Entrepreneurship and the Law
Pre-Test Questions
Course Introduction
Entrepreneurship and the Law explores the intersection between legal frameworks and the entrepreneurial process, providing students with an understanding of the key legal issues facing startups and small businesses. Topics include business formation and structure, intellectual property protection, financing strategies, contract negotiation, employment law, and regulatory compliance. Through case studies and practical exercises, students learn how to identify potential legal risks, make informed legal decisions, and strategically leverage the law to support innovation and business growth. The course equips aspiring entrepreneurs with foundational legal knowledge essential for launching and sustaining successful ventures in a dynamic marketplace.
Recommended Textbook Business Law Text and Cases 13th Edition by ClarksonMiller
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Chapter 1: Law and Legal Reasoning
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Q1) Stare decisis is a doctrine obligating judges to help persons who have failed to protect their own rights.
A)True
B)False
Answer: False
Q2) Beth is a victim of Carl's violation of a criminal law. Criminal law is con?cerned with
A) the prosecution of private individuals by other private individuals.
B) the prosecution of public officials by private individuals.
C) the relief available when a person's rights are violated.
D) wrongs committed against the public as a whole.
Answer: D
Q3) Much of American law is based on
A) the English legal system.
B) the French legal system.
C) Greek civil law.
D) ancient Chinese law.
Answer: A
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Chapter 2: Courts and Alternative Dispute Resolution
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Q1) First Community Credit Union and General Hydraulics. Inc., have their dispute re?solved in arbitration. Be?fore determining the award, the arbitrator meets with First Community's representative to discuss the dispute without General Hydraulics' representative being present. If this meeting substantially prejudices General Hydraulics' rights, a court will most likely
A) compel arbitration.
B) review the merits of the dispute.
C) review the sufficiency of the evidence.
D) set aside any award.
Answer: D
Q2) Mandatory arbitration clauses in employment contracts are generally enforceable.
A)True
B)False
Answer: True
Q3) Small claims courts are inferior trial courts.
A)True
B)False
Answer: True
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4
Chapter 3: Court Procedures
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Q1) Jenna files a civil suit against Keshia. To succeed, Jenna must prove her case
A) beyond a reasonable doubt.
B) by a preponderance of the evidence.
C) by indisputable proof.
D) to the extent promised in her attorney's opening statement.
Answer: B
Q2) Hearsay evidence is what someone heard someone else say.
A)True
B)False
Answer: True
Q3) Procedural law does not have a significant impact on a person's ability to pursue a legal claim.
A)True
B)False
Answer: False
Q4) An expert witness is a person who is directly involved in the events concerning a lawsuit.
A)True
B)False
Answer: False
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Chapter 4: Business and the Constitution
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Q1) The Bill of Rights protects individuals, but not business entities, against various types of interfer?ence by the government.
A)True
B)False
Q2) Jon, a law enforcement official, monitors Kelsey's Internet activities-e-mail and Web site visits-to gain access to her personal financial data and student information. This may violate Kelsey's right to A) equal protection of the law.
B) privacy.
C) procedural due process.
D) substantive due process.
Q3) State laws protect individuals' privacy rights, often to a significant degree.
A)True
B)False
Q4) Expression-oral, written, or symbolized by conduct-is not subject to restrictions.
A)True
B)False
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6
Chapter 5: Business Ethics
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Q1) In studying the business law, students also review ethics in a business context. Ethics includes the study of what constitutes
A) right or wrong behavior.
B) financially rewarding behavior.
C) legal behavior.
D) religious behavior.
Q2) An overemphasis on long-run profit maximization is the most common reason that ethical problems occur in business.
A)True
B)False
Q3) Under the principle of rights theory, one person's principles are as "right" as another's.
A)True
B)False
Q4) It is always clear what is ethical in a given situation.
A)True
B)False
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Chapter 6: Torts
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Q1) Most states do not allow automobile repair shops to hold a customer's car when the customer refuses to pay for repairs already completed.
A)True
B)False
Q2) Brady knows that the brakes on his car do not work, but he tells Celia, a potential buyer, that there are no problems with the car. On this assurance, Celia buys the car. On learning the truth, she may sue Brady for A) trade libel.
B) conversion.
C) fraudulent misrepresentation.
D) appropriation.
Q3) A successful defense releases the defendant from partial or full liability for a tortious act.
A)True
B)False
Q4) The duty to exercise reasonable care requires storeowners to warn business invitees of all risks.
A)True B)False
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Chapter 7: Strict Liability and Strict Liability
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Q1) BioChem Corporation, ChemCo Company, and DexLabs Inc. make and distribute toxic chemicals. In a product-liability suit against all of these parties, the court is most likely to impose market-share li?ability if it cannot be proved which of the parties
A) was in privity with the injured plaintiff.
