Accounting and Business Law
Midterm Exam
Course Introduction
This course explores the fundamental principles of accounting and their intersection with essential concepts in business law. Students will gain a strong foundation in financial reporting, analysis, and the regulatory environment governing corporate activities. Topics include the accounting cycle, financial statement preparation, and legal structures of organizations, as well as contracts, business formation, and ethical considerations. Emphasis is placed on how legal frameworks influence accounting practices, risk management, and decision-making in both emerging and established business contexts. This comprehensive approach prepares students to navigate the complex legal and financial aspects of the business world.
Recommended Textbook Law for Business 11th Edition by A.
James Barnes
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47 Chapters
2347 Verified Questions
2347 Flashcards
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Page 2
Chapter 1: Law, Legal Reasoning, and the Legal Profession
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Q1) Substantive law comprises rules as to what cases a court can decide,how a trial is conducted,and how a judgment by a court is to be enforced.
A)True
B)False
Answer: False
Q2) List the three ways in which courts make law.
Answer: Courts make laws in three ways: 1)through interpretation,courts give meaning to other sources of law,2)through the common law they find law when no other source offers a solution to a legal dispute,and 3)through judicial review when they determine the legitimacy of the actions of other branches of government.
Q3) If a person carelessly runs a car into yours,the person has committed:
A)civil tort of negligence.
B)substantive tort of negligence.
C)criminal tort of negligence.
D)procedural tort of negligence.
Answer: A
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3
Chapter 2: Dispute Settlement
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Q1) Explain why an appeal can only be taken from a court of record.
Answer: An appeal can only be taken from a court of record because such a court has a transcript or record of what went on at the trial.This transcript can be reviewed by the appellate court to see if the errors that are claimed have occurred and are sufficiently important to justify a reversal.
Q2) The primary way a case can be appealed to the Supreme Court is through a:
A)writ of habeas corpus.
B)writ of quo warranto.
C)writ of certiorari.
D)writ of mandamus.
Answer: C
Q3) An employee appointed within an organization to settle disputes is called a(n): A)mediator.
B)arbitrator.
C)ombudsperson.
D)private judge.
Answer: C
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Chapter 3: Business Ethics and Corporate Social Responsibility
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Q1) According to the new federal sentencing guidelines implemented as part of Sarbanes-Oxley,the U.S.Sentencing Commission judges should increase the fines for companies if their directors do not take reasonable steps to monitor managerial conduct in order to discover and prevent criminal activity.
A)True
B)False
Answer: False
Q2) It is unlikely that greater control by shareholders will lead to greater corporate social responsibility because:
A)most shareholders are motivated by maximizing profits and are unlikely to approve corporate actions contrary to that end.
B)many shareholders have access to the information necessary to closely monitor the noneconomic performance of a company.
C)there is a definite chance that the values of "ethical" shareholders would be representative of society as a whole.
D)shareholders will have the power to adopt resolutions binding the corporate managers.
Answer: A
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Chapter 4: Business and the Constitution
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Q1) When is strict scrutiny analysis triggered?
Q2) Which of the following prohibits the federal government from depriving any person "of life,liberty,or property,without due process of law"?
A)The Fifth Amendment Due Process Clause
B)The Commerce Clause
C)The Fourteenth Amendment Due Process Clause
D)The Seventh Amendment
Q3) The independent agencies often exercise _____ to gain access to witnesses and documentary evidence,as many people will not voluntarily cooperate with information requests.
A)the power of eminent domain
B)a subpoena power
C)an enforcement power
D)a coercive power
Q4) The power of the states to regulate is:
A)exclusive in the domain of intrastate commerce.
B)nonexistent over matters that affect interstate commerce.
C)limited only by its own state constitution.
D)exclusive in the domain of interstate commerce.
Q5) Briefly discuss the constitutional safeguards of "pure" or political speech.
Page 6
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Chapter 5: Crimes
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Q1) The prohibition against excessive bail and fines can be found in the:
A)Eighth Amendment.
B)Fourth Amendment.
C)Fifth Amendment.
D)Sixth Amendment.
Q2) Which of the following statements is true about the Federal Sentencing Guidelines?
A)They are designed to establish consistent sentences for homicides only.
B)They require judges to arrive at a sentence by using a formula based on the seriousness and circumstances of the crime.
C)They specifically mandate lenient penalties for corporations dealing with white-collar crimes.
D)They mandate a minimum one-month prison term for tax frauds.
Q3) "Mens rea" means:
A)misdemeanors.
B)public wrongs.
C)insanity.
D)criminal intent.
Q4) What are the essential elements that must be shown by the government to obtain a criminal conviction?
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Chapter 6: Intentional Torts
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Q1) William Key Collins called his insurance adjuster,Morris Gage,to discuss a claim.During their phone conversation,Gage told Collins that his chiropractor,Kenneth Ark,was "a quack." Dr.Kenneth Ark overhears this conversation and wants to sue Morris Gage.Which of the following statements is true?
