000 of Inventory. The acid-test (quick) ratio is:

1:1.

0.59:1.

0.58:1.

0.85:1.

1.4:1.

External decision-makers include all of the following except:

creditors.

owners.

employees.

managers.

Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $27,000 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 10 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.

c. Based on requirement a and b, should Manny send his client the bill in December or January?

Under GASB standards which of the following funds can report a positive amount for unassigned fund balance?

All of the above.

General Fund.

Special revenue fund.

Capital projects fund.

Under a single audit, low-risk Type A programs are identified as those:

All of the above.

Audited in at least one of the two most recent audit periods as a major program.

With no significant changes in personnel or systems that would have significantly increased risk.

Considered low-risk in the auditor’s professional judgment.

Which of the following is a primary objective of financial reporting by state and local governments?

To report on the legal requirements imposed on the government by its elected officials.

To fulfill the government's statutory duty to report on cash received and cash disbursed.

To provide information that can be used for capital allocation decisions made by external investors.

To provide information that can be used to assess a government's accountability.

The St. Lucia Blood Bank, a private charity partly supported by government grants, is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September, which was a particularly busy month due to a powerful hurricane that hit neighboring islands causing many injuries. The hurricane largely bypassed St. Lucia, but residents of St. Lucia willingly donated their blood to help people on other islands. As a consequence, the blood bank collected and processed over 20% more blood than had been originally planned for the month.

A report prepared by a government official comparing actual costs to budgeted costs for the blood bank appears below. Continued support from the government depends on the blood bank’s ability to demonstrate control over its costs.

St. Lucia Blood Bank Cost Control Report For the Month Ended September 30
	Actual Results		Planning Budget		Variances
Liters of blood collected		780		600
Medical supplies	$	9,252	$	7,110	$	2,142	U
Lab tests		10,876		8,700		2,176	U
Equipment depreciation		1,920		1,700		220	U
Rent		1,500		1,500		0
Utilities		376		350		26	U
Administration		14,090		13,940		150	U
Total expense	$	38,014	$	33,300	$	4,714	U

The managing director of the blood bank was very unhappy with this report, claiming that his costs were higher than expected due to the emergency on the neighboring islands. He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands. The government official who prepared the report countered that all of the figures had been submitted by the blood bank to the government; he was just pointing out that actual costs were a lot higher than promised in the budget.

The following cost formulas were used to construct the planning budget:

	Cost Formulas
Medical supplies	$11.85q
Lab tests	$14.50q
Equipment depreciation	$1,700
Rent	$1,500
Utilities	$350
Administration	$1.90q

Required:

1. Complete the performance report for September using the flexible budget approach.

A corporation reports the following year-end balance sheet data. The company's debt-to-equity ratio equals:


Cash	$	51,000	Current liabilities	$	86,000
Accounts receivable		66,000	Long-term liabilities		43,000
Inventory		71,000	Common stock		111,000
Equipment		156,000	Retained earnings		104,000
Total assets	$	344,000	Total liabilities and equity	$	344,000

0.60

0.38

1.36

2.19

0.63

The organization created to develop accounting standards in Canada, the AcSB, is NOT concerned about:

reported earnings.

reporting financial position.

reported cash flows.

All of these answers are correct.

reported comparability of results.

Balsam City's library board is appointed by the city council, which has agreed to subsidize the operating costs of the library at a material amount to be determined each year. In addition, the city is paying debt service on general obligation bonds issued to construct the library. Based on generally accepted accounting principles (GAAP) criteria for defining the reporting entity:

The library is a jointly governed organization.

The library is a joint venture.

The library is a component unit.

The library is a special purpose government.

Advanced Pharmaceuticals, Inc., is a wholesale distributor of prescription drugs to independent retail and hospital-based pharmacies. Management believes that top-notch customer representatives are the key factor in determining whether the company will be successful in the future. Customer representatives serve as the company’s liaison with customers—helping pharmacies monitor their stocks, delivering drugs when customer stocks run low, and providing up-to-date information on drugs from many different companies. Customer representatives must be ultra-reliable and are highly trained. Good customer representatives are hard to come by and are not easily replaced.

Customer representatives routinely record the amount of time they spend serving each pharmacy. This time includes travel time to and from the company’s central warehouse as well as time spent replenishing stocks, dealing with complaints, answering questions about drugs, informing pharmacists of the latest developments and newest products, reviewing bills, explaining procedures, and so on. Some pharmacies require more hand-holding and attention than others and consequently they consume more of the representatives’ time.

Recently, customer representatives have made more frequent complaints that it is impossible to do their jobs without working well beyond normal working hours. This has led to an alarming increase in the number of customer representatives quitting for jobs in other organizations. As a consequence, management is considering dropping some customers to reduce the workload on customer representatives. Data concerning a representative sample of the company’s customers appears below:

	Leafcrest Pharmacy	Providence Hospital Pharmacy	Madison Clinic Pharmacy	Jenkins Pharmacy
Total revenues	$379,060	$2,896,080	$1,568,640	$324,400
Cost of drugs sold	$271,470	$2,274,480	$1,159,440	$155,920
Customer service costs	$10,840	$80,400	$52,000	$14,480
Customer representative time	215	1,640	760	280

Customer service costs include all of the costs—other than the costs of the drugs themselves—that could be avoided by dropping the customer. These costs include the hourly wages of the customer representatives, their sales commissions, the mileage-related costs of the customer representatives’ company-provided vehicles, and so on.

Required:

1. Rank the four customers in terms of their profitability.

2. Customer representatives are currently paid $25 per hour plus a commission of 1% of sales revenues. If these four pharmacies are indeed representative of the company’s customers, could the company afford to pay its customer representatives more in order to retain them?

