Business Ethics and Law
Mock Exam
Course Introduction
Business Ethics and Law explores the principles and frameworks that guide ethical decision-making and legal compliance in business environments. The course examines topics such as corporate social responsibility, stakeholder theory, ethical leadership, and the impact of law on business operations. Students learn to identify ethical dilemmas, understand the legal obligations facing organizations, and analyze the interplay between personal values, professional codes of conduct, and legislative requirements. Through case studies and real-world examples, the course equips students with practical tools for navigating complex ethical challenges and fosters critical thinking about the role of ethics and law in achieving sustainable business success.
Recommended Textbook Law for Business 12th Edition by A.
James Barnes
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Chapter 1: Law, Legal Reasoning, and the Legal Profession
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Q1) Describe the difference between criminal and civil law.What are the penalties that accompany violations of each?
Answer: Criminal law defines breaches of duty to society at large,while civil law defines breaches of private duties owed by one person (including corporations)to another. Violations of criminal law are punishable by fine or imprisonment.In a civil action,the court does not seek to punish the wrongdoer but to make the wronged party whole through a money award called damages.
Explanation:
Q2) Stare decisis:
A) renders law rigid and unchanging.
B) lends predictability to decisional law by relying on prior decisions.
C) means a new statute applies only to actions taken after it becomes effective.
D) creates harsh results by refusing to recognize equitable exceptions.
Answer: B
Q3) Legal realism focuses on the theoretical rules of law rather than law in action.
A)True
B)False
Answer: False
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3
Chapter 2: Dispute Settlement
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Q1) Which of the following statements is true about a minitrial?
A) A minitrial involves a six-member mock jury empaneled by the court that hears a shortened presentation of the case by the lawyers for each side and renders an advisory verdict.
B) A minitrial often involves a neutral third-party advisor who will render a nonbinding opinion, if a settlement is not reached, regarding how a dispute is likely to be resolved if it goes to trial.
C) A minitrial is conducted under court guidance.
D) A minitrial differs from mediation in that the third-party to whom the dispute is submitted decides the outcome.
Answer: B
Q2) The adversary system in the United States is based on the idea that the truth will emerge in courtrooms through a "battle of words" between two lawyers.
A)True
B)False
Answer: True
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4
Chapter 3: Business Ethics and Corporate Social Responsibility
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Q1) There is no guaranty that the values of "ethical" shareholders would be representative of society as a whole.
A)True
B)False
Answer: True
Q2) The Sarbanes-Oxley Act:
A) raises the penalties for illegal behavior.
B) gives corporations greater freedom from government control.
C) adopts the theory of allocational efficiency.
D) motivates executives to inflate reports of corporate profits.
Answer: A
Q3) Critics of capitalism and Corporate America increasingly argue that corporations should follow socially responsible standards higher than that imposed by law.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Business and the Constitution
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Q1) The explosion of government regulation in the United States has witnessed an accompanying social phenomenon of great importance that is the creation:
A) of the CAN-SPAM Act.
B) and widespread use of administrative agencies.
C) and widespread use of the Federal Trade Commission.
D) of antitrust laws.
Q2) The "dormant" Commerce Clause limits the authority of the states to interfere with the flow of interstate commerce by:
A) limiting the states from furthering only state interests.
B) limiting a state's ability to tax vendors.
C) prohibiting state legislation that unduly burdens intrastate commerce.
D) prohibiting state laws that openly discriminate against interstate commerce.
Q3) After a series of some advertisements of beer and other alcoholic drinks,the U.S.government decided to regulate commercial speech.If the courts analyze this regulation,they will:
A) use strict scrutiny analysis.
B) search for truth in the speech.
C) seek compelling government interest.
D) see that the government advances its interests in an extensive manner.
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Page 6
Chapter 5: Crimes
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Q1) A corporate officer may sometimes be found liable even when the officer had no actual knowledge of,or control over,the activities in question.
A)True
B)False
Q2) Under the mandates of the Racketeer Influenced and Corrupt Organizations Act (RICO),an individual injured by the racketeering activity of a company can:
A) claim three times the damage plus attorneys' fees.
B) claim four times the damage plus attorneys' fees.
C) claim only up to two times the damage plus attorneys' fees.
D) recover the basic amount lost plus attorneys' fees.
Q3) Which of the following statements is true of the Miranda warning?
A) It is a protection offered to the U.S. citizens under the Eighth Amendment.
B) It gives defendants the right to a speedy, public trial by a jury of their peers.
C) It allows persons accused of crimes the right to confront and cross-examine their accusers.
D) It gives people charged with a criminal offence the right to be represented by effective counsels.
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Page 7
Chapter 6: Intentional Torts
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Q1) Claire is a widow who lives alone.She purchased a home theatre system from GreenEye Tech Supplies but failed to make her payments.People at GreenEye responded to this by calling her up repeatedly.They started making more than a dozen calls a day,including calls that were made well into the night.They then started sending multiple agents to Claire's office,informing her neighbors about the due payment and even had an agent deliver a notice to her when she was out shopping.Claire was admitted to the hospital with a nervous breakdown.What are her possible legal remedies against GreenEye?
