a.
Concept Introduction:
The Securities act of 1933 was based on the concept that if an entity is offering the securities then, it should provide the possible investors proper information about the securities and issuer that helps investors to make an appropriate investment decision. It also ensures to avoid any fraud and misrepresentation occurred in securities that are sold for the public
To describe:Theelement that must be established to support a cause of action based on negligence
b.
Concept Introduction:
The Securities act of 1933 was based on the concept that if an entity is offering the securities then, it should provide the possible investors proper information about the securities and issuer that helps investors to make an appropriate investment decision. It also ensures to avoid any fraud and misrepresentation occurred in securities that are sold for the public
To describe:The element that must be established to support a cause of action based on a rule of 10b-5 violation
c.
Concept Introduction:
The Securities act of 1933 was based on the concept that if an entity is offering the securities then, it should provide the possible investors proper information about the securities and issuer that helps investors to make an appropriate investment decision. It also ensures to avoid any fraud and misrepresentation occurred in securities that are sold for the public
To describe:The correct assertions regarding lack of privitywith regard to cause of action on negligence and fraud.
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AUDITING & ASSURANCE SERVICES CONNECT AC
- Read the facts of the case in Problem 2-26 to become familiar withthe fraud involving Koss Corporation. From the company’s October 7,2009, proxy statement (Def 14A filing with the SEC), we know the followingfacts about the company’s audit committee and its members:Thomas L. Doerr 65, has been a director of the company since 1987. In1972, Mr. Doerr co-founded Leeson Electric Corporation and served asits president and CEO until 1982. The company manufactures industrialelectric motors. In 1983, Mr. Doerr incorporated Doerr Corporation asa holding company for the purpose of acquiring established companiesinvolved in distributing products to industrial and commercial markets.Currently, Mr. Doerr serves as president of Doerr Corporation.Mr. Doerr owns no stock in Koss Corporation and received $24,000 incash compensation during 2009 to serve on the audit committee.Lawrence S. Mattson 77, has been a director of the company since 1978.Mr. Mattson is the retired president of Oster company, a…arrow_forwardAs an auditor for the CPA firm of Bunge and Dodd, you encounter the following situations in auditing different clients. Desi Corporation is a closely held corporation whose stock is not publicly traded. On December 5, the corporation acquired land by issuing 5,000 shares of its $20 par value common stock. The owners’ asking price for the land was $120,000, and the fair market value of the land was $115,000. Lucille Corporation is a publicly held corporation whose common stock is traded on the securities markets. On June 1, it acquired land by issuing 20,000 shares of its $10 par value stock. At the time of the exchange, the land was advertised for sale at $250,000.The stock was selling at $12 per share. Instructions: Prepare the journal entries for each of the situations above.arrow_forwardDirks was an officer of a New York broker-dealer firm that specialized in providing investment analysis of insurance company securities to institutional investors. On March 6, Dirks received information from Ronald Secrist, a former officer of Equity Funding of America. Secrist alleged that the assets of Equity Funding, a diversified corporation primarily engaged in selling life insurance and mutual funds, were vastly overstated as the result of fraudulent corporate practices. Dirks decided to investigate the allegations. He visited Equity Funding’s headquarters in Los Angeles and interviewed several officers and employees of the corporation. The senior management denied any wrongdoing, but certain corporation employees corroborated the charges of fraud. Neither Dirks nor his firm owned or traded any Equity Funding stock, but throughout his investigation he openly discussed the information he had obtained with a number of clients and investors. Some of these persons sold their holdings…arrow_forward
- ABC Company has 100 shares of IBM stock that it holds as an investment. The stock was purchased three years ago and has been in the client’s safe deposit box along with other investment securities. During an inspection of securities held by the client, the auditor noted the 100 shares of IBM stock had a different CUSIP number than the number listed when purchased and the number verified during the previous audit. Which of the followingwould be the auditor’s main concern about this discovery?a. The certificates in the safe deposit box were forgeries.b. There had been unauthorized buying and selling of investment securities.c. The securities may be misclassified on the balance sheet.d. ABC Company no longer owns the securities.arrow_forwardDandy Container Corporation engaged the accounting firm of Adams and Adams to audit financial statements to be used in connection with a public offering of securities. The audit was completed, and an unqualified opinion was expressed on the financial statements that were submitted to the Securities and Exchange Commission along with the registration statement. Two hundred thousand shares of Dandy Container common stock were offered to the public at $11 a share. Eight months later, the stock fell to $2 a share when it was disclosed that several large loans to two "paper" corporations owned by one of the directors were worthless. The loans were secured by the stock of the borrowing corporation that was owned by the director. These facts were not disclosed in the financial statements. The director involved and the two corporations are insolvent. Select whether each of the below statements is true or false under statutory law. 1. The Securities Act of 1933 applies to the above-described…arrow_forwardAs an auditor for the CPA firm of Hinkson and Calvert, you encounter the following situations in auditing different clients. Wildhorse Co. is a closely held corporation whose stock is not publicly traded. On December 5, the corporation acquired land by issuing 4,000 shares of its $20 par value common stock. The owners' asking price for the land was $126,500, and the fair value of the land was $125,000. 1. Pharoah Company is a publicly held corporation whose common stock is traded on the securities markets. On June 1, it acquired land by issuing 19,000 shares of its $10 par value stock. At the time of the exchange, the land was advertised for sale at $266,500. The stock was selling at $11 per share. 2. Prepare the journal entries for each of the situations above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) No. Dates Account Titles and…arrow_forward
