Business Law for Accountants
Review Questions
Course Introduction
Business Law for Accountants introduces students to the fundamental principles of law as they apply to the practice of accounting. The course covers key legal concepts affecting business organizations, contracts, professional liability, property, agency, sales, and negotiable instruments. Emphasis is placed on understanding how laws and regulations impact financial decision-making, ethical considerations, and the legal responsibilities of accountants in various professional contexts. Through practical examples and case studies, students learn to identify and analyze legal issues that arise in accounting practice, preparing them to navigate the complexities of the business legal environment effectively.
Recommended Textbook
Business Law and the Legal Environment 21st Edition by David P. Twomey
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2751 Verified Questions
2751 Flashcards
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Chapter 1: The Nature and Sources of Law
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Sample Questions
Q1) The United States Constitution provides that we have a right to be free from intrusions by others.
A)True
B)False
Answer: True
Q2) Rights always stand alone, without any duties.
A)True
B)False
Answer: False
Q3) Law is:
A) a body of religious principles held by all members of society.
B) a body of principles that society establishes to keep things running smoothly.
C) always the result of case-law decisions.
D) derived solely from the United States Constitution.
Answer: B
Q4) Within each state in the United States, only one constitution is in force.
A)True
B)False
Answer: False
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Chapter 2: The Court System and Dispute Resolution
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Sample Questions
Q1) Who is entitled to file a motion to dismiss?
A) defendant only
B) plaintiff only
C) both plaintiff and defendant
D) none of the above
Answer: A
Q2) A motion for a directed verdict occurs immediately after the last pleading is filed.
A)True
B)False
Answer: False
Q3) All federal courts are expressly created by the United States Constitution.
A)True
B)False Answer: False
Q4) Once a lawsuit is commenced, the case must go to the jury.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Business Ethics, Social Forces, and the Law
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Sample Questions
Q1) Laws that prohibit defamation, invasions of privacy, and discrimination exist primarily:
A) for protection of the person.
B) for protection of public health, safety, and morals.
C) for protection of property.
D) for protection of the state.
Answer: A
Q2) Evidence suggests that there may be relationships among ethical customer and employee relations and long-term ability to pay dividends.
A)True
B)False
Answer: True
Q3) Which of the following has been linked with the long-term growth and profitability of business organizations?
A) high standards for product quality
B) high standards for employee welfare
C) high standards for customer service
D) all of the above
Answer: D
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Page 5
Chapter 4: The Constitution As the Foundation of the Legal Environment
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Sample Questions
Q1) The states may coin money as long as it is backed by gold.
A)True
B)False
Q2) "Preemption" means that the federal regulatory scheme is controlling.
A)True
B)False
Q3) For the past century, the United States Supreme Court has generally followed the "living document" view in interpreting the Constitution.
A)True
B)False
Q4) Which of the following powers is not reserved solely to the national government?
A) power to regulate interstate commerce
B) power to tax
C) power to coin money
D) power to borrow money on the credit of the United States
Q5) Administrative agencies are, in effect, a fourth branch of the government.
A)True
B)False
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Chapter 5: Government Regulation of Competition and Prices
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Sample Questions
Q1) The government may regulate production but not prices.
A)True
B)False
Q2) Government may:
A) prohibit false advertising and labeling.
B) enforce standards for health and purity for cosmetics, foods, and drugs.
C) engage in competition with private enterprise or own and operate an industry.
D) all of the above.
Q3) When the effect of an antitrust violation is to raise prices:
A) damages are automatically considered doubled.
B) each plaintiff must sue individually.
C) imprisonment for the guilty is mandatory.
D) the state attorney general may bring a class action suit for damages.
Q4) A violator of the Sherman Act may be subject to:
A) fine only.
B) imprisonment only.
C) fine, imprisonment, and injunction.
D) fine and imprisonment only.
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Chapter 6: Administrative Agencies
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Sample Questions
Q1) The Freedom of Information Act provides access to any information upon request.
A)True
B)False
Q2) An administrative agency is barred from examining the records of a business enterprise by the constitutional guarantee against unreasonable searches and seizures.
A)True
B)False
Q3) Which statement is true concerning administrative hearings?
A) An existing business has the right to challenge the granting of a license to a potential competitor.
B) Denial of a jury trial is a denial of due process.
C) It is generally necessary to give notice of an administrative hearing and to allow affected persons to be present.
D) Traditional courtroom rules of evidence must be applied.
Q4) The Sunshine Act requires most meetings of major administrative agencies to be open to the public.
A)True
B)False
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Page 8
Chapter 7: The Legal Environment of International Trade
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Sample Questions
Q1) The Alexo Corporation has been charged in a United States court with violation of American antitrust laws in its foreign dealings. The firm has raised the defense that its actions were compelled by the government of its host country. Alexo based its defense on the__________ doctrine.
