Business Organizations Law
Exam Answer Key
Course Introduction
Business Organizations Law explores the legal principles governing the formation, operation, and dissolution of various types of business entities, including partnerships, corporations, and limited liability companies. The course examines key topics such as fiduciary duties of directors and officers, shareholder rights, corporate governance, agency relationships, and the regulatory environment affecting businesses. Through case studies and statutory analysis, students gain a comprehensive understanding of how organizational structure impacts legal obligations, risk management, and decision-making within the business context.
Recommended Textbook
Business Law Text and Cases 14th Edition by
Kenneth W. Clarkson
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Page 2
Chapter 1: Law and Legal Reasoning
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Sample Questions
Q1) Many different laws may affect a single business transaction.
A)True
B)False
Answer: True
Q2) Judge Bell decides that the precedent for the case she is hearing is no longer correct due to technological changes. She overturns the precedent when she decides the case. It is likely that her case will
A) go unnoticed by the public.
B) be thrown out of court.
C) receive a great deal of publicity.
D) be ignored by the media.
Answer: C
Q3) Laws and government regulations affect almost all business activities.
A)True
B)False
Answer: True
Q4) Administrative law includes only state regulations.
A)True
B)False
Answer: False
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Chapter 2: Courts and Alternative Dispute Resolution
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Sample Questions
Q1) In most states, in suits brought in small claims courts, lawyers are allowed.
A)True
B)False
Answer: True
Q2) A justiciable controversy is a case in which the court's decision-the "justice" that will be served-will be controversial.
A)True
B)False
Answer: False
Q3) State courts are superior to federal courts.
A)True
B)False
Answer: False
Q4) States do not have exclusive jurisdiction on any matter.
A)True
B)False
Answer: False
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Chapter 3: Court Procedures
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Sample Questions
Q1) Isabel and Josh engage in a business transaction that leads to a dispute. Isabel initiates a lawsuit against Josh by filing a complaint. The sheriff serves Josh with a summons. If Josh chooses to ignore it,
A) Isabel must file an amended complaint.
B) Isabel will have a judgment entered in her favor.
C) Josh must be served with a second summons.
D) Josh will have a judgment entered in his favor.
Answer: B
Q2) A counterclaim is raised by a plaintiff against a defendant's answer.
A)True
B)False
Answer: False
Q3) Sara brings a lawsuit against Tucci over a sale of 1,500 acres of ranchland. During the trial, Tucci's attorney asks questions of the plaintiff's witness Ulysses. This is A) a cross-examination.
B) a direct examination.
C) voir dire.
D) hearsay.
Answer: A
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Page 5
Chapter 4: Business and the Constitution
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Sample Questions
Q1) Coffee Klatch Party Group, a political organization, files a claim to challenge a Delaware statute that limits the liberty of all persons to broadcast "annoying" radio commercials. This claim is most likely based on the right to
A) equal protection of the law.
B) privacy.
C) procedural due process.
D) substantive due process.
Q2) George burns a U.S. flag in his backyard. He posts a video of the event on YouTube.com. George's actions are
A) expressly prohibited by the Constitution.
B) protected by the First Amendment.
C) subject to reasonable restrictions under the due process clause.
D) given strict scrutiny under the equal protection clause.
Q3) Under the Constitution, speech-oral, written, or symbolized by conduct-cannot be restricted in any way.
A)True
B)False
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Chapter 5: Business Ethics
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Sample Questions
Q1) Corporations can be perceived as owing ethical duties to groups other than their shareholders.
A)True
B)False
Q2) Brewster, the chief executive officer of Cog & Gear Lubricants Corporation, wants to ensure that Cog & Gear's activities are legal and ethical. The best course for Brewster and Cog & Gear is to act
A) in good faith.
B) out of ignorance of the law.
C) with regard for the firm's shareholders only.
D) in their own self-interest.
Q3) Ethics is the study of the principles that lead to financially successful conduct.
A)True
B)False
Q4) Ethical reasoning is the process through which an individual links his or her moral convictions or ethical standards to the particular situation at hand.
A)True
B)False
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Chapter 6: Tort Law
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Sample Questions
Q1) Basil, a clerk at Cycle World, takes a bicycle from the store without the owner's permission. Basil is liable for conversion
A) if he damages the bicycle.
B) if he does not have a good reason for taking the bicycle.
C) if he fails to prevent a theft of the bicycle from his possession.
D) under any circumstances.
Q2) Cal is driving a car in which Duff is a passenger when an accident occurs. Cal and Duff are emotionally rattled, but neither is physically hurt. Cal is not liable to Duff on a negligence theory because
A) both parties were emotionally rattled.
B) Cal did not apparently intend to cause an accident.
C) Duff must have been comparatively negligent.
D) Duff was not injured.
Q3) Through tort law, society compensates those who inflict injuries on others.
A)True
B)False
Q4) Defense of others is a defense to an allegation of battery.
A)True
B)False
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Chapter 7: Strict Liability and Product Liability
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Sample Questions
Q1) The dangers associated with using sharp knives are so commonly known that manufacturers need not warn users of those dangers.
A)True
B)False
Q2) Soda Bubbles Corporation makes and sells soft drinks. Talia buys and drinks a Soda beverage, which proves defective and injures her. One justification for holding Soda strictly liable for the harm caused to Talia by its defective product is that
A) Soda is in a better position than Talia to bear the cost of her injury.
B) Talia is a person, not a business.
C) making and selling products are abnormally dangerous activities.
D) Soda and Talia are in privity.
Q3) City Slick, Inc. makes cosmetics. City Slick intentionally mislabels its packaged products to conceal a defect. Trusting and relying on the mislabeling, Dora buys a City Slick product and suffers an injury. City Slick is most likely liable for A) product misuse.
B) fraud.
C) privity.
D) puffery.
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Chapter 8: Intellectual Property Rights
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Sample Questions
Q1) Production techniques are not trade secrets.