B) exercised the least amount of due care in making the product.
C) supplied the particular product that caused the injury.
D) holds the largest share of the market for the product.
Q2) Statutes of repose places outer times limit on product liability actions.
A)True
B)False
Q3) SurgeStop Company makes electrical cords and other connectors for elec?tronic devices. Rollo files a product liability suit against SurgeStop, alleg?ing a warning defect. In deciding whether to hold SurgeStop liable, the court may consider
A) consumers' general lack of desire to read the product's warnings.
B) the plaintiff's specific lack of desire to read the product warnings.
C) the obvious risks of other products.
D) the obvious risks of this product.
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Page 9
Chapter 8: Intellectual Property Rights
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Q1) The first person to invent a product obtains the patent rights rather than the first person to file an application for a patent.
A)True
B)False
Q2) René operates The Spicy Chocolatier Café chain of restaurants. "The Spicy Chocolatier Café" is
A) a certification mark.
B) none of the choices.
C) a service mark.
D) a trade name.
Q3) States do not have trademark statutes.
A)True
B)False
Q4) More than two hundred years ago, the Declaration of Independence recognized the importance of protecting creative works.
A)True
B)False
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Chapter 9: Internet Law, Social Media, and Privacy
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Q1) When you download an application on your smartphone, you are typically entering into a license agreement.
A)True
B)False
Q2) Federal law permits the sending of unsolicited commercial e-mail and does not prohibit spamming activities.
A)True
B)False
Q3) Omni Corporation provides cell phones, laptops, and tablets for its employees to use "in the ordinary course of its business." Omni intercepts the employees' business communications made on these devices. This is
A) a violation of the rights of Omni's employees.
B) a matter for which Omni must obtain its employees' consent.
C) a subject for dispute resolution by the communications providers that Omni uses.
D) excluded from the coverage of the Electronic Communications Privacy Act.
Q4) Federal wiretapping law covers electronic forms of communication.
A)True
B)False
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11
Chapter 10: Criminal Law and Cyber Crime
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Q1) For most crimes, the state must initiate prosecution within a certain number of years after the crime occurs.
A)True
B)False
Q2) Via the Internet, Porcio sabotages the computer system of Quik Chik'n Company, a fast-food restaurant operator, to alter the ingredients in the company's recipes and products so that consumers of the foods become ill. Porcio is a A) cyberterrorist.
B) botnet.
C) virus.
D) worm.
Q3) Under the Fourth Amendment, general searches through a person's belongings are permissible.
A)True
B)False
Q4) A company takes a risk by electronically storing their online customers' credit-card numbers.
A)True
B)False
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Chapter 11: Nature and Terminology
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Q1) A party who has conferred a benefit on someone else unnecessarily can invoke the principle of quasi contract to recover the cost.
A)True
B)False
Q2) Bilbo signs a lease agreement for an apartment with Cato, who owns and manages the Deer Creek Apartments complex. These parties have A) an express contract.
B) an implied contract.
C) a quasi contract.
D) no contract.
Q3) Jonah tells Levi he will give him an Xbox if Levi does Jonah's chores for a month. Levi promises to do the chores. Jonah and Levi have formed a A) a bilateral contract.
B) a formal contract.
C) a unilateral contract.
D) no contract.
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Chapter 12: Agreement in Traditional and E-Contracts
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Q1) Under federal law, an e-document is not as enforceable as a paper one.
A)True
B)False
Q2) Quay Trucking Service tells Rafe that it will pay him $50 if he unloads a certain truck at the Shipping Warehouse. Rafe's acceptance is complete
A) as soon as Rafe says he will unload the truck.
B) once Rafe starts to unload the truck.
C) only after Rafe unloads the truck.
D) when Rafe hears Quay's offer.
Q3) Only the United States has created regulations for global Internet transactions. A)True
B)False
Q4) An advertisement is generally considered an offer. A)True
B)False
Q5) An e-contract must meet basic requirements that are different from those required of a paper contract.
A)True
B)False
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Chapter 13: Consideration
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Q1) In contract law, the term consideration refers to the serious thought that underlies a party's intent to enter into a contract.
A)True
B)False
Q2) After an accident with a vehicle licensed to Guardian Security Company, Heidi signs a covenant not to sue Guardian Security for damages in a tort action if it pays for the damage to her car. This covenant is
A) a bar to recovery only if Guardian Security pays. B) an illusory contract.
C) barred by the preexisting duty rule.
D) barred by the doctrine of promissory estoppel.
Q3) A determination of whether consideration exists depends on a comparison of the values of the things exchanged.
A)True
B)False
Q4) The element of bargained-for exchange distinguishes contracts from gifts.
A)True
B)False
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Page 15
Chapter 14: Capacity and Legality
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Q1) In most illegal contracts, both parties are considered to be equally at fault, and neither party can enforce it or recover damages under it.