A)Ark can recover from Gage for libel,but only if he proves special damages.
B)Ark can recover from Gage for slander,but only if he proves special damages.
C)Ark can recover from Gage for libel,and actual damages will be presumed.
D)Ark can recover from Gage for slander,and actual damages will be presumed.
Q2) Truth is not a defense to a defamation action.
A)True
B)False
Q3) Use of force to drive away a person's customers or employees leads to a tort called disparagement.
A)True
B)False
Q4) Intentional torts are both civil and criminal in nature.
A)True
B)False
Q5) Define and discuss the tort of trespass to land.
Q6) Explain the tort of battery.
Page 8
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Chapter 7: Negligence and Strict Liability
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Q1) Violetta was injured in a bike accident while on a ride with Alfredo,who she knew was intoxicated.A court would regard this as:
A)ultrahazardous.
B)the assumption of the risk.
C)intentional wrongdoing.
D)comparative negligence.
Q2) The doctrine of res ipsa loquitur places the burden on the plaintiff to show that his injury was caused by the defendant's negligence.
A)True
B)False
Q3) If Jamal is carefully driving his car within the speed limit and an inebriated Eddie darts out in front of his car and is hit,Jamal is liable for Eddie's injuries.
A)True
B)False
Q4) A defendant is free of liabilities if the intervening force was foreseeable. A)True
B)False
Q5) What is the main difference between recklessness and negligence?
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Chapter 8: Licensing and Intellectual Property
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Q1) What are technology transfer agreements?
Q2) A copyright comes into existence in the United States only after the work has been registered with the appropriate governmental office.
A)True
B)False
Q3) Which of the following statements is true about trade secrets?
A)A trade secret usually receives legal protection even if its owner did not take reasonable precautions to keep it a secret.
B)A trade secret generally does not include processes,techniques,and compilations of information.
C)A business may attempt to maintain a trade secret when it has a process or product that is not novel enough to receive patent protection.
D)A business may attempt to maintain the trade secret if the monopoly period for patents is relatively long.
Q4) Generally,compensation clauses specify the currency in which royalty payments are to be made.
A)True
B)False
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Chapter 9: The Nature and Origins of Contracts
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Q1) How does the Uniform Commercial Code define "merchant"? Why does the UCC distinguish between merchants and non-merchants?
Q2) The doctrine of promissory estoppel:
A)makes the contracts unenforceable.
B)does not make promises enforceable.
C)protects bargains,not reliance.
D)protects reliance,not bargains.
Q3) A quasi contract is:
A)a contract that has been fully performed.
B)a contract where terms are stated orally only.
C)contract like duties imposed by the court to prevent unjust enrichment.
D)an agreement which contains all but one of the basic elements needed to form an enforceable contract.
Q4) CISG applies to any party,be it a merchant or a nonmerchant.
A)True B)False
Q5) Freedom of contract is a notion that has emerged only in the last twenty years. A)True B)False
Q6) What is a quasi-contract?
Page 11
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Chapter 10: Creating a Contract: Offers
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Q1) Courts have traditionally said they are contract makers,not enforcers.
A)True
B)False
Q2) Which of the following authorities requires that,at minimum,the terms of the offer must be sufficiently clear so that what was promised can be determined?
A)The UCC only.
B)The common law and the Restatement.
C)The UCC and the Restatement.
D)The CISG and the UCC.
Q3) Which of the following statements about offers is true?
A)Any definite offer made by a merchant is a "firm offer" under the UCC.
B)An offer is effective upon dispatch.
C)A grumbling acceptance is a rejection and terminates the offer.
D)The death of the offeror will terminate the offer immediately.
Q4) An offeree who attempts to accept after an offer has terminated is making:
A)an offer.
B)a solicitation.
C)a revocation.
D)a counteroffer.
Q5) What are the factors that influence the reasonable length of an offer?
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Chapter 11: Creating a Contract: Acceptances
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Q1) Explain the process followed by the court to determine the intent of the parties to enter into a contract,if a dispute arises before the written draft of agreement is created?
Q2) When an offeree uses a nonauthorized means of acceptance,the acceptance is:
A)effective upon dispatch.
B)illegal.
C)not effective until it is received by the offeror.
D)not effective upon receipt by the offeror.
Q3) Whenever possible,the courts interpret an offer as proposing a bilateral contract.
A)True
B)False
Q4) The UCC and the U.N.Convention of Contracts for the International Sale of Goods both hold that acceptances are effective when they are dispatched.
A)True
B)False
Q5) Explain the UCC's "battle of the forms" rule.
Q6) Explain the similarity and difference between click-on and browse-wrap contracts.
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13
Chapter 12: Consideration
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Q1) Explain the difference between a liquidated and an unliquidated debt.
Q2) Freedom of contract includes the freedom to make bad bargains.
A)True
B)False
Q3) A promisee's consideration must be another promise and cannot be in the form of an act.
A)True
B)False
Q4) If a professor charges extra fees to take a regularly scheduled class,it would not be taken as a consideration because:
A)such an act is prohibited by promissory estoppels.
