Commercial Law
Exam Answer Key
Course Introduction
Commercial Law explores the legal principles governing business and commercial transactions. This course covers fundamental concepts such as the formation and enforcement of contracts, the sale of goods, agency relationships, negotiable instruments, and legal structures of businesses. Students learn about regulatory frameworks, dispute resolution mechanisms, and the rights and obligations of parties engaged in commercial activities. Emphasis is placed on applying legal reasoning to real-world business scenarios, preparing students to navigate the complexities of the modern commercial environment.
Recommended Textbook
Business Law Today Comprehensive 11th Edition by Roger LeRoy Miller
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Page 2
Chapter 1: The Legal Environment
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Q1) Statutes are laws enacted by Congress and the state legislatures and comprise one of the sources of American law.
A)True
B)False
Answer: True
Q2) The Bay City Planning Department,the Coastal County Zoning Commission,the Delaware Environmental Quality Agency,and the U.S. Bureau of Land Management issue regulations.These rules constitute
A)administrative law.
B)case law.
C)constitutional law
D)statutory law.
Answer: A
Q3) No state has adopted the Uniform Commercial Code in its entirety.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Constitutional Law
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Q1) Bay Town enacts an ordinance to allow only a few recreational boating outfits to op-er-ate in certain areas of its harbor,for the purpose of reducing traffic. A court would likely review this ordinance under the principles of A)equal protection.
B)free exercise.
C)due process.
D)free speech
Answer: A
Q2) California enacts a statute to ban advertising in "bad taste." This stat-ute would likely be held by a court to be
A)an unconstitutional restriction of speech.
B)constitutional under the First Amendment.
C)justified by the need to protect individual rights.
D)necessary to protect national interests.
Answer: A
Q3) State laws protect individuals' privacy rights.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Courts and Alternative Dispute Resolution
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Q1) David,an Alabama resident,files a suit in an Alabama court against QuickAds,an Internet company based in Georgia that provides advertising services.QuickAds only contact with persons in Alabama has been through QuickAds's passive advertising. The Alabama court is
A)likely to have jurisdiction over the case.
B)not likely to have jurisdiction over the case.
C)likely to refer the case to a higher district court.
D)likely to refer the case to an appellate court.
Answer: B
Q2) Daniel files a suit against Ava,alleging that she failed to pay him for two months' labor at her Choice Cheese Factory. Ava denies the charge and claims that Daniel breached their contract to produce a certain quantity of cheeses and owes Ava damages for the breach. Ava's claim is a
A)contra charge.
B)counterclaim.
C)counterpoint.
D)cross-complaint.
Answer: B
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Chapter 4: Tort Law
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Q1) Under the doctrine of strict liability,liability is imposed only if a person fails to use all reasonable care.
A)if Ike intended to push Joan.
B)only if Ike did not intend to break Joan's arm.
C)only if Ike had a bad motive for pushing Joan.
D)only if Ike intended to break Joan's arm.
Q2) A plaintiff who voluntarily enters into a risky situation,knowing the risk involved,will be allowed to recover for any consequent injury.
A)True
B)False
Q3) Brady knows that the brakes on his car do not work,but he tells Celia,a potential buyer,that there are no problems with the car. On this assurance,Celia buys the car. On learning the truth,she may sue Brady for A)trade libel.
B)conversion.
C)fraudulent misrepresentation.
D)no tort.
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6
Chapter 5: Product Liability
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Q1) AgriGro,Inc.,sells hybrid seed to farms and other agricultural enterprises. Brandon buys and plants AgriGro seed on his Country Farm,but no crop grows because the seed is defective. Brandon sues AgriGro for product liability based on negligence. To win,Brandon must show that
A)AgriGro sold the seed to Brandon.
B)Brandon knew and appreciated the risk caused by the defect.
C)Brandon suffered damage caused by the defect.
D)the "defect" was a commonly known danger.
Q2) A design defect will support the imposition of liability on a strict product liability basis.
A)True
B)False
Q3) Soda Bubbles Corporation makes and sells soft drinks. Talia buys and drinks a Soda beverage,which proves defective and injures her. One justification for holding Soda strictly liable for the harm caused to Talia by its defective product is that
A)Soda is in a better position than Talia to bear the cost of her injury.
