Homework Lance
A) Three balance sheets, three income statements, and three statements of cash flows.
B) Three balance sheets, two income statements, and two statements of cash flows.
C) One balance sheet, one income statement, and one statement of cash flows.
D) Two balance sheets, three income statements, and three statements of cash flows.
E) Two balance sheets, two income statements, and two statements of cash flows.
Answer: D
Learning Objective: 12-02
Topic: SEC requirements―Proxy and annual report
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
46. The audit committee of an entity subject to SEC regulation will do all of the following except:
A) Be responsible for agreeing to fee compensation of the independent audit firm.
B) Certify the annual financial statements.
C) Be comprised only of individuals who are not members of management.
D) Approve non-audit services provided by the independent audit firm.
E) Serve as liaison between the board of directors and the independent audit firm.
Answer: B
Learning Objective: 12-03
Topic: Sarbanes-Oxley Act―SOX
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
Essay:
[QUESTION]
47. For each of the following situations, identify the type of form to be filed with the SEC for disclosure purposes:
(A) Form 10-K
(B) Form 10-Q
(C) Form 8-K
(D) Not required
___ 1. A unique or significant happening.
___ 2. Annual information required by Regulation S-X.
___ 3. Changes in control of the registrant.
___ 4. Interim financial statements.
___ 5. Fourth quarter income statement.
___ 6. Bankruptcy.
___ 7. Annual information required by Regulation S-K.
___ 8. Income statement for the current quarter, year-to-date, and comparative periods in the previous year.
___ 9. Changes in bookkeeping staff.
___ 10. Changes in the registrant’s independent auditor.
Answer: (1) C; (2) A; (3) C; (4) B; (5) D; (6) C; (7) A; (8) B; (9) D; (10) C
Learning Objective: 12-06
Topic: Issuer filings with SEC―Periodic-10K-10Q-8K-Proxy
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
48. What is shelf registration?
Answer: Shelf registration is a procedure that allows large companies to register securities with the SEC and then sell them over a period of two years without registering again during that period.
Learning Objective: 12-06
Topic: Issuer registration―Procedures
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
49. What is a private placement of securities?
Answer: A private placement of securities is a sale of securities according to Regulation D–Rule 506 of the Securities Act of 1933. A private placement is an issue of any dollar amount to unlimited non-accredited investors and to no more than 35 sophisticated investors, knowledgeable and experienced in financial matters, who already have sufficient information available to them about the issuing company. Learning Objective: 12-06
Topic: Issuer registration―Securities exemptions
Difficulty: 3 Hard
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
50. What is a wraparound filing?
Answer: A wraparound filing is a method of filing Form 10-K with the SEC. The company attaches its annual report to Form 10-K and uses incorporation by reference to meet most of the filing requirements of the SEC.
Learning Objective: 12-06
Topic: Issuer filings with SEC―Periodic-10K-10Q-8K-Proxy
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
51. What is included in Part I of a securities registration statement?
Answer: Part I is a prospectus that includes financial statements audited by an independent CPA, an explanation of the intended use of the proceeds from the sale of such securities, a description of the risks associated with the securities, and a description of the business and properties owned by the issuer.
Learning Objective: 12-06
Topic: Issuer registration―Procedures
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
52. What is included in Part II of a securities registration statement?
Answer: Part II includes information that discloses issuance expenses, marketing arrangements, and other data that is primarily used by SEC staff in the registration process.
Learning Objective: 12-06
Topic: Issuer registration―Procedures
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
53. What is blue sky legislation?
Answer: Blue sky legislation represents state legislation that is intended to prevent securities fraud and to offer some protection to investors. These are for securities exempt from SEC registration because they are sold to residents of the state in which the issuing company is chartered and principally doing business.
Learning Objective: 12-06
Topic: Issuer registration―Securities exemptions
Difficulty: 3 Hard
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
54. How are the operations of the SEC funded?
Answer: The operations of the SEC are funded through registration fees charged to companies registering securities.
Learning Objective: 12-01
Learning Objective: 12-05
Topic: About the Securities and Exchange Commission―SEC
Topic: Issuer filings with SEC―Define and describe
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
55. What was the purpose of the Securities Act of 1933?
Answer: The purpose of the Securities Act of 1933 was to ensure that potential investors can have adequate information to make investment decisions, prevent deceit, and misrepresentation in connection with the sale of securities.
Learning Objective: 12-02
Topic: Federal securities laws―Purpose
Topic: Federal securities laws―Specific laws
Difficulty: 1 Easy
Blooms: Remember
AACSB: Ethics
AICPA: BB Legal
[QUESTION]
56. What was the purpose of the Securities Exchange Act of 1934?
Answer: The purpose of the Securities Exchange Act of 1934 was to regulate the trading of previously issued securities through brokers and exchanges. The Act created the SEC and empowered it to: (i) require reporting by publicly owned companies; and (ii) require registration of securities, security exchanges, and certain brokers and dealers of securities. The purpose of the Act is to also prohibit fraudulent and unfair behavior such as sales practice abuses and insider trading.
Learning Objective: 12-02
Topic: Federal securities laws―Purpose
Topic: Federal securities laws―Specific laws
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AACSB: Ethics
AICPA: BB Legal
[QUESTION]
57. What is the purpose of the SEC’s Regulation S-K?
Answer: Regulation S-K establishes requirements for nonfinancial information that is filed with the SEC.
Learning Objective: 12-02
Topic: SEC requirements―Regulations S-K and S-X
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
58. Why is the SEC’s Rule 14c-3 important to the accounting profession?
Answer: Rule 14c-3 is important to the accounting profession because it states that annual reports of a public company must include financial statements of the company that have been audited by CPAs as independent auditors.
Learning Objective: 12-02
Topic: SEC requirements―Proxy and annual report
Difficulty: 2 Medium
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
59. For what purpose is the SEC’s Registration Form S-4 used?
Answer: Registration Form S-4 is used to register securities issued in connection with business combination transactions.
Learning Objective: 12-05
Topic: Issuer filings with SEC―Registration statements
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
60. When must Form 8-K be filed with the SEC and in what situations must this form be used?
Answer: Form 8-K must be filed with the SEC within 15 calendar days of the occurrence of a significant event. Significant events to be disclosed include: (i) a change in the company’s independent auditor; (ii) entering into bankruptcy or receivership; (iii) a change in the control of the company; (iv) the acquisition of, or disposal of, assets, and (v) resignation of a director.
Learning Objective: 12-06
Topic: Issuer filings with SEC―Periodic-10K-10Q-8K-Proxy
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
61. What is the purpose of Regulation S-K? Briefly describe requirements of Regulation S-K.
Answer: The purpose of Regulation S-K is to establish disclosure requirements for all nonfinancial information included in filings with the SEC. The registrant must: (i) describe its business and securities; (ii) provide data about directors, officers, and management; (iii) include a management’s discussion and analysis of the company’s current financial condition and the results of its operations; (iv) disclose legal proceedings with respect to which the company is a party; and (v) identify and describe the company’s properties.
Learning Objective: 12-02
Topic: SEC requirements―Regulations S-K and S-X
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
62. What is a proxy? Briefly explain the importance of a proxy solicitation and a proxy statement.
Answer: A proxy is a form signed by a stockholder giving someone else the legal authority to vote the shareholders’ stock at a corporation’s stockholders’ meeting. A proxy solicitation is a request by management for a signed proxy for an authorized vote of anyone unable to attend the annual meeting to encourage a voting quorum at the stockholders’ meeting. A proxy statement is important because it accompanies the solicitation for a stockholder’s vote and includes information regarding all matters that are to be voted upon at the stockholders’ meeting.
Learning Objective: 12-06
Topic: Issuer filings with SEC―Periodic-10K-10Q-8K-Proxy
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
63. What are the responsibilities of the SEC’s Division of Corporation Finance?
Answer: The Division of Corporation Finance has responsibility for ensuring that disclosure requirements are met by publicly held companies. Such responsibility includes the reviewing of: (i) registration statements; (ii) tender offers; (iii) proxy materials; (iv) annual reports; and (v) annual and quarterly filings.
Learning Objective: 12-01
Topic: About the Securities and Exchange Commission―SEC
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
64. What are the four interconnected goals that the SEC has tried to achieve?
Answer: The four interconnected goals include:
(1) Ensuring that full and fair information is disclosed to all investors before the securities of a company may be bought and sold.
(2) Prohibiting the dissemination of materially misstated information.
(3) Preventing the misuse of information especially by inside parties.
(4) Regulating the operation of securities markets such as the New York Stock Exchange and various over-the-counter exchanges.
Learning Objective: 12-02
Topic: Federal securities laws―Purpose
Difficulty: 2 Medium
Blooms: Remember
AACSB: Ethics
AICPA: BB Legal
[QUESTION]
65. What is required by the Trust Indenture Act of 1939?
Answer: The Trust Indenture Act of 1939 requires the registration of trust indenture documents and supporting data in connection with the public sale of bonds, debentures, notes, and other debt securities.
Learning Objective: 12-02
Topic: Federal securities laws―Specific laws
Difficulty: 2 Medium
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
66. What information needs to be included in Form 10-Q?
Answer: Information in Form 10-Q includes the following:
(1) Income statements for the most recent quarter and for the year to date as well as for the comparative periods in the previous year must be included.
(2) A statement of cash flows is mandatory, but only for the year to date as well as for the corresponding period in the preceding year.
(3) Two balance sheets are reported: one for the end of the most recent quarter with the second showing the company’s financial position at the end of the previous fiscal year.
