Multiple Choice Questions
1. CPA QUESTION When a common stock offering requires registration under the Securities Act of
1933:
(a) The registration statement is automatically effective when filed with the SEC.
(b) The issuer would act unlawfully if it were to sell the common stock without providing the
investor with a prospectus.
(c) The SEC will determine the investment value of the common stock before approving the offering.
(d) The issuer may make sales 10 days after filing the registration statement.
Answer: (b). CPA Examination, November 1991, #36.
2. CPA QUESTION Pace Corp. previously issued 300,000 shares of its common stock. The shares are
now actively traded on a national securities exchange. The original offering was exempt from
registration under the Securities Act of 1933. Pace has $2.5 million in assets and 425 shareholders.
With regard to the Securities Exchange Act of 1934, Pace is:
(a) Required to file a registration statement because its assets exceed $2 million in value
(b) Required to file a registration statement even though it has fewer than 500 shareholders
(c) Not required to file a registration statement because the original offering of its stock was exempt
from registration
(d) Not required to file a registration statement unless insiders own at least 5 percent of its
outstanding shares of stock
Answer: (b). The company is traded on a securities exchange. CPA Examination, May 1989, #41.
3. Lily would like to raise money for her video game start-up by advertising the shares on her website,
but without substantial financial disclosure. What should she do?
(a) Nothing. If she is going to solicit purchasers publicly, she must undertake an IPO.
(b) Use Rule 504 to sell up to $1 million in stock to accredited investors, and make sure the offering
is exempt under state law.
(c) Use Rule 504 to sell up to $1 million in stock to any purchasers and register stock under a state
law.
(d) Use Rule 505 sell up to $5 million in stock to an unlimited number of accredited investors and no
more than 35 unaccredited investors.
Answer: (b). Under Rule 504, she cannot sell to purchasers other than accredited investors without
disclosure. Under Rule 505, she cannot advertise publicly.
4. If a public traded company wishes to issue more stock, it will undertake a(n)_________. If the
underwriter buys the stock and resells it to the public, that is a ______________ underwriting.
Before buying the stock, investors must receive a copy of the ____________.
(a) IPO, best efforts, registration statement.
(b) IPO, firm commitment, registration statement
(c) Secondary offering, best efforts, prospectus
(d) Secondary offering, firm commitment, prospectus
Answer: (d).
5. Three months ago, Noah bought stock under Rule 506 in TreesNFlowers, Inc. He has lost interest in
the company and would like to sell the stock. Which of the following statement is true:
(a) He can sell the stock now, so long as he sells it to an accredited investor.
(b) He can sell the stock now so long as the company grants permission.
(c) He must hold on to the stock for at least nine months.
(d) He could sell the stock in three months, but only if the company goes public in the meantime.
Answer: (d).