Entrepreneurship and the Law
Question Bank
Course Introduction
Entrepreneurship and the Law explores the legal landscape that entrepreneurs must navigate when launching and growing a business. The course covers foundational topics such as entity selection, intellectual property protection, contracts, employment law, financing, regulatory compliance, and risk management. Students will gain practical insight into how legal considerations impact the entrepreneurial process, assess potential legal challenges, and develop strategies to mitigate risk. By the end of the course, students will be equipped with the knowledge needed to make informed decisions that support both business growth and legal compliance in the dynamic environment of entrepreneurship.
Recommended Textbook Law for Business 12th Edition by
A. James Barnes
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Page 2
Chapter 1: Law, Legal Reasoning, and the Legal Profession
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Sample Questions
Q1) The constitutional prohibition of ex post facto laws:
A) applies to statutory law.
B) aims to minimize the possibility of failure if the business has to go to court to enforce its rights.
C) applies to common law.
D) gives lawyers a great deal of discretion in selecting an appropriate strategy for handling a legal dispute.
Answer: A
Q2) Laws must be predictable and adapt to changing conditions.
A)True
B)False
Answer: True
Q3) Civil law arises when courts are called upon to resolve disputes for which there is no statute or other source of law to establish rules.
A)True
B)False
Answer: False
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Chapter 2: Dispute Settlement
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Sample Questions
Q1) The employees of Claudio Inc.were on strike for 30 days and that led to huge losses for the business.Owing to loss of business and wages,both parties wanted to settle the dispute but were unable to negotiate successfully.Which method of dispute settlement is best suited to them? Why?
Answer: The method of dispute settlement that is best suited to them is mediation.Mediation is the best suited method to resolve the dispute in the given case because a mediator often tries first to communicate the positions of the parties to each other.It allows the parties to settle the case by appointing a mediator who merely facilitates the negotiation by proposing a basis for settlement and does not give awards or opinions on the merits of the dispute.It is a suitable method when the two parties,here the employees of Claudio Inc.and the management,have a continuing relationship because it allows them to compromise and to reach a solution themselves.
Q2) The adversary system in the United States is based on the idea that the truth will emerge in courtrooms through a "battle of words" between two lawyers.
A)True
B)False Answer: True
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Page 4
Chapter 3: Business Ethics and Corporate Social Responsibility
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Sample Questions
Q1) The tendency for members of a group to internalize the group's values and perceptions and to suppress critical thought is known as _____.
A) risky shift
B) social malingering
C) herd behavior
D) groupthink
Answer: D
Q2) Which of the following statements best describes the phenomenon called risky shift?
A) Groups do not accept higher risks than individuals.
B) A corporation shifts its risk onto its customers.
C) A group of people who must reach a consensus on an acceptable level of risk often decide on a level of risk higher than the risk they would accept as individuals.
D) The decisions made by a team of managers may have lower levels of risk and may create lesser legal problems than decisions made by an isolated manager.
Answer: C
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Page 5
Chapter 4: Business and the Constitution
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Q1) Under rational basis analysis,_____.
A) a government action will be upheld as long as it has a reasonable relationship to the achievement of a legitimate purpose, even if those provisions are foolish
B) discrimination on the basis of a suspect category will receive highest scrutiny and misdirected provisions are generally invalid if they are subject only to rational basis review
C) courts will deem a government action unconstitutional when the action impinges on a fundamental right
D) discrimination on the basis of economic interest will receive highest scrutiny
Q2) The explosion of government regulation in the United States has witnessed an accompanying social phenomenon of great importance that is the creation:
A) of the CAN-SPAM Act.
B) and widespread use of administrative agencies.
C) and widespread use of the Federal Trade Commission.
D) of antitrust laws.
Q3) Briefly discuss state power.
Q4) When is strict scrutiny analysis triggered?
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6
Chapter 5: Crimes
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Q1) The legal system of the United States allows nontestimonial evidence such as fingerprints,hair samples,and bodily fluids to be obtained through compulsion.
A)True
B)False
Q2) Acquiring or maintaining an interest in an enterprise through a pattern of racketeering activity is prohibited under RICO.
A)True
B)False
Q3) According to the concept of _____,a 13-year-old accused of shoplifting cannot be convicted.
A) intoxication
B) insanity
C) premeditation
D) infancy
Q4) Explain two laws governing computer privacy in the United States.
Q5) If a country decides to join the Council of Europe's "Convention on Cybercrime," what does the country need to do as a part of this convention?
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Page 7
Chapter 6: Intentional Torts
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Q1) A common defense to the tort of interference with contract is:
A) lack of capacity.
B) privilege.
C) probable cause.
D) inducing a breach of contract.
Q2) In cases of defamation,defendants are not liable if the statements they uttered were true.
A)True
B)False
Q3) Discuss what is meant by the term "tort."
Q4) Truth is not a defense to a defamation action.