B)Talia is a person,not a business.
C)making and selling products are abnormally dangerous activities.
D)Soda and Talia are in privity.
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Page 7
Chapter 6: Intellectual Property Rights
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Q1) A person who buys a copyrighted work cannot sell it to someone else.
A)True
B)False
Q2) Hua plots a new Iron Man adventure and carefully and skillfully imitates the art of Marvel Comics to create an authentic-looking Iron Man graphic novel. Hua is not affiliated with the owners of the copyright to Iron Man. Can Hua pub-lish the novel as his own work without infringing on the owners' copyright?
Q3) A person can reproduce copyrighted material for purposes such as teaching,including multiple copies for classroom use,without paying royalties.
A)True
B)False
Q4) Counterfeit goods copy or otherwise imitate trademarked goods,and they are in fact sometimes genuine.
A)True
B)False
Q5) States do not have trademark statutes.
A)True
B)False
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Chapter 7: Internet Law, social Media, and Privacy
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Q1) Cyber torts are torts that arise from online conduct.
A)True
B)False
Q2) In some states,an unsolicited e-mail must include a toll-free phone number that the recipient can use to ask the sender to send no more unsolicited e-mail.
A)True
B)False
Q3) InfoFree Inc. makes and sells devices and services for the circumvention of encryption software and other technological antipiracy protection. Under the Digital Millennium Copyright Act,this is
A)a violation of copyright law.
B)prohibited but not a violation of copyright law.
C)a "fair use" exception to the provisions of the act.
D)permitted for reconsideration every three years.
Q4) No federal court has held that digitally sampling a copyrighted sound recording of any length constitutes copyright infringement.
A)True
B)False
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9
Chapter 8: Criminal Law and Cyber Crime
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Q1) Megan reaches into Ned's pocket and takes his wallet-without his consent and without his immediate awareness. Unlike robbery,picking pockets does not involve
A)breaking and entering.
B)force or fear.
C)large amounts of cash.
D)weapons.
Q2) Evan is charged with a crime.Almost all federal courts and some state courts would not hold Evan liable if,at the time of the offense,as a result of a mental disease or defect,Evan lacked substantial capacity to
A)appreciate the wrongfulness of his conduct only.
B)appreciate the wrongfulness of his conduct and obey the law.
C)appreciate the wrongfulness of his conduct or obey the law.
D)obey the law only.
Q3) In a phishing attack,the perpetrator "fishes" for financial data and passwords from a consumer by posing as a legitimate business.
A)True
B)False
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Chapter 9: Business Ethics
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Q1) Codes of ethical conduct can indicate how employees are expected to act.
A)True
B)False
Q2) Frances,an executive with GMO Seed & Feed,Inc.,has to decide whether to market a product that could offer substantial benefits but might also have potentially serious side effects for a small per-centage of users. How should Frances de-cide whether to sell the product? How does the standard of ethics that is applied affect this answer?
Q3) It may be unethical for a company to refuse to negotiate liability claims for alleged injuries because of a faulty product.
A)True
B)False
Q4) Housemate,Inc.,makes and sells a variety of household products. With a fair amount of certainty,Housemate's decision makers can predict whether a given business action would be legal in
A)all situations.
B)many situations.
C)no situations.
D)few situations.
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11
Chapter 10: Nature and Classification
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Q1) A court will normally interpret the language of a contract according to what the parties claim their intent was when they made it.
A)True
B)False
Q2) Omar asserts that a deal he entered into with Patty to sponsor and host a motivational conference for independent sales representatives is an unenforce-able contract. Defenses to the enforcement of a contract include
A)a desire not to perform.
B)insufficient capital.
C)preliminary indications of unsatisfactory results.
D)the lack of a party's voluntary consent.
Q3) GR8 Marketing Company and Brainfreeze Tunes,Inc.,sign a document that states GR8 agrees to create a marketing campaign for Brainfreeze,which agrees to pay GR8 for the service. GR8 and Brainfreeze have
A)an executed contract.
B)an express contract.
C)an implied contract.
D)a quasi contract.
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Chapter 11: Agreement
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Q1) An agreement is evidenced by one event: an offer.