A)True
B)False
Q2) In 2017, Kelly writes Like the Wind, a novel about marathoners and ultra marathoners. Kelly does not register the work with the appropriate government office. Under federal copyright law, Kelly's work is protected
A) for ten years.
B) for twenty years.
C) for the life of the author plus seventy years.
D) until a revised or updated edition is issued.
Q3) From Southeast Asia, Tai Ltd. exports genuine trademarked goods to the United States. Tai also makes labels bearing another firm's trademark, ships the labels to another location, and then affixes them to an inferior product. Tai sells these goods to retailers who are unaware that the marks are counterfeit. It is a crime to
A) import genuine trademarked goods.
B) traffic in counterfeit packaging.
C) sell counterfeit versions of brand-name products in foreign countries.
D) unknowingly buy goods with a counterfeit mark.
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Page 10
Chapter 9: Internet Law, Social Media, and Privacy
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Sample Questions
Q1) Riley obtains permission from Saga Company to use the firm's game app on Riley's smartphone, tablet, and other mobile device. But Riley does not obtain ownership rights in the app. This is
A) a license.
B) a cookie.
C) cloud computing.
D) a violation of the law.
Q2) When you download an application on your smartphone, you are typically entering into a license agreement.
A)True
B)False
Q3) Robert registers a domain name-sweetfriedpotatos.com-that is a misspelling of a popular brand-sweetfriedpotatoes.com. This is
A) cybersquatting.
B) typosquatting.
C) trademark infringement.
D) trademark dilution.
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Page 11
Chapter 10: Criminal Law and Cyber Crime
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Sample Questions
Q1) Enrico accesses Finance Bank's computer system without authority to obtain protected financial and credit records. Under federal law, this is
A) a felony if it was done for a commercial purpose.
B) a felony if the bank brings a civil suit against Enrico.
C) not a crime.
D) a crime but not a felony.
Q2) In a phishing attack, the perpetrator "fishes" for financial data and passwords from a consumer by posing as a legitimate business.
A)True
B)False
Q3) Under the exclusionary rule, illegally obtained evidence may not be included in any criminal prosecution.
A)True
B)False
Q4) Using social media to defraud is a federal crime.
A)True
B)False
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Page 12
Chapter 11: Nature and Terminology
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Sample Questions
Q1) Francie drives into Gage's Auto Service and asks Gage to replace a tire on her car. After Gage replaces the tire, but before Francie pays for it, any contract between them is A) executed.
B) executory.
C) void.
D) unenforceable.
Q2) Flo tells Ginger during a phone call that she will buy her textbook from last semester for $65. Ginger agrees. These parties have A) no contract.
B) an express contract.
C) an implied contract.
D) a quasi contract.
Q3) A unilateral contract is formed at the moment when the contract is performed. A)True
B)False
Q4) A quasi contract is a fictional contract. A)True
B)False
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Chapter 12: Agreement in Traditional and E-Contracts
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Sample Questions
Q1) Nevin negotiates a deal for the sale of twenty-five acres of farmland to Otis. Nevin promises to hold the offer open in return for a small payment but does not state an exact period of time. With respect to this offer
A) the deal is binding except for the promise to hold the offer open.
B) a reasonable period of time is implied.
C) the offer must be held open for an indefinite period.
D) the deal is done.
Q2) In a bilateral contract, communication of acceptance is necessary.
A)True
B)False
Q3) In most cases, an offeror can revoke an offer as long as the revocation is communicated before the offeree accepts.
A)True
B)False
Q4) A counteroffer is a rejection of the original offer and the simultaneous making of a new offer.
A)True
B)False
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14
Chapter 13: Consideration
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Sample Questions
Q1) A promise to do what one already has a legal duty to do constitutes legally sufficient consideration.
A)True
B)False
Q2) Refer to Fact Pattern 13-3. Sal and Tasty
A) may rescind their entire contract.
B) may rescind their contract to the extent that it is executory.
C) must perform their entire contract.
D) must perform the part of their contract that is executory.
Q3) The fact that the word consideration is used in an agreement means, by itself, that consideration has been given.
A)True
B)False
Q4) Refer to Fact Pattern 13-3. The next day, Sal changes his mind and again offers to deliver Tasty's products. Tasty is willing to deal, but for a new price. Sal and Tasty
A) may agree to a new contract, but it cannot include a new price.
B) may agree to a new contract that includes the new price.
C) must perform their original contract.
D) must perform the part of their original contract that is executory.
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Chapter 14: Capacity and Legality
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Sample Questions
Q1) Chet, a minor, signs a contract with Denise, an adult. The contract is voidable at the option of
A) neither party.
B) Chet only.
C) either party.
D) Denise only.
Q2) Orin signs a covenant not to compete with his employer, Product Distribution, Inc. The covenant will be enforced if it
A) does not require either party to obtain a business license.
B) is reasonable with respect to geographic area and duration.
C) relieves the employer from liability for any injury to Orin.
D) none of the choices.
Q3) Food is a "necessary."
A)True
B)False
Q4) Executed contracts are presumed ratified.
A)True
B)False
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Chapter 15: Mistakes, Fraud, and Voluntary Consent
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Sample Questions
Q1) Bob wants to sell his recreational vehicle (RV) for $21,000. He e-mails Curt with an offer, but mistakenly types that the price is $20,100. Curt accepts the offer and pays Bob $20,100. Bob
A) can avoid the deal due to a unilateral mistake.
B) can avoid the deal due to a bilateral mistake.
C) can avoid the deal due to a mistake of value.
D) must deliver the RV.
Q2) Words or terms in contracts that are subject to more than one reasonable interpretation can lead to bilateral mistakes.
A)True
B)False
Q3) Refer to Fact Pattern 15-3. If Doyle and Ezra are both ignorant of the mistake, it is A) a bilateral mistake. B) a fraudulent misrepresentation.