B)such an act would violate the preexisting duty rule.
C)you have already paid your tuition fee which also includes the test fee.
D)such an act is a tort.
Q5) When a promisee agrees not to do something he or she has a legal right to do in exchange for the promisor's promise,it constitutes legal value.
A)True
B)False
Q6) Explain forbearance to sue in relation to consideration.
Page 14
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Chapter 13: Capacity to Contract
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Q1) A minor can disaffirm a contract made for ____.
A)real estate
B)life insurance
C)educational training
D)bank accounts
Q2) In which of the following ways do courts prevent minors,who misrepresent their age,from defrauding adults?
A)By requiring the minor to place the adult in status quo.
B)By holding the minor to his/her spoken statements which clearly indicate intent to be bound by the contract.
C)By ratifying the minor before he/she turns adult.
D)By proving them incapable of being held in a contract.
Q3) Minors who successfully disaffirm a contract are not entitled to the return of any consideration they have given the adult party to the contract.
A)True
B)False
Q4) Minors' contracts are not voidable.
A)True
B)False
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Chapter 14: Voluntary Consent
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Q1) "One who waits too long to complain has indicated satisfaction with the agreement despite the initial lack of true consent" is the idea behind the doctrine of:
A)ratification.
B)forbearance.
C)rescission.
D)emancipation.
Q2) The victim of a fraud may be able to recover punitive damages.
A)True
B)False
Q3) Which of the following statements is true for justifiable reliance?
A)Misrepresentation of public facts amounts to justifiable reliance.
B)It cannot lead to rescission of a contract if the victim was aware of the truth.
C)It can lead to rescission of a contract if there is no connection between a misrepresentation and the complaining party's entry into the contract.
D)It is an important element of unilateral mistake.
Q4) Explain the difference between duress and undue influence.
Q5) Why do courts require justifiable reliance in misrepresentation and fraud?
Q6) How do cases of mistake differ from fraud and misrepresentation?
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Chapter 15: Illegality
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Q1) Rent control laws have been implemented to limit the exercise of unequal bargaining power.
A)True
B)False
Q2) The courts have no power over unconscionable contracts.
A)True
B)False
Q3) Trade agreements are legal if:
A)their sole purpose is to restrict trade.
B)their ancillary purpose is to restrict trade indefinitely.
C)their purpose is to recover punitive damages.
D)their purpose is to protect interests created by the contract.
Q4) Statutes that impose a significant license fee and allow anyone who pays the fee to obtain a license are classed as regulatory.
A)True
B)False
Q5) Wagering,risk-shifting,and speculative bargaining agreements are all regarded illegal by statutes.
A)True
B)False
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Chapter 16: The Form and Meaning of Contracts
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Q1) If an oral contract has been declared unenforceable by the court,yet one of the parties has rendered some performance under the contract that conferred benefits on the other party,he/she can recover the reasonable value of the performance in:
A)collateral enforcement.
B)quasi contract.
C)the statute of frauds.
D)parol evidence.
Q2) Legislative reform at both the state and federal levels have facilitated e-commerce by revising traditional contract rules to include new contract rules for electronic transactions made over the Internet.
A)True
B)False
Q3) The parties had to rely on the testimony of third persons who were often paid witnesses or friends,and false testimony was common in the original statute of frauds adopted in England in 1677.
A)True
B)False
Q4) What kind of writing is required under the statute of frauds?
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18
Chapter 17: Third Parties Contract Rights
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Q1) Once a donee or creditor beneficiary has accepted the contract,the original parties:
A)can cancel the contract if the original contract gives them the right to.
B)can cancel the contract without the third party's consent.
C)can never cancel the contract.
D)can cancel only monetary contracts.
Q2) The transfer of rights and duties under a contract is called an assignment.
A)True
B)False
Q3) The term delegation refers to the transfer of: A)rights.
B)duties.
C)duties that a promisor did not want to perform.
D)duties involving the promisor's personal skills.
Q4) Explain what types of contracts are assignable and name the types of contracts that are not assignable.
Q5) Employment contracts are assignable.
A)True B)False
Q6) What is an implied guarantee?
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Chapter 18: Performance and Remedies
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Q1) A promisor who is guilty of material breach has no right of action under the contract.
A)True
B)False
Q2) Adam contracts to sell Ben 100 widgets for $100 for use in Ben's factory.Adam does not know that Ben's factory is closed as it is waiting for supply of widgets from Adam.Will Adam be liable for the damages caused due to late delivery?
A)Will be liable for compensatory damages.
B)Will be liable for consequential damages.
C)Will not be liable for any damages.
D)Will be liable for nominal damages.
Q3) A liquidated damages provision will be enforced only when:
A)the subject matter of the contract has a value which cannot be put in monetary terms. B)the amount specified is reasonable and actual damages would be difficult to determine.
C)the nature of the contract is such that damages would not be difficult to determine.
D)the amount agreed on is not the injured party's only remedy.
