Corporate Law
Exam Answer Key
Course Introduction
Corporate Law provides an in-depth examination of the legal principles governing the formation, operation, and regulation of corporations. The course covers topics such as corporate personality, the rights and duties of directors and shareholders, corporate governance, financing, mergers and acquisitions, and the role of regulatory bodies. Students will analyze key statutes, case law, and contemporary issues affecting corporations, including ethical considerations and corporate social responsibility. By exploring both theoretical frameworks and practical applications, the course equips students with the knowledge necessary to understand complex corporate structures and the legal challenges businesses face in todays dynamic environment.
Recommended Textbook
Business Law Text and Cases 14th Edition by
Kenneth W. Clarkson
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Chapter 1: Law and Legal Reasoning
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Q1) Many different laws may affect a single business transaction.
A)True
B)False
Answer: True
Q2) Constitutional law includes only the U.S. Constitution.
A)True
B)False Answer: False
Q3) Administrative law consists of the rules, orders, and decisions of administrative agencies.
A)True
B)False
Answer: True
Q4) Administrative law is a source of American law that is consists of statutes.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Courts and Alternative Dispute Resolution
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Q1) All Bikes, Inc., a firm in Wisconsin, advertises on the Web. A court in Ohio would be most likely to exercise jurisdiction over All Bikes if the firm
A) did substantial business with Ohio residents over the Internet.
B) interacted with any Ohio resident through its Web site.
C) only engaged in passive advertising on the Web.
D) suddenly removed its ad from the Internet.
Answer: A
Q2) No court offers mediation as an option before a case goes to trial.
A)True
B)False
Answer: False
Q3) The Montana Supreme Court rules against Natural Grocery Mart in a case against One Stop 2 Shop Stores, Inc. Natural Grocery files an appeal with the United States Supreme Court. The Court does not hear the case. This A) is a decision on the merits that has value as a precedent.
B) indicates agreement with the Montana court's decision.
C) means nothing.
D) means that the Montana court's decision is the law in Montana.
Answer: D
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Page 4
Chapter 3: Court Procedures
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Q1) Sweet Lemonade, Inc., disputes the use of "sweet-lemonade.com" as a domain name by Sweet Citrus Beverages, Ltd., and files a suit to resolve the dispute. Service of process must be by
A) e-mail.
B) personal delivery.
C) regular mail.
D) whatever means is reasonably calculated to do the job.
Answer: D
Q2) Only a defendant may file a motion for summary judgment.
A)True
B)False
Answer: False
Q3) Kent's witness Lois is not an expert in the matter about which she is being questioned. Lois can
A) testify about any of the facts in the case.
B) testify only about what she personally observed.
C) offer her opinion about any of the evidence.
D) offer her conclusion with regard to the case.
Answer: B
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Page 5
Chapter 4: Business and the Constitution
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Q1) A federal law requires public libraries to install filtering software on computers to prevent children from accessing adult content online. This law
A) is expressly prohibited by the Constitution.
B) does no substantially burden free speech.
C) is subject to reasonable restrictions under the due process clause.
D) is given strict scrutiny under the equal protection clause.
Q2) The First Amendment prevents limits from being placed on independent political expenditures by corporations.
A)True
B)False
Q3) All powers not specifically delegated to the federal government are reserved to the states.
A)True
B)False
Q4) Some constitutional protections apply to business entities.
A)True
B)False
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Chapter 5: Business Ethics
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Q1) Flexo Trucking Company transports hazardous waste. Garn is a Flexo driver, whom the company knows drives longer hours than federal regulations permit. One night, Garn exceeds the limit and has an accident. Spilled chemicals contaminate Hill City's water source, forcing the residents to move away. Flexo acted unethically because
A) Flexo showed reckless disregard for Hill City's residents and others.
B) Garn exceeded the federal time limit.
C) harm was caused by an unfortunate accident.
D) Hill City should have better protected its water source.
Q2) Few companies provide any kind of support such as ethical training programs to make their ethical codes more effective.
A)True
B)False
Q3) Focusing on a firm's short-run profits without considering the company's longterm needs may be acting unethically.
A)True
B)False
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Chapter 6: Tort Law
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Q1) A tortfeasor is one who wrongfully alleges that a tort has been committed.
A)True
B)False
Q2) Robin is a spectator at State Tennis Tournament, an athletic competition. Regarding the risk of injury, Robin assumes the risks A) attributable to the tournament in any way. B) different from the risks normally associated with the tournament. C) greater than the risks normally associated with the tournament. D) normally associated with the tournament.
Q3) Manuel is walking past Tomas's house when he hears a smoke alarm going off. He also hears a child calling for help and sees smoke coming from a window. Manuel rushes into Tomas's house, finds the child and brings it outside. If Tomas sues Manuel for trespass to land, Manuel's defense will probably be A) assisting someone in danger.
B) consent.
C) self-defense.
D) the reasonable person defense.
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Chapter 7: Strict Liability and Product Liability
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Q1) Ceramics Corporation makes ceramic products for commercial uses, including heat-resistant tiles for industrial ovens. When damage occurs in an oven at Dura-mold, Inc., liability may be imposed on Ceramics if the tiles sold to Dura-mold were A) in perfect condition at the time of their sale.
B) damaged by their use.
C) substantially changed after their sale.
D) in a defective condition that was the proximate cause of the damage.
