Accounting Law
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Course Introduction
Accounting Law is a course that examines the legal framework governing accounting practices and the responsibilities of accountants within the context of business and financial reporting. Students will explore key legislation, regulations, and ethical standards that influence the preparation and presentation of financial statements, the role of regulatory bodies, and the legal implications of financial misrepresentation or fraud. The course also covers legal issues related to auditing, taxation, and professional liability, providing a comprehensive understanding of how law intersects with accounting in ensuring transparency, accountability, and ethical conduct in the financial world.
Recommended Textbook Law for Business 12th Edition by
A. James Barnes
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Page 2
Chapter 1: Law, Legal Reasoning, and the Legal Profession
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Q1) The freedom of speech granted by the U.S.Constitution is an example of _____.
A) civil law
B) substantive law
C) criminal law
D) procedural law
Answer: B
Q2) Which of the following statements is true of independent agencies?
A) They are headed by the president.
B) They are a part of the executive branch of the government.
C) They are headed by a board or commission.
D) They are given authority only to enforce rules made by the Congress.
Answer: C
Q3) If a person carelessly runs a car into yours,that person has committed the:
A) civil tort of negligence.
B) substantive tort of negligence.
C) criminal tort of negligence.
D) procedural tort of negligence.
Answer: A
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3
Chapter 2: Dispute Settlement
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Q1) Which of the following statements is true about a minitrial?
A) A minitrial involves a six-member mock jury empaneled by the court that hears a shortened presentation of the case by the lawyers for each side and renders an advisory verdict.
B) A minitrial often involves a neutral third-party advisor who will render a nonbinding opinion, if a settlement is not reached, regarding how a dispute is likely to be resolved if it goes to trial.
C) A minitrial is conducted under court guidance.
D) A minitrial differs from mediation in that the third-party to whom the dispute is submitted decides the outcome.
Answer: B
Q2) Which of the following is true of the burden of proof in a criminal trial?
A) It should be "beyond a reasonable doubt."
B) It is placed on the defendant.
C) During the closing of a case, when the defendant's attorney goes first, he or she has the burden of proof.
D) It is similar to that for civil cases.
Answer: A
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Page 4
Chapter 3: Business Ethics and Corporate Social Responsibility
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Q1) Under Immanuel Kant's "categorical imperative," _____.
A) individuals should judge an action by applying it universally
B) individuals should manipulate others for their self-interest
C) the teleological ethical theory is dominant
D) the consequences of a decision are focused on deciding if it is ethical
Answer: A
Q2) The theory that calls for a fair allocation of society's benefits and burdens among all members of society is _____.
A) profit maximization
B) Kantianism
C) the modern rights theory
D) the justice theory
Answer: D
Q3) Critics of capitalism and Corporate America increasingly argue that corporations should follow socially responsible standards higher than that imposed by law.
A)True
B)False
Answer: True
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Chapter 4: Business and the Constitution
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Q1) Government actions that are procedurally fair are always constitutional even if they are substantively unfair.
A)True
B)False
Q2) The Food and Drug Administration is an example of an independent agency.
A)True
B)False
Q3) Under strict scrutiny analysis,to demonstrate that a government action is constitutional,the government must demonstrate that:
A) its action bears a rational relationship to its desired end.
B) it is pursuing a compelling government interest.
C) it is pursuing a governmental end in the most intrusive manner.
D) there is no restriction on commercial speech.
Q4) The case-by-case approach followed by the courts to resolve complex problems are always considered to be better in comparison with the procedures followed by administrative agencies.
A)True
B)False
Q5) When is strict scrutiny analysis triggered?
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Chapter 5: Crimes
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Q1) Under the Fourth Amendment to the U.S.Constitution,when assessing whether a governmental action has infringed on an individual's rights,the court:
A) will always grant the government the ability to do whatever it deems necessary.
B) must balance the governmental need against the rights of the individual.
C) will always rule in favor of individual rights over that of the government.
D) must balance both, but ultimately grant the government the ability to do whatever it deems necessary.
Q2) If a country decides to join the Council of Europe's "Convention on Cybercrime," what does the country need to do as a part of this convention?
Q3) Under the Electronic Communications Privacy Act,an electronic communication provider may disclose the contents of an electronic communication if the disclosure was made as part of government-authorized surveillance.
A)True
B)False
Q4) Voluntary intoxication is a complete defense to a crime.
A)True
B)False
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Chapter 6: Intentional Torts
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Q1) Conversion is defined as:
A) intrusion on a person's solitude or seclusion and publishing private facts about a person.
B) the unlawful taking of or exercise of control over the personal property of another person.
C) the intentional confinement of a person for an appreciable time without the person's consent.
D) the use of force to drive away a person's customers or employees.
Q2) Truth is not a defense to a defamation action.
A)True
B)False
Q3) In cases of defamation,defendants are not liable if the statements they uttered were true.
