Under state law, which of the following statements most accurately reflects the liability of a CPA who fraudulently prepares a client's tax return?

Under state law, which of the following statements most accurately reflects the liability of a CPA who fraudulently prepares a client's tax return?

The CPA probably is liable to any person who suffered a loss as a result of the fraud.

Which of the following facts must be proven for a lender to prevail in a state-law negligent misrepresentation action against a CPA who prepared a borrower's tax return that was disclosed to the lender?

Which of the following facts must be proven for a lender to prevail in a state-law negligent misrepresentation action against a CPA who prepared a borrower's tax return that was disclosed to the lender?

The plaintiff justifiably relied on the misrepresentations.

Under the common law, which of the following statements is generally true regarding the liability of a CPA who negligently prepares a client's tax return?

Under the common law, which of the following statements is generally true regarding the liability of a CPA who negligently prepares a client's tax return?

The CPA is liable to anyone in a class of third parties who the CPA knows will rely on the opinion.

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 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

Failed to exercise due care.

Which of the following penalties is usually imposed against an accountant who, in the course of preparing a tax return, breaches common law contract duties owed to a client?

Which of the following penalties is usually imposed against an accountant who, in the course of preparing a tax return, breaches common law contract duties owed to a client?

Money damages.

A client suing a CPA for negligent preparation of a tax return in a state court must prove each of the following factors except

A client suing a CPA for negligent preparation of a tax return in a state court must prove each of the following factors except

Reliance.

Plaintiff acquired a security issued under a registration statement that contained a material misstatement of facts. In a suit by Plaintiff under Section 11 of the Securities Act of 1933 against the issuer's auditor,

Plaintiff acquired a security issued under a registration statement that contained a material misstatement of facts. In a suit by Plaintiff under Section 11 of the Securities Act of 1933 against the issuer's auditor,

Plaintiff need not prove intent or causation by the defendant.

Under the Securities Exchange Act of 1934, willfully making a materially false or misleading statement or omission in any SEC filing results in all of the following except

Under the Securities Exchange Act of 1934, willfully making a materially false or misleading statement or omission in any SEC filing results in all of the following except

Liability for negligence.

The antifraud provision of the Securities Exchange Act of 1934 is Section 10(b). The SEC's Rule 10b-5 issued under the antifraud provision most often is applied to

The antifraud provision of the Securities Exchange Act of 1934 is Section 10(b). The SEC's Rule 10b-5 issued under the antifraud provision most often is applied to

Insider trading.

The external auditor must report ramifications of the use of alternative disclosures and treatments to

The external auditor must report ramifications of the use of alternative disclosures and treatments to

The audit committee.

Which board member meets all of the requirements defined by the Sarbanes-Oxley Act of 2002 (SOX) to serve on the audit committee of Alfalfa?

Which board member meets all of the requirements defined by the Sarbanes-Oxley Act of 2002 (SOX) to serve on the audit committee of Alfalfa?

Peter.

Violations of the PCAOB's rules also are violations of the

Violations of the PCAOB's rules also are violations of the

Securities Exchange Act of 1934.

A CPA firm must register with the Public Company Accounting Oversight Board (PCAOB) to

A CPA firm must register with the Public Company Accounting Oversight Board (PCAOB) to

Prepare an audit report for an SEC registrant.

The Public Company Accounting Oversight Board (PCAOB) was established to

The Public Company Accounting Oversight Board (PCAOB) was established to

Regulate, inspect, and investigate public accounting firms.

The Public Company Accounting Oversight Board (PCAOB) was established by the

The Public Company Accounting Oversight Board (PCAOB) was established by the

Sarbanes-Oxley Act of 2002 (SOX).

Under the Section 10(b) Rule 10b-5 antifraud provisions of the Securities Exchange Act of 1934, which of the following conditions must a plaintiff prove to recover damages from an accountant?

Under the Section 10(b) Rule 10b-5 antifraud provisions of the Securities Exchange Act of 1934, which of the following conditions must a plaintiff prove to recover damages from an accountant?

The plaintiff relied on the accountant's intentional misstatement of material facts.

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 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?

Securities Exchange Act of 1934, if they can prove scienter.

According to the Securities Act of 1933, which of the following statements is correct regarding an issuer of securities?

According to the Securities Act of 1933, which of the following statements is correct regarding an issuer of securities?

If an issuer sells a security and fails to meet certain disclosure requirements, the purchaser may sell it back to the issuer and recover the price paid.

What defense must an accountant establish to be absolved from civil liability under Section 18 of the Securities Exchange Act of 1934 for false or misleading statements made in reports or documents filed under the act?

What defense must an accountant establish to be absolved from civil liability under Section 18 of the Securities Exchange Act of 1934 for false or misleading statements made in reports or documents filed under the act?

Good faith and lack of knowledge of the statement's falsity.

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 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

The earlier of 2 years after discovery of the facts on which the suit is based or 5 years after the cause of action arose.

In which of the following situations is an accountant considered to have aided and abetted violations of the Securities Exchange Act of 1934?

In which of the following situations is an accountant considered to have aided and abetted violations of the Securities Exchange Act of 1934?

I. The accountant is generally aware of his or her participation in an improper activity or knowingly aids the activity.
II. The accountant is generally aware of his or her participation in an improper activity and knowingly aids the activity.
III. The accountant observes the activity and remains silent. This may constitute abetting.
II only.

Under the Securities Exchange Act of 1934, short-swing profits arise from the sale and purchase (purchase and sale) of the issuer's stock within

Under the Securities Exchange Act of 1934, short-swing profits arise from the sale and purchase (purchase and sale) of the issuer's stock within

180 days.

A CPA's defenses to liability under Section 11 of the Securities Act of 1933 do not include which of the following?

A CPA's defenses to liability under Section 11 of the Securities Act of 1933 do not include which of the following?

The plaintiff was unaware of the misstatement or omission in a registration statement.