(4) Any needed disclosures need to be included pertaining to the current period including management’s discussion and analysis (MD&A) of the financial condition of the company and the results of operations.
Learning Objective: 12-06
Topic: Issuer filings with SEC―Periodic-10K-10Q-8K-Proxy
Difficulty: 3 Hard
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
67. What are some of the reasons for the corporate scandals of 2001 and 2002?
Answer: The corporate scandals of 2001 and 2002 resulted from: (i) Greed by corporate executives; (ii) a failure in the corporate governance process as practiced by many boards of directors; (iii) failure of public accounting firms to apply appropriate quality control measures to ensure independent judgments; (iv) deficiencies in self-regulatory standards of the accounting profession; (v) unreasonable market expectations; and (vi) an overburdened SEC.
Learning Objective: 12-02
Topic: Federal securities laws―Purpose
Difficulty: 3 Hard
Blooms: Understand
AACSB: Ethics
AICPA: BB Legal
[QUESTION]
68. Why was the Public Utility Holding Company Act of 1935 created?
Answer: There were financial reporting abuses in the 1920s by complex utility empires. The owners of the empires minimized the need for equity financing. The Act requires registration of interstate holding companies of public utilities.
Learning Objective: 12-02
Topic: Federal securities laws―Purpose
Difficulty: 3 Hard
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
69. What information is required in proxy statements?
Answer: Proxy statements must include the following information: (i) Five-year summary of operations; (ii) description of business activities; (iii) three-year summary of industry segments, export sales, and foreign and domestic operations; (iv) listing of company directors and executive officers; (v) quarterly market price of the company’s common stock; (vi) dividend-paying restrictions; and (vii) MD&A.
Learning Objective: 12-02
Topic: SEC requirements―Proxy and annual report
Difficulty: 3 Hard
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
70. What Federal agency has Congressional authority to amend, modify, repeal, or reject auditing standards?
Answer: The Securities and Exchange Commission.
Learning Objective: 12-03
Topic: SEC authority over establishing GAAP
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
[QUESTION]
71. How has the Sarbanes-Oxley Act of 2002 changed the role of the audit committee?
Answer: The audit committee is now responsible for the appointment and compensation of the external auditor. To ensure impartiality, the committee must be independent from management. The auditor reports directly to the audit committee.
Learning Objective: 12-03
Topic: Sarbanes-Oxley Act―SOX
Difficulty: 2 Medium
Blooms: Understand
AACSB: Ethics
AICPA: BB Legal
[QUESTION]
72. What is a primary focus of the Sarbanes-Oxley Act of 2002?
Answer: A primary focus of the Sarbanes-Oxley Act of 2002 is the establishment of the Public Company Accounting Oversight Board (PCAOB) for regulation of audit standards and independent audit firms.
Learning Objective: 12-04
Topic: Sarbanes-Oxley Act―SOX
Difficulty: 2 Medium
Blooms: Remember
AACSB: Ethics
AICPA: BB Legal
[QUESTION]
73. Who has the responsibility for the evaluation of the quality of an investment?
Answer: The investor.
Learning Objective: 12-05
Topic: Issuer filings with SEC―Define and describe
Difficulty: 1 Easy
Blooms: Remember
AACSB: Ethics
AICPA: BB Legal
[QUESTION]
74. Name the two broad categories of filings with the SEC.
Answer: Registration statements and periodic filings.
Learning Objective: 12-05
Topic: Issuer filings with SEC―Define and describe
Difficulty: 1 Easy
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
75. Name five securities offerings exempt from registration with the SEC.
Answer: Securities offerings exempt from registration include but are not limited to the following (only five are required for this question):
(i) Securities sold to the residents of the state in which the issuer is chartered and doing business;
(ii) securities issued by governments, banks, and Savings and Loan Associations
(iii) securities restricted to a company’s existing stockholders and sold without commission
(iv) securities issued by nonprofit organizations
(v) securities issued under Revised Regulation A
(vi) securities issued under Regulation D–Rule 504
(vii) securities issued under Regulation D–Rule 505
(viii) securities issued under Regulation D–Rule 506.
Learning Objective: 12-06
Topic: Issuer registration―Securities exemptions
Difficulty: 3 Hard
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
[QUESTION]
76. Describe the two parts of the SEC registration statement.
Answer: Part I (the prospectus) contains extensive information including: (i) financial statements audited by an independent CPA; (ii) an explanation of the intended use of the proceeds; (iii) a description of the risks associated with the securities; and (iv) a description of the business and the properties of the company. Part II is primarily for the informational needs of the SEC staff. The registrant is not required to provide this information to prospective buyers, although the registration statement is a public document. Part II includes information such as marketing arrangements, sales to special parties, and securities issue expenses.
Learning Objective: 12-06
Topic: Issuer registration―Procedures
Difficulty: 3 Hard
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Legal
AICPA: FN Measurement
GIPHY App Key not set. Please check settings