A)True
B)False
Q4) For a public figure to sue for defamation,the person must prove:
A) actual malice.
B) the facts talked about to be controversial.
C) unintentional tort.
D) negligence.
Page 8
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Chapter 7: Negligence and Strict Liability
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Q1) Which of the following is true about the doctrine of res ipsa loquitur?
A) It says that an act of negligence and a criminal offense should be treated with the same weight.
B) It puts the burden on the plaintiff to show that the injury was not caused by his or her negligence.
C) It is applicable to cases where the defendant has exclusive control of the thing that caused the injury and is reluctant to disclose facts that prove liability.
D) It offers protection to those who are injured while making a reasonable attempt to rescue someone endangered by the negligent person's act.
Q2) Violetta was injured in a bike accident while on a ride with Alfredo,who she knew was intoxicated.A court would regard this as:
A) contributory negligence.
B) assumption of the risk.
C) last clear chance.
D) comparative negligence.
Q3) Under the doctrine of strict liability,care and caution mitigate liability.
A)True
B)False
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Chapter 8: Licensing and Intellectual Propertypart Two Contracts
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Q1) A distinctive word,name,symbol,or device used by a business to distinguish its goods from those of its competitors is called a _____.
A) service name
B) service mark
C) trade name
D) trademark
Q2) A patent generally is effective for 10 years from the date of filing.
A)True
B)False
Q3) In 2013,the United States,following the America Invents Act,based its patent laws on a "first-to-invent" system.
A)True
B)False
Q4) Through confidentiality clauses,a licensor may wish to ensure that the licensees do not use or disclose technology after an agreement ends.
A)True
B)False
Q5) Briefly explain the extraterritorial reach of the U.S.patent law.
Q6) How can a plaintiff recover for trademark infringement?
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Chapter 9: The Nature and Origins of Contracts
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Q1) A quasi contract can be best described as:
A) a contract that has been fully performed.
B) a contract where terms are stated orally only.
C) contractlike duties imposed by the court to prevent unjust enrichment.
D) an agreement that contains all but one of the basic elements needed to form an enforceable contract.
Q2) Yuan writes to Rita saying that he would sell her his car for $1,000.Rita writes back agreeing to buy the car on Yuan's terms.Given this information,the contract between Yuan and Rita is:
A) unilateral and executory.
B) bilateral and unenforceable.
C) bilateral and executory.
D) unilateral and implied.
Q3) Bill downloaded an antivirus software from the Internet.Under the Uniform Commercial Code (UCC),the software is a:
A) good.
B) service.
C) good-faith warranty.
D) mixture of goods and services.
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Page 11
Chapter 10: Creating a Contract: Offers
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Q1) If the subject matter of a proposed contract is destroyed without the knowledge of either party after the making of an offer but before its acceptance,the offer cannot be terminated.
A)True
B)False
Q2) The modern trend is for courts to tolerate more open and missing terms in offers.
A)True
B)False
Q3) What is an offer? What are the three conditions necessary for the creation of an offer?
Q4) When an offeror does not specifically indicate what he is willing to do and what he wants the offeree to agree to do in return,his behavior will probably be classed as an: A) agreement. B) offer.
C) invitation to negotiate.
D) invitation to bid.
Q5) What are the factors that influence the reasonable length of an offer?
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Page 12
Chapter 11: Creating a Contract: Acceptances
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Q1) Explain the process followed by the court to determine the intent of the parties to enter into a contract if a dispute arises before the written draft of agreement is created?
Q2) Under both the Uniform Commercial Code (UCC)and the common law,the acceptance cannot materially vary from the offer:
A) only in the sale of real estate and services.
B) only in sale of goods when the contract is made by the exchange of forms.
C) in the sale of real estate, services, and in sale of goods when forms are not exchanged.
D) when silence is the mode of acceptance.
Q3) Explain the similarity and difference between click-on and browse-wrap contracts.
Q4) The means used by an offeror to communicate the offer is:
A) the impliedly authorized means for accepting regardless of circumstances.
B) the impliedly authorized means for accepting unless the circumstances do not indicate otherwise.
C) the only authorized means of communication for accepting.
D) always the offeror's particular trade usage in communication, as it impliedly authorizes a given means of acceptance.
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Chapter 12: Consideration
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Q1) A liquidated debt is one that is due and certain,which means that there is no dispute about the existence or the amount of the debt.
A)True
B)False
Q2) Legal value depends on the adequacy of consideration.
A)True
B)False
Q3) Explain the difference between a liquidated and an unliquidated debt.
Q4) A promise supported by past consideration is always enforceable.
A)True
B)False
Q5) Which of the following statements is true of consideration?
A) Consideration always has a monetary value regardless of a legal value.
B) A promisee can be enforced by the courts to keep his or her promise.
C) Consideration enforces gratuitous promises.
D) A promisee's consideration may be an act or a promise.
Q6) Explain forbearance to sue in relation to consideration.
