A CPA Sole Practitioner Purchased Stock in a Client Corporation

question 29

Multiple Choice

A CPA sole practitioner purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child.The trust securities were not material to the CPA but were material to the child's personal net worth.Would the independence of the CPA be considered to be impaired with respect to the client?

• A)Yes,because the stock would be considered a direct financial interest and,consequently,materiality is not a factor.
• B)Yes,because the stock would be considered an indirect financial interest that is material to the CPA's child.
• C)No,because the CPA would not be considered to have a direct financial interest in the client.
• D)No,because the CPA would not be considered to have a material indirect financial interest in the client.

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Definitions:

Average Total Cost

The total cost of production divided by the total number of units produced.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, measuring the opportunity costs of a firm's resources.

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, leading to competitive pricing and product differentiation.

Price Takers

Economic participants who accept the prevailing market price as they do not have the market power to influence it.