Legal Environment of Business
Pre-Test Questions
Course Introduction
Legal Environment of Business introduces students to the framework of laws and regulations that influence business activities in the United States and globally. The course covers fundamental legal concepts including contract law, torts, agency, employment, business organizations, and government regulation. Emphasis is placed on understanding how laws are created and enforced, the impact of legal and ethical considerations on business decisions, and practical applications of legal principles in various business contexts. By examining real-world cases and current events, students gain insight into risk management and the critical role of law in shaping business strategies and operations.
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 United States Constitution provides that we have a right to be free from intrusions by others.
A)True
B)False
Answer: True
Q2) Criminal laws:
A) define wrongs against society.
B) define the rights of one person against another.
C) carry damage remedies against the wronged individual.
D) all of the above.
Answer: A
Q3) Those uniform state laws that have been adopted by individual states were first written by Congress.
A)True
B)False
Answer: False
Q4) The law works to cause our society to operate in an inefficient manner.
A)True
B)False
Answer: False
Page 3
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Chapter 2: The Court System and Dispute Resolution
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Q1) One of the motions that can be made after a verdict has been entered is a motion for a:
A) mistrial.
B) summary judgment.
C) directed verdict.
D) judgment notwithstanding the verdict.
Answer: D
Q2) The _____ rule(s)on the admissibility of evidence.
A) Judge
B) Jury
C) Attorneys
D) court clerk
Answer: A
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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Page 4
Chapter 3: Business Ethics, Social Forces, and the Law
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Sample Questions
Q1) John Harrington operates a business that almost always hires skilled workers who are college graduates;currently,however,his business does have a part-time opening for an unskilled worker.Harrington is considering hiring an uneducated welfare recipient instead of a student from the local university.Apply the "Guidelines for Analyzing a Contemplated Action" to this problem.
Answer: From the decision-maker's point of view,there is greater risk in hiring an uneducated welfare recipient instead of a college student.If an uneducated welfare recipient is hired,there may be disruption in the workplace resulting from skilled,educated employees working with an unfamiliar type of co-worker.The value of hiring an uneducated welfare recipient is twofold: First,there may be a greater likelihood of assisting someone with a family (i.e. ,more individuals would benefit);and,second,the firm would further the current governmental and societal initiative to move individuals from "Welfare to Work."
Q2) Credit laws and laws regarding checks,notes and drafts were developed to help facilitate trade.
A)True
B)False
Answer: True
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Page 5
Chapter 4: The Constitution As the Foundation of the Legal Environment
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Sample Questions
Q1) The U.S.Constitution is a document that:
A) is clear in allocating the rights and responsibilities of people and our government.
B) can be interpreted only according to the bedrock principles of 1776.
C) can be interpreted only in accordance with current values.
D) must be interpreted to accommodate both stability and flexibility.
Q2) The United States utilizes a tripartite division of government.
A)True
B)False
Q3) Which of the following powers is not reserved solely to the national government?
A) power to regulate interstate commerce
B) power to tax
C) power to coin money
D) power to borrow money on the credit of the United States
Q4) The U.S.Constitution has been amended:
A) only expressly.
B) only by interpretation.
C) only by practice.
D) by all of the ways listed above.
6
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Chapter 5: Government Regulation of Competition and Prices
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Sample Questions
Q1) Freezo Refrigerators are sold by various retailers.Most of the same retailers also sell Icy Refrigerators.The Freezo brand outsells Icy in some stores,but not in others.Freezo has decided to offer secret bonuses and discounts to retailers where the sale of Freezo Refrigerators lags behind the sale of Icy Refrigerators.Freezo sees this action as an advertising ploy to increase market share.Retail stores where Freezo is number one are not eligible for any of these bonuses and discounts.Discuss the implications of Freezo's advertising plan.
Q2) Vertical mergers:
A) occur between firms that have a competitor relationship.
B) occur between firms that have buyer and seller relationships.
C) are not covered by the Clayton Act.
D) are always protected by the federal government.
Q3) The Robinson-Patman Act:
A) prohibits charging different prices to different buyers when the margin costs are the same.
B) allows sellers to offer incentives and bonuses to certain customers.
C) allows sellers to refuse to deal with anyone for any reason.
D) all of the above.
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Chapter 6: Administrative Agencies
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Sample Questions
Q1) A(n)__________ is a negotiated disposition of a matter before an administrative agency,generally without public sanctions.