Q7) Freedom of contract includes the freedom to make bad bargains.
A)True
B)False
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Chapter 13: Capacity to Contract
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Q1) With respect to contracts,"status quo ante" refers to:
A) minors losing the right to disaffirm if they fraudulently misrepresent their age.
B) the position one would be in if a given contract had never come into existence.
C) the basic risks of entering into contracts.
D) a minor being protected by law on all counts of misbehavior.
Q2) The idea behind _____ is that adults who indicate an intent to be bound by contracts entered while still minors should be bound to those contracts and denied the right to disaffirm thereafter.
A) ratification
B) disaffirmance
C) emancipation
D) forbearance
Q3) In which of the following situations is a contract considered voidable?
A) When the contract is for necessaries
B) When the minor lied about his or her age
C) When the contract is ratified on reaching majority
D) When there is a lack of capacity because of minority
Q4) Explain the test for mental incapacity in contract law.
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Page 15
Chapter 14: Voluntary Consent
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Q1) A(n)_____ is one where both parties involved in a contract are under a mistaken belief about a material fact.
A) state of duress
B) state of undue influence
C) mutual mistake
D) unilateral mistake
Q2) A key point of differentiation between duress and undue influence lies in the:
A) net worth of the contract in question.
B) time at which the contract was signed.
C) relationship between the parties at the time of the contract.
D) type of property in question.
Q3) Jimmy sells an old station wagon to Mary and tells her that it is in excellent condition.He did not bother to verify the statement of the previous owner that the car was making strange noises.Under these circumstances,Mary could best contest the agreement on the grounds of _____.
A) mutual mistake
B) duress
C) fraud
D) unintentional tort
Q4) Explain the difference between duress and undue influence.
Page 16
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Chapter 15: Illegality
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Q1) Recovery is allowed only for performance rendered before the parties learned of the illegality and only if the illegality does not involve immoral behavior or present a serious threat to the public welfare.
A)True
B)False
Q2) Which of the following is true of blue laws?
A) They prohibit the performance of certain work on Sunday.
B) They were passed to regulate betting.
C) They regulate the amount of interest charged for the use of money.
D) They do not vary across states in a country.
Q3) _____ is a provision in a contract that attempts to relieve one party to the contract from liability for the consequences of his or her negligence.
A) Exculpatory clause
B) Indemnification clause
C) Arbitration clause
D) Severability clause
Q4) A party to an illegal contract can recover damages for breach of the agreement.
A)True
B)False
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Chapter 16: The Form and Meaning of Contracts
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Q1) Under the Electronic Signatures in Global and National Commerce Act,digital signatures are given the same effect as one written in ink on paper.
A)True
B)False
Q2) What kind of writing is required under the statute of frauds?
Q3) When a contract is partly printed and partly written,_____.
A) the written terms control the printed terms if the two conflict
B) ambiguities are resolved in favor of the party who drafted the contract
C) the printed terms control the written terms
D) any presence of ambiguities renders the contract void and unenforceable
Q4) Explain with an example how the parol evidence rule is a potential source of danger for parties who reduce their agreements to written form.
Q5) The increasing number of contracts transacted over the Internet has prompted legislative reform at both the state and federal levels to facilitate e-commerce by revising traditional contract rules.
A)True
B)False
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Page 18
Chapter 17: Third Parties Contract Rights
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Q1) Zeta is contracted to perform a violin solo for Pat.Zeta assigns the contract to Roy.Which of the following statements is true about delegation of duty in this case?
A) This is a valid delegation of Zeta's duty as Zeta has entered into a novation with Roy.
B) This is a valid delegation of Zeta's duty because Zeta does not want to play for Pat.
C) This is not a valid delegation of Zeta's duty to play because all delegations must be expressly stated in the assignment contract.
D) This is not a valid delegation of Zeta's duty to play because the contract is one in which Zeta's personal skill as a musician is an essential part of the agreement.
Q2) Once a donee or creditor beneficiary has accepted a contract,the original parties:
A) can cancel the contract if the original contract gives them the right to do so.
B) can cancel the contract without the third party's consent.
C) can modify the contract without the third party's consent.
D) can cancel only monetary contracts.
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19
Chapter 18: Performance and Remediespart Three Sales
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Q1) A liquidated damage provision will be enforced when:
A) a technical breach of contract has occurred without causing any actual loss.
B) the amount specified is reasonable and actual damages are difficult to determine.
C) the nature of the contract is such that damages are easy to determine.
D) the amount agreed on is not the injured party's exclusive remedy.
Q2) Which of the following is true of anticipatory repudiation?
A) It occurs if promisors, prior to the time for performance, indicate an intent not to perform their duties under the contract.
B) Its indication can arise only from implicit actions, and the other party can sue after two weeks for breach of contract.
C) It occurs when the promisee's performance fails to reach the degree of perfection the other party is justified in expecting under the circumstances.