C) a unilateral mistake.
D) unconscionable.
Q4) Intent to deceive is an element of fraud.
A)True
B)False
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Chapter 16: The Writing Requirement in Our Digital World
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Sample Questions
Q1) There are exceptions to the Statute of Frauds.
A)True
B)False
Q2) A contract must be in writing to be enforceable if the contract makes performance possible within any definite period of time.
A)True
B)False
Q3) An oral contract may be enforceable if the person making the promise could foresee that the promisee would rely on the promise.
A)True
B)False
Q4) A written contract that is intended to be the final statement of the terms of an agreement is an integrated contract.
A)True
B)False
Q5) An oral contract for a transfer of land is always enforceable.
A)True
B)False
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Chapter 17: Third Party Rights
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Sample Questions
Q1) An intended third party beneficiary cannot enforce the contract against the original parties once the rights of the third party have vested.
A)True
B)False
Q2) In an assignment, the party assigning the rights to a third party is the assignee.
A)True
B)False
Q3) The rights of a third party beneficiary under a contract do not vest if the third party materially changes his or her position in justifiable reliance on the promise.
A)True
B)False
Q4) Mai is a third party beneficiary under a contract between Novia and Opie. Novia and Opie can modify or rescind their contract without Mai's consent
A) at any time.
B) at no time.
C) after Mai's rights have vested.
D) before Mai's rights have vested.
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Chapter 18: Performance and Discharge
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Q1) Ann offers to buy Beth's land only if an appraiser estimates that its current value is more than a certain price. Later, the appraiser deems the worth of the land to be less than Beth's price. Ann and Beth's obligations
A) must still be performed.
B) must now be renegotiated.
C) are on "hold."
D) are discharged.
Q2) Floors n' More, Inc., hires Gordon to renovate Floors n' Mores showroom. Gordon submits plans that Floors n' More approves. Gordon completes the major reconstruction, paints the interior, and buys the fixtures and furnishings. Floors n' More rejects some of these items because they do not match the plans, and subsequently refuses to allow Gordon to finish the work or to collect payment. Could Gordon sue successfully for payment for the entire contract?
Q3) A contract is substantially performed when performance creates substantially the same benefits as those promised in the contract.
A)True
B)False
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Page 20
Chapter 19: Breach of Contract and Remedies
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Sample Questions
Q1) Isabel orally agrees to buy a unique collection of nineteenth-century cowboy memorabilia for $10,000 from Jessie and sends $2,500 as a down payment. When Isabel pays the rest of the price, Jessie refuses to ship the collection. Isabel should seek A) damages.
B) restitution.
C) rescission.
D) specific performance.
Q2) Nominal damages are designed to punish a wrongdoer and set an example to deter similar conduct in the future.
A)True
B)False
Q3) Expenses that are caused directly by a breach of a contract are known as primary damages.
A)True
B)False
Q4) Restitution is limited to rescission cases.
A)True
B)False
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21
Chapter 20: The Formation of Sales and Lease Contracts
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Sample Questions
Q1) The UCC imposes some different rules on merchants.
A)True
B)False
Q2) Containers, Inc., sends its standard order form to Distribution Corporation to evidence a sale of packing materials. Distribution responds with its own standard purchase order form. Additional terms in the purchase order automatically become part of the contract unless
A) the terms materially alter the original contract.
B) the original offer expressly required acceptance of its terms.
C) the offeror objects to the new terms within a reasonable time.
D) any of the choices.
Q3) Under the UCC, if a contract for a sale of goods does not specify the quantity, a court will objectively determine what is a reasonable quantity.
A)True
B)False
Q4) If the parties to a contract for a sale of goods have not agreed on a price, a court will determine a reasonable price at the time for delivery.
A)True
B)False
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Chapter 21: Title, Risk, and Insurable Interest
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Sample Questions
Q1) Big Red Drinks, Inc. contracts to buy two tons of cranberries from Super Fruits, Inc. The contract states that Super Fruits is required to ship the cranberries to Big Red Drinks by Speedy Wind Air Freight. The contract is
A) a bill of lading.
B) a destination contract.
C) a shipment contract.
D) a warehouse receipt.
Q2) Barley that fills County Grain Co-op's silo is fungible if the barley is A) alike naturally, by agreement, or by trade usage.
B) fundamentally different.
C) fun, good, and edible.
D) rotting due to a leaky roof and a delay in shipping.
Q3) Gas & Wood Stove Shop receives Hearthwarm-brand stoves from Independent Dealer, Inc., under a sale or return agreement. While the stoves are in Gas & Wood's possession, title is held by A) Independent Dealer.
B) Gas & Wood.
C) Gas & Wood's creditors.
D) Hearthwarm.
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Page 23
Chapter 22: Performance and Breach of Sales and Lease Contracts
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Sample Questions
Q1) Under the perfect tender rule, if tender is not perfect, the seller is obligated to try again.
A)True
B)False
Q2) If a contract specifies a certain carrier, a substitution of a different carrier for any reason breaches the contract.
A)True
B)False
Q3) Until the time for performance under a contract expires, the seller has a right to cure.
A)True
B)False
Q4) Precise Parts, Inc., and Quality Auto stores enter into a contract for a sale of auto parts that meet certain specifications. Precise Parts ships goods that do not comply. Quality Auto
A) cannot reject the entire shipment.
B) can reject the entire shipment.
C) must accept the entire shipment.
D) must reject the entire shipment.
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Chapter 23: Warranties
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Q1) If a warranty of infringement is breached and the buyer is sued by the claim holder, the buyer need not notify the seller of the lawsuit.
A)True
B)False
Q2) An action for breach of warranty accrues when the seller or lessor tenders delivery.
A)True
B)False
Q3) To specifically disclaim an implied warranty of merchantability, a seller or lessor must mention the word merchantability.
