Archive for March 2020

Sun Corp. approved a merger plan with Cord Corp. Factors in approving the merger were the tax returns of Cord prepared by Frank & Co., CPAs. Sun had required Cord to disclose its tax returns and audited financial statements as a condition of the merger. Frank knew of this condition before it prepared returns that contained irregularities that later caused Sun to suffer substantial losses. For Frank to be liable for common law negligence, Sun, at a minimum, must prove that Frank

Sun Corp. approved a merger plan with Cord Corp. Factors in approving the merger were the tax returns of Cord prepared by Frank & Co., CPAs. Sun...

The partnership of Rodgers & Higgs, CPAs, performed audits of Alt Corp., a publicly-traded company, for the past several years. After issuing the current year's audit report, the CFO of Alt confessed to having committed fraud against Alt. Under which of the following statutes would the investors most likely bring suit against Rodgers & Higgs?

The partnership of Rodgers & Higgs, CPAs, performed audits of Alt Corp., a publicly-traded company, for the past several years. After issuing the...

Under the Securities Exchange Act of 1934, a person is liable for making a false or misleading statement (or omission) of a material fact in an SEC filing (Section 18). Moreover, defrauding anyone in the purchase or sale of any security is illegal (Section 10). Under these provisions, a plaintiff must bring a suit within

Under the Securities Exchange Act of 1934, a person is liable for making a false or misleading statement (or omission) of a material fact in an SEC...

Dean, Inc., a publicly traded corporation, paid a $10,000 bribe to a local zoning official. The bribe was recorded in Dean's financial statements as a consulting fee. Dean's unaudited financial statements were submitted to the SEC as part of a quarterly filing on Form 10-Q. Which of the following federal statutes did Dean violate?

Dean, Inc., a publicly traded corporation, paid a $10,000 bribe to a local zoning official. The bribe was recorded in Dean's financial statements as...

Pick, CPA, was engaged by Edge Corp. to audit Edge's financial statements. Pick, in performing the audit and rendering an unmodified opinion, intentionally ignored several material omissions in the financial statements. Edge included Pick's auditor's report in its annual filing with the SEC and in its annual stockholders' report. Drane purchased shares of Edge stock based on Drane's review of the past performance of the stock and current-year financial statements. When the omissions in the financial statements became known, the value of Edge stock declined and Drane suffered a loss. Under the provisions of Rule 10b-5 of the Securities Exchange Act of 1934, what will be the result of a suit by Drane against Pick?

Pick, CPA, was engaged by Edge Corp. to audit Edge's financial statements. Pick, in performing the audit and rendering an unmodified opinion, intentionally...

Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the security's registration statement. Under Section 11, a CPA usually will not be liable to the purchaser

Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA may be liable to any purchaser of a security for certifying materially...

Jay Co., CPAs, audited the financial statements of Maco Corp. Jay intentionally expressed an unmodified opinion on the financial statements even though material misstatements were discovered. The financial statements and Jay's unmodified opinion were included in a registration statement and prospectus for an original public offering of Maco stock. Which of the following statements is true regarding Jay's liability to a purchaser of the offering under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934?

Jay Co., CPAs, audited the financial statements of Maco Corp. Jay intentionally expressed an unmodified opinion on the financial statements even though...

Hugh Gibson is suing Simpson & Sloan, CPAs, to recover losses incurred in connection with Gibson's transactions in Zebra Corporation securities. Zebra's annual Form 10-K report contained material false and misleading statements in the financial statements audited by Simpson & Sloan. To recover under the Securities Exchange Act of 1934, Gibson must, among other things, establish that

Hugh Gibson is suing Simpson & Sloan, CPAs, to recover losses incurred in connection with Gibson's transactions in Zebra Corporation securities....

Petty Corp. made a public offering subject to the Securities Act of 1933. In connection with the offering, Ward & Co., CPAs, rendered an unmodified opinion on Petty's financial statements included in the SEC registration statement. Huff purchased 500 of the offered shares. Huff has brought an action against Ward under Section 11 of the Securities Act of 1933 for losses resulting from misstatements of facts in the financial statements included in the registration statement. Ward's weakest defense is that

Petty Corp. made a public offering subject to the Securities Act of 1933. In connection with the offering, Ward & Co., CPAs, rendered an unmodified...

Quincy bought Teal Corp. common stock in an offering registered under the Securities Act of 1933. Worth & Co., CPAs, expressed an unmodified opinion on Teal's financial statements that were included in the registration statement filed with the SEC. Quincy sued Worth under the provisions of the 1933 act that deal with omission of facts required to be in the registration statement. Quincy must prove that

Quincy bought Teal Corp. common stock in an offering registered under the Securities Act of 1933. Worth & Co., CPAs, expressed an unmodified opinion...