A)True
B)False
Q2) Most advertisements-"this property for sale"-are offers.
A)True
B)False
Q3) Fix-It-Quik,Inc.,offers Denise a job as a plumber. No time for acceptance is specified in the offer. The offer will terminate
A)after a reasonable period.
B)after a work week (five business days).
C)after a month (thirty calendar days).
D)never.
Q4) An "offer" to sell an item on an online auction site generally is treated an invitation to negotiate.
A)True
B)False
Q5) An offeror's subjective intent determines the effectiveness of an offer.
A)True
B)False
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Chapter 12: Consideration
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Q1) To be legally sufficient,consideration must be evidenced by something tangible.
A)True
B)False
Q2) Legal sufficiency of consideration is the same as adequacy of consideration.
A)True
B)False
Q3) Refer to Fact Pattern 12-4. If Teatro offers no reason for the extra $250,000,but says only that it will stop work if it is not paid,the agreement is
A)enforceable as the consideration is past.
B)enforceable because of unforeseen difficulties.
C)unenforceable as an illusory promise.
D)unenforceable due to the preexisting duty rule.
Q4) Refer to Fact Pattern 12-2. A court is most likely to evaluate the adequacy of consid-era-tion if
A)a thing exchanged has no intangible value to one of the parties.
B)something exchanged is not of direct economic or financial value.
C)the items exchanged were of unequal value.
D)there is a large disparity in the value of the consideration exchanged.
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Page 14
Chapter 13: Capacity and Legality
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Q1) In certain circumstances,bargains are so oppressive that the courts relieve innocent parties of part or all of their duties.
A)True
B)False
Q2) Ratification is the act of accepting and giving force to an obligation that previously was not enforceable.
A)True
B)False
Q3) William obtains a loan from a bank at 4.5 percent interest. The state where he obtains the loan has a usury statute that limits interest rates to a 3.5 percent maximum. William's contract with the bank is
A)enforceable only if William does not attempt to disaffirm it.
B)enforceable only if the bank does not attempt to disaffirm it.
C)enforceable only if both William and the bank knew of the statute whenthe contract was signed.
D)not enforceable.
Q4) Courts often find that gambling contracts are illegal.
A)True
B)False
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Chapter 14: Voluntary Consent
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Q1) Nero is an elderly man who lives with his nephew Mervyn. Nero is depend-ent on Mervyn for support. Mervyn advises Nero to "invest" in Mervyn's "profes-sional gambling" venture,or Mervyn will no longer support him. Nero liq-uidates his other investments and signs a contract with Mervyn,to whom Nero gives the funds. Can Nero set aside this contract?
Q2) Morris threatens physical harm to force Barb to contract to pay him for protecting her store-Barb's Baubles-against vandalism and destruction. Barb may
A)rescind the contract or refuse to comply with its terms.
B)do nothing once she has agreed to pay.
C)recover from her insurer for the cost.
D)recover from the local police for their failure to protect her store.
Q3) Refer to Fact Pattern 14-1. Digital Storage'sbest defense against enforcement of the contract is that Entrepreneur Enterprisesknew
A)a bilateral mistake supports the cancellation of a contract.
B)a mistake of value supports the cancellation of a contract.
C)a unilateral mistake supports the cancellation of a contract.
D)the price was below the prices of comparable devices.
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Page 16
Chapter 15: The Statute of Fraudswriting Requirement
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Q1) David agrees to assume the debt of eDotCom Company to Fidelity Bank.The agreement is not in writing. To be enforceable,the promise must be for the benefit of A)any of the choices.
B)David.
C)eDotCom.
D)Fidelity.
Q2) Every state has a statute that stipulates what types of contracts must be in writing. A)True B)False
Q3) Physicians Clinic orders by phone seven boxes of single-use latex gloves from Quality Medical Supplies,Inc. After three boxes are delivered and accepted,Physicians Clinic repudiates the contract. Quality Medical can enforce the contract to A)any extent because the order was placed orally. B)no extent because the order was placed orally.
C)the extent of the three accepted boxes.
D)the extent of the four undelivered boxes.