Q2) Compensatory damages are also known as:
A) actual damages.
B) punitive damages.
C) nominal damages.
D) statutory damages.
Q3) The plaintiff's burden of proof in a tort case is proof by a preponderance of the evidence,which is applied in all civil cases,in which the defendant's:
A) life may be at stake.
B) liberty may be at stake.
C) money is at stake.
D) criminal activities are at stake.
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Page 8
Chapter 7: Negligence and Strict Liability
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Q1) While fishing in a lake,George anchored his new motorboat and went ashore to make an important phone call.He accidently left the key in the boat and Jeb stole the boat.While driving the boat recklessly,Jeb hit Angela,who was water skiing and severely injured her.Should George be responsible for Angela's injuries?
Q2) Which of the following statements is true for both contributory negligence and assumption of the risk?
A) They are defenses adopted to ease the harshness of the comparative negligence system.
B) They are recent defenses to recklessness but not negligence.
C) They are based on the idea that everyone has a duty to exercise reasonable care for his or her own safety.
D) They are based on the idea that the plaintiff may recover if the defendant had the last opportunity to avoid harm.
Q3) To recover for negligent infliction of emotional distress as a third party,the plaintiff does not always have to establish some physical symptoms resulting from the said distress.
A)True
B)False
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Chapter 8: Licensing and Intellectual Propertypart Two Contracts
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Q1) A company files a trademark infringement case against another.In order to recover for trademark infringement,the plaintiff generally must show that:
A) the defendant possesses the trademark.
B) the defendant used the mark only for insignificant personal reasons.
C) the defendant's use of the trademark did not confuse customers.
D) the defendant used the mark in commerce.
Q2) Courts are unwilling to provide trademark protection to a term if it is:
A) arbitrary.
B) generic.
C) descriptive.
D) suggestive.
Q3) Which of the following statements is true about patent infringement in the U.S.?
A) The court holds only the infringer accountable for the unlawful activities and accomplices are not considered liable under the U.S. infringement law.
B) There is no effect on the importation of foreign goods that infringe upon U.S. patent rights.
C) A patent holder is entitled to monetary damages in case of infringements.
D) The court grants an automatic injunction in cases of infringement.
Q4) Discuss the intellectual property aspects of social media.
Page 10
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Chapter 9: The Nature and Origins of Contracts
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Q1) An oral contract that is required by contract law to be in writing is _____.
A) enforceable
B) voidable
C) unenforceable
D) valid
Q2) Which of the following is a change that took place in the legal system that led to the development of contract law in the process?
A) Courts began to shift their emphasis from protecting consumers and workers to protecting business and promoting industrialization.
B) Courts today are not willing to consider defenses based on inequality of bargaining power between the parties.
C) Courts tend to view with great suspicion attempts by manufacturers to limit their responsibility for their products by contract.
D) Courts are not given the authority to control any contractual relationships as they are left to private bargaining.
Q3) Explain the differences between and similarities of the categories used to classify contracts by their enforceability: valid,unenforceable,voidable,and void.
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Chapter 10: Creating a Contract: Offers
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Q1) Bogdan,a painter,offers to sell his painting to Mirka for $90.Mirka responds that she needs more time to think about Bogdan's offer.Then Bogdan dies,and the value of the painting escalates.Mirka calls Bogdan's widow,Gizela,and says "I accept Bogdan's offer." Which of the following statements is true of the case?
A) There is a binding contract entitling Mirka to the painting.
B) There is a binding contract entitling Mirka to the painting if she did not know Bogdan was dead when she called Gizela.
C) There is no binding contract entitling Mirka to the painting under any circumstances.
D) There is no binding contract entitling Mirka to the painting unless she actually pays Gizela the $90.
Q2) If the subject matter of a proposed contract is destroyed without the knowledge of either party after the making of an offer but before its acceptance,the offer cannot be terminated.
A)True
B)False
Q3) 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) If Gwen hands Lisa a detailed offer for the purchase of Lisa's pottery wheel and Lisa signs the offer without changing any of its terms,the parties have created a:
A) bilateral contract.
B) contingent contract.
C) unilateral contract.
D) multilateral contract.
Q2) In general,if an offeree uses a means of acceptance that is slower than that used by the offeror to communicate that offer:
A) it is an unauthorized means of communication.
B) the acceptance is not effective even upon receipt.
C) it is an authorized means of communication.
D) the acceptance is effective when dispatched.
Q3) An agent of the original offeree does not have the legal power to accept an offer and create a contract.
A)True
B)False
Q4) Explain the idea of "stipulation" and the effect it has on a contract.
Q5) Explain the similarity and difference between click-on and browse-wrap contracts.
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Chapter 12: Consideration
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Q1) Freedom of contract includes the freedom to make bad bargains.
A)True
B)False
Q2) If the amount of a debt is "due and certain," _____.