A)True
B)False
Q5) One can commit an intentional tort with the conscious desire to cause harm or with the knowledge that harm is substantially certain to result.
A)True
B)False
Q6) Assault is an intentional,unconsented-to touching that is harmful or offensive.
A)True
B)False
Page 8
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Chapter 7: Negligence and Strict Liability
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Q1) If Nancy steps into the path of George's speeding car without checking to see whether any cars are coming,her _____ might prevent her from receiving damages for her injuries from George.
A) comparative negligence
B) breach of duty
C) assumption of risk
D) contributory negligence
Q2) Third parties are not entitled to recover for emotional distress resulting from witnessing harm caused to another person by a defendant's negligent acts.
A)True
B)False
Q3) What is meant by proximate cause?
Q4) The idea of placing a legal limit on the extent of a negligent person's liability is called proximate cause.
A)True
B)False
Q5) Under the doctrine of strict liability,care and caution mitigate liability. A)True
B)False
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Chapter 8: Licensing and Intellectual Propertypart Two Contracts
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Q1) Courts are unwilling to provide trademark protection to a term if it is:
A) arbitrary.
B) generic.
C) descriptive.
D) suggestive.
Q2) If a licensor does not closely monitor the activities of a licensee,it runs the risk that the licensee will produce inferior products or provide inferior service.
A)True
B)False
Q3) Which of the following statements is true of the confidentiality clause?
A) It restricts the licensor's right to disclose trade secrets after the licensing agreement has ended.
B) During a licensing agreement, the licensor can be permitted to limit the number of people with whom the licensee may share the technology.
C) It cannot be taken up in the court when there is misappropriation because it binds only private parties together.
D) Prior to licensing, it prohibits potential licensees to inspect the technology the licensor provides.
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Chapter 9: The Nature and Origins of Contracts
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Q1) An executory contract is a contract:
A) that has been fully performed by all parties.
B) where executive privileges are implied.
C) that has not yet been fully performed by all parties.
D) where one party performs on the basis of a promise made by the other.
Q2) A promise exchanged for an act is an example of a(n)_____.
A) bilateral contract
B) unilateral contract
C) implied contract
D) quasi contract
Q3) Maya makes an agreement with Ravi for Ravi to steal Professor Hussain's laptop computer.The agreement between Maya and Ravi is _____.
A) voidable
B) void
C) valid
D) unenforceable
Q4) A contract is implied when the parties directly state its terms at the time the contract is formed.
A)True
B)False
Page 11
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Chapter 10: Creating a Contract: Offers
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Q1) Beck tells his mom that he is thinking of selling his vintage coupe to his neighbor,Sam,for $100.Beck's mom calls Sam and tells him about her conversation with Beck.Sam then calls Beck and tells him that he accepts his offer.Under these circumstances,_____.
A) this is a contract
B) the offer has been conditionally tendered
C) the offer has not been communicated
D) the offer violates the UCC's rule against third-party interveners in quasi contracts
Q2) In an agreement between two parties,if the facts indicate that a term was left out because the parties were unable to reach an agreement about it,it would probably mean that the:
A) CISG must fill in the gaps only if the price terms are left in the agreement.
B) parties intended to contract and CISG must fill in any gaps left in the agreement.
C) UCC must fill in any gaps left in the agreement.
D) intent to contract is absent, and no contract was created.
Q3) An offer by itself does not include terms that limit its life.
A)True
B)False
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Chapter 11: Creating a Contract: Acceptances
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Q1) Explain the idea of "stipulation" and the effect it has on a contract.
Q2) The manager of Mack's Bar sent Olive Outlet an order for 200 cases of olives to be shipped "as soon as possible." The day Olive Outlet receives Mack's order,it ships the olives.Later that day,Mack's manager phones Olive Outlet and tries to revoke his offer.Under these circumstances:
A) Mack's Bar cannot revoke because a contract was created when Outlet shipped the olives.
B) Mack's Bar can revoke because the acceptance had not been received.
C) Mack's Bar can revoke based on principles of promissory estoppel.
D) Mack's Bar cannot revoke, since the olives will get spoilt if it is shipped back.
Q3) If Gwen hands Lisa a detailed offer for the purchase of Lisa's pottery wheel and Lisa signs the offer without changing any of its terms,the parties have created a:
A) bilateral contract.
B) contingent contract.
C) unilateral contract.
D) multilateral contract.
Q4) Explain the "Battle of the Forms" rule of the Uniform Commercial Code (UCC).
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13
Chapter 12: Consideration
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Q1) As a general rule,a promise to discharge a liquidated debt for part payment of the debt at or after its due date is unenforceable due to lack of consideration.
A)True
B)False
Q2) Freedom of contract includes the freedom to make bad bargains.
A)True
B)False
Q3) Identify the correct statement regarding consideration.
A) A promise by public officials to perform their official duties is always a consideration.
B) A promisor's promise not to commit a crime or a tort can never be consideration.