A requirement of a private action to recover damages for violation of the registration requirements of the Securities Act of 1933 is that

A requirement of a private action to recover damages for violation of the registration requirements of the Securities Act of 1933 is that

The plaintiff acquired the securities in question.

If securities are exempt from the registration provisions of the Securities Act of 1933, any fraud committed in the course of selling such securities can be challenged by the

If securities are exempt from the registration provisions of the Securities Act of 1933, any fraud committed in the course of selling such securities can be challenged by the

SEC- YES
Person Defrauded- YES

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 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?

Securities Exchange Act of 1934.

Which of the following circumstances is a defense to an accountant's liability under Section 11 of the Securities Act of 1933 for misstatements and omissions of material facts contained in a registration statement?

Which of the following circumstances is a defense to an accountant's liability under Section 11 of the Securities Act of 1933 for misstatements and omissions of material facts contained in a registration statement?

Due diligence on the part of the accountant.

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 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?

Drane will win because Pick acted with intent.

Corporations that are exempt from registration under the Securities Exchange Act of 1934 are subject to the act's

Corporations that are exempt from registration under the Securities Exchange Act of 1934 are subject to the act's

Antifraud provisions

To be successful in a civil action under Section 11 of the Securities Act of 1933 concerning liability for a misleading registration statement, the plaintiff must prove the

To be successful in a civil action under Section 11 of the Securities Act of 1933 concerning liability for a misleading registration statement, the plaintiff must prove the

Defendant's Intent to Decieve- NO
Plaintiff's Reliance on the Registration Statement- NO

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 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

If the CPA can prove due diligence.

Under the liability provisions of Section 11 of the Securities Act of 1933, which of the following must a plaintiff prove to hold a CPA liable?

Under the liability provisions of Section 11 of the Securities Act of 1933, which of the following must a plaintiff prove to hold a CPA liable?

I. The misstatements contained in the financial statements certified by the CPA were material.
II. The plaintiff relied on the CPA's unmodified opinion.
I only.

Under the liability provisions of Section 11 of the Securities Act of 1933, an auditor may help to establish the defense of due diligence if

Under the liability provisions of Section 11 of the Securities Act of 1933, an auditor may help to establish the defense of due diligence if

I. The auditor performed an additional review of the audited statements to ensure that the statements were accurate as of the effective date of a registration statement.
II. The auditor complied with GAAS or other applicable professional standards.
Both I and II.

Under Section 11 of the Securities Act of 1933, which of the following standards may a CPA use as a defense?

Under Section 11 of the Securities Act of 1933, which of the following standards may a CPA use as a defense?

PCAOB Standards- YES
Generally Accepted Fraud Standards- NO

Which of the following defenses is least helpful to West in avoiding liability to Hex?

Which of the following defenses is least helpful to West in avoiding liability to Hex?

West was not in privity of contract with Hex.

Which of the following elements must Hex prove to hold West liable?

Which of the following elements must Hex prove to hold West liable?

The misstatements were material.

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 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?

A.Jay will be liable if the purchaser relied on Jay's unmodified opinion on the financial statements.

For a CPA to be liable for damages under the antifraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, a plaintiff must prove all of the following except that

For a CPA to be liable for damages under the antifraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, a plaintiff must prove all of the following except that

The CPA violated generally accepted auditing standards.

An accountant will be liable for damages under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 only if the plaintiff proves that

An accountant will be liable for damages under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 only if the plaintiff proves that

There was a material omission or misstatement.

Under the provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, which of the following activities must be proven by a stock purchaser in a suit against a CPA?

Under the provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, which of the following activities must be proven by a stock purchaser in a suit against a CPA?

I. Intentional conduct by the CPA designed to deceive investors
II. Negligence by the CPA
I only.

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. 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

He relied upon the financial statements in his decision to purchase or sell Zebra 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 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

Ward was not in privity of contract with Huff.

Which of the following statements is true with regard to a suit against Larson and the client by a purchaser of the securities under Section 11 of the Securities Act of 1933?

Which of the following statements is true with regard to a suit against Larson and the client by a purchaser of the securities under Section 11 of the Securities Act of 1933?

Larson will not be liable if it had reasonable grounds to believe the financial statements were accurate

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 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

There was a material misstatement in the financial statements.

Under the Securities Act of 1933, which of the following acts by an accountant may subject the accountant to criminal penalties?

Under the Securities Act of 1933, which of the following acts by an accountant may subject the accountant to criminal penalties?

Willfully including materially misstated financial statements in a registration statement.

The Sarbanes-Oxley Act of 2002 (SOX) has strengthened auditor independence by requiring a public company to

The Sarbanes-Oxley Act of 2002 (SOX) has strengthened auditor independence by requiring a public company to

Select auditors through audit committees.

A CPA firm must do which of the following before it can participate in the preparation of an audit report of a company registered with the Securities and Exchange Commission (SEC)?

A CPA firm must do which of the following before it can participate in the preparation of an audit report of a company registered with the Securities and Exchange Commission (SEC)?

Register with the Public Company Accounting Oversight Board.

Under the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acted

Under the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acted

Without good faith.

What is the standard that must be established to prove a violation of the antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934?

What is the standard that must be established to prove a violation of the antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934?

Intentional misconduct.

The antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934

The antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934

Require that the wrongful act be accomplished through the mail, any other use of interstate commerce, or through a national securities exchange.

Under the Securities and Exchange Act of 1934, which of the following penalties could be assessed against a CPA who intentionally violated the provisions of Section 10(b), Rule 10b-5 of the act?

Under the Securities and Exchange Act of 1934, which of the following penalties could be assessed against a CPA who intentionally violated the provisions of Section 10(b), Rule 10b-5 of the act?

Civil Liability for Monetary Damages- YES
Criminal Liability for a Fine- YES

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, 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

Davis did not rely on the financial statements or Form 10-K.

If Larson succeeds in the Section 10(b) and Rule 10b-5 suit, Larson would be entitled to

If Larson succeeds in the Section 10(b) and Rule 10b-5 suit, Larson would be entitled to

The amount of any loss caused by the fraud.