A) a promise to pay less than the amount lacks consideration
B) the debt is considered to be an unliquidated one
C) there is a dispute about the existence of the debt
D) there is a dispute about the amount of the debt
Q3) If Khalid agrees to sell his house to Lalita for $300,000,a property which is actually worth $310,000,_____.
A) Lalita can recover damages for breach of contract if Khalid refuses to perform
B) Lalita will be able to get a court order for the specific performance of Khalid's promise
C) Khalid is not entitled to equitable remedies
D) Lalita cannot recover damages for breach of contract
Q4) A promise supported by past consideration is always enforceable.
A)True
B)False
Q5) Explain forbearance to sue in relation to consideration.
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Chapter 13: Capacity to Contract
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Q1) Courts prevent minors,who misrepresent their age,from defrauding adults,by:
A) asking the minor to place the adult in status quo.
B) holding the minor to his or her spoken statements which clearly indicates intent to be bound by the contract.
C) ratifying contracts before he or she attains majority.
D) proving them incapable of being held in a contract.
Q2) Which of the following is true of emancipation?
A) Emancipation is used to describe the termination of a parent's right to receive services and wages from a child and to generally control him.
B) Emancipation occurs when a minor does not disaffirm within a reasonable time after attaining majority and thereafter loses the right to disaffirm.
C) Emancipation occurs when a minor moves away from home and the parents object to his or her actions.
D) Emancipation always gives a minor the capacity to contract.
Q3) What are the exceptions created by the court to the general rule that minors can disaffirm their contracts?
Q4) Explain the test for mental incapacity in contract law.
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Chapter 14: Voluntary Consent
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Q1) Which of the following is best associated with "caveat emptor"?
A) Scienter
B) Fraud by silence
C) Fraud in the execution
D) Undue influence
Q2) Explain the duty of care that needs to be exercised by parties entering a contract.
Q3) Mutual mistake is always a basis for granting rescission of the contract at the request of either party.
A)True
B)False
Q4) Explain the difference between duress and undue influence.
Q5) The elements of misrepresentation are ordinarily given as misrepresentation of a material fact justifiably relied on to the detriment of the person relying.
A)True
B)False
Q6) When might a court grant relief for a unilateral mistake even if it is negligent?
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Chapter 15: Illegality
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Q1) Which of the following statements is true of contracts made illegal by statutes?
A) Barbers and beauty operators do not require licenses to work.
B) Blue laws prohibit certain work and the transaction of certain business on Monday.
C) Sunday laws do not vary across states in a country.
D) Forfeiture of excess or all interest is a common penalty for violation of usury laws.
Q2) If a contract is divisible,the court:
A) voids the entire contract.
B) enforces the legal parts of the contract.
C) enforces the entire contract.
D) rules that the entire contract as unenforceable.
Q3) _____ is a provision in a contract that attempts to relieve one party to the contract from liability for the consequences of his or her negligence.
A) Exculpatory clause
B) Indemnification clause
C) Arbitration clause
D) Severability clause
Q4) Explain the difference between a regulatory and revenue-raising statute.
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Chapter 16: The Form and Meaning of Contracts
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Q1) According to most states,which of the following is true if there is only a memorandum of two parties' agreement?
A) The writing can be in any form but must indicate that the parties had a contract.
B) The entire contract must be in writing and in a single document.
C) The writing cannot be in the form of telegrams or receipts.
D) Both parties' signatures have to appear in the writing.
Q2) A clothing store has opened a credit account in which Judy,a college student,gets Alice,her older sister,to agree to pay the amount owed on the account if Judy fails to do so.Which of the following statements is true of this scenario?
A) Judy is the obligor, and she is secondarily liable to the clothing store.
B) Alice is the guarantor, and she is primarily liable to make the payments.
C) Judy is the obligor, and she is contractually liable to the guarantor.
D) Alice is the guarantor, and Alice's contract must be in writing to be enforceable.
Q3) Contracts transferring ownership rights in real estate need not be evidenced by writing to be enforceable.
A)True
B)False
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Chapter 17: Third Parties Contract Rights
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Q1) A promisor who renders performance to the assignor without notice of the assignment bears liability under the contract.
A)True
B)False
Q2) Assignments of future wages are not effective because:
A) they involve personal relationships.
B) they are contrary to public policy.
C) they materially alter the duties of the promisor.
D) they involve personal rights.
Q3) Which of the following contracts can generally be assigned in all states in the U.S.?
A) Assignment of future wages
B) Employment contracts
C) Contracts promising to deliver goods
D) Contracts involving personal rights
Q4) Employment contracts are generally assignable.
A)True
B)False
Q5) Who is a creditor beneficiary? Can he/she enforce a contract?
Q6) What is an implied guarantee?
Page 19
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Chapter 18: Performance and Remediespart Three Sales
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Q1) Maxwell Construction built an apartment block for Riverside Inc.Five years later,Riverside sued Maxwell for the leakages in its ceiling.Is this lawsuit valid?