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Page 20
Chapter 19: Formation and Terms of Sales Contracts
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Q1) Article 2 of the UCC does not apply to the sale of real estate.
A)True
B)False
Q2) Under the UCC,when parties to a sales contract omit a price term,the contract is void because there is no "meeting of the minds."
A)True
B)False
Q3) When a contract merely requires the seller to ship the goods,title passes to the buyer when:
A)the contract is signed by both parties.
B)the seller delivers the goods to the carrier.
C)the buyer pays the seller.
D)the goods are delivered by the carrier.
Q4) Which of the following statements is true for a negotiable document of title?
A)It serves as the contract between the seller and the shipper.
B)It is given to the buyer even before he/she makes the payment for the goods.
C)It shows that title cannot be surrendered to the buyer until the seller explicitly instructs.
D)It shows that the buyer cannot reject the goods delivered.
Q5) What happens if a buyer rejects the tender of goods?
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Chapter 20: Warranties and Product Liability
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Q1) Wilma locked herself in the trunk of a 1973 sedan in an attempt to learn a magic trick.After some time,she decided to get out of the trunk,but was unable to do so.She was released nine days later.She subsequently sued the manufacturer of the sedan for the psychological and physical injuries she sustained because the trunk did not have an internal release or opening mechanism that would have allowed her to escape.She alleged that the manufacturer was negligent in its design of the car because it lacked such a mechanism,and negligent because it failed to warn users that the trunk did not have such a mechanism.Was the manufacturer of the sedan negligent for failing to warn,or failing to include a release in its design of the car?
Q2) Which of the following statements concerning the Magnuson-Moss Warranty Act is true?
A)The act applies to all sellers of a "consumer product" that costs more than $50.
B)The act requires a seller of consumer goods to give a written warranty,either full or limited.
C)The FTC enforces the disclosure provisions of the warranty act and regulations.
D)The act requires a full warranty to have a time limit.
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Chapter 21: Performance of Sales Contracts
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Q1) PC Corp.entered into a contract with Easy University to supply the school with 500 PCs for use in its new computer facility.A week before the PCs were to be delivered,Easy University called PC Corp.and said that it would not go through with the purchase.Is PC Corp.obligated to deliver the PCs as required by the contract? Why or why not?
Q2) Buyer,who owns a grocery store,orders bananas from a fruit wholesaler.The bananas arrive,but they are much too ripe to sell in the grocery.Buyer rejects the bananas and promptly notifies the fruit wholesaler of his rejection.What are Buyer's responsibilities regarding the rejection of the spoilt goods?
A)Buyer must follow any reasonable instructions the seller gives concerning the disposition of the bananas.
B)Buyer must make a reasonable effort to sell them on the seller's behalf,but must not expect a reimbursement from the seller.
C)Buyer need not state any reasons for the rejection to the seller.
D)Buyer must give sufficient notice to the seller and the seller must personally come and collect the goods rejected by the buyer.
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Chapter 22: Remedies for Breach of Sales Contracts
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Q1) The parties' agreement on the amount of damages to be paid,if one of them breaches their contract,will not be enforced if the amount named is unreasonable.
A)True
B)False
Q2) In which of the following ways can a seller breach a contract?
A)By entrusting goods are in buyer's possession.
B)By delivering goods that do not conform to the contract.
C)By repudiating a contract.
D)By indicating an intention to fulfill the obligations under the contract.
Q3) Name the most common ways a buyer may breach a contract.
Q4) An injured buyer can recover consequential damages if:
A)expenses incurred during storage of goods do not conform to those called for in the contract.
B)he covers.
C)the goods are not consumer products.
D)he can show that he could not have prevented the damage by obtaining substitute goods.
Q5) Under the UCC,list five remedies available to a buyer when the seller has breached a contract.
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Chapter 23: The Agency Relationship-Creation, Duties, and Termination
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Q1) Discuss an agent's duty to communicate information to the principal and when is this duty considered to be violated?
Q2) When an agent buys for the principal from himself,even if he charges a fair market price,the agent is violating which of the following common law duties?
A)Duty to communicate information
B)Duty to account for funds and property
C)Duty of loyalty
D)Duty to obey instructions
Q3) When an agreed-on result is obtained by the agent and the principal does not benefit:
A)the agent will not be paid.
B)the agent is entitled to be paid.
C)the agent must return any pay to the principal.
D)the agent may only recover the expenses incurred,not the actual compensation.
Q4) The duty of the principal to keep records from which the compensation due to the agent can be determined is reinforced by tax laws that require such recordkeeping.
A)True
B)False
Page 25
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Chapter 24: Liability of Principals and Agents to Third Parties
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Q1) Ralph and Ann engaged Sue,a realtor,to sell their variety store.Sue represented to buyer Mike that "this was a typical general store," selling gas,oil,hardware,beer,and groceries.She reported that the store had an annual gross income of over $1 million.Sue failed to inform Mike that one-third of the store's profit was attributable to an accompanying lawn and garden equipment distributorship that Ralph and Ann were not including in the sale.When Mike visited the business,Sue directed him away from the garage area where the lawn and garden equipment was stored.Throughout all of these negotiations,Ralph and Ann were unaware of Sue's misrepresentations.After purchasing the store,Mike learned of the importance of the equipment sales from Ralph and Ann.Are Ralph and Ann liable for Sue's misrepresentation? If yes,what can they do to avoid liability?