A)True
B)False
Q4) Express warranties displace inconsistent implied warranties with no exception. A)True
B)False
Q5) Generally, the implied warranties of merchantability and fitness for a particular purpose cannot be disclaimed.
A)True
B)False
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Chapter 24: International and Space Law
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Q1) In direct exporting, a U.S. company signs a sales contract with a foreign purchaser that provides for the conditions of shipment and payment of goods.
A)True
B)False
Q2) The Foreign Sovereign Immunities Act spells out what a "foreign state" includes. A)True
B)False
Q3) A choice-of-law clause in an international contract designates the applicable law. A)True
B)False
Q4) Finance International Inc., a U.S. firm, and Euro Invest, Ltd., a firm based in Great Britain, are parties to a contract with a choice-of-forum clause. The forum specified in the clause must be within the geographic boundaries of A) the United States.
B) Great Britain.
C) none of the choices.
D) any "choice," or superior, forum.
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26
Chapter 25: Negotiable Instruments
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Q1) Refer to Fact Pattern 25-1. With respect to Erin's check, Foodland is
A) the drawee.
B) the drawer.
C) the maker.
D) the payee.
Q2) To be negotiable, an instrument must have portability.
A)True
B)False
Q3) Jane signs an instrument using a "J" with a swirl around it. With this mark for a signature, the instrument is
A) negotiable.
B) not negotiable, because an initial is not state the signer's name.
C) not negotiable, because an initial is not a signature.
D) not negotiable, because an initial is not an indication of serious intent.
Q4) A personal check cannot be a negotiable instrument. A)True
B)False
Q5) A symbol can serve as a valid signature.
A)True
B)False
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Chapter 26: Transferability and Holder in Due Course
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Q1) At 1a.m., on the sidewalk in front of EZ Credit Corporation, which is closed, Frank buys a $500 promissory note for $50 from Greg. When presented with Frank's demand for payment, Diane, the maker of the note, could successfully claim that Frank A) acquired the note with notice that it was overdue.
B) did not acquire the instrument in good faith.
C) did not give value for the instrument.
D) none of the choices.
Q2) Vicenzo, in good faith and for value, gets from Wren a check "payable to the order of bearer." Vicenzo does not know that Wren stole the check. Vicenzo is A) an HDC.
B) not an HDC, because Wren did not acquire the check for value.
C) not an HDC, because Wren did not acquire the check in good faith.
D) not an HDC, because the check is a bearer instrument.
Q3) An instrument payable to two or more persons in the alternative requires the indorsement of both payees for negotiation.
A)True
B)False
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Page 28
Chapter 27: Liability, Defenses, and Discharge
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Q1) One of the transfer warranties is that the instrument has not been altered.
A)True
B)False
Q2) To borrow the money to buy a car, Megan signs a note "payable to the order of Purchase Financing." Olaf cosigns the note to guarantee the repayment of the loan. Olaf's liability on this note is
A) contractual.
B) primary.
C) secondary.
D) qualified.
Q3) Len signs a note "payable to the order of Account Collection Agency." Unless Len has a valid defense against payment, his liability on this note is
A) immediate.
B) imposed only after payment is demanded.
C) postponed until the note is dishonored by the payee.
D) suspended until payment is due.
Q4) An indorser is secondarily liable on an instrument.
A)True
B)False
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Chapter 28: Banking in the Digital Age
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Q1) Misty's debit card, issued by National United Bank, is stolen and used without her permission. She tells the bank within thirty days. She may be required to pay no more than
A) $5.
B) $50.
C) $500.
D) $5,000.
Q2) Only a customer or a person authorized to draw on an account can order a bank not to pay a check when it is presented for payment.
A)True
B)False
Q3) A forged signature is effective as the signature of a drawer to the extent that is resembles the drawer's actual signature.
A)True
B)False
Q4) An agency relationship arises between the customer and the bank when the customer writes a check on his or her account.
A)True
B)False
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Chapter 29: Creditors Rights and Remedies
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Q1) There is no limit to the amount that can be taken from a debtor's weekly take-home pay through garnishment.
A)True
B)False
Q2) Denise borrows $90,000 from Clear Lake Credit Union to buy a home. Denise loses her job and fails to make payments on the mortgage, but assures Clear Lake Credit that she will soon secure a new job. The lender agrees to postpone the payments. This is
A) a right of redemption.
B) a forbearance.
C) a short sale.
D) a workout agreement.
Q3) A creditor's surrender of collateral to a debtor without the guarantor's consent can reduce the guarantor's obligation.
A)True
B)False
Q4) A creditor can demand payment from the surety before the debt is due.
A)True
B)False
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Chapter 30: Secured Transactions
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Q1) Don repays his debt, incurred to buy consumer goods, to EZ Retail Credit and immediately files a written request for a termination statement. EZ
A) must comply within one month of receipt of the letter.
B) must comply within twenty days of receipt of the letter.
C) must refund $500 to Don.
D) need not comply.
Q2) Proceeds are whatever is received when collateral is sold. A)True
B)False
Q3) Gina borrows from Regional Loan Company the funds to buy a car. The car secures the debt. Gina defaults on the loan. Regional takes possession of the car, planning to sell it to recover some of the unpaid debt. Before the creditor sells the car or enters into a contract for its sale, Gina can pay what she owes and take back the car. This is A) a deficiency judgment.
B) a floating lien.
C) the right of redemption.
D) the right of retention.
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Chapter 31: Bankruptcy Law
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Q1) Nora files a petition in bankruptcy. She turns her assets over to O'Brien, who sells them and then distributes the proceeds to Nora's creditors. O'Brien is
A) a preferred creditor.
B) a bankruptcy court judge.
C) a bankruptcy trustee.
D) a DIP (debtor in possession).
Q2) In the distribution of the debtor's estate, unsecured creditors take priority over secured creditors.
A)True
B)False
Q3) A student loan is discharged underChapter 13 unless the creditor can show "undue hardship."
