1) When deficiencies are found in a registration statement that must be corrected before
the securities may be offered for sale, which of the following is issued by the SEC?
A.An audit opinion
B.A comment letter
C.A customary review
D.A comfort letter
2) Assuming no impairment in value prior to transfer, assets transferred by a parent
company to another entity it has created should be recorded by the newly created entity
at the assets’:
A.cost to the parent company
B.book value on the parent company’s books at the date of transfer
C.fair value at the date of transfer
D.fair value of consideration exchanged by the newly created entity
3) Wakefield Company uses a perpetual inventory system. In August, it sold 2,000 units
from its LIFO-base inventory, which had originally cost $35 per unit. The replacement
cost is expected to be $45 per unit. The company is planning to reduce its inventory and
expects to replace only 1,500 of these units by December 31, the end of its fiscal year.
The company replaced 1,500 units in November at an actual cost of $50 per unit.
Based on the preceding information, in the entry to record the replacement of the 1,500
units in November, Inventory will be debited for:
A.$52,500
B.$75,000
C.$67,500
D.$60,000
4) Zeus Corporation has determined that it has 15 reportable operating segments. In
order to comply with the standard for segment disclosures, Zeus Corporation should do
which of the following?
A.Report 10 reportable segments and disclose the remaining 5 segments as other
operating segments
B.Report 10 reportable segments by combining the most closely related segments
C.Report 15 reportable segments as long as the 75 percent revenue test has been
satisfied
D.Report 12 reportable segments and show all other operating segments in a column
labeled “Other Operating Segments.”
5) Electric Corporation holds 80 percent of Utility Company’s voting common shares,
acquired at book values, but none of its preferred shares. At the date of acquisition, the
fair value of the noncontrolling interest was equal to 20 percent of the book value of
Utility Company. Summary balance sheets for the companies on December 31, 20X8,
are as follows:
Neither of the preferred issues is convertible. Electric’s preferred pays a 8 percent
annual dividend, and Utility’s preferred pays a 12 percent dividend. Utility reported net
income of $30,000 and paid a total of $10,000 of dividends in 20X8. Electric reported
income from its separate operations of $70,000 and paid total dividends of $25,000 in
20X8.
Based on the preceding information, what is the amount of earnings available to
common shareholders reported in the consolidated financial statements for the year?
A.$89,200
B.$87,000
C.$91,000
D.$82,800
6) Each of the following questions names an item. Select the correct description of the
item from this list. Indicate your selection by entering the letter of the description.
Descriptions
a. Provides preliminary information to investors about an upcoming issue.
b. Informs investors of an upcoming offering.
c. Required annual filing to the SEC.
d. Discloses unscheduled material events.
e. Includes amendments to the Securities Act, additional disclosure requirements, and
other current issues regarding accounting and auditing principles and standards.
f. Results in a thorough examination by the SEC of a registration statement.
g. Issued by the staff of the SEC and contains differences that must be corrected in a
registration statement before the securities may be offered or sale.
h. Quarterly report to SEC.
i. Includes new or revised administrative practices and interpretations used in reviewing
financial statements.
j. Includes the results of actions taken against accountants or other participants because
false or misleading statements were filed.
k. Includes Regulations S-X and S-K.
Form 10-Q
7) The transactions listed in the following questions occurred in a private, not-for-profit
hospital during 20X8. For each transaction, indicate its effect on the hospital’s statement
of operations for the year ended December 31, 20X8.
Transaction: Acquired investments with cash received in the previous item.
Effect on Statement of Operations:
A.Increases operating income
B.Decreases operating income
C.The transaction is reported on the statement of operations, but there is no effect on
operating income
D.The transaction is not reported on the statement of operations
8) On January 1, 20X8, Wilhelm Corporation acquired 90 percent of Kaiser Company’s
voting stock, at underlying book value. The fair value of the noncontrolling interest was
equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity
method in accounting for its ownership of Kaiser. On December 31, 20X9, the trial
balances of the two companies are as follows:
Based on the preceding information, what amount would be reported as total
stockholder’s equity in the consolidated balance sheet at December 31, 20X9?
A.$412,000
B.$394,000
C.$542,000
D.$348,000
9) Which of the following statements concerning the management discussion and
analysis (MD&A) of a company’s financial condition is true?
I. It should cover the financial statements and other statistical data for the most recent
three-year time span.