Q2) Which of the following statements is true for a nonexistent or incompetent principal?
A)If the third person is unaware of the lack of capacity of the principal,the agent is protected.
B)A minor is considered a nonexistent principal.
C)The law imposes an apparent warranty by the agent that the principal has the capacity to be bound.
D)A person judged insane is not considered to be nonexistent.
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Chapter 25: Employment Laws
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Q1) Affirmative action has not been upheld by courts.
A)True
B)False
Q2) Generally,employers covered under the FLSA are:
A)those engaged in interstate commerce.
B)those whose annual gross sales exceed $1 million.
C)those whose business affects intrastate commerce.
D)those whose annual gross sales exceed $10 million.
Q3) Under workers' compensation:
A)the employer is not liable for injuries that occur as the result of negligence by another worker.
B)the employer is liable for injuries occurring within the scope of employment without regard to fault.
C)the injuries occurring on the way to and from the job are within the course of employment,for which damages may be recovered.
D)general damages for pain and suffering,and punitive damages for employer negligence,are also available.
Q4) How does the Americans with Disabilities Act of 1990 define disability? Who is excluded from this definition?
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Chapter 26: Which Form of Business Organization
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Q1) Explain the difference between a partnership and a limited partnership.
Q2) A freeze-out:
A)occurs when a majority shareholder is "frozen out" by the management regarding such issues as a reduction or elimination of dividends.
B)can be easily reversed in court.
C)results in the minority shareholder having little influence in important corporate issues such as loss of employment.
D)occurs mostly in S Corporations.
Q3) If a business involves high risk,a single factor such as _____ will be so important as to outweigh other factors.
A)limited liability
B)taxation
C)formalities
D)financing
Q4) States generally permit LLCs to have an indefinite duration.
A)True
B)False
Q5) List the factors one should consider in choosing a form of business organization.
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Chapter 27: Partnerships
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Q1) A creditor of a partner can attach any property owned by the partnership.
A)True
B)False
Q2) The RUPA holds that property belongs to the partnership if it was transferred to:
A)the partners in their individual capacities.
B)general partners only by a transfer document that specifically names the partnership indicating that partnership exists.
C)any partner by transfer document indicating the partner's status as a partner or otherwise indicating that a partnership exists.
D)any partner by transfer document under the charging order.
Q3) What is the difference between a limited partnership and a limited liability limited partnership?
Q4) The partnership will not be liable for contracts created by a partner acting outside the scope of her authority,even when the other partners ratify the unauthorized action.
A)True
B)False
Q5) Describe limited partnerships.
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Chapter 28: Formation and Termination of Corporations
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Q1) Under general incorporation laws:
A)incorporation is a legislative privilege,not a right.
B)the secretary of state has to issue a certificate of incorporation.
C)incorporation is decided by shareholders.
D)incorporation is a legislative privilege and a right.
Q2) All business corporations derive their existence from:
A)the Commerce Clause of the U.S.Constitution.
B)the common law.
C)the state in which they are incorporated.
D)the federal government.
Q3) In a ____,the promoters substantially complied with all mandatory provisions.
A)de jure corporation
B)de facto corporation
C)corporation by estoppel
D)close corporation
Q4) Nonprofit corporations:
A)are similar to nontaxing governmental corporations.
B)are formed and operated by public persons.
C)do not permit officers and employees to receive salaries.
D)have the power to tax.
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Chapter 29: Management of the Corporate Business
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Q1) An officer or director who has acted in bad faith or who is found liable to the corporation can be indemnified under special circumstances.
A)True
B)False
Q2) Under the MBCA,shareholders may remove directors without cause.
A)True
B)False
Q3) A corporate officer can be found criminally liable for the illegal behavior of a subordinate when the officer:
A)knew or should have known of the illegal conduct and failed to take steps to prevent it.
B)knew of the illegal behavior and personally benefited from it.
C)did not know of the illegal behavior,but personally benefited from it.
D)knew that the illegal activity concerned insider trading.
Q4) What is generally required for any fundamental changes in the corporation?
A)Novation
B)Referendum
C)Board initiative
D)Prudent person standard
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Chapter 30: Financing the Corporation and the Role of the Shareholders
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Q1) Which of the following is true about the rights of shareholders?
A)They do not have the right to be informed about their investment.
B)They are aimed at protecting the interests of only major shareholders.
C)They have the right to make bylaws.
D)They do not have the right to put ceilings on the salaries of top executives.
Q2) To appoint a proxy,the MBCA requires a ____.