A)True
B)False
Q4) If the assets in a debtor's estate in bankruptcy are insufficient to pay fully all creditors, the debtor is liable for the difference.
A)True
B)False
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Page 33
Chapter 32: Agency Formation and Duties
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Q1) Denny, a certified public accountant and an investor, and Ethel, an insurance salesperson and a realtor, may create an agency relationship for
A) a legal business purpose only.
B) any legal purpose.
C) any purpose.
D) no purpose.
Q2) If work is usually done under the employer's direction, this indicates independent-contractor status.
A)True
B)False
Q3) A familiar example of an agent is the shareholder of a corporation.
A)True
B)False
Q4) Employment laws apply to the employer-independent contractor relationship.
A)True
B)False
Q5) A principal owes an agent a duty of estoppel.
A)True
B)False
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Chapter 33: Agency Liability and Termination
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Q1) Clark hires Dion to act as his agent to purchase Expo Sports Arena, Inc. Clark tells Dion to reveal that he is buying the firm and its assets on behalf of a third party and to tell the seller who that third party is. Clark is
A) a disclosed principal.
B) not a principal.
C) an undisclosed principal.
D) a partially disclosed principal.
Q2) Mirena serves in a representative capacity for Netanya. Orla is injured through Mirena's negligence. Netanya may be liable to Orla if Mirena's conduct occurred
A) due to a propensity Netanya was not and could not have been aware of.
B) during normal working hours.
C) in the course and scope of Mirena's employment.
D) outside the parties' employment relationship.
Q3) Under the doctrine of respondeat superior, an agent is liable for any harm caused to a principal by a third party.
A)True
B)False
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Chapter 34: Employment, Immigration, and Labor Law
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Q1) Employees who are exempt from the federal overtime provisions include manual laborers and other blue-collar workers.
A)True
B)False
Q2) Herberto, Ilena, and Jon apply to work for King Assembly Company in Languor, Mississippi. These individuals' eligibility to work must be verified by A) King managers.
B) none of the choices.
C) Languor officials.
D) U.S. Citizenship and Immigration Services representatives.
Q3) Data Accountants, a private employer, handles bookkeeping for small employers. In most circumstances, with exceptions, federal law clearly prohibits Data from subjecting its employees to
A) job-skills tests.
B) monitoring of business communications.
C) drug tests.
D) lie-detector tests.
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Chapter 35: Employment Discrimination
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Q1) Women affected by pregnancy must be treated the same as other persons not so affected but similar in ability to work.
A)True
B)False
Q2) Sexual harassment occurs when sexual favors are demanded in return for job opportunities.
A)True
B)False
Q3) Oren believes that Power Utility Corporation (PUC) has discriminated against him on the basis of race. He files a suit against PUC under the Civil Rights Act. To establish a prima facie case of employment discrimination, Oren must show that
A) he is a member of a protected class.
B) PUC has no legal defenses against the claim.
C) discriminatory intent motivated PUC's act.
D) no other firm in PUC's industry has committed a discriminatory act.
Q4) Intentional discrimination by an employer against an employee is known as disparate-impact discrimination.
A)True B)False
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Chapter 36: Small Businesses and Franchises
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Q1) The franchise agreement may specify whether the premises for the business must be leased or purchased outright.
A)True
B)False
Q2) Ford is the sole proprietor of Go, a game app subscription service. As a sole proprietor, on the business's profits, Ford pays
A) no income taxes.
B) only personal income taxes.
C) only business income taxes.
D) both personal and business income taxes.
Q3) Some states require the termination of a franchise when there is no "good cause" for it to continue.
A)True
B)False
Q4) In choosing a form of business organization for a new enterprise, important factors include tax considerations.
A)True
B)False
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Chapter 37: All Forms of Partnerships
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Questions
Q1) Nora and Owen do business as Profit & Property, a real estate investment partnership. In acting on the firm's behalf in a deal with Village Mall, Nora takes advantage of an opportunity to make a secret profit on her own behalf. To her firm, Nora is liable for
A) breach of the duty of care.
B) breach of contract.
C) breach of the duty of loyalty.
D) nothing.
Q2) A third party can never sue one of the partners of a partnership without suing all members of the partnership.
A)True
B)False
Q3) Emma is one of three partners in Fast Work, a commercial janitorial service. With respect to her interest in the firm, when she dies, her heirs are most likely entitled to A) nothing.
B) a payout of her capital contribution without more.
C) the buyout price paid by the firm for the interest.
D) one-third of the value of the interest.
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Chapter 38: Limited Liability Companies and Special Business Forms
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Q1) Western Rodeo LLC is a limited liability company (LLC). Like other LLCs, for federal jurisdictional purposes, Western Rodeo is most likely a citizen of
A) all states in the United States.
B) every state of which its members are citizens.
C) any state in which it does business.
D) no state-an LLC is not a "citizen."
Q2) Custom Auto, LLC, is a limited liability company. Its members include Dennis and Emma. Like other LLCs with more than one member, unless indicated otherwise, the firm will automatically be taxed as
A) a person.
B) a corporation.
C) a sole proprietorship.
D) a partnership.
Q3) To form a limited liability company, articles of organization must be filed with the federal Small Business Administration.
A)True
B)False
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Page 40
Chapter 39: Corporate Formation and Financing
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Q1) A foreign corporation normally does not need a certificate of authority to sell goods or services via the Internet.
A)True
B)False
Q2) In the absence of express constitutional, statutory, or other provisions, the corporation has no implied powers.
A)True
B)False
Q3) The articles of incorporation serve as a primary source of authority for a corporation's business operations.
A)True
B)False
Q4) Agents and employees of Deco Arts Corporation and Echo Imitations Inc. are convicted of conspiring to violate a federal law that is punishable by a term of imprisonment and a fine. Can the corporations be held liable for these crimes? If so, how can they be punished?