Q2) Rebecca contracted Matthew Properties Inc.to repair her apartment for $20,000.On completion of repairs,Rebecca observed that the garages and the attic had not been repaired.Although the contract stated that Matthew Properties will repair the garage and the attic thoroughly,Rebecca did not raise the issue.She instead made a full payment for the services rendered.In this scenario,Matthew Properties Inc.has been discharged from obligations of repairing the garage and the attic by a(n):
A) statute of limitations.
B) waiver.
C) occurrence of condition subsequent.
D) alteration.
Q3) A party suing for breach of contract who has suffered actual losses as a result of the breach is entitled to recover _____.
A) nominal damages
B) punitive damages
C) liquidated damages
D) compensatory damages
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Page 20
Chapter 19: Formation and Terms of Sales Contracts
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Q1) The rights of one who leases goods (a lessee)constitute ownership of the goods.
A)True
B)False
Q2) Which of the following statements is true for a sale on approval?
A) Goods are delivered to the buyer primarily for resale.
B) Goods are delivered to the buyer primarily for the buyer's use.
C) The risk of loss and title pass to the buyer even before the buyer accepts the goods.
D) Any use of the goods that is consistent with a trial of goods is regarded as an acceptance by the buyer.
Q3) Which of the following statements is true of voidable title?
A) Sellers may obtain voidable title by paying for goods sold on a "cash sale" basis.
B) Sellers may obtain voidable title by paying for the goods with a good check.
C) Sellers may obtain voidable title by impersonating another person when acquiring the goods from their rightful owner.
D) Sellers may obtain voidable title by obtaining the goods without using fraudulent means.
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21
Chapter 20: Warranties and Product Liability
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Q1) Under the Magnuson-Moss Warranty Act and the Federal Trade Commission (FTC)regulations,the seller is not required to give a written warranty.
A)True
B)False
Q2) If a product is inherently dangerous so that no amount of due care could make it safe,_____.
A) the manufacturer is required to give the consumer notice of the unreasonable danger
B) privity bars recovery
C) contributory negligence prevents recovery
D) the manufacturer is required to provide the consumer a disclaimer at the time of sale
Q3) A statement made by a seller regarding a product might be interpreted as either an opinion or an express warranty depending on:
A) whether the contract is oral or written.
B) the relative knowledge of the buyer and seller.
C) whether the contract contains a disclaimer.
D) the type of goods or services dealt with.
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Chapter 21: Performance of Sales Contracts
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Q1) Jamal purchased a motorcycle from Getaway Automobiles,and the motorcycle's electric starter began malfunctioning after a week of the motorcycle's purchase.Jamal returned the motorcycle to the store,and the manager assured him that it was only a minor problem that could be fixed easily.In the next two months,Jamal visited the store five times for rectification of the same issue.Finally,he gave up and demanded that he get a cashback for the faulty motorcycle.Under these circumstances,which of the following is most likely to be true?
A) Jamal is not entitled to revoke acceptance of the goods because he has used it.
B) Jamal is entitled to revoke acceptance because he took back the motorcycle after the seller's assurance that the nonconformity would be cured.
C) Jamal cannot revoke his acceptance because the value of the motorcycle is impaired by its use for over two months.
D) Jamal can revoke his acceptance but is not entitled to damages for breach of warranty.
Q2) Can a buyer reject goods for nonconformity in contracts that call for delivery of the goods in separate installments? If yes,under what circumstances can he reject such goods?
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Page 23
Chapter 22: Remedies for Breach of Sales Contractspart
Four Agency and Employment
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Q1) If the seller refuses to deliver the goods called for in the contract,and the buyer purchases substitute goods,the buyer can recover as damages from the seller the difference between the contract price of the goods and the cost of the substitute goods.
A)True
B)False
Q2) _____ for a seller include storage charges and sales commissions.
A) Intentional damages
B) Incidental damages
C) Liquidated damages
D) Unconscionable damages
Q3) On May 1,Fred agreed to sell and deliver 1,000 bushels of wheat to a baker for $7 per bushel.After the market price of wheat rose to $8 per bushel,Fred breached the contract by refusing to sell a bushel of wheat at $7.He demanded that the baker pay $8.50 per bushel of wheat.If the baker can get substitute wheat at the current market price,can he get specific performance? If not,what options are available to him if he seeks damages for breach of contract from Fred? What will he recover under each option?
Q4) Under the Uniform Commercial Code,list three remedies available to a seller when a buyer breaches a contract.
Page 24
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Chapter 23: The Agency Relationship-Creation, duties, and
Termination
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Q1) An agency can never be oral.
A)True
B)False
Q2) When the principal is trying to avoid being bound by the acts of the agent after the agency has ended,constructive notice is sufficient for:
A) persons who have dealt with the former agent.
B) persons who knew of the agency but had never dealt with it before termination.
C) persons who never knew of existence of the agency.
D) everyone who the principal was in contract with before the termination.
Q3) When agents make advances from their own funds in conducting the principal's business,the principal has:
A) no duty to reimburse the agent because the agent has assumed the burden.