A) formal settlement
B) informal settlement
C) judicial verdict
D) quasi-judicial verdict
Q2) Wilma was an employee of the Electric Storage Battery Company.She was fired.She claimed that she was fired because she was a member of a labor union.The employer asserted that she was fired because she was a poor worker.Wilma filed an unfair labor practice complaint with the National Labor Relations Board.Its examiner held a hearing at which evidence was presented showing that Wilma was a poor worker.Other evidence presented showed that the employer was opposed to labor unions.The Board decided to believe Wilma's witnesses and concluded that she had been fired because she belonged to the union.Can the employer appeal this decision?
Q3) Decisions made by agencies are more likely to be reversed than to be accepted by the court on appeal.
A)True
B)False
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Chapter 7: The Legal Environment of International Trade
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Sample Questions
Q1) A common barrier to the free movement of goods across borders is the tariff barrier.
A)True
B)False
Q2) A letter of credit agrees to provide the seller with needed currency exchanges when transactions with foreign buyers occur.
A)True
B)False
Q3) A societé anonyme is the European counterpart of a U.S.corporation.
A)True
B)False
Q4) The Securities and Exchange Commission (SEC)is not limited to litigation when a securities law enforcement investigation runs into secrecy or blocking laws.
A)True
B)False
Q5) The Export-Import Bank (EX-IM Bank)is an international agency.
A)True
B)False
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Page 9
Chapter 8: Crimes
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Sample Questions
Q1) Forgery includes signing another person's name to a check with the intent to defraud.
A)True
B)False
Q2) Crimes and criminal punishment guidelines are specified in detailed criminal codes and statutes.
A)True
B)False
Q3) For business crimes,managers cannot be held criminally responsible for the conduct of their employees.
A)True
B)False
Q4) The issuing or delivery of a forged instrument to another person constitutes the crime of counterfeiting a forged instrument.
A)True
B)False
Q5) White-collar crimes generally involve violence.
A)True
B)False
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Chapter 9: Torts
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Sample Questions
Q1) Strict liability is one type of tort.
A)True
B)False
Q2) John was driving his car in a careless way,failing to drive as a reasonably prudent person would under the driving conditions.Ramona was crossing the street in a careless way,failing to cross as a reasonably prudent person would.John struck and injured Ramona with the car John was driving.At trial,it was determined that John was 80 percent at fault and that Ramona was 20 percent at fault.The injuries sustained amounted to $100,000.Explain how much,if any,recovery Ramona would receive in a state that applies the contributory negligence rule.Do the same thing for a state that applies the comparative negligence rule.
Q3) The concept of immunity from liability means that:
A) one who harms another can be held liable only for voluntary acts.
B) certain persons are not subject to tort liability.
C) one who harms another without intending to do so is not subject to tort liability.
D) one who harms a child can never be sued by the parents of the injured child.
Q4) If a crime does not hurt an identifiable person,it is not a tort.
A)True
B)False
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Chapter 10: Intellectual Property Rights
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Sample Questions
Q1) The type of patent that may be granted to developers of new and non-obvious ornamental features of manufactured articles is called a(n):
A) design patent.
B) functional or utility patent.
C) improvement patent.
D) plant patent.
Q2) A copyright owner may prohibit even limited use of copyrighted material if it is used for parody or criticism.
A)True
B)False
Q3) Computer software licensing agreements include restrictions on the use of software and give the licensor greater protection than that provided by copyright law.
A)True
B)False
Q4) An owner of a copyright may license some of his or her rights to another in exchange for royalty payments.
A)True
B)False
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Page 12
Chapter 11: Cyberlaw
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Sample Questions
Q1) The majority of fraud complaints received by the FBI relate to:
A) sales from large online only retailers.
B) sales from traditional retailers who also operate on the Internet.
C) private Internet sales (one individual to another).
D) Internet auctions.
Q2) Sales tax on Internet sales:
A) is never collected.
B) is always collected.
C) is collected if the seller has a physical presence in the state of sale.
D) follow the same rules for sales tax collected in brick and mortar stores.
Q3) Sock-puppeting is anonymous blogging that flatters the blogger's company and bashes one or more competitors.
A)True
B)False
Q4) The key to being able to have Internet Service Providers (ISPs)release identities of those who post statements on the Internet is whether the posters were engaged in illegal or harmful activities.
A)True
B)False
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Chapter 12: Nature and Classes of Contracts: Contracting on
the Internet
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Q1) Quasi-contractual liability will generally be imposed when the cost of performing a contract is greater than had been expected.