In a suit against Jay under the anti-fraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, Larson must prove all of the following except

In a suit against Jay under the anti-fraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, Larson must prove all of the following except

Larson was an intended user of the false registration statement.

If Larson succeeds in the Section 11 suit against Dart, Larson would be entitled to

If Larson succeeds in the Section 11 suit against Dart, Larson would be entitled to

Monetary damages only.

In a suit against Jay and Dart under the Section 11 liability provisions of the Securities Act of 1933, Larson must prove that

In a suit against Jay and Dart under the Section 11 liability provisions of the Securities Act of 1933, Larson must prove that

The misstatements contained in Dart's financial statements were material.

Under the liability provisions of Sec. 18 of the Securities Exchange Act of 1934, for which of the following actions would an accountant generally be liable?

Under the liability provisions of Sec. 18 of the Securities Exchange Act of 1934, for which of the following actions would an accountant generally be liable?

Intentionally preparing and filing with the SEC a reporting corporation's incorrect quarterly 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 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?

Securities Exchange Act of 1934, Section 10(b), Rule 10b-5- NO
Securities Act of 1933, Section 11- YES

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 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

Brings a civil action within 1 year of the discovery of the omission and within 3 years of the offering date.

How does the Securities Act of 1933, which imposes civil liability on auditors for misrepresentations or omissions of material facts in a registration statement, expand auditors' liability to purchasers of securities beyond that of common law?

How does the Securities Act of 1933, which imposes civil liability on auditors for misrepresentations or omissions of material facts in a registration statement, expand auditors' liability to purchasers of securities beyond that of common law?

Privity with purchasers is not a necessary element of proof.

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 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?

Reliance on the Financial Statements- NO
Fraud by the CPA- NO

One of the elements necessary to recover damages if there has been a material misstatement in a registration statement filed under the Securities Act of 1933 is that the

One of the elements necessary to recover damages if there has been a material misstatement in a registration statement filed under the Securities Act of 1933 is that the

Plaintiff suffered a loss.

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 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 and Hanson would be considered insiders and Spore would be considered a tippee, all with knowledge of material, nonpublic information.

The provisions of the Securities Exchange Act of 1934 include all of the following except the

The provisions of the Securities Exchange Act of 1934 include all of the following except the

Answer: Requirement that firms offering securities for public sale to file a registration statement and provide a prospectus to potential investors.

James Fisk recently acquired Valiant Corporation by purchasing all of its outstanding stock pursuant to a tender offer. Fisk demanded and obtained the resignation of the existing board of directors and replaced it with his own slate of nominees. Under these circumstances,

James Fisk recently acquired Valiant Corporation by purchasing all of its outstanding stock pursuant to a tender offer. Fisk demanded and obtained the resignation of the existing board of directors and replaced it with his own slate of nominees. Under these circumstances,

If Valiant is listed on a national stock exchange, Fisk must file his tender offer with the SEC.

Which one of the following laws addresses the issue of insider trading?

Which one of the following laws addresses the issue of insider trading?

Securities Exchange Act.

The SEC's antifraud Rule 10b-5 prohibits trading on the basis of inside information of a business corporation's stock by

The SEC's antifraud Rule 10b-5 prohibits trading on the basis of inside information of a business corporation's stock by

Anyone who bases his or her trading activities on the inside information.

On May 1, Apel purchased 7% of Stork Corp.'s preferred stock traded on a national securities exchange. After the purchase, Apel owned 9% of the outstanding preferred stock. Stork is registered under the Securities Exchange Act of 1934. With respect to the purchase, Apel

On May 1, Apel purchased 7% of Stork Corp.'s preferred stock traded on a national securities exchange. After the purchase, Apel owned 9% of the outstanding preferred stock. Stork is registered under the Securities Exchange Act of 1934. With respect to the purchase, Apel

On May 1, Apel purchased 7% of Stork Corp.'s preferred stock traded on a national securities exchange. After the purchase, Apel owned 9% of the outstanding preferred stock. Stork is registered under the Securities Exchange Act of 1934. With respect to the purchase, Apel

Which of the following statements is true regarding the proxy solicitation requirements of Section 14(a) of the Securities Exchange Act of 1934?

Which of the following statements is true regarding the proxy solicitation requirements of Section 14(a) of the Securities Exchange Act of 1934?

A corporation must file its proxy statements with the SEC if it is a reporting company under the Securities Exchange Act of 1934.

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 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?

File the periodic report listing newly appointed officers.

Which of the following persons is not an insider of a corporation subject to the Securities Exchange Act of 1934 registration and reporting requirements?

Which of the following persons is not an insider of a corporation subject to the Securities Exchange Act of 1934 registration and reporting requirements?

An owner of 15% of the total face value of the corporation's outstanding debentures.

Which of the following statements is true about corporations subject to the reporting requirements of the Securities Exchange Act of 1934?

Which of the following statements is true about corporations subject to the reporting requirements of the Securities Exchange Act of 1934?

A report (Form 8-K) must be filed with the SEC after a material important event occurs.

A main provision of the Securities Act of 1933, as amended in 1934, is the requirement that

A main provision of the Securities Act of 1933, as amended in 1934, is the requirement that

New securities offered for sale in interstate commerce be registered with the SEC.

Which of the following factors, by itself, requires a corporation to comply with the reporting requirements of the Securities Exchange Act of 1934?

Which of the following factors, by itself, requires a corporation to comply with the reporting requirements of the Securities Exchange Act of 1934?

Shares listed on a national securities exchange.

Which of the following persons is not an insider of a corporation subject to the Securities Exchange Act of 1934 registration and reporting requirements?

Which of the following persons is not an insider of a corporation subject to the Securities Exchange Act of 1934 registration and reporting requirements?

An owner of 5% of the corporation's outstanding debentures or the corporation's general counsel.

Link Corporation is subject to the reporting provisions of the Securities Exchange Act of 1934. Which of the following documents must Link file with the SEC?