A) act-of-state
B) sovereign compliance
C) sovereign immunity
D) Timberlane
Q2) The jurisdictional rule of reason addresses the problems that arise when a foreign country has a significant interest in regulating conduct taking place within the United States.
A)True
B)False
Q3) You plan to enter the export market with a new product that you have just developed. You feel that the product has great promise, but you are confused over whether you are required to obtain an export license. Further, your brother-in-law says that he knows someone in the Japanese government who could greatly assist you in your endeavors for a very modest fee. Discuss this situation.
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Chapter 8: Crimes
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Sample Questions
Q1) "Mental state" does not require an awareness of guilt.
A)True
B)False
Q2) An innocent person who is unjustly convicted of a crime may:
A) never receive indemnification.
B) receive indemnification, but only for the time spent awaiting trial.
C) receive indemnification.
D) none of the above.
Q3) RICO was designed primarily to prevent individuals involved in organized crime from investing money obtained through racketeering in legitimate businesses.
A)True
B)False
Q4) Due process rights apply to:
A) individuals only.
B) corporations only.
C) both individuals and corporations.
D) individuals, but only in their official capacity within a business.
Q5) Corporations are entitled to Fifth Amendment protection.
A)True
B)False
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Chapter 9: Torts
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Sample Questions
Q1) Offensive or derogatory language used by one person to describe another constitutes the tort of slander.
A)True
B)False
Q2) Commercial exploitation is a form of invasion of privacy.
A)True
B)False
Q3) Trespass applies to:
A) personal property only.
B) land only.
C) both personal property and land.
D) only government-owned property.
Q4) Today, the widest range of tort liability arises in the field of negligence.
A)True
B)False
Q5) If a crime does not hurt an identifiable person, it is not a tort.
A)True
B)False
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Chapter 10: Intellectual Property Rights
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Sample Questions
Q1) Trade dress refers to the packaging look and overall image of a product.
A)True
B)False
Q2) In determining whether limited use of copyrighted material may be permitted as "fair use," courts will consider:
A) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes.
B) the nature of the copyrighted work.
C) the amount and substantiality of the portion used in relation to the copyrighted work as a whole.
D) all of the above.
Q3) Design patents have a duration of __________ years.
A) 10
B) 14
C) 17
D) 20
Q4) Trademarks and service marks are recorded with the Register of Copyrights.
A)True
B)False
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Chapter 11: Cyberlaw
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Sample Questions
Q1) Identity theft is a type of Internet fraud.
A)True
B)False
Q2) Under the Due Process Clause, certain rules are traditionally employed to determine jurisdiction under state "long-arm" statutes. These rules are not applicable to businesses that choose to transact on the Internet.
A)True
B)False
Q3) Intellectual property rights, even in cyberspace, are protected for the sake of:
A) government regulation.
B) the integrity of contract law.
C) the wealthy.
D) innovation.
Q4) Employers are required to give notice to employees that they will monitor their employees' e-mail.
A)True
B)False
Q5) The elements of defamation remain the same in cyberspace
A)True
B)False
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Chapter 12: Nature and Classes of Contracts: Contracting
on the Internet
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Sample Questions
Q1) Whenever a person receives a benefit for which payment has not been made, there is an unjust enrichment and the value of such benefit must be paid to the person conferring the benefit.
A)True
B)False
Q2) The promisor in a contract may also be called the:
A) obligor.
B) grantor
C) obligee
D) grantee
Q3) Quasi contracts are contracts.
A)True
B)False
Q4) A person who makes a promise is the promisor, while a person to whom the promise is made is the promisee.
A)True
B)False
Q5) An executed contract is an agreement that has been completely performed.
A)True
B)False
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Chapter 13: Formation of Contracts: Offer and Acceptance
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Sample Questions
Q1) An otherwise vague contract may be clarified by references in the contract to other documents or agreements.
A)True
B)False
Q2) An acceptance must be absolute and unconditional.
A)True
B)False
Q3) A customer requested a price from a carpenter on a teak cabinet to be built according to the buyer's specifications. Because teak wood is difficult to obtain, the customer agreed to pay the cost of the wood plus $175 and the carpenter agreed to build it. Which of the following is correct?
A) Although the price is somewhat unclear, the parties have entered into a contract.
B) This is an agreement to agree, and is not binding.
C) This agreement fails for indefiniteness.
D) The carpenter is bound by the agreement, but not the customer.
Q4) Social invitations can be offers.
A)True
B)False
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15
Chapter 14: Capacity and Genuine Assent
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Sample Questions
Q1) A person lacks contractual capacity if:
A) the person is a chronic alcoholic.
B) the person is a drug addict.