A)True
B)False
Q2) A person who makes a promise is the promisor,while a person to whom the promise is made is the promisee.
A)True
B)False
Q3) A right of __________ refusal is the right of a party to meet the terms of a proposed contract before it is executed,such as a real estate purchase agreement.
A) concomitant
B) conditional
C) formal
D) first
Q4) The promisor in a contract may also be called the:
A) obligor.
B) grantor
C) obligee
D) grantee
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Chapter 13: Formation of Contracts: Offer and Acceptance
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Q1) An acceptance must be absolute and unconditional.
A)True
B)False
Q2) If an offer does not state how long it shall remain open,it remains open for ten days.
A)True
B)False
Q3) 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
Q4) In an auction __________,the auctioneer takes bids as agent for the seller with the understanding that no contract is formed until the seller accepts the transaction.
A) without reserve
B) with reserve
C) without preserve
D) with preserve
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Chapter 14: Capacity and Genuine Assent
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Q1) An apparently voluntary agreement may in fact not be voluntary if:
A) undue influence is present.
B) physical duress is present.
C) economic duress is present.
D) all of the above.
Q2) Discriminatory and punitive incapacities have largely disappeared.
A)True
B)False
Q3) The obligation of a cosigner is discharged by:
A) the minority status of one of the parties.
B) the majority status of one of the parties.
C) the court's declaration of the contract's provision of necessaries.
D) the payment of the debt.
Q4) A person who has drunk too much alcohol at a party and signs a contract may be able to rescind that contract.
A)True
B)False
Q5) Fraud requires a misstatement of either a fact or an opinion.
A)True
B)False
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Chapter 15: Consideration
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Q1) When a debtor tender a check stating "paid in full" and the creditor cashes the check,the debt:
A) is always discharged.
B) may be discharged if it is a liquidated debt.
C) may be discharged if it is a unliquidated debt.
D) is never discharged.
Q2) Will the law enforce every promise?
A) Yes,in all cases.
B) Yes,with or without consideration.
C) Generally yes,if consideration is given for the promise.
D) Yes,but only if there is no consideration.
Q3) Consideration is not required in:
A) contracts for the sale of goods.
B) employment contracts.
C) agreements to modify employment contracts.
D) agreements to modify contracts for the sale of goods.
Q4) Damages recoverable in a case of promissory estoppel are determined by the profits that the promisee expected.
A)True
B)False
Page 17
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Chapter 16: Legality and Public Policy
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Q1) An unlicensed doctor can sue a patient for the doctor's fee if the patient in fact recovered because of the doctor's care.
A)True
B)False
Q2) An agreement that calls for the commission of a civil wrong is illegal and void.
A)True
B)False
Q3) 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
Q4) Which of the following types of contracts might be unenforceable as contrary to public policy?
A) a contract that is contrary to the protection of the public welfare,health,or safety
B) a contract that is contrary to the protection of the person
C) a contract that is contrary to the protection of recognized social institutions
D) all of the above
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18
Chapter 17: Writing, Electronic Forms, and Interpretation of Contracts
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Sample Questions
Q1) An oral contract can be enforced when it relates to:
A) the purchase of a television set for $200.
B) the sale of an interest in land for $400.
C) managing a factory for five years.
D) a promise to answer for the debt of another.
Q2) Through incorporation by deference,a contract can consist of both the original document and the detailed statement that is incorporated in it.
A)True
B)False
Q3) An oral contract containing a promise by an executor to pay estate debts from estate funds is:
A) binding.
B) voidable by the executor or administrator.
C) enforceable against the executor only if the executor signs written proof of the agreement.
D) enforceable against the other contracting party only if that party signs a written agreement.
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Page 19
Chapter 18: Third Persons and Contracts
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Q1) A person who has a right to buy on credit can transfer that right to a close relative.
A)True
B)False
Q2) A professor owned a home next door to a very dilapidated,neglected home.John Cataldo purchased the home next door and made a contract with Wizard Home Improvements for a complete renovation of the property.The professor was delighted because the improvement of the Cataldo home was upgrading the neighborhood and raising the value of the professor's home. After making the last required payment on the contract,John Cataldo became seriously ill and ultimately was taken to a nursing home for care. When Wizard learned of Cataldo's illness and confinement,Wizard ceased work on the Cataldo home.Because the outside renovation work had not been completed,the premises began to return to its former rundown condition.The professor ultimately sued Wizard as a third-party beneficiary of the contract between Cataldo and Wizard.What is the probable outcome of the lawsuit?
