Question 1

1. Dickens Corporation issued nonvoting preferred stock with a fair market value of $1,200,000 in exchange for all the assets and liabilities of D&E Corporation. D&E's net assets on the date of the acquisition had a book value of $800,000 and a fair value of $1,050,000. Also, Dickens issued common stock with a fair market value of $50,000 to legal counsel for arranging the transaction. As a result of this business combination DIcken's net assets increased by:

Answer

A. $800,000

B. $1,050,000

C. $1,200,000

D. $1,250,000

Question 2

1. The Securities and Exchange Commissions is responsible for:

Full and Fair Regulating Assessing the Quality

Disclosure of Securities of Registered

Financial Information Markets Securities

A) Yes No Yes

B) Yes Yes No

C) No Yes Yes

D) Yes Yes Yes

Answer

A. item A

B. item B

C. item C

D. item D

Question 3

1. Wade Company purchased 65 percent of Ten Corporation's voting common stock for $120,000 more than underlying book value, half of which is attributable to goodwill and the other half to land. Wade Company's control over Ten is only temporary. What amount of the purchase differential should be assigned to Land following the acquisition?

Answer

A. $ - 0 -

B. $39,000

C. $60,000

D. $120,000

Question 4

1. Tanner Company, a subsidiary acquired for cash, owned equipment wth a fair value higher than the book value as of the date of combination. A consolidated balance sheet prepared immediately after the acquisition would include this difference in:

Answer

A. Goodwill.

B. Retained earnings.

C. Deferred charges.

D. Equipment.

Question 5

1. The Sarbanes-Oxley Act of 2002 was designed in response to:

Answer

A. corporate financial accounting and reporting scandals.

B. demands by the auditing profession.

C. demands made by the FASB and the SEC.

D. all of the above.

Question 6

1. Which one of the following is not a limitation of consolidated financial statements?

Answer

A. Poor performance of one or more companies may be hidden by good performance of others.

B. Information about the financial status and results of operations of the economic entity will be reported.

C. All the consolidated retained earnings balance may not be available for dividends of the parent.

D. Supplemental information about individual companies or groups of companies included in consolidated statements may be necessary for a fair presentation.

Question 7

1. On January 1, 2003, Sun acquired 70 percent of Ryan's voting common stock for $450,000, an amount of $30,000 higher than the underlying book value of Ryan's net assets. The fair value of Ryan's net assets was equal to their book values. Any purchase differential is attributable to goodwill. On December 31, 2004, the consolidated balance sheet goodwill should be reported at:

Answer

A. zero.

B. the purchase differential.

C. the purchase differential minus the differential amortization.

D. the purchase differential divided by 70 percent.

Question 8

1. Holly Corporation purchased all of Swiss Corporation's common stock for $970,000 on July 1, 2003. The entire differential was attributed to the equipment. At that date, Swiss had equipment with a book value of $740,000 and a fair value of $880,000. The equipment is depreciated using the straight-line method over a remaining life of 240 months. What amount should be included as equipment (net) on the December 31, 2003, consolidated balance sheet?

Answer

A. $718,000

B. $762,000

C. $855,750

D. $858,000

Question 9

1. Independent auditors are liable for any materially false or misleading information contained in the registration statement filed with the SEC up to:

Answer

A. the date of the audit report.

B. the date the registration statement is filed.

C. the effective date of the registration statement.

D. the date securities are sold.

Question 10

1. The SEC requires a full and fair disclosure of information about companies so that:

Answer

A. investors can assess the investment quality of registered securities.

B. the SEC can assess the investment quality of registered securities.

C. the SEC can assess the credit worthiness of registered companies.

D. all of the above.

Question 11

1. What is the purpose of a "tombstone ad"?

Answer

A. To inform investors an upcoming offering has been canceled.

B. To inform investors of an upcoming offering.

C. To inform investors an upcoming offering will be delayed for 30 days.

D. To inform investors securities will be offered for sale after the company has responded to the SEC's comment letter

Question 12

1. Which one of the following items results in an identical decrease in an investor's investment account under both the cost method and the equity method?

