Legal Aspects of Business Test Preparation
Course Introduction
Legal Aspects of Business explores the foundational principles and regulations that govern commercial activities and corporate conduct. This course provides an overview of key legal concepts such as contract law, company law, intellectual property rights, consumer protection, negotiation and dispute resolution, and employment law. Students will gain an understanding of how these legal principles impact business operations and decision-making, equipping them to identify potential legal risks and ensure compliance with statutory and regulatory frameworks in a business environment. The course emphasizes real-world case studies, enabling students to apply legal reasoning to practical business scenarios.
Recommended Textbook
Business Law and the Legal Environment 7th Edition by Jeffrey F. Beatty
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44 Chapters
1981 Verified Questions
1981 Flashcards
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Page 2
Chapter 1: Introduction to Law
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Sample Questions
Q1) When the Food and Drug Administration prohibits a certain drug from being marketed in the United States,this is
A)private law.
B)an agency regulation.
C)legal negativism.
D)an executive order.
Answer: B
Q2) The doctrine of precedent requires
A)that the victim testify.
B)that the defendant testify.
C)a 12-member jury of the defendant's peers.
D)judges to base rulings on previous cases.
Answer: D
Q3) Lawyers originated in Anglo-Saxon courts,where they were used to mediate disputes.
A)True
B)False
Answer: False
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Chapter 2: Business Ethics and Corporate Social Responsibility
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Sample Questions
Q1) Your co-worker,Bill,comes into the office and tells you that he is going to play "hooky" and go golfing believing that the boss will think he is out calling on clients.When your boss comes in,he asks you where Bill is and you reply "I saw him in the office earlier this morning,but I haven't seen him lately." What would Kant call this misleading statement?
A)a palter
B)a categorical imperative
C)a veil of ignorance
D)an ethical omission
Answer: A
Q2) John Rawls' suggestion that society should reward behavior that provides the most benefit to the community as a whole is referred to as?
A)the difference principle.
B)the veil of ignorance.
C)moral universalism.
D)moral relativism.
Answer: A
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Chapter 3: International Law
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Sample Questions
Q1) The Australian government has opened a for-profit tourist information center in New York City.If a dispute arises over the lease of the storefront,may the landlord sue the Australian government in the United States courts?
A)Yes, because the Australian government was engaged in a commercial activity.
B)No, because the Foreign Sovereign Immunities Act forbids U.S. courts from hearing any case (without exception) that involves a foreign government.
C)No, becasue the only way the Australian government can be sued is if it signed a written waiver of immunity.
D)Yes, because the Australian government violated international law.
Answer: A
Q2) The Foreign Corrupt Practices Act prohibits bribery abroad.
A)True
B)False
Answer: True
Q3) NAFTA is a trade agreement between the United States,Canada and Mexico.
A)True
B)False
Answer: True
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5
Chapter 4:
Common Law, Statutory Law, and Administrative Law
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Sample Questions
Q1) Public hearings are required in formal administrative agency rulemaking.
A)True
B)False
Q2) The Civil Rights Act of 1964, a federal statute, forbids discrimination on the basis of national origin in employment. The Equal Employment Opportunity Commission (EEOC) is the administrative agency that oversees the law. The EEOC issued Guidelines on Discrimination because of National Origin. According to one of the guidelines, the EEOC will presume a violation of the law if an employer sets a work requirement that employees must speak only English in the workplace. This is an interpretive rule because it interprets the Civil Rights Act.
A)True
B)False
Q3) The doctrine of stare decisis,though vital to the creation of the common law when this country was settled,is not important to our modern,complex society.
A)True
B)False
Q4) Common law,like statutory law,is prospective.
A)True
B)False
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Chapter 5: Constitutional Law
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Sample Questions
Q1) Ikerd was entering the United States from a trip abroad when the Customs Service confiscated some goods she had purchased and brought back with her.The determination of whether the government is attempting to take property and what type of hearing the Customs Service must offer Ikerd is an analysis of
A)substantive due process.
B)procedural due process.
C)the Takings Clause.
D)eminent domain.
Q2) The states have a severely restricted power to enact laws that affect interstate commerce.This concept is called A)federalism.
B)the undue burden concept.
C)constitutional hierarchy.
D)the dormant aspect of the Commerce Clause.
Q3) Eminent domain refers to the government's ability to take private property for public use.
A)True
B)False
Q4) Discuss the Miller test to determine if a creative work is obscene.
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Chapter 6: Dispute Resolution
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Sample Questions
Q1) After answering a summons and complaint,Mike received a set of written questions from the plaintiff's attorney.He was directed to respond to the questions in writing under oath.This discovery technique is called
A)a request for admission.
B)a request for the production of documents.