Q3) A cause of action may not be assigned.
A)True
B)False
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Chapter 19: Discharge of Contracts
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Q1) When parties contract expressly for a particular subject matter,the contract is discharged if the subject matter is destroyed through no fault of either party.
A)True
B)False
Q2) A person who substantially performs a contract is liable for damages to the other party.
A)True B)False
Q3) Unless a contract so provides,time is ordinarily not of the essence,and performance within a reasonable time is sufficient.
A)True
B)False
Q4) The phrase "time is of the essence" means that:
A) the court is in a hurry to dispose of the case.
B) performance under the contract at the times specified in the contract is vital or essential.
C) the contract expressly states that time is of the essence.
D) the price stated in the contract is subject to change without notice.
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Chapter 20: Breach of Contract and Remedies
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Q1) When a party expressly declares that performance will not be made when required,this declaration is a(n):
A) anticipatory repudiation.
B) injunction.
C) negotiating technique.
D) waiver of breach.
Q2) When one party commits a non-material breach of contract,the other party may rescind the contract.
A)True
B)False
Q3) If a seller delivers defective goods,the buyer does not lose the right to object to the breach of contract if the buyer:
A) accepts the goods.
B) accepts the goods with a reservation of right.
C) agrees to a modification of the contract.
D) accepts the performance without protest.
Q4) Consequential damages are those that necessarily flow from the breach.
A)True
B)False
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Chapter 21: Personal Property and Bailments
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Q1) The legal concept of property includes rights in the property.
A)True
B)False
Q2) The bailor must both inform the bailee of known defects and make a reasonable investigation to discover defects in a:
A)mutual benefit bailment.
B) Bailment for the sole benefit of the bailee.
C) both a.and b.
D) neither a.nor b.
Q3) If while trespassing a hunter kills game,the game belongs to that hunter.
A)True
B)False
Q4) In order for a bailment to be valid,the bailor must be the owner of the subject property.
A)True
B)False
Q5) In common usage today,there is no distinction between real and personal property.
A)True
B)False
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Chapter 22: Legal Aspects of Supply Chain Management
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Q1) When a carrier accepts goods for land shipment,it ordinarily issues to the shipper a(n):
A) bill of lading.
B) intent to transport memorandum.
C) warehouse receipt.
D) trust receipt.
Q2) A common carrier transporting goods under a COD shipment may:
A) make delivery without first obtaining payment.
B) not make delivery without first receiving payment.
C) accept a check as payment and have no liability.
D) not avoid liability without a signed release.
Q3) A bill of lading will be negotiable if its terms are that the goods are to be delivered to "bearer" or to "the order of" a named person.
A)True
B)False
Q4) A contract carrier holds itself out as willing to furnish transportation for compensation without discrimination to all members of the public who apply.
A)True
B)False
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Chapter 23: Nature and Form of Sales
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Q1) A sale of goods is defined under UCC Article 2 as transfer of title to intangible property for a price.
A)True
B)False
Q2) The parol evidence rule does not apply to the sale of goods.
A)True
B)False
Q3) A firm offer is effective only if the merchant receives consideration to keep the offer open.
A)True
B)False
Q4) A writing that is offered to satisfy the statute of frauds must have been written for that purpose.
A)True
B)False
Q5) The CISG governs all contracts between parties in the countries that have ratified it.
A)True
B)False
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Chapter 24: Title and Risk of Loss
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Q1) 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.
Q2) Someone who finds and resells stolen property passes on a good title to a good faith purchaser.
A)True
B)False
Q3) __________reserve auctions are those that give the auctioneer the right to withdraw the goods from the sale process if the bids are not high enough.
A) Qualified
B) Restricted
C) With
D) Without
Q4) Supply chain management refers to the management issues of risk and title as goods flow through commerce.
A)True
B)False
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Chapter 25: Product Liability: Warranties and Torts
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Q1) Plaintiffs suing for damages caused by a defective product are limited to taking action only against the manufacturer(s)of such goods.
A)True
B)False
Q2) Regarding the sale of food or drink,there is an implied warranty that:
A) the food item is of average quality.
B) the food item is fit for human consumption.
C) that no foreign substances such as a nail or screw will be found.
D) all of the above.
Q3) An express warranty arises when goods are purchased based on a catalog illustration.
A)True
B)False
Q4) Which of the following must be proven by a plaintiff to recover for strict liability in tort?