Q5) Bylaws are the internal rules of management for a corporation.
A)True
B)False
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Chapter 40: Corporate Directors, Officers, and Shareholders
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Q1) The board of Management Consultants, Inc., can delegate some of its responsibilities to
A) the firm's incorporators.
B) the firm's officers.
C) the firm's shareholders.
D) no one.
Q2) Most states do not allow directors to participate in board of directors' meetings from remote locations.
A)True
B)False
Q3) Mike is a shareholder of Natural Gas, Inc. Natural Gas uses cumulative voting to elect directors. This means that the number of Mike's votes is determined by the number of A) years that he has been a shareholder.
B) members of the board to be elected multiplied by the total number of voting shares that he holds.
C) shareholders present at the shareholders' meeting.
D) shareholders' meetings that he has attended.
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Chapter 41: Mergers and Takeovers
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Q1) Only one of the boards of directors of the corporations involved must approve a merger.
A)True
B)False
Q2) Refer to Fact Pattern 41-1. The articles of merger include changes that differ from Hilltop's articles of incorporation. The articles of incorporation
A) are deemed amended to include the changes.
B) are replaced by the articles of merger.
C) effectively prevent the merger.
D) preempt the articles of merge.
Q3) Refer to Fact Pattern 41-2. Unified Resources acquires
A) all of Shale's and Tierra's assets.
B) half of Shale's and Tierra's assets.
C) none of Shale's and Tierra's assets unless there is a formal transfer.
D) only assets that Shale and Tierra acquired after a combination was proposed.
Q4) Refer to Fact Pattern 41-2. The formation of Unified Resources is
A) a consolidation.
B) a merger.
C) a purchase of assets.
D) a share exchange.
Page 43
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Chapter 42: Investor Protection, Insider Trading, and Corporate Governance
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Q1) Refer to Fact Pattern 42-1. If College Bound is exempt from the federal registration requirement, the firm is
A) automatically exempt from any state registration requirement.
B) not subject to any state securities laws.
C) not necessarily exempt under a state registration requirement.
D) automatically subject to all state registration requirements.
Q2) When a security is exempt from the registration requirements, its offering is also exempt from the provisions of the Securities Act of 1933.
A)True
B)False
Q3) State corporation statues set up the legal framework for corporate governance. A)True
B)False
Q4) The Sarbanes-Oxley Act of 2002 attempts to increase corporate accountability by imposing strict disclosure requirements and harsh penalties for securities laws.
A)True
B)False
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Chapter 43: Administrative Agencies
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Q1) The Federal Aviation Administration uses notice-and-comment rulemaking. The final rule in such a proceeding has binding legal effect
A) after a court affirms it.
B) until the next presidential election.
C) once Congress approves it.
D) unless a court overturns it.
Q2) The Merit Systems Protection Board issues a rule. Like other administrative agencies' rules, this rule is as
A) binding as a law passed by Congress.
B) persuasive as an expert's opinion.
C) suggestive as a newspaper's editorial.
D) unenforceable as a salesperson's puffery.
Q3) Organic Frozen Foods Corporation is subject to regulations issued by the Food and Drug Administration, which is a federal agency. These regulations are part of the body of A) administrative law.
B) legislative law.
C) executive law.
D) statutory law.
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Chapter 44: Consumer Law
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Q1) Mouth-Waterin' Treats Company wants to sell its candy in a normal-sized package labeled "Gigantic Size." NuFabrics, Inc., wants to advertise its sweaters as having "That Wool Feel," but does not want to specify on labels that the sweaters are 100 percent polyester. Can these firms market their products as they would like? If not, why not?
Q2) A credit-cardholder is liable for all unauthorized charges made before the creditor is notified that the card has been lost.
A)True B)False
Q3) The Federal Reserve Board of Governors has issued a regulation that governs credit provisions associated with sales contracts-Regulation Z.
A)True
B)False
Q4) The Truth-in-Lending Act applies to persons who, in the ordinary course of their business, lend money, sell on credit, or arrange for the extension of credit.
A)True B)False
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Chapter 45: Environmental Protection
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Q1) Regional Disposal Center operates a recycling plant. Stan and other citizens file a suit, alleging injuries from the plant. To succeed, they must show that the defendant failed to use reasonable care if the suit is based on
A) a negligence theory.
B) a nuisance theory.
C) any theory.
D) a strict liability theory.
Q2) Each supplier of drinking water is required to send an annual statement describing the source to every household it supplies.
A)True
B)False
Q3) Fire Retardants Inc. operates without required pollution control technology, causing a discharge of chemical waste into Green Lake. This can result in
A) a fine.
B) an injunction.
C) imprisonment.
D) all of the choices.
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Chapter 46: Antitrust Law
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Q1) Price discrimination occurs when a seller charges different prices to competing buyers for identical goods or services.
A)True
B)False
Q2) Refer to Fact Pattern 46-1. Pharma pays Renew not to sell its product. This is
A) a market division.
B) a refusal to deal.
C) an exclusive-dealing contract.
D) a price-fixing agreement.
Q3) To prevent its competitors from obtaining sufficient supplies to make their products, Continental Steel, Inc., uses its market power to increase the prices of those supplies. This is
A) price discrimination.
B) business judgment.
C) predatory bidding.
D) predatory pricing.
Q4) The Sherman Act is an example of legislation designed to curb anticompetitive business practices.
A)True
B)False
Page 48
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Chapter 47: Professional Liability and Accountability
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Q1) Commerce Bank files a suit against Drake, its former accountant, alleging constructive fraud. Drake may be held liable
A) if Commerce Bank cannot prove actual fraud.
B) if Drake was grossly negligent in the performance of his duties.
C) only if Drake acted with fraudulent intent.
D) only if Drake impersonated someone who could be liable for fraud.
Q2) Root & Branch is a Registered Public Accounting Firm. Root & Branch performs auditing services for Sales & Service Company. Under the Sarbanes-Oxley Act, at the same time, for the same company, Root & Branch can also perform
A) bookkeeping.
