ACCY 411- Test 4

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

"Red-herring" prospectus.

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.

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

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

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 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.

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?

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

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.

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

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

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.

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.

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?

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 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 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.

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.

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 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.

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.

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

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.

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.

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

Cannot be the subject of an immediate unregistered reoffering to the public.

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

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

Comfort letters for underwriters.

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.

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.

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.

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

File an offering statement with the SEC.

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.

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.

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

General partnership interests.

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.

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.

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.

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.

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.

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

In an immediate unregistered reoffering to the public.

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.

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.

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.

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?

Issuer does not register under state blue-sky laws.

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.

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 makes unlimited offers to nonresidents.

Fact Pattern: Dart Corp. engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited Dart's financial statements and gave an unmodified opinion, despite knowing that the financial statements contained misstatements. Jay's opinion was included in Dart's registration statement. Larson purchased shares in the offering and suffered a loss when the stock declined in value after the misstatements became known. 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.

Fact Pattern: While conducting an audit, Larson Associates, CPAs, failed to detect material misstatements included in its client's financial statements. Larson's unmodified opinion was included with the financial statements in a registration statement and prospectus for a public offering of securities made by the client. Larson knew that its opinion and the financial statements would be used for this purpose. 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

Fact Pattern: Dart Corp. engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited Dart's financial statements and gave an unmodified opinion, despite knowing that the financial statements contained misstatements. Jay's opinion was included in Dart's registration statement. Larson purchased shares in the offering and suffered a loss when the stock declined in value after the misstatements became known. If Larson succeeds in the Section 11 suit against Dart, Larson would be entitled to

Monetary damages only.

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

Municipal bonds.

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.

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

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.

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.

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.

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

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.

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

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

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.

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

Prepare and publicly file a detailed initial registration statement.

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.

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

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.

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 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

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.

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

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

The Securities Act of 1933 applies to the

Sale of new securities.

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?

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

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

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

Securities Exchange Act.

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

Securities issued by insurance companies.

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

Select auditors through audit committees.

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 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.

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

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.

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

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 SEC is not informed of exempt sales.

Fact Pattern: Dart Corp. engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited Dart's financial statements and gave an unmodified opinion, despite knowing that the financial statements contained misstatements. Jay's opinion was included in Dart's registration statement. Larson purchased shares in the offering and suffered a loss when the stock declined in value after the misstatements became known. 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.

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.

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.

Fact Pattern: Dart Corp. engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited Dart's financial statements and gave an unmodified opinion, despite knowing that the financial statements contained misstatements. Jay's opinion was included in Dart's registration statement. Larson purchased shares in the offering and suffered a loss when the stock declined in value after the misstatements became known. 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.

Fact Pattern: West & Co., CPAs, expressed an unmodified opinion on the financial statements of Pride Corp. These were included in Pride's registration statement filed with the SEC. Subsequently, Hex purchased 500 shares of Pride's preferred stock, which were acquired as part of a public offering subject to the Securities Act of 1933. Hex has commenced an action against West based on the Securities Act of 1933 for losses resulting from misstatements of facts in the financial statements included in the registration statement. Which of the following elements must Hex prove to hold West liable?

The misstatements were material.

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 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 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.

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

The prospectus is a part of the registration statement.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Fact Pattern: West & Co., CPAs, expressed an unmodified opinion on the financial statements of Pride Corp. These were included in Pride's registration statement filed with the SEC. Subsequently, Hex purchased 500 shares of Pride's preferred stock, which were acquired as part of a public offering subject to the Securities Act of 1933. Hex has commenced an action against West based on the Securities Act of 1933 for losses resulting from misstatements of facts in the financial statements included in the registration statement. Which of the following defenses is least helpful to West in avoiding liability to Hex?

West was not in privity of contract with Hex.

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.

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.