A) negligence of the seller or manufacturer
B) recklessness of the seller or manufacturer
C) unreasonably dangerous defects in goods that cause harm
D) privity of contract between the manufacturer and the buyer
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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) Upon a seller's tender of nonconforming goods and the buyer's rejection of them,the transaction has ended.
A)True
B)False
Q3) Which method of payment gives the buyer credit by postponing the time for payment?
A) a promissory note
B) a check
C) a draft
D) a certified check
Q4) An acceptance of goods can be done either expressly or by implication.
A)True
B)False
Q5) Substantial impairment requires proof that goods are worthless.
A)True
B)False
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Chapter 27: Remedies for Breach of Sales Contracts
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Q1) If a seller elects to resell the goods remaining in the seller's possession after the buyer breaks the contract,the seller:
A) must always give notice of the sale to the original buyer.
B) is never required to give notice of the sale to the original buyer.
C) is required to follow strict standards in the resale of the goods.
D) is not required to give notice of the sale to the original buyer when the goods are perishable.
Q2) When goods are sold for consumer use and personal injuries are sustained,a total exclusion of liability in the sales contract is:
A) enforceable.
B) unenforceable.
C) unconscionable.
D) both b.and c.
Q3) A buyer may reject a tender of delivery:
A) if the goods do not conform to the contract in some way .
B) only if the goods have a substantial defect.
C) unless the seller promises to cure the defective tender.
D) unless the goods have been sold on credit.
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29
Chapter 28: Kinds of Instruments, parties, and Negotiability
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Q1) Revised UCC Article 3 refers to drawers,indorsers,and accommodation parties as "secondary obligors."
A)True
B)False
Q2) If an order or promise is not for money,the instrument is not negotiable.
A)True
B)False
Q3) The party who writes or creates a promissory note is called the:
A) payee.
B) drawee.
C) drawer.
D) maker.
Q4) To be negotiable,an instrument must:
A) be in writing.
B) be signed by the maker or the drawer.
C) contain a promise or order to pay.
D) all of the above.
Q5) If an instrument states no time for payment,the note is payable on demand.
A)True
B)False
30
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Chapter 29: Transfers of Negotiable Instruments and
Warranties of Parties
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Q1) In the case of a check,when the impostor rule applies:
A) the drawer of the check can successfully raise the defense of the forged indorsement.
B) the forged indorsement is effective to negotiate the instrument.
C) the forged indorsement is ineffective to negotiate the instrument.
D) the instrument becomes nonnegotiable.
Q2) A holder is also known as an assignee of the paper
A)True
B)False
Q3) Under the UCC,a negotiation is not effective when it is made by a minor or any other person lacking capacity.
A)True
B)False
Q4) A special indorsement consists of the signature of the indorser and the words identifying the person to whom the indorser makes the instrument payable.
A)True
B)False
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Chapter 30: Liability of the Parties Under Negotiable Instruments
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Q1) A holder having the rights of a holder in due course is subject to the defense of fraud in the inducement.
A)True
B)False
Q2) A taker of an instrument who is a holder in due course at the time of the transfer but who thereafter learns of a defense:
A) becomes a holder through a holder in due course.
B) becomes an ordinary holder.
C) remains a holder in due course.
D) becomes an assignee.
Q3) A holder through a holder in due course is subject to limited defenses.
A)True
B)False
Q4) The law gives certain holders of a negotiable instrument a preferred standing by protecting them from all defenses when they sue to collect payment.
A)True B)False
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Chapter 31: Checks and Funds Transfers
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Q1) A bank that fails to carry out a payment order is usually liable for:
A) interest loss and expenses.
B) loss sustained by the originator.
C) consequential damages because the payment was not made.
D) all of the above.
Q2) In the case of either a check or a draft,the drawer may be held civilly liable if the instrument is dishonored.
A)True
B)False
Q3) Which of the following statements describes a check?
A) The drawer is always a bank.
B) The maker is always a bank.
C) A check is generally payable on demand.
D) A check is a particular kind of note.
Q4) When a drawee bank pays on a check that lacks an essential endorsement:
A) the drawer is liable.
B) the payee is liable.
C) the drawee bank is liable.
D) no one is liable.
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Chapter 32: Nature of the Debtor-Creditor Relationship
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Q1) In a guaranty contract,the obligor is called a:
A) surety.
B) principal.
C) guarantor.
D) creditor.
Q2) When a suretyship or guaranty contract is entered into after and separate from the original transaction,there must be new consideration for the promise of the guarantor.
A)True
B)False
Q3) Letters of credit are a form of advance arrangement for financing.