Q2) Eco Products, Inc., makes espresso machines and sells one to Fresh Roast Café. Gus, a café' employee, is injured when the machine malfunctions. If the injury occurred as a result of a misrepresentation about the product, Eco is most likely liable for A) negligence.
B) fraud.
C) privity.
D) puffery.
Q3) Some courts consider the negligent actions of both the plaintiff and the defendant when apportioning liability in a product liability action.
A)True
B)False
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Chapter 8: Intellectual Property Rights
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Sample Questions
Q1) Like most successful companies, Pads & Phones, Inc. (P&P), has trade secrets. The law protects those secrets if
A) P&P employees do not divulge the information to outside parties.
B) P&P employees do not handle confidential documents.
C) P&P employees never leave the company's employ.
D) the information is unique and has value to a competitor.
Q2) The theft of trade secrets is a federal crime.
A)True
B)False
Q3) Creation Worx, Inc., develops, makes, and markets new computer programs for businesses and consumers. Generally, copyright protection extends to
A) all aspects of the software.
B) the "look and feel" of the software.
C) those parts of the software that can be read by humans.
D) all of the choices.
Q4) The Anti-Counterfeiting Trade Agreement applies to pirated, copyrighted works being distributed via the Internet.
A)True
B)False
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Chapter 9: Internet Law, Social Media, and Privacy
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Q1) Employees' posts on social media may be protected under labor law.
A)True
B)False
Q2) Refer to Fact Pattern 9-2. Call&Talk's use of the domain name "callltalk," without CallTalk's authorization, to sell pornographic phone conversations, is A) a legitimate marketing technique.
B) a fair use.
C) a license.
D) trademark dilution.
Q3) Social media posts are routinely included in discovery in litigation.
A)True
B)False
Q4) Jason transfers select copyrighted music recordings, without the copyright owners' authorization, through his computer and phone to his friends. Jason does not charge his friends for his "service." This is
A) copyright infringement.
B) a license.
C) goodwill.
D) "fair use."
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Chapter 10: Criminal Law and Cyber Crime
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Q1) Jade puts up a collection of sports memorabilia for bids on BuyBuy, an Internet auction site. Khalil makes the highest bid and sends the payment, which Jade receives, but she does not send the collection. This is online
A) hacking.
B) identity theft.
C) phishing.
D) cyber fraud.
Q2) Corporations, like persons, can be liable for crimes.
A)True
B)False
Q3) Bev wrongfully takes an unopened carton from a Cold Storage Warehouse loading dock, puts the carton in her car, and drives away. This is A) robbery.
B) forgery.
C) larceny.
D) no crime.
Q4) A misdemeanor is a crime punishable only by a fine.
A)True
B)False
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Chapter 11: Nature and Terminology
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Q1) Foster promises to buy Gideon's trumpet for $75. Gideon is A) an offeree.
B) an offeror.
C) a promisee.
D) a promisor.
Q2) Lark promises to buy Mac's used textbook for $60. Lark is A) an executor.
B) an offeree.
C) a promisee.
D) a promisor.
Q3) A unilateral contract is formed at the moment when the contract is performed.
A)True
B)False
Q4) If a contractual promise is not fulfilled, the person who made it may be required to perform the promised act.
A)True
B)False
Q5) An offeree is a person who makes an offer. A)True
B)False
Page 13
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Chapter 12: Agreement in Traditional and E-Contracts
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Q1) Lauren files a suit against Moving Service for breach of contract, based on what Lauren claims was Moving's offer. For a court to determine if a contract has been breached, under the common law, the offer must include terms that are A) exactly precise.
B) reasonably definite.
C) unequivocally approximate. D) vague or uncertain.
Q2) Shelby offers to make digital copies of Relay Company's business conference videotapes, CDs, DVDs, and other media for $500. Under the mailbox rule, Relay's acceptance by e-mail will be considered effective when A) received.
B) sent.
C) followed up by a confirmation letter sent by regular mail. D) composed on a Relay computer.
Q3) An offer does not need to be communicated to the offeree to become effective. A)True B)False
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Chapter 13: Consideration
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Q1) A release is an agreement in which one party gives up the right to pursue a legal claim against another party.
A)True B)False
Q2) In a covenant not to sue, the parties substitute a contractual obligation for some other type of action.
A)True B)False
Q3) Stephen offers Theresa $1,000 for her collection of rare coins. She accepts. If a dispute arises, a court would likely
A) enforce the deal after questioning the adequacy of consideration.
B) not question the adequacy of the consideration.
C) rewrite the deal after questioning the adequacy of consideration.
D) set aside the deal after questioning the adequacy of consideration.
Q4) If, during the performance of a contract, extraordinary difficulties arise that were totally unforeseen at the time the contract was formed, a court may allow an exception to the preexisting duty rule.
A)True B)False
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Chapter 14: Capacity and Legality
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Q1) Holly, a real estate broker licensed only in Iowa, concludes a sale of farmland in Illinois. Holly can
A) collect the commission if it has not been paid.
B) keep the commission if it has already been paid.
C) foreclose on the property to obtain any unpaid amount.
D) none of the choices.
Q2) A contract entered into by a mentally incompetent person can be valid if the person had capacity at the time the contract was formed.
A)True
B)False
Q3) At age seventeen, Eve enters into a contract with Fit Health Club. Two years later, when Eve attempts to disaffirm the contract, Fit files a suit against her. The court will most likely consider the contract ratified if it is A) executed.