A)court order
B)written document
C)waiver
D)vote of approval from other shareholders
Q3) Acme Corp.made a public offering of its shares.Stein bought 100 shares at $10 each.Three months later,Acme announced that it planned to merge with another company.Under the terms of the merger,Acme shareholders would receive $14 per share,which was $1 more than the market price on the day prior to the announcement.Acme's shareholders approved the merger.Stein did not vote for or against the merger,but he turned in his shares and received $14 for each share.Stein later argued Acme's directors acted improperly in approving the merger.He also believed the price he and other shareholders received was grossly inadequate.Will Stein be able to enforce his appraisal rights?
Q4) How does common stock differ from preferred stock?
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Chapter 31: Securities Regulation
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Q1) When a security is sold in exempt transaction,all its subsequent sales are also covered by the exemption.
A)True
B)False
Q2) ______ is an important securities exemption.
A)Securities of profit issuers
B)Short-term notes and drafts
C)Private offering
D)Small offering
Q3) Under this theory,the investor's reliance on the integrity of the market was found to justify a presumption of reliance on the misrepresentation.
A)The classical theory.
B)The misappropriation theory.
C)The fraud-on-the-market theory.
D)The interdependence theory.
Q4) What strategies has the SEC pursued to protect U.S.investors throughout the world?
Q5) What are the two types of securities that must be registered under the Securities Exchange Act of 1934?
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Chapter 32: Legal Liability of Accountants
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Q1) Section 18(a)of the 1934 Act:
A)requires that the plaintiff prove reliance.
B)makes an accountant liable for accidental mistakes in the audit.
C)is not triggered by reliance.
D)requires the accountant to prove that he exercised due diligence. Section 18(a)of the 1934 Act requires that the plaintiff prove reliance.Section 18(a)imposes liability on accountants who furnish false or misleading information in any report or document filed with the SEC.While privity is not a defense in a Section 18 action,it is still not widely used because it contains a stringent reliance requirement.The purchaser or seller must have actually read the false information.This is a major hurdle since investors seldom read many of the documents filed with the SEC.
Q2) The accountant issues a(n)_____ if the audited financial statements accurately reflect the client's financial condition in compliance with GAAP.
A)unqualified opinion
B)disclaimer
C)unaudited statement
D)opinion letter
Q3) List the five major judicial approaches to third-party negligence actions.
Q4) Describe the accountant-client privilege.
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Chapter 33: Personal Property and Bailments
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Q1) In determining whether a bailment was created,one must know whether the person to whom the property was delivered intended to assume possession and control over the property.
A)True
B)False
Q2) Tangible property is taxable in the state where its owner lives.
A)True
B)False
Q3) Which of the following statements is true with regard to the possession of a wild animal?
A)The first person to take possession of a wild animal acquires its ownership rights.
B)Personal ownership rights are never given to individuals for wild animals.
C)Wild animals caught in traps are usually considered to be the property of the first person who finds the animal.
D)To take possession of a wild animal found in a forest,a person must have the ownership rights of the property in which the animal was found.
Q4) What are the differences between a gift inter vivos and a gift causa mortis?
Q5) Define a bailment and discuss its essential terms.
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Chapter 34: Real Property
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Q1) Describe how a person acquires title by adverse possession and give an example.
Q2) Linda deeded her house for consideration to her friend,Oliver,by quitclaim deed.One year after the transfer,Oliver discovered that 50 year's earlier,Linda's great grandfather,then the owner of the property,had transferred part of the property to a local church.The church is now asserting ownership of the property and wants to build a parking lot on the lot.What action,if any,can Oliver bring against Linda to recover damages for breach of warranty of title in this case?
Q3) Major Developer built a subdivision in which it offered a number of houses for sale.The Smiths bought one of these houses.During the first rain,water entered under the crawl space of the house.Water then accumulated to a depth of 17 inches in a room where the furnace and water heater were located.This frequently caused the water heater to perform inefficiently.With each rainfall,water continued to collect.The house became damp and developed a serious mildew problem.What remedies do the Smiths have?
Q4) After a valid deed is delivered from grantor to grantee:
A)title is still not effectively conveyed till witnessed by two people.
B)the grantee should immediately record the deed.
C)the grantee should post a "legal notice" in the newspaper.
D)the grantee should get the deed deposited securely in a public office.
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Chapter 35: Landlord and Tenant
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Q1) A periodic tenancy cannot be terminated without either party giving advance notice to the other.
A)True
B)False
Q2) If the landlord and the tenant agree on a specific duration of the lease and fix the date on which the tenancy will end,it is a:
A)periodic tenancy.
B)tenancy at will.
C)tenancy for a term.
D)tenancy at sufferance.
Q3) Federal laws often regulate lease terms.
A)True
B)False
Q4) A tenant who remains in possession of the property after the expiration of a lease cannot be made part of a new tenancy.
A)True
B)False
Q5) Explain the difference between an "assignment" and a "sublet."
Q6) Explain the implied warranty of habitability,in a lease setting.
Page 37
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Chapter 36: Estates and Trusts
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Q1) A joint will can never be revoked.
