As Part of a Stock Offering for Design Studio Corporation

question 48

Multiple Choice

As part of a stock offering for Design Studio Corporation, the firm's accountant Eve intentionally misrepresents material facts in the prospectus. Fred buys the stock unaware of the misrepresentation and suffers a loss. Eve may be subject to​

• A) ​none of the choices.
• B) ​job termination but no other sanctions, penalties, or liability.
• C) ​a fine, imprisonment, and damages.
• D) ​professional censure but no criminal sanctions or civil liability.

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Definitions:

Unrealized Increase

The potential gain in the value of an investment that has not yet been sold and thus not yet converted into actual profit.

Donated Capital

Assets and resources given to a company without the expectation of return or compensation, often used to fund operations or expand business activities.

Contra Account

An account used in a general ledger to reduce the value of a related account when the two are netted together.

Compensatory Stock Options

Stock options given to employees as part of their compensation package, allowing them to purchase company stock at a discount in the future.