Link Corporation is subject to the reporting provisions of the Securities Exchange Act of 1934. Which of the following documents must Link file with the SEC?

Quarterly Reports (Form 10-Q)- YES
Proxy Statements- YES

The reporting requirements of the Securities Exchange Act of 1934 and its rules

The reporting requirements of the Securities Exchange Act of 1934 and its rules

Apply to a corporation that registered under the Securities Act of 1933 but that did not register under the Securities Exchange Act of 1934.

Under the Securities Exchange Act of 1934, a corporation whose common stock is listed on a national stock exchange

Under the Securities Exchange Act of 1934, a corporation whose common stock is listed on a national stock exchange

Is subject to having the registration of its securities suspended or revoked.

Which of the following events must be reported to the SEC under the reporting provisions of the 1934 act?

Which of the following events must be reported to the SEC under the reporting provisions of the 1934 act?

Tender Offers- YES
Insider Trading- YES
Solicitation Proxies- YES

Wool, Inc., is a reporting company under the Securities Exchange Act of 1934. The only security it has issued is its voting common stock. Which of the following statements is true?

Wool, Inc., is a reporting company under the Securities Exchange Act of 1934. The only security it has issued is its voting common stock. Which of the following statements is true?

Any person who owns more than 5% of Wool's common stock must file a report with the SEC.

The registration provisions of the Securities Exchange Act of 1934 require disclosure of all of the following information except the

The registration provisions of the Securities Exchange Act of 1934 require disclosure of all of the following information except the

Names of owners of at least 5% of any class of nonexempt equity security.

Under the Securities Exchange Act of 1934, which of the following conditions generally will allow an issuer of securities to terminate the registration of a class of securities and suspend the duty to file periodic reports?

Under the Securities Exchange Act of 1934, which of the following conditions generally will allow an issuer of securities to terminate the registration of a class of securities and suspend the duty to file periodic reports?

The Corporation Has Fewer Than 500 Shareholders- YES
The Securities Are Listed on a National Securities Exchange- NO

Under Section 12 of the Securities Exchange Act of 1934, in addition to companies whose securities are traded on a national exchange, what class of companies is subject to the SEC's registration requirements?

Under Section 12 of the Securities Exchange Act of 1934, in addition to companies whose securities are traded on a national exchange, what class of companies is subject to the SEC's registration requirements?

Companies with assets in excess of $10 million and 500 or more nonaccredited shareholders.

Integral Corp., with assets in excess of $4 million, has issued common and preferred stock and has 350 shareholders. Its stock is sold on the New York Stock Exchange. Under the Securities Exchange Act of 1934, Integral must be registered with the SEC because

Integral Corp., with assets in excess of $4 million, has issued common and preferred stock and has 350 shareholders. Its stock is sold on the New York Stock Exchange. Under the Securities Exchange Act of 1934, Integral must be registered with the SEC because

Its shares are listed on a national stock exchange.

Pax Co. is making a $7 million stock offering and wants the issue to be exempt from registration under the Securities Act of 1933. Regulation D provides that Pax can offer

Pax Co. is making a $7 million stock offering and wants the issue to be exempt from registration under the Securities Act of 1933. Regulation D provides that Pax can offer

$7 million of securities to an unlimited number of accredited investors and up to 35 nonaccredited investors under Rule 506.

Under the Securities Act of 1933, Wallace, a private, nonreporting issuer, is required to

Under the Securities Act of 1933, Wallace, a private, nonreporting issuer, is required to

Answer: Prepare and publicly file a detailed initial registration statement.

The Securities Act of 1933 provides an exemption from registration for offers and sales of securities made only to accredited investors. Federal securities laws and regulations are violated if the exemption is claimed and

The Securities Act of 1933 provides an exemption from registration for offers and sales of securities made only to accredited investors. Federal securities laws and regulations are violated if the exemption is claimed and

Answer: The SEC is not informed of exempt sales.

A corporation files a shelf registration with the SEC. The corporation violates federal securities laws and regulations if it issues covered securities

A corporation files a shelf registration with the SEC. The corporation violates federal securities laws and regulations if it issues covered securities

Answer: 4 years after the shelf registration without filing a new registration statement.

Under the Securities Act of 1933, an issuer that makes an initial offering of securities must give a prospectus to each potential investor. Which of the following violates federal securities laws and regulations?

Under the Securities Act of 1933, an issuer that makes an initial offering of securities must give a prospectus to each potential investor. Which of the following violates federal securities laws and regulations?

Any issuer may communicate a free-writing prospectus at any time.

Regulation D of the Securities Act of 1933 provides a private placement exemption from registration of a securities offering. Federal securities laws and regulations are violated if the securities are sold

Regulation D of the Securities Act of 1933 provides a private placement exemption from registration of a securities offering. Federal securities laws and regulations are violated if the securities are sold

Answer: In an immediate unregistered reoffering to the public.

LPCO intends to sell securities. It is organized in the state where it carries on all of its business activities. If LPCO offers the securities in reliance on Rule 147, which of the following is a violation of federal securities laws and regulations?

LPCO intends to sell securities. It is organized in the state where it carries on all of its business activities. If LPCO offers the securities in reliance on Rule 147, which of the following is a violation of federal securities laws and regulations?

Answer: LPCO makes unlimited offers to nonresidents.

Regulation A provides an exemption for issuers of securities under the Securities Act of 1933. In reliance on Regulation A, Issuer has offered $45 million of securities for sale during the current calendar year. Which of the following does not violate federal securities laws and regulations?

Regulation A provides an exemption for issuers of securities under the Securities Act of 1933. In reliance on Regulation A, Issuer has offered $45 million of securities for sale during the current calendar year. Which of the following does not violate federal securities laws and regulations?

Answer: A nonaccredited investor with annual income of $500,000 purchases $50,000 worth of the offering.