A)True
B)False
Q2) All adhesion contracts are unconscionable.
A)True
B)False
Q3) At age seventeen, Daryl enters into a contract to buy a dozen movies from eHD Stream, Inc., an online video service. Soon after reaching the age of ma?jority, Daryl attempts to disaffirm the contract. eHD files a suit against him. The court will most likely consider the contract ratified if it is
A) executed.
B) exculpatory.
C) express or implied.
D) emancipated.
Q4) In some states, misrepresentation of age is enough to prevent disaffirmance.
A)True
B)False
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Page 16
Chapter 15: Mistakes, Fraud, and Voluntary Consent
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Q1) Niles, an accountant, certifies several audit reports on Optimal Operational Processes, Inc., Niles's client, knowing that the company intends to use the reports to borrow money from Prime Business Lending Company to buy new equipment. Niles believes that the reports are true and does not intend to deceive Prime Business, but does not check the re?ports before certifying them. Can Niles be held liable to Prime Business?
Q2) Refer to Fact Pattern 15-B2. The parties' belief about the adjacency of the property is A) a bilateral mistake.
B) a fraudulent misrepresentation.
C) a unilateral mistake.
D) unconscionable.
Q3) Gene sells a trail bike to Hollis without disclosing that the odome?ter, which reads 10,000 miles, was disconnected 90,000 miles ago. Gene is most likely liable for A) unconscionability.
B) fraud.
C) mistake.
D) nothing.
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Chapter 16: The Writing Requirement and Electronic Records
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Q1) Larue buys an iPod for $150 and a new laptop for $1,200, and signs a one-year employment contract for a $4,800 monthly salary to start at the beginning of the next month. The Statute of Frauds covers
A) the employment contract, and the laptop and iPod purchases.
B) the employment contract and the laptop purchase only.
C) the employment contract only.
D) the laptop and iPod purchases only.
Q2) Abner tells a representative of Brass & Woodwind Musical Instruments, Inc., that he will pay for Claudia's trumpet if she does not. Abner does not secure any personal benefit for this promise. Abner's oral promise is enforceable as a contract by
A) Brass & Woodwind Musical Instruments, Inc.
B) Claudia.
C) Abner.
D) none of the choices.
Q3) Unless a party against whom enforcement of an oral contract is sought admits under oath that a contract for sale was made, the contract will not be enforceable.
A)True
B)False
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Chapter 17: Third Party Rights
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Q1) Refer to Fact Pattern 17-B1. Coastal Marina is
A) a delegatee.
B) an assignee.
C) an incidental beneficiary.
D) an intended beneficiary.
Q2) The assignment of the same contract right to two different parties automatically cancels both assignments.
A)True
B)False
Q3) Expressly designating a third party as a beneficiary in a contract does not indicate whether the beneficiary is intended or incidental.
A)True
B)False
Q4) Intended beneficiaries can sue to enforce a contract.
A)True
B)False
Q5) In most cases, a contract that prohibits its assignment cannot be assigned. A)True
B)False
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Chapter 18: Performance and Discharge in Traditional
E-Contracts
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Q1) Polly agrees to buy Quinn's Cycle World store business on the express condition that Ridgeline Credit Union approves the financing. This approval is A) not a condition.
B) a condition precedent.
C) a concurrent condition.
D) a condition subsequent.
Q2) Any breach allows the nonbreaching party to cancel the contract.
A)True
B)False
Q3) Ed's Electric substantially performs its contract with Forest Hills Apartments, Inc., to deliver and install an alarm system and parking lot lighting. Forest Hills is entitled to A) damages.
B) nothing more.
C) to be excused from performance.
D) suspend performance.
Q4) Performance can be accomplished by tender. A)True B)False
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Chapter 19: Breach of Contract and Remedies
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Q1) An award of damages for a breach of contract can elevate the nonbreaching party to a better position than he or she would have been in if the contract had not been breached.
A)True
B)False
Q2) Rashi contracts to work for Social Data Analysis Corporation dur?ing June for $4,500. On May 31, Social Data cancels the contract. Rashi declines a job of a different type and rank with Tech Collection, Inc., which would have paid $3500. Rashi files a suit against Social Data. As compensatory damages, Rashi can recover
A) $4,500.
B) $4,000.
C) $500.
D) $0.
Q3) A party seeking to recover in quasi contract must show that he or she acted as a volunteer in conferring a benefit on another party.
A)True
B)False
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21
Chapter 20: Formation of Sales and Lease Contracts
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Q1) Fresh Dairy, Inc., is the offeror and Gelato Ice Cream Company is the offeree under a unilateral sales contract in which Hector's Helado Corporation is also interested. Gelato is not notified of Fresh Dairy's performance within a rea?son?able time. Gelato
A) may treat the offer as having lapsed.