D) Its indication can arise only in the form of an express statement by the promisor and the other party cannot treat the contract as breached.
Q3) Anticipatory repudiation can never be implied from actions by the promisor.
A)True
B)False
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Page 20
Chapter 19: Formation and Terms of Sales Contracts
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Q1) If a contract is for the sale of goods,the principles of common law are applicable.
A)True
B)False
Q2) The Uniform Commercial Code distinguishes between merchants and nonmerchants by holding nonmerchants to a higher standard in all cases.
A)True
B)False
Q3) Which of the following terms is closely related to destination contracts?
A) CIF (cost, insurance, and freight)
B) FAS (free alongside)
C) Ex-ship
D) C&F (cost and freight)
Q4) If a contract is silent about the place for delivery,the goods are to be delivered at the seller's place of business.
A)True
B)False
Q5) Why does the Uniform Commercial Code distinguish between merchants and nonmerchants by holding merchants to a higher standard in some instances?
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Chapter 20: Warranties and Product Liability
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Q1) The _____ protects the buyer in ownership of the goods bought.
A) implied warranty of title
B) implied warranty of merchantability
C) implied warranty of fitness
D) implied warranty of description
Q2) If a product is inherently dangerous so that no amount of due care could make it safe,_____.
A) the manufacturer is required to give the consumer notice of the unreasonable danger B) privity bars recovery
C) contributory negligence prevents recovery
D) the manufacturer is required to provide the consumer a disclaimer at the time of sale
Q3) The warranty of title differs from other warranties in that it protects buyers in ownership of the goods bought.
A)True
B)False
Q4) Explain the difference between the implied warranty of merchantability and the warranty of fitness for a particular purpose.
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Chapter 21: Performance of Sales Contracts
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Q1) Skyline Builders and Pine Lumber had a contract,calling for Pine Lumber to deliver a certain quantity of bricks to Skyline's place of business on the first of every month for one year.Pine delivered the bricks one week late for the first six months,but Skyline did not object.When Pine delivered the bricks one week late,as usual,in the seventh month,Skyline attempted to cancel the contract because of the late delivery.Which of the following is true about this scenario?
A) Pine will have to return the delivery fee of the first six months because it broke the contract.
B) Skyline does not have the legal right to modify the contract.
C) Pine is not in breach because the delivery was made at the intended place of business.
D) Skyline has waived its right to cancel the contract.
Q2) If there is no agreement for delivery in installments,then all the goods must be delivered to the buyer in a single delivery.
A)True
B)False
Q3) What does it mean to require parties to act in "good faith" in the performance of a sales contract? Explain and provide an example.
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Page 23
Chapter 22: Remedies for Breach of Sales Contractspart
Four Agency and Employment
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Q1) Monroe Hardware contracted to purchase 20 alarm clocks from Clocks Inc.,a clock manufacturer.One week before delivery,Monroe Hardware notified Clocks Inc.that it was canceling its contract because it (Monroe Hardware)was overstocked with clocks.Which of the following is a remedy available to Clocks Inc.in this scenario?
A) Clocks Inc. must attempt to resell the clocks to another buyer before it can recover damages from Monroe.
B) Clocks Inc. must attempt delivery of the goods before it can sue Monroe for damages.
C) Clocks Inc. may recover the difference between the contract price of the clocks and the current market price of the clocks.
D) Clocks Inc. can recover the purchase price from Monroe even if resale is possible.
Q2) When a buyer breaches a contract,the seller:
A) must deliver the goods to the buyer anyway.
B) need not give any credit to the buyer for any expenses the seller saved.
C) may resell the goods covered by the contract.
D) cannot reclaim goods in the possession of an insolvent buyer.
Q3) What are the most common ways in which a buyer may breach a contract?
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Chapter 23: The Agency Relationship-Creation, duties, and Termination
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Q1) In an agency at will,when one party exercises the power to terminate in violation of the right to terminate,the other party:
A) is left without a remedy.
B) may recover monetary damages in a breach of contract suit.
C) may recover specific performance only terminating the contract.
D) can recover only if the relationship was not based on mutual consent.
Q2) When an agent's duties conflict with the principal's own interests,_____.
A) the agent has breached the duty of loyalty
B) the agent must disclose these facts to the principal
C) if the agency is gratuitous, there is no duty of disclosure
D) the agent must resign immediately
Q3) An agency relationship arises when the agent acts for his own benefit under the direction of the principal.
A)True
B)False
Q4) An agency relationship results from any indication of consent by the principal that the agent may act on the principal's behalf and under her control.
A)True
B)False
Page 25
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Chapter 24: Liability of Principals and Agents to Third Parties
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Q1) For ratification to be effective:
A) the agent cannot disclose the name of the principal.
B) the principal must have been in existence at the time of the agent's action.
C) the agent must have the capacity to complete the unauthorized act and ratify it.
D) the necessity of the principal should not be served by subagents.