Regulation A provides an exemption for issuers of securities under the Securities Act of 1933. In reliance on Regulation A, Issuer has offered $18 million of securities for sale during the current calendar year. Which of the following violates federal securities laws and regulations?

Regulation A provides an exemption for issuers of securities under the Securities Act of 1933. In reliance on Regulation A, Issuer has offered $18 million of securities for sale during the current calendar year. Which of the following violates federal securities laws and regulations?

Answer: Issuer does not register under state blue-sky laws.

Regulation A provides an exemption for issuers of securities under the Securities Act of 1933. In reliance on Regulation A, Issuer has offered $18 million of securities for sale during the current calendar year. Which of the following violates federal securities laws and regulations?

Regulation A provides an exemption for issuers of securities under the Securities Act of 1933. In reliance on Regulation A, Issuer has offered $18 million of securities for sale during the current calendar year. Which of the following violates federal securities laws and regulations?

Answer: Sales are made before the offering statement is approved by the SEC.

A preliminary prospectus, permitted under SEC Regulations, is known as the

A preliminary prospectus, permitted under SEC Regulations, is known as the

Answer: "Red-herring" prospectus.

Which of the following statements about the prospectus required by the Securities Act of 1933 is true?

Which of the following statements about the prospectus required by the Securities Act of 1933 is true?

Answer: The prospectus is a part of the registration statement.

The Jumpstart Our Business Startups (JOBS) Act of 2012 provides an exemption from registration of securities. The related rules issued by the SEC are known as Regulation A. Under these rules, which of the following is not an exempt offering?

The Jumpstart Our Business Startups (JOBS) Act of 2012 provides an exemption from registration of securities. The related rules issued by the SEC are known as Regulation A. Under these rules, which of the following is not an exempt offering?

Answer: An offering of $22 million is made within 12 months, each purchaser receives an offering statement, and sales may be made without approval of the offering statement by the SEC.

Which of the following most likely is a violation of federal securities law regarding communications before and during registered securities offerings?

Which of the following most likely is a violation of federal securities law regarding communications before and during registered securities offerings?

Answer: A seasoned issuer files hard-copy documents with the SEC that include its registration statement and prospectus.

Which of the following transactions is subject to registration requirements of the Securities Act of 1933?

Which of the following transactions is subject to registration requirements of the Securities Act of 1933?

Answer: The public sale by a corporation of its negotiable 10-year notes.

The Securities and Exchange Commission requires public companies to disclose all of the following except

The Securities and Exchange Commission requires public companies to disclose all of the following except

Answer: Comfort letters for underwriters.

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 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

Form 10-K.

The objectives of the Securities Act of 1933 include all of the following except

The objectives of the Securities Act of 1933 include all of the following except

To authorize the Board of Governors of the Federal Reserve System to control the use of margins in securities trading.

The Securities Act of 1933 applies to the

The Securities Act of 1933 applies to the

Sale of new securities.

The Securities Act of 1933 broadly classifies the parties involved in the initial offering and sale of securities. The individual or business organization offering a security for sale to the public is

The Securities Act of 1933 broadly classifies the parties involved in the initial offering and sale of securities. The individual or business organization offering a security for sale to the public is

An issuer.

Spiffy Manufacturing plans to offer a new issue of voting stock to the investing public. Assuming that it properly uses an exemption from registration under the Securities Act of 1933, Spiffy

Spiffy Manufacturing plans to offer a new issue of voting stock to the investing public. Assuming that it properly uses an exemption from registration under the Securities Act of 1933, Spiffy

Must adhere to both federal antifraud rules and state law.

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 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?

Only Apogee may make oral communications at any time if certain conditions are met.

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 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?

Under Rule 147, certain restrictions apply to resales of the limited partnership interests by purchasers.

Under Regulation D of the Securities Act of 1933, which of the following conditions apply to private placement offerings? The securities

Under Regulation D of the Securities Act of 1933, which of the following conditions apply to private placement offerings? The securities

Answer: Cannot be the subject of an immediate unregistered re offering to the public.

Pate Corp. is offering $3 million of its securities solely to accredited investors pursuant to Regulation D of the Securities Act of 1933. Under Regulation D, Pate is

Pate Corp. is offering $3 million of its securities solely to accredited investors pursuant to Regulation D of the Securities Act of 1933. Under Regulation D, Pate is

Not required to provide any specified information to the accredited investors.

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 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?

If Zack complies with the requirements of Regulation D, Zack may make an unlimited number of offers to sell the limited partnership interests.

For an offering to be exempt under Regulation D of the Securities Act of 1933, Rule 506 requires that

For an offering to be exempt under Regulation D of the Securities Act of 1933, Rule 506 requires that

The offering be made without general advertising if any sales are made to purchasers who are not accredited investors.

Which of the following securities are regulated by the provisions of the Securities Act of 1933?

Which of the following securities are regulated by the provisions of the Securities Act of 1933?

Securities issued by insurance companies.

The Securities Act of 1933 provides an exemption from registration for

The Securities Act of 1933 provides an exemption from registration for

Bonds Issued by a Municipality for Governmental Purposes- YES
Securities Issued by a Not-for-Profit Charitable Organization- YES

Which of the following are exempt from the registration requirements of the Securities Act of 1933?

Which of the following are exempt from the registration requirements of the Securities Act of 1933?

Stock of a corporation offered and sold only to residents of the state in which the issuer was incorporated and doing all of its business.

Under the Securities Act of 1933, which of the following statements most accurately reflects how securities registration affects an investor?

Under the Securities Act of 1933, which of the following statements most accurately reflects how securities registration affects an investor?

The investor is provided with information on the principal purposes for which the offering's proceeds will be used.

Universal Corp. intends to sell its common stock to the public in an interstate offering that will be registered under the Securities Act of 1933. Under the act,

Universal Corp. intends to sell its common stock to the public in an interstate offering that will be registered under the Securities Act of 1933. Under the act,

Universal's filing of a registration statement with the SEC does not automatically result in compliance with the "blue-sky" laws of the states in which the offering will be made.