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Chapter 16: Performance and Discharge
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Q1) Only personal contracts can be discharged by agreement of the parties.
A)True
B)False
Q2) Hilton enters into a contract to erect a fence around Irene's cattle pasture. When the fence is built,Hilton's performance will be
A)absolute.
B)complete.
C)conditional.
D)substantial.
Q3) To rescind a contract,the parties must make a second agreement that satisfies the legal requirements for a contract.
A)True
B)False
Q4) Any breach discharges the nonbreaching party from the contract.
A)True
B)False
Q5) Any breach allows the nonbreaching party to sue for damages.
A)True
B)False
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Chapter 17: Breach and Remedies
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Q1) Consequential damages are foreseeable damages that arise from a party's breach of a contract.
A)True
B)False
Q2) RidgeviewMining Inc. agrees to deliver ten tons of coal to Static Energy Corporation. The agreement states that delivery is to be within "9" days,although the parties intend "90" days. Ridgeview cannot convince Static to amend the contract. Ridgeview should seek
A)damages.
B)reformation.
C)rescission.
D)specific performance.
Q3) Handcrafts & Hobbies Store agrees to hire Iliana for one year at a salary of $600 per week. When Handcrafts & Hobbies cancels the contract,Iliana spends $150 to obtain a similar job that pays $450 per week for a year. Iliana is entitled to recover
A)the amount of the wages that Handcrafts & Hobbies promised only.
B)the difference between the wages at the two jobs only.
C)the difference between the wages at the two jobs plus $150.
D)$150 only.
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Page 19
Chapter 18: Third Party Rights
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Q1) Hilda signs a contract with Indemnity Insurance Company that intentionally confers a benefit on Hilda's daughter Jackie as the designated beneficiary. Jackie's rights under the contract will vest
A)automatically.
B)if she demonstrates her consent to the promise at Hilda's request.
C)if Indemnity attempts to modify the terms of the contract.
D)on the occurrence of the event for which the insurance was procured.
Q2) App Developers,Inc. (ADI),enters into a contract with Carmen,the chief executive officer of SalesCorp,to create an app for the firm. To fulfill the contract,ADI hires Max and ten other student interns. With respect to the contract,Max is
A)an intended beneficiary.
B)an incidental beneficiary.
C)a delegatee.
D)an assignee.
Q3) In an assignment,the party assigning the rights to a third party is the assignee.
A)True
B)False
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Page 20
Chapter 19: International Law in a Global Economy
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Q1) AgriWorld,a U.S. firm,owns property in Kenya. The government of Kenya seizes the property. AgriWorld claims that this is confiscation. The government of Kenya claims that it is expropriation. The burden of proof lies with A)the U.S. government.
B)the government of Kenya.
C)AgriWorld.
D)none of the choices.
Q2) Dumping is the sale of imported goods at "less than fair value."
A)True
B)False
Q3) International law is a body of law that governs relations among nations.
A)True
B)False
Q4) Bango! Business,Inc.,a U.S. firm,may have committed,in Chile,acts that would constitute,in the United States,violations of U.S. anti-trust laws. These laws apply
A)extraterritorially.
B)only to signatories of the North American Free Trade Agreement.
C)only to members of the World Trade Organization.
D)only within U.S. borders.
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Chapter 20: The Formation of Sales and Lease Contracts
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Q1) Under the United Nations Convention on Contracts for the International Sale of Goods,an international sales contract does not need to be evidenced by a writing or to be in any particular form.
A)True
B)False
Q2) Under the "partial performance" exception to the UCC,an oral contract for goods worth more than $500 is enforceable if the goods are specially manufactured for a particular buyer.
A)True
B)False
Q3) A merchant is a person who deals in goods of the kind involved in the sales contract or who holds herself or himself out as having skill or knowledge peculiar to the practices or goods being purchased or sold.
A)True
B)False
Q4) A court can refuse to enforce a contract that the court deems to have been unconscionable at the time it was made.
A)True
B)False
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Chapter 21: Title and Risk of Loss
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Q1) The risk of loss in a shipment contract passes to the buyer when the goods are delivered to the carrier.
A)True
B)False
Q2) Revocation of nonconforming goods allows the buyer to pass the risk of loss back to the seller,but only to the extent that the buyer's insurance covers the loss.