II. It should make year-to-year comparisons of material changes in the line items.
III. Management need not explain the cause(s) of the material changes.
IV. Disclosure of material off-balance sheet transactions, arrangements, and obligations
is required in each annual and each quarterly report.
A.I, II, and IV
B.II and III
C.I, III, and IV
D.I, II, III, and IV
10) Which of the following funds should use the modified accrual basis of accounting?
A.Private-purpose trust and agency funds
B.Capital projects and special revenue funds
C.Internal service and enterprise funds
D.Debt service and private-purpose trust funds
11) For the year ended June 30, 20X9, a university assessed its students a total of
$4,000,000 for tuition and fees. Included in this amount was $300,000 of tuition
remissions awarded to graduate teaching assistants, and $150,000 of scholarships
awarded to undergraduate students. Tuition and fees totaling $3,550,000 were collected
during the year ended June 30, 20X9. What amount should be reported in the
unrestricted fund as net revenue from tuition and fees for the year ended June 30,
20X9?
A.$4,000,000
B.$3,550,000
C.$3,700,000
D.$3,850,000
12) A special revenue fund should be used in which of the following situations for a
state government?
A.For sales taxes which are to be distributed to towns, cities, villages, etc. of the state
B.For the proceeds of general obligation bonds which are to be used to construct major
long-lived fixed assets
C.For gasoline taxes which are to be used exclusively to repair state roads and bridges
D.For investments donated by a prominent citizen which are to be invested
permanently, with income being used to support homeless people
13) A statutory consolidation is a type of business combination in which:
A.one of the combining companies survives and the other loses its separate identity
B.one company acquires the voting shares of the other company and the two companies
continue to operate as separate legal entities
C.two publicly traded companies agree to share a board of directors
D.each of the combining companies is dissolved and the net assets of both companies
are transferred to a newly created corporation
14) _____ have liens, or security interests, on specific assets.
A.Secured creditors
B.Creditors with priority
C.Unsecured creditors
D.Assured creditors
15) Which regulation created the Securities and Exchange Commission?
A.Securities Act of 1933
B.Securities Exchange Act of 1934
C.Investment Company Act of 1940
D.Garn-St. Germain Depository Institutions Act of 1982
16) On January 1, 20X6, Polka Co. (Polka) and Strauss Co. (Strauss) had condensed
balance sheets as follows:
On January 2, 20X6, Polka borrowed $90,000 and used the proceeds to acquire 90% of
the outstanding common shares of Strauss. This debt is payable in ten equal annual
principal and accrued interest payments beginning December 30, 20X6. On the
acquisition date, the fair value of Strauss was $100,000, and the excess cost of the
investment over Strauss’s carrying amount of acquired net assets should be allocated
60% to inventory and 40% to goodwill.
Current liabilities on the January 2, 20X6, consolidated balance sheet should be:
A.$49,000
B.$30,000
C.$40,000
D.$50,000
17) The terms of a partnership agreement provide that one of the partners is to receive a
salary allowance of $30,000, plus a bonus of 20 percent of income after deduction of
the bonus and the salary allowance. If income is $150,000, the bonus should be:
A.$18,000
B.$20,000
C.$24,000
D.$30,000
18) Granite Company issued $200,000 of 10 percent first mortgage bonds on January 1,
20X4, at 105. The bonds mature in 10 years and pay interest semiannually on January 1
and July 1. Mortar Corporation purchased $140,000 of Granite’s bonds from the
original purchaser on January 1, 20X8, for $122,000. Mortar owns 75 percent of
Granite’s voting common stock.
Based on the information given above, what amount of premium on bonds payable will
be eliminated in the preparation of the 20X8 year-end consolidated financial
statements?
A.$3,500
B.$2,800
C.$5,000
D.$2,500
19) Note: This is a Kaplan CPA Review Question
The billings for transportation services provided to other governmental units are
recorded by the internal service fund as
A.Intergovernmental transfers
B.Interfund exchanges
C.Charges for services
D.Transportation appropriations
20) Micron Corporation owns 75 percent of the common shares and 60 percent of the
preferred shares of Stanley Company, all acquired at underlying book value on January
1, 20X8. At that date, the fair value of the noncontrolling interest in Stanley’s common
stock was equal to 25 percent of the book value of its common stock. The balance
sheets of Micron and Stanley immediately after the acquisition contained these
balances:
Stanley’s preferred stock pays a 12 percent dividend and is cumulative. For 20X8,
Stanley reports net income of $40,000 and pays no dividends. Micron reports income
from its separate operations of $75,000 and pays dividends of $30,000 during 20X8.