C)a deposition.
D)interrogatories.
Q2) Of all forms of dispute resolution,which one probably offers the strongest "win-win" potential because its goal is voluntary settlement?
A)litigation
B)arbitration
C)jurisdiction
D)mediation
Q3) In a civil case,the plaintiff must prove the case
A)by a preponderance of the evidence.
B)by clear and convincing evidence.
C)beyond a reasonable doubt.
D)None of the above; the burden of proof is on the defendant.
Q4) Briefly describe the process of jury selection.
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Chapter 7: Crime
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Q1) Every criminal defendant has a right to a jury trial.
A)True
B)False
Q2) Compare and contrast money laundering and embezzlement.Give an example of each.
Q3) A crime is a violation of statutory law.
A)True
B)False
Q4) Which of the following statements is correct?
A)Violent street crime results in a greater monetary loss to society than white-collar crime.
B)White-collar crime results in a greater monetary loss to society than violent street crime.
C)Studies are not able to calculate the estimated value of white-collar crime since most white-collar crime is never publicly disclosed.
D)Studies are not able to accurately calculate the estimated value of either violent street crime or white-collar crime.
Q5) Taking a personal property without paying for it is a common type of larceny.
A)True
B)False
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Chapter 8: Intentional Torts and Business Torts
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Sample Questions
Q1) Which of the following statements about torts is correct?
A)A tortious act is always a criminal act.
B)A criminal act is always a tortious act.
C)A tortious act may also be a criminal act.
D)A tortious act is the same as a contract dispute.
Q2) A salesclerk at Sparkle Jewelry Store observed a customer remove a ring from a display case and put it in his pocket.In most states,Sparkle
A)can reasonably detain the customer for suspicion of shoplifting.
B)cannot detain the customer but can alert the police.
C)cannot detain the customer but once the customer leaves the store, the salesclerk can make a citizen's arrest.
D)cannot detain the customer but can sue for conversion.
Q3) Did Adam commit the tort of intentional infliction of emotional distress?
A)Yes, as his conduct was intentional.
B)Yes, but only if Adam intended to cause Linda serious emotional distress.
C)No, since he was only playing a practical joke.
D)No, since Linda was not physically hurt by Adam.
Q4) Discuss the four elements that must be proven in order to win a defamation case.
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Chapter 9: Negligence, Strict Liability, and Product Liability
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Q1) While hunting,Roger enters Adele's property without permission and is injured by falling into a ditch that was obscured by the underbrush.Under the common law,Adele is liable for Roger's injuries.
A)True
B)False
Q2) A plaintiff sues in negligence but has no direct proof that the defendant behaved unreasonably.Which of the following is most likely to help the plaintiff?
A)Res judicata
B)Stare decisis
C)Res ipsa loquitur
D)Mens rea
Q3) Most states recognize some form of comparative negligence.
A)True
B)False
Q4) The duty of care that each of us must follow is to behave as a reasonable person. A)True
B)False
Q5) List and discuss the elements necessary to establish negligence.
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Chapter 10: Cyberlaw and Privacy
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Q1) What provisions is commercial email subjected to under the CAN-SPAM Act?
Q2) Spam is illegal per se.
A)True
B)False
Q3) Explain data mining,how it takes place,and how it relates to behavioral marketing.
Q4) Which of the following regulates deceptive practices regarding a company's privacy policy?
A)Section 5 of the FTC Act
B)the federal COPPA
C)the federal ECPA
D)the FCC's privacy directive
Q5) The Electronic Communications Privacy Act of 1986 is a federal statute that regulates email.
A)True
B)False
Q6) When you surf the Internet,tracking tools collect information about you,often without your knowledge.
A)True
B)False
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Chapter 11: Introduction to Contracts
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Sample Questions
Q1) Mike made the following offer to Mick: "I will pay you $500 if you agree to paint my house." Mick replied that he would.At this point,the contract is an
A)executed, bilateral, express contract.
B)executory, bilateral, implied-in-law contract.
C)executed, unilateral, express contract.
D)executory, bilateral, express contract.
Q2) Which of the following types of property would be considered "goods" under the Uniform Commercial Code?
A)a promissory note
B)a stock
C)a patent
D)a computer
Q3) One of the factors leading courts away from a laissez-faire approach to contract law was
A)the movement away from requiring written contracts with a seal affixed.
B)a change in relative bargaining power between parties to contracts.
C)the assumption that promises are not legally significant.
D)the assumption that parties had freedom to contract and would have to live with the consequences.
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Page 13
Chapter 12: Agreement
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Q1) If an offer specifies no time limit in which to accept,
A)the offeree has 30 days to respond.
B)the offeree has 10 days to respond.