A)True
B)False
Q4) A surety may not raise the defense of mistake.
A)True
B)False
Q5) 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
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Chapter 33: Consumer Protection
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Q1) Samuel signed a contract to purchase furniture on credit.The contract clearly set forth in bold print all charges included in the cost of the credit,including the interest rate and annual percentage rate.The seller informed Samuel that the seller regularly sold these contracts to a finance company that paid it immediate cash and then collected from the debtors.The seller further advised that the finance company did not want "the headache" of determining the validity of consumer complaints and that therefore the contract provided that the consumer waived all defenses concerning the furniture against the finance company.The contract expressly provided that the seller would remain responsible for any non-conformities in the furniture or breaches of contract on its part.The furniture was defective,but the finance company is demanding that Samuel make the payments to it required by the contract and resolve its disputes with the seller of the furniture.Samuel consults you regarding his rights.What is your response?
Q2) Despite consumer protection legislation,for most consumers pursing their rights in court is not cost beneficial.
A)True
B)False
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Chapter 34: Secured Transactions in Personal Property
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Q1) Generally,a secured creditor who has repossessed collateral may retain the collateral and cancel the debt.
A)True
B)False
Q2) An interest in personal property or fixtures that secures payment or performance of an obligation is called a:
A) guaranty holding.
B) security interest.
C) guaranty interest.
D) good-faith guaranty.
Q3) 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.
Q4) Which is not an element of attachment?
A) the filing of a financing statement
B) a security agreement
C) value received by the debtor
D) the debtor has rights in the collateral
Page 36
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Chapter 35: Bankruptcy
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Q1) A debtor may recover damages against any creditor who filed a bankruptcy petition in bad faith.
A)True
B)False
Q2) The status of a trustee in a bankruptcy proceeding is best described as the:
A) prosecutor of the debtor.
B) successor to the debtor.
C) defender of the debtor.
D) protector of the debtor.
Q3) In a Chapter 11 rehabilitation plan,the debtor:
A) keeps all of the assets (both exempt and nonexempt).
B) remains in business.
C) makes a settlement that is acceptable to the majority of the creditors.
D) all of the above.
Q4) Costs and expenses of administration of the bankruptcy case,including trustee fees are paid before any money is disbursed to secured or unsecured creditors.
A)True
B)False
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Chapter 36: Insurance
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Q1) The coverage of the Personal Auto Policy (PAP)is limited to claims arising from the "use and operation" of an automobile.
A)True
B)False
Q2) An insurance broker generally is an independent contractor who is not employed by any one insurance company.
A)True B)False
Q3) If an insured person tells her current husband that she is going to name him as beneficiary of her life insurance in place of her former husband and dies a year later without having taken any further steps with respect to the change of the policy beneficiary,the insurance company must pay the proceeds of the policy to:
A) the former husband.
B) the current husband.
C) the children by the first marriage.
D) the children by the second marriage.
Q4) The insured must comply with a number of time limitations in making a claim.
A)True B)False
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Chapter 37: Agency
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Q1) A special agent is authorized by the principal to transact all affairs in connection with a particular type of business or trade or to transact all business at a certain place.
A)True
B)False
Q2) The term apparent authority is used when there is:
A) no interaction between the principal and third persons.
B) actual authority.
C) only the appearance of authority and that appearance of authority was created by the principal.
D) only the appearance of authority and that appearance of authority was created by the agent.
Q3) For a principal to ratify the actions of an agent,all that is necessary is that the principal express the intention to ratify.
A)True
B)False
Q4) A written authorization of agency is called a power of attorney.
A)True
B)False
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Page 39
Chapter 38: Third Persons in Agency
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Q1) A(n)______________ principal is liable for a simple contract made by an authorized agent.
A) partially disclosed
B) undisclosed
C) both a.and b.
D) neither a.nor b.
Q2) Agent's may intentionally make themselves liable on contracts with third persons.
A)True
B)False
Q3) An agent's liability as a party to a contract with a third person is not affected by the degree of disclosure.
A)True
B)False
Q4) 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.
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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) Workers' compensation statutes do not typically provide for:
A) immediate medical benefits.
B) prompt periodic wage replacement.
C) a death benefit.
D) punitive damages.
Q3) Which of the following categories of individuals are exempt from the minimum wage provisions of Fair Labor Standards Act (FLSA)?
A) executives
B) factory workers
C) full-time babysitters
D) housekeepers
Q4) Sarbanes-Oxley (SOX)allows whistleblowers who are retaliated against an immediate lawsuit in federal district court.
