A local government has four federal grants

A local government has four federal grants. Expenditures amounted to $1,000,000 during the year that ended June 30, 2003, as follows:

Type A HHS grant, audited last year, no major findings $400,000
HHS grant, new this year and never audited 350,000
Type B Department of Transportation 205,000
FFA 45,000
Total all funds $1,000,000

a. Which grants would the auditor be required to audit, assuming the government is not found to be low risk?
b. Which grants would the auditor be required to audit, assuming the government is found to be low risk?

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Farm Labs, Inc. provides mad cow disease testing for both state and federal governmental agricultural agencies

P11-5A Farm Labs, Inc. provides mad cow disease testing for both state and federal governmental agricultural agencies. Because the company's customers are governmental agencies, prices are strictly regulated. Therefore, Farm Labs must constantly monitor and control its testing costs. Shown below are the standard costs for a typical test.

Direct materials (2 test tubes @ $1.50 per tube) $3
Direct labor (1 hour @ $25 per hour) 25
Variable overhead (1 hour @ $5 per hour) 5
Fixed overhead (1 hour @ $10 per hour) 10
Total standard cost per test $43

The lab does not maintain an inventory of test tubes. Therefore, the tubes purchased each month are used that month. Actual activity for the month of November 2008, when 1,500 tests were conducted, resulted in the following:

Direct materials (3,050 test tubes) $ 4,270
Direct labor (1,600 hours) 36,800
Variable overhead 7,400
Fixed overhead 14,000

Monthly budgeted fixed overhead is $14,000. Revenues for the month were $75,000, and selling and administrative expenses were $4,000.

Instructions:
a) Compute the price and quantity variances for direct materials and direct labor.
b) Compute the total overhead variance.
c) Prepare an income statement for management.
d) Provide possible explanations for each unfavorable variance.

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The following is a description of various factors that affected the operations of Lincoln Federal Savings and Loan

4-62 (Lincoln Federal Savings and Loan) The following is a description of various factors that affected the operations of Lincoln Federal Savings and Loan, a California savings and loan (S&L) that was a subsidiary of American Continental Company, a real estate development company run by Charles Keating.

Required:
a. After reading the discussion of Lincoln Federal Savings and Loan, identify the risk areas that should be identified in planning for the audit.
b. Briefly discuss the risks identified and the implication of those risks for the conduct of the audit.
c. The auditor did review a few independent appraisals indicating the market value of the real estate in folders for loans. How convincing are such appraisals? In other words, what attributes are necessary in order for the appraisals to constitute persuasive evidence?

Lincoln Federal Savings & Loan
Savings and Loan industry background-the S&L industry was developed in the early part of the century in response to a perceived need to provide low-cost financing to encourage home ownership. As such, legislation by Congress made the S&L industry the primary financial group allowed low-cost home ownership loans (mortgages).
For many years, the industry operated by accepting relatively long-term deposits from customers and making 25- to – 30-year loans at fixed rates on home mortgages. The industry was generally considered to be safe. Most of the S&Ls (also known as thrifts) were small, federally chartered institutions with deposits insured by the FSLIC. “Get your deposits in, make loans, sit back, and earn your returns. Get to work by 9 A.M. and out to the golf course by noon” Seemed to be the motto of many S&L managers.,
Changing economic environment-During the 1970s, two major economic events hit the S&L industry. First, the rate of inflation had reached an all-time high. Prime interest rates had gone as high as 19.5%. Second, deposits were being drawn away from the S&Ls by new competitors that offered short-term variable rates substantially higher than current passbook savings rates. The S&Ls responded by increasing the rates on certificates of deposit to extraordinary levels (15 or 16%) while servicing mortgages with 20-to 30-year maturities made at old rates of 7 to 8%. The S&Ls attempted to mitigate the problem by offering variable-rate mortgages or by selling off some of their mortgages (at substantial losses) to other firms.
However, following regulatory accounting principles, the S&Ls were not required to recognize market values of loans that were not sold. Thus, even if loan values were substantially less than the book value, they would continue to be carried at book value as long as the mortgage holder was not in default.
Changing regulatory environment-Congress moved to deregulate the S&L industry. During the first half of 1982, the S&L industry lost a record $3.3 billion (even without marking loans down to real value). In August 1982, President Reagan signed the Garn-St Germain Depository Institutions Act of 1982, hailing it as “the most important legislation for financial institutions in 50 years.” The bill had several key elements:
• S&Ls would be allowed to offer money market funds free from withdrawal penalties or interest rate regulation.
• S&Ls could invest up to 40% of their assets in nonresidential real estate lending. Commercial lending was much riskier than home lending, but the potential returns were greater. In addition, the regulators helped the deregulatory fever by removing a regulation that had required a saving and loan institution to have 400 stockholders with no one owning more than 25% to allowing a single shareholder to own a savings and loan institution.
• The bill allowed thrifts to stop requiring traditional down payments and to provide 100% financing, with the borrower not required to invest a dime of personal money in the deal.
• The bill permitted thrifts to make real estate loans anywhere. They had previously been required to make loans on property located only in their own geographic area.


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A new bank has vault cash of $1 million and $5 million in deposits held at its Federal Reserve District Bank

P4-1 A new bank has vault cash of $1 million and $5 million in deposits held at its Federal Reserve District Bank.
a. If the required reserves ratio is 8 percent, what dollar amount of deposits can the bank have?
b. If the bank holds $65 million in deposits and currently holds bank reserves such that excess reserves are zero, what required reserves ratio is implied?

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Don Walls's gross earnings for the week were $1,780, his federal income tax withholding was $301.63, and his FICA total was $135.73

E10-5 Don Walls's gross earnings for the week were $1,780, his federal income tax withholding was $301.63, and his FICA total was $135.73.

Instructions:
a. What was Walls's net pay for the week?
b. Journalize the entry for the recording of his pay in the general journal. (Note: Use Salaries Payable; not Cash.)
c. Record the issuing of the check for Walls's pay in the general journal.

Click here for the solution: Don Walls's gross earnings for the week were $1,780, his federal income tax withholding was $301.63, and his FICA total was $135.73