Which of the following is least likely to be considered a security under the Securities Act of 1933?

Which of the following is least likely to be considered a security under the Securities Act of 1933?

General partnership interests.

Pix Corp. is making a $6 million private placement stock offering. It is subject to Rule 506 under Regulation D of the Securities Act of 1933. The securities must be sold

Pix Corp. is making a $6 million private placement stock offering. It is subject to Rule 506 under Regulation D of the Securities Act of 1933. The securities must be sold

To no more than 35 purchasers who are not accredited investors.

Pix Corp. is making a $60 million stock offering. Pix wants the offering exempt from registration under the Securities Act of 1933. Which of the following provisions of the act would Pix have to comply with for the offering to be exempt?

Pix Corp. is making a $60 million stock offering. Pix wants the offering exempt from registration under the Securities Act of 1933. Which of the following provisions of the act would Pix have to comply with for the offering to be exempt?

Regulation D, Rule 506.

Under the Securities Act of 1933, an initial offering of securities must be registered with the SEC unless

Under the Securities Act of 1933, an initial offering of securities must be registered with the SEC unless

The type of security or the offering involved is exempt from registration.

Which of the following securities is exempt from registration under the Securities Act of 1933?

Which of the following securities is exempt from registration under the Securities Act of 1933?

Municipal bonds.

Lux Limited Partnership offered $300,000 of its limited partnership interests under Rule 504 of Regulation D of the Securities Act of 1933. The securities were registered and disclosure was made under state law. Which of the following statements is true?

Lux Limited Partnership offered $300,000 of its limited partnership interests under Rule 504 of Regulation D of the Securities Act of 1933. The securities were registered and disclosure was made under state law. Which of the following statements is true?

The resale of the limited partnership interests by a purchaser will not be restricted.

An offering made under the provisions of Regulation A Tier 1 requires that the issuer

An offering made under the provisions of Regulation A Tier 1 requires that the issuer

File an offering statement with the SEC.

Which of the following statements concerning an initial intrastate securities offering made by an issuer residing in and doing business in that state is true?

Which of the following statements concerning an initial intrastate securities offering made by an issuer residing in and doing business in that state is true?

The offering would be exempt from the registration requirements of the Securities Act of 1933.

Which of the following securities is exempt from registration under the Securities Act of 1933?

Which of the following securities is exempt from registration under the Securities Act of 1933?

A class of stock given in exchange for another class by the issuer to its existing shareholders without the issuer's payment of a commission.

Which of the following transactions is subject to registration requirements of the Securities Act of 1933?

Which of the following transactions is subject to registration requirements of the Securities Act of 1933?

The public sale by a corporation of its negotiable 10-year notes.

Which of the following facts will result in an offering of securities being exempt from registration under the Securities Act of 1933?

Which of the following facts will result in an offering of securities being exempt from registration under the Securities Act of 1933?

The sale or offer to sell the securities is made by a person other than an issuer, underwriter, or dealer.

Which of the following requirements must be met by an issuer of securities who wants to make an offering by using shelf registration?

Which of the following requirements must be met by an issuer of securities who wants to make an offering by using shelf registration?

Original Registration Statement Must Be Kept Updated- YES
The Offeror Must Be a First-Time Issuer of Securities- NO

Which of the following disclosures must be contained in a securities registration statement filed under the Securities Act of 1933?

Which of the following disclosures must be contained in a securities registration statement filed under the Securities Act of 1933?

The principal purposes for which the offering proceeds will be used.

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. 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

Must be registered if Dee sells 50% of her shares through her broker to the public

When a common stock offering requires registration under the Securities Act of 1933,

When a common stock offering requires registration under the Securities Act of 1933,

The issuer would act unlawfully if it were to sell the common stock without providing the investor with a prospectus.

Under the Securities Act of 1933, which of the following statements, if any, are correct regarding the purpose of registration?

Under the Securities Act of 1933, which of the following statements, if any, are correct regarding the purpose of registration?

I. The purpose of registration is to allow for the detection of management fraud and prevent a public offering of securities when management fraud is suspected.
II. The purpose of registration is to adequately and accurately disclose financial and other information upon which investors may determine the merits of securities.
II only.

Which of the following is not eligible to be a shareholder of an S corporation?

Which of the following is not eligible to be a shareholder of an S corporation?

A. A domestic partnership.

B. Individuals who are not nonresident aliens.

C.Estates.

D.Exempt organizations described in Sec. 401(a) or 501(c)(3).


Answer: A. A domestic partnership

Which of the following characteristics can disqualify a corporation from S corporation status?

Which of the following characteristics can disqualify a corporation from S corporation status?

A. Corporation Z has as one of its shareholders a trust that is treated as entirely owned by an individual who is a U.S. citizen.

B. Corporation M has 101 shareholders, including a husband and wife.

C. Corporation B has voting and nonvoting stock.

D. Corporation T has as its shareholders an individual, an estate, and a partnership.


Answer: D. Corporation T has as its shareholders an individual, an estate, and a partnership.

All of the following entities would qualify as shareholders of an S corporation except

All of the following entities would qualify as shareholders of an S corporation except

A. A resident of the United States.

B. An estate of an individual in bankruptcy.

C. A trust owned by an individual who is a United States citizen.

D. A partnership.


Answer: D. A partnership.

Which one of the following is not a requirement to make an S corporation election?

Which one of the following is not a requirement to make an S corporation election?

A. The corporation must have no trusts as shareholders.

B. Shareholder consent must be unanimous.

C. Only one class of stock can be outstanding.

D. The entity must be a domestic entity that elects corporation treatment under the check-the-box regulations.


Answer: A. The corporation must have no trusts as shareholders.

All of the following entities are allowed to elect S status except

All of the following entities are allowed to elect S status except

A. Domestic international sales corporation (DISC).

B. Domestic building and loan association.

C. Mutual savings bank.

D. A cooperative bank without capital stock organized and operated for mutual purposes and without profit.


Answer: A. Domestic international sales corporation (DISC).