Q2) Liability is imposed on an agent who has exceeded his authority on the basis of an:
A) implied warranty of authority.
B) actual warranty of authority.
C) direct warranty of authority.
D) definitive warranty of authority.
Q3) When an agent takes an unauthorized action:
A) the action cannot be ratified by the principal.
B) the principal can transfer liability to the agent while enjoying the benefits of the action.
C) the principal may not ratify only a portion of the action.
D) the action may be ratified provided that the principal is a corporation.
Q4) Briefly describe the doctrine of respondeat superior.
Q5) Explain the concept of apparent authority.
Page 26
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Chapter 25: Employment Laws-Part Five Business
Organizations
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Q1) A contract between an employer and the union,which requires the employer to refrain from dealing in the products of another employer who is considered to be unfair to the union,is called a _____.
A) collective bargaining agreement
B) competitive-hit agreement
C) hot-cargo agreement
D) union shop agreement
Q2) How does the Americans with Disabilities Act of 1990 define disability? Who is excluded from this definition?
Q3) The Civil Rights Act of 1991:
A) provides Title VII coverage only to U.S. citizens working in the U.S.
B) curbed remedies for people harmed by discrimination, thereby prohibiting claimants from suing for damages.
C) provides Title VII coverage to persons of all nationalities working in the U.S.
D) established that an employment decision based partly on discriminatory motives and partly on legitimate reasons is still illegal discrimination.
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Chapter 26: Which Form of Business Organization
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Q1) The difficulty of selling one's investment in a publicly held corporation is one of the major disadvantages of the corporate form.
A)True
B)False
Q2) Identify the correct statement about sole proprietorship.
A) The owner shares responsibility with the agents and employees.
B) It may be operated under an assumed or trade name.
C) Employees of the business are not the personal employees of the owner.
D) The salaries paid to the employees are not deductible in determining taxable income.
Q3) A freeze-out:
A) occurs when a majority shareholder is "frozen out" by the management regarding such issues as a reduction or elimination of dividends.
B) can be easily reversed in court.
C) results in the minority shareholder having little influence in important corporate issues such as loss of employment.
D) occurs mostly in S corporations.
Q4) Explain the difference between a partnership and a limited partnership.
Q5) What are the advantages of franchising?
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Chapter 27: Partnerships
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Q1) A partner who wrongfully dissociates:
A) loses the right to demand a dissolution.
B) can participate in the winding up process.
C) must not be paid the value of his interest for the breach, if the firm continues.
D) can ask the court to appoint a receiver on his behalf.
Q2) MNO was a partnership that contracted for and performed a variety of painting jobs.Before the partnership was dissolved,MNO had entered into a contract under which MNO was supposed to paint every room in the state capitol building.At the time of the partnership dissolution,MNO had not yet performed the work called for by this contract.If the partners involved in the winding up elect to perform the contract,they _____.
A) have the authority to enter into new contracts with subcontractors, material suppliers, and workers
B) have no authority to enter into new contracts
C) cannot assign long-term contracts to other contractors
D) do not have the authority to enter into new contracts with subcontractors, material suppliers, and workers and hence cannot borrow money in order to complete these contracts
Q3) Describe limited partnerships.
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29
Chapter 28: Formation and Termination of Corporations
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Q1) Which of the following steps governing the incorporation process is included in the Model Business Corporation Act (MBCA)?
A) Preparing, signing, and authenticating the articles of incorporation
B) Filing the articles with the attorney general
C) Filing the articles by paying part of the required fees to the partnership creditor
D) Contributing a minimum of $5,000 to receive a certificate of incorporation
Q2) Under the right of first refusal,either the corporation or its shareholders are given the right to buy shares offered for sale to an outsider willing to purchase them.
A)True
B)False
Q3) Mention the matters that must be included in the articles of incorporation according to the Model Business Corporation Act (MBCA).
Q4) An enterprise that conducts its affairs in interstate commerce cannot be incorporated in a state other than the state in which the principal offices are located.
A)True
B)False
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Chapter 29: Management of the Corporate Business
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Q1) Which of the following does "ex officio" authority refer to?
A) Authority by virtue of one's office
B) Duty to act within one's authority
C) Conducting the affairs of the corporation with due care
D) Duty to act with loyalty and good faith
Q2) Who are the owners of the corporation?
A) The directors of the board
B) The shareholders
C) The employees
D) The executive officers
Q3) What are the three elements that must be met before directors or officers may be found to have usurped a corporate opportunity?
Q4) Officers who,in good faith,enter into an ultra vires transaction are not held personally liable.
A)True B)False
Q5) Stockholders have the ability to effectively reject a merger agreement. A)True B)False
Q6) Write a note on indemnification in corporations.
Page 31
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Chapter 30: Financing the Corporation and the Role of the Shareholders
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Q1) Which of the following arises through the sale of ownership interests in the business in the form of shares of corporate stock?