B) a duty to reimburse the agent for expenses incurred for the principal.
C) a duty to reimburse the agent even if the agent is not acting within the scope of his/her authority.
D) no duty to reimburse the agent because the agent commingled fungible goods.
Q4) What does the agent's duty of loyalty mean?
Q5) Explain the concepts "agency at will" and "agency coupled with an interest."
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Chapter 24: Liability of Principals and Agents to Third Parties
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Q1) When an agent takes an unauthorized action:
A) the action cannot be ratified by the principal.
B) the principal can transfer liability to the agent while enjoying the benefits of the action.
C) the principal may not ratify only a portion of the action.
D) the action may be ratified provided that the principal is a corporation.
Q2) The test of an agent's express authority is:
A) the justifiable belief of the agent.
B) the specific language used by the principal in granting the authority.
C) the appearance of authority in the agent created by the principal.
D) the deduction of the third party dealing with the agent.
Q3) Misrepresentations by an agent made with the intent to deceive a third person:
A) will make the agent liable to the third person.
B) will absolve the principal of any liabilities toward the third person.
C) will make the third person liable to the principle.
D) will make the principal liable to the agent and the third person.
Q4) An agent's exercise of apparent authority,in the absence of actual authority,is in violation of the agent's duty to the principal.
A)True B)False
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Chapter 25: Employment Laws-Part Five Business Organizations
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Q1) Under the Genetic Information Nondiscrimination Act,genetic information includes family medical history.
A)True
B)False
Q2) Under the Fair Labor Standards Act (FLSA),employers must pay for short rest periods when employees cannot use his time effectively.
A)True
B)False
Q3) The Age Discrimination in Employment Act (ADEA)is enforced by the Equal Employment Opportunity Commission (EEOC).
A)True
B)False
Q4) How does the Americans with Disabilities Act of 1990 define disability? Who is excluded from this definition?
Q5) The Equal Pay Act of 1963 prohibits discrimination in pay based on seniority and merit.
A)True
B)False
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Chapter 26: Which Form of Business Organization
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Q1) The formation of a general partnership requires:
A) filing appropriate paperwork with the secretary of state.
B) a formal certificate of cancellation when the partnership is terminated.
C) no express agreement.
D) that each partner be liable for losses depending on the individual partner's contribution to the enterprise.
Q2) In a(n)______,shareholders directly report their share of the corporation's losses or earnings on their individual tax returns.
A) S corporation
B) trust
C) franchising agreement
D) corporation
Q3) In the management of a limited liability partnership,_____.
A) the LLP pays income taxes
B) management decisions cannot be altered even by agreement
C) only some partners have a say in its management
D) new partners cannot join without the unanimous consent of the current partners
Q4) What are the advantages of franchising?
Q5) Explain the difference between a partnership and a limited partnership.
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Chapter 27: Partnerships
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Q1) A partner who wrongfully dissociates:
A) loses the right to demand a dissolution.
B) can participate in the winding up process.
C) must not be paid the value of his interest for the breach, if the firm continues.
D) can ask the court to appoint a receiver on his behalf.
Q2) In a partnership agreement,the partners may provide for expelling a partner,and this provision eliminates the right the expelled partner would otherwise have to insist on liquidation.
A)True
B)False
Q3) A partner has express authority to do whatever he or she is authorized to do by:
A) the written articles of partnership.
B) the written articles of incorporation.
C) customs and usages of a particular partnership.
D) customs and usages of similar businesses in a particular area.
Q4) The limited partnership certificate should not be canceled when all limited partners have died or withdrawn.
A)True
B)False
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Chapter 28: Formation and Termination of Corporations
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Q1) If articles of incorporation provide for a limited life,the corporation _____.
A) automatically terminates at the end of the designated time
B) usually appeals to the secretary of state for dissolution
C) dissolves only by amendment to the contract
D) terminates at the end of the designated time only with the written consent of all shareholders
Q2) Governmental corporations always have the power to tax.
A)True
B)False
Q3) Why might a U.S.investor choose to incorporate its business in the country where it is conducting its overseas operations? What special constraints might exist?
Q4) Under the right of first refusal,either the corporation or its shareholders are given the right to buy shares offered for sale to an outsider willing to purchase them. A)True
B)False
Q5) Explain the promoters' liability to third parties before a corporation is formed.
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Chapter 29: Management of the Corporate Business
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Q1) When a corporate manager makes an honest error in judgment,the business judgment rule directs that the manager will:
A) be liable for corporate losses.
B) not be liable and a court will step in to correct the manager's mistake.
C) not be liable if he acted with care and in good faith.
D) be liable for all losses resulting from the error.
Q2) A corporate officer is never held liable for the illegal behavior of a subordinate.
A)True
B)False
Q3) What is the meaning of ex officio authority?
Q4) Under the Delaware General Corporation Law,e-mail is not a legally-recognized official form of business communication.
A)True
B)False
Q5) Trading on inside information is in violation of fiduciary duties.