C) because of mental impairment, the person does not comprehend that a contract is being made or understand its consequences.
D) all of the above.
Q2) Factual incapacity is imposed because of the class or group to which a person belongs.
A)True
B)False
Q3) John, a 17-year-old, purchased a ping-pong table and four new ping-pong paddles. A week after he turned 18, John tried to return the ping-pong paddles. He told the seller that he had decided to keep the table. Can John avoid the contract in this way?
Q4) A person who has drunk too much alcohol at a party and signs a contract may be able to rescind that contract.
A)True
B)False
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16
Chapter 15: Consideration
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Sample Questions
Q1) Generally, a promise is legally enforceable even if nothing is given or received for the promise.
A)True
B)False
Q2) Examples of illusory promises include:
A) cancellation provisions.
B) conditional promises.
C) apparent obligations.
D) real obligations.
Q3) One promise may serve as consideration for many return promises.
A)True
B)False
Q4) The promise of a creditor to refrain from collecting a debt is consideration for a promise by the debtor to modify the terms of the transaction.
A)True
B)False
Q5) A binding contract cannot contain a cancellation provision.
A)True
B)False
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Chapter 16: Legality and Public Policy
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Sample Questions
Q1) A noncompetition covenant may be held invalid because of vagueness concerning the duration and geographic area of the restriction.
A)True
B)False
Q2) An agreement to slander a third person would not be enforceable because slander is a(n):
A) crime.
B) civil wrong.
C) infringement of privacy.
D) assault.
Q3) To stabilize the industry, manufacturers of the same or similar products may agree that each will market its product in a specified geographic area of the country and will not market its product in the territory assigned to other manufacturers.
A)True
B)False
Q4) Penalties for violating usury laws are uniform from state to state.
A)True
B)False
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Chapter 17: Writing, Electronic Forms, and Interpretation of Contracts
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Sample Questions
Q1) The parol evidence rule does not apply to changes made after the signing of the contract.
A)True
B)False
Q2) A writing required by the statute of frauds may be in any form.
A)True
B)False
Q3) An oral contract containing a promise by an executor to pay estate debts from estate funds is:
A) binding.
B) voidable by the executor or administrator.
C) enforceable against the executor only if the executor signs written proof of the agreement.
D) enforceable against the other contracting party only if that party signs a written agreement.
Q4) The parol evidence rule may not apply if:
A) the contract is materially incomplete.
B) the parties disagree on the meaning of the contract.
C) there is no ambiguity regarding the terms of the contract.
D) one party is unable to perform the contractual obligations.
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Chapter 18: Third Persons and Contracts
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Sample Questions
Q1) Whenever a contract is intended to benefit a third person, this person is referred to as a delegator.
A)True
B)False
Q2) In general, an assignee stands:
A) in a position subordinate to the assignor.
B) exactly in the position of the assignor.
C) in a position superior to the assignor.
D) in a position similar to, but not equal to, the assignor.
Q3) In general, one may assign rights if that does not cause the obligor's duties to increase or change materially.
A)True
B)False
Q4) A third-party beneficiary:
A) may be obligated to pay for services rendered.
B) may bring suit on and enforce the contract.
C) must consent to the contract.
D) must be identified by name.
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Page 20
Chapter 19: Discharge of Contracts
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Sample Questions
Q1) The parties may decide that their contract is not the one they want. They may then replace it with another contract. If they do, the original contract is discharged by
A) solution
B) elocution
C) retribution
D) substitution
Q2) A house-painting contract is discharged if continual rain makes it impossible to complete the painting by the time specified in the contract.
A)True
B)False
Q3) A party who in good faith has provided substandard performance of a contract may sue to recover the payment specified in the contract.
A)True
B)False
Q4) In most bilateral contracts, the performances of the parties are concurrent conditions.
A)True
B)False
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Chapter 20: Breach of Contract and Remedies
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Q1) The measure of monetary damages when there has been a breach of contract is the sum of money that will place the injured party in the same position that would have been attained if the contract had been performed.
A)True
B)False
Q2) A waiver of a breach may be either express or implied.
A)True
B)False
Q3) The normal remedy for breach of contract where the plaintiff has suffered a loss is compensatory damages.
A)True
B)False
Q4) Consequential damages may not be recovered, even if they were within the contemplation of the parties at the time of contracting.
A)True
B)False
Q5) Consequential damages are those that necessarily flow from the breach. A)True
B)False
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Chapter 21: Personal Property and Bailments
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Sample Questions
Q1) Barry and Eldridge owned Blueacre as tenants in common. Eldridge died. Blueacre is owned:
A) solely by Barry because of the survivorship feature.
B) jointly by Barry and the state because of escheat.
C) by Barry and Eldridge's heirs.