Based on the preceding information, what is the total noncontrolling interest reported in
the consolidated balance sheet as of January 1, 20X8?
A.$80,000
B.$40,000
C.$50,000
D.$60,000
21) Parent Corporation owns 90 percent of Subsidiary 1 Company’s stock and 75
percent of Subsidiary 2 Company’s stock. During 20X8, Parent sold inventory
purchased in 20X7 for $48,000 to Subsidiary 1 for $60,000. Subsidiary 1 then sold the
inventory at its cost of $60,000 to Subsidiary 2. Prior to December 31, 20X8,
Subsidiary 2 sold $45,000 of inventory to a nonaffiliate for $67,000 and held $15,000 in
inventory at December 31, 20X8.
Based on the information given above, what amount of cost of goods sold must be
eliminated from the consolidated income statement for 20X8?
A.$117,000
B.$120,000
C.$150,000
D.$128,000
22) The purpose of a “tombstone ad” is:
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
23) Tom, Dick, and Harry are partners in an equipment leasing business that has not
been able to generate the type of revenue expected by the partners. They share profits
and losses in a ratio of 5:3:2. They have decided to liquidate the business and have sold
all the assets except for one piece of heavy machinery. All partnership liabilities have
been settled and all the partners are personally insolvent. The machinery has a book
value of $85,000, and the partners have capital account balances as follows:
Each of the following are independent cases.
Refer to the information given above. What amount of cash will each partner receive as
a liquidating distribution if the machinery is sold for 65,000 dollars?
A.Option A
B.Option B
C.Option C
D.Option D
24) Parent Corporation purchased land from S1 Corporation for $220,000 on December
26, 20X8. This purchase followed a series of transactions between P-controlled
subsidiaries. On February 15, 20X8, S3 Corporation purchased the land from a
nonaffiliate for $160,000. It sold the land to S2 Company for $145,000 on October 19,
20X8, and S2 sold the land to S1 for $197,000 on November 27, 20X8. Parent has
control of the following companies:
Parent reported income from its separate operations of $200,000 for 20X8.
Based on the preceding information, what should be the amount of income assigned to
the controlling shareholders in the consolidated income statement for 20X8?
A.$369,400
B.$405,000
C.$465,000
D.$60,000
25) All of the following situations require a retrospective application of a change in a
reporting entity except for:
A.Presenting consolidated financials rather than individual statements for separate
entities
B.Changing the specific subsidiaries that make up a consolidated entity
C.Presenting foreign subsidiaries in addition to domestic subsidiaries
D.Changing entities that are included in combined financial statements
26) The general fund of Wold Township ordered office furniture for the mayor’s office
on August 1, 20X8. The office furniture was estimated to cost $12,000. The office
furniture was received on September 1, 20X8, with the actual cost being $11,800.
Which of the following accounts decreased on September 1, 20X8?
A.Encumbrances only
B.Expenditures only
C.Encumbrances and Budgetary Fund BalanceAssigned for Encumbrances
D.Expenditures and Budgetary Fund BalanceAssigned for Encumbrances
27) Partners Dennis and Lilly have decided to liquidate their business. The following
information is available:
Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of
liquidation, half the inventory is sold for $60,000, and $60,000 of the accounts payable
is paid. During the second month, the rest of the inventory is sold for $45,000, and the
remaining accounts payable are paid. Cash is distributed at the end of each month, and
the liquidation is completed at the end of the second month.
Refer to the information provided above. Using a safe payments schedule, how much
cash will be distributed to Lilly at the end of the second month?
A.$27,000
B.$36,000
C.$18,000
D.$0
28) Private Not-For-Profit (NFP) Entities.
Select from this list of terms to answer the following questions.
A. Fair value
B. Unrestricted net assets
C. GASB
D. FASB
E. Statement of Revenues, Expenditures, and Changes in Fund Balance
F. Lower of cost or market
G. Accrual method
H. Statement of Activities
I. General fund, restricted fund, endowment fund
J. Modified accrual method
K. Permanently restricted net assets
L. Temporarily restricted net assets
M. Endowment fund
N. Unrestricted, temporarily restricted, permanently restricted
O. Depreciation
P. Works of art and other historical treasures
Q. General fund
R. Cost
Indicate your choice by entering the letter corresponding to the correct term. A term
may be used more than once or not at all.