A)True
B)False
Q6) Write a note on indemnification in corporations.
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Chapter 30: Financing the Corporation and the Role of the Shareholders
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Q1) Kirby subscribed to purchase 10,000 shares of stock to be issued by Globule Inc.,an existing corporation.Globule accepted the subscription.The price set forth in the subscription agreement was $10 per share.When the time came for Kirby to pay the amount of his subscription,Kirby paid only $6 per share,claiming that such amount represented the fair value of the shares.Globule delivered the stock certificates to Kirby for $6 per share.Is Kirby liable to Globule for the other $4 per share?
A) No, because regardless of what the subscription price was, he cannot be forced to pay more than the fair market value of the shares.
B) Yes, because Globule's stock does not have a par value.
C) Yes, because regardless of the fair value, a purchaser is liable for stocks issued for less than the par value.
D) No, but he is liable for another $2 per share.
Q2) Under the Model Business Corporation Act,what types of corporate documents does a shareholder have a right to inspect?
Q3) What requirements must be met if a shareholder meeting is to be conducted remotely?
Q4) When is a shareholder permitted to sue as a representative of a corporation?
Q5) 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) Under the Securities Exchange Act of 1934,a 10-K annual report:
A) must include audited financial statements for the fiscal year and current information about the conduct of business.
B) must include only a summarized and unaudited operating statement.
C) requires only summarized and unaudited figures on capitalization and shareholders' equity.
D) is required within 15 days of the end of any month in which any specified event occurs.
Q3) Unlike the Uniform Securities Act of 1956,the new act of 1985 contained an additional provision demanding broker-dealer registration.
A)True
B)False
Q4) Negligence is the most important element of a Rule 10b-5 violation.
A)True
B)False
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Chapter 32: Legal Liability of Accountantspart Six Property
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Q1) When might an accountant issue a qualified opinion and a disclaimer?
Q2) In an administrative hearing conducted by the Securities and Exchange Commission (SEC),an accountant who violates the federal securities acts is given final order by the administrative law judge.
A)True
B)False
Q3) A client owns the working papers prepared by an accountant in connection with services performed for the client.
A)True
B)False
Q4) The Restatement approach to third-party negligence suits against accountants:
A) does not require that the accountant be aware of the third parties.
B) holds that the accountant is liable only to those third parties who are unreasonably foreseeable.
C) does not protect the typical investor who was unknown to the accountant and his or her client when the financial statements were prepared.
D) requires that the accountant be unaware of the third parties' reliance on the financial statements.
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Chapter 33: Personal Property and Bailments
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Q1) A person who finds lost property acquires better rights to that property than anyone other than the true owner.
A)True
B)False
Q2) What are the basic duties of a bailee? Explain the critical elements that determine the degree of care that a bailee is required to exercise.
Q3) When Rafael goes into a restaurant and hangs his hat and coat on an unattended rack,it creates a bailment.
A)True
B)False
Q4) If a bailment is solely for the benefit of the bailor,then the bailee is liable for even slight negligence.
A)True
B)False
Q5) A conditional gift is a completed gift.
A)True
B)False
Q6) What are the differences between a gift inter vivos and a gift causa mortis?
Q7) Define a bailment and discuss its essential terms.
Page 35
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Chapter 34: Real Property
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Q1) Beatriz and James are married and own real property under a tenancy by the entirety.This means that _____.
A) upon the death of either, the property passes automatically to the surviving spouse
B) they are tenants in common with the added requirement of marriage
C) either spouse can transfer property by will if the other is still living
D) the tenancy cannot be severed even in case of a divorce
Q2) Which of the following is an affirmative easement?
A) The right to drill for oil and gas on the land of another person
B) The tenant's right to use the property during his lifetime
C) The ability to obtain oral permission to hunt on another person's land
D) The right to have one's neighbor refrain from erecting a building on his property
Q3) The Title III of the Americans with Disabilities Act (ADA)of 1990:
A) classifies only nonbusiness enterprises as places of public accommodation.
B) does not require private clubs and religious organizations to comply with the statute.
C) classifies only business enterprises as places of public accommodation.
D) does not treat stores at which goods are sold or rented as places of public accommodation.
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Chapter 35: Landlord and Tenant
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Q1) Eli rents an old farmhouse from Kathy for a term to begin on July 31,2006 and end on August 1,2007.When Eli attempts to move in,he finds that Rose,the previous tenant,is still living in the house.Here,Kathy has breached:
A) the implied warranty of habitability.
B) the implied warranty of possession.
C) the implied warranty of quiet enjoyment.
D) the clauses of the Fair Housing Act.
Q2) Explain the implied warranty of habitability in a lease setting.
Q3) Under what circumstances can a tenant invoke the doctrine of constructive eviction?
Q4) A _____ occurs when property is leased for an indefinite period of time and either party may choose to conclude the tenancy at any time.
A) tenancy at will
B) tenancy at sufferance
C) periodic tenancy
D) tenancy for a term
Q5) Federal laws often regulate lease terms.