B) executory.
C) disaffirmed.
D) rescinded.
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Chapter 15: Mistakes, Fraud, and Voluntary Consent
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Q1) Courts may award punitive damages in fraud actions.
A)True
B)False
Q2) A material fact is a fact that is important to the subject matter of a contract.
A)True
B)False
Q3) A mistake of fact cannot be unilateral.
A)True
B)False
Q4) A price quotation with a mistake in the adding of a number of figures will never render a contract unenforceable.
A)True
B)False
Q5) An innocent party does not need to suffer an injury to collect damages as a result of a misrepresentation.
A)True
B)False
Q6) Misrepresentation cannot occur by silence.
A)True
B)False
Page 17
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Chapter 16: The Writing Requirement in Our Digital World
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Q1) A contract must be in writing to be enforceable if its performance is impossible within one year.
A)True
B)False
Q2) Maya and Nick enter into a contract. To be enforceable, the contract must include
A) no particular signatures.
B) the signatures of both Maya and Nick.
C) the signature of the party against whom enforcement is sought.
D) the signature of the party who is seeking enforcement.
Q3) All states require certain types of contracts to be in writing.
A)True
B)False
Q4) A contract that is otherwise valid is enforceable even if it is not in the proper form. 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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Q1) Pico, a famous chef, agrees to give ten culinary lessons to Rhoda in exchange for $1,200. Pico's attempt to transfer his contract duties to Sven, an unknown sous-chef, will probably be
A) permitted because contracts may be freely delegated.
B) permitted because the contract is concerned with cookery.
C) prohibited because contracts may not be freely delegated.
D) prohibited if Pico and Sven have different skill levels.
Q2) Giving notice is legally necessary to establish the validity of an assignment. A)True
B)False
Q3) Retail Outlets, Inc., contracts with Smooth Paving Inc. to grade and pave a parking lot. Smooth assigns the contract to Tough Road Company, which has a poor record of completing projects. Retail could most successfully argue that the contract cannot be assigned because
A) Retail did not consent to the assignment.
B) Retail did not receive adequate consideration for the assignment.
C) the assignment will materially increase the risk of nonperformance.
D) Tough Road was not an original party to the deal.
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Chapter 18: Performance and Discharge
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Questions
Q1) Renee contracts with Scott to pay him $25,000 for his work on Renee's new album "Hip Pop." After Scott performs, they sign an accord, in which Renee promises to pay him $21,000 within thirty days instead of $25,000 later. But she does not pay. Scott can sue Renee on
A) neither the accord nor the original obligation.
B) the accord only.
C) the accord or the original obligation.
D) the original obligation only.
Q2) Anticipatory repudiation discharges the repudiating party's obligations under a contract.
A)True
B)False
Q3) Ralph agrees to lease an apartment from Susan for one day to see Thomas, the president of the United States, deliver a speech in the street below. The speech is canceled three days before its scheduled date. The contract is A) discharged.
B) not affected in terms of Ralph's obligation to pay Susan. C) postponed until another event is scheduled.
D) breached.
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Page 20
Chapter 19: Breach of Contract and Remedies
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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) Consequential damages are awarded for damage caused by special circumstances beyond a contract itself.
A)True
B)False
Q3) A liquidated damages provision specifies that a certain amount is to be paid on a breach of contract when the nonbreaching party elects to receive cash. A)True
B)False
Q4) The measure of compensatory damages often varies by type of contract. A)True
B)False
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Chapter 20: The Formation of Sales and Lease Contracts
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Q1) 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
Q2) Jack sells a grand piano to Kyle for $5,000 and a gold ring to Lauren for $999. A writing is required to enforce the sale of
A) the piano only.
B) the piano and the gold ring.
C) neither the piano nor the gold ring.
D) the gold ring only.
Q3) The UCC requires a contract modification to be supported by new consideration.
A)True
B)False
Q4) Manufacturing Corporation orders twelve safety videos from Productions, Inc., which delivers the videos. This is most likely
A) a gift.
B) a lease of goods.
C) a sale of goods.
D) a service contract.
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Chapter 21: Title, Risk, and Insurable Interest
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Q1) When the risk of loss for goods passes from a seller to a buyer is generally determined by the contract between the parties.
A)True
B)False
Q2) If a buyer accepts a shipment of goods and later discovers a defect, acceptance cannot be revoked.
A)True
B)False
Q3) Commercial Rents Corporation agrees to lease a pressure washer to Delivery Trucks, Inc., which agrees to pick it up at E Street Warehouse. Before Delivery Trucks retrieves the washer, it is stolen. The loss is suffered by
A) Commercial Rents.
B) Delivery Trucks.
C) E Street Warehouse.
D) the thief.
Q4) In a sale or return, a buyer has an option to return the goods and undo the sale.
A)True
B)False
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Chapter 22: Performance and Breach of Sales and Lease Contracts
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Q1) Under the perfect tender rule, if tender is not perfect, the seller is obligated to try again.
A)True
B)False
Q2) Medical Supply Company and Health Care, Inc., enter into a contract for a sale of medical equipment and supplies. Under either a shipment contract or a destination contract, the seller must
A) allow the buyer to reject the goods for any reason.
B) deliver the goods to a particular destination.
C) place the goods into the hands of a carrier.