C)the offer is not valid and therefore it does not matter when the offeree responds.
D)the offeree has a reasonable period during which to accept.
Q2) If Morales and Rolfes Supply negotiate for the purchase and sale of a supply of fuel for a three-year period for Morales' business,
A)the contract may indicate a method for determining the price, without stating a definite price.
B)Morales and Rolfes must depend on the UCC's gap-filler provisions to determine a price since the fuel is a "good" covered by Article 2 of the UCC.
C)the contract price must remain the same for the entire three-year contractual period.
D)their contractual requirements regarding definiteness would be the same under the UCC and the common law.
Q3) Discuss the effect of the Uniform Commercial Code on the law of sales contracts in the area of open terms.
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Chapter 13: Consideration
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Sample Questions
Q1) Courts distinguish between mere gifts between parties and legally binding commitments by the element of consideration.
A)True
B)False
Q2) Walter worked nights as a clerk in a fast-food store.On his last work shift,Walter's boss told him,"I'm really grateful for the year that you have worked here.I am going to give you a bonus of $1,000 in your last paycheck." When Walter got his last paycheck,there was no bonus.If Walter sues,the likely result will be
A)Walter will win, as the promise is enforceable.
B)Walter will lose, as he gave no consideration.
C)Walter will lose unless the promise was in writing.
D)Walter will win, as no consideration is required to modify an employment contract.
Q3) Section 2-306 of the UCC expressly disallows output contracts in the sale of goods.
A)True
B)False
Q4) What two exceptions did the UCC create for accord and satisfaction check cases?
Q5) What is consideration and what are the two basic elements of consideration?
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Page 15
Chapter 14: Legality
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Sample Questions
Q1) Differentiate between licensing requirements designed to protect the public and those designed to generate revenue.
Q2) Usury laws are designed to protect consumers from
A)obtaining loans to gamble on credit.
B)taking insurance polices out on the life of another.
C)companies charging excess interest on loans.
D)professionals practicing a trade without a valid license.
Q3) Wendell,new to the area,selects a doctor from the telephone book and visits that doctor to have a splinter extracted.Unbeknownst to Wendell,the doctor has never passed the state licensing exams.Later,when Wendell discovers the truth,he refuses to pay his bill.If the doctor sues for recovery of the fee,will the court support the doctor's claim?
A)Yes, it was up to Wendell to verify the doctor's qualifications prior to having the splinter extracted.
B)No, the court is likely to take the position that it is not in the public's best interest to enforce contracts with unlicensed doctors.
C)It depends on whether Wendell's injury healed properly.
D)Yes, it is unconscionable that Wendell would not pay a bill he owed.
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Page 16
Chapter 15: Capacity and Consent
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Q1) Which of the following is correct?
A)The contract is voidable by Marty.
B)The contract is void as soon as it is made.
C)The contract is voidable by Cream-of-the-Crop Cycles.
D)The contract is voidable by either Marty or Cream-of-the-Crop Cycles.
Q2) Vince has begun forgetting things and is becoming very difficult to get along with.He is 85,has been ill,and is very fond of his housekeeper Annie.He gives a deed to Annie for all of his real property.At Vince's death,his children,who got only his photograph albums according to the will,ask that the deed be set aside and the land be put back in the estate for purposes of division among all the children.What will be the probable result in this case?
A)Since Vince was 85 he was probably incompetent and the court would rule for the children.
B)Clearly Annie used her position of dominance to persuade Vince to deed her the property, and it will be set aside.
C)Unless the children can prove that Vince was unable to understand what he was doing, or that Annie used her position to improperly influence Vince, Annie can keep the property.
D)Annie will not be able to keep the property since she is not a family member.
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Chapter 16: Written Contracts
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Sample
Questions
Q1) Which of the following would suffice for a signature on a writing under the statute of frauds?
A)A stamped signature
B)A handwritten signature
C)A name keyed at the bottom of an e-mail
D)Any of the above would suffice. Judges define "signature" very broadly.
Q2) The original statute of frauds is the English law that began the practice of requiring written evidence of certain kinds of contracts,but now the British government has repealed the writing requirement for most contracts.
A)True
B)False
Q3) Which of the following types of contracts cannot be either contradicted or supplemented by evidence of prior agreements or expressions?
A)integrated contracts
B)incomplete contracts
C)ambiguous contracts
D)implied contracts
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18
Chapter 17: Third Parties
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Sample Questions
Q1) Briefly discuss the enforceability of contracts by third parties.
Q2) Which of the following duties can probably be delegated?
A)An agreement to perform an operation
B)A contract to paint a picture
C)An agreement by an attorney to draft a contract
D)An agreement to paint a house
Q3) If Valley Bridge contracts with Rainbow Painters to paint a bridge and the contract requires that only Sherwin Williams paint be used,then Sherwin Williams,as third party beneficiary will be able to enforce the contract against either Valley Bridge or Rainbow Painters.