A)True
B)False
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Chapter 36: Estates and Trusts
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Q1) Since a will can direct only property that is owned by the testator at the time of his death,a specific bequest of property that the testator has disposed of before his death is ineffective.This is called _____.
A) residuary
B) will devise
C) per stirpes
D) ademption
Q2) At common law,which of the following is true of the right of a widow on a life estate?
A) The widow gets a one-third interest in fee simple, only in the real property owned by the testator during their marriage.
B) The widow has the right to a life estate in two-thirds of the lands owned by her husband at the time of his death.
C) The widow has the right to a life estate in half of the lands owned by her husband during their marriage.
D) The widow gets a one-third interest in fee simple in the real and personal property owned by her husband at the time of his death.
Q3) What are the conditions under which holographic wills are recognized as valid?
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Chapter 37: Insurance-Part Seven Commercial Paper
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Q1) In whole life insurance contracts,the _____.
A) rate of the premiums to be paid decreases if the face value increases
B) loan value decreases as the age of the policy increases
C) insurer pays the face value of the policy on the death of the insured
D) loan value developed by the contract enables the insurer to borrow money from the insured
Q2) Describe portable health insurance.
Q3) Under the right of subrogation,the insurer _____.
A) is obliged to pay only the face amount of the policy if the insured dies within a specified period of time; which is the term of the policy
B) obtains all of the insured's rights to pursue legal remedies against anyone who may have negligently or intentionally damaged the insured property
C) obtains all of the insured's rights to pursue legal remedies only against those persons who have intentionally damaged the insured property
D) is obliged to pay the face value of the policy on the death of the insured and the specified premium for the duration of his/her life
Q4) Explain the right of subrogation.
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Chapter 38: Negotiable Instruments
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Q1) A check is a draft payable on demand and drawn on a bank.
A)True
B)False
Q2) Which of the following rules of interpretation is applied to resolve conflict or ambiguity in a check?
A) Printed terms prevail over typewritten terms.
B) Typewritten terms prevail over handwritten terms.
C) Where words and numbers conflict, the words control the numbers.
D) Where handwritten terms and printed terms conflict, printed terms prevail over handwritten terms.
Q3) Under revised Article 3 of the Uniform Commercial Code,an exception to the rule that an instrument payable on demand is not payable before the date of the instrument is made for:
A) checks.
B) promissory notes.
C) a holder in due course.
D) certificates of deposits.
Q4) What is the difference between a promissory note and a check? Why is the distinction important?
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Chapter 39: Negotiation and Holder in Due Course
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Q1) An art dealer sells a painting to Priya,telling her that it is an original painting made by a famous painter,and takes Priya's check for $500 in payment.Before making the sale,the art dealer was aware that the painting is not genuine,and it is a forgery.Can Priya claim any defenses against the payment made to the art dealer?
Q2) 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) has been held to be irregular.
Q3) Any person who can trace his title to an instrument back to a holder in due course receives rights similar to a holder in due course even if he cannot meet the requirements himself.This is known as the _____.
A) shelter rule
B) holder in due course rule
C) Federal Trade Commission rule
D) irregular paper law
Q4) Explain the nature and meaning of an indorsement.
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Chapter 40: Liability of Parties
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Q1) An indorser's liability is discharged if the check is not presented within _____ after the endorsement.
A) 15 days
B) 14 days
C) 30 days
D) 48 hours
Q2) Liability on negotiable instruments flows from:
A) proper payment of the instruments.
B) signatures on the instruments.
C) nonpresentment of the instruments.
D) writing "without recourse" on the instruments.
Q3) Mention the parties who are entitled to enforce an instrument.
Q4) Igor signed a note to Gogh Bank,and his friend Sergei also signed the note as an accommodation maker.If Igor defaults on the note when it is due,what are Sergei's rights and obligations?
A) Sergei has the right to recover his payment from the bank.
B) Sergei has the same contractual liability as Igor and must pay the bank.
C) Sergei cannot recover his money from Igor or the bank since he has primary liability.
D) Sergei has secondary liability.
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Chapter 41: Checks and Electronic Fund Transfers-Part
Eight Credit Transactions
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Q1) Under revised Article 3 of the Uniform Commercial Code,when multiple forgeries are made by the same wrongdoer,the customer generally cannot hold the bank responsible for paying,in good faith,any such checks after an alteration was available to the customer for a reasonable period,not exceeding:
A) 10 working days.
B) 30 calendar days.
C) 60 calendar days.
D) 14 working days.
Q2) Which of the following statements is true of an oral stop-payment order given by the customer?
A) It is not valid for more than 24 hours.
B) It is valid for only 14 days unless the customer confirms it in writing during that time.
C) It is invalid.
D) It is valid for six months and can be extended for another six months by giving the bank instructions to continue.
Q3) What are the different electronic funds transfer systems utilized by consumers?
Q4) Explain the difference between a certified check,a cashier's check,and a teller's check.