D) solely by Eldridge's heirs.
Q2) Joan brought her car into Ace Service Station for a tune-up. After tuning up the car, Ace (the owner of the service station) decided to visit his mother. Ace drove Joan's car. Ace was following all safety precautions when a negligent driver without insurance struck Joan's car. Joan sued Ace for the damages to her car. The probable result is:
A) Ace will win, since he was taking reasonable care of the bailed goods.
B) Ace will win, since the bailee has the right to use the bailed goods.
C) Joan will win, since the harm was sustained during the bailee's unauthorized use of the property.
D) Joan will win, since bailees are absolutely liable for bailed goods in their possession and control.
Q3) An ordinary gift made between two living persons is an inter vivos gift.
A)True
B)False
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Page 23
Chapter 22: Legal Aspects of Supply Chain Management
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Sample Questions
Q1) Contract clauses that limit a common carrier's liability are void as contrary to public policy.
A)True
B)False
Q2) The Willett Seed Company stored its goods with the Augusta Warehouse Company and received a negotiable warehouse receipt. The Willett Seed Company then borrowed money from the Georgia Railroad Bank and pledged the warehouse receipt as security. The seed company defaulted, and the bank demanded the goods from the warehouse. The warehouse stated that it already had delivered the goods to the seed company on the strength of that company's promise that it would surrender the receipt shortly thereafter. The bank sued the warehouse for the value of the goods. Will the bank win?
Q3) The storage of goods in a warehouse and the shipment of goods by a common carrier are examples of special bailments.
A)True
B)False
Q4) Unlike warehouse receipts, bills of lading and airbills are documents of title.
A)True
B)False
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Page 24
Chapter 23: Nature and Form of Sales
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Sample Questions
Q1) Newlog, which had developed a new process for making artificial logs, entered into an oral contract with Specialty Manufacturing. The contract provided that Specialty would manufacture a special part that Newlog needed to make its artificial log machinery. The contract provided that Specialty would make the part to Newlog's specifications. Newlog orally agreed to pay $5,000 for the part. Specialty made the part to Newlog's specifications, but Newlog refused to pay, claiming that the oral contract was unenforceable because of the statute of frauds. Is Newlog correct?
Q2) Under Article 2 of the UCC, in a situation where it is clear that the parties intended a contract, but a term in the acceptance conflicts with a term in the offer:
A) there is no contract.
B) the acceptance is viewed entirely as a counteroffer.
C) there is a contract for the terms of the offer and acceptance that are consistent, but the conflicting terms cancel out.
D) there is a contract, and the conflicting term in the offer is part of the contract.
Q3) A bill of sale can be used as proof of an otherwise oral agreement.
A)True
B)False
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Chapter 24: Title and Risk of Loss
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Sample Questions
Q1) COD is a shipping term that requires the buyer to pay in order to gain physical possession of the goods.
A)True
B)False
Q2) The Anderson Balloon Company of Detroit entered into a contract with Johnson's Novelty Shop of Des Moines to sell 1,000 balloons to Johnson's. The contract provided that the balloons were to be manufactured in accordance with Johnson's specifications. The contract further provided that the balloons would be shipped to Johnson's. The balloons were damaged while in transit from Detroit to Des Moines. Johnson's has sued Anderson for damages. Will Johnson's win?
Q3) The expense and the risk of return in a sale or return situation is on the:
A) seller.
B) buyer.
C) lienholder.
D) secured creditor.
Q4) Title and risk of loss always pass to the buyer at the same time.
A)True
B)False
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Chapter 25: Product Liability: Warranties and Torts
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Q1) It is necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee."
A)True
B)False
Q2) A seller cannot be held liable for the breach of an express warranty if the seller honestly believed that the warranted statement was true.
A)True
B)False
Q3) An express warranty can be made orally or in writing.
A)True
B)False
Q4) In most instances, the mere fact that a sale was made gives rise to a(n): A) express warranty.
B) limited warranty.
C) full warranty.
D) implied warranty.
Q5) No law requires a seller to make an express warranty. A)True B)False
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Chapter 26: Obligations and Performance
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Sample Questions
Q1) The statement, "I doubt that I can perform the contract," is a repudiation of the contract.
A)True
B)False
Q2) A delivery is sufficient if it is made in accordance with the terms of the contract to sell.
A)True B)False
Q3) If adequate assurance of performance is not given within five (5) business days from the time of the demand for assurance, the demanding party may treat the contract as repudiated.
A)True
B)False
Q4) The standard for determining commercial impracticability is objective, not subjective.
A)True B)False
Q5) The UCC specifies the form that the assurance of performance is to take. A)True
B)False
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Chapter 27: Remedies for Breach of Sales Contracts
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Sample Questions
Q1) When a seller breaches a contract for the sale of goods to a buyer, the buyer is entitled to specific performance of the contract if the:
A) goods are unique.