A)True
B)False
Q2) The "execution of a will":
A)must strictly meet all the formalities required by state law,or it is void.
B)must partially meet general requirements of state law,or it is void.
C)must strictly meet all the formalities required by federal law,or it is void.
D)must partially meet the general requirements of federal law,or it is void.
Q3) In terms of intestacy statutes,adopted children:
A)will inherit from their biological parents.
B)will inherit from their adopted parents.
C)will inherit from their adopted parents but a share lesser than the adopted parents' biological children.
D)will not inherit anything from anyone.
Q4) Under the rule against perpetuities,when a private trust is created,the beneficiary must be known at the time.
A)True
B)False
Q5) Name the basic formalities required by most states in the execution of a will.
Page 38
Q6) Define a constructive trust and the duty it imposes on the constructive trustee.
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Chapter 37: Insurance
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Q1) An insurance policy taken out by a minor is not voidable at the election of the minor.
A)True
B)False
Q2) ____ generally require that the insured pay a deductible each year before the insurer's payment obligation begins.
A)Property insurance policies
B)Life insurance policies
C)Liability insurance policies
D)Health insurance policies
Q3) Define portable health insurance.
Q4) Unearned portions of any premiums paid by the insured need not be returned to the insured at the cancellation of the policy by the insurer.
A)True
B)False
Q5) A whole life policy may develop either a cash surrender value or a loan value,but not both.
A)True B)False
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Chapter 38: Negotiable Instruments
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Q1) Ricardo borrowed $1,000 from his friend,John Wilfred.Ricardo signed a handwritten note stating,"I promise to pay $1,000 to John Wilfred on or before August 1,2001." Under these circumstances:
A)the note is negotiable because it was handwritten.
B)the note is not negotiable because it does not acknowledge the reason for the debt.
C)the note is not negotiable because it is not payable to order or to bearer.
D)the note is negotiable because it is a simple contract.
Q2) Richard borrowed $100 from his friend,Leonard Smith.Richard signed a handwritten note stating,"I promise to pay $100 to the order of Leonard Smith." Under these circumstances:
A)the note is negotiable because it is a simple contract.
B)the note is not negotiable because it does not acknowledge the reason for the debt.
C)the note is not negotiable because it does not state the time payment is due.
D)the note is negotiable because it meets the requirements for negotiability.
Q3) To be negotiable,the only requirement is that the instrument be in writing.
A)True
B)False
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Chapter 39: Negotiation and Holder in Due Course
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Q1) When the holder of an instrument has presented it for payment or acceptance and it has then been refused,the negotiable instrument:
A)is considered overdue.
B)has been dishonored.
C)is considered unauthorized.
D)is held to be irregular.
Q2) This is a partial defense against a holder in due course (or a person having the rights of a holder in due course),and a complete defense against a non-holder in due course.
A)Illegality that makes a contract voidable.
B)Fraud in the inducement.
C)Alteration of the completed instrument.
D)Lack or failure of consideration.
Q3) An instrument payable to cash:
A)can be negotiated only after indorsement by the person specified.
B)is known as an order paper.
C)may be negotiated by transfer of possession alone.
D)cannot be negotiated by transfer of possession alone.
Q4) Explain personal defenses against the payment of negotiable instruments.Give suitable examples.
Page 41
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Chapter 40: Liability of Parties
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Q1) Ted stole Ron's checkbook and wrote a check for $100,forging Ron's signature.Under these circumstances:
A)Ted but not Ron is liable on the check.
B)Ron but not Ted is liable on the check.
C)both Ted and Ron are liable on the check.
D)the bank will be liable on the check.
Q2) Warranties do not depend on presentment,dishonor,and notice,but may be utilized before presentment has been made.
A)True
B)False
Q3) A material change in a negotiable instrument does not discharge any party whose contract is changed.
A)True
B)False
Q4) A bank that cashes a check with a forged indorsement on it cannot be liable for conversion.
A)True
B)False
Q5) Explain the five transferor's warranties.
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Chapter 41: Checks and Electronic Fund Transfers
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Q1) Will a drawee bank be liable to the drawer of the check while a stop-payment order is in effect? If yes,under what circumstances will the drawee bank be liable?
Q2) In the case of a bank that refuses to pay on a check drawn against an account with sufficient funds,which of the following actual damages would the bank be liable for?
A)Charges imposed by retailers for returned checks.
B)Damages for mental disturbance.
C)Injury to the depositor's credit rating that result from the dishonor.
D)Only damages for mental disturbance and injury to honor.
Q3) As under the Fair Credit Billing Act,operators under the Electronic Funds Transfer Act are given a maximum of 90 working days to investigate errors or provisionally recredit the customer's account.
A)True
B)False
Q4) The Check Clearing for the 21st Century Act is commonly known as Check 21,and is a federal law that is designed to enable banks to handle more checks manually.
A)True
B)False
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Chapter 42: Introduction to Security
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Q1) Which of the following is true of a land contract?