A)True
B)False
Q4) The status of a third party is determined by A)the type of contract.
B)whether the third party gave consideration.
C)the reasonable expectations of the third party.
D)the intent of the contracting parties.
Q5) Claims for personal injury are generally assignable.
A)True
B)False
19
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Chapter 18: Performance, Breach and Discharge
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Q1) In negotiating the purchase of a vehicle,the sales representative told Karla,"I guarantee that you will be personally satisfied with this car." The guarantee was written on the contract when Karla purchased the car.If a controversy arises over Karla's satisfaction,the court will apply a subjective standard,which means Karla's judgment must be reasonable.
A)True
B)False
Q2) In January 2014,Professor Noe entered into a contract with State University.She agreed to teach full time during the 2014-2015 academic year.Professor Noe died on May 31,2014.Her estate
A)is obligated to find another person who will agree to teach during the academic year. B)is discharged from any further obligations under the contract.
C)will be discharged from any obligations under the contract only if it can be shown that her death was unexpected.
D)will not be discharged. If the University has to pay more in order to hire a comparable substitute professor at the last minute, then the estate will be responsible for the difference in pay.
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Page 20
Chapter 19: Remedies
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Q1) Most courts hold that a seller of goods is NOT entitled to consequential damages.
A)True
B)False
Q2) To "undo" a contract and put the parties where they were before they made the agreement is called
A)restitution.
B)rescission.
C)reliance.
D)remediation.
Q3) Carswell,a contractor,enters into a contract with Helen,a homeowner,to remodel her bathroom.The contract provides a specific completion date.The contract provides that if Carswell does not have the job finished by the date,Helen may deduct $200 per day from the contract price until the job is finished.This is an example of liquidated damages.
A)True
B)False
Q4) Identify and describe the four principal contract interests a court may seek to protect.
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21
Chapter 20: Practical Contracts
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Sample Questions
Q1) When a provision in a contract is unclear by accident,it is a case of A)vagueness.
B)mistake.
C)ambiguity.
D)condition.
Q2) Rich and Archie sign an agreement in which Archie agrees to deliver ten cases of champagne in 5 days.The parties negotiated and meant to say in the written agreement,delivery in 50 days.If the evidence is clear that the two parties intended to agree to 50 days,the courts will probably
A)reform the contract.
B)rescind the contract.
C)issue a warranty.
D)issue a covenant.
Q3) An honest effort to meet both the spirit and letter of the contract is termed A)reasonable circumstances.
B)sole discretion.
C)honest representation.
D)good faith.
Q4) Define and compare the terms "vagueness" and "ambiguity."
Q5) Outline the parts of a typical contract.
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Chapter 21: Introduction to Sales
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Q1) In which of the following situations is the seller a merchant under Article 2 of the UCC?
A)Paul, a full-time college student, sold his textbooks to State Bookstore.
B)Randall, a part-time college student and full-time father, sold his textbooks to a friend.
C)Zompa Inc., a toy manufacturer, contracted to sell dolls to TonTon Department Store.
D)Mabel, a stay-at-home mom, sold her car to her friend Gloria.
Q2) UCC Section 2-204 provides three important rules that enable parties to make a contract quickly and informally.Which of the following is NOT one of these rules?
A)The parties may make a contract in any manner sufficient to show that they reached an agreement.
B)A writing sufficient under the statute of frauds may be a simple memo, a letter, or informal note, but need not itself be a contract.
C)The UCC will enforce a deal even though it is difficult to say exactly when it was formed.
D)A court may enforce a bargain even though one or more terms were left open.
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Chapter 22: Ownership, Risk and Warranties
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Q1) On impulse,you purchase a travel trailer and ask your acquaintance,Max,if you can leave the trailer at the edge of his restaurant's parking lot until you can have a concrete pad built to store the trailer on your property.Max agrees.When you return for the trailer the next week,it is gone and you find out that Max sold it.You can A)recover the trailer because Max did not have any ownership interest to pass. B)recover, but only if Max bought insurance to cover the trailer while it was on his property.
C)not recover because you "entrusted" the trailer to Max, who then had a right to sell it. D)not recover because Max had only a voidable title to transfer.
Q2) Both the buyer and seller may have an insurable interest in the same goods at the same time.
A)True
B)False
Q3) The shipping terms,FOB place of destination,indicate that the seller must deliver the goods at the place named and bears the expense and risk of shipping.
A)True
B)False
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Page 24
Chapter 23: Performance and Remedies
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Q1) Family Time Restaurant has a contract with Prime Meats for Prime to deliver 100 pounds of ground sirloin twice a week for the next three months.If,on one delivery,Prime brings 95 pounds of ground chuck instead of 100 pounds of ground sirloin
A)Family Time may unquestionably reject the non-conforming goods because they vary in both quantity and quality.
B)Family Time may reject the non-conforming installment only if it substantially impairs the value of that installment and cannot be cured.
C)Prime has no right to cure.
D)the perfect tender rule applies.
Q2) Under the "perfect tender rule" the buyer may reject the goods if they fail in any respect to conform to the contract.
A)True
B)False
Q3) A buyer has an absolute right to reject non-conforming goods as long as the rejection is timely.
A)True
B)False
Q4) Identify the possible remedies for a seller when the buyer breaches a contract.
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Page 25
Chapter 24: Secured Transactions
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Q1) Article 9 of the UCC only applies to goods and does not include intangibles such as accounts or chattel paper.
A)True
B)False
Q2) Morefield Custom Design sends 30 recliners by rail to Danville Furniture.To show where the goods will be shipped and who gets them when they arrive,Morefield will obtain ____,which can be used as collateral in a secured transaction.
A)a warehouse receipt
B)a bill of lading
C)chattel paper
D)a deposit account
Q3) Article 9 applies to any transaction intended to create a security interest in personal property or fixtures.
A)True
B)False
Q4) Faith owns a copyright in a book she recently wrote.She applies for a $10,000 loan through Cumberland Bank and wants to use the copyright as collateral.Explain if and how the bank can perfect a security interest in such collateral.
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Chapter 25: Creating a Negotiable Instrument
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Q1) Tim buys a high-powered tool from Binford Tools to use on the construction of his own garage.Binford Tools provides a full warranty on the tool for the first six months.To pay for the tool,Tim signs a negotiable promissory note which contains the FTC Consumer Credit Notice.Binford properly negotiates the note to First Finance.Within three weeks,the tool stops working and Binford refuses to repair or replace it.In the meantime,First Finance demands payment from Tim.Under the Federal Trade Commission rules,this consumer credit situation means First Finance
A)can collect if it is a holder in due course.
B)can collect if it is not a holder in due course.
C)can collect whether or not it is a holder in due course.
D)cannot collect.
Q2) Tim wrote a negotiable note.Subsequently,Tim's debts were discharged in bankruptcy.If a holder in due course presents the note for payment,Tim does not have to pay.
A)True
B)False
Q3) To be negotiated,bearer paper must simply be delivered to the recipient.
A)True
B)False
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Page 27
Chapter 26: Liability for Negotiable Instruments
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Q1) Tom indorsed a check made payable to the order of Tom Jones as follows: Raymond negotiated the check to his landlord for his rent.Raymond indorsed the check as follows:
With regard to Tom's indorsement,which statement is correct?
Pay Raymond Berry /s/ Tom Jones Without Recourse /s/ Raymond Berry
A)Tom has secondary contractual liability on the check as an indorser.
B)Tom has no contractual liability on the check because he is the payee.
C)Tom has primary contractual liability on the check as payee.
D)Tom eliminated his liability as an indorser by the type of indorsement he used.
Q2) Generally,indorsers are not liable under signature liability if
A)they write the words "without recourse" next to their signatures on the instrument. B)they are not the drawee.
C)a check is presented for payment within 30 days after the indorsement. D)they are an accommodation party.
Q3) List the warranties a transferor of a negotiable instrument makes.
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Chapter 27: Accountants' Liability
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Q1) Which of the following is NOT a provision of the Sarbanes-Oxley Act of 2002?
A)Congress established the Public Company Accounting Oversight Board, which has the authority to regulate public accounting firms, establishing audit rules and ethics guidelines.
B)After five years with a client, the lead audit partner must rotate off the account for at least five years.
C)Congress established the American Institute of Certified Public Accountants to develop ethical guidelines in a Code of Professional Conduct.
D)Auditors must communicate regularly and completely with audit committees of their clients and must describe options the firm considers in preparing financial statements.
Q2) The Big Four accounting firms spend about what percentage of their revenue on litigation,including settlements and insurance?
A)Less than five percent
B)Between 10 and 20 percent
C)Between 25 and 35 percent
D)Over 50 percent
Q3) Discuss the advantages and disadvantages of using IFRS.
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Chapter 28: Agency Law
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Q1) Grant is a delivery person for Watkins Furniture.One day,after delivering a chair to Nadine's house,he stopped at a fast food restaurant to get a sandwich at the drive-through window.As he was leaving the parking lot,he accidentally hit the rear of Blanche's car.Discuss the possible liability of Watkins for Grant's accident.Would there be any difference in the potential liability of Watkins if Grant had the accident after driving 30 miles away to visit a friend?
Q2) Janelle has an art collection that she wants to sell.She calls Amber and tells her to sell the art collection for her at an upcoming auction.Amber agrees.This is an example of A)apparent authority.
B)respondeat superior.
C)intermediary agency.
D)express authority.
Q3) A principal is bound by contracts that an agent enters into with authority.Discuss the various types of contractual authority an agent may have.
Q4) Kaiya is a sales representative of TriColor.Kaiya owes a fiduciary duty to TriColor. A)True B)False
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Chapter 29: Employment and Labor Law
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Q1) Some courts have held that employee handbooks create binding contract terms.
A)True
B)False
Q2) A company's collective bargaining agreement has expired and negotiations are underway for a new one.After one exhausting session,union leaders have decided management will not bargain in good faith.The union declares it will be going out on strike the following midnight if an agreement is not reached.The union
A)is allowed to go out on strike the following midnight.
B)must give the employer at least seven days' notice before going out on strike.
C)must give the employer at least 30 days' notice before going out on strike.
D)must give the employer at least 60 days' notice before going out on strike.
Q3) Discuss the requirements of the Family and Medical Leave Act.
Q4) There is a higher percentage of workers in labor unions now than at any other point in history.
A)True
B)False
Q5) Rick and Allan want to start a union in the small factory where they work.Outline the basic procedures they will need to follow to get a union recognized as the exclusive bargaining unit for the company employees.
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Chapter 30: Employment Discrimination
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Q1) What accommodations might an employer be expected to make for a disabled employee? What standard is used to determine whether an employer would be expected to make these accommodations?
Q2) Which of the following is NOT considered a major life activity for the purpose of determining if a person has a disability?
A)eating
B)reading
C)sexual activity
D)sleeping
Q3) Brian is a police officer.He just turned 54 years old and is worried that he will be forced to retire next year when he turns 55.The Age Discrimination in Employment Act will protect him if his employer tries to force him to retire early.
A)True
B)False
Q4) What are three general defenses an employer can raise if sued for violating Title VII of the Civil Rights Act?
Q5) Explain the Title VII requirements on affirmative action,and identify three sources of affirmative action programs.
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Chapter 31: Starting a Business: LLCs and Other Options
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Q1) The form of business ownership that is the MOST easily transferable is the A)general partnership.
B)corporation.
C)close corporation.
D)sole proprietorship.
Q2) The advantage to an S corporation is
A)its offering of multiple classes of stock.
B)its treatment of shareholders for income taxation purposes.
C)its ability to attract an unlimited number of shareholders.
D)its ability to have partnerships and corporations invest as shareholders.
Q3) To be a close corporation,the business must be small,with no more than 20 owners and no more than $500,000 in gross annual income.
A)True
B)False
Q4) Compare and contrast the following forms of business organization: sole proprietorship,general partnership,limited liability company,and corporation as to ease of formation,liability of owners,management,and tax implications.
Q5) Briefly discuss the the major restrictions placed on an "S" corporation.
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Chapter 32: Partnerships
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Q1) Brock and Heidi agree to jointly run a fundraiser for the nonprofit children's hospital.Even if they don't have a formal,written agreement,they have formed a partnership.
A)True
B)False
Q2) Lily is involved in the winding-up of her partnership.Lily is NOT entitled to compensation for her work since she is a partner.
A)True
B)False
Q3) At what stage are the partnership debts paid and the proceeds distributed to the partners?
A)During dissolution
B)During winding-up
C)During termination
D)During dissociation
Q4) Alicia and Ted have a written agreement wherein they will share the losses of their joint business.This agreement is strong evidence they are partners.
A)True
B)False
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Chapter 33: Life and Death of a Corporation
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Q1) MegaCorp purchased 10,000 shares of its own stock that had previously been owned by private investors.The stock MegaCorp repurchased is called
A)authorized and unissued.
B)authorized and issued.
C)treasury stock.
D)repurchased stock.
Q2) MegaCorp occasionally sells products in Michigan.It does not have an office in that state and does not advertise in Michigan.The company's marketing representatives are based in New York but do travel to Michigan once a year to attend a trade show.Which statement is correct?
A)MegaCorp must register in Michigan because its sales representatives attend a trade show in Michigan.
B)MegaCorp is not required to register in Michigan because it does not have an ongoing presence in Michigan.
C)MegaCorp must register in Michigan because its actions qualify as doing business.
D)Whether MegaCorp has to register in Michigan depends on where its shareholders reside.
Q3) What are some of the advantages for a business to incorporate in Delaware?
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Chapter 34: Management Duties
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Q1) For the business judgment rule to apply,the manager must
A)be trying to resolve a conflict of interest.