Which of the following entities is ineligible to be an S corporation shareholder?

Which of the following entities is ineligible to be an S corporation shareholder?

A. Charitable remainder annuity trust.

B. Employee stock option plan (ESOP).

C. Electing small business trust.

D. Qualified retirement plan trust.


Answer: A. Charitable remainder annuity trust.

What is the maximum number of shareholders allowable for eligibility as an S corporation in the current year?

What is the maximum number of shareholders allowable for eligibility as an S corporation in the current year?

A. 15

B. 25

C. 75

D. 100


Answer: D. 100

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 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?

A. January 1, Year 2.

B. December 1, Year 2.

C. January 1, Year 3.

D. December 1, Year 3.


Answer: C. January 1, Year 3.

A company terminated its S corporation status for the current tax year. When can the company reelect S status?

A company terminated its S corporation status for the current tax year. When can the company reelect S status?

A. Immediately.

B. Third year from the current tax year.

C. Fifth year from the current tax year.

D. Cannot reelect in future.


Answer: C. Fifth year from the current tax year.

Which of the following statements about qualifying shareholders of an S corporation is correct?

Which of the following statements about qualifying shareholders of an S corporation is correct?

A. A general partnership may be a shareholder.

B. Only individuals may be shareholders.

C. Individuals, estates, and certain trusts may be shareholders.

D. Nonresident aliens may be shareholders.


Answer: C. Individuals, estates, and certain trusts may be shareholders.

If a corporation's status as an S corporation is revoked or terminated after January 1, 2019, how many years is the corporation required to wait before making a new S election in the absence of IRS consent to an earlier election?

If a corporation's status as an S corporation is revoked or terminated after January 1, 2019, how many years is the corporation required to wait before making a new S election in the absence of IRS consent to an earlier election?

A. 1

B .3

C. 5

D. 10


Answer: C. 5

Which one of the following will render a corporation ineligible for S corporation status?

Which one of the following will render a corporation ineligible for S corporation status?

A. One of the shareholders is a decedent's estate.

B. One of the shareholders is a bankruptcy estate.

C. The corporation has both voting and nonvoting common stock issued and outstanding.

D. The corporation has 117 shareholders.


Answer: D. The corporation has 117 shareholders.

All of the following events will cause the termination of an S corporation's S election except

All of the following events will cause the termination of an S corporation's S election except

A. Transaction that results in over 100 shareholders.

B. Donation of stock to a tax-exempt organization under 501(c)(4).

C. Sale of stock to a resident alien.

D. Failing the passive income test for 3 consecutive years.


Answer: C. Sale of stock to a resident alien.

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 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

A. They are not permitted to file an 1120S return because they have not made a valid election.

B. The income distributed by a corporation is not subject to self-employment tax.

C. Mary and Paul have until March 15, 2020, to make a valid election for 2019.

D. Both Mary and Paul must sign Form 2553 to make a valid election.


Answer (C) is correct.

All of the following events would cause an S corporation to cease qualifying as an S corporation except

All of the following events would cause an S corporation to cease qualifying as an S corporation except

A. Having more than 100 shareholders.

B. Transferring its stock to a corporation.

C. Transferring its stock to a resident alien.

D. Revoking the election with the consent of shareholders who, at the time the revocation is made, hold 55% of the stock.


Answer: C. Transferring its stock to a resident alien.

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. 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

A. Did not terminate.

B. Terminated as of January 1, 2019.

C. Terminated on February 24, 2019.

D. Terminated as of January 1, 2020.


Answer: A. Did not terminate.

On December 31, 2019, LS Corporation revoked its S election. LS Corporation had been an S corporation since its inception in 2017. When may LS Corporation reelect S corporation status without IRS consent?

On December 31, 2019, LS Corporation revoked its S election. LS Corporation had been an S corporation since its inception in 2017. When may LS Corporation reelect S corporation status without IRS consent?

Reelection Date
A. January 1, 2023

B.January 1, 2024

C. January 1, 2025

D. December 31, 2024


Answer: C. January 1, 2025

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 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?

A. January 1, 2018.

B. January 1, 2019.

C. December 5, 2018.

D. December 5, 2019.


Answer: B. January 1, 2019.

The S corporation status would terminate at the beginning of 2020 for which of the following?

The S corporation status would terminate at the beginning of 2020 for which of the following?

A. Incorporated in 1997. First year of S status was 2015. Passive investment income equaled 29% of gross receipts in 2017, 27% in 2018, and 25% in 2019. Subchapter C earnings and profits were $10,000 at the end of each year.

B. Incorporated in 1997. First year of S status was 2015. Earnings and profits from C corporation tax years of $10,000. In 2017, passive investment income equaled 35% of gross receipts. The corporation had no passive investment income in prior or later years.

C. Incorporated in 1999. First year of S status was 2016. Passive investment income equaled 27% of gross receipts in 2017, 26% in 2018, and 44% in 2019. Subchapter C earnings and profits were $10,000 at the end of each year.

D. Incorporated in 1999. First year of S status was 2014. Passive investment income equaled 19% of gross receipts in 2017, 34% in 2018, and 35% in 2019.


Answer (C)

The S corporation status can be revoked only if the shareholders who collectively own more than what percentage of the outstanding shares in the S corporation's stock consent to its revocation?

The S corporation status can be revoked only if the shareholders who collectively own more than what percentage of the outstanding shares in the S corporation's stock consent to its revocation?

A. 50%

B. 66 2/3%

C. 75%

D. 80%


Answer: A. 50%

Which of the following statements about the termination or revocation of an election to be taxed as an S corporation is true?

Which of the following statements about the termination or revocation of an election to be taxed as an S corporation is true?

A. Once an election is revoked, a new election cannot be made for 3 years.

B. The occurrence of an event that terminates an S corporation election causes the election to be revoked as of the first day of the taxable year.

C. The termination of an S corporation election causes all prior-year losses that have not been deducted by the shareholders to be lost.