D) give the buyer any necessary documents of title.
Q3) With an installment contract, a buyer or lessee can reject a single installment on any pretext.
A)True
B)False
Q4) If either the goods or their tender fails to conform to the contract in any respect, the buyer or lessee must reject all of the goods.
A)True
B)False
24
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Chapter 23: Warranties
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Q1) Express warranties can be found in a seller's samples.
A)True
B)False
Q2) Construction Products Company and Dante enter into a contract for a sale of bricks and stones. Construction Products knows the purpose for which Dante will use the goods. Under the UCC, an implied warranty of fitness of a particular purpose arises
A) if the buyer is relying on the seller to select suitable goods.
B) if the buyer asks for it.
C) if the seller is a merchant who deals in goods of the kind sold.
D) in conjunction with lease contracts, not sales contracts.
Q3) Vehicle Wholesale Company and Walt's Retail Motors enter into a contract for a sale of used cars. Vehicle Wholesale assures Walt's that it has valid title to the vehicles. Under the UCC, warranties of title arise
A) automatically in most sales contracts.
B) only if the buyer asks for such a warranty.
C) only if the seller expresses such a warranty.
D) only in conjunction with lease contracts, not sales contracts.
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Page 25
Chapter 24: International and Space Law
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Q1) A choice-of-law clause in an international contract designates the applicable law.
A)True
B)False
Q2) Expropriation occurs when a government seizes private property for a proper public purpose and awards just compensation.
A)True
B)False
Q3) Star Flights Inc. launches exploratory and commercial space flights from its base in the United States. In the event of a collision with other space objects, under the Outer Space Treaty, liability for injury or damage
A) is to be assumed by all involved parties equitably
B) is strict liability-that is, liability without fault.
C) is subject to a determination of fault.
D) does not exist.
Q4) Confiscation occurs when a government seizes private property for an illegal purpose or without just compensation.
A)True
B)False
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Chapter 25: Negotiable Instruments
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Q1) For an instrument to be negotiable, the word "negotiable" must appear on it.
A)True
B)False
Q2) To be negotiable, an instrument must have portability.
A)True
B)False
Q3) Bart, the owner of Clear Cut Corporation, signs an instrument that includes the phrase "payment for this note will be made from the proceeds of next year's timber sale." This instrument is
A) negotiable.
B) nonnegotiable, because payment can be made only out of a particular source.
C) nonnegotiable, because it states an express condition to payment.
D) nonnegotiable, because the reasons for the note are not clear on its face.
Q4) With respect to negotiability, the location of a signature on a document is important.
A)True
B)False
Q5) An undated instrument cannot be negotiable.
A)True
B)False
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Chapter 26: Transferability and Holder in Due Course
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Q1) On the back of a check payable to Nero, he writes "Pay to Odell, without recourse" and signs it. This
A) does not effect the check's negotiability or any party's liability.
B) relieves Nero of liability on the check.
C) relieves Odell of liability on the check.
D) renders the check nonnegotiable.
Q2) Dan signs a check payable to Ed, who indorses the back, gives it to Foodway Market, and receives cash. The transfer of the check from Dan to Ed is
A) an assignment.
B) a negotiation.
C) none of the choices.
D) a sale.
Q3) Lindsey, an accountant for Madison & Monroe, acquires a negotiable instrument from Norma by promising to pay its face value in thirty days. Lindsey acquires the status of an HDC when she
A) acquires possession of the negotiable instrument.
B) promises to pay the face value due on the instrument.
C) pays the face value due on the instrument.
D) transfers the instrument to another party.
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Page 28
Chapter 27: Liability, Defenses, and Discharge
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Q1) Under the fictitious payee rule, an innocent holder can hold the maker or drawer liable on the instrument.
A)True
B)False
Q2) To properly present a draft for payment, a holder must present it to the drawer.
A)True
B)False
Q3) 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.
Q4) An ordinary holder can recover nothing on an instrument that has been materially altered.
A)True
B)False
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Chapter 28: Banking in the Digital Age
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Q1) A bank is not obligated to pay an uncertified check presented less than six months from its date.
A)True
B)False
Q2) The rights and duties of a bank and its customer are contractual.
A)True
B)False
Q3) The first bank to receive a check for payment is the intermediary bank.
A)True
B)False
Q4) A substitute check is a paper reproduction of an original check without all of the information required on checks for automated processing.
A)True
B)False
Q5) When a customer deposits cash into a checking account, he or she becomes a debtor for the amount deposited.
A)True
B)False
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Chapter 29: Creditors Rights and Remedies
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Q1) In a suretyship relationship, a third person's credit becomes the security for a debt.
A)True
B)False
Q2) Jay is a surety for Karen's loan from Little Bank. Jay's right to be reimbursed by Karen after having paid her debt is the right of A) contribution.
B) redemption.
C) reimbursement.
D) subrogation.
Q3) A defaulting debtor cannot redeem nonexempt property before a sale under a writ of execution.
A)True
B)False
Q4) In a few states, statutes allow the homestead exemption only if the judgment debtor has a family.
A)True
B)False
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31
Chapter 30: Secured Transactions
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Q1) Lena borrows from Mac and Nicole, using the same collateral for both loans. Only Nicole has a perfected security interest. Lena defaults on both loans. The party with first rights to the collateral is
A) Lena.