In accounting for state and local governments the modified accrual basis is required for

Governmental funds.

Governmental and internal service funds.

Proprietary and fiduciary funds.

Governmental and fiduciary funds.

The estate of Monique Chablis earned $450 of income this year. Is the estate required to file an income tax return?

Under the modified accrual basis of accounting, revenues should be recognized when

Authorized by the budget ordinance.

Earned.

Measurable and available.

Collected in cash.

Use the following information to determine whether the Development Special Revenue and the Debt Service Funds should be reported as major funds based on asset amounts provided. Development Special Revenue Fund Assets $740,000 Debt Service Fund Assets $150,000 Total Governmental Fund Assets $7,500,000 Total Governmental Fund and Enterprise Fund Assets $8,750,000

The Development Special Revenue Fund should be reported as major.

The Debt Service Fund should be reported as major.

Both the Development Special Revenue Fund and the Debt Service Fund should be reported as major.

Neither the Development Special Revenue Fund nor the Debt Service Fund should be reported as major.

Combining financial statements for nonmajor funds of a government should be included

In the notes to the financial statements.

As a part of the financial section of the comprehensive annual financial report (CAFR).

In the basic financial statements.

As part of the statistical section of the comprehensive annual financial report (CAFR).

When conducting a single audit:

All programs not identified as low risk must be audited.

At a minimum, all Type A major programs not identified as low risk and certain high-risk Type B programs must be considered for audit.

All major programs must be audited.

All federal grant programs must be audited.

King, CPA, was engaged to audit the financial statements of Chang Company, a private company, after its fiscal year had ended. King neither observed the inventory count nor confirmed the receivables by direct communication with debtors but was satisfied that both were fairly stated after applying appropriate alternative procedures. King’s financial statement audit report most likely contained a(n):

qualified opinion.

unmodified opinion with an emphasis-of-matter paragraph.

disclaimer of opinion.

unmodified opinion.

A corporation reported cash of $26,600 and total assets of $459,000 on its balance sheet. Its common-size percent for cash equals:

58.00%.

5.80%.

17.26%.

1726%.

100.00%.

Which of the following factors would not indicate that a potential component unit (PCU) imposes a financial burden or provides a financial benefit to the primary government?

The primary government is entitled to the PCU's resources.

The primary government is obligated for the PCU's debt.

The primary government is entitled to its share of any dividends distributed by the PCU.

The primary government is obligated to provide financial support to the PCU

Government-wide financial statements present the government's financial position using the:

Financial resources measurement focus and the accrual basis of accounting.

Economic resources measurement focus and the accrual basis of accounting.

Current financial resources measurement focus and the modified accrual basis of accounting.

Current financial resources measurement focus and the cash basis of accounting.

Which of the following is NOT a primary motivator for maximizing net income?

Compliance with debt covenants.

To positively influence users' assessment of management performance.

To enhance managers' performance-based compensation.

To minimize the company's income tax liability.

Use the following selected information from Wheeler, LLC to determine the 2017 and 2016 common size percentages for cost of goods sold using Net sales as the base.

	2017		2016
Net sales	$	456,600	$	372,200
Cost of goods sold		201,400		133,880
Operating expenses		73,390		70,730
Net earnings		37,060		26,310

60.2% for 2017 and 55.0% for 2016.

44.1% for 2017 and 36.0% for 2016.

166.2% for 2017 and 181.9% for 2016.

8.1% for 2017 and 7.1% for 2016.

122.7% for 2017 and 100.0% for 2016.

A city received resources that the state indicates can only be used for public works projects, such as road construction. Assuming the resources have not been expended by year end, how would the resources the city received be shown in the city’s fund balances?

Spendable-Assigned Fund Balance.

Spendable-Restricted Fund Balance.

Spendable-Committed Fund Balance.

Spendable-Designated Fund Balance.

Which of the following is not a characteristic of a fund as defined by GASB standards?

An accounting entity.

A fiscal entity.

A reporting entity.

A self-balancing set of accounts.

Carlsville Company, which began operations in 2015, invests its idle cash in trading securities. The following transactions are from its short-term investments in trading securities.

2015
Jan.	20	Purchased 800 shares of Ford Motor Co. at $26 per share plus a $125 commission.
Feb.	9	Purchased 2,200 shares of Lucent at $44.25 per share plus a $578 commission.
Oct.	12	Purchased 750 shares of Z-Seven at $7.50 per share plus a $200 commission.
Dec.	31	Fair value of the short-term investments in trading securities is $130,000.

2016
Apr.	15	Sold 800 shares of Ford Motor Co. at $29 per share less a $285 commission.
July	5	Sold 750 shares of Z-Seven at $10.25 per share less a $102.50 commission.
July	22	Purchased 1,600 shares of Hunt Corp. at $30 per share plus a $444 commission.
Aug.	19	Purchased 1,800 shares of Donna Karan at $18.25 per share plus a $290 commission.
Dec.	31	Fair value of the short-term investments in trading securities is $160,000.

2017
Feb.	27	Purchased 3,400 shares of HCA at $34 per share plus a $420 commission.
Mar.	3	Sold 1,600 shares of Hunt at $25 per share less a $250 commission.
June	21	Sold 2,200 shares of Lucent at $42 per share less a $420 commission.
June	30	Purchased 1,200 shares of Black & Decker at $47.50 per share plus a $595 commission.
Nov.	1	Sold 1,800 shares of Donna Karan at $18.25 per share less a $309 commission.
Dec.	31	Fair value of the short-term investments in trading securities is $180,000.

Required:

1.	Prepare journal entries to record these short-term investment activities for the years shown. On December 31 of each year, prepare the adjusting entry to record any necessary fair value adjustment for the portfolio of trading securities.