A)True
B)False
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Chapter 40: Equal Employment Opportunity Law
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Q1) The Equal Pay Act:
A) does not allow variances in wages pursuant to a seniority system.
B) generally requires that members of both sexes be paid equally for equal work.
C) prohibits all variations in wage rates paid to men and women.
D) all of the above.
Q2) Testing of prospective employees:
A) cannot have been developed by one employer and applied by another.
B) can be adjusted to favor members of a particular race.
C) must bear a relationship to job performance.
D) all of the above.
Q3) Generally,the EEOC attempts to remedy an unlawful practice through conciliation.
A)True
B)False
Q4) Employment testing and educational requirements must be "job-related";that is,employers must prove that employment testing and educational requirements bear a relationship to job performance.
A)True
B)False
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42
Chapter 41: Types of Business Organizations
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Q1) The death of a majority shareholder terminates a corporate enterprise.
A)True
B)False
Q2) Partnership agreements allow individuals to conduct their business without the requirement of a formal organizational structure.
A)True
B)False
Q3) In a corporation,a large number of investors may pool their assets to finance a large business enterprise.
A)True
B)False
Q4) Holders of automobile dealership franchises are protected from bad faith termination of their dealerships by the:
A) Sherman Antitrust Act.
B) Robinson-Patman Franchise Act.
C) Automobile Dealers' Day in Court Act.
D) Franchise Holder Protection Act.
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Page 43
Chapter 42: Partnerships
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Q1) A registration certificate for a partnership's fictitious name contained the names of Barry,Boyd,and Swartz.Cruise extended credit to the firm in reliance in part on the certificate that named Swartz as a partner.Swartz,in fact,had no knowledge of the certificate and never had agreed to be a partner.Because of Cruise's reliance on the certificate and the statement that Swartz was a partner,Swartz has a partner's liability insofar as Cruise is concerned.
A)True
B)False
Q2) Partners hold title to firm property by:
A) tenancy in partnership.
B) tenancy in common.
C) joint tenancy.
D) none of the above.
Q3) The habitual drunkenness of a partner is a sufficient cause for judicial dissolution of a partnership.
A)True
B)False
Q4) The sharing of profits and losses is conclusive evidence of partnership.
A)True
B)False
44
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Chapter 43: LPs, LLCs, and LLPs
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Q1) A limited liability company:
A) must have at least one member that is subject to unlimited liability.
B) member may actively participate in control of the business without losing limited liability status.
C) both a.and b.
D) neither a.nor b.
Q2) When no limited partnership certificate is filed,what is the result?
A) Only limited partners are fully liable.
B) Only general partners are fully liable.
C) Limited partners retain their limited liability.
D) Both general and limited partners are fully liable.
Q3) The dissolution and winding up of a limited partnership is governed by the same principles applicable to a __________.
A) "Subchapter S" corporation.
B) limited liability company.
C) general partnership.
D) none of the above.
Q4) A limited partner may never sue the business.
A)True
B)False
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Chapter 44: Corporate Formation
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Q1) "Conglomerate" describes the relationship of equal companies engaged in similar fields of business activity.
A)True
B)False
Q2) Corporations come into existence as the result of the activities of one or more persons known as promoters.
A)True
B)False
Q3) A corporation is considered a person for purposes of the due process clause of the United States Constitution.
A)True
B)False
Q4) Shareholders ordinarily cannot be sued for corporate liabilities.
A)True
B)False
Q5) Debts of a corporation are not the debts of the persons running the corporation or owning shares of stock in it.
A)True
B)False
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Chapter 45: Shareholder Rights in Corporations
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Q1) A bond:
A) that is unsecured is called a debenture bond.
B) is a negotiable security
C) generally has a life of five years or longer.
D) all of the above.
Q2) To correctly transfer shares of stock,a delivery from the owner of the shares directly to the transferee is required.
A)True
B)False
Q3) An interest in a corporation is based on the ownership of one or more shares of stock of the corporation.
A)True
B)False
Q4) Ownership of shares of stock may be transferred by any of the following methods except:
A) delivery of the stock endorsed by its owner in blank.
B) delivery of a notice of intent to transfer.
C) delivery of the stock endorsed by its owner to a specified person.
D) delivery of the certificate and a separate power of attorney executed by the owner.
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Chapter 46: Securities Regulation
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Q1) An individual who receives information from an insider or temporary insider is called a:
A) tippee.
B) tipper.
C) de facto insider.