B)have exercised extraordinary care in resolving the situation.
C)have acted in the best interests of the corporation.
D)prove he or she was aware of the decision being made.
Q2) The Williams Act regulates the conduct of the target company in a takeover situation.
A)True
B)False
Q3) Which of the following is correct concerning anti-takeover efforts?
A)Most states have passed laws to deter hostile takeovers, but these statutes have not totally eliminated hostile takeovers.
B)Federal statutes have been more effective than state statutes in eliminating hostile corporate takeovers.
C)The most effective federal statute has been the Poison Pill Act.
D)The Williams Act has been the most effective legislation in regulating of the actions of the target company.
Q4) Discuss the purposes of the "business judgment rule."
Q5) What is the definition of the business judgment rule?
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Chapter 35: Shareholder Rights
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Q1) Meredith,a shareholder in Quarto,Inc.,notified Quarto's board of directors that the corporation had been wronged and asked the board to bring a lawsuit in the corporation's name.In response to Meredith's demand,the board
A)can file suit on behalf of the corporation.
B)can reject Meredith's demand or simply fail to respond.
C)can appoint a Special Litigation Committee.
D)can do any of the above.
Q2) A derivative lawsuit is filed by a shareholder of the corporation if his or her own rights have been harmed.
A)True
B)False
Q3) Charles owns 1,000 shares of stock in Temperan,Inc.Charles wants to obtain corporate records including the corporation's minute book and accounting records.Under the Model Act,Charles is entitled to this information if he requests it in good faith and
A)he has a proper purpose.
B)he owns at least 1 percent of the company or $2,000 of stock.
C)he is an employee of Temperan.
D)he is a controlling shareholder.
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Page 37
Chapter 36: Bankruptcy
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Q1) Who operates the business and develops a plan of reorganization in Chapter 11 bankruptcies?
A)The trustee
B)The debtor in possession
C)The state courts
D)The creditors' committee
Q2) The Bankruptcy Code uses the term "debtor" to refer to a person who cannot pay his debts.
A)True
B)False
Q3) Under all chapters of the Bankruptcy Code,most of the debtor's assets are distributed to creditors and the debtor has no obligation to share future earnings with creditors.
A)True
B)False
Q4) Debts that cannot be discharged in bankruptcy include all EXCEPT
A)money owed for alimony.
B)income taxes for 3 years prior to filing.
C)money owed to utility companies.
D)money obtained fraudulently.
Page 38
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Chapter 37: Securities Regulation
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Q1) The Securities Act of 1933 established the Securities and Exchange Commission.
A)True
B)False
Q2) Premier Enterprises sold Watson unregistered stock which was not exempt.The 1933 Act imposes liability on Premier,and Watson can demand rescission if he still owns the stock.
A)True
B)False
Q3) Pursuant to a public offering,a CPA firm audited the financial statements.After the offering,omissions and misstatements were found.The CPA firm is now being sued by the purchasers of the stock.The purchasers are alleging that the erroneous financial statements in the registration statement caused them to suffer a monetary loss.The CPA firm can avoid liability if it can prove
A)that it used due diligence in auditing the financial statements.
B)the corporation was the party who made misstatements and omissions.
C)the firm believed that the statements were accurate.
D)None of the above will avoid liability.
Q4) What are the purposes of a registration statement and what information must it contain?
Q5) Discuss the process an issuer follows for either an IPO or a secondary offering.
Page 39
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Chapter 38: Antitrust
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Q1) The chain of Mega Hardware stores agreed with Lock Tight Manufacturing not to carry any brand of locks and door handles other than those manufactured by Lock Tight.Mighty Lock threatened to sue for antitrust violations.On what basis and under what statute(s)would Mighty Lock sue?
Q2) A refusal to deal
A)is a right to decide with whom to do or not to do business and cannot be legally limited.
B)is a rule of reason violation of the Sherman Act and is illegal if it harms competition.
C)is an agreement in which a buyer refuses to purchase goods from a supplier unless the supplier also purchases items from the buyer.
D)occurs when a manager refuses to recognize that price-fixing is a problem.
Q3) Assume that three automobile manufacturers all merged into one car company.Such a merger would be a
A)vertical merger.
B)vertical cooperative arrangement merger.
C)horizontal merger.
D)intracompetitive merger.
Q4) Discuss when monopoly power is not a violation of Section 2 of the Sherman Act.
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Chapter 39: Consumer Protection
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Q1) Consumers have a right to A)exclude as obsolete information about a bankruptcy discharge seven years previously.
B)know the name of anyone to whom credit information has been supplied by a consumer reporting agency within the last three years.
C)have their own version of a disputed credit situation included in their credit file.
