QUESTION 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: 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 2 Which one of the follow ing is not a limitation of consolidated financial statements? 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 3 Which of the laws belo w regulate the i nitial dis tribution 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 A. item A B. item B C. item C D. item D QUESTION 4 The SEC requires a full and fair disclosur e of informati on about c ompanies so that: 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 5 Which of the following situations best describes a business combi nation to be acc ounted for as a statutory merger? 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 6 Which one of the following items results in an identical decrease in an investor's investm ent account unde r both the cost method and the equity method? 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 7 The history of securities regulation can be traced to: A. medieval times. B. 18th century English Parliament's pa ssage of the B ubble Acts . C. 18th century creation of New York Stock Exchange. D. the stock market crash of 1929. QUESTION 8 Which statement below is correct about Form 10Q? A. This form contains a company's interim financial statements and is due 45 days after t he end of each o f the four quarters. B. This form contains a company's Basic Information Package and is due 45 da ...

1. QUESTION 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:
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
2
Which one of
the follow
ing is not a limitation of consolidated financial statements?
A.
Poor performance of one or more companies may be hidden by

2. 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 3
Which of the laws belo
w regulate the i
nitial dis
tribution of security issues in the United States?
Securities Exchange
Securities
Act of 1934
Act of 1933

3. A)
Yes
Yes
B)
Yes
No
C)
No
Yes
D)
No
No
A.
item A

4. B.
item B
C.
item C
D.
item D
QUESTION 4
The SEC requires a full and fair disclosur
e of informati
on about c
ompanies so that:
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.

5. all of the above.
QUESTION 5
Which of the following situations best describes a business
combi
nation to be acc
ounted for
as a statutory merger?
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 6
Which one of the following items results in an identical
decrease in an investor's investm
ent account unde
r both the
cost method and the equity method?
A.

6. 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 7
The history of securities regulation can be traced to:
A.
medieval times.
B.
18th century English Parliament's pa
ssage of the B
ubble Acts
.
C.
18th century creation of New York Stock Exchange.
D.

7. the stock market crash of 1929.
QUESTION 8
Which statement below is correct about Form 10Q?
A.
This form contains a company's interim financial statements and
is due 45 days after t
he end of each o
f 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 9
The Sarbanes-Oxley Act of 2002 does not

8. A.
retain the existing statute of limitations for the discovery of
fraud.
B.
prohibit independent auditors from providing c
ertain non-aud
it 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 10
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 preparat
ion of consoli
dated finan
cial statements the excess was assigned to the appropriate
assets, reducing them to zero.

9. Any remaining excess should be recognized in the consolidated
financial statements as:
A.
a deferred credit.
B.
negative goodwill.
C.
an extraordinary gain.
D.
a prior period adjustment
QUESTION 11
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 onl
y temporary
.
What amount of the purchase differential should be assigned to
Land following the acquisition?
A.

10. $ - 0 -
B.
$39,000
C.
$60,000
D.
$120,000
QUESTION 12
Independent auditors are liable for any materially false or
misleading information contained in the registration statement
filed with the SEC up to:
A.
the date of the audit report.
B.
the date the registration statement is filed.
C.
the effective d
ate of the
registration statement.
D.

11. the date securities are sold.
QUESTION 13
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:
A.
Goodwill.
B.
Retained earni
ngs.
C.
D
eferred charges.
D.
Equipment.
QUESTION 14
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

12. values.
Any purchase differential is attributable to goodwil
l.
On Decembe
r 31, 2004,
the consolidated balance sheet goodwill should be reported at:
A.
zero.
B.
the purchase differential.
C.
the purchase differential minus the differential amortization.
D.
the purchase differential divided by 70 percent.
QUESTION 15
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

13. market value o
f $50,000 t
o legal counsel for arranging the transaction.
As a result of this business combination DIcken's net assets
increased by:
A.
$800,000
B.
$1,050,000
C.
$1,200,000
D.
$1,250,000
QUESTION 16
The Sarbanes-Oxley Act of 2002 was designed in response to:
A.
corporate financial accounting and reporting scandals.
B.
demands by the auditing profession.
C.

14. demands made by the FASB and the SEC.
D.
all of the above.
QUESTION 17
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?
A.
$460,000.
B.
$412,000.
C.
$377,000.

15. D.
$327,000.
QUESTION 18
What is the purpose of a "tombstone ad"?
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 19
The Se

16. curities and E
xchange Com
missions is responsible for:
Full and Fair
Regulating
Assessing the
Quality
Disclosure of
Securities
of Registered
Financial Information
Markets
Securities
A)
Yes

17. No
Yes
B)
Yes
Yes
No
C)
No
Yes
Yes
D)
Yes
Yes
Yes

18. A.
item A
B.
i
tem B
C.
item C
D.
item D
QUESTION 20
Under the equity method of accounting for a stock investment,
the investment initally should be recorded at
A.
cost
B.
cost minus any purchase differential
C.
proportionate share of the fair value of the investee company's

19. net assets
D.
proportionate share of the book value of the investee company's
net assets
QUESTION 21
The Sarbanes-Oxley Act of 2002 requires which of the
following for publicly tr
aded companies:
A.
manag
ement 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.

20. QUESTION 22
The amount to be recognized as goodwill in the consolidated
balance sheet prepared following a purchase acquisition is the
excess of cost over
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.
QUESTION 23
Holly Corporation purchased all of Swiss Corpor
ation's common s
tock for $9
70,000 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.

21. 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?
A.
$718,000
B.
$762,000
C.
$855,750
D.
$8
58,000
QUE
STION 24
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

22. III. Discussion of disagreements with external auditors
A.
I and II only
B.
II and III only
C.
III only
D.
II only