C) As a general rule, performing or agreeing to perform a preexisting duty is consideration.
D) When new consideration is provided to support a modification, it is unenforceable.
Q4) Legal value depends on the adequacy of consideration.
A)True
B)False
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Page 14
Chapter 13: Capacity to Contract
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Q1) When a mentally impaired person regains his mental capacity,he can ratify a contract he made while he was impaired.
A)True
B)False
Q2) Minors can disaffirm a contract unless:
A) the contract is for real estate and the minor has not reached majority.
B) the adult has returned the minor to status quo first.
C) the minor has not ratified the contract on reaching majority.
D) the minor has given his or her exact age.
Q3) Courts prevent minors,who misrepresent their age,from defrauding adults,by:
A) asking the minor to place the adult in status quo.
B) holding the minor to his or her spoken statements which clearly indicates intent to be bound by the contract.
C) ratifying contracts before he or she attains majority.
D) proving them incapable of being held in a contract.
Q4) A minor can disaffirm a contract if:
A) he or she has not ratified the contract on reaching majority.
B) the contract is for real estate.
C) he or she has given a false statement about his or her age.
D) he or she has not returned the adult to status quo first.
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Chapter 14: Voluntary Consent
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Q1) Phil buys a laptop from Mark for $1,000.Mark knew that the laptop had hardware problems.However,he told Phil that it was in excellent condition.In this scenario,which of the following is most likely to be true?
A) Mark does not owe Phil anything because it was Phil's duty to check if Mark was lying.
B) Mark can dismiss any fraud accusations because it was a case of mutual misunderstanding.
C) Phil can sue for the difference between purchase price and true value of the laptop with hardware problems.
D) Phil can recover 20% of the repair costs on the condition that he returns the laptop to Mike.
Q2) When entering into a contract,parties are required to exercise reasonable judgment. A)True
B)False
Q3) The intent to deceive is also known as capacity.
A)True
B)False
Q4) Explain the difference between duress and undue influence.
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16
Chapter 15: Illegality
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Q1) The failure to obtain a license required by a statute for revenue-raising purposes: A) affects the legality of the unlicensed person's agreements and it will be considered void.
B) results in generally unenforceable contracts.
C) does not affect the legality of unlicensed persons' agreements.
D) automatically declares the contract void for the protection of the public.
Q2) Blue laws are uniform across all states in the country.
A)True
B)False
Q3) _____ are defined as contracts in which the only choice for one of the parties is between agreeing to the terms dictated by the other party or not contracting at all.
A) Contracts of expression
B) Contracts of adhesion
C) Aleatory contracts
D) Bilateral contracts
Q4) What factors do the courts consider in determining whether a contract is unconscionable?
Q5) Explain the concept of exculpatory clauses in contracts.
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Chapter 16: The Form and Meaning of Contracts
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Q1) Oral evidence can be introduced to help a court resolve ambiguities in a written contract.
A)True
B)False
Q2) Under the parol evidence rule,parties cannot vary the terms of a(n):
A) written contract by introducing evidence of terms allegedly agreed on prior to, or contemporaneous with the writing.
B) oral contract by introducing evidence of a written agreement.
C) written contract by introducing evidence of another writing signed after the original contract was drafted.
D) oral agreement by publishing notice of a subsequent modification.
Q3) A clothing store has opened a credit account in which Judy,a college student,gets Alice,her older sister,to agree to pay the amount owed on the account if Judy fails to do so.Which of the following statements is true of this scenario?
A) Judy is the obligor, and she is secondarily liable to the clothing store.
B) Alice is the guarantor, and she is primarily liable to make the payments.
C) Judy is the obligor, and she is contractually liable to the guarantor.
D) Alice is the guarantor, and Alice's contract must be in writing to be enforceable.
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18
Chapter 17: Third Parties Contract Rights
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Q1) Lydia's father has named Lydia in his will as the inheritor of his farm.He has also named her as a beneficiary in his insurance policy.Lydia is:
A) a donee beneficiary.
B) an incidental beneficiary.
C) the assignee by novation.
D) a creditor beneficiary.
Q2) Susan wanted to give a diamond pendant to Lucy,her daughter.Susan entered into a contract with Andrew,a dealer who specializes in diamond jewelry.Susan had promised to pay him if he delivered the pendant to Lucy.Andrew withdrew from the contract and Lucy wanted to sue him.Which of the following statements is true in this scenario?
A) Lucy can sue Andrew as she is a creditor beneficiary of the contract.
B) Lucy can sue Andrew as she is a donee beneficiary of the contract.
C) Lucy cannot sue Andrew as she is an incidental beneficiary of the contract.
D) Lucy cannot sue Andrew as Susan's promise was gratuitous and therefore unenforceable.
Q3) Employment contracts are generally assignable.
A)True
B)False
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Chapter 18: Performance and Remediespart Three Sales
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Q1) Commercial frustration:
A) is very similar to impracticability.
B) occurs when the event is foreseeable.
C) excuses performance when events occur before the formation of the contract.
D) occurs when the promisor expressly assumes the risk that the event has occurred.
Q2) A mandatory injunction:
A) occurs when a court orders a party to refrain from doing a certain act.
B) occurs when a court orders a party to do a certain act.
C) is ordered to induce irreparable injury.
D) is used to compel personal service.
Q3) A promisor who is guilty of material breach has no right of action under the contract. A)True
B)False
Q4) The destruction of items that a promisor intended to use in performing does not excuse nonperformance if substitutes are available.
A)True
B)False
Q5) Explain the concept of substantial performance.
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Chapter 19: Formation and Terms of Sales Contracts
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Q1) In a sale or return contract,the goods are delivered to the buyer primarily for resale with the understanding that the buyer has the right to return them.
A)True
B)False
Q2) Article 2 of the Uniform Commercial Code covers contracts to provide services or to sell real property.
A)True
B)False
Q3) If a contract requires a seller to ship the goods,title passes to the buyer only when the seller delivers the goods to him.
A)True
B)False
Q4) In a shipment contract,"FOB" stands for _____.
A) free on board
B) fee on board
C) freight on board
D) forbidden on board
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21
Chapter 20: Warranties and Product Liability
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Q1) The basic rule of _____ is that a person owes a duty of care to avoid foreseeable injury to others.
A) negligence
B) Magnuson-Moss Act
C) breach of warranty
D) strict liability
Q2) If a consumer brings suit against the manufacturer,the retailer is relieved of its responsibility for the fitness and merchantability of the goods.
A)True
B)False
Q3) Disclaimers in contracts are usually effective to shield a manufacturer or seller against liability for negligence to consumers.
A)True
B)False
Q4) The Magnuson-Moss Warranty Act is intended to:
A) provide maximum warranty protection for consumers.
B) increase consumer understanding of warranties.
C) protect all sellers of a "consumer product" that costs less than $5.
D) assert on the importance of giving a written warranty to consumers.
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Chapter 21: Performance of Sales Contracts
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Q1) Once a party has waived rights to a portion of a contract that has not yet been performed,that party:
A) may retract the waiver if there is a material change of position by the other party.
B) may retract the waiver unconditionally.
C) may retract the waiver by giving reasonable notice that strict performance will be required.
D) may retract the waiver only if the other party does not object to it.
Q2) If the shipping terms are cash on delivery,the buyer must pay for the goods after inspecting them.
A)True
B)False
Q3) If the goods required for the performance of a contract are destroyed without fault of either party prior to the time the risk of loss passed to the buyer,then the contract is voided.
A)True
B)False
Q4) What does it mean to require parties to act in "good faith" in the performance of a sales contract? Explain and provide an example.
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Page 23
Chapter 22: Remedies for Breach of Sales Contractspart
Four Agency and Employment
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Q1) Which of the following statements is true of consequential damages?
A) Liability for consequential damages cannot be excluded by an agreement between the parties.
B) A limitation on the liability for consequential damages cannot be enforced if it is unconscionable.
C) Consequential damages do not involve the recovery of damages caused by consumer goods.
D) Exclusion of or limitation on consequential damages is permitted where the loss is not commercial.
Q2) If the seller refuses to deliver the goods called for by the contract,the buyer can:
A) get the difference between the contract price of the goods and their market price at the time the buyer learns of the seller's breach.
B) sue for only consequential damages, and if he fails, get a percentage of the difference between contract price and market price.
C) avoid giving the seller any credit for expenses saved.
D) seek specific performance even if the goods ordered are not unique in nature.
Q3) What are the most common ways in which a buyer may breach a contract?
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Page 24
Chapter 23: The Agency Relationship-Creation, duties, and Termination
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Q1) A duty imposed on the agent by the common law generally includes the:
A) duty to compensate.
B) duty of loyalty.
C) duty to reimburse.
D) duty of indemnification.
Q2) An agency coupled with an interest means:
A) either party may terminate the agency at any time.
B) the agency may not be able to recover the debt in the event of the principal's death.
C) the agency is irrevocable without the consent of the agent.
D) each party has the power to terminate without breach of contract if done so within 18 months.
Q3) When an agent breaches a duty owed to the principal,the agent may:
A) not be discharged until the contract has expired.
B) be discharged without liability in spite of an unexpired contract.
C) be discharged only if the principal can show actual damage.
D) not be discharged until contractual damages are paid.
Q4) Explain the concepts "agency at will" and "agency coupled with an interest."
Q5) Discuss the capacity required for an agent to be contracted as a principal or an agent.
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Chapter 24: Liability of Principals and Agents to Third Parties
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Q1) Explain the concept of apparent authority.
Q2) Generally,notice to the agent does not imply notice to the principal even if it relates to the business of the agency.
A)True
B)False
Q3) An attorney-in-fact:
A) is the label given to an agent whose authority is in writing.
B) is the label given to an agent whose authority is implied.
C) is the label given to an agent whose authority is apparent.
D) is the label given to an agent whose authority is passed on after the demise of the principal.
Q4) When an agent commits a tort or crime while working for the principal,the agent is not liable for the consequences of his actions if he is acting at the direction of the principal.
A)True
B)False
Q5) Ratification does not give the principal full benefit of the contract.
A)True
B)False
Page 26
Q6) Briefly describe the doctrine of respondeat superior.
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Chapter 25: Employment Laws-Part Five Business
Organizations
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Q1) Which of the following groups are covered under Americans with Disabilities Act?
A) People with AIDS or AIDS-related conditions
B) Transvestites
C) People with a substance-abuse addiction
D) Bisexuals
Q2) The Lilly Ledbetter Act states that each illegal pay differential payment renews a cause of action until the discrimination is reasonably discovered.
A)True
B)False
Q3) Title VII of the Civil Rights Act of 1964 prohibits quid pro quo sexual harassment involving some express or implied connection between the employee's submission to sexually oriented behavior and job benefits.What other type of sexual harassment does Title VII prohibit?
Q4) The Equal Employment Opportunity Commission (EEOC)strongly supports mandatory binding arbitration as a condition of employment.
A)True
B)False
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Chapter 26: Which Form of Business Organization
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Q1) A partnership can be changed to a corporation later,when profits are assured.
A)True
B)False
Q2) Which of the following run the risk of unlimited personal liability?
A) Partners in a limited partnership
B) Partners in a general partnership
C) Shareholders in S Corporations
D) Corporate shareholders
Q3) In a general partnership,each partner is an owner and has a right to share in the profits of the business.
A)True
B)False
Q4) S Corporations are similar to partnerships in that corporate tax is paid.
A)True
B)False
Q5) A partner cannot terminate an ordinary partnership at will.
A)True
B)False
Q6) What are some of the strategies a corporation can employ to minimize taxation disadvantages?
Page 29
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Chapter 27: Partnerships
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Q1) The significant difference between a joint venture and partnership is that:
A) joint venturers sometimes are held to have less implied and apparent authority than partners.
B) a joint venture relates to a continuing business, and a partnership relates to a single enterprise.
C) the requirement for joint ventures is more formal in comparison with partnership agreements.
D) joint ventures unlike partnership agreements come into existence only when there is an express contract.
Q2) Under the Revised Uniform Partnership Act (RUPA),when a partner dies,the surviving partners:
A) cannot continue the business.
B) are entitled to compensation for winding up the partnership business.
C) must accept the deceased partner's heir as a full partner.
D) are relieved from personal liability on partnership debts.
Q3) A continuing partnership becomes liable for the debts incurred by the original partnership.
A)True
B)False
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Chapter 28: Formation and Termination of Corporations
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Q1) A corporation is viewed as the alter ego of the shareholder-manager when shareholders mix their personal dealings and corporate transactions as if all were personal.
A)True
B)False
Q2) A municipal corporation:
A) is formed and operated by private persons.
B) does not seek to make a profit.
C) does not have the power to tax.
D) is incorporated under special statute.
Q3) If articles of incorporation provide for a limited life,the corporation _____.
A) automatically terminates at the end of the designated time
B) usually appeals to the secretary of state for dissolution
C) dissolves only by amendment to the contract
D) terminates at the end of the designated time only with the written consent of all shareholders
Q4) In a de facto corporation,the promoters substantially comply with all mandatory provisions.
A)True
B)False
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Chapter 29: Management of the Corporate Business
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Q1) A _____ is a majority of the number of directors fixed by the articles or bylaws.
A) qualification
B) quorum
C) referendum
D) novation
Q2) When a corporate manager makes an honest error in judgment,the business judgment rule directs that the manager will:
A) be liable for corporate losses.
B) not be liable and a court will step in to correct the manager's mistake.
C) not be liable if he acted with care and in good faith.
D) be liable for all losses resulting from the error.
Q3) A corporation is liable for all torts committed by its employees while acting in the course of and within the scope of their employment.
A)True
B)False
Q4) Write a note on indemnification in corporations.
Q5) What is the meaning of ex officio authority?
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Chapter 30: Financing the Corporation and the Role of the Shareholders
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Q1) Which of the following statements best describes preferred stocks?
A) Preferred stock cannot be converted into common stock.
B) Preferred stock holders are usually granted the right to vote only in the event that dividends due are fully paid to stockholders.
C) Redemption of preferred stocks is allowed irrespective of whether the cost would make the corporation insolvent or not.
D) If a corporation's articles allow redemption, the corporation can buy back preferred stocks even if the holders do not wish to sell.
Q2) Dividends on noncumulative preferred stock need to be paid later if they are not earned and paid in the year due.
A)True
B)False
Q3) Under which of the following conditions would a shareholder be liable to the corporation or its creditors?
A) If he or she buys stock that was fully paid for when issued.
B) If he or she deals only with dividends and not shares.
C) If he or she is involved in "watered stock" situations.
D) If he or she was unaware of the illegality of the dividends.
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Chapter 31: Securities Regulation
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Q1) The executive branch of the Securities and Exchange Commission:
A) decides whether a person has violated the securities statutes or not.
B) controls securities transactions by creating and passing regulations.
C) promulgates rules and regulations.
D) brings enforcement actions against alleged violators of the statutes.
Q2) According to the Securities and Exchange Commission (SEC),per se fraudulent statements include those that:
A) tout securities and make unreasonable forecasts.
B) specify the use of the proceeds of the issuance.
C) outline the annual return on an investment.
D) give full details about the securities to be offered.
Q3) Securities sold in exempt transactions are:
A) exempt from registrations in all transactions.
B) exempt from registration on subsequent sales of the securities.
C) exempt from the registration requirements for those particular transactions only.
D) exempt from antifraud provisions of the 1933 Act.
Q4) What are the two types of securities that must be registered under the Securities Exchange Act of 1934?
Q5) Describe the Foreign Corrupt Practices Act and the reason for its enactment.
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Chapter 32: Legal Liability of Accountantspart Six Property
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Q1) Which of the following statements is true of negligence by an accountant?
A) The failure of an accountant to discover fraud by the client's employees or others is in itself proof of negligence by the accountant.
B) The investigative techniques used by accountants will always uncover the fraud of a skillful and careful crook.
C) The traditional defenses of contributory negligence and comparative negligence can apply in a negligence action against an accountant.
D) It is not necessary to notify an appropriate person in management if an accountant has a basis for suspicion of fraud.
Q2) Which of the following statements is true of the Sarbanes-Oxley Act of 2002?
A) It requires foreign accounting firms to register with the Public Company Accounting Oversight Board if they audit public companies.
B) The act reduces criminal penalties for securities fraud.
C) Its registration and reporting provisions apply only to U.S. companies listed on U.S. securities exchanges.
D) Section 106 of the act deals expressly with national accounting firms.
Q3) When might an accountant issue a qualified opinion and a disclaimer?
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Page 35
Chapter 33: Personal Property and Bailments
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Q1) Phoebe rented a safe deposit box in a bank to keep her valuables.In this case,_____.
A) Phoebe is the bailee
B) the bank is the bailor
C) the bank is not an insurer of the contents of the box
D) the bank is not liable to explain any loss or damage to the contents of the box
Q2) If a bailment is solely for the benefit of the bailor,then the bailee is liable for even slight negligence.
A)True
B)False
Q3) What are the differences between a gift inter vivos and a gift causa mortis?
Q4) A person who finds lost property acquires better rights to that property than anyone other than the true owner.
A)True
B)False
Q5) Define a bailment and discuss its essential terms.
Q6) A conditional gift is a completed gift.
A)True
B)False
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Chapter 34: Real Property
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Q1) An easement granted through an express agreement:
A) is not covered by the statute of frauds.
B) is required to be in writing to be enforceable.
C) is enforced no differently than an implied easement.
D) is not executed with the same formality as a grant of a fee simple interest in real property.
Q2) An oral license for the temporary use of another's land is enforceable.
A)True
B)False
Q3) Which of the following statements is true of fixtures?
A) When an item is of little value except for use with certain real property, it is likely to be considered a fixture even if it is unattached.
B) One who provides fixtures to real property without a request to that effect from the owner is entitled to compensation from the owner.
C) Personal property that may be removed with little injury to the property is likely to be considered a fixture.
D) Actual physical attachment to real property is necessary for an item to be considered a fixture.
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Chapter 35: Landlord and Tenant
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Q1) Federal laws often regulate lease terms.
A)True
B)False
Q2) Dana rented a studio apartment from Mollie for one year,starting May 5,1989 to May 5,1990.Dana did not move out on May 5,1990.Instead she sent Mollie a check for $300 on June 5,1990 stating "June rent",which Mollie accepted.Mollie communicated to Dana that she was extending the lease to May 5,1991.Dana confirmed the new tenancy and agreed to continue staying as a tenant.In this case,as of June 5,1990,Dana is a _____.
A) tenant at will
B) tenant at sufferance
C) tenant with a periodic tenancy
D) tenant for a term
Q3) An exception to the traditional no-liability rule is that the landlord has the duty:
A) to ask the tenant to maintain common areas.
B) not to commit waste on the property.
C) to use reasonable care in performing repairs.
D) to get the property in as good a condition as it was when leased.
Q4) Explain the difference between an assignment and a sublease.
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Page 38
Chapter 36: Estates and Trusts
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Q1) The rights of beneficiaries are superior to the rights of creditors under a will.
A)True
B)False
Q2) A nuncupative will is a will that is written and signed in the testator's handwriting.
A)True
B)False
Q3) Under the Patient Self-Determination Act,health care providers must:
A) provide oral information to adults receiving medical care about their rights to medical treatment.
B) document in the patient's medical record whether the patient has executed an advance directive.
C) ensure compliance with federal laws concerning codicils.
D) contact the patient's attorney for consenting or withholding consent to surgery.
Q4) Intestacy statutes are designed to reflect the presumed intent of the deceased.
A)True
B)False
Q5) Name the basic formalities required by most states in the execution of a will.
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Chapter 37: Insurance-Part Seven Commercial Paper
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Q1) The insured must pay all past-due premiums and a stated amount of interest along with proof of insurability to secure reinstatement after a life insurance policy has lapsed.
A)True
B)False
Q2) Property insurance policies are generally nonassignable.
A)True
B)False
Q3) In life insurance policies,the person who purchases the policy must have an insurable interest in the life being insured at the time the loss occurs,not at the time the policy was issued.
A)True
B)False
Q4) Insurance companies must wait until litigation has been concluded to satisfy their duty to pay.
A)True
B)False
Q5) Explain the right of subrogation.
Q6) What are an insurer's obligations in a liability insurance contract?
Q7) Describe portable health insurance.
Page 40
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Chapter 38: Negotiable Instruments
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Q1) A certificate of deposit is:
A) an instrument in which the maker makes an unconditional promise to pay a fixed amount of money with interest to the payee on demand.
B) the most widely used form of commercial paper that is a draft payable on demand and drawn on a bank.
C) an instrument in which the maker makes an unconditional promise to pay a fixed amount of money without interest to the payee at the specified future time.
D) an instrument containing an acknowledgment by a bank that it has received a deposit of money and a promise to repay the sum of money.
Q2) A "bearer paper" is a check:
A) made payable to the order of cash.
B) that can be transferred only by indorsement.
C) that can be negotiated only by indorsement.
D) that is payable to the order of a specific person.
Q3) What is the difference between a promissory note and a check? Why is the distinction important?
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Chapter 39: Negotiation and Holder in Due Course
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Q1) Which of the following statements is true of negotiating an instrument?
A) It must not be transferred involuntarily.
B) It must be transferred voluntarily.
C) It must be transferred by a person other than the issuer.
D) It must be transferred by the issuer.
Q2) How does one become a "holder in due course"?
Q3) The use of a qualified indorsement eliminates the contractual liability of the indorser.
A)True
B)False
Q4) The claims and defenses to payment of an instrument that go to the validity of the instrument are called _____.
A) real defenses
B) personal defenses
C) claims in recoupment
D) claims to an instrument
Q5) A forged indorsement will never prevent a person from becoming a holder.
A)True
B)False
Q6) Explain the nature and meaning of an indorsement.
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Chapter 40: Liability of Parties
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Q1) Which of the following is true of the obligations of an acceptor?
A) If the certification or acceptance does not state an amount, then the acceptor is free of all obligations.
B) If the certification of a check or other acceptance of a draft states the amount accepted, the obligation of the acceptor is the amount of the instrument at the time a holder in due course takes it.
C) If the certification of a check or other acceptance of a draft states the amount certified or accepted, the obligation of the acceptor is that amount.
D) If the certification or acceptance does not state an amount, or if the amount of the instrument is subsequently raised, then the obligation of the acceptor is the raised amount.
Q2) The acceptor's obligation:
A) extends to a person entitled to enforce the draft.
B) does not extend to the drawer.
C) extends to an indorser who does not pay the instrument pursuant to the indorser's liability.
D) does not extend to the indorser who paid the instrument.
Q3) Mention the parties who are entitled to enforce an instrument.
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Chapter 41: Checks and Electronic Fund Transfers-Part
Eight Credit Transactions
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Q1) Sasha drew a check payable to the order of Janice on First Bank.Janice indorsed the check and sold it to Karl,who took the check to First Bank and requested that the bank certify the check.The bank did so.Later,Karl presented the check for payment,but First Bank refused to pay.In this scenario,which of the following parties may Karl sue for not receiving payment?
A) First Bank
B) Sasha
C) Janice
D) Sasha and Janice
Q2) Which of the following is a factor of the Electronic Funds Transfer Act that differs from the Fair Credit Billing Act?
A) Consumer's liability when the card is stolen
B) Bank's liability if it makes unauthorized transfers
C) The consumer's liability for unauthorized electronic funds transfers
D) The financial institution's liability to the consumer for failure to make or stop payments
Q3) During a radical truncation,the drawee bank keeps the original checks.
A)True
B)False
Page 44
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Chapter 42: Introduction to Security
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Q1) A guarantor is a person who:
A) joins with the person who is primarily liable in promising to make the payment or to perform the duty.
B) does not join in making a promise, but makes a separate promise and agrees to be liable on the happening of a certain event.
C) is paid for serving as a surety, such as a bonding company.
D) acts as a surety without compensation, such as a friend who cosigns a note as a favor.
Q2) In a deed of trust transaction,when a trustee sells the property and the proceeds generate a surplus,it _____.
A) is paid to the borrower
B) is paid to the lender
C) is paid to the trustee
D) goes to the state
Q3) In a deed of trust transaction,the _____.
A) lender should sue the trustee in case of a deficiency
B) surplus proceeds from a sale of property goes to the trustee
C) lender sells the property at a judicial sale
D) borrower deeds to the trustee the property that is to be put up as security
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Page 45
Chapter 43: Security Interests in Personal Property
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Q1) A retailer of consumer goods who relies on attachment of a security interest to perfect its security interest prevails over other creditors of the debtor-buyer.
A)True
B)False
Q2) A purchase money security interest in noninventory collateral prevails over a prior perfected security interest if the:
A) purchase money security interest is perfected at the time the debtor takes possession or within 20 days afterward.
B) notification states that the person expects to acquire a purchase money security interest in inventory of the debtor and describes the inventory.
C) holder of the competing security interest received notification within five years before the debtor receives the inventory.
D) purchase money secured party gives notification in writing to the prior secured creditor before the debtor receives the inventory.
Q3) Explain a creditor's three potential courses of action upon default.
Q4) Explain how a security interest is created.
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Chapter 44: Bankruptcy-Part Nine Government Regulation
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Q1) If a husband and wife involved in bankruptcy cannot decide whether to use the state or the federal exemptions,the state exemptions are deemed elected.
A)True B)False
Q2) The creditors who do not take any collateral to secure the debt owed to them are unsecured creditors.
A)True B)False
Q3) What are the primary purposes of the Bankruptcy Code?
Q4) Which of the following statements is true of the exemptions available to bankrupt debtors?
A) They can elect to use the set of exemptions provided by either the state or federal bankruptcy law.
B) They can elect to keep some items exempted under the state law and other items under the federal law.
C) The set of exemptions is picked by the creditor's committee or the trustee.
D) The debtor can pick the exemptions of the place where the debtor was domiciled for 100 days before filing of the petition.
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Chapter 45: The Antitrust Laws
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Q1) Describe the type of behavior Section 3 of the Clayton Act is designed to attack.
Q2) The Clayton Act was passed to supplement the Sherman Act by attacking specific practices that monopolists had historically followed to gain monopoly power.
A)True
B)False
Q3) Which of the following is true of a consignment agreement?
A) If a manufacturer delivers all goods to its dealers on a consignment basis, the goods become the property of the dealer.
B) The owner of goods delivers them to another who is to act as the owner's agent in selling the goods.
C) If a manufacturer delivers all goods to its dealers on a consignment basis, the dealer cannot lawfully fix the price of those goods.
D) It is always held to be joint action.
Q4) Describe the Hart-Scott-Rodino Antitrust Improvements Act.
Q5) The purpose of U.S.antitrust law is to encourage and protect competition.
A)True
B)False
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Page 48
Chapter 46: Consumer Protection Laws
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Q1) Under the Truth in Lending Act,the term "finance charge":
A) includes all costs related to the extension of credit.
B) includes all costs related to the extension of credit except for fees for credit reports.
C) includes only interest rates but not any other credit charges.
D) does not include loan fees and fees for credit reports.
Q2) The Holder in Due Course rule creates a defense where the product is sold "as is."
A)True
B)False
Q3) Arbitration of disputes under the purview of "lemon laws" under state statute is:
A) not required by most statutes.
B) usually binding on the consumer, not the manufacturer.
C) usually binding on the manufacturer, not the consumer.
D) not binding on either the manufacturer or the consumer.
Q4) Describe the Gramm-Leach-Bliley Act of 1999 (GLBA).
Q5) What is the main idea behind the Holder in Due Course rule?
Q6) What are the main goals of the Fair Credit Reporting Act (FCRA)? Under what conditions is this act not applicable?
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Page 49
Chapter 47: Environmental Regulation
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Q1) Which of the following is a true statement about the Clean Water Act?
A) It was the 1970 amendment to the Federal Water Pollution Control Act (FWPCA).
B) It provides that a discharge permit has to be obtained from the Army Corps of Engineers in order to deposit or discharge "refuse" into a navigable waterway.
C) It had a goal to have no discharges of pollutants into the nation's waters by 1985.
D) It provides the federal government with the primary responsibility for preventing, reducing, and eliminating water pollution.
Q2) Under the Clean Air Act,routine maintenance,repair,and replacement activities as well as increases in hours of production that are not accompanied by increases in emissions are included in the definition of modification.
A)True
B)False
Q3) Which of the following statements is true of volatile organic compounds?
A) They are substances which combine with nitrogen oxides to become ozone.
B) They are substances which release chlorines and deplete ozone.
C) They are substances which control air pollution.
D) They are also known as catalytic converters.
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