B) market cost of the goods has increased.
C) goods can be purchased in any major city in the country.
D) buyer's customers will be disappointed if the buyer does not obtain the goods.
Q2) If a buyer procures the same or similar goods as those involved in the sales contract breached by the seller, the buyer:
A) loses all rights to prosecute for breach.
B) is said to have validated the seller's action.
C) is said to have covered.
D) is also in breach.
Q3) After rejecting goods, a buyer may continue to exercise rights of ownership with respect to the goods until the seller sends explicit instructions for return.
A)True
B)False
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Chapter 28: Kinds of Instruments, Parties, and Negotiability
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Sample Questions
Q1) An instrument is conditional if:
A) it contains an order for the payment of money out of a particular fund.
B) it is to be paid from the assets of an existing trust.
C) it is to be paid from the assets of an existing estate.
D) none of the above.
Q2) Instruments are always negotiable.
A)True
B)False
Q3) If an instrument is negotiable, it is governed by Article 2 of the UCC.
A)True
B)False
Q4) Antedating an instrument affects an instrument's negotiability. A)True B)False
Q5) Negotiation of commercial paper results in lesser rights to transferees than those rights afforded assignees of contracts under contract law.
A)True B)False
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Chapter 29: Transfers of Negotiable Instruments and
Warranties of Parties
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Sample Questions
Q1) A thief or an embezzling officer cannot legally transfer title to a bearer instrument.
A)True
B)False
Q2) A qualified indorsement is given by using the phrase __________.
A) "as is"
B) "without recourse"
C) "with all faults"
D) "buyer beware"
Q3) A qualified endorsement qualifies the effect of a blank or special endorsement by disclaiming or destroying the liability of the indorser to answer for the default of the maker or drawee.
A)True
B)False
Q4) A blank indorsement turns a(n) __________instrument into a(n) __________ instrument.
A) negotiable; non-negotiable
B) non-negotiable; negotiable
C) bearer; order
D) order; bearer
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Chapter 30: Liability of the Parties Under Negotiable Instruments
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Q1) The primary party on a draft is the drawee, assuming that the drawee has accepted the draft.
A)True
B)False
Q2) A holder through a holder in due course is subject to all defenses.
A)True
B)False
Q3) Which of the following defenses will defeat a holder in due course?
A) fraud in the inducement
B) fraud as to the nature or essential terms of the paper
C) ordinary contract defenses
D) none of the above
Q4) Which of the following will not be considered value in connection with determining holder in due course status?
A) performing the act for which the instrument was given
B) promising to perform an existing legal obligation
C) receiving the instrument as security for a loan
D) taking the instrument in payment of a debt
Page 32
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Chapter 31: Checks and Funds Transfers
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Q1) The delivery of a check is regarded as an assignment of money on deposit, and the drawee bank is required to pay the holder the amount of the check.
A)True
B)False
Q2) If a bank pays a check whose face has been altered to increase the amount above that which the drawer intended to pay, the bank:
A) is liable to the drawer for the amount of the increase.
B) has defenses against the drawer's claims.
C) incurs liability only if it failed to examine the check before payment.
D) incurs liability only if the drawer made the alteration.
Q3) Although a drawer has stopped payment on a check, the drawer still may be held liable on the check unless the drawer has a defense that will defeat the holder in a lawsuit.
A)True
B)False
Q4) A check is drawn on the assumption that the bank has sufficient funds in the drawer's account for payment.
A)True
B)False
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Chapter 32: Nature of the Debtor-Creditor Relationship
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Q1) A surety that has made payment of a claim for which it was liable as surety is entitled to indemnity from the principal debtor.
A)True
B)False
Q2) In a guaranty contract, the obligor is called a: A) surety.
B) principal.
C) guarantor.
D) creditor.
Q3) The creditor's failure to give the surety notice of default is not a defense.
A)True
B)False
Q4) A guaranty of payment creates a(n): A) contract of surety.
B) contract of credit.
C) letter of credit.
D) absolute guaranty.
Q5) Suretyship is governed by the UCC. A)True
B)False
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Chapter 33: Consumer Protection
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Q1) The Fair Credit Reporting Act applies only to consumer credit.
A)True
B)False
Q2) Unreasonable methods of debt collection may be held by the courts to constitute an unreasonable invasion of privacy.
A)True
B)False
Q3) Anyone promoting the sale of a real estate development that is divided into fifty (50) or more parcels of less than five (5) acres each must file a development statement with the secretary of Housing and Urban Development.
A)True
B)False
Q4) Who may bring an action for relief under consumer protection legislation?