B) Mac and Nicole, in proportion to Lena's debt to each.
C) Mac only.
D) Nicole only.
Q2) Brass & Woodwind Instruments, Inc., allows Clifton to keep a professional clarinet that he bought from Brass & Woodwind even though he has not paid the full price. Brass & Woodwind's legally sufficient financing statement in the goods need not include
A) a description of the collateral.
B) a statement of the reason for allowing Clifton to take the goods.
C) Brass & Woodwind's name.
D) Clifton's name.
Q3) In most situations, the state office in which a financing statement should be filed depends on the location of the collateral.
A)True
B)False
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Chapter 31: Bankruptcy Law
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Q1) For individual debtors, the plan in a reorganization case must be completed before a discharge will be granted.
A)True
B)False
Q2) Farrah buys a car from Go Motors, financing the purchase through a loan. Less than a year later, she files for bankruptcy underChapter 13. Her plan must provide that Go has a lien on the car until the entire debt is paid
A) under no circumstances.
B) if Go extended credit for all or part of the purchase price of the car.
C) if any of the loan for the car remains unpaid, regardless of the creditor.
D) if her other creditors do not object.
Q3) 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).
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Page 33
Chapter 32: Agency Formation and Duties
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Q1) When the principal-agent relationship is not contractual, the agent has no right to specific performance.
A)True
B)False
Q2) Unless an agent does not act in exchange for payment, the principal must pay the agreed-on value for the agent's services.
A)True
B)False
Q3) The agent has the right to a safe working environment.
A)True
B)False
Q4) Normally, employees who deal with third parties are deemed to be agents.
A)True
B)False
Q5) Refer to Fact Pattern 32-1. With respect to third parties, Nadine is Pumps's A) employee, agent, and independent contractor.
B) employee and agent.
C) employee but not agent.
D) independent contractor.
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Chapter 33: Agency Liability and Termination
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Q1) A principal is not normally liable for the crime of an agent committed within the scope of the agency or employment.
A)True
B)False
Q2) Avis is an officer of Budget Building Corporation. With respect to binding Budget to contracts, Avis's authority
A) may be actual or apparent.
B) must be actual and apparent.
C) must be actual and not apparent.
D) cannot be actual or apparent.
Q3) Orin hires Pat, a real estate broker, to sell her oceanfront house. The house is destroyed in a hurricane before being sold. Pat is Orin's agent
A) until Orin's insurer pays Pat's commission.
B) until the destroyed house is sold.
C) until the destroyed house is rebuilt and sold.
D) no more.
Q4) Vicarious liability is indirect liability.
A)True
B)False
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Chapter 34: Employment, Immigration, and Labor Law
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Q1) Leon, Mia, Nestor, and Orina are employees of different-sized employers in different industries. Under the Fair Labor Standards Act, all employees in covered industries must be paid per hour
A) a minimum wage.
B) a maximum wage.
C) overtime pay.
D) the same amount.
Q2) Motor Vehicle Assembly Corporation operates a plant near the border between the United States and Mexico. Due to the location, it would be easier for the company to employ noncitizens. In this circumstance, it is legal for a U.S. employer to
A) hire persons not authorized to work in the United States.
B) recruit persons not authorized to work in the United States.
C) refer for a fee persons not authorized to work in the United States.
D) none of the choices.
Q3) Any employee who works more than six hours per day must be paid overtime.
A)True
B)False
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Chapter 35: Employment Discrimination
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Q1) 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.
Q2) The Americans with Disabilities Act requires that employees with disabilities who cannot reasonably accommodate the needs of their employers are not qualified for the work.
A)True
B)False
Q3) Laura is the only female employee in the maintenance department of Motor Vehicle Sales & Service Inc. Her supervisor and co-workers tease and play tricks on her so relentlessly that she feels compelled to quit. This is
A) a constructive discharge on the basis of gender discrimination.
B) a harassing discharge on the basis of treatment discrimination.
C) a voluntary discharge on the basis of impact discrimination.
D) none of the choices.
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Page 37
Chapter 36: Small Businesses and Franchises
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Q1) State deceptive trade practices acts apply to actions by franchisors.
A)True
B)False
Q2) Savory Sandwiches LLC wants to present information in "disclosure documents" via the Internet to prospective franchisees. Among other legal requirements with which the franchisor must comply, prospective franchisees must
A) agree to settle any lawsuits that may arise over the documents.
B) be able to download or save all electronic documents.
C) provide e-mail addresses for Level Fencing to verify users' authenticity.
D) register with the Federal Trade Commission via Level Fencing's Web site.
Q3) Soup Factory, Inc., uses a Web site to provide downloadable information to prospective franchisees. This electronic information is the equivalent of an offer that must comply with A) no law.
B) federal antitrust laws.
C) the Federal Trade Commission's Franchise Rule.
D) the Petroleum Marketing Practices Act.
Q4) Most franchise contracts provide that notice of termination must be given.
A)True
B)False
Page 38
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Chapter 37: All Forms of Partnerships
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Q1) Selections, a general partnership, operates a gift shop. Selections has five partners. Tony has a one-third interest in the partnership. Each of the other partners has a one-sixth interest. With respect to management decisions
A) a majority of the partners must agree.
B) Tony rules.
C) the senior partner decides.
D) four of the partners must agree.
Q2) A partnership is a pass-through entity and a taxpaying entity.
