A CPA Agreed to Render Professional Services to All Three

question 12

Multiple Choice

A CPA agreed to render professional services to all three of the shareholders in a corporation.All three shareholders asked the CPA to determine the amount of corporate earnings that should be distributed as dividends and the amount that should be maintained as Retained Earnings to spur the future growth of the corporation.All three told the CPA that they want to "allocate cash flow to maximize everyone's after-tax wealth." Two weeks after the CPA began this assignment,one of the shareholders told the CPA privately that she "desperately needed immediate cash flow from dividends because her mother recently had a stroke and needs to be able to afford to give her mother proper medical care.This shareholder asked that her mother's medical condition be kept confidential,to respect her mother's wishes.The CPA:

• A) Acted properly at the outset of this professional engagement
• B) Acted improperly at the outset of this professional engagement because representation of fellow shareholders automatically creates a dual-client conflict of interest
• C) Acted improperly at the outset of this professional engagement, but now has a duty to complete the engagement to minimize further harm to her clients
• D) Acted improperly at the outset of this professional engagement and has a duty to inform the accountancy licensing board about this misconduct

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Definitions:

Weighted-Average Method

A costing method that assigns costs to inventory based on the average cost of all similar items in the inventory.

Process Costing

An accounting method used to calculate the cost of a process or stage of production by dividing the total costs by the number of units produced, typically used in industries where identical products are produced.

First Processing Department

The initial stage or department in a manufacturing process where raw materials are first transformed or processed.

Units Started And Completed

Refers to the number of units of a product that begin and finish the manufacturing process within a specific time period.