A) the Federal Trade Commission
B) a state attorney general
C) the consumer
D) all of the above
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Chapter 34: Secured Transactions in Personal Property
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Q1) Grund, a night club performer, financed the purchase of a drum set to be used in his night club act. The collateral is classified as a consumer good.
A)True
B)False
Q2) A security interest gives a creditor more protection than is afforded by a right to sue on the debt.
A)True
B)False
Q3) If the collateral is in the possession of the creditor:
A) a financing statement must be filed to perfect the interest.
B) the security interest is perfected.
C) only a security interest has been obtained.
D) the type of goods will determine the method of perfection.
Q4) An interest in personal property or fixtures that secures payment or performance of an obligation is called a:
A) guaranty holding.
B) security interest.
C) guaranty interest.
D) good-faith guaranty.
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Chapter 35: Bankruptcy
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Q1) A discharge does not release a person from a consumer debt to a single creditor totaling more than $5,550 for luxury goods or services if the debt was incurred within how many days of the order for relief?
A) 90
B) 120
C) 180
D) 365
Q2) A reorganization plan may, in certain instances, provide for the rejection of executory contracts or collective bargaining agreements.
A)True
B)False
Q3) The creditors of Sara Delano have petitioned for involuntary bankruptcy proceedings against her. Delano has been consistently late in paying her obligations for the past year. Two months before the petition was filed, a custodian was appointed to protect Delano's property. In her statement contesting the bankruptcy petition, Delano pointed out that she had dealt in good faith and could not be shown to be guilty of any act of misconduct. In addition, she cited her willingness to allow a custodian to be appointed as an indication of her intention to avoid bankruptcy and honor her obligations. Can she prevail?
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Page 37
Chapter 36: Insurance
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Q1) Paul purchased a house and also purchased fire insurance coverage on the house. The policy contained an 80 percent coinsurance clause. Paul maintained coverage in the amount of $150,000 and the value of the house was $250,000. A fire caused a loss of $100,000. Paul will collect:
A) the full $100,000, because he had coverage for $150,000.
B) on part of the $100,000 loss, because he failed to maintain coverage at 80 percent of the value of the house.
C) nothing, because he failed to maintain coverage at 80 percent of the value of the house.
D) 80 percent of $250,000, or $200,000.
Q2) The person to whom an insurance promise is made is called:
A) the insured.
B) the insurer.
C) the policyholder.
D) both a. and c.
Q3) For the purposes of fire insurance, all fires that cause damage are considered hostile fires.
A)True
B)False
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Page 38
Chapter 37: Agency
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Q1) A third person who deals with a person claiming to be an agent has the right to rely on the statements made by the agent concerning the extent of the agent's authority.
A)True
B)False
Q2) A principal may ratify an unauthorized contract of an agent.
A)True
B)False
Q3) An agent is under a duty to obey:
A) all instruction given by the third party.
B) all lawful instructions given by the principal.
C) all instructions given by the principal.
D) none of the above, since "obedience" is not an obligation of the agent.
Q4) Which of the following is true?
A) An agent has the power to contract on behalf of a principal.
B) An employee generally does not have the power to contract on behalf of the employer.
C) An independent contractor controls work performed by the independent contractor.
D) All of the above are true.
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Chapter 38: Third Persons in Agency
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Questions
Q1) When a business owner uses an independent contractor to perform nonhazardous work, the owner ordinarily is:
A) not liable for harm to third persons or their property.
B) not bound to contracts made by the independent contractor.
C) not liable for the negligence of employees of the independent contractor.
D) all of the above.
Q2) Sid worked as the agent of Rosemary. Rosemary was in the business of buying antique clocks and selling them to the public. She became so successful at this that people began to become reluctant to sell to her, feeling that if she was buying the clock, it probably could be sold for more. Rosemary instructed Sid to purchase several clocks but not to reveal that the purchases were being made on her behalf. Sid contracted to buy several clocks and gave his own check as down payment to keep Rosemary's identity concealed. Although Rosemary had authorized the contracts, she reneged on the contracts. Sid thereupon told the seller what had happened and stopped payment on the down payment check. The seller of the clocks sued Rosemary on the bounced check and for breach of contract. Sid was sued on the same causes of action. Decide all cases.
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Page 40
Chapter 39: Regulation of Employment
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Q1) The rights of an employee to be compensated are governed primarily by the same principles that apply to the compensation of a(n):
A) partner.
B) stockholder.
C) agent.
D) court-appointed trustee.
Q2) Workers' compensation statutes do not typically provide for:
A) immediate medical benefits.
B) prompt periodic wage replacement.
C) a death benefit.
D) punitive damages.
Q3) The federal-state system that provides unemployment compensation under the Social Security Act of 1935 excludes all of the following categories of employees except:
A) agricultural employees.