A)True
B)False
Q3) The death of a limited partner dissolves a limited partnership.
A)True
B)False
Q4) For two years after a partner dissociates from a continuing partnership, the partnership may be bound by the acts of the dissociated partner.
A)True
B)False
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Chapter 38: Limited Liability Companies and Special
Business
Forms
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Q1) As the beneficiary of a business trust, Bob's liability for trust debts and obligations is A) limited to his capital investment in the trust.
B) limited to his personal assets.
C) nothing.
D) unlimited.
Q2) Members of a limited liability company (LLC) can stipulate in their operating agreement how managers will be chosen or removed.
A)True
B)False
Q3) Generally, a dissociated member of a limited liability company (LLC) has the right to buy his or her interest in the LLC from the other members.
A)True
B)False
Q4) In most states, a limited liability company must have at least two members. A)True
B)False
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Page 40
Chapter 39: Corporate Formation and Financing
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Q1) If a corporation has S corporation status, it must pay income taxes at the corporate level.
A)True
B)False
Q2) To pierce the corporate veil means to reveal the identity of its true owner.
A)True
B)False
Q3) A corporation whose shares are held by relatively few persons is a close corporation.
A)True
B)False
Q4) Venture capital is capital provided to new business ventures by professional, outside investors.
A)True
B)False
Q5) PrimarySource.com Corporation is a new online, textbook, and school supply business. How can PrimarySource.com obtain capital to finance its operations?
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Chapter 40: Corporate Directors, Officers, and Shareholders
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Q1) Corporate officers can normally be removed by the board of directors without cause.
A)True
B)False
Q2) In some states, a shareholder who receives watered stock may be liable to creditors of the corporation for unpaid corporate debts.
A)True
B)False
Q3) Stock warrants are distribution of corporate profits or income ordered by the directors.
A)True
B)False
Q4) Nina is a director of Outback Outfitters, Inc. Under the standard of due care owed by directors of a corporation, Nina's decisions must be informed and A) reasonable.
B) unquestionable.
C) indefensible.
D) perfect.
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Chapter 41: Mergers and Takeovers
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Q1) Refer to Fact Pattern 41-1. Grandview owed money to Innovative Décor, Inc., and other creditors. After the merger, Hilltop must pay
A) all of Grandview's debts.
B) half of Grandview's debts.
C) none of Grandview's debts unless there is a formal transfer of liability.
D) only debts that Grandview incurred after a merger was proposed.
Q2) When a corporation is dissolved voluntarily, the corporation does not need to file articles of dissolution with the state.
A)True
B)False
Q3) Avery wants to go into business as Boom! to make and market fireworks. When deciding which form of business organization would be most appropriate, Avery would normally take into account all of the following except
A) the liability of the owners.
B) the forms of competitors' business organizations.
C) tax considerations.
D) the need for capital.
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43
Chapter 42: Investor Protection, Insider Trading, and Corporate Governance
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Q1) Refer to Fact Pattern 42-3. Under the Securities Exchange Act of 1934, Fay is most likely
A) liable for insider trading.
B) not liable because Fay did not prevent others from profiting.
C) not liable because Fay did not misappropriate any information.
D) not liable because Fay does not work for Eureka!
Q2) The Securities and Exchange Commission has implemented no new regulations since the Securities Exchange Act.
A)True
B)False
Q3) Bernie is the chief executive officer of Cooking Network, Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Bernie must
A) certify that the reports are complete and accurate.
B) designate a corporate official to assume liability for inaccuracies.
C) do nothing.
D) read the reports and be prepared to answer questions about them.
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Page 44
Chapter 43: Administrative Agencies
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Q1) Independent federal regulatory agencies are outside the federal executive departments.
A)True
B)False
Q2) Most administrative actions are resolved through negotiated settlements at their initial stages, without formal adjudication.
A)True
B)False
Q3) The Nuclear Regulatory Commission is an independent regulatory agency. Its basic functions include making rules, investigating activities that it regulates, enforcing its rules and adjudicating disputes. All of these functions are part of
A) the judicial process.
B) the legislative process.
C) the administrative process.
D) the executive process.
Q4) A subpoena duces tecum is an order compelling a witness to appear at an agency hearing.
A)True
B)False
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Chapter 44: Consumer Law
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Sample Questions
Q1) An information label must be attached to every new car to include the fuel economy estimate for the vehicle.
A)True
B)False
Q2) QT Collection Agency calls Rob several times a day, and sometimes in the middle of the night, about an overdue bill that Standard Credit Company turned over to QT for collection. This is a violation of
A) no federal law.
B) the Fair and Accurate Credit Transactions Act.
C) the Fair Debt Collection Practices Act.
D) the Truth-in-Lending Act.
Q3) Through careless manufacturing practices, Plastics Company makes and sells products that are unsafe to consumers. This may be subject to sanctions under A) federal and state law.
B) federal law only.
C) no law, according to the principles of freedom to contract.
D) state law only.
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Chapter 45: Environmental Protection
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Q1) The primary responsibility for preventing and controlling air pollution rests with the federal government.
A)True
B)False
Q2) The Environmental Protection Agency can prohibit altogether a toxic substance that poses an imminent hazard.
A)True
B)False
Q3) Clean Wash, Inc., operates a chain of car washes throughout the United States. The government entity that is most likely to be involved in regulating the chain's environmental impact is
A) Congress.