A) Bond securities
B) Debt securities
C) Equity securities
D) Proxies
Q2) Long-term,secured debt securities are called _____.
A) bonds
B) indentures
C) debentures
D) notes
Q3) If a corporation has only one class of stock,it is _____.
A) common stock
B) preferred stock
C) cumulative stock
D) convertible stock
Q4) Preferred stock and common stock are both debt securities.
A)True
B)False
Q5) How does common stock differ from preferred stock?
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Chapter 31: Securities Regulation
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Q1) _____ are important securities exemptions from the registration provisions of the 1933 Act.
A) Securities of profit issuers
B) Short-term notes and drafts
C) Private offerings
D) Initial market securities
Q2) In a Rule 10b-5 case,_____.
A) selective disclosure by a defendant doesn't make him liable for omission of material facts
B) the plaintiff must prove that the defendant acted with the intent to deceive, manipulate, or defraud
C) negligence on the part of the defendant is enough to make the defendant liable
D) the plaintiff is generally not required to prove that she relied on the defendant's false statement
Q3) Why are some securities exempted from the registration provisions of the 1933 Act?
Give two examples of such securities.Are they exempted from the antifraud provisions of the act as well?
Q4) Describe the Foreign Corrupt Practices Act and the reason for its enactment.
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Chapter 32: Legal Liability of Accountantspart Six Property
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Q1) Under Section 11(a)of the 1933 Act,accountants are:
A) liable only if privity of contract is with the purchaser.
B) liable for defective registration statements unless they can prove that they exercised due diligence.
C) liable only to purchasers who relied upon the omissions or falsities in the registration statements.
D) not liable to any purchaser of securities issued pursuant to a defective registration statement.
Q2) Under Rule 10b-5 of the Securities Act of 1934,_____.
A) the plaintiff must prove that the accountant acted with scienter
B) the intent to deceive is not an element of the offense
C) an accountant will never be liable to a purchaser for a misstatement of material fact in the registration statement
D) an accountant must prove he exercised due diligence to escape liability
Q3) Reliance is the most essential element in a case governed by Section 11(a)of the Securities Act of 1933.
A)True
B)False
Q4) When might an accountant issue a qualified opinion and a disclaimer?
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Chapter 33: Personal Property and Bailments
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Q1) An involuntary bailee or constructive bailee has the right to use or destroy bailed property.
A)True
B)False
Q2) Which of these actions is applicable under the Uniform Gifts to Minors Act?
A) Adults are prohibited from making gifts of unregistered securities to minors.
B) Adults can make a gift of money to minors by depositing the money with a bank in an account in the donor's name.
C) Gifts of registered securities can be made by merely delivering the securities to a bank trustee.
D) Gifts of unregistered securities can be made by registering the securities in the name of another adult.
Q3) Adella works for a large software company as a security analyst.In her free time away from work,she likes to develop computer games.Which of the following statements is true in this case?
A) The software company owns the games that Adella develops.
B) Adella owns the games that she develops.
C) Adella and the software company jointly own the games that she develops.
D) The person who uses the game first owns the games that Adella develops.
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Page 35
Chapter 34: Real Property
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Q1) An ordinary owner who sells his or her house-a seller who was neither the builder nor the developer of the residential property-does not make an implied warranty of habitability.
A)True
B)False
Q2) A special warranty deed:
A) cures the defect in the chain of title to property.
B) means that the grantor offers a unique warranty against all defects in the title and all encumbrances.
C) implies that the grantor warrants against all liens and easements.
D) means that the grantor warrants against only those defects in the title that arose after he or she acquired the property.
Q3) Under condominium ownership,a purchaser takes title to his or her individual unit and becomes a tenant in common with other unit owners in shared facilities.
A)True
B)False
Q4) Define the legal meaning of "nuisance" and explain the two types of nuisances recognized by the law,using a scenario to illustrate each type.
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Page 36
Chapter 35: Landlord and Tenant
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Q1) Define tenancy for a term and show how it differs from periodic tenancy.
Q2) A tenant is responsible for the care and upkeep of leased property and is required to make major repairs if the damage was caused by his or her own negligence.
A)True
B)False
Q3) Statutes or ordinances designed to prevent abuse of security deposits by landlords:
A) prevent withholding security deposits for nonpayment of rent.
B) require that the security deposits be refundable.
C) allow landlords to withhold security deposits when the property is damaged by ordinary wear and tear.
D) prohibit landlords from taking advance payments of rents from tenants.
Q4) Which of the following statements is true about a lease?
A) It is primarily a conveyance of land with relatively little attention paid to its contractual aspects.
B) It generally offers a tenant greater bargaining power over the landlord.
C) It conveys to the tenant the exclusive right to possess property for a period of time.
D) It does not come under the purview of doctrines such as unconscionability.
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Chapter 36: Estates and Trusts
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Q1) At common law,which of the following is true of the right of a widow on a life estate?