Answer

A. Liquidating dividends from the investor's point of view.

B. Dividend payments.

C. Sale of one-half of the shares owned by the investor.

D. Amortization of cost over book value.

Question 13

1. The Sarbanes-Oxley Act of 2002 requires which of the following for publicly traded companies:

Answer

A. management assessment of the effectiveness of the disclosure control structure used to determine financial results

B. audit committee approval of all services provided by a company's independent auditors.

C. reporting by the independent auditors on the reliability of management's assessment of internal controls.

D. all of the above are required by the Act.

Question 14

1. Payne Company acquired a subsidiary in a combination accounted for as a purchase. The appraisal value of the identifiable net assets acquired exceeded the acquisition price. In the preparation of consolidated financial statements the excess was assigned to the appropriate assets, reducing them to zero. Any remaining excess should be recognized in the consolidated financial statements as:

Answer

A. a deferred credit.

B. negative goodwill.

C. an extraordinary gain.

D. a prior period adjustment.

Question 15

1. Which of the following situations best describes a business combination to be accounted for as a statutory merger?

Answer

A. All of the outstanding stock of a company is acquired.

B. Cash or other consideration is exchanged for total net assets of another company.

C. Two companies combine to form a new third company, and the original two companies are dissolved.

D. One company transfers assets to another company it has created.

Question 16

1. What information below is included on Form 10-K but is not included in a company's annual report?

I. Management's discussion and analysis

II. Selected financial data

III. Discussion of disagreements with external auditors

Answer

A. I and II only

B. II and III only

C. III only

D. II only

Question 17

1. Which statement below is correct about Form 10Q?

Answer

A. This form contains a company's interim financial statements and is due 45 days after the end of each of the four quarters.

B. This form contains a company's Basic Information Package and is due 45 days after the end of the company's fiscal year-end.

C. This form is used to disclosed unscheduled material events, such as a change in the control of the registrant, bankruptcy or receivership of the registrant, and changes in the registrant's certifying accountants.

D. This form contains a company's interim financial statements and is due 45 days after the end of each quarter except the four quarter when the 10-K is prepared.

Question 18

1. A change from the cost method to the equity method of accounting for an investment in common stock resulting from an increase in the number of shares held by the investor requires:

Answer

A. Only footnote disclosure

B. That the cumulative amount of the change be shown as a line item on the income statement, net of tax

C. That the change be accounted for currently and prospectively.

D. Retroactive restatement as if the investor always had used the equity method.

Question 19

1. The history of securities regulation can be traced to:

Answer

A. medieval times.

B. 18th century English Parliament's passage of the Bubble Acts.

C. 18th century creation of New York Stock Exchange.

D. the stock market crash of 1929.

Question 20

1. The Sarbanes-Oxley Act of 2002 does not

Answer

A. retain the existing statute of limitations for the discovery of fraud.

B. prohibit independent auditors from providing certain non-audit service, e.g., information systems design and analysis, to their audit clients.

C. require companies to adopt a code of ethics for senior financial officers to explain why they have not done so.

D. specify the composition of a company's board of directors.

Question 21

1. Assume that one company owns 70 percent of the common stock of another company, with the investment originally purchased at the book value of the shares acquired. For the current year, the parent reports separate operating income of $300,000, and the subsidiary reports net income of $160,000; each company declares dividends of $50,000. What will be the amount of consolidated net income reported in the consolidated income statement for the year?

Answer

A. $460,000.

B. $412,000.

C. $377,000.

D. $327,000.

Question 22

1. Which of the laws below regulate the initial distribution of security issues in the United States?

Securities Exchange Securities

Act of 1934 Act of 1933

A) Yes Yes

B) Yes No

C) No Yes

D) No No

Answer

A. item A

B. item B

C. item C

D. item D

Question 23

1. Under the equity method of accounting for a stock investment, the investment initally should be recorded at

Answer

A. cost

B. cost minus any purchase differential

C. proportionate share of the fair value of the investee company's net assets

D. proportionate share of the book value of the investee company's net assets

Question 24

1. The amount to be recognized as goodwill in the consolidated balance sheet prepared following a purchase acquisition is the excess of cost over

Answer

A. the book value of hte subsidiary's net assets.

B. the parent's interest in the book value of the subsidiary's net assets.

C. the fair value of the subsidiary's net assets.

D. the parent's interest in the fair value of the subsidiary's net assets.