Burt, CPA, issued an unmodified opinion on the financial statements of Midwest Corp. These financial statements were included in Midwest's annual report, and Form 10-K was filed with the SEC. As a result of Burt's reckless disregard for GAAS, material misstatements in the financial statements were not detected. Subsequently, Davis purchased stock in Midwest in the secondary market without ever seeing Midwest's annual report or Form 10-K. Shortly thereafter, Midwest became insolvent, and the price of the stock declined drastically. Davis sued Burt for damages based on Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Burt's best defense is that

Burt, CPA, issued an unmodified opinion on the financial statements of Midwest Corp. These financial statements were included in Midwest's annual report,...

Ocean and Associates, CPAs, audited the financial statements of Drain Corporation. As a result of Ocean's negligence in conducting the audit, the financial statements included material misstatements. Ocean was unaware of this fact. The financial statements and Ocean's unmodified opinion were included in a registration statement and prospectus for an original public offering of stock by Drain. Sharp purchased shares in the offering. Sharp received a copy of the prospectus prior to the purchase but did not read it. The shares declined in value as a result of the misstatements in Drain's financial statements becoming known. Under which of the following acts is Sharp most likely to prevail in a lawsuit against Ocean?

Ocean and Associates, CPAs, audited the financial statements of Drain Corporation. As a result of Ocean's negligence in conducting the audit, the financial...

Holly Corp. engaged Yost & Co., CPAs, to audit the financial statements to be included in a registration statement Holly was required to file under the provisions of the Securities Act of 1933. Yost failed to exercise due diligence and did not discover the omission of a fact material to the statements. A purchaser of Holly's securities may recover from Yost under Section 11 of the Securities Act of 1933 only if the purchaser

Holly Corp. engaged Yost & Co., CPAs, to audit the financial statements to be included in a registration statement Holly was required to file under...

Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the security's registration statement. Under Section 11, which of the following must be proven by a purchaser of the security?

Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA may be liable to any purchaser of a security for certifying materially...

Craven was the CEO of Engines Plus, Inc., a publicly-traded company. Hanson, CPA, was the long-time controller for the company. Engines Plus was about to be sued in a class action suit for defective engines. Only Craven knew about the impending suit. On March 1, Craven told Hanson about the impending suit. On March 2, Craven told Spore, an old friend, about the suit. Spore knew that Craven was the CEO of Engines Plus. On March 3, Craven, Hanson, and Spore all sold the stock they owned in Engines Plus. On March 4, the class action suit was filed and the value of Engines Plus stock plummeted. Under the insider trading provisions of the Securities Exchange Act of 1934, which of the following statements is correct regarding Craven, Hanson, and Spore?

Craven was the CEO of Engines Plus, Inc., a publicly-traded company. Hanson, CPA, was the long-time controller for the company. Engines Plus was about...

Integral Corp. is subject to the reporting provisions of the Securities Exchange Act of 1934. For its current fiscal year, Integral filed the following with the SEC: quarterly reports, an annual report, and a periodic report listing newly appointed officers of the corporation. Integral did not notify the SEC of shareholder "short-swing" profits, report that a competitor made a tender offer to Integral's shareholders, and report changes in the price of its stock as sold on the New York Stock Exchange. Under the SEC reporting requirements, which of the following was Integral required to do?

Integral Corp. is subject to the reporting provisions of the Securities Exchange Act of 1934. For its current fiscal year, Integral filed the following...

Corcoran, Inc.'s common stock trades on the New York Stock Exchange. The past year was disappointing for Corcoran. Cash flow, operating income, and net income were all significantly lower than in previous years. While discussing the financial results, Barbara Freeburg, an outside member of the board of directors, learned that Corcoran's management recorded large, one-time expenses in the last quarter of the year that related to warranty, bad-debt, environmental, and other liabilities. Management provided adequate support for the large increase in the liabilities, but Freeburg, believing liabilities were materially overstated, disagreed and resigned from the board. The large expenses recorded by Corcoran in the last quarter will most likely be reported on

Corcoran, Inc.'s common stock trades on the New York Stock Exchange. The past year was disappointing for Corcoran. Cash flow, operating income, and...

Apogee Co. has filed with the SEC for many years, and its market capitalization is $10 billion. Perigee Co. has filed continuously with the SEC for 3 years, and its market capitalization is $75 million. Which of the following is most likely a true statement about communications prior to and during a registered offering of securities?

Apogee Co. has filed with the SEC for many years, and its market capitalization is $10 billion. Perigee Co. has filed continuously with the SEC for...