B) federal and state regulatory agencies.
C) local chambers of commerce.
D) local police departments.
Q4) Any oil facility that discharges oil into navigable waters or onto an adjoining shore may be liable for cleanup costs, as well as damages.
A)True
B)False
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Chapter 46: Antitrust Law
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Q1) Monopoly power in and of itself constitutes the offense of monopolization.
A)True
B)False
Q2) For products that are sold nationwide, the relevant geographic market is the entire globe.
A)True
B)False
Q3) A market division by class of customer between rival firms does not violate antitrust law.
A)True
B)False
Q4) Agreements that are deemed per se violations of Section 1 of the Sherman Act include all of the following except
A) a price-fixing agreement.
B) a group boycott.
C) a trade association.
D) a market division.
Q5) A firm is not a monopolist unless it is the sole seller in a market.
A)True
B)False
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Chapter 47: Professional Liability and Accountability
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Q1) Everett is an accountant whose clients include Finance & Capital, Inc. Under the Ultramares rule, if Everett is negligent in his work for Finance & Capital, he could be liable to Finance & Capital and
A) any third party.
B) no third party with whom the accountant is not in privity or "near privity."
C) third parties who are foreseen users of the work.
D) third parties who are reasonably foreseeable users of the work.
Q2) Professionals are governed by the contracts they enter into with their clients.
A)True
B)False
Q3) Beck is an accountant who prepares her clients' tax returns. Cole is not an accountant, but he also prepares tax returns for clients. Under the Internal Revenue Code, liability for preparing a false return may be imposed on A) Beck and Cole.
B) Beck only.
C) Cole only.
D) none of the choices.
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Chapter 48: Personal Property and Bailments
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Q1) One morning, Richard agrees to lend his bike to Sheila, who promises to return it in the evening. This is
A) a constructive bailment.
B) an involuntary bailment.
C) an express bailment.
D) no bailment.
Q2) In contemplation of death during risky surgery, Ben, a guitarist, gives his guitars to Cathy. The surgery is successful, and Ben does not die. The gift of the guitars is
A) not revoked because it was a gift causa mortis.
B) not revoked because it was a gift inter vivos.
C) revoked because it was a gift causa mortis.
D) revoked because it was a gift inter vivos.
Q3) A finder of lost property can claim title to the property against the whole world-including the true owner.
A)True
B)False
Q4) Only tangible personal property can be bailed.
A)True
B)False
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Chapter 49: Real Property and Landlord-Tenant Law
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Q1) Riley owns Sunnyvale Apartments. He promises his tenants that during the lease term, neither he nor anyone with a superior title to the property will disturb the tenants' use and enjoyment of the premises. This is
A) a tenancy at sufferance.
B) the covenant of quiet enjoyment.
C) the implied warranty of habitability.
D) a special warranty deed.
Q2) Metro City exercises its power of eminent domain to acquire land for a public project, including part of a public transit rail system and a traffic bypass. Metro City relocates more than 10,000 residents from the land and destroys their homes to begin the project. Nathan's Deli is adjacent to the project. Nathan's loses most of its business when the residents are moved. Nathan's files a suit against Metro City, alleging that its acquisition of the land resulted in a taking of the deli's property interest, entitling it to compensation. What is a taking? What might Nathan's claim is its "property interest" to support this allegation? What is the court likely to rule? Why?
Q3) The government cannot take private property for public use.
A)True
B)False
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Chapter 50: Insurance
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Q1) Alain and Bette are partners who own and operate Cakes n' Pies, a chain of dessert restaurants. Their partnership obtains insurance on Alain and Bette's lives. This is
A) disability insurance.
B) all-risk insurance.
C) key-person insurance.
D) liability insurance.
Q2) An insurance agent ordinarily works for the insurance company.
A)True
B)False
Q3) Greg obtains from Hearthstone Insurance Company a policy that provides that Greg has thirty days after a premium's due date to pay it before the policy will be canceled. This is
A) a multiple insurance clause.
B) an antilapse clause.
C) an appraisal clause.
D) an incontestability clause.
Q4) A broker is an agent of an insurance company.
A)True B)False
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Chapter 51: Wills and Trusts
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Q1) Paul makes a gift of real estate in his will to Orly. This is
A) a bequest.
B) a devise.
C) a legacy.
D) a residuary.
Q2) The assets in Doug's estate, including the value of his home on Elm Street and its contents, are insufficient to pay in full all of the gifts provided for in his will. His heirs will receive
A) full payment in order of seniority until the assets are exhausted.
B) nothing-the assets will descend to the state.
C) reduced benefits.
D) the option of distributing the assets according to their wishes.
Q3) A testator is a decedent who dies without a will.
A)True
B)False
Q4) A decedent is a person who has died.
A)True
B)False
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Chapter 52: The Legal Environment of Business
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Q1) Salma wishes to file a suit in a Texas state court against Ubi. Texas allows for service of process via social media if Salma can authenticate Ubi's social media account. Allowing service of process only by means of social media raises a question whether that service comports with A) due process.
B) the Federal Rules of Civil Procedure.
C) the freedom to contract.
D) the rules of evidence.
Q2) Cell Service Corporation pads all of its customers' bills with an unexpected fee, adding up to millions in profit for Cell at a small expense for each individual customer. In this situation, the customers could most affordably fight this charge by
A) bringing individual lawsuits.
