Regulation Study Flashcards
(21 cards)
In what order are obligations paid after a secured creditor rightfully sells the debtor’s collateral after repossession?
Proceeds from the disposition of collateral must be applied in the following order.
- Reasonable expenses incurred in retaking, holding, and selling the collateral.
- Satisfaction of the debt owed the secured party.
- Subordinate security interests in the property.
- Any surplus is returned to the debtor.
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?
When a CPA is sued under Section 18 of the Securities Exchange Act of 1934, the auditor may be absolved from liability if he/she is able to prove that:
Followed GAAS
No Gross Negligence i.e. they prove that the audit report was issued in good faith and auditor lacks knowledge of falsity.
Misstatement is not material
What is meant by the legislative reenactment doctrine?
The legislative reenactment doctrine presumes that a long-standing finalized regulation has congressional approval if Congress has not amended the relevant Internal Revenue Code. While the other responses are true statements, they are not referred to as the legislative reenactment doctrine.
The antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934
Require that the wrongful act must be accomplished through the mail, any other use of interstate commerce, or through a national securities exchange
Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA who certifies financial statements included in a registration statement generally will not be liable to a purchaser of the security
If the CPA can prove due diligence
Which of the following statements is correct regarding a limited liability company’s operating agreement?
It is designed to forestall and resolve disputes among the owners.
An operating agreement is one of the most important documents of an LLC as it outlines the business financial and functional decisions. The purpose of this document is to spell out the internal operations of the business in a way that it is suited to its members and forestall and resolve dispute among members.
Salud Welfare Associates is an exempt organization that operates under a corporate charter granted by the state in which Salud’s principal office is located. Salud’s tax on unrelated business taxable income is
Computed at corporate income tax rates
Under §511, unless an organization is taxable as a trust, its unrelated business taxable income is subject to the regular corporate income tax rates. Option (b), (c) and (d) are incorrect as per above explanation.
With regard to estimated income tax, estates
Are exempt from paying estimated tax during the estate’s first two taxable years
Which of the following types of entities is entitled to the net operating loss deduction?
Individuals, estates, and trusts may take a deduction for net operating losses (NOL). As pass-through entities, partnerships and S corporations generally cannot take NOL deductions; however, partners or S corporation shareholders use their distributive share of partnerships’ and S corporations’ business income and deductions to figure their individual NOL.
The year 3 deduction by an individual taxpayer for interest on investment indebtedness is
Limited to the taxpayer’s net investment income earned in year 3
How may taxes paid by an individual to a foreign country be treated?
Foreign taxes paid by an individual can either be taken as an itemized deduction or may be taken as a credit against federal taxes due.
Which of the following statements is correct regarding the deductibility of donations made to qualifying charities by a cash-basis individual taxpayer?
A charitable contribution deduction is not allowed for the value of services rendered to a charity.
Under the parol evidence rule, oral evidence will be excluded if it relates to
A contemporaneous oral agreement relating to a term in the contract
An employee who has had social security tax withheld in an amount greater than the maximum for a particular year, may claim
The excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers
Under the UCC Sales Article, the warranty of title may be excluded by
The seller’s statement that it is selling only such right or title that it has
The charitable contribution deduction on an estate’s fiduciary income tax return is allowable
Only if the decedent’s will specifically provides for the contribution
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
What is the correct order, from earliest to latest, that US legislative bodies consider new tax legislation?
House of Representatives, US Senate, Joint Conference Committee
Which of the following facts must be proven for a plaintiff to prevail in a common law negligent misrepresentation action?
The plaintiff justifiably relied on the misrepresentations.
Negligent misrepresentation requires proof of a misstatement of material fact upon which the other party relies to their detriment. It is not necessary to show that the misrepresentations were made with a reckless disregard for the truth, nor that they be in writing.
When liability for negligence is brought by a client, the plaintiff must prove the following
- Material misstatement or omission in the financial statements.
- Loss (damages)
- Plaintiff suffered a financial loss.
- Information in the financial statement was the proximate cause of the harm to the plaintiff.
- Error was caused by breach of duty of care.
As such, the best defense for a CPA to avoid the liability would be that the CPA’s negligence was not the proximate cause of the client’s losses.
What tax cases have no appeal?
Cases tried in the Small Cases Division have no appeal. A party losing in the U.S. Court of Federal Claims or U.S. Tax Court may appeal in the U.S. Court of Appeals which is divided into geographical districts. A party losing in Federal District Court may appeal in the U.S. Court of Appeals for the Federal Circuit.