B) must assume that Fresh Dairy has started to perform.
C) must contact Fresh Dairy.
D) must notify Hector's.
Q2) iSharp, Inc., and Jenene, the owner of a Kitchen Time shop, orally agree to a sale of knives and other utensils for $12,000. Jenene gives iSharp a check for $4,000 as a partial payment. This contract is
A) enforceable to the extent of $4,000.
B) fully enforceable because it is for specially selected goods.
C) fully enforceable because it is oral.
D) not enforceable.
Q3) An unconscionable contract is one that is so unfair and one sided that it would be unreasonable to enforce it.
A)True
B)False
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Chapter 21: Title, Risk, and Insurable Interest
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Q1) Big Beef, Inc. raises calves to sell. Big Beef breeds its cows in April, and the cows calve in February of the following year. In January Andrea contracts with Big Beef to buy fifty calves. Identification takes place in
A) January, when the contract is signed.
B) April, when the calves are conceived.
C) February, when the calves are born.
D) a reasonable period of time.
Q2) Any explicit understanding between the buyer and the seller determines when title passes.
A)True
B)False
Q3) Effortless Workouts, Inc., offers to sell a treadmill to Farouk and sends it to him on a trial basis. This is A) a bailment.
B) a delivery ex-ship.
C) a sale on approval.
D) a sale or return.
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23
Chapter 22: Performance Breach of Sales Lease Contracts
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Q1) Repair Tools Company contracts to deliver fifty heavy-duty steel floor jacks to Serv-UR-Self Auto Stores on May 1 for which Serv-UR-Self agrees to pay. Repair Tools tells Serv-UR-Self on April 15 that delivery will be delayed until June 1. Serv-UR-Self may do all of the following except
A) force Repair Tools to deliver substitute goods before the time for the contract's performance.
B) await Repair Tools' performance for a commercially reasonable time.
C) sue Repair Tools for breach of contract.
D) suspend its own performance.
Q2) Energy Products Corporation and First Response Preparedness.com enter into a contract for a sale of portable generators. Under 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) inspect the goods before tendering their delivery.
D) place the goods into the hands of a carrier.
Q3) Merchants are held to a higher standard of performance or duty than are nonmerchants.
A)True
B)False
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Page 24
Chapter 23: Warranties
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Q1) Trucks & Trailers, Inc. (T&T), and United Delivery Service enter into a contract for a lease of trucks. T&T is a merchant who deals in goods of the kind leased. Under the UCC, an implied warranty of merchantability arises
A) automatically.
B) only if the lessee asks for such a warranty.
C) only if the lessor expresses such a warranty.
D) only in conjunction with sales contracts, not lease contracts.
Q2) Arnold buys a backhoe from Big Dig Equipment Inc. Arnold is unaware that Credit Collection Company holds a lien against the backhoe when he buys it. If Credit Collection repossesses the backhoe, Arnold can
A) recover from Big Dig for breach of warranty.
B) do nothing.
C) file criminal charges against Big Dig and Credit Collection.
D) recover damages from Credit Collection for breach of warranty.
Q3) A warranty against infringement is a promise by the seller that the prod?uct is free from any patent, trademark, or copyright claims of a third person.
A)True
B)False
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Chapter 24: International Law in a Global Economy
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Q1) The Foreign Sovereign Immunities Act broadly defines com?mercial activity.
A)True
B)False
Q2) Some countries provide insurance for their citizens' investments abroad.
A)True
B)False
Q3) Foreign citizens can bring civil suits in U.S. courts for injuries caused by violations of the law of nations or a treaty of the United States.
A)True
B)False
Q4) Generally, U.S. employers abroad must abide by U.S. discrimination laws unless to do so would violate the laws of the country where their workplaces are located.
A)True
B)False
Q5) The International Court of Justice normally has authority to settle legal disputes only when nations voluntarily submit to its jurisdiction.
A)True
B)False
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Page 26
Chapter 25: The Function Creation of Negotiable Instruments
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Q1) Efron borrows money to pay his tuition and signs a note payable to First Citizens Bank. The bank assigns the note to Guaranty Bank. The assignment
A) does not affect Efron's obligation to pay the note as promised.
B) frees Efron of the obligation to pay the note.
C) results in Guaranty Bank's co-liability on the note with Efron.
D) results in Guaranty Bank's co-liability on the note with First Citizens Bank.
Q2) All checks are time instruments.
A)True
B)False
Q3) To be negotiable, an instrument must be payable in money.
A)True
B)False
Q4) To obtain a business license, Bess writes a check to a certain state agency. Bess is A) the drawee. B) the drawer.
C) the indorser.
D) the payee.
