Drug Company X Reports the Introduction of a New Pill

question 39

Multiple Choice

Drug Company X reports the introduction of a new pill that is guaranteed to cause weight loss with no side effects.The information was advertised in connection with a public offering of stock of the company's stock.Later,it becomes apparent through additional testing that unfortunately the new pill also results in premature hair loss,a material issue.Monika is the president of Company X and is very pleased with sales of the drug.She recognizes that she can no longer advertise the drug as having no side effects,but she does not believe she has made any misrepresentations because she was not aware of the hair loss side effect when previous statements were made.She decides to do nothing.Has she made the correct decision as far as Rule 10b-5 is concerned?

• A) Yes, because she has no duty to disclose later test results.
• B) Yes, because she has no duty to disclose later test results that involve only cosmetic issues.
• C) Yes, because she has no duty to disclose later test results that involve issues that are not life threatening.
• D) No, she made the wrong decision because she has an obligation to disclose the results.

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Definitions:

Ending Inventory

At the conclusion of a financial cycle, the cost of products up for sale is figured out by taking the starting inventory, adding any acquisitions, and deducting the expense associated with the goods that have been sold.

Weighted-Average Method

An inventory costing method that calculates the cost of ending inventory and the cost of goods sold based on the average cost of all goods available for sale during the period.

Conversion Costs

The combination of direct labor costs and manufacturing overhead costs, representing the costs to convert raw materials into finished products.

Processing Department

A section or unit within a manufacturing facility where a specific type of processing or operation is carried out.