[Ethics Question] The Enterprise Accounting firm negligently prepared audited financial statements for Acme Manufacturing (Acme), which resulted in Acme appearing much more profitable than it actually was. First Trust Bank then made a $500,000 loan to Acme after reviewing the audited financial statements Enterprise Accounting had prepared for Acme. Acme later filed for bankruptcy and had the First Trust Bank loan discharged. First Trust Bank then sued the Enterprise Accounting firm alleging that Acme’s audited financial statements had been negligently prepared. If First Trust Bank is able to prove at trial that Enterprise Accounting firms audited financial statement for Acme were negligently prepared, under the Ultramares case Enterprise would NOT be held liable to First Trust Bank for negligence committed when preparing Acme’s audited financial statements. 

Harry signs a promissory note as maker that states “I promise to pay to Bob” and that it is in accordance with a contract made on July 1, 2026, between Harry and Bob.  Assuming everything else on this instrument is correct, this instrument is

[Ethics Question] Louise is an accountant whose clients include Neurogenetics, Inc. Neurogenetics is a firm that works to develop better treatments for ALS, a progressive neurodegenerative disease. In most states, if Louise is negligent in preparing and certifying financial statements for Neurogenetics, Inc., Louise would likely be held liable to 

[Ethics Question] Jordan, CPA, is the engagement partner for the audit of Apex Technologies, Inc. During the current year, new federal legislation created a unique transaction that is not specifically contemplated by existing GAAP guidance. Management’s proposed accounting treatment strictly follows the literal wording of an existing GAAP standard. However, Jordan concludes that applying the standard as written would cause the company’s financial statements to present a misleading picture of its financial position because the new legislation created circumstances that were not anticipated when the standard was developed. Under the AICPA Code of Professional Conduct, what is the most appropriate action for Jordan to take?

Tippie Honor Pledge: Extra Credit (1 point): I PLEDGE AS FOLLOWS:  I HAVE NEITHER GIVEN NOR RECEIVED ASSISTANCE ON THIS EXAM. [DO NOT SIGN; SELECT EITHER TRUE OR FALSE, WHICHEVER IS CORRECT.]

Versa Energy Company (Versa) ordered and immediately paid for corn from many Iowa corn farmers. Within 90 days of ordering and paying for the corn, Versa filed for Chapter 11 bankruptcy. The trustee in bankruptcy then sent written demand letters to the farmers that stated the payments were preference claims, and the farmers must return the payments they had received from Versa to the bankruptcy estate. In the letters, the trustee offered to settle the claims by permitting the farmers to pay 80% of the payments to the estate. The letters stated the settlement offer was open for 30 days. Some of the farmers who received these letters have come to you for advice. Your best advice is that the farmers should

[Ethics Question] True or False? Jack, a CPA, had a confidential meeting with his client, Mark Consulting. The CEO of Mark Consulting shared with Jack his concerns that Mark Consulting had not followed proper accounting standards in its last two fiscal years. Jack has copies of many of Mark Consulting’s documents and has had access to its records for the last three years. A client of Mark Consulting is now suing Mark Consulting in a court of law. In the majority of states, if called to produce documents and testify, Jack would be able to claim that accountant-client communications are privileged to avoid producing documents to Mark Consulting’s client and testifying in court.

Kate borrowed $100,000 from Bank on August 1 and gave it a security interest in the equipment she purchased with the money. Kate then filed for bankruptcy August 5 and listed Bank as a creditor. Bank perfected its security interest in the equipment on August 24. Which of the following is true?

Carol made a promissory note in the amount of $25,000 in favor of Barb on January 1 to be due in nine months. In exchange for a loan for her business, Barb granted Bank a security interest in this note on February 1 of the same year. Bank’s security interest in the note attached against Barb. Bank promptly filed a financing statement to perfect its interest in the note and did not take possession of the note. On February 15 of the same year, Barb negotiated the note to Jim for $23,500, and Barb then spent this money on her business. Jim had no reason to know or suspect that Barb had granted a security interest in the note to the Bank and took the instrument in good faith and without notice of any defenses to payment on the instrument or other claims of ownership. If Barb defaults on her loan and does not pay Bank, which party is entitled to the $25,000 note and why?

[Ethics Question] Dade Corporation made a public offering of $150,000,000 convertible debentures (type of bond) and registered the offering with the SEC. The registration statement contained financial statements certified by Verne Roberts, CPA. The financial statements overstated Dade Corporation’s net income and assets by 30% and understated Dade Corporation’s liability by 20%. Verne Roberts did NOT carefully follow GAAS and failed to detect any problems. Once discovered, the bond prices dropped from $1,000 (their original selling price) to $750 per bond. Nicole had purchased $30,000 of the debentures at the original price and now wants to recover damages. Nicole’s best cause of action is under: