Dhani & Associates, CPA, an accounting firm hired by Eureka, Inc., for an audit, learns of undisclosed company plans to marketa new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who buys 500 shares. Fay tellsGeoff, who tells Hu. Both Geoff and Hu buy 100 shares. Only Geoff knows that Fay got her information from Dhani. WhenEureka publicly announces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit. Under Section 10(b) of theSecurities Exchange Act of 1934, Hu is most likelyO not liable because Hu is only a tippee, not a tipper.Onot liable because Hu does not know the source of the information.O liable for insider trading as a remote tipee.O not liable because Hu traded on the basis of a true fact. During the course of the agency relationship, all the knowledge that the agent learns is imputed to the principle under the dutyofdual agencyconfidentiality.O notification.O loyaltyO accountability.

Insider trading liability refers to the legal responsibility and potential consequences that…

Answered: Dhani & Associates, CPA, an accounting…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Magnum, a well-known private investigator, has a very unhappy client, C, who does not like her (Magnum’s) work because he was hoping for a different kind of truth. C refuses to pay and calls every TV station in town saying “Magnum is a liar and a crook!” The story gets lots of coverage. Magnum sues and wins – $100,000, her fee as charged; $400,000 compensatory damages for defamation; and $500,000 punitive damages. For the year in which she collects this $1M, Magnum will have to include in her gross income $____. Why is that the correct amount
Max and Annie are roommates sharing an apartment. Although they know each other well, they have respect for each other’s privacy. Thus, when Max’s Form 1040 was audited by the IRS, he made no mention of the audit to Annie. When Annie was clearing the answering machine that they shared, she heard the following message: “Max, this is Richard, the IRS auditor. My figures show that you owe the government $10,000 in taxes and another $4,500 in penalties and interest.” When Annie brought up the message during dinner conversation that night, Max was furious. How could the IRS be so careless as to broadcast this news to a stranger? Did not he have any privacy and confidentiality rights? Max calls you to determine whether he might have a case against the IRS or Richard, the agent. Prepare a file memo assessing Max’s position.
Adams, by fraudulent representations, induced Barton to purchase one hundred shares of the capital stock of the Evermore Oil Company. The shares were worthless. Barton executed and delivered to Adams a negotiable promissory note for $5,000, dated May 5, in full payment for the shares, due six months after date. On May 20, Adams indorsed and sold the note to Cooper for $4,800. On October 21, Barton, having learned that Cooper now held the note, notified Cooper of the fraud and stated he would not pay the note. On December 1, Cooper negotiated the note to Davis who, while not a party, had full knowledge of the fraud perpetrated on Barton. Upon refusal of Barton to pay the note, Davis sues Barton for $5,000. Is Davis a holder in due course or, if not, does he have the rights of a holder in due course? Explain.
A CPA has been doing the records for a company for the last ten years. She was approached by the owner to create two sets of records because he is going through a divorce and wants to keep as much of his assets as possible. Compare and contrast the pros and cons of the CPA doing as asked. Explain how you would act from an ethical standpoint.
Kimball, a partner in a one-office firm, inherits 15 shares of Spotless Housekeeping Services stock. The stock has a market value of $25 per share; there is a ready market for them; and there are 300,000 shares outstanding. Spotless is an audit client of the firm, and Kimball does no work or consulting for Spotless engagements. Which of the following is CORRECT regarding Kimball receiving this stock and maintaining the firm's independence with Spotless? As long as Kimball does not work on the engagements for Spotless, nothing need be done. If he works on the engagements for Spotless, then the shares must be promptly sold to preserve the firm's independence. Since the shares are worth only $375 and they were inherited, nothing need be done. If Kimball transfers the shares to a blind trust where he is the beneficiary, independence with Spotless will not be impaired. The shares must be sold within 30 days of their receipt.
Jan owns her own service business and also owns some blue-chip stock. She is starting to retire and she wants her son, Matt, to take over the business and also generally be in charge of looking after Jan. In X1, Matt began working for the business and Jan paid Matt a salary. She also signed over 25% of her own earnings to Matt. On July 1, X1, Jan gifted the blue-chip stock to Matt. On September 15, X1 the stock paid dividends. On her X1 tax return, Jan reported 75% of the earnings from her service business and none of the dividends (taking the position that these items were income to Matt). The IRS is auditing the return and assert that all of the business earnings and all of the dividends should have been reported by Jan. Required: Discuss a) the business earnings, and b) the dividends. Is the IRS correct? Why or why not? What information is needed to make the decision? Provide a couple of scenarios. Jan owns her own service business and also owns some blue-chip stock. She is starting…
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