A)True
B)False
Q3) Fungible goods are goods that are alike naturally or by agreement or trade usage.
A)True
B)False
Q4) Ralph,a representative for Statewide Truck & Transport Company,delivers a receipt issued by Thelma,the owner of United Storage Warehouse,for goods held in the warehouse to Vicky,the buyer for Wattage,Inc. This is
A)a bill of lading.
B)a destination contract.
C)a shipment contract.
D)a warehouse receipt.
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Chapter 22: Performance and Breach of Sales and Lease Contracts
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Q1) If a buyer wrongfully refuses to accept goods,the seller can bring an action to recover the damages sustained.
A)True
B)False
Q2) A shipment contract requires a seller to ship goods by a carrier.
A)True
B)False
Q3) Unless the parties agree otherwise,the buyer or lessee has an absolute right to inspect the goods before making payment.
A)True
B)False
Q4) If either the goods or their tender fails to conform to the contract in any respect,the buyer or lessee must reject all of the goods.
A)True
B)False
Q5) Puffery creates an express warranty.
A)True
B)False
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Chapter 23: Negotiable Instruments
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Q1) An order instrument must identify the payee with certainty.
A)True
B)False
Q2) Pedro signs an instrument that states it is being executed "as per a contract for the sale of a case of apples dated May 1." This instrument is A)negotiable.
B)notnegotiable,because banks cannot easily process commodities.
C)notnegotiable,because it includes the specific date of a contract.
D)notnegotiable,because it refers to an express contract.
Q3) Sergio makes a gift of a check to Todd who takes it in good faith and without notice of any claim,defense,or defect. With respect to this check,Todd is A)none of the choices.
B)an assignee.
C)an ordinary holder.
D)an ordinary holder in due course.
Q4) A symbol can serve as a valid signature.
A)True
B)False
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Chapter 24: Banking in the Digital Age
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Q1) Ervin signs a check "pay to the order of Felicia" drawn on Ervin's account in Garden Fields Bank. Ervin later orders the bank not to pay the check,but the bank pays it over Ervin's order. Subsequent checks written on Ervin's account "bounce." Most likely liable for the costs to Ervin is
A)any party to whom a subsequent check was written.
B)Ervin.
C)Felicia.
D)Garden Fields Bank.
Q2) Ian buys a cell phone in Jiffy Mart,using the means that accounts for more retail payments than any other. This means of payment is
A)a commercial check.
B)a debit card.
C)a personal check.
D)cash.
Q3) An agency relationship arises between the customer and the bank when the customer writes a check on his or her account.
A)True
B)False
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Chapter 25: Security Interests and Creditors Rights
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Q1) Gina borrows from Hilltop Bank the funds to buy a car. The car secures the debt. Gina defaults on the loan. Hilltop takes possession of the car,planning to sell it to recover some of the unpaid debt. Before Hilltop sells the car or enters into a contract for its sale,Gina can pay the bank what she owes and take back the car. This is
A)a deficiency judgment.
B)a floating lien.
C)the right of redemption.
D)the right of retention.
Q2) Kayla's Auto Sales borrows money from Lenders Finance Corporation under a security agreement. With the money,Kayla'sbuyssixMiatas. The Miatas are
A)beyond the extent of Lenders's interest.
B)after-acquired property.
C)a future advance.
D)proceeds.
Q3) A guaranty contract must normally be in writing to be enforceable.
A)True
B)False
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Chapter 26: Bankruptcy
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Q1) Milos files a petition in bankruptcy. His dischargeable debts include
A)domestic-support obligations.
B)student loans unless the lender would suffer undue hardship.
C)court costs,trustee fees,and attorney's fees associated with the bankruptcy.
D)unsecured credit-card debt.
Q2) The same principles that govern the filing of a liquidation petition apply to reorganization proceedings.
A)True
B)False
Q3) Kofi files a petition for bankruptcy. Kofi must include with the petition
A)a plan to turn over his future income to the trustee.
B)a certificate proving attendance at a credit-counseling briefing.
C)a provision of adequate means for the petition's execution.
D)a statement of preference for one creditor over another.