B) engaging in individual arbitration.
C) filing a class action.
D) taking their case to the state legislature.
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Chapter 53: Torts and Crimes
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Q1) The existence of an ethical duty on the part of Commerce & Trade Company, and other businesses, to prevent an attack by hackers on business computer systems, and consequent theft of customers' and employees' personal data, is evidenced by
A) a business's offer of credit monitoring in the event of a breach.
B) a business's cyber security insurance.
C) the individuals' trust in the business to protect their data.
D) a business's stated "Privacy Policy."
Q2) Hackers infiltrate the computer system of ChemCo Inc. and steal the company's trade secrets. If the hackers can be identified, they can be
A) charged with unauthorized access of protected computers.
B) subject to civil sanctions, but no criminal penalties.
C) subject to a suit by the Federal Trade Commission.
D) included on a "watch list" but no other sanctions are currently possible.
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Chapter 54: Contracts and E-Contracts
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Q1) Beth enters into a contract for the services of Cable Connection Inc. The corporation provides the contract, which contains an arbitration clause. This clause requires that any dispute must be submitted to arbitration rather than being pursued through litigation. With respect to contracts with such clauses, federal courts have ruled all of the following except
A) arbitration is encouraged under the Federal Arbitration Act.
B) arbitration can provide a meaningful way to seek redress for harm.
C) state law preempts federal law with respect to arbitration clauses.
D) federal law preempts state courts' interpretations of arbitration clauses.
Q2) Robin and Simon exchange offers and counteroffers via e-mail. These exchanges can constitute a valid contract
A) if the e-mails contain all of the necessary elements of a contract.
B) unless only the receiving party believes that there is an agreement.
C) unless the parties believe that the e-mails are only negotiations.
D) under no circumstances.
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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) The label on AmBeer Inc.'s beer reads, "U.S. quality" and, beneath that phrase in small print, "Made with Imported Hops." Bruce and other consumers file a class action against the brewer in California, which prohibits the use of an unqualified U.S.-origin claim. The plaintiffs' best ground for a possible recovery is most likely
A) misleading advertising.
B) unethical labeling practices.
C) inconsistent puffery.
D) inferior taste.
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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) 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.
Q3) Virtual currency is a medium of exchange that operates like a currency in some environments. In other words, more precisely, virtual currency is A) digital money.
B) coins and bills.
C) checks, notes, and other negotiable instruments in paper form.
D) all of the choices.
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Chapter 57: Creditors Rights and Bankruptcy
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Q1) Fred buys a car from Gina online. To assure that the car is delivered in the condition promised, Fred
A) must trust the seller.
B) can use an escrow company.
C) must file a financing statement.
D) may take possession of different property of the seller as collateral.
Q2) Rita borrows $20,000 from the U.S. Department of Education to help pay for her education at State University. She signs a note payable to DOE for the amount of the loan plus interest. The loan may be discharged if
A) Rita does not graduate from State University within six years of the loan.
B) Rita does not find employment in her program of study after graduation.
C) in bankruptcy, repayment would cause Rita undue hardship.
D) any of the choices.
Q3) 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.
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Chapter 58: Agency and Employment
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Sample Questions
Q1) Under the Patient Protection and Affordable Care Act, small businesses that meet certain requirements-including those with fewer than twenty-five full-time employees-can
A) any of the choices.
B) buy health insurance for employees through the Small Business Health Options Program.
C) claim a health-care tax credit.
D) claim a business-expense tax deduction.
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) Beth starts Checklist to market a new app. Valley Credit Union loans $30,000 to Beth for the project. Later, the debt is most likely to be discharged in bankruptcy
A) if Beth provides a complete, accurate record of business transactions.
B) if the loan is not subject to an agreement that imposes personal liability.
C) if Beth's business is a sole proprietorship.
D) under no circumstances.
Q2) 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.
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Chapter 60: Government Regulation
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Sample Questions
Q1) The Federal Communications Commission issues a rule that requires broadband Internet service providers (ISPs) to transmit data files equally, without considering their size or source. Based on previous attempts to regulate ISPs, under the Telecommunications Act of 1996, this rule would most likely be
A) challenged and overturned.
B) challenged and upheld.
C) not challenged, but repealed.
D) not challenged and strictly enforced.
Q2) To reduce the emission of greenhouse gases, power companies are required to save specified amounts of energy by
A) all of the states.
B) less than half of the states.
C) more than half of the states.
D) none of the states.
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Chapter 61: Property and Its Protection
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Sample Questions
Q1) Kevin and Laura are married. Together, they buy a virtual asteroid near the virtual planet Magellan in the virtual NightSky universe. In the event of a divorce, to avoid property division issues with respect to the asteroid, this couple
A) can use a pre-nuptial agreement or an addenda to it.
B) cannot split their interests in the asteroid or any virtual property.
C) must surrender their rights in the asteroid to the creators of NightSky.
D) must abandon their rights in the asteroid to other virtual property owners in the NightSky universe.
Q2) Bob owns a virtual asteroid near the virtual planet Cosmo in the virtual DeepSpace universe. Property consists of a bundle of rights in anything that has an ascertainable value and is subject to ownership. This definition encompasses
A) intangible objects used in virtual worlds like DeepSpace.
B) digital books, music libraries, and movie downloads.
C) all of the choices.
D) domain names and expensively created Web sites.
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