B) domestic employees.
C) state and local government employees.
D) all of the above are excluded from coverage.
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Chapter 40: Equal Employment Opportunity Law
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Q1) "Race norming," a process whereby the results of hiring and promotion tests are adjusted to ensure that a minimum number of minorities are included in application pools, is a lawful form of affirmative action.
A)True
B)False
Q2) A seniority system is unlawful if:
A) workers with longer years of service are laid off last.
B) a union did not agree to the policy.
C) it results from an intention to discriminate.
D) workers with longer years of service are predominantly from one race.
Q3) The two principal legal theories under which a plaintiff may prove a case of unlawful employment discrimination are disparate treatment and disparate impact.
A)True
B)False
Q4) Under Title VII, whites are protected against discrimination because of race and color.
A)True
B)False
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Page 42
Chapter 41: Types of Business Organizations
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Q1) Under the FTC disclosure rule, a franchisor must pay a __________ penalty of as much as __________ for each violation when it is shown that a sale of a franchise subject to the FTC rule was made, the franchisor knew or should have known of the disclosure rule, and no disclosure statement was given to the buyer.
A) civil; $10,000
B) criminal; $10,000
C) civil; $25,000
D) criminal; $25,000
Q2) The principal forms of business organization are:
A) sole proprietorships, joint ventures, and corporations.
B) unincorporated associations, partnerships, and corporations.
C) unincorporated associations, limited partnerships, and corporations.
D) sole proprietorships, partnerships, and corporations.
Q3) Franchise disclosures are not required under federal law.
A)True
B)False
Q4) A partnership is dissolved by the death of a partner.
A)True
B)False
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Chapter 42: Partnerships
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Q1) A third person should recognize that a partner has limited or no authority if:
A) the partner seeks to act for the partnership concerning a matter not within the usual business of the firm.
B) the third person knows that the partnership has been terminated.
C) the partner seeks to pay a personal obligation by issuing a promissory note in the name of the firm.
D) all of the above.
Q2) The rights of partners are determined by the partnership agreement.
A)True
B)False
Q3) Regarding distribution of assets upon winding up a partnership, what is paid first?
A) debts to outside creditors
B) return of capital
C) debts of partners who are creditors
D) profits
Q4) Partnership property is only that property contributed by the partners.
A)True
B)False
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Chapter 43: LPs, LLCs, and LLPs
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Q1) While most states have adopted limited liability company statutes, few states have created statutes allowing the formation of limited liability partnerships.
A)True B)False
Q2) If a limited partnership certificate is never filed, all partners are treated as limited partners.
A)True B)False
Q3) Members of a limited liability company share profits:
A) according to their status (general or limited) in the firm.
B) in proportion to their contribution of services.
C) in proportion to their capital contribution.
D) according to the terms of the operating agreement.
Q4) It is possible for a limited partner to be subject to the debts of the firm if the limited partner participates in the control of the business.
A)True B)False
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Chapter 44: Corporate Formation
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Q1) A holder of a single share of stock who objects to a merger has the power to stop the merger.
A)True
B)False
Q2) A corporation must have:
A) a name.
B) more than one incorporator.
C) a corporate seal.
D) none of the above.
Q3) Where a corporation is properly formed, it is called a corporation:
A) di giorno.
B) de facto.
C) de jure.
D) by estoppel.
Q4) If two firms consolidate, the new corporation usually succeeds to the rights, powers and immunities of its component parts.
A)True
B)False
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Page 46
Chapter 45: Shareholder Rights in Corporations
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Q1) All shares must have a par value of at least one dollar per share.
A)True
B)False
Q2) Delivering stock to a creditor as security for a debt owed by the shareholder:
A) transfers ownership rights.
B) gives rise to a perfected security interest.
C) makes the creditor a perfected party after filing.
D) makes the debtor a perfected party after filing.
Q3) Which of the following need not be included in writing to satisfy the Statute of Frauds concerning a contract for the sale of securities?
A) the price of the shares
B) the terms of payment
C) the number of shares
D) the signature of the party disputing the agreement
Q4) Preferred stock is ordinarily nonvoting stock.
A)True
B)False
Q5) A shareholder can give a proxy to vote shares only to another shareholder.
A)True
B)False
47
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Chapter 46: Securities Regulation
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Q1) Securities covered by the securities acts include not only investment instruments such as stocks and bonds but also "investment contracts."
A)True
B)False
Q2) The registration requirement of the Securities Act of 1933 applies to:
A) the issuing of stocks, bonds, and other investment securities.
B) the issuing of certificates of deposit by a national bank.
C) shares issued by nonprofit corporations.
D) issues of $1.5 million or more.