Q4) In the majority of states,debtors may use only federal,not state,exemptions to exempt certain property from the bankruptcy.
A)True
B)False
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Page 28
Chapter 27: Agency Relationships in Business
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Q1) Rondiholds herself out as possessing special accounting skills. As an agent,she must exercise the degree of skill or care expected of
A)a person having those skills.
B)an average,unskilled person.
C)a reasonable person.
D)the principal.
Q2) A principal has a duty to cooperate with the agent and to assist the agent in performing his or he duties.
A)True
B)False
Q3) The agent has the right to be compensated,and to be reimbursed and indemnified.
A)True
B)False
Q4) An agency can terminate once its purpose is achieved.
A)True
B)False
Q5) A person must have contractual capacity to be an agent.
A)True
B)False
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Chapter 28: Employment, immigration, and Labor Law
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Q1) After a union election campaign among the employees of Frozen Foods Packaging & Sales Company,the Food Packagers International Union does not obtain a majority vote in the election. This violates
A)federal labor law.
B)state right-to-work laws.
C)federal wage-and-hour laws.
D)no federal or state law.
Q2) Generally,under employment-at-will doctrine,an employer may fire an employee even if doing so would violate a statute.
A)True
B)False
Q3) On Form I-9,an employer must declarethat an employee produced documents establishing his or her identity and legal employability.
A)True
B)False
Q4) U.S. employersface serious penalties if they hire undocumented immigrants.
A)True
B)False
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Chapter 29: Employment Discrimination
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Q1) Title VII of the Civil Rights Act applies to employers with fifteen or less employees.
A)True
B)False
Q2) The Americans with Disabilities Act covers persons with a wide range of disabilities. A)True B)False
Q3) Title VII of the Civil Rights Act prohibits only intentional discrimination. A)True
B)False
Q4) Deep Sea Fishing Corporation meets all of the requirements to be subject to the federal employment discrimination laws. These laws re-strict the ability of employers to discriminate against workers on the basis of A)experience.
B)gender.
C)intelligence D)skill.
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Chapter 30: Sole Proprietorships and Franchises
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Q1) The franchise agreement may specify whether the premises for the business must be leased or purchased outright.
A)True
B)False
Q2) Mai-Lin's Martial Arts,Inc.,grants a franchise to Naomi to operate a Mai-Lin's school. Mai-Lin's may require Naomi to pay the franchisor a percentage of her
A)annual sales or volume of business.
B)weekly payroll expense.
C)monthly overhead savings.
D)income from unrelated business activities.
Q3) State deceptive trade practices acts do not apply to actions by franchisors.
A)True
B)False
Q4) A franchisee ordinarily does not pay a fee for a franchise license (the privilege of being granted a franchise).
A)True
B)False
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Chapter 31: All Forms of Partnership
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Q1) In a general partnership,the senior partner manages the partnership.
A)True
B)False
Q2) The intent to associate is a key element of a partnership.
A)True
B)False
Q3) For two years after a partner dissociates from a continuing partnership,the partnership may be bound by the acts of the dissociated partner based on apparent authority.
A)True
B)False
Q4) Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding
A)only if a copy of the agreement is filed in the appropriate state office.
B)only if the agreement is printed in hard copy and signed by the parties.
C)only if the parties exchange valid consideration.
D)without more.
Q5) The death of a limited partner dissolves a limited partnership.
A)True
B)False
33
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Chapter 32: Limited Liability Companies and Special
Business Forms
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Q1) Dairy Products,Inc.,and Eden Farms Corporation form a joint venture to make and test-market Frosty Ice Cream. A joint venture is usually formed for A)an implied duration of not more than six months.
B)a single transaction or project.
C)a stated duration of not more than one year.
D)a perpetual existence.
Q2) Foreign investors cannot participate in a limited liability company.
A)True
B)False
Q3) If a dispute arises and the applicable limited liability company statute does not cover the issue,a court will most likely dismiss the case.
A)True
B)False
Q4) In most states,a limited liability company must have at least two members. A)True
B)False
Q5) Limited liability companies (LLCs)are governed by federal LLC statutes.