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Chapter 26: Transferability and Holder in Due Course
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Q1) Usually, indorsements are qualified indorsements.
A)True
B)False
Q2) An indorsement should be identical to the name of the indorsee, regardless of how the name appears on the instrument.
A)True
B)False
Q3) For a check, a "reasonable time" is ninety days after the date of the check.
A)True
B)False
Q4) Often, whether a holder will be able to obtain payment on an instrument will depend on whether he or she is a holder in due course.
A)True
B)False
Q5) The shelter principle extends the benefits of HDC status and is designed to aid the HDC in readily disposing of the instrument.
A)True
B)False
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Page 28
Chapter 27: Liability, Defenses, and Discharge
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Q1) A person who signs an instrument without authorization can be held personally liable for payment by a holder in due course.
A)True
B)False
Q2) When a negotiable instrument contains the notice required under FTC Rule 433, a consumer can bring any defense to payment that he or she has against the seller of a product against a subsequent holder as well.
A)True
B)False
Q3) On drafts and checks, a drawer's secondary liability does not arise until the drawer fails to pay or to accept the instrument.
A)True
B)False
Q4) Even if a promissory note is incomplete at the time a maker signs it, the maker is still obligated to pay.
A)True
B)False
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29
Chapter 28: Banking in the Digital Age
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Q1) Refer to Fact Pattern 28-2B. When Equity Bank received the check, it was required to pass it on
A) before midnight of the next banking day.
B) before midnight of the next day, whether or not it was a "banking" day.
C) before noon of the next banking day.
D) within five business days.
Q2) 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 re?quired to pay no more than
A) $5.
B) $50.
C) $500.
D) $5,000.
Q3) In every situation involving a forged drawer's signature or an alteration, a bank must observe reasonable commercial standards of care in paying on a customer's check.
A)True
B)False
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Chapter 29: Creditors Rights and Remedies
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Q1) Refer to Fact Pattern 29-1B. Michael refuses to return the car to Jill until she pays for the brake work. This is
A) a garnishment order.
B) a mechanic's lien.
C) an artisan's lien.
D) a violation of most states' laws.
Q2) A writ of execution applies to a debtor's nonexempt real or personal property wherever located.
A)True
B)False
Q3) Personal property that is most often exempt from satisfaction of judgment debts does not include equipment that the debtor uses in a business or trade.
A)True
B)False
Q4) Only a few types of property-a debtor's wages or bank account, for example-can be garnished.
A)True
B)False
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Chapter 30: Secured Transactions
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Q1) Home2U Stores, Inc., sells household consumer goods. To create a pur?chase-money security interest, Home2U must
A) assign, to a collecting agent, a portion of its accounts payable.
B) assign, to a collecting agent, a portion of its accounts receivable.
C) extend credit for part or all of the purchase price of the goods.
D) refer purchasers to a third-party lender.
Q2) Authentication means to sign, execute, or adopt any symbol on an electronic record that verifies that the person signing has the intent to adopt or accept the record.
A)True
B)False
Q3) Super Discount Store sells goods to consumers and businesses in several states in the Midwest. Most of the goods are sold on credit. Super Discount often takes a security interest with the goods as collateral. The state in which a financing statement should be filed depends on the location of A) the debtor.
B) the collateral.
C) the store in which the goods were sold.
D) the place from which Super Discount manages its operations.
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Chapter 31: Bankruptcy Law
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Q1) Norma files a petition in bankruptcy. She turns her assets over to O'Brien, who sells them and then distributes the proceeds to Norma's creditors. O'Brien is a A) preferred creditor.
B) bankruptcy court judge.
C) bankruptcy trustee.
D) debtor.
Q2) Chi-Lan files a petition in bankruptcy for relief through an individual's repayment plan. Chi-Lan's plan must provide for A) the turnover of her future income to the trustee.
B) her attendance at a credit-counseling briefing.
C) adequate means for the petition's execution. d a preference for one creditor over another.
Q3) A bankruptcy court may deny a discharge based on the debtor's conduct. A)True
B)False
Q4) Bankruptcy law attempts to balance the rights of the debtors and the creditors.
A)True
B)False
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33
Chapter 32: Agency Formation and Duties
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Q1) Jewelry & Coin Company hires Kelly Ann to buy gems and precious metals from various sources on its behalf. In this relationship, Jewelry & Coin is
A) an employee.
B) an independent contractor.
C) a principal.
D) an agent.
Q2) A familiar example of an agent is the owner of a corporation.
A)True
B)False
Q3) Rosario is a chef and caterer who hires out on a per-project basis to companies with on-location work sites, as well as to hosts of banquets, corporate meetings, concerts, weddings, and other events. In this capacity, Rosario is
A) an agent.
B) an employee.
C) an independent contractor.
D) a principal.
Q4) Agency relationships do not permeate the business world.