Q3) The Securities Exchange Act of 1934 is concerned with the secondary distribution of securities in the national securities markets and in the over-the-counter markets.
A)True
B)False
Q4) Under the 1990 Remedies Act, the SEC may start administrative proceedings against any person or entity, whether regulated by the SEC or not.
A)True
B)False
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Chapter 47: Accountants Liability and Malpractice
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Q1) To ensure that audit partners do not become entrenched, Sarbanes-Oxley requires audit firms to change audit partners at least once every __________ years.
A) three (3)
B) five (5)
C) seven (7)
D) ten (10)
Q2) Breach of contract remedies are available to third parties against accountants because they are ordinarily considered third-party beneficiaries of contracts with accountants.
A)True
B)False
Q3) __________ courts impose liability on the accountant to a total stranger who gets possession of the accountant's work and then sustains a loss because of a false statement in the work.
A) No
B) A minority of
C) A majority of
D) All
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Chapter 48: Management of Corporations
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Q1) Regular meetings of shareholders are:
A) held at a time and place set forth in a notice given to all shareholders.
B) held at a time and place prescribed by the articles of incorporation or the bylaws.
C) called by the directors.
D) limited to the election of directors.
Q2) A corporation may be convicted of a criminal offense if it is shown beyond a reasonable doubt that the offense was committed by its agent acting within the scope of the agent's authority.
A)True
B)False
Q3) The means by which stockholders may seek to protect themselves against corporate actions to which they object include all of the following except:
A) voting in new directors.
B) bringing legal action.
C) voiding the charter.
D) calling a special stockholders' meeting.
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Chapter 49: Real Property
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Q1) Which statement is incorrect concerning mortgages?
A) The mortgagee's interest terminates upon performance of the obligation secured by the mortgage.
B) The mortgagee has the right to enforce the mortgage by foreclosure upon default by the mortgagor.
C) An unrecorded mortgage is invalid between mortgagor and mortgagee.
D) Generally, no particular form of language is required to create a mortgage.
Q2) A deed that has been properly executed and delivered by the grantor, but has not been acknowledged or recorded, remains binding as between the grantor and the grantee.
A)True
B)False
Q3) Recording statutes provide that a person purchasing land from the last holder of record will take title free of any unrecorded claim to the land of which the purchaser does not have notice or knowledge.
A)True B)False
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Chapter 50: Environmental Law and Land Use Controls
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Q1) A nuisance:
A) is created by every interference that has an effect on others.
B) is established when the plaintiff shows harm as the result of the defendant's conduct.
C) arises only by an interference that is great enough to be condemned as unreasonable.
D) cannot arise from a lawful activity or business that is conducted in a lawful manner.
Q2) Which federal agency has primary responsibility for enforcing environmental laws?
A) the Environmental Protection Agency
B) the Council of Environmental Quality
C) the Superfund Panel
D) none of the above
Q3) What federal act regulates the federal government in terms of its operations and impact on the environment?
A) the Environmental Protection Act
B) the National Environmental Policy Act
C) the Clean Water Act
D) the Resource Recovery Act
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Chapter 51: Leases
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Q1) Roberts leased a duplex from Hughes. Later, without Hughes' knowledge, Roberts sublet half of the duplex to Carrera. Carrera did not take proper care of the premises and her part of the duplex was substantially damaged as a result of her negligent use and abuse. Upon discovering the situation, Hughes notified Roberts that he was holding him responsible for any and all damages to Carrera's portion of the duplex, and that Roberts was to bear the costs of returning the premises to the original state of repair. Roberts replied that he had sublet to Carrera in good faith, had no further dealings with Carrera after the sublet agreement, had no knowledge of negligence, and could not be held liable for damages caused by another. Can Roberts be held liable?
Q2) Many states provide that a lease for a term exceeding __________ must be in writing.
A) three (3) months
B) six (6) months
C) one (1) year
D) three (3) years
Q3) A tenancy by sufferance describes a tenancy that can be terminated at any time upon proper notice.
A)True
B)False
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Page 53
Chapter 52: Decedents Estates and Trusts
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Q1) Where a testatrix executes a will and later has a child:
A) the child is prohibited by law from receiving anything from the estate.
B) many states hold that the will of the testatrix is partially revoked by operation of law to provide a share to the after-born child.
C) a new will must be executed because the birth voids the original will.
D) the after-born child takes a share by escheat.
Q2) One desiring to leave the balance of an estate to a specified person or group after specific bequests are satisfied may do so by making a residuary bequest in a will.
A)True
B)False
Q3) A living will, now legal in most states, provides that if the testator becomes unable to express his or her wishes and is in an irreversible, incurable medical condition, he or she does not want life-sustaining medical treatments.
A)True
B)False
Q4) The requirements to create a trust are uniform.
A)True
B)False
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