“Classification of an endowment contribution” describes which term listed above?
29) Mint Corporation has several transactions with foreign entities. Each transaction is
denominated in the local currency unit of the country in which the foreign entity is
located. On November 2, 20X8, Mint sold confectionary items to a foreign company at
a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08. The account
has not been settled as of December 31, 20X8, when the exchange rate has increased to
1 LCU = $1.10. The foreign exchange gain or loss on Mint’s records at year-end for this
transaction will be:
A.$460 loss
B.$387 loss
C.$387 gain
D.$460 gain
30) Which sections of the cash flow statement are affected by the difference in the
direct and indirect approaches of presenting a cash flow statement?
I. Operating activities section
II. Investing activities section
III. Financing activities section
A.I
B.II
C.III
D.I, II, and III
31) The items below are associated with the Securities and Exchange Commission.
Describe or explain each item as concisely as possible.
(a) Customary Review
(b) Comment Letter
(c) “Red Herring” Prospectus
(d) “Tombstone Ad”
(e) Financial Reporting Releases
(f) Staff Accounting Bulletins
(g) Accounting and Auditing Enforcement Releases
(h) Management’s Discussion and Analysis
32) Wilbur Corporation is to be liquidated under Chapter 7 of the Bankruptcy Code.
The balance sheet on December 31, 20X8, is as follows:
The following additional information is available:
1> Marketable securities consist of 2,000 shares of Bristol Inc. common stock. The
market value per share of the stock is $8. The stock was pledged against a $20,000, 8
percent note payable that has accrued interest of $800.
2> Accounts receivable of $40,000 are collateral for a $35,000, 10 percent note payable
that has accrued interest of $3,500.
3> Inventory with a book value of $35,000 and a current value of $32,000 is pledged
against accounts payable of $60,000. The appraised value of the remainder of the
inventory is $50,000.
4> Only $1,000 will be recovered from prepaid insurance.
5> Land is appraised at $65,000 and plant and equipment at $160,000.
6> It is estimated that the franchises can be sold for $15,000.
7> All the wages payable qualify for priority.
8> The mortgages are on the land and on a building with a book value of $110,000 and
an appraised value of $100,000. The accrued interest on the mortgages is $7,500.
9> Estimated legal and accounting fees for the liquidation are $10,000.
Required
a. Prepare a statement of affairs as of December 31, 20X8.
b. Compute the estimated percentage settlement to unsecured creditors.
33) Note: This is a Kaplan CPA Review Question
The following information pertains to Aria Co. (Aria) and its operating segments for the
year ended December 31, 20X6:
Sales to unaffiliated customers $2,000,000
Intersegment sales of products $600,000
Interest earned on loans to other industry segments $40,000
Aria and all its divisions are engaged solely in manufacturing operations. Aria evaluates
divisional performance based on controllable contribution by segments. Aria has a
reportable segment if that segment’s revenue exceeds:
A.$200,000
B.$260,000
C.$204,000
D.$264,000
34) When a new partner is admitted into a partnership and the new partner receives a
capital credit less than the tangible assets contributed, which of the following explains
the difference?
I. The new partner’s goodwill has been recognized.
II. The old partners received a bonus from the new partner.
A.I only
B.II only
C.Either I or II
D.Neither I nor II
35) ASC 280 requires certain disclosures about major customers. All of the following
statements about those disclosures are true with the exception of which statement?
A.The identity of the segment reporting the revenue from a significant customer must
be disclosed a footnote
B.The amount of revenue from a significant customer must be disclosed in a footnote
C.For applying the disclosure test a threshold of 10 percent of total revenues is
mandated
D.A local, state, or foreign government can be considered a major customer
36) In accordance with ASC 958, contributions of services are recognized as increases
in unrestricted net assets by a private, not for profit entity if which of the following
criteria are satisfied?
I. The services received create or enhance nonfinancial assets.
II. The services require specialized skills, are provided by individuals possessing those
skills, and would typically need to be purchased if not provided by donations.
III. The services will be performed within the current fiscal year.
A.I or II
B.I or III
C.II or III
D.I, II, III