A)True
B)False
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Chapter 33: Agency Liability and Termination
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Q1) Darwin serves in a representative capacity for Ewan. To accomplish the objectives of this relationship, Darwin's authority can be implied
A) by contradiction.
B) by custom.
C) by whim.
D) under no circumstances.
Q2) Without authorization, Lars contracts on behalf of Mina to have Nemo paint the interior and exterior of Mina's house. If Mina decides to ratify the contract, she must affirm
A) all of the contract.
B) any part of the contract, with Lars liable to Nemo for the difference.
C) any part of the contract before performance begins.
D) any part of the contract at any time.
Q3) A disclosed principal is liable to a third party for a contract made by the agent acting within the scope of his or her authority.
A)True
B)False
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35
Chapter 34: Employment, Immigration, and Labor Law
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Q1) Cloud Computing & Processing Corporation wants to hire Dhani, a noncitizen of "extraordinary ability." To hire Dhani, Cloud Computing must petition
A) U.S. Citizenship and Immigration Services.
B) the Social Security Administration.
C) U.S. Immigration and Customs Enforcement.
D) the National Labor Relations Board.
Q2) Livia takes temporary family leave from her job at Meatpackers Corporation to care for a new baby. On Livia's return from the leave, Meatpackers must
A) restore Livia to her original position.
B) reimburse Livia for her expenses while on leave.
C) promote Livia to the status of a key employee.
D) do nothing.
Q3) If an employee presents false documentation of eligibility to work in the United States, his or her employer is subject to deportation.
A)True
B)False
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Chapter 35: Employment Discrimination and Diversity
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Q1) Boni, the owner of Café Rico, knows about, but does not take any action to prevent, the sexual harassment of employees. Boni and the café may be liable for such harassment by
A) an employee's previous employer.
B) a customer or a co-worker.
C) an employee's spouse or other close relative.
D) none of the choices.
Q2) Intentional discrimination by an employer against an employee is known as disparate-treatment discrimination.
A)True
B)False
Q3) Insurance Sales Corporation gives preferential treatment in hiring and promotion to the members of all protected classes. This treatment results in discrimination against members of the majority. This is
A) disparate-impact discrimination.
B) gender discrimination.
C) not discrimination.
D) reverse discrimination.
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Chapter 36: Sole Proprietorships and Franchises
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Q1) A franchisor can suggest retail prices for the goods that a franchisee sells but cannot mandate them.
A)True
B)False
Q2) Sasha contracts to buy a franchise from TrustMe Financial Consultants Inc. The contract is silent on the issue of territorial rights. When TrustMe allows a competing franchise to be established near Sasha's office, she suffers a significant loss in profits. This is most likely a violation of
A) no law.
B) the ban on certain types of anticompetitive agreements.
C) the Federal Trade Commission's Franchise Rule.
D) the implied covenant of good faith and fair dealing.
Q3) The franchise is not strictly speaking a business organizational form. A)True B)False
Q4) A sole proprietor is free to make any decision he or she wishes concerning the business.
A)True B)False
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Chapter 37: Partnerships and Limited Liability Partnerships
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Q1) Buckley is a general partner in Cut-Rate Shipping, LLLP, a limited liability lim?ited partnership, which cannot pay its debts. Buckley is personally li?able for the debts
A) in proportion to the number of partners in the firm.
B) to no extent.
C) to the extent of his capital contribution.
D) to the full extent.
Q2) After a partner dissociates from a continuing partnership, the partnership is no longer bound by the acts of the dissociated partner, even on a theory of apparent authority.
A)True
B)False
Q3) Dissociation normally entitles the partner to buy his or her interest from the partnership.
A)True
B)False
Q4) On a partner's dissociation, the partner's duty of loyalty ends.
A)True
B)False
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Chapter 38: Other Organizational Forms for Small Businesses
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Q1) Custom Auto Body & Detailing, LLC, is a limited liability company. Unless indi?cated otherwise on the Custom Auto's federal tax form, the firm will be taxed as
A) a cooperative.
B) a corporation.
C) a joint venture.
D) a partnership.
Q2) If a member's dissociation from a limited liability company is rightful, normally the dissociated member has the right to force the LLC to dissolve.
A)True
B)False
Q3) The law considers all new, single-owner businesses to be sole proprietorships unless the owner affirmatively adopts some other form.
A)True
B)False
Q4) The law governing limited liability companies is uniform.
A)True
B)False
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Chapter 39: Corporate Formation and Financing
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Q1) Neci and Olwen want to form and do business as a corporation-Pastries & Pies Inc. A corporation is a legal entity created and recognized by
A) a central federal administrative agency.
B) a city or county clerk's office.
C) an artificial legal person.
D) state law.