A)The seller agrees to convey the title when the full price is paid.
B)The trustee holds legal title to the property put up as security.
C)If a buyer defaults,the seller does not have the right to declare a forfeiture.
D)The title to property is conveyed if partial payment has been made.
Q2) In a land sales contract,the seller usually retains legal title and does not turn over the deed until the property is paid for.
A)True
B)False
Q3) Which of the following statements concerning foreclosure of liens is true?
A)The lienholder need not give notice to the debtor for holding a sale of the possessed goods.
B)Even if there is a statutory procedure,the lienholder must first bring a lawsuit against the debtor.
C)The right of a lienholder to possess goods does not automatically give the lienholder the right to sell the property.
D)The lienholder cannot have the property sold at a judicial sale.
Q4) Describe the distinction between a surety and a guarantor.
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Chapter 43: Security Interests in Personal Property
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Q1) Article 9 of the UCC does not define what constitutes default.
A)True
B)False
Q2) Define future advances and explain how covering future advances in the security agreement benefits the creditor.
Q3) The most common way of perfecting a security interest is by:
A)automatic perfection.
B)filing a financing statement in the appropriate public office.
C)posting private notice of the interest.
D)mere attachment of the security interest.
Q4) If the proceeds of sale of collateral are not sufficient to satisfy the debt,then the creditor is usually entitled to a:
A)future advance.
B)deficiency judgment.
C)fixture filing.
D)warehousing arrangement.
Q5) Explain a creditor's three potential courses of action upon default.
Q6) A creditor can perfect a security interest by filing a public notice it.
A)True
B)False
45
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Chapter 44: Bankruptcy
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Q1) Which of the following payments is considered preferential?
A)Payments made in the ordinary course of business.
B)Payment of monthly utility bills.
C)Payment made by an insolvent debtor within 50 days of the filing of the bankruptcy petition.
D)Payment to a creditor giving him a greater percentage of a preexisting debt than other creditors.
Q2) Bankruptcy judges:
A)are considered to be units of the district court.
B)are not considered to be part of the district court.
C)are considered to be units of local circuit courts.
D)are considered to be units of the federal court.
Q3) Under the Bankruptcy Code,exemptions are only available to ___.
A)corporations
B)loan associations
C)individual debtors
D)non-profit organizations
Q4) When is a debtor allowed to void liens on his properties? What type of liens can be voided on this basis?
Q5) What are the primary purposes of the Bankruptcy Code?
Page 46
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Chapter 45: The Antitrust Laws
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Q1) Horizontal (among competitors)price fixing is always per se illegal.
A)True
B)False
Q2) If a distributor persuades a manufacturer to refuse to deal with a rival distributor,the two parties:
A)have committed a per se violation of Section 1 of the Sherman Act.
B)do not violate Section 1 of the Sherman Act since this is a unilateral action.
C)are conspiring to form a monopoly thus directly violating Section 2 of the Sherman Act.
D)are attempting vertical price-fixing.
Q3) Foreign sovereign compulsion defense is in no way related to sovereign immunity.
A)True
B)False
Q4) Under no circumstances can a single firm lawfully refuse to deal with firms or agree to deal only on certain terms.
A)True
B)False
Q5) Describe the Hart-Scott-Rodino Antitrust Improvements Act.
Q6) Describe Section 2 of the Sherman Act.
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Q7) Describe defenses to direct price discrimination under the Robinson-Patman Act.
Chapter 46: Consumer Protection Laws
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Q1) Under the Truth in Lending Act,"finance charge":
A)includes all costs related to the extension of credit.
B)includes all costs related to the extension of credit except for fees for credit reports.
C)includes only interest rates but not any other credit charges.
D)does not include loan fees and fees for credit reports.
Q2) According to Congress,the Fair Credit and Charge Card Disclosure Act:
A)would enable consumers to shop around for the best cards.
B)would prevent unauthorized use of credit cards.
C)would challenge the authority of the FTC.
D)would compel issuers to process customer applications faster.
Q3) Geoffrey is a car dealer in Austin,Texas.His financial dealings with customers come directly under the jurisdiction of the Consumer Financial Protection Bureau.
A)True
B)False
Q4) The Consumer Product Safety Commission (CPSC)'s authority is limited to cosmetics and food products.
A)True
B)False
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Chapter 47: Environmental Regulation
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Q1) The Safe Drinking Water Act does not regulate disposal of wastes in wells.
A)True
B)False
Q2) Under the Clean Air Act,a factory may be required to limit its emissions of volatile organic compounds to a certain amount per unit of production or hour of operation.
A)True
B)False
Q3) Under the Clean Water Act,the federal government has the primary responsibility for preventing,reducing,and eliminating water pollution.
A)True
B)False
Q4) When the EPA expends money to clean up a Superfund site,it has the legal authority to recover its costs from those who were responsible for the problem.
A)True
B)False
Q5) Explain the Clean Air Act's approach for dealing with air pollution,including the role of the states.
Q6) When is a discharge permit required under the Clean Water Act?
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