A)True
B)False
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Chapter 33: Corporate Formation and Financing
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Q1) A foreign corporation normally does not need a certificate of authority to sell goods or services via the Internet or by mail.
A)True
B)False
Q2) Jennifer and Kaylan would like to form Lunch Truck,Inc.,to enter the food vending business. Most likely,the articles of incorporation for Lunch Truck will not include
A)the corporation's name.
B)the name and address of the corporation's registered agent.
C)the number of shares that the corporation is authorized to issue.
D)the minutes of the first organizational meeting.
Q3) A corporation has perpetual existence in most states unless the articles of incorporation state otherwise.
A)True
B)False
Q4) If a corporation has S corporation status,it must pay income taxes at the corporate level.
A)True
B)False
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Chapter 34: Corporate Directors, officers, and Shareholders
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Q1) The board of directors is the ultimate authority in every corporation.
A)True
B)False
Q2) Holly is a director of International Spices,Inc. As a director,with respect to the corporation,Holly is
A)a fiduciary.
B)an incorporator.
C)an officer.
D)an employee.
Q3) Roddy is elected as a director to the board of Salt n' No-Salt Snax,Inc. He will most likely serve for a term of A)about ten years.
B)less than one year. C)life.
D)one year.
Q4) A director or officer must exercise due care in performing their duties,including acting in good faith.
A)True
B)False
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Chapter 35: Corporate Mergers, takeovers, and Termination
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Q1) When deciding which form of business organization to choose,businesspersons normally consider only one factor.
A)True
B)False
Q2) An acquiring corporation deals directly with a target corporation's management in seeking to purchase the target's stock by making a tender offer.
A)True
B)False
Q3) Ramon is a shareholder of Quantum Mechanix Corporation. Ramon could normally exercise appraisal rights if Quantum participated in A)a consolidation.
B)a dissolution.
C)a liquidation.
D)none of the choices.
Q4) The results of a consolidation are the same as those of a merger.
A)True
B)False
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Chapter 36: Investor Protection, insider Trading, and Corporate Governance
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Q1) Drilling Tools decides to sell its new securities via the Internet. This offering
A)will avoid the payment of commissions to brokers or underwriters.
B)is an investment scam.
C)is a Ponzi scheme.
D)constitutes insider trading.
Q2) The Sarbanes-Oxley Act of 2002 attempts to corporate accountability by imposing strict disclosure requirements and harsh penalties for securities laws.
A)True
B)False
Q3) Securities offerings in unlimited amounts can be exempt from the registration requirements in certain circumstances.
A)True
B)False
Q4) Under the Sarbanes-Oxley Act of 2002,chief financial officers must certify the accuracy of information in corporate financial statements and reports that are filed with the Securities and Exchange Commission.
A)True
B)False
Page 38
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Chapter 37: Administrative Law
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Q1) The Occupational Safety and Health Administration (OSHA)issues new rules with regard to safety in industrial workplaces. After the final rules are issued,OSHA can conduct investigations to
A)determine consumer satisfaction.
B)determine whether affected businesses are satisfied.
C)monitor compliance with the rules.
D)determine what type of agency needs to be created next.
Q2) One function of an administrative agency is investigating activities regulated by the agency.
A)True
B)False
Q3) The Federal Trade Commission (FTC)orders Retail Empire Inc. to reveal certain information. Retail Empire complains to a court,arguing that the order is an abuse of the FTC's discretion. Like other agencies,the FTC can use a subpoena to A)compel a party to testify,but not to obtain documents.
B)obtain any information except what a party refuses to reveal.
C)harass an uncooperative business or individual.
D)reveal regulatory violations.
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Chapter 38: Antitrust Law and Promoting Competition
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Q1) To acquire monopoly power in its market,Global Condiments,Inc.,sets its prices substantially below the normal costs of production. Under antitrust law,this is A)a per se violation.
B)a violation if the firm's competitors set similar prices.
C)a violation if the firm thereby acquires monopoly power. D)not a violation.
Q2) The Clayton Act prohibits price discrimination. A)True B)False
Q3) In determining the legality of a merger,market concentration has no significance. A)True B)False
Q4) Bodycare pays Deja Vu not to sell its product. This is A)a market division.
B)a refusal to deal.