A) The widow gets a one-third interest in fee simple, only in the real property owned by the testator during their marriage.
B) The widow has the right to a life estate in two-thirds of the lands owned by her husband at the time of his death.
C) The widow has the right to a life estate in half of the lands owned by her husband during their marriage.
D) The widow gets a one-third interest in fee simple in the real and personal property owned by her husband at the time of his death.
Q2) In the states that recognize holographic wills,such wills will be valid if:
A) they do not evidence testamentary intent.
B) they are in the handwriting of the testator.
C) the material portions in the will are typed.
D) they are typed and evidence testamentary intent.
Q3) Explain durable power of attorney for health care.
Q4) Describe the responsibilities of a personal representative in the administration of an estate.
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Page 38
Chapter 37: Insurance-Part Seven Commercial Paper
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Q1) Which of the following statements is true about health insurance contracts?
A) Health insurance contracts normally do not provide coverage for medical expenses resulting from preexisting conditions.
B) Most people receive their insurance coverage from individual policies that are provided by employers.
C) The Consolidated Omnibus Budget Reconciliation Act prevents companies that do not provide portable health insurance contracts from issuing group policies.
D) Portable health insurance contracts allow insurance companies to stop covering people who change their jobs.
Q2) If Geoff makes a fraudulent statement about his medical history and fails to disclose relevant facts about his medical history in his application for insurance,the insurance company _____.
A) has a right to cancel Geoff's policy
B) cannot consider the contract voidable
C) has to adjust the benefits payable at Geoff's discretion
D) cannot cancel the policy unless Geoff misrepresented his age as well
Q3) Describe portable health insurance.
Q4) What are an insurer's obligations in a liability insurance contract?
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Chapter 38: Negotiable Instruments
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Q1) A note in which the maker states,"I promise to pay to the order of Oliver $600 or a six-string guitar" is:
A) not negotiable because it contains a conditional promise.
B) negotiable for payment of the guitar only.
C) negotiable for payment only if Oliver is the holder of the instrument.
D) not negotiable because it is not payable for money alone.
Q2) A two-party instrument in which one person makes an unconditional promise in writing to pay another person,with or without interest,either on demand or at a specified,future time is a _____.
A) promissory note
B) certificate of deposit
C) draft
D) check
Q3) A draft is a:
A) two-party instrument.
B) three-party instrument.
C) single-party instrument.
D) non-negotiable instrument.
Q4) What is the difference between a promissory note and a check? Why is the distinction important?
Page 40
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Chapter 39: Negotiation and Holder in Due Course
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Q1) Except for the special provisions concerning depositary banks,if an order instrument is transferred without indorsement,the _____.
A) instrument has not been negotiated
B) transferee can qualify as a holder
C) transferee has the right to the qualified indorsement of the transferor
D) transferee has none of the rights of the transferor to enforce the instrument
Q2) Which of the following statements is true of a qualified indorsement?
A) It does not change the negotiable nature of the instrument.
B) It specifies the purpose of the indorsement or specifies the use to be made of the instrument.
C) It contains the signature of the indorser along with the words indicating to whom, or to whose order, the instrument is payable.
D) It does not eliminate the contractual liability of the indorser.
Q3) An instrument that is indorsed with a special indorsement is known as "bearer paper."
A)True
B)False
Q4) How does one become a "holder in due course"?
Q5) Explain the nature and meaning of an indorsement.
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Chapter 40: Liability of Parties
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Q1) A holder in due course may discharge the liability of the parties to the instrument by:
A) publishing notice.
B) canceling it.
C) accidentally destroying it.
D) paying for it even if it is a stolen one.
Q2) No person is contractually liable on a negotiable instrument unless she or her authorized agent has signed it and the signature is binding on the represented person.
A)True
B)False
Q3) If a drawee bank mistakenly paid a check over a stop-payment order,the bank cannot recover if it paid the check to a presenter who had taken the instrument in good faith and for value.
A)True
B)False
Q4) Mention the parties who are entitled to enforce an instrument.
Q5) Notice of dishonor must be made only by written means.
A)True
B)False
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Chapter 41: Checks and Electronic Fund Transfers-Part
Eight Credit Transactions
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Q1) If a drawer is negligent and contributes to the forgery or alteration of a check,_____.
A) the bank can charge the drawer for the amount
B) the bank is liable to the drawer for the amount
C) the check is not payable from the customer's account
D) the bank must pay the instrument out of its own funds
Q2) Which of the following is true of the Check 21 Act?
A) The processes it enabled are time-consuming and costly.
B) It is designed to enable banks to handle more checks electronically.
C) It completely discourages check truncation.
D) It requires banks to retain a legible copy of checks for fifteen years.
Q3) For improper execution or failure to execute payment orders,banks can be liable to:
A) the originators for their expenses in the transaction along with incidental expenses and interest losses.
B) the beneficiaries for their incidental expenses.
C) the originators for consequential damages.
