Wallace Claims That He Should Not Be Liable Because He

question 60

Multiple Choice

Wallace claims that he should not be liable because he relied on the accounting firms' expertise with regard to the registration statements.Is Wallace correct?

• A)No,as a director,Wallace cannot use a defense of reliance because he was aware of questionable issues in the statements.
• B)Yes,but only if the accounting firm performed a due diligence inquiry.
• C)No,because he is a director.
• D)Yes,directors are not required to perform a due diligence inquiry if another expert compiles the statement.
• E)Yes,reliance is a valid defense where a director is involved.

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Definitions:

Absorption Costing

This financial documentation style accounts for all costs arising from manufacturing activities, encompassing direct materials, direct labor, and all overhead costs, both variable and fixed, in the product cost calculation.

Cost-plus Pricing

A pricing strategy where a fixed percentage or fixed amount is added to the cost of producing a product to determine its selling price.

Markup

The amount added to the cost of a product to cover expenses and generate profit, expressed as a percentage of the product's cost.

Selling and Administrative Expenses

The combined expenses of selling products or services and managing the company, excluding production costs.