B) none of the choices.
C) appraisal services.
D) financial systems design.
Q3) Miriam is an accountant. Natalie is an attorney. Which professional is most restricted from disclosing her or his client's communication?
Q4) The competency of professionals' service is never an issue.
A)True
B)False
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Chapter 48: Personal Property and Bailments
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Q1) Paca is declared mentally incompetent. Quelita, Paca's friend, insists that Paca transfer her assets to Quelita "for safekeeping." If Paca makes this "gift," a court might conclude that it is not effective on the ground that there was no
A) acceptance by the donee.
B) constructive delivery.
C) donative intent.
D) relinquishment of control.
Q2) What is required to transfer or acquire property is determined by whether the property is classified as tangible or intangible.
A)True
B)False
Q3) Constructive delivery is not necessary for gifts of intangible personal property. A)True B)False
Q4) A gift is a voluntary transfer of property ownership for which consideration is given. A)True B)False
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Chapter 49: Real Property and Landlord-Tenant Law
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Q1) Janice lives in Kendall's mountain cabin without paying rent. This is
A) a fixed-term tenancy.
B) a tenancy at will.
C) an illegal tenancy.
D) a periodic tenancy.
Q2) Rod possesses five hundred acres of forested property. He has the right to use the land, including cutting its timber, for life. He also has the right to lease the land for a period not to exceed his life. This ownership interest is
A) a fee simple absolute.
B) a leasehold estate.
C) a life estate.
D) an easement.
Q3) Tropic Breeze Residences, Inc., owns apartment buildings. Suki leases one of Tropic Breeze's apartments. Suki's transfer of her interest in the lease to Vito for a period shorter than the lease term is
A) an assignment.
B) a violation of the law.
C) a periodic tenancy.
D) a sublease.
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Page 51
Chapter 50: Insurance
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Q1) Federal law determines the status of all parties writing insurance.
A)True
B)False
Q2) Ricky obtains an insurance policy from Security Insurance, Inc. The policy provides that on Ricky's death Security will pay $500,000 to Tori, Ricky's spouse and beneficiary. This is
A) health insurance.
B) key-person insurance.
C) life insurance.
D) disability insurance.
Q3) Organic Produce Company obtains an insurance policy to protect against losses incurred by the firm as a result of being held liable for personal injuries or property damage sustained by others. This is
A) casualty insurance.
B) fire insurance.
C) life insurance.
D) malpractice insurance.
Q4) An applicant for an insurance policy is called an underwriter. A)True B)False
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Chapter 51: Wills and Trusts
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Q1) A divorce necessarily revokes an entire will.
A)True
B)False
Q2) According to the terms of Carmen's will, specific gifts are made, and taxes and other estate expenses and debts are paid. The assets of Carmen's estate that remain are most likely to be distributed
A) by codicil.
B) holographically.
C) per capita.
D) through a residuary clause.
Q3) In an abatement, the legatees receive increased benefits.
A)True
B)False
Q4) The debts of a decedent must be satisfied out of his or her estate.
A)True
B)False
Q5) A married person who makes a will generally cannot avoid leaving a certain portion of the estate to the surviving spouse.
A)True
B)False
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Chapter 52: The Legal Environment of Business
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Q1) Bailey patents a device that allows its user to pretend to imitate the ability of a superhero copyrighted by Comic Cons, Inc. Bailey and Comic Con enter into a licensing agreement to make and sell the device as a toy to the public. Under the terms of the license, the licensee agrees to pay Bailey royalties of 4 percent. Their contract does not specify an end date. According to a majority of the United States Supreme Court in Kimble v. Marvel Entertainment, LLC, Comic Con can legally stop the payments
A) immediately.
B) never.
C) when the copyright expires.
D) when the patent expires.
Q2) Perry, a process server, cannot locate Quinn, the defendant in Rebecca v. Quinn, to serve him with the summons. Perry's legal and effective options for serving process include delivering the summons
A) as an attachment in an e-mail to Rebecca.
B) through a private message to Quinn's Facebook account.
C) via any means over the internet to Facebook.
D) by posting it on any social media forum that Quinn is known to visit.
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Chapter 53: Torts and Crimes
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Q1) USA Sales Company publishes a "Privacy Policy" to attract customers, but fails to invest adequate resources in cyber security. A lack of security that allows hackers to steal customers' personal data from a business's computer system can be
A) the hackers' defense to criminal charges.
B) the ground for a suit by the Federal Trade Commission.
C) the basis for USA's recovery under a traditional insurance policy.
D) a source of bad publicity, but there are no other consequences.
Q2) Pay-to-Buy.com, Inc. obtains a patent on an online payment system. The patent is vaguely worded and overly broad. In evaluating the patent, a court is most likely to
A) have difficulty, resulting in Pay-to-Buy being targeted by patent trolls.
B) apply the patent broadly.
C) issue a vaguely worded protection order.
D) hold that Pay-to-Buy's business practices are illegal.
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Chapter 54: Contracts and E-Contracts
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Q1) Nora contracts with Odell to sell land that, unknown to either party, has groundwater contaminated from adjacent land that was occupied several decades earlier by a paper pulp processing plant. When this is discovered, Nora asserts the doctrine of commercial impracticability. This doctrine applies only when, with respect to an event that renders performance impossible, at the time the contract was formed the parties
A) could not have reasonably foreseen the supervening event.
B) could have reasonably foreseen the supervening event.
C) should have foreseen the supervening event, reasonable or not.
D) should not have foreseen any supervening events.
Q2) Linda enters into a contract for a credit card sponsored by Max'dOut Inc. The sponsor provides the contract, which contains an arbitration clause. This clause requires that any dispute must be submitted to private arbitration and prohibits class-action litigation. Under new rules sought by the Consumer Financial Protection Bureau, such clauses would be
A) prohibited.