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Chapter 42: Introduction to Security
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Q1) Zahra agreed to act as surety for a loan taken by her son,Rudo,from the Third National Bank.The terms of the loan provided that Rudo would pay the loan off in 12 monthly installments at 10%.If Rudo renegotiates the terms of the loan with the bank without Zahra's knowledge and is now obligated to pay the loan off in 12 monthly installments at 9%,which of the following statements is true?
A) Renegotiation of the note by Rudo does not relieve Zahra of liability as surety because the new terms are more favorable than the original terms.
B) Zahra must notify the bank in writing that she no longer wishes to act as surety in order to avoid liability under the new terms.
C) Zahra must notify Rudo in writing that she no longer wishes to act as surety in order to avoid liability under the new terms.
D) Zahra is no longer obligated because her responsibilities as a surety cannot be changed without her consent.
Q2) A surety could avoid liability for a principal's default by using the principal's bankruptcy as a defense.
A)True B)False
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Chapter 43: Security Interests in Personal Property
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Q1) Which of the following statements is true of sale of collateral?
A) In disposing of the collateral, the creditor must use a commercially reasonable method to produce the greatest benefit to himself and not to the debtor.
B) The creditor must sell the collateral unless the consumer orally objects to the sale, otherwise, the creditor may keep the collateral in satisfaction of the debt.
C) If less than 80 percent of the purchase price has been paid, the creditor may propose to the debtor that the creditor keep the collateral in satisfaction of the debt.
D) If the creditor has a security interest in consumer goods and the debtor has paid 60 percent or more of the purchase price, the creditor must sell the repossessed collateral.
Q2) Under the Uniform Commercial Code,a fixture is defined as goods:
A) bought primarily for business, personal, or household use.
B) held for sale or lease to be used under contracts of service.
C) that are considered to be a part of the real property.
D) other than inventory, farm products, or consumer goods.
Q3) Explain the meaning of a purchase money security interest in consumer goods with an example.
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Chapter 44: Bankruptcy-Part Nine Government Regulation
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Q1) Debts created by larceny or embezzlement by the debtor while acting in a fiduciary capacity are _____.
A) dischargeable
B) secured
C) nondischargeable
D) unsecured
Q2) Preferential liens are treated in a manner similar to preferential payments.
A)True
B)False
Q3) A voluntary petition in bankruptcy can only be filed by a corporation.
A)True
B)False
Q4) Only a partnership or a corporation can file for a Chapter 13 bankruptcy.
A)True
B)False
Q5) People who file voluntary petitions:
A) must be insolvent.
B) must be able to allege that they have debts.
C) seek to have the debtors' assets distributed among the trustees.
D) must have 12 or more creditors.
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Chapter 45: The Antitrust Laws
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Q1) The Sherman Act denies the federal courts injunctive powers to remedy antitrust violations.
A)True
B)False
Q2) A candy company merging with a greeting cards company is a:
A) vertical merger.
B) conglomerate merger.
C) product-extension merger.
D) market-extension merger.
Q3) If one automobile firm merges with another automobile firm,it is called a _____.
A) push down merger
B) vertical merger
C) conglomerate merger
D) horizontal merger
Q4) Horizontal price-fixing:
A) is also called resale price maintenance.
B) occurs when the manufacturer gets the retailer to agree to follow the suggested retail price.
C) can be legally justified if there was a direct agreement between competitors.
D) is an attempt by competitors to interfere with the market and control prices.
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Chapter 46: Consumer Protection Laws
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Q1) How do the new rules of the Credit Card Accountability and Disclosure Act (CARD)help consumers deal with credit card debt?
Q2) The Consumer Leasing Act:
A) requires the creditor to disclose the aggregate costs of leasing consumer goods.
B) does not require the lease agreement to define the consumer's liability.
C) applies to leases of consumer goods only if the leases are for more than three months.
D) applies to leases of consumer goods if the total contractual obligation exceeds $25,000.
Q3) _____ were passed to provide some relief to customers having complaints against auto dealers.
A) Credit laws
B) Equal opportunity laws
C) Fair credit laws
D) Lemon laws
Q4) The Truth in Lending Act (TILA)fixes interest rates.
A)True
B)False
Q5) Describe the Gramm-Leach-Bliley Act of 1999 (GLBA).
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Chapter 47: Environmental Regulation
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Q1) The National Environmental Policy Act (NEPA)required that an environmental impact statement be prepared for every recommendation or report on legislation and for every major federal action significantly affecting the quality of the environment.
A)True
B)False
Q2) The National Environmental Policy Act (NEPA)requires a federal agency to consider the environmental impact of a project before the project is undertaken.
A)True
B)False
Q3) The _____ establishes a program governing the injection of wastes into wells.
A) Clean Water Act
B) Marine Protection, Research, and Sanctuaries Act
C) Resource Conservation and Recovery Act
D) Safe Drinking Water Act
Q4) Explain the Clean Air Act's approach for dealing with air pollution,including the role of the states.
Q5) Describe Superfund's "Community Right to Know" requirement.
Q6) When is a discharge permit required under the Clean Water Act?
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