Maco Limited Partnership intends to sell $6 million of its limited partnership interests. The state in which Maco was organized is also the state in which it carries on all of its business activities. If Maco intends to offer the limited partnership interests in reliance on Rule 147, the intrastate registration exception under the Securities Act of 1933, which one of the following statements is true?

Maco Limited Partnership intends to sell $6 million of its limited partnership interests. The state in which Maco was organized is also the state in...

Zack Limited Partnership intends to sell $6 million of its limited partnership interests. Zack conducts all of its business activities in the state in which it was organized. Zack intends to use the offering proceeds to acquire municipal bonds. Which of the following statements is true concerning the offering and the registration exemptions that might be available to Zack under the Securities Act of 1933?

Zack Limited Partnership intends to sell $6 million of its limited partnership interests. Zack conducts all of its business activities in the state...

Dee is the owner of 12% of the shares of common stock of D&M Corporation that she acquired in Year 1. She is the treasurer and a director of D&M. The corporation registered its securities in Year 2 and made a public offering pursuant to the Securities Act of 1933. If Dee decides to sell part of her holdings in Year 9, the shares

Dee is the owner of 12% of the shares of common stock of D&M Corporation that she acquired in Year 1. She is the treasurer and a director of D&M....

HDF, a calendar-year corporation, began business in Year 1. HDF made a valid S corporation election on December 1, Year 2. Assuming the eligibility requirements for S corporation status continued to be met throughout Year 3, on which of the following dates did HDF's S corporation status become effective?

HDF, a calendar-year corporation, began business in Year 1. HDF made a valid S corporation election on December 1, Year 2. Assuming the eligibility...

Mary and Paul are plumbers. They went into business together and decided that the corporation structure would be in their best interest. On January 1, 2019, they formed the M & P Corp. They did not file a Form 2553. Mary and Paul filed an 1120S return at the end of the year and paid self-employment tax on their respective shares of the income. All of the following statements are true except

Mary and Paul are plumbers. They went into business together and decided that the corporation structure would be in their best interest. On January...

Dart Corp., a calendar-year S corporation, had 60,000 shares of voting common stock and 40,000 shares of nonvoting common stock issued and outstanding. On February 23, 2019, Dart filed a revocation statement with the consent of shareholders holding 30,000 shares of its voting common stock and 5,000 shares of its nonvoting common stock. Dart's S corporation election

Dart Corp., a calendar-year S corporation, had 60,000 shares of voting common stock and 40,000 shares of nonvoting common stock issued and outstanding....

Village Corp., a calendar-year corporation, began business in 2015. Village made a valid S corporation election on December 5, 2018, with the unanimous consent of its shareholders. The eligibility requirements for S status continued to be met throughout 2019. On what date did Village's S status become effective?

Village Corp., a calendar-year corporation, began business in 2015. Village made a valid S corporation election on December 5, 2018, with the unanimous...

Zinco Corp. was a calendar-year S corporation. Zinco's S status terminated on April 1, 2019, when Case Corp. became a shareholder. During 2019 (365-day calendar year), Zinco had nonseparately computed income of $310,250. If no election was made by Zinco, what amount of the income, if any, was allocated to the S corporation short year for 2019?

Zinco Corp. was a calendar-year S corporation. Zinco's S status terminated on April 1, 2019, when Case Corp. became a shareholder. During 2019 (365-day...

On February 10, 2019, Ace Corp., a calendar-year corporation, elected S corporation status, and all shareholders consented to the election. There was no change in shareholders in 2019. Ace met all eligibility requirements for S status during the pre-election portion of the year. What is the earliest date on which Ace can be recognized as an S corporation?

On February 10, 2019, Ace Corp., a calendar-year corporation, elected S corporation status, and all shareholders consented to the election. There was...

Top Corp., which has been operating since 2000, has an October 31 year end, which coincides with its natural business year. On May 15, 2019, Top filed the required form to elect S corporation status. All of Top's shareholders consented to the election, and all other requirements were met. The earliest date that Top can be recognized as an S corporation is

Top Corp., which has been operating since 2000, has an October 31 year end, which coincides with its natural business year. On May 15, 2019, Top filed...

Bristol Corp. was formed as a C corporation on January 1, 1985, and elected S corporation status on January 1, 1991. At the time of the election, Bristol had accumulated C corporation earnings and profits that have not been distributed. Bristol has had the same 25 shareholders throughout its existence. In 2019, Bristol's S election will terminate if it

Bristol Corp. was formed as a C corporation on January 1, 1985, and elected S corporation status on January 1, 1991. At the time of the election, Bristol...
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