C)an exclusive-dealing contract.
D)a price-fixing agreement.
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Chapter 39: Consumer and Environmental Law
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Q1) The Federal Trade Commission carries out the broadly stated goal of preventing unfair and deceptive trade practices.
A)True
B)False
Q2) There are no defenses to liability under the Comprehensive Environmental Response,Compensation,and Liability Act.
A)True
B)False
Q3) The National Park Service hires Outdoor Play,Inc.,to replace outdated playground equipment in a handful of national parks. For this action,an environmental impact statement is most likely
A)prohibited because the action does not affect the environment.
B)required because the action is "federal."
C)unnecessary because the action is not "major."
D)voluntary because the action does not affect the environment.
Q4) The Food and Drug Administration must ensure the safety of new drugs.
A)True
B)False
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Chapter 40: Liability of Accountants and Other Professionals
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Q1) Commerce Bank files a suit against Drake,its former accountant,alleging constructive fraud. Drake may be held liable
A)if Commerce Bank cannot prove actual fraud.
B)if Drake was grossly negligent in the performance of his duties.
C)only if Drake acted with fraudulent intent.
D)only if Drake impersonated someone who could be liable for fraud.
Q2) Rollo is an accountant whose clients include Systems Analysis Corporation. Tyra is Rollo's attorney. Under the common law and by statute in many states,working papers that Rollo develops when preparing financial reports for Systems Analysis are owned by A)Rollo.
B)Systems Analysis.
C)Tyra.
D)no one-the papers must be destroyed immediately after use.
Q3) An accountant's liability under the Securities Act of 1933 requires privity of contract with the purchaser of a security.
A)True
B)False
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Page 42
Chapter 41: Personal Property and Bailments
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Q1) Someone who finds abandoned property acquires title to it and that title is good against the whole world,except the original owner.
A)True
B)False
Q2) A hotel owner may be strictly liable for any loss or damage to their guests' personal property.
A)True
B)False
Q3) Businesses do not usually pay taxes on the personal property they own,use,or lease,including office or farm equipment and supplies.
A)True
B)False
Q4) Property voluntarily placed by its owner and inadvertently forgotten is lost property. A)True
B)False
Q5) A gift is effective whether or not it is accepted.
A)True
B)False
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Chapter 42: Real Property and Landlord-Tenant Law
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Q1) The government cannot take private property for public use.
A)True
B)False
Q2) Larissa leases to Metal Fabrication Corporation a 10,000 square-foot building under a written lease with a twenty-year term,rent payable an nually. The lease includes a clause stating that Metal Fabrication is re sponsi ble for making all necessary repairs,including rebuilding the structure after its destruction by any cause beyond Larissa's control. The lease does not include a clause concerning its assignment. One day after the tenth rental payment,Metal Fabrication,without Larissa's knowledge or consent,assigns its interest in the lease to National Steel,Inc. Meanwhile,Larissa dies and Olina inherits her interest in the building. Without the knowledge or consent of either Metal Fabrication or National Steel,Olina sells the building to Prime Properties,Inc. The next month,the building is destroyed in a devastating storm. Metal Fabrication rebuilds it and files a suit against Prime Properties for the expense. The defendant responds that the lease has terminated. Is Prime Properties correct? If so,when did the lease terminate? If not,is Prime Properties liable for the cost of rebuilding the structure? Why or why not?
Q3) Nora orally agrees to rent an apartment to Owen for a six-month term. Is this lease enforceable if it is not in writing?
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Chapter 43: Insurance, wills, and Trusts
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Q1) Portia is the beneficiary of a life insurance policy on Quentin's life obtained from Renewall Insurance Company through Stan,an insurance broker. The insured of this policy is
A)Portia.
B)Quentin.
C)Renewall.
D)Stan.
Q2) Ralph creates a trust by his will for the benefit of Stella and her family to come into existence on Ralph's death. This is
A)a constructive trust.
B)a living trust.
C)a resulting trust.
D)a testamentary trust.
Q3) A trust that a grantor executes orally in contemplation of immediate death is a testamentary trust.
A)True
B)False
Q4) One who dies after having made a valid will is said to have died intestate.
A)True
B)False
Page 45
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