D)have investigative reports become obsolete after 1 year.
Q2) If a consumer cancels a door-to-door sale within the required time,how many days does the seller have to return the buyer's money?
A)3
B)10
C)21
D)30
Q3) Brooke uses her credit card to purchase a lawn mower at the local "big box" hardware store,but when she tries to use the mower for the first time,she finds it is not self-propelled as advertised.Does she have any recourse?
Q4) Discuss the major provisions of the Credit CARD Act.
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Chapter 40: Environmental Law
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Q1) Trent was the production manager at HGB,Inc.Under his supervision,HGB filled in an area of wetlands on the company's property without a permit.Has Trent violated the law? What penalties might he face?
Q2) The Environmental Protection Agency (EPA)was created by Congress to A)consolidate environmental regulations under one agency. B)protect corporate investors.
C)prevent conflicts between the Departments of Commerce and Interior.
D)eliminate discrimination.
Q3) Weste,Inc.decided to expand by building a $50 million manufacturing facility.Weste,Inc.is not a federal agency and the expansion is not regulated or approved by the government.Nevertheless,Weste must prepare an environmental impact statement.
A)True B)False
Q4) All of following must be included in a federal Environmental Impact Statement EXCEPT
A)the available alternatives to the proposed action.
B)the means to mitigate adverse environmental impacts.
C)the direct and indirect effects of the proposed action.
D)the cost of implementing the proposed action.
Page 42
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Chapter 41: Intellectual Property
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Q1) The Supreme Court has held that parody of copyrighted material is a violation of copyright law.
A)True
B)False
Q2) The name "Johnson Garage Doors" cannot be a trademark because a surname is already being used and other people have the right to continue to use the name.
A)True
B)False
Q3) What is the name of the treaty that allows American patents to be recognized and enforced in member countries?
A)The Paris Convention for the Protection of Industrial Property
B)The International Treaty of Trademarks and Patents
C)The World Agreement of London
D)The Berne Convention
Q4) If a trademarked name acquires a generic meaning,the owner of the trademark loses protection.
A)True
B)False
Q5) Briefly define patent,copyright,and trademark,and explain how long they last.
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Chapter 42: Real Property and Landlord Tenant
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Q1) When farmer Joe sold his land to an oil company,he wanted to keep the right to use the lake on the land for fishing.What would give him the right to do this?
A)a grant
B)an easement by implication
C)an easement by prescription
D)a reservation
Q2) Ali and Latosha bought a house through a mortgage they secured from their local bank.When they failed to make their mortgage payments,the bank used ________ to foreclose on the property and sell it.
A)a lien
B)adverse possession
C)easement by prescription
D)reversion
Q3) The landlord's duty to provide quiet enjoyment of the premises and the landlord's duty to deliver and maintain the premises in a habitable condition are one and the same.
A)True
B)False
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Chapter 43: Personal Property and Bailment
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Q1) Most of the goods contained in a freight train (a common carrier)were destroyed when a tornado wrecked the train.The carrier was sued for damages by all the shippers that had merchandise on the train.Is the carrier strictly liable for the damage done to the goods by the tornado?
Q2) Jeannie carelessly packed her grandmother's antique glassware and had it shipped to her 30-year-old daughter,Abby,via Common Freight Carriers.When the china arrived at Abby's house,most of the pieces were broken.As between Jeannie and Common Freight Carriers,who will bear the loss?
A)Under the Carmack Amendment, Jeannie is liable for the loss if Common Freight Carriers shows it was not negligent and that the loss was caused by Jeannie's failure to wrap and pack the glassware properly.
B)Under the Carmack Amendment, Common Freight Carriers is liable. A common carrier is strictly liable.
C)Under the Carmack Amendment, Common Freight Carriers is liable because of its negligence in not inspecting Jeannie's packing job.
D)Liability is governed by state statute and will depend on which state law will control.
Q3) Distinguish between a contract and a gift.Give an example of each.
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Chapter 44: Planning for the Future: Estates and Insurance
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Q1) Which of the following insurance policies continues for a stated period of time with the premiums increasing with the age of the insured?
A)double indemnity
B)term insurance
C)annuity contract
D)comprehensive insurance
Q2) Singleton,an eighty-year-old widower,remarried.The next day,he made a will leaving everything to his son,Joey.A week after his marriage,Singleton died.How will his estate be handled?
Q3) Under which of the following does the insurer promise to pay the insured a fixed yearly amount,as guaranteed income,after the insured attains a specified age?
A)straight life policy
B)whole life policy
C)universal life policy
D)deferred annuity contract
Q4) Discuss the differences between a will and a trust.
Q5) An executor who is related to the testator is not entitled to compensation.
A)True
B)False
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