Q2) Boutique Bodega Corporation would like to change its corporate status to that of an S corporation to avoid in?come taxes at the corporate level. To qualify, the shareholders must not be
A) corporations.
B) estates.
C) individuals.
D) partnerships.
Q3) The articles of incorporation serve as a primary source of authority for the corporation's future organization and business functions.
A)True
B)False
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Chapter 40: Corporate Directors, Officers, Shareholders
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Q1) Farrah and Grant are shareholders of Hong Kong Restaurants, Inc. As shareholders, they must approve
A) conducting a merger.
B) deciding to pursue new business opportunities.
C) none of the choices.
D) negotiating a contract between management and labor.
Q2) Aviators Source Corporation makes and sells aircraft parts. In most states, the minimum number of directors that must be present before Aviators Source's board could transact its business is
A) all of the directors authorized in the articles or bylaws.
B) a majority of the number authorized in the articles or bylaws.
C) any odd number.
D) one.
Q3) Directors and officers must subordinate the welfare of the corporation to their personal interests.
A)True
B)False
Q4) Restrictions on the transfer of shares in a close corporation are usually void.
A)True
B)False
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Chapter 41: Mergers and Takeovers
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Q1) The shareholder's appraisal right extends to mergers and consolidations.
A)True
B)False
Q2) Ramon is a shareholder of Quantum Mechanix Corporation. Ramon could normally ex?er?cise appraisal rights if Quantum participated in A) a consolidation.
B) a dissolution.
C) a liquidation.
D) a winding up.
Q3) A merger between Blended Coffee Corporation and Cowland Creamery Inc. can be expressed as Blended Coffee + Cowland Creamery = A) Cowland Creamery.
B) Delite Dairy Corporation.
C) Delite Dairy Corporation + EZ Stir & Sip Inc.
D) EZ Stir & Sip Inc.
Q4) A corporation's creditors want to be notified when the firm is dissolved so that they can make a tender offer.
A)True
B)False
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Chapter 42: Securities Law Corporate Governance
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Q1) When OmniOil Corporation wishes to issue certain securities, it must provide sufficient in?for?mation for Petra, and other unsophisticated investors, to evaluate the fi?nancial risk involved. Specifically, the law imposes liability for making a false statement or omission that is "material." What sort of information would Petra consider material?
Q2) To raise capital to form Business Apps Corporation with Cris, Dona sells bonds and stock in other companies, and plans to register an initial public of?fer?ing under the Securities Act of 1933. SEC Rule l0b-5 covers
A) just about any form of securities.
B) only bonds.
C) only securities registered under the Securities Act of 1933.
D) only stock.
Q3) Refer to Fact Pattern 42-1B. Under the Securities Ex?change 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!
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Page 44
Chapter 43: Administrative Agencies
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Q1) Legislative rules simply declare policy and do not affect legal rights or obligations.
A)True
B)False
Q2) Personnel Employment, Inc., has been ordered to appear at a hearing be?fore an administrative law judge of the Social Security Administration. A significant difference between a trial and an administrative hearing is that A) attorneys are not allowed to attend administrative hearings. B) clients are not allowed to communicate with their attorneys dur?ing adminis?trative hearings.
C) hearsay can be introduced as evidence in an administrative hearing. D) the burden of proof is on the charged party to prove innocence.
Q3) Unlike statutes, administrative regulations do not have a binding effect.
A)True
B)False
Q4) Federal administrative agencies can exercise only those powers that a state legislature has delegated to them in enabling legislation.
A)True
B)False
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Chapter 44: Consumer Law
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Q1) The credit department of Discount Retail Stores Inc. calls Emmett at work about an overdue bill. Emmett's employer objects. Discount Retail's credit department continues to call Emmett at work. This is a viola?tion 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.
Q2) The Food and Drug Administration does not have the authority to directly recall any food products that it suspects are tainted but must rely on the producers to recall items. A)True B)False
Q3) Cecilia borrows $20,000 from Debit & Credit Union to repair her home and to buy a car. She buys a laptop from eStuf Store in a transaction financed by the seller. If these parties are subject to the Truth-in-Lending Act, Regulation Z ap?plies to A) the car loan only.
B) the home repair loan only.
C) the retail installment sale only.
D) the car loan, the home repair loan, and the retail installment sale.
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Chapter 45: Environmental Law and Sustainability
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Q1) The Environmental Protection Agency has not concluded that greenhouse gases, including carbon dioxide emissions, constitute a public danger.
A)True
B)False
Q2) It is a violation of federal law to sell a pesticide or herbicide that has a chemical strength different from the concentration declared on the label.
A)True
B)False
Q3) Only the federal government may restrict emissions from motor vehicles.
A)True
B)False
Q4) Energy Resources, Inc., operates an oil refinery near Forest River, which flows into Grove Lake. Discharging oil from the refinery into the river can result in
A) penalties and damages.