- As an auditor for the CPA firm of Hinkson and Calvert, you encounter the following situations in auditing different clients. Swifty Corporation is a closely held corporation whose stock is not publicly traded. On December 5, the corporation acquired land by issuing 5,800 shares of its $20 par value common stock. The owners' asking price for the land was $139,200, and the fair value of the land was $127,600. 1. Blue Spruce Corporation is a publicly held corporation whose common stock is traded on the securities markets. On June 1, it acquired land by issuing 23,200 shares of its $10 par value stock. At the time of the exchange, the land was advertised for sale at $290,000. The stock was selling at $11 per share. 2. Prepare the journal entries for each of the situations above. (List all debit entries before credit entries. Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Dates…arrow_forwardAs an auditor for the CPA firm of Hinkson and Calvert, you encounter the following situations in auditing different clients. 1. LR Corporation is a closely held corporation whose stock is not publicly traded. On December 5, the corporation acquired land by issuing 5,000 shares of its $20 par value common stock. The owners’ asking price for the land was $120,000, and the fair value of the land was $110,000. 2. Vera Corporation is a publicly held corporation whose common stock is traded on the securities markets. On June 1, it acquired land by issuing 20,000 shares of its $10 par value stock. At the time of the exchange, the land was advertised for sale at $250,000. The stock was selling at $11 per share. Prepare the journal entries for each of the situations above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)arrow_forwardPhillips CPA Firm is auditing the accounts of Tojo Enterprises, Inc., a national distributor of kitchen appliances. After reviewing the minutes of board of directors meetings as well as recent SEC filings, Phillips CPA firm have noted that key executives are extremely close to achieving a substantial bonus if the firm's stock price achieves a certain level in the market. Based on this finding, what might Phillips CPA Firm decide to do? O Phillips CPA Firm are likely to audit competing companies within the same industry as a basis for comparison. O Phillips CPA Firm are likely to assess control risk as low on the premise that management's desire to achieve stock price forecasts will increase fraud risk. O Phillips CPA Firm are likely to assume fraud risk is high, due to senior management's proximity to achieving certain desired stock prices. O None of these answer choices are correct.arrow_forward
- Your answer is partially correct. As an auditor for the CPA firm of Hinkson and Calvert, you encounter the following situations in auditing different clients. 1. Windsor, Inc. is a closely held corporation whose stock is not publicly traded. On December 5, the corporation acquired land by issuing 3,000 shares of its $20 par value common stock. The owners' asking price for the land was $126,000, and the fair value of the land was $115,500. 2. Sheridan Company is a publicly held corporation whose common stock is traded on the securities markets. On June 1, it acquired land by issuing 20,000 shares of its $10 par value stock. At the time of the exchange, the land was advertised for sale at $268,500. The stock was selling at $11 per share. Prepare the journal entries for each of the situations above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the…arrow_forwardAs an auditor for the CPA firm of Hinkson and Calvert, you encounter the following situations in auditing different clients. 1. Bramble Corp. is a closely held corporation whose stock is not publicly traded. On December 5, the corporation acquired land by issuing 5,000 shares of its $19 par value common stock. The owners’ asking price for the land was $123,500, and the fair value of the land was $117,000. 2. Crane Company is a publicly held corporation whose common stock is traded on the securities markets. On June 1, it acquired land by issuing 21,000 shares of its $10 par value stock. At the time of the exchange, the land was advertised for sale at $275,000. The stock was selling at $11 per share. Prepare the journal entries for each of the situations above. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the…arrow_forwardBrad Dolan, a stockholder of Rhode Corporation, has asked you, the firm's accountant, to explain why his stock warrants were not included in diluted EPS. In order to explain this situation, you must briefly explain what dilutive securities are, why they are included in the EPS calculation, and why some securities are antidilutive and thus not included in this calculation. Rhode Corporation earned $228,000 during the period, when it had an average of 100,000 shares of common stock outstanding. The common stock sold at an average market price of $25 per share during the period. Also outstanding were 30,000 warrants that could be exercised to purchase one share of common stock at $30 per warrant. Instructions Write Mr. Dolan a 1–1.5-page letter explaining why the warrants are not included in the calculation.arrow_forward
- Business Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:CengageAuditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning