Introduction to Business Law
Final Test Solutions
Course Introduction
Introduction to Business Law provides students with a foundational understanding of the legal principles that govern business activities and commercial transactions. The course explores core topics such as contract law, torts, agency, business organizations, and the regulatory environment affecting businesses. Through case studies and real-world examples, students will analyze the legal rights and responsibilities of individuals and organizations while gaining insight into how laws are created, interpreted, and enforced. Emphasis is placed on practical applications and critical thinking skills, preparing students to navigate legal issues in the business world.
Recommended Textbook
Andersons Business Law and the Legal Environment 22nd Edition by David P. Twomey
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Chapter 1: The Nature and Sources of Law
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Sample Questions
Q1) The law works to cause our society to operate in an inefficient manner.
A)True
B)False
Answer: False
Q2) Both Congress and state legislatures enact statutory law.
A)True
B)False
Answer: True
Q3) Substantive law:
A) specifies the steps to follow to enforce legal rights.
B) concerns equitable relief only.
C) creates,defines,and regulates rights and liabilities.
D) draws solely on English legal principles.
Answer: C
Q4) Rights guaranteed in the United States Constitution are accompanied by duties.
A)True
B)False
Answer: True
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Chapter 2: The Court System and Dispute Resolution
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Q1) A summary jury trial is:
A) binding on the parties.
B) a mock trial.
C) a full and complete hearing of all evidence pertaining to the case.
D) a shortcut to establishing judicial precedent.
Answer: B
Q2) A deposition:
A) is the testimony of a witness taken under oath.
B) is conducted outside of the courtroom.
C) can be used to impeach a witness.
D) all of the above.
Answer: D
Q3) The federal court system consists of ____ level(s)of courts.
A) one
B) two
C) three
D) four
Answer: C
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Chapter 3: Business Ethics, Social Forces, and the Law
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Sample Questions
Q1) Laws that prohibit defamation,invasions of privacy,and reputation exist primarily:
A) for protection of the person.
B) for protection of public health,safety,and morals.
C) for protection of property.
D) for protection of the state.
Answer: A
Q2) In applying the stakeholder model of business ethics,only the interests of important constituencies affected by an action need to be satisfied.
A)True
B)False
Answer: False
Q3) Over half of all Fortune 500 firms train their employees to recognize and deal with particular types of behavior that breach their ethical codes.
A)True
B)False
Answer: True
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Chapter 4: The Constitution As the Foundation of the Legal Environment
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Q1) The greatest changes to the written Constitution have been brought about by:
A) departure by treaty.
B) judicial interpretation.
C) constitutional amendment.
D) amendment by practice.
Q2) A school district supplied school bus service for all children 12 years of age or under who lived at least one mile from school.This service was provided for transportation to and from school.Joanna was a 13-year-old student who lived in that school district.Joanna's home was 1.2 miles from school.Her parents brought suit against the school district alleging that Joanna was entitled to school bus service and the failure to provide such service denied her the equal protection of the law.Discuss the probable outcome of the lawsuit.
Q3) A system in which a central government is given power to administer to national concerns and individual states administer to local concerns is called:
A) bicameral.
B) constitutional.
C) federal.
D) tripartite.
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Chapter 5: Government Regulation of Competition and Prices
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Q1) The Sherman Act applies to:
A) buying activities.
B) selling activities.
C) production activities.
D) all of the above.
Q2) The Sherman Act focuses on:
A) unfair methods of competition.
B) combinations or contracts in restraint of trade.
C) permitted price discriminations.
D) intrastate commerce.
Q3) A "suggested retail price" is not a violation of the antitrust laws.
A)True
B)False
Q4) Under the Clayton Act,a divestiture order is:
A) notification from the Department of Justice that a merger is about to occur.
B) notification from the Department of Justice that a merger did not occur.
C) a decision by a court requiring a defendant to sell an enterprise.
D) an order by a court requiring an enterprise to dispose of its inventory.
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Q5) The attorney general of a state may bring a class action suit to recover damages for those injured by an antitrust violation which raised prices.
Chapter 6: Administrative Agencies
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Q1) Members of administrative agencies are ordinarily
A) pre-selected.
B) elected.
C) assigned.
D) appointed.
Q2) If an agency causes a substantial loss to a business by enforcement of its laws,that business:
A) always can hold the agency liable for damages.
B) never can hold the agency liable for damages.
C) may seek damages if the agency acted in bad faith.
D) may seek damages if the agency complied with its own guidelines.
Q3) The "public comment" period for proposed administrative agency rules must be at least __________ days.
A) 30
B) 60
C) 90
D) 120
Q4) An agency hearing is generally not subject to the rules of evidence.
A)True
B)False
Page 8
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Chapter 7: The Legal Environment of International Trade
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Q1) The main purpose of the International Monetary Fund (IMF)is to:
A) provide easy access to money for multinational corporations.
B) facilitate the expansion and balanced growth of international trade.
C) create a model simplified lending system.
D) facilitate currency exchanges.
Q2) The U.S.dollar is considered the international currency.
A)True
B)False
Q3) Since 1947 and the end of the World War II era,the goal of the General Agreement on Tariffs and Trade (GATT)has been to restrict world trade.
A)True
B)False
Q4) The Export-Import Bank (EX-IM Bank)is an international agency.
A)True
B)False
Q5) A societé anonyme is the European counterpart of a U.S.corporation.
A)True
B)False
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Chapter 8: Crimes
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Q1) A crime consists of three elements: the mental state,the intent,and the act.
A)True
B)False
Q2) Destroying information stored on a computer may be a crime.
A)True
B)False
Q3) Executives can be convicted on the basis that something went wrong at their company.
A)True
B)False
Q4) Money __________ involves the knowing and willful participation in a financial transaction involving unlawful proceeds when the transaction is designed to conceal or disguise the source of the funds.
A) ironing
B) vacuuming
C) laundering
D) cooking
Q5) Because a corporation is not a human being,it cannot be convicted of a crime.
A)True
B)False
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Chapter 9: Torts
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Q1) A tort is a wrong arising from a violation of a public duty.
A)True
B)False
Q2) Oral or spoken defamation is:
A) slander.
B) libel.
C) privilege.
D) perjury.
Q3) If a crime does not hurt an identifiable person,it is not a tort.
A)True
B)False
Q4) Under the tort of false imprisonment,shopkeepers are prevented from detaining anyone whom they believe has shoplifted.
A)True
B)False
Q5) Malice is always a required element of defamation.
A)True
B)False
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Chapter 10: Intellectual Property Rights
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Sample Questions
Q1) Herman Corporation is engaged in preparing a marketing campaign consisting of electronic and print images.Drawings and photographs for the campaign are coming from a variety of sources,including popular magazines,international newspapers,and web sources.The marketing vice president asserts that the company may use the images under the fair use doctrine.What factors should be considered in the application of the fair use doctrine?
Q2) Owners of mask works are entitled to the exclusive right to reproduce and distribute their products under U.S.law for a period of:
A) 10 years.
B) 20 years.
C) 28 years.
D) the life of the creator plus 70 years.
Q3) A copyright owner may prohibit even limited use of copyrighted material if it is used for parody or criticism.
A)True
B)False
Q4) In limited circumstances customer lists are protected under trade secret laws.
A)True
B)False
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Chapter 11: Cyberlaw
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Q1) Employers are required to give notice to employees that they will monitor their employees' e-mail.
A)True
B)False
Q2) Sock-puppeting is anonymous blogging that flatters the blogger's company and bashes one or more competitors.
A)True
B)False
Q3) Employees may waive their attorney-client privileges when using their work computers for communication.
A)True
B)False
Q4) The distinction between offer and acceptance is no longer relevant in cyberlaw.
A)True
B)False
Q5) Cleaning up your name on Google using one of several services is a good way to eliminate any suspicions perspective or current employers may have about you.
A)True
B)False
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Chapter 12: Nature and Classes of Contracts: Contracting on
the Internet
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Sample Questions
Q1) The main thrust of the quasi contract is to: A) encourage the making of written contracts. B) prevent enrichment.
C) compensate those who voluntarily help others. D) prevent unjust enrichment.
Q2) The greatest risk to purchasing online is providing your credit card information to the seller.
A)True
B)False
Q3) A quasi contract may arise in a situation in which no contract exists.
A)True B)False
Q4) The principle behind the quasi contract is to prevent unjust enrichment. A)True B)False
Q5) The law requires parties to be fair and reasonable in the making of a contract. A)True B)False
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Chapter 13: Formation of Contracts: Offer and Acceptance
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Q1) A firm offer is an offer that states that it is to be irrevocable,or irrevocable for a stated period of time.
A)True
B)False
Q2) If the offeree purports to accept an offer but in so doing makes any change to the terms of the offer,such action is a counteroffer that rejects the original offer.
A)True
B)False
Q3) If no time is stated for the duration of an offer,it continues indefinitely if the offer relates to durable goods or land.
A)True
B)False
Q4) An offer is effective only if it is communicated by the offeror in person. A)True
B)False
Q5) If an offer is indefinite or vague,no contract arises from an attempt to accept it.
A)True
B)False
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Chapter 14: Capacity and Genuine Assent
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Sample Questions
Q1) A contract based on a mutual mistake in judgment is:
A) voidable by the adversely affected party.
B) not voidable by the adversely affected party.
C) void ab initio.
D) none of the above.
Q2) Jack sells Jim a used car that Jack falsely described as having been driven only 12,000 miles.Fraud has occurred if:
A) Jim bought the car solely because of its color.
B) Jim knew that the mileage was more than 12,000 miles.
C) Jim relied upon Jack's statement.
D) Jack is a merchant.
Q3) A person lacks contractual capacity if:
A) the person is a chronic alcoholic.
B) the person is a drug addict.
C) because of mental impairment,the person does not comprehend that a contract is being made or understand its consequences.
D) all of the above.
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Chapter 15: Consideration
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Questions
Q1) Which of the following is not a necessary element of promissory estoppel?
A) The promisor and the promisee must engage in a bargained-for exchange.
B) The promisor must intend or should reasonably expect that the promisee will rely on the promise.
C) The promisee must in fact rely on the promise in some definite and substantial manner.
D) Enforcement of the promise is the only way to avoid injustice.
Q2) Charitable subscriptions by which individuals make pledges to finance the construction of a college building,a church or another structure for charitable purposes are binding to the extent that the donor should have reasonably realized that the charity was relying on the promise in undertaking the building program.
A)True
B)False
Q3) An illusory promise creates a bilateral contract.
A)True
B)False
Q4) Forbearance may constitute consideration.
A)True
B)False
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Chapter 16: Legality and Public Policy
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Q1) An agreement between Jim and his 18-year-old daughter,Betty,provides that he will give her $25,000 if she does not marry until after her 22nd birthday.One month after reaching the age of 22,Betty,still unmarried,claims the $25,000. Jim refuses to pay,claiming that the agreement was illegal.Is Jim correct?
Q2) In every contract there exists an expressed covenant of good faith and fair dealing. A)True B)False
Q3) Agreements that are illegal are:
A) enforceable if one party acted in good faith. B) voidable by one of the parties. C) void.
D) voidable by either party.
Q4) Fees charged by a lender for the reasonable expense of making a loan,such as the cost of appraising property,are treated as interest for purposes of the usury law.
A)True B)False
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Chapter 17: Writing, Electronic Forms, and Interpretation of Contracts
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Q1) In the absence of a statute requiring a writing,a contract may be oral or written.
A)True
B)False
Q2) The Uniform Commercial Code contains a statute of frauds rule relating to sales of personal property,specifically:
A) goods.
B) chattel paper.
C) real property.
D) none of the above.
Q3) The parol evidence rule does not apply to changes made after the signing of the contract.
A)True
B)False
Q4) When a contract proves to be a bad bargain:
A) the injured party is never bound by the terms of the contract.
B) courts will always imply terms that are necessary to avoid hardship.
C) parties are generally still bound by the terms of the contract.
D) the contract must be rewritten.
Page 19
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Chapter 18: Third Persons and Contracts
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Q1) An obligor may delegate his or her duties to perform under a contract when the:
A) performance of the duty is standardized and nonpersonal.
B) obligor is unable to perform his or her duties.
C) contract is silent as to the right of assignment.
D) obligor is an expert in his or her specialized duties under the contract.
Q2) If the obligor is notified in any manner that there has been an assignment and that any money due must be paid to the assignee,the obligor's obligation can be discharged only by making payment to the assignee.
A)True
B)False
Q3) The assignments of the right to money always gives the assignee the right to collect and keep the funds.
A)True
B)False
Q4) Only written words that show an intention to transfer or assign will be given the effect of an assignment.
A)True
B)False
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20
Chapter 19: Discharge of Contracts
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Q1) When a building contractor has substantially performed a contract to construct a building,the contractor is entitled to recover the full contract price.
A)True
B)False
Q2) All courts hold that when an agreement requires satisfaction of the other party regarding the acceptance of an act,a reasonable person standard is used.
A)True
B)False
Q3) Kentucky Lumber and Millwork Company contracted to supply Rommell Company millwork for use in the construction of a school building.While the work was in progress,the Kentucky Lumber mill was destroyed by fire.For two months thereafter,Kentucky Lumber and Millwork supplied Rommell with millwork purchased from a third party.Kentucky Lumber and Millwork did not wish to continue this plan and declared that the contract was ended.Rommell brought an action against Kentucky Lumber and Millwork to enforce the contract.How will the court decide?
Q4) By operation of law,a party can be discharged in bankruptcy from debts.
A)True
B)False
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Page 21
Chapter 20: Breach of Contract and Remedies
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Q1) When the plaintiff seeks the remedy of specific performance,the plaintiff wants the other party to carry out the terms of the contract and not pay damages.
A)True
B)False
Q2) The party that breaks a contract may be required to pay damages to the other party to compensate for:
A) losses that could have been avoided by hiring someone else to perform the contract.
B) emotional disturbance caused by the breach of contract.
C) a heart attack induced by the emotional disturbance caused by the breach of contract.
D) damages resulting necessarily and directly from the breach of contract.
Q3) The measure of monetary damages when there has been a breach of contract is the sum of money that will place the injured party in the same position that would have been attained if the contract had been performed.
A)True
B)False
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Chapter 21: Personal Property and Bailments
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Q1) If a thief sells stolen property to a good-faith buyer,the buyer acquires title to the property.
A)True
B)False
Q2) The person who turns over the possession of bailed property is the bailor,and the person who accepts possession is the bailee.
A)True
B)False
Q3) Transfer or possession and use of bailed property without compensation is a gratuitous bailment.
A)True
B)False
Q4) A third person to whom a joint tenant's interest is transferred becomes a: A) joint tenant.
B) cotenant.
C) tenant in common.
D) tenant by the entirety.
Q5) A tenancy in common is a form of ownership by two or more persons.
A)True
B)False
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Chapter 22: Legal Aspects of Supply Chain Management
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Q1) A person who attends a banquet given at a hotel is considered a guest for purposes of determining the liability of the hotelkeeper.
A)True
B)False
Q2) The major purpose of field warehousing is to:
A) create warehouse receipts that the owner can pledge as security for loans.
B) create additional space in the firm's own warehouse.
C) allow warehousers an opportunity to service common carriers.
D) transfer title to buyers without requiring them to pick up merchandise at the plant's location.
Q3) Contract clauses that limit a common carrier's liability are void as contrary to public policy.
A)True B)False
Q4) As a general rule,a hotelkeeper has a lien on the property of boarders or lodgers. A)True B)False
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Chapter 23: Nature and Form of Sales
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Q1) All goods other than those existing and owned by a seller at the time of a transaction are called:
A) existing goods.
B) tangible goods.
C) future goods.
D) intangible goods.
Q2) Which term is not required in a writing in order to satisfy the statute of frauds?
A) language indicating that a sale or contract to sell has been made
B) the price of the goods
C) the quantity of goods involved in the transaction
D) the signature of the defendant
Q3) A sale of goods is defined under UCC Article 2 as transfer of title to intangible property for a price.
A)True
B)False
Q4) A bill of sale can be used as proof of an otherwise oral agreement.
A)True
B)False
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Page 25
Chapter 24: Title and Risk of Loss
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Q1) If a seller under a shipment contract sends nonconforming goods,the risk of loss in transit is on the buyer.
A)True
B)False
Q2) Under a CF contract,the seller must get the goods to a carrier and buy an insurance policy in the buyer's name to cover the goods while in transit.
A)True
B)False
Q3) A __________ is a completed sale with an option for the buyer to return the goods.
A) conditional sale
B) contingency sale
C) sale or return
D) sale on approval
Q4) The expense and the risk of return in a sale or return situation is on the:
A) seller.
B) buyer.
C) lienholder.
D) secured creditor.
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Chapter 25: Product Liability: Warranties and Torts
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Q1) An action for negligence rests upon common law tort principles.
A)True
B)False
Q2) The requirement of privity of contract to allow recovery in a sales contract has been widely rejected.
A)True
B)False
Q3) A merchant has greater potential warranty liability than does a casual seller.
A)True
B)False
Q4) An express warranty can be made orally or in writing.
A)True
B)False
Q5) An exclusion of warranties made in the manner specified by the Uniform Commercial Code is not unconscionable.
A)True
B)False
Q6) Negligence and fraud are easy to prove in a mass production world.
A)True
B)False
Page 27
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Chapter 26: Obligations and Performance
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Q1) A delivery is sufficient if it is made in accordance with the terms of the contract to sell.
A)True
B)False
Q2) A party to a sales contract who is afraid that the other party will not perform may seek to gain additional confidence by demanding some form of: A) bailment.
B) security.
C) assurance.
D) assignment.
Q3) The standard for rejection requires that any defect in the good be material.
A)True
B)False
Q4) Unless otherwise agreed by the parties,payment by a buyer requires payment either in cash or by certified check.
A)True
B)False
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Chapter 27: Remedies for Breach of Sales Contracts
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Q1) Rejection of an improper tender of goods constitutes a revocation of acceptance on the part of the buyer.
A)True
B)False
Q2) When a buyer has broken a sales contract,the seller may resell the goods or the balance of them in the seller's possession.
A)True B)False
Q3) A buyer may revoke acceptance because of a seller's failure to complete promised repairs.
A)True
B)False
Q4) If a buyer refuses to pay for goods after an acceptance that was not revoked,the seller may bring action to recover the purchase price and any incidental damages.
A)True B)False
Q5) A defrauded buyer may avoid the contract and recover damages. A)True B)False
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Chapter 28: Kinds of Instruments, parties, and Negotiability
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Q1) If an instrument is nonnegotiable,the rights of the parties are governed by the general principles of contract law.
A)True
B)False
Q2) Commercial paper facilitates the transfer of funds and payment.
A)True
B)False
Q3) A nonnegotiable instrument's terms are not enforceable.
A)True
B)False
Q4) If an instrument states no time for payment,the note is payable on demand.
A)True
B)False
Q5) The person on whom the order to pay a draft is made is called a drawer.
A)True
B)False
Q6) Instruments are transferable,written,signed promises or orders to pay a specified sum of money.
A)True
B)False
Page 30
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Chapter 29: Transfers of Negotiable Instruments and
Warranties of Parties
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Q1) Coppersmith executed and delivered negotiable notes to the payee,Charlene.The payee indorsed the notes to Whitehurst but did not deliver them.Instead,she kept the notes in her possession because she wanted to collect the interest during her life and wanted the indorsee to have the notes on her death.After Charlene's death,her executor,Cartwright,found the notes.Both Cartwright and Whitehurst sought to enforce the notes against Coppersmith.Who was entitled to do so?
Q2) A payee or indorsee whose name is misspelled may indorse the wrong name,the correct name,or both.
A)True
B)False
Q3) The transferee has only those rights that were possessed by the transferor of the note when a transfer of an instrument is made by:
A) an assignment.
B) a negotiation.
C) a sale.
D) a will.
Q4) It is worse for the holder to lose order paper than to lose bearer paper.
A)True
B)False
Page 31
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Chapter 30: Liability of the Parties Under Negotiable Instruments
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Q1) The FTC rule,which provides that a notice provision must be included in all consumer credit contracts,requires that the notice:
A) limit recovery under the contract to amounts paid by the debtor plus a reasonable charge for incidental damages.
B) be in italic type.
C) be at least 20 points in size.
D) has the effect that no subsequent person can be a holder in due course of the instrument.
Q2) Which of the following will not be considered value in connection with determining holder in due course status?
A) performing the act for which the instrument was given
B) promising to perform an existing legal obligation
C) receiving the instrument as security for a loan
D) taking the instrument in payment of a debt
Q3) The defense that a signature was forged or signed without authority cannot be raised against any holder if the person whose name was signed has ratified it.
A)True
B)False
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Chapter 31: Checks and Funds Transfers
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Q1) If a bank improperly refuses to make payment of checks for which its customer has sufficient funds on deposit,it is liable to the drawer for damages sustained by the drawer in consequence of such dishonor.
A)True
B)False
Q2) A bank always is liable to the depositor on a counterfeit check that the bank has paid.
A)True
B)False
Q3) Customers are precluded from asserting unauthorized signatures or alterations if they do not report them within __________ from the time the bank statement is received.
A) fourteen (14)days
B) forty (40)days
C) six (6)months
D) one (1)year
Q4) A notice of dishonor may be oral,written or electronic.
A)True
B)False
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Chapter 32: Nature of the Debtor-Creditor Relationship
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Q1) A letter of credit usually sets a:
A) minimum money amount.
B) maximum money amount.
C) both of the above.
D) none of the above.
Q2) Standby letters of credit are used only in international trade situations.
A)True
B)False
Q3) Contribution is the right of a co-obligator to demand that other obligator(s)pay their fair share of the debt.
A)True
B)False
Q4) Pasquale and Paul were sureties on the debt of Rose.Each had a $100,000 responsibility.Upon Rose's default,Pasquale paid $50,000 to the creditor.How much may Pasquale recover from Paul under the concept of contribution?
A) Zero
B) $50,000
C) $10,000
D) $25,000
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Chapter 33: Consumer Protection
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Q1) If you allow another person to use your credit card but the person uses the card for a purpose other than the one you specified:
A) an unauthorized usage has occurred.
B) an authorized usage has occurred.
C) you will not be responsible for more than $50 of the amount charged.
D) both a and c
Q2) The types of provisions that make contracts unconscionable include clauses that award excessive damages or the application of credit payments across purchases over time so that the consumer is never able to pay off any goods.
A)True
B)False
Q3) A consumer may waive all defenses otherwise provided for by law.
A)True
B)False
Q4) It is lawful to refuse to extend credit to a consumer based on the consumer's: A) race.
B) marital status.
C) credit history.
D) age.
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Chapter 34: Secured Transactions in Personal Property
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Q1) The concept of perfection concerns:
A) the creation of the security interest.
B) protection against the claims of others to the collateral.
C) the rights of the creditor against the debtor.
D) converting unsecured creditors into secured creditors.
Q2) A security interest that is effective against third persons as well as against the buyer is called a:
A) universal security interest.
B) prohibitive security interest.
C) perfected security interest.
D) protective security interest.
Q3) The property that is subject to the security interest is called collateral.
A)True
B)False
Q4) A debtor may redeem collateral at any time prior to the time that the secured party has disposed of the collateral or entered into a binding contract for resale by tendering the entire obligation that is owed plus any legal costs and expenses incurred by the secured party.
A)True
B)False
Page 36
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Chapter 35: Bankruptcy
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Q1) The trustee may void any fraudulent transfer made by the debtor within two (2)years of bankruptcy when the debtor's actual intent was to hinder,delay,or defraud creditors by engaging in the transfer.
A)True
B)False
Q2) An extended time payment plan:
A) does not provide for a discharge of the debtor.
B) provides for a discharge of the debtor.
C) does not require creditors holding the same type or class of claim to be treated the same way.
D) will not allow the debtor to pay the debts in installments if the debtor's creditors had not originally agreed to such installments.
Q3) The holder of a claim that is the subject of a bona fide dispute may be counted as a petitioning creditor.
A)True
B)False
Q4) To be set aside as a preference,a transfer must be fraudulent.
A)True
B)False
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Chapter 36: Insurance
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Q1) An application for insurance:
A) may be oral.
B) generally is attached to the policy and becomes a part of the insurance contract.
C) must be prepared by an attorney.
D) has no binding effect on the applicant.
Q2) An incontestability clause ordinarily bars contest of the validity of a life insurance policy by the insurer after the lapse of:
A) sixty (60)days.
B) one (1)year.
C) two (2)years.
D) ninety (90)days.
Q3) A person has to be an owner or lienholder to have an insurable interest in a property.
A)True B)False
Q4) For the purposes of fire insurance,all fires that cause damage are considered hostile fires.
A)True
B)False
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Chapter 37: Agency
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Q1) Notification may be implied when the principal does not object to a contract and accepts its benefits.
A)True
B)False
Q2) Barnes agrees with Morgan to enter into the management of a new subdivision of residential housing.Morgan appoints Barnes as his manager for the duration of the development program.During the course of the construction,Barnes decides to use funds specified for the subdivision for an office space project that Barnes alone has been interested in completing.Morgan is very angry on learning of Barnes' actions and terminates the agency.Barnes insists that the agency cannot be terminated in this manner.Is Barnes correct?
Q3) Ames,an agent for Baker Antiques,had the authority to purchase early 20th-century American furniture costing a maximum of $1,500 per piece.Ames bought a 19th-century French desk for $3,000 from Carter.Baker was furious when she saw the desk,and she fired Ames.Nevertheless,she put the desk on display in the shop with a $5,000 price tag.When the best offer she got for the desk was $2,500,Baker returned the desk to Carter.Baker told Carter that Ames had exceeded his authority in purchasing the desk,and she demanded that Carter refund the $3,000 that Ames had paid for the desk.Will Carter have to do so?
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Chapter 38: Third Persons in Agency
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Q1) The agent of a disclosed principal is liable for harm caused to third persons by:
A) the fraudulent acts of the agent.
B) the malicious acts of the agent.
C) both a.and b.
D) none of the above.
Q2) If an agent's act causes loss to the third person,that third person may generally hold the agent liable for the loss.
A)True
B)False
Q3) Payment to an authorized agent is:
A) payment to the principal only if the agent remits the payment.
B) payment to the principal if the third person informs the principal.
C) payment to the principal,provided the agent does not misappropriate the payment.
D) payment to the principal.
Q4) A principal may be liable to a third person for an agent's unauthorized contracts. A)True
B)False
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Chapter 39: Regulation of Employment
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Q1) The Immigration and Naturalization Act (INA)sets forth criminal and civil penalties against employers who knowingly hire illegal aliens.
A)True
B)False
Q2) An employer may be justified in discharging an employee because of the employee's:
A) nonperformance of duties.
B) incompetency.
C) serious misconduct.
D) all of the above.
Q3) Vesting refers to the ability of an employer to reclaim all of the funds it may have paid into a former employee's retirement fund upon that employee's decision to resign.
A)True
B)False
Q4) An employment contract of indefinite duration is:
A) terminable at will by the employer.
B) terminable at will by the employee.
C) both a.and b.
D) invalid.
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Chapter 40: Equal Employment Opportunity Law
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Q1) According to the EEOC,claims for retaliation may only be filed under Title VII.
A)True
B)False
Q2) Generally,what would not be considered a "reasonable accommodation" for persons with disabilities?
A) making an accommodation that would constitute an "undue hardship" for the employer
B) making existing facilities accessible to and usable by individuals with disabilities
C) modifying work schedules
D) restructuring jobs
Q3) Equal employment opportunity laws provide protection for minorities and women,but the disabled are not within the protection of the laws.
A)True
B)False
Q4) To successfully pursue a Title VII lawsuit,the plaintiff generally must belong to a protected class.
A)True
B)False
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Chapter 41: Types of Business Organizations
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Q1) A sole proprietor must file a certificate indicating that he or she is commencing operations and pay a single organizational fee.
A)True
B)False
Q2) A major disadvantage of the sole proprietorship is:
A) no organizational fees.
B) the sole proprietor obtains all of the profits.
C) the sole proprietor is personally liable for the debts of the sole proprietorship.
D) the sole proprietor is free to make all business decisions concerning operation of the sole proprietorship.
Q3) The FTC franchise disclosure statement must contain:
A) the business experience of the franchisor and its brokers.
B) any current and past litigation against the franchisor.
C) the grounds for termination of the franchise.
D) all of the above.
Q4) A franchisor is the person to whom the franchise is granted.
A)True
B)False
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43
Chapter 42: Partnerships
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Q1) A partnership involves partners' contributions of capital,services,or a combination of these.
A)True
B)False
Q2) A third person should recognize that a partner has limited or no authority if:
A) the partner seeks to act for the partnership concerning a matter not within the usual business of the firm.
B) the third person knows that the partnership has been terminated.
C) the partner seeks to pay a personal obligation by issuing a promissory note in the name of the firm.
D) all of the above.
Q3) Which of the following will not result in dissolution of the partnership by court decree?
A) A partner becomes incapable of performing the terms of the partnership agreement
B) A partner persistently or willfully acts in such a way that it is not reasonably practicable to carry on the partnership business
C) The withdrawal of a partner.
D) All of the above.
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44
Chapter 43: LPs, LLCs, and LLPs
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Q1) The spread of limited liability corporation statutes resulted from:
A) a United States Supreme Court decision.
B) an Internal Revenue Service ruling.
C) a Wyoming Supreme Court decision.
D) a Securities and Exchange Commission ruling.
Q2) A limited partner may receive a share of the profits.
A)True
B)False
Q3) Under the Revised Uniform Limited Partnership Act,a limited partner probably will not lose the protection of limited liability when the limited partner:
A) becomes a contractor for,or an agent or employee of,the limited partnership or of a general partner.
B) consults with and advises a general partner regarding the partnership business.
C) votes on partnership matters,such as dissolving and winding up the limited partnership or removing a general partner.
D) all of the above.
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Chapter 44: Corporate Formation
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Q1) A corporation is an artificial person that is created by governmental action.
A)True
B)False
Q2) Shareholders ordinarily cannot be sued for corporate liabilities.
A)True
B)False
Q3) A corporate seal is required in order for the corporation to enter into a binding contract.
A)True
B)False
Q4) Bylaws are typically adopted by the managers of a corporation.
A)True
B)False
Q5) After a corporate charter has been forfeited,the owners and officers of the dissolved corporation are __________ shielded from personal liability by using the corporate name when making contracts.
A) still
B) conditionally
C) not
D) retroactively
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Chapter 45: Shareholder Rights in Corporations
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Q1) Dividends are payable in:
A) money.
B) products manufactured by the corporation.
C) shares of other corporations held by the corporation.
D) all of the above.
Q2) A provision giving a corporation the right to purchase a shareholder's shares on the death of the shareholder is invalid.
A)True
B)False
Q3) Which of the following statements is not true of common stock?
A) It is ordinary stock that has no preferences.
B) It entitles the holder to share in corporate profits in the form of dividends.
C) It entitles the holder to participate in the distribution of capital upon dissolution.
D) It is ordinarily nonvoting.
Q4) Restrictions on the transfer of stock are valid if they are not unreasonable.
A)True
B)False
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Chapter 46: Securities Regulation
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Q1) SEC Rule 10b-5:
A) is the principal antifraud rule relating to the secondary distribution of securities.
B) provides that a civil action for damages may be brought by any private investor who purchased or sold a security and was injured because of false,misleading,or undisclosed information.
C) applies to all securities,whether registered or not,as long as use is made of the mail,interstate commerce,or a national stock exchange.
D) all of the above.
Q2) Under the Litigation Reform Act of 1995,issuers of forward-looking statements that were not knowingly false when made have a safe harbor from related lawsuits if appropriate cautionary language was included.
A)True
B)False
Q3) The Securities Act of 1933 deals with the original distribution of securities by the issuing corporations.
A)True
B)False
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Chapter 47: Accountants Liability and Malpractice
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Q1) An exculpatory clause most likely would be held to limit or disclaim liability for malpractice:
A) in an action based on fraud.
B) in a suit brought by a third person.
C) when the accountant can reasonably be expected to stand behind the information in question.
D) when the clause is conspicuous,unambiguous,and clear.
Q2) Under the "known-user" rule,it is sufficient if a user is a member of a known class,even if the identity of the particular user is not known to the accountant.
A)True
B)False
Q3) To help eliminate conflicts of interest,Sarbanes-Oxley prohibits certain activities by audit firms for their audit clients,including:
A) the design and implementation of financial information systems.
B) actuarial services.
C) management functions and human resources.
D) all of the above.
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Chapter 48: Management of Corporations
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Q1) A corporation is liable to a third person for the act of its agent:
A) to the same extent as a natural person would be liable.
B) only if the agent was expressly authorized to perform the act.
C) only if the agent's act was a crime.
D) only if the agent's act was based on an intent to benefit the corporation.
Q2) A stockholder-approved amendment to the certificate of incorporation may indemnify directors who:
A) acted in bad faith.
B) acted negligently.
C) breached their duty of loyalty.
D) gained an improper personal benefit.
Q3) The business judgment rule is applied by the courts as a presumption that must be overcome by the person challenging a director's actions.
A)True
B)False
Q4) The relationship between a corporation and its agents is governed by the:
A) statute under which the corporation was formed.
B) corporate charter.
C) corporate bylaws.
D) same rules as are applicable when the principal is a natural person.
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Chapter 49: Real Property
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Q1) An easement may be destroyed by an act of the grantor.
A)True
B)False
Q2) An easement may be created only by deed.
A)True
B)False
Q3) Liens on land may be created voluntarily by the owner of land or involuntarily against the wishes of the owner.
A)True
B)False
Q4) The rights of the mortgagor after default include the right to obtain a stay of foreclosure to prevent undue hardship and a right of redemption.
A)True
B)False
Q5) Under a freehold estate,a person owns property only for a specified number of years. A)True
B)False
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Page 51
Chapter 50: Environmental Law and Land Use Controls
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Q1) What federal act regulates the federal government in terms of its operations and impact on the environment?
A) the Environmental Protection Act
B) the National Environmental Policy Act
C) the Clean Water Act
D) the Resource Recovery Act
Q2) Which of the following is a possible remedy for a nuisance?
A) termination by police authority
B) injunction
C) money damages
D) all of the above
Q3) Solid waste disposal regulations today deal almost entirely with recycling.
A)True
B)False
Q4) Which federal agency has primary responsibility for enforcing environmental laws?
A) the Environmental Protection Agency
B) the Council of Environmental Quality
C) the Superfund Panel
D) none of the above
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Chapter 51: Leases
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Q1) A landlord is most likely liable to a tenant who is injured by:
A) a defective condition of the leased premises that is under the control of the tenant.
B) an obvious condition of the leased premises known to the tenant at the time the lease was made.
C) an unforeseeable criminal act of a third person.
D) the criminal act of a third person,when such conduct was reasonably foreseeable.
Q2) If a lease is assigned,who is liable for the rent?
A) the assignor
B) the assignee
C) either the assignor or the assignee,but not both
D) the landlord can collect from both the assignor and the assignee
Q3) Which of the following is an example of a legal restriction that may be imposed on a tenant's deposit?
A) A statutory limitation on the amount of the deposit.
B) A requirement that the landlord hold the deposit in a trust fund.
C) A requirement that the landlord pay interest for the period the deposit is held.
D) All of the above.
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Page 53
Chapter 52: Decedents Estates and Trusts
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Q1) A trustee may keep all matters associated with the trust secret.
A)True
B)False
Q2) Every trust must have a beneficiary.
A)True
B)False
Q3) A trustee cannot make decisions on matters that could not be foreseen by the settlor.
A)True
B)False
Q4) Fred and Mary were married.Fred had executed a will prior to the marriage that left all of his property,both real and personal,to his mother.Fred later died without changing his will.Mary feels that she should be entitled to some of Fred's estate.While waiting for Fred's estate to be finalized,Mary remarries.Mary's second husband executes a will providing for Mary.Later,after Mary and her husband adopt two children,her second husband dies.Mary feels that her children should be entitled to receive something from her second husband's estate.Is Mary and,later,are her adopted children entitled to receive something under the wills?
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