B) penalties only.
C) damages only.
D) no penalties or damages.
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Chapter 46: Antitrust Law
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Q1) A seller is prohibited from making an exclusive-dealing contract if the effect is to tend to create a monopoly.
A)True
B)False
Q2) Frictionless Lubricant Corporation and Grease, Inc., are the principal sup?pliers of their product in their market. They agree that Frictionless will sell exclusively to retailers and Grease will sell exclusively to wholesalers. Under antitrust law, this is most likely
A) a per se violation.
B) a violation only if their competitors make similar deals.
C) a violation only if their customers agree to honor the deal.
D) not a violation.
Q3) Fine Food Company, Gourmet Cheeses, Inc., and Healthy Eats, Inc. agree to exchange information and share advertising. This trade association is
A) a deal that neither restrains trade nor harms competition.
B) a legal restraint of trade.
C) a per se violation of antitrust law.
D) subject to analysis under the rule of reason.
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Chapter 47: Professional Liability and Accountability
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Q1) Working papers are the documents through which a court orders an accountant to audit a public company.
A)True
B)False
Q2) A failure to follow generally accepted accounting principles and gener?ally accepted auditing standards is proof of a lack of due diligence.
A)True
B)False
Q3) Attorneys are required to find relevant law that is applicable to a case and can be discovered through a reasonable amount of research.
A)True
B)False
Q4) For a plaintiff to recover damages under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, proof of intent is necessary.
A)True
B)False
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Chapter 48: Personal Property and Bailments
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Q1) Dallas asks Eddie if he can store his furniture in Eddie's garage while he serves a tour of duty with the U.S. Marines Corps. Eddie agrees. This is
A) a bailment.
B) accession.
C) a gift causa mortis.
D) abandoned property.
Q2) Miranda delivers her bridesmaid's dress to Nina for alterations. Nina promises that the dress will be ready within five business days. Miranda agrees to pay the charge when she picks up the dress. This is
A) an implied bailment.
B) an involuntary bailment.
C) an express bailment.
D) not a bailment.
Q3) A bailee must exercise reasonable care in preserving the bailed property.
A)True
B)False
Q4) The most common way to acquire personal property is to produce it.
A)True
B)False
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Chapter 49: Real Property Landlord-Tenant Law
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Q1) Barlow owns the surface rights for Canyon Ranch, but does not own the subsurface rights. Dusty owns the subsurface rights. Canyon Ranch includes a house, a bunkhouse, and two barns, which are damaged when Dusty is excavating for minerals under the surface. Most likely responsible for the damage is
A) Dusty.
B) Barlow.
C) Dusty and Barlow.
D) no one.
Q2) A license is a right to go onto land owned by another and take away some part of the land itself or some product of the land.
A)True
B)False
Q3) Residential Property Corporation owns apartment buildings in three states. Regarding standards for maintenance of the build?ings, Residential Property should consult
A) the applicable city ordinances and state statutes.
B) the previous owners.
C) the long-term tenants.
D) the Uniform Landlords' Maintenance Manual.
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Page 51
Chapter 50: Insurance
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Q1) Lamont applies for a health insurance policy with MedInsure, Inc., an insurance company, through Netta, an agent who works for MedInsure. Lamont pays the initial premium. Netta writes a binder, which A) acknowledges the application and promises to consider it. B) attests to the truth of each statement in the application C) evidences receipt of the payment of the initial premium. D) indicates that a policy is pending and states its essential terms.
Q2) When there is an ambiguity in an insurance policy, the provision generally is interpreted against the insurance company.
A)True B)False
Q3) A person who is obtaining insurance from an insurance company's agent is not usually protected until a formal written policy is issued. A)True B)False
Q4) An insurance company may cancel an insured's policy for any reason and at any time.
A)True B)False
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Chapter 51: Wills and Trusts
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Q1) Lost in a canyon near Death Valley, California, Edina writes her will in crayon, on a paper bag, while Farrow states orally how he wants his estate distributed. Most states do not permit
A) a holographic will.
B) a nuncupative will.
C) a will written on a paper bag.
D) a will written in crayon.
Q2) Ingrid is the trustee of a trust in which Jens has a life estate and Karin has the remainder interest. The trust property is a farm. The farm is leased to Lars, who pays the rent to the trust. Property taxes are paid annually on the farm. Long-term improvements are occasionally made and paid for. A section of the farm's land is sold to Margo, one of the farm's neigh?bors. How are the payments for taxes and improvements classified (ordi?nary or extraordinary)? How are the receipts of rent and the pro?ceeds from the land sale classified? To whom are these costs and benefits allocated?
Q3) A testamentary trust is created by will and comes into existence on the grantor's death.
A)True
B)False
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53