The internal revenue service is the department of the united states

Financial Management Quiz 1 Please follow all instructions very carefully. You need to return your answers to me no later than 12:00 noon on Friday, October 14. If you respond after that time, you cannot get a grade higher than a B regardless of how many you get correct. I will try to remember to send out a reminder in advance. You may submit your answers in any of the following ways: Mark up the quiz itself, scan it, and email it to me (do not use RED ink). Fill out the answer sheet that is attached as a Word document and email it to me. Make your own Excel or Word answer sheet and email it to me (do not use RED font). Put your answers in the body of an email message (do not use RED font). When you send me your email, please send it to [email protected] All attachments must be in Word, Excel, or pdf, and must include your name. Note that a multiple-choice question can have only ONE answer. For each of the following, select TRUE or FALSE 1. The Internal Revenue Service is the department of the United States Government responsible for passing tax laws. TRUE FALSE 2. Of all the people involved in the creation and analysis of financial reports, the one least likely to be presenting financial statements to the board of directors is the bookkeeper. TRUE FALSE 3. Two major forms of accounting are cash basis and accrual basis. If the terms “accounts receivable” or “accounts payable” appear on your balance sheet, you are using the accrual basis of accounting. TRUE FALSE EXTRA CREDIT: Briefly explain “deferred income,” giving an example from the world of the performing arts. For each of the following, select the best answer from a-d. 4. Which of the following statements is FALSE? a. Your organization borrows $2,500,000 at an annual rate of 6%. If you pay no principal during life of the loan, the annual interest cost on the loan is $150,000. b. “Fixed assets” is another term for cash, accounts receivable, and other similar items of property. c. According to the textbook, a “Benefit Corporation” is not a tax-exempt nonprofit entity, but it does include a social goal as well as a profit motive. d. The bylaws of an organization specify which officers must be part of the organization’s governance. Another item that should be part of the bylaws is how many members of the board of directors make up a quorum. Page 1 of 4 5. Which of the following is TRUE? a. On a Form 990, an organization’s assets are divided into current assets and non-current assets. b. If a nonprofit has $1,500,000 in pledges receivable, and $500,000 of that amount is due in the next 12 months, then $1,000,000 of the pledges will be counted in the calculation of the organization’s current ratio. c. The most common kind of investments that nonprofits own are intended to produce positive investment return. The earnings on investments, like a profit that comes from having more operating revenue than expenses, are not subject to Federal income tax. d. None of the above. 6. Which of the following is TRUE? a. “In-kind” donations don’t involve cash changing hands, so they are not included in the 990. b. GAAP stands for Generally Accepted Aaccounting Principles, which apply to U.S. companies and nonprofits. c. When the Financial Accounting Standards Board refers to an “unconditional promise to give,” we often call that a “pledge.” d. All of the above. 7. Which of the following is TRUE? a. “Pledges and grants receivable” is to “contributed income” as “accounts receivable” is to “earned income.” b. A nonprofit organization has to keep track of the depreciation and the accumulated depreciation on its property, including vehicles, buildings, and equipment. Both amounts appear on the statement of financial position. c. The kind of responsibility that includes the duty of care and the duty of loyalty is called the “charitable” responsibility. d. None of the above. 8-12. You run a nonprofit social welfare agency. Your primary program is providing home health care and other services to elderly and disabled people. Fill in the blanks on the summary Statement of Activities below. Contract income $3,700,000 Client fees received Donations and grants 5% of total revenue Interest and dividends $0 Total revenue $4,000,000 Program expenses 90% of total earned income Management & general expenses Fundraising expenses $50,000 Total expenses Change in net assets $40,000 Page 2 of 4 13. Which of the following is NOT considered a current liability? a. Unused vacation time b. Insurance expense for the next 12 months paid now c. The next 12 months of payments due on a mortgage d. Estimated unbilled expenses from lawyers, accountants, and similar professionals EXTRA CREDIT: Briefly explain your answer to question 13. 14. Which of the following statements is FALSE? a. In calculating our investment income, we take into account unrealized gains and losses as well as interest, dividends, and realized gains and losses. b. A taxpayer can make payments to most kinds of nonprofit organizations, but only contributions to 501 c 3 organizations are considered charitable contributions that are deductible for tax purposes. c. The “dual aspect” accounting principle, also called double-entry bookkeeping, applies to for-profit businesses, but not to nonprofit organizations. d. In order to issue an audit opinion, you must be an individual CPA or a member of a CPA firm. 15. Even though a tax-exempt organization is not subject to income taxes, property taxes, and sales taxes, it does pay payroll taxes just like any other employer. One of those taxes is FICA (Social Security and Medicare). There are 4 employees in your nonprofit (including yourself); salaries for the 4 are $90,000; $65,000; $40,000; and $25,000. The tax rate is 7.65%. How much FICA tax will your nonprofit pay in a year? 16. Read the following two statements, then select the best answer from a-d. I. The following terms all have approximately the same meaning: income statement; profit and loss statement (P&L); statement of financial position. II. Prepaid expenses are considered an asset because they represent the right to receive specified goods or services in the future for cash paid out earlier. a. Statement I and Statement II are both TRUE. b. Statement I is TRUE and Statement II is FALSE. c. Statement II is TRUE and Statement I is FALSE. d. Statement I and Statement II are both FALSE. For each of the following, select TRUE or FALSE 17. The primary reason that tax-exempt organizations get favorable tax treatment is that they carry out missions that might otherwise be the responsibility of government. TRUE FALSE 18. The Statement of Activities of a nonprofit or the Income Statement of a for-profit company includes the items in the “fundamental accounting equation.” TRUE FALSE Page 3 of 4 19. You are a taxpayer who made a large number of donations during the past year. One of those donations was to a college for $12,000, and in return the college took you on a trip to Europe to study architecture. The trip had a fair market value of $8,900. Your deduction for tax purposes is less than $3,000. TRUE FALSE 20. All of the following are considered contributed income: contributions from individuals; grants from foundations; bequests. TRUE FALSE 21. Which of the following statements is TRUE? a. It is illegal to disclose the private income tax information of an individual without that person’s permission. On the other hand, it is legal, and required, to disclose a tax-exempt organization’s Form 990. b. If a nonprofit board has 15 members, and a quorum is defined as 7 members, then any decision made by the board must have at least 6 directors in favor. c. The following are all considered earned income: profits from a gift shop; contracts with local, state, or federal governments; interest earned on bank accounts. d. All of the above. 22-23 Given the following facts, fill in the two blanks below. Your organization’s total assets are $20,000,000. Half are current assets. Your net assets were $5,000,000 last year and are the same again this year. Your current liabilities are 1/3 of your total liabilities. Revenue for the year was $28,000,000. Total non-current liabilities Expenses for the year EXTRA CREDIT: The current ratio is: a. 2:1 b. 3:1 c: 0.5:1 d. Not determinable from the information given For each of the following, fill in the missing word or phrase. 24. The term “Owners’ ____________________” does not appear in the Statement of Financial Position of a nonprofit, but it might appear in the Balance Sheet of a for-profit company. 25. The kind of audit opinion letter you want is called “clean,” unqualified,” or “unmodified.” The worst kind of qualification or modification you can get is when an auditor thinks your organization is not a “____________________________________________.” Page 4 of 4

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