B) favored in contracts for credit cards and other financial products.
C) favored in all consumer contracts.
D) favored for all disputes involving relatively small sums.
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Page 56
Chapter 55: Domestic and International Sales and Lease Contracts
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Q1) National Sales Company and Omni Supply Corporation are businesses located in different countries. Representatives of National Sales and Omni Supply transact a deal over their cellphones. Under the United Nations Convention on the Use of Electronic Communications in International Trade (ECC), which National Sales's country has adopted, this deal is
A) as valid and enforceable as a contract on paper.
B) invalid because Omni Supply's country has not adopted the ECC.
C) invalid because it is not a contract on paper.
D) invalid because the businesses are located in different countries.
Q2) Home Grown Inc. is a firm based in the United States that does business overseas. When entering into a business contract, when deciding which terms to include, and when choosing a method to resolve a dispute, Home Grown should
A) rely solely on legal principles rather than the business relationship.
B) assume that a party in another country has the same contractual expectations as a party in the United States.
C) be alert to cultural influences.
D) stay inflexible in the face of others' social and cultural practices.
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Page 57
Chapter 56: Negotiable Instruments
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Q1) Apple Pay and other phone-based payment systems enable mobile devices to A) link from a digital wallet to another app within a single phone.
B) entail more security risks than carrying a physical wallet.
C) communicate wirelessly with point-of-sale systems.
D) work with existing magnetic-strip credit-card machines.
Q2) Virtual currency has legitimate uses. Laws that apply to virtual currency include all of the following except
A) federal registration requirements.
B) state licensing requirements.
C) the proposed uniform Regulation of Virtual Currencies Act.
D) the Federal Deposit Insurance Corporation regulations.
Q3) Transactions in virtual currency do not require financial institutions, and can be conducted anonymously. With these features of virtual currency in mind, the most ethical action a user can take is to
A) protect himself or herself.
B) avoid the use of virtual currency entirely.
C) use virtual currency exclusively.
D) take advantage of those who are not aware of how virtual currency is used.
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Chapter 57: Creditors Rights and Bankruptcy
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Q1) Maria borrows funds through the U.S. Department of Education (DOE) to pay for her education. She defaults on the loan. In some states
A) any of the choices.
B) a lien can be placed on the debtor's real property to pay the debt.
C) the debt can be collected by garnishment of the debtor's bank account.
D) the debtor's professional license can be revoked.
Q2) Deb defaults on her debt to EZ Credit Company. The lender obtains a judgment against Deb, who quickly moves to another state. The judgment is domesticated in Deb's new location. If the lifespan of the judgment lapses before it can be collected, the domestication
A) also lapses.
B) may be subject to garnishment.
C) can be renewed.
D) must be frozen.
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Chapter 58: Agency and Employment
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Sample Questions
Q1) The Patient Protection and Affordable Care Act sets forth responsibilities and benefits for businesses and their employees with respect to health care and insurance. Small businesses-those with fewer than fifty full-time employees-are
A) required to offer their employees health insurance.
B) subject to minimum standards on health plans offered to employees.
C) required to contribute to the premium for an employee's private plan.
D) eligible for "Marketplace Coverage Options."
Q2) Rob, a taxi driver for Swift Cab Company, and other cabdrivers file a suit in a Texas state court against Uber, alleging unfair competition. If the result in this suit is like the result in similar suits, the court will most likely rule in favor of A) Rob.
B) Swift Cab.
C) the state of Texas.
D) Uber.
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Chapter 59: Business Organizations
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Sample Questions
Q1) Flo and Gil are general partners in High Finance, a limited partnership. Without Flo's knowledge or consent, Gil defrauds potential investors into buying limited partnerships in the firm and steals the amounts of their investments. In a suit by those partners against Flo to recover for their losses, she is most likely liable
A) if the investors are viewed as innocent third parties.
B) if the investors are construed as limited partners.
C) under any circumstances.
D) under no circumstances.
Q2) Rick forms Study Groups Inc. to start a social media site online. He selects Takeaway as the domain name. Responsible for coordinating databases related to namespaces online
A) are the Web hosts of online businesses.
B) is the U.S. Copyright Office.
C) is the U.S. Patent and Trademark Office.
D) is the Internet Corporation for Assigned Names and Numbers.
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Chapter 60: Government Regulation
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Q1) To reduce the emission of greenhouse gases through the use of motor vehicle and transportation fuels, the federal government
A) imposes emission standards on cars and trucks.
B) encourages the use of fuel-efficient vehicles.
C) encourages the use of alternative fuels.
D) all of the choices.
Q2) The European Union has charged Google Inc. with an antitrust violation-promoting its comparison-shopping service at the expense of its competitors. Google's best defense against this charge is that
A) "Google" has become a verb synonymous with conducting a search.
B) search engines have proliferated on the Web.
C) Google is abusing its dominant position.
D) Google prominently displays its service in its general search results.
Q3) The effects of climate change can be lessened by a reduction in greenhouse gases (GHGs). With this purpose in mind, GHG emission goals have been set by
A) about half a dozen states.
B) about a dozen states.
C) about half of the states.
D) nearly all of the states.
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Page 62
Chapter 61: Property and Its Protection
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Q1) According to the United States Supreme Court,
A) Metro City can take a parking lot for a privately owned sports stadium.
B) all of the choices.
C) Laborville can condemn a vacant field for a private manufacturing plant.
D) Sleepyton can take residential property for a private corporate complex.
Q2) Kim and Larry own Moe's, a successful restaurant. Kim, who is married, asks Larry, her unmarried partner, to convert Moe's to a limited liability company and agree that each has the right to buy the other's interest to keep control of the business. In terms of Kim's spouse and Larry's future spouse, this agreement is
A) illegal and unethical.
B) illegal, but not unethical.
C) legal, but unethical.
D) legal and ethical.
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