D. Having passive investment income of more than 25% of gross receipts in its initial year will not result in the termination of a corporation's status as an S corporation.


Answer: D. Having passive investment income of more than 25% of gross receipts in its initial year will not result in the termination of a corporation's status as an S corporation.

Which of the following events could cause an S corporation to cease to qualify as an S corporation?

Which of the following events could cause an S corporation to cease to qualify as an S corporation?

A. The S corporation transfers its stock to a corporation or partnership.

B. A shareholder has zero basis in his stock.

C. A 25% shareholder sells his shares to an individual who wants to revoke the corporation's S status.

D. The corporation is liable for tax on excess net passive investment income for 2 consecutive years.


Answer: A. The S corporation transfers its stock to a corporation or partnership.

All of the following will result in the termination of a corporation's status as an S corporation except

All of the following will result in the termination of a corporation's status as an S corporation except

A. Transferring stock to a partnership.

B. Having over 100 shareholders.

C. Having passive investment income of more than 25% of gross receipts in its initial year.

D. Creating a second class of common stock in its initial year.


Answer: C. Having passive investment income of more than 25% of gross receipts in its initial year.

Which of the following may not own shares in an S corporation?

Which of the following may not own shares in an S corporation?

A. Individuals.

B. Estates.

C. Trusts.

D. Corporations.


Answer: D. Corporations.

Assuming all other requirements are met, a corporation may elect to be treated as an S corporation under the Internal Revenue Code if it has

Assuming all other requirements are met, a corporation may elect to be treated as an S corporation under the Internal Revenue Code if it has

A. Both common and preferred shareholders.

B. A partnership as a shareholder.

C. One hundred or fewer shareholders.

D. The consent of a majority of the shareholders.


Answer: C. One hundred or fewer shareholders.

Which of the following is a requirement for a small business corporation to elect S corporation status?

Which of the following is a requirement for a small business corporation to elect S corporation status?

A. It has only one class of stock.

B. It has at least one partnership as a shareholder.

C. It has international ownership.

D. It has more than 75 shareholders.


Answer: A. It has only one class of stock.

An S corporation must adhere to all of the following conditions except having

An S corporation must adhere to all of the following conditions except having

A. No more than 100 shareholders.

B. A nonresident alien as a shareholder.

C. An individual as a shareholder.

D. One class of stock.


Answer: B. A nonresident alien as a shareholder.

Which of the following tax years may an S corporation use for its current taxable year (assuming no business purpose exists for another year and assuming an election is not made under Sec. 444)?

Which of the following tax years may an S corporation use for its current taxable year (assuming no business purpose exists for another year and assuming an election is not made under Sec. 444)?

A. A calendar year.

B. A year ending in the last quarter of the calendar year.

C. The same year as the majority of its shareholders.

D. Any year it has already used before.


Answer: A. A calendar year.

Which of the following will prevent a corporation from qualifying as an S corporation?

Which of the following will prevent a corporation from qualifying as an S corporation?

A. Deriving more than 40% of its gross receipts from passive income sources.

B. Having a partnership as a shareholder.

C. Owning more than 50% of the stock of a domestic corporation.

D. Having 100 shareholders.


Answer: B. Having a partnership as a shareholder.

Which one of the following conditions will prevent a corporation from making a valid S election?

Which one of the following conditions will prevent a corporation from making a valid S election?

A. A corporation that has an estate as a shareholder.

B. A corporation that is a member of an affiliated group.

C. A corporation that has only one class of stock.

D. A corporation that has nonresident aliens as shareholders.


Answer: D. A corporation that has nonresident aliens as shareholders.

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 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?

A.$233,750

B.$155,125

C.$76,500

D.$0


Answer: C. $76,500

Lindal Corporation, organized in 2019, immediately filed an election for S corporation status under the rules of Subchapter S. What is the maximum amount of passive investment income that Lindal will be allowed to earn and still qualify as an S corporation?

Lindal Corporation, organized in 2019, immediately filed an election for S corporation status under the rules of Subchapter S. What is the maximum amount of passive investment income that Lindal will be allowed to earn and still qualify as an S corporation?

A.80% of gross receipts.

B.50% of gross receipts.

C.20% of gross receipts.

D.No limit on passive investment income.


Answer: D. No limit on passive investment income.

An S corporation has 30,000 shares of voting common stock and 20,000 shares of nonvoting common stock issued and outstanding. The S election can be revoked voluntarily with the consent of the shareholders holding, on the day of the revocation,

An S corporation has 30,000 shares of voting common stock and 20,000 shares of nonvoting common stock issued and outstanding. The S election can be revoked voluntarily with the consent of the shareholders holding, on the day of the revocation,

Shares of Shares of:

Voting Stock Nonvoting Stock
A. 0 20,000
B. 7,500 5,000
C. 10,000 16,000
D. 20,000 0


Answer: C. 10,000 16,000

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 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?

A. February 10, 2019.

B. February 10, 2020.

C. January 1, 2020.

D. January 1, 2019.


Answer: D. January 1, 2019.

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 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

A. November 1, 2018.

B. May 15, 2019.

C. November 1, 2019.

D. November 1, 2020.


Answer: C. November 1, 2019.

Which of the following conditions will prevent a corporation from qualifying as an S corporation?

Which of the following conditions will prevent a corporation from qualifying as an S corporation?

A. The corporation has both common and preferred stock.

B. The corporation has one class of stock with different voting rights.

C. One shareholder is an estate.

D.One shareholder is a grantor trust.


Answer: A. The corporation has both common and preferred stock.

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 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

A. Increases the number of shareholders to 50.

B. Adds a decedent's estate as a shareholder to the existing shareholders.

C. Takes a charitable contribution deduction.

D. Has passive investment income exceeding 90% of gross receipts in each of the 3 consecutive years ending December 31, 2019.


Answer: D. Has passive investment income exceeding 90% of gross receipts in each of the 3 consecutive years ending December 31, 2019.