D) both the originators and beneficiaries for consequential damages, even though the written agreement of the receiving bank does not provide for it.
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Page 43
Chapter 42: Introduction to Security
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Q1) If several people act as cosureties for a principal and one of them had paid the principal's debt,the cosurety who paid the debt has a claim against the other cosureties because of his or her:
A) right of subrogation.
B) right to contribution.
C) right of strict foreclosure.
D) right to reimbursement.
Q2) If the surety has to perform the principal's obligation,then the surety acquires all the rights that the creditor had against the principal.This is known as the surety's:
A) right to contribution.
B) right of subrogation.
C) right to compensation.
D) right to reimbursement.
Q3) A surety could avoid liability for a principal's default by using the principal's bankruptcy as a defense.
A)True
B)False
Q4) Define strict foreclosure.
Q5) What is a possessory lien? Give an example.
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Chapter 43: Security Interests in Personal Property
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Q1) The basic rule established by the Uniform Commercial Code is that when more than one security interest in the same collateral has been filed,the last security interest to be filed has priority over any that is filed later.
A)True
B)False
Q2) An interest in personal property that a creditor obtains to secure payment of an obligation is a security interest.
A)True
B)False
Q3) A security interest is not legally enforceable against a debtor until it is attached to a particular item or items of the debtor's property.
A)True
B)False
Q4) If no expiry date is stated in the financing statement,it is valid for six months.
A)True
B)False
Q5) Explain how a security interest is created.
Q6) Explain a creditor's three potential courses of action upon default.
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Chapter 44: Bankruptcy-Part Nine Government Regulation
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Q1) Which of the following statements concerning reaffirmation agreements is true?
A) Reaffirmation agreements are unlawful under the Bankruptcy Act.
B) Reaffirmation agreements must be made before a discharge in bankruptcy is granted.
C) A debtor cannot voluntarily pay any dischargeable obligation without entering into a reaffirmation agreement.
D) Reaffirmation agreements cannot be rescinded prior to discharge or within 60 days after filing with the court.
Q2) A major purpose of the Bankruptcy Code is to:
A) ensure that the debtor can pick and choose between creditors.
B) protect honest debtors against the demands for payment by creditors.
C) ensure that a debtor can never be discharged of the debts he owes to the creditors.
D) protect creditors from debtors who try to extend the given time to pay their debt.
Q3) What are the primary purposes of the Bankruptcy Code?
Q4) Describe the creditor actions that are automatically held in abeyance when the debtor files a bankruptcy petition.
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Page 46
Chapter 45: The Antitrust Laws
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Q1) Behavior that affects only intrastate commerce is within the scope of the federal antitrust laws.
A)True
B)False
Q2) When a manufacturer gets a retailer to agree to follow his suggested price,the agreement does not involve joint action.
A)True
B)False
Q3) Tie-in contracts occur when a seller refuses to sell a product to a buyer unless the buyer also purchases another product from the seller.
A)True
B)False
Q4) The _____ gives the federal courts broad injunctive powers to remedy antitrust violations.
A) Noerr Doctrine
B) Sherman Act
C) Parker Doctrine
D) Robinson-Patman Act
Q5) Describe the Hart-Scott-Rodino Antitrust Improvements Act.
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Chapter 46: Consumer Protection Laws
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Q1) The Consumer Product Safety Commission (CPSC)and the _____ may sue for injunctive relief or the seizure of products to enforce various provisions of the Consumer Product Safety Act (CPSA).
A) U.S. President
B) U.S. Chief Justice
C) U.S. attorney general
D) U.S. Secretary of State
Q2) The Fair Debt Collection Practices Act affects only the practices of debt collection agencies that collect consumer bills for creditors other than themselves.
A)True
B)False
Q3) The Consumer Product Safety Commission (CPSC)'s authority is limited to cosmetics and food products.
A)True
B)False
Q4) Discuss the product safety standards issued by the Consumer Product Safety Act (CPSA).Also,list at least three products which,although consumer goods,do not come under the authority of CPSA.
Q5) What is the main idea behind the Holder in Due Course rule?
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Chapter 47: Environmental Regulation
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Q1) The Safe Drinking Water Act cannot be applied to any trailer parks with wells.
A)True
B)False
Q2) Under Section 404 of the Clean Water Act,_____.
A) there are primary drinking water standards, which provide minimum levels of quality for water to be used for human consumption
B) any dredging or filling activity in a wetland that is part of the navigable waters of the United States requires a permit before the activity can be commenced
C) a permit system has been set up for regulating the dumping of all types of materials into ocean waters
D) there was a requirement for all ocean dumping of municipal sludge and industrial wastes to be terminated by the end of 1991
Q3) Penalties for violating the Clean Water Act range from a minimum of $2,500 for a first offense up to $50,000 per day and two years in prison for subsequent violations.
A)True
B)False
Q4) Describe Superfund's "Community Right to Know" requirement.
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