D) virtual insider.
Q2) The Insider Trading and Securities Fraud Enforcement Act of 1988 gave the SEC authority to bring an action against an individual purchasing or selling a security while in possession of material,inside information.
A)True
B)False
Q3) Under SEC Rule 504 of Regulation D,an issuer can offer and sell up to $2 million in securities within a 12 month period without registration and without most of the restrictions contained in Rules 505 and 506.
A)True
B)False
Q4) Rule 10b-5 only applies to registered securities.
A)True
B)False
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Chapter 47: Accountants Liability and Malpractice
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Q1) In an action for breach of contract,the statute of limitations runs from the date on which the harm is discovered.
A)True
B)False
Q2) For accountants,fraudulent malpractice always involves upgrading the financial condition of the firm.
A)True B)False
Q3) Malpractice is both a form of negligence and a tort.
A)True
B)False
Q4) 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.
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Page 49
Chapter 48: Management of Corporations
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Q1) Ping was the president and chairman of the board of directors of Oh Imports,Inc.Ping was also a major shareholder.Acting as president,Ping negotiated a series of contracts that caused the corporation serious economic losses.In this role,Ping failed to exercise the care of a reasonably prudent person acting in similar circumstances.When substantial economic losses began to pile up,Ping insisted that the corporation breach a contract with Ory in favor of a larger contract that was later entered into with Magnificent Enterprises.Ping hoped to reverse Oh's economic fortunes through this contract with Magnificent,but the attempt failed.Oh then became insolvent.Ultimately,the corporation failed.Two law-suits were initiated against Ping.In the first,a creditor of Oh who never was paid because the business failed sued Ping alleging that the negligence of Ping had caused Oh to fail to pay the creditor what was owed.The second lawsuit instituted by Ory claimed damages from Ping because Ping caused Oh to breach its contract with Ory.Decide both lawsuits.
Q2) Shareholder control is generally limited to voting at shareholders' meetings to elect directors.
A)True B)False
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Page 50
Chapter 49: Real Property
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Q1) A guarantee that the grantor owns the estate conveyed is called a covenant:
A) of right to convey.
B) against encumbrances.
C) of quiet enjoyment.
D) of seisin.
Q2) A trade fixture is a fixture that is traded in by the owner when purchasing new fixtures.
A)True
B)False
Q3) Title to land may be acquired by adverse possession.
A)True
B)False
Q4) Small children who trespass on land may be owed a special duty of care based on the doctrine of:
A) caveat emptor.
B) res ipsa loquitur.
C) comparative negligence.
D) attractive nuisance.
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Chapter 50: Environmental Law and Land Use Controls
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Q1) If a restrictive covenant is valid,it binds only the original grantee in the deed that created the covenant.
A)True
B)False
Q2) Conduct that unreasonably interferes with the enjoyment of land is a nuisance.
A)True
B)False
Q3) The bubble concept:
A) refers to dirty areas that do not meet federal standards under the Clear Air Act.
B) controls whether new factories can be built in a nonattainment area.
C) is a method for determining total emissions in one area.
D) all of the above.
Q4) Planting trees or erecting a fence,although otherwise lawful,constitutes a public nuisance when it creates a traffic hazard by obscuring an intersection.
A)True
B)False
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Page 52
Chapter 51: Leases
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Q1) Generally,the tenant has the right to the exclusive possession of the premises during the term of the lease.
A)True
B)False
Q2) Making improvements is a duty that falls on the tenant.
A)True
B)False
Q3) A tenancy for years terminates at the expiration of the specified term,regardless of whether one party gives the other any notice of termination.
A)True
B)False
Q4) Under the common law and the majority rule,a landlord has no duty to mitigate damages when the tenant abandons the premises before the expiration of the lease.
A)True
B)False
Q5) Inference occurs when a landlord prevents a tenant from accessing the property.
A)True
B)False
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Chapter 52: Decedents Estates and Trusts
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Q1) When specifically bequeathed property is sold or given away by the testator prior to death,the bequest is considered "redeemed."
A)True
B)False
Q2) A failure by the settlor to name a trustee renders a trust invalid.
A)True
B)False
Q3) A living will,now legal in most states,provides that if the testator becomes unable to express his or her wishes and is in an irreversible,incurable medical condition,he or she does not want life-sustaining medical treatments.
A)True
B)False
Q4) If the trustee breaches the trust,which of the following remedies might be available?
A) a money judgment
B) an injunction
C) a criminal prosecution
D) all of the above
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