Business Law 10th Edition Cheeseman Test Bank by Ace Test Banks

Business Law 10th Edition Cheeseman Test Bank

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Business Law, 10e (Cheeseman) Chapter 1 Legal Heritage and the Digital Age 1) ________ is that which must be obeyed and followed by citizens subject to sanctions or legal consequences. A) Morality B) Philosophy C) Law D) Religion Answer: C Diff: 1 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 2) Law is described as ________. A) a body of rules of action or conduct prescribed by controlling authority, and having binding legal force B) a study of fundamental problems, such as those connected with existence, knowledge, and language C) a system that builds and organizes knowledge in the form of testable explanations and predictions D) a group of hypotheses employed to explain a phenomenon Answer: A Diff: 1 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 3) Which of the following would be considered an example of shaping moral standards, as seen as a function of the law? A) laws granting freedom of speech and religion B) laws discouraging drug and alcohol abuse C) laws providing rights to peaceful protest D) laws preventing overthrow of a government Answer: B Diff: 2 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept

4) What function of the law is being served when passing laws that prohibit discrimination at workplaces? A) keeping the peace B) providing a basis for compromise C) maintaining the status quo D) promoting social justice Answer: D Diff: 2 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 5) Halfren, a county in the state of Halizona, is extremely earthquake-prone. The governor of Halizona sets up a committee to study the effects of past earthquakes on Halfren and the possible methods that could be used to minimize damage and loss of life. The committee found that a new technique of using steel reinforcements in building columns would help reduce overall damages. The findings were put to a debate at the local town hall, where it was accepted by a majority of the residents of Halfren. The state government then passed a law making it mandatory to use the new steel-reinforced columns while constructing new buildings in Halfren. Which of the following functions of the law did the state government of Halizona exhibit in this case? A) promoting social justice B) maximizing individual freedom C) shaping moral standards D) facilitating orderly change Answer: D Diff: 2 LO: 1.1 Define law. AACSB: Application of knowledge Classification: Application 6) What function of the law is being served when passing laws that protect the U.S. government from the risk of being forcefully overthrown? A) maintaining the status quo B) shaping moral standards C) facilitating orderly change D) promoting social justice Answer: A Diff: 2 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept

7) By allowing the U.S. citizens to practice any religion of their choice, what essential function of the law does the U.S. Constitution serve? A) facilitating orderly change B) maintaining the status quo C) maximizing individual freedom D) facilitating planning Answer: C Diff: 1 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 8) Mark Walton was involved in a car accident in which the airbag of his car failed to deploy. He sued the car manufacturer for installing faulty airbags. But in the course of the case being heard in court, the car company and Mark decided to settle the lawsuit out of court. What important function of the law was served in this case? A) promoting social justice B) maximizing individual freedom C) providing a basis for compromise D) maintaining the status quo Answer: C Diff: 2 LO: 1.1 Define law. AACSB: Application of knowledge Classification: Application 9) The Supreme Court case decision on the case of Brown v. Board of Education was important because it exhibited ________. A) the use of the affirmative action policy B) the flexibility of the law C) the state's supremacy over federal rulings D) the importance of following precedent Answer: B Diff: 2 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 10) Businesses that are organized in the United States are subject to its laws, but not to the laws of other countries in which they do business. Answer: FALSE Diff: 1 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept

11) Laws in the United States are not set to evolve with changes in social norms. Answer: FALSE Diff: 1 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 12) Laws should not attempt to shape society's moral standards. Answer: FALSE Diff: 1 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 13) The American system of law is set up to be one of the fairest and most democratic systems ever developed. When our system of law fails, it is often because of human failure — abuses of discretion, mistakes by judges and juries, and unequal application of law. Answer: TRUE Diff: 2 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 14) What characteristic of the American legal system was most clearly illustrated by the U.S. Supreme Court's opinion in Brown v. Board of Education? Explain your answer. Answer: The U.S. Supreme Court illustrated flexibility of the law in deciding Brown v. Board of Education in 1954. The Court in Brown v. Board of Education overturned an 1896 U.S. Supreme Court decision, Plessy v. Ferguson, in which the Court had held the separate but equal doctrine to be constitutional. In reversing its 1896 decision, the Court in 1954 found that the separate but equal doctrine violated the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution. Although the decision was controversial in 1954, requiring both court orders and military action to enforce it, the Supreme Court was unanimous in its determination that society had evolved to prohibit separate facilities for schoolchildren of different races. Diff: 2 LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept

15) ________ is described as the science or philosophy of the law. A) Morality B) Ethics C) Justice D) Jurisprudence Answer: D Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 16) Philosophers of the ________ School of jurisprudence emphasize a moral theory of law, where law is based on morality and ethics, and is discovered by human reasoning and making choices between good and evil. A) Sociological B) Analytical C) Historical D) Natural Law Answer: D Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 17) The Analytical School of jurisprudence maintains that the law is ________. A) shaped by logic B) based on social behavior C) set by the ruling class D) based on morality Answer: A Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 18) Which school of jurisprudence views law as a sort of evolutionary process, where changing norms of society will be reflected in the law? A) the Natural Law School of jurisprudence B) the Sociological School of jurisprudence C) the Analytical School of jurisprudence D) the Historical School of jurisprudence Answer: D Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

19) Imposing a ban on public smoking can serve as an example of a law that adheres to the ________ School of jurisprudence. A) Command B) Sociological C) Law and Economics D) Analytical Answer: B Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 20) The philosophers of the Command School of jurisprudence will assert that the law is ________. A) developed, communicated, and enforced by the ruling party B) a means to achieve and advance sociological goals C) a collection of a society's traditions and customs that has developed over the centuries D) based on human reasoning, and humans' choosing power between what is good and evil Answer: A Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 21) Which school of jurisprudence bases its principles, for solving legal disputes, on broad notions of fairness, and subjective decision making by judges? A) the Natural Law School of jurisprudence B) the Analytical School of jurisprudence C) the Critical Legal Studies School of jurisprudence D) the Sociological School of jurisprudence Answer: C Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 22) Which school of jurisprudential thought emphasizes using law as a tool for market efficiency while solving legal disputes? A) the Critical Legal Studies School of jurisprudence B) the Command School of jurisprudence C) the Sociological School of jurisprudence D) the Law and Economics School of jurisprudence Answer: D Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

23) Which school of jurisprudential thought is reflected in documents such as the U.S. Constitution, the Magna Carta, and the United Nations Charter? A) the Natural Law School B) the Historical School C) the Sociological School D) the Analytical School Answer: A Diff: 2 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 24) The U.S. government passed draft laws during the Vietnam War decreeing that men of a certain age had to serve in the military if they met specific physical requirements. Which of the following schools of jurisprudential thought does such draft laws adhere to the most? A) the Historical School of jurisprudential thought B) the Natural Law School of jurisprudential thought C) the Sociological School of jurisprudential thought D) the Command School of jurisprudential thought Answer: D Diff: 2 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 25) The Law and Economics School of jurisprudential thought believes that promoting market efficiency should be the central goal of legal decision making. Answer: TRUE Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 26) The Critical Legal Studies School proposes that legal rules are unnecessary and are used as an obstacle by the powerful to maintain the status quo. Answer: TRUE Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept

27) The Critical Legal Studies School of jurisprudential thought seeks to restrict the subjective decision-making powers of judges. Answer: FALSE Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 28) The Command School of jurisprudence believes that the law is a set of rules developed, communicated, and enforced by the ruling party. Answer: TRUE Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 29) Sociological philosophers are unlikely to adhere to past law as precedent. Answer: TRUE Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 30) The Analytical School of jurisprudence lays emphasis on how the result of a case is reached rather than the logic of the result itself. Answer: FALSE Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 31) Natural Law School of jurisprudence emphasizes shaping laws based on morals and ethics. Answer: TRUE Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 32) Legal precedent is a key feature of the Historical School of jurisprudence. Answer: TRUE Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept

33) The Law and Economics School believes that legal decision making should be functional to market efficiency. Answer: TRUE Diff: 1 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 34) Differentiate between the Historical School of jurisprudence and the Sociological School of jurisprudence. Answer: The Historical School of jurisprudence believes that the law is an aggregate of social traditions and customs that have developed over the centuries. It believes that changes in the norms of society will gradually be reflected in the law. To these legal philosophers, the law is an evolutionary process. The Sociological School of jurisprudence asserts that the law is a means of achieving and advancing certain sociological goals. The followers of this philosophy, known as realists, believe that the purpose of law is to shape social behavior. Sociological philosophers are unlikely to adhere to past law as precedent. Diff: 2 LO: 1.2 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 35) What was a result of the development of the English common law? A) the development of forensic science in helping decide cases B) the supremacy of the king and his intervening powers when deciding cases C) the use of precedent of past cases for judges to decide present similar cases D) the subjective decision making of judges when it came to similar cases Answer: C Diff: 1 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 36) What was a reason for the creation of law courts during the early development of the English common law? A) to administer law in a uniform manner B) to help merchants form a standardized set of commercial laws C) to increase the power of the king in law-making D) to facilitate legal disputes for the wealthy and influential Answer: A Diff: 2 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept

37) Which of the following statements best indicates how chancery courts were different from law courts? A) Chancery courts emphasized developing merchant laws rather than laws for the common citizen. B) Chancery courts inquired into the merits of a case rather than emphasize legal procedures. C) Chancery courts emphasized a standard set of remedies across different cases rather than provide equitable remedies. D) Chancery courts had lower precedence level over legal decisions than the law courts. Answer: B Diff: 2 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 38) ________ courts were allowed to give equitable remedies under the English common law. A) Merchant B) Law C) Chancery D) Appellate Answer: C Diff: 1 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 39) What led to the creation of the Chancery Courts? A) the insistence for a court system that emphasized legal procedure rather than the merits of a case B) the law courts' inability to hear all the cases presented to them C) the increase in overseas trade and proliferation of piracy D) the unfair results and limited remedies provided by the law courts Answer: D Diff: 1 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 40) Equitable orders and remedies of the Court of Chancery took precedence over the legal decisions and remedies of the law courts. Answer: TRUE Diff: 1 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept

41) The merchant courts were established because of the unfair results and limited remedies available in the chancery courts. Answer: FALSE Diff: 1 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 42) When the American colonies were first settled, the English system of law was adopted as the system of jurisprudence. Answer: TRUE Diff: 1 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 43) The Chancery courts under the English common law were under the authority of the Lord Chancellor. Answer: TRUE Diff: 1 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 44) The law courts of the English common law could only provide monetary awards for damages. Answer: TRUE Diff: 2 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 45) The law courts of the English common law emphasized legal procedure over the merits of an individual case. Answer: TRUE Diff: 1 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept

46) Give an account of the Law Merchant in early English common law. Answer: As trade developed during the Middle Ages, merchants who traveled about England and Europe developed certain rules to solve their commercial disputes. These rules, known as the "law of merchants" or the Law Merchant, were based on common trade practices and usage. Eventually, a separate set of courts was established to administer these rules. This court was called the Merchant Court. In the early 1900s, the Merchant Court was absorbed into the regular law court system of England. Diff: 2 LO: 1.3 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 47) What is considered as the supreme law of the land in the United States? A) judicial decisions issued by the state courts B) the Constitution of the United States of America C) the federal statutes passed by the United States Congress D) executive orders passed by the president Answer: B Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 48) The ________ branch of the federal government has the power to enforce the law. A) judicial B) legislative C) executive D) commissary Answer: C Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 49) What is the function of the judicial branch of the federal government? A) It has the power to interpret and determine the validity of the law. B) It has the power to enact the law. C) It has the power to enforce the law. D) It has the power to act as a liaison between the legislative and executive branches. Answer: A Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept

50) The ________ branch of the federal government has the power to enact laws. A) legislative B) judicial C) consulate D) executive Answer: A Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 51) Which of the following legal documents establishes the U.S. federal government and specifies its powers? A) federal statutes B) the U.S. Constitution C) the combined list of state statutes D) the set of codified laws called ordinances Answer: B Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 52) A(n) ________ is a compact made between two or more nations. A) amendment B) treaty C) charter D) statute Answer: B Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 53) A(n) ________ is a written law enacted by the legislative branch of the federal and state governments that establishes certain courses of conduct to which covered parties must adhere. A) charter B) treaty C) executive order D) statute Answer: D Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept

54) From the following, identify an example of codified law in the United States? A) judicial rulings B) federal statutes C) treaties D) executive orders Answer: B Diff: 2 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 55) Ordinances are codified laws that are issued by ________. A) the president B) the state legislature C) the Supreme Court judges D) local government bodies Answer: D Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 56) ________ are established by the legislative and executive branches of the federal and state governments to enforce and interpret statutes enacted by the Congress and state legislatures. A) Commissaries B) State courts C) Administrative agencies D) Councils Answer: C Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 57) What is a judicial decision? A) a decision issued by the executive branch in a state of emergency B) a decision about an individual lawsuit issued by a federal or state court C) a codified law passed by the state legislature D) a decision issued by the legislative branch to establish courses of conduct to which covered parties must adhere Answer: B Diff: 2 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept

58) Stare decisis is the doctrine of ________. A) providing proof to assert a fact in court B) adhering to legal precedent C) separating powers between state and religion D) ensuring all legal rights are provided to a person when otherwise deprived of them Answer: B Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 59) How is legal precedent used between courts of different states? A) Courts of a state cannot cite the judicial decisions of courts of another state in its decisions. B) Courts of a state must follow precedent from courts of another state for similar cases. C) Courts of a state can use precedent from courts of another state as a form of guidance. D) Courts of a state cannot challenge the precedent of courts of another state. Answer: C Diff: 2 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 60) How does the doctrine of stare decisis help in creating stability in a legal system? A) by ensuring that witnesses of a case will be protected by the state B) by ensuring that the legal rights of a defendant are preserved C) by allowing the use of precedent in deciding future cases D) by allowing the use of writs Answer: C Diff: 2 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 61) The Securities and Exchange Commission (SEC), created by the Congress to enforce federal securities laws, is an example of a(n) ________. A) intelligence agency B) congressional body C) judicial body D) administrative agency Answer: D Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept

62) According to the priority of law in the United States, which of the following statements is true? A) State regulations take precedence over state statutes. B) Valid state laws take precedence over any conflicting federal laws. C) Valid state laws take precedence over local laws. D) State laws take precedence over the U.S. Constitution within that state. Answer: C Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 63) Powers not given to the federal government by the U.S. Constitution are reserved to the states. Answer: TRUE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 64) Provisions of federal law are valid as long as they do not conflict with any state law. Answer: FALSE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 65) Within a state, the state constitution precedes the U.S. Constitution. Answer: FALSE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 66) Administrative agencies are created by the judicial branch of governments. Answer: FALSE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 67) A treaty does not require Senate approval before being passed. Answer: FALSE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 16 Copyright © 2019 Pearson Education, Inc.

68) Federal statutes take precedence over federal regulations. Answer: TRUE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 69) Treaties are considered to be part of the supreme law of the United States of America. Answer: TRUE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 70) Statutes are enacted by Congress and state legislatures. Answer: TRUE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 71) Federal statutes are organized by topic into code books. Answer: TRUE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 72) Statutes are written laws that establish certain courses of conduct that covered parties must adhere to. Answer: TRUE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 73) The authority to enact ordinances lies solely with the state legislatures. Answer: FALSE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept

74) Executive orders are an example of codified law. Answer: FALSE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 75) Ordinances are not codified into code books. Answer: FALSE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 76) Executive orders are issued only by the executive branch of the federal or state governments. Answer: TRUE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 77) Decisions issued by administrative agencies are called statutes. Answer: FALSE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 78) State courts of one state are not required to follow the legal precedent established by the courts of another state. Answer: TRUE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 79) The doctrine of stare decisis provides that each court decision is independent and should stand on its own. Answer: FALSE Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept

80) Explain the doctrine of stare decisis and how it has influenced the legal system. Answer: Adherence to precedent is called the doctrine of stare decisis. The doctrine of stare decisis promotes uniformity of law within a jurisdiction, makes the court system more efficient, and makes the law more predictable for individuals and businesses. A court may later change or reverse its legal reasoning if a new case is presented to it and change is warranted. Based on the common law tradition, past court decisions become precedent for deciding future cases. Lower courts must follow the precedent established by higher courts. That is why all federal and state courts in the United States must follow the precedents established by U.S. Supreme Court decisions. The courts of one jurisdiction are not bound by the precedent established by the courts of another jurisdiction, although they may look to each other for guidance. Diff: 2 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 81) Explain the priority of law in the United States. Answer: The U.S. Constitution and treaties take precedence over all other laws in the United States. Federal statutes take precedence over federal regulations. Valid federal law takes precedence over any conflicting state or local law. State constitutions rank as the highest state law. State statutes take precedence over state regulations. Valid state law takes precedence over local laws. Diff: 1 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 82) Give an account of how the digital age has affected lawmaking in the United States. Answer: In a span of about three decades, computers have revolutionized society. Computers, once primarily used by businesses, have permeated the lives of most families as well. The electronic age arrived before new laws were written that were unique and specific for this environment. Courts have applied existing laws to the new digital environment by requiring interpretations and applications. In addition, new laws have been written that apply specifically to this new environment. The U.S. Congress has led the way, enacting many new federal statutes to regulate the digital environment. Diff: 2 LO: 1.4 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept

83) ________ consists of investigating, analyzing, evaluating, and interpreting information to solve a legal issue or case. A) Ordinance B) Critical legal thinking C) Creative problem solving D) Statute Answer: B Diff: 2 LO: 1.5 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 84) ________ consists of a professor asking students questions about a case or legal issue to stimulate critical thinking by the students. A) The Socratic method B) IRAC method C) Rote learning D) Active learning Answer: A Diff: 2 LO: 1.5 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 85) What is the first step in examining a legal case using IRAC method? A) application of the law to the facts of a case using critical thinking B) identification of a legal issue that is to be answered C) identification of the law that is to be applied to a case D) reaching a conclusion Answer: B Diff: 2 LO: 1.5 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 86) Which is an accurate list of the steps in the critical legal thinking process known as IRAC? A) Information, Research, Analysis, Communication B) Issue, Rule, Analysis, Conclusion C) Identification, Research, Analogy, Conclusion D) Information, Record, Answer, Causation Answer: B Diff: 2 LO: 1.5 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept

87) A teaching method often used by law professors which requires a give-and-take inquiry and debate between professor and students is known as ________. A) the Socratic method B) hot-seat questioning C) the leading question approach D) the Marshall approach Answer: A Diff: 1 LO: 1.5 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 88) Critical legal thinking requires intellectually disciplined thinking. Answer: TRUE Diff: 1 LO: 1.5 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 89) More often than not, the law does not provide a bright-line answer, so legal scholars must often consider the "gray area" in determining legal disputes. Answer: TRUE Diff: 1 LO: 1.5 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 90) Explain the IRAC method of case analysis. Answer: In the study of law, legal cases are usually examined using the IRAC method (an acronym that stands for issue, rule, application, and conclusion) as outlined in the following: I = What is the legal issue in the case? R = What is the rule (law) of the case? A = What is the court's analysis and rationale? C = What was the conclusion or outcome of the case? First, the facts of the case are investigated and understood. Next, the legal issue that is to be answered is identified and succinctly stated. Then the law that is to be applied to the case is identified, read, and understood. Once the facts, law, and legal issue have been stated, critical thinking is used in applying the law to the facts of the case. This requires that the decision maker – whether a judge, juror, or student – analyze, examine, evaluate, interpret, and apply the law to the facts of the case. Last, the critical legal thinker must reach a conclusion and state his or her judgment. Diff: 2 LO: 1.5 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 2 Courts and Jurisdiction 1) ________ are courts that hear matters of a specialized or limited nature. A) General-jurisdiction trial courts B) Inferior trial courts C) Intermediate appellate courts D) Chancery courts Answer: B Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 2) ________ are courts that hear cases of a general nature that are not within the jurisdiction of limited-jurisdiction trial courts. A) Courts of record B) Intermediate appellate courts C) Inferior trial courts D) State supreme courts Answer: A Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 3) ________ hears appeals from trial courts. A) The highest state court B) A court of record C) An inferior trial court D) An intermediate appellate court Answer: D Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept

4) Decisions of the ________ are final unless a question of law is involved that is appealable to the U.S. Supreme Court. A) courts of appeals B) courts of records C) highest state courts D) general-jurisdiction trial courts Answer: C Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 5) Which of the following is a function of the state supreme courts? A) conducting trials related to misdemeanor criminal law B) hearing appeals from intermediate appellate state courts and certain trial courts C) conducting trials related to felonies and civil disputes D) reviewing the judgments and records of the lower courts and ratifying them Answer: B Diff: 2 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 6) Which of the following statements is true about intermediate appellate courts? A) They hear new evidence and testimony that have come to light after the trial courts have made their decision. B) They do not grant any oral hearings to the parties. C) They have jurisdiction to hear cases of a limited or specialized nature. D) They review either pertinent parts or the whole trial court record from the lower court. Answer: D Diff: 2 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 7) A decision of a limited-jurisdiction trial court can be appealed at a general-jurisdiction court or an appellate court. Answer: TRUE Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept

8) In small claims courts, it is necessary that the parties are represented by a lawyer. Answer: FALSE Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 9) General-jurisdiction trial courts can be found in every state. Answer: TRUE Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 10) In general-jurisdiction trial courts, the testimony and evidence at trial are recorded and stored for future reference. Answer: TRUE Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 11) The decisions handed down by the general-jurisdiction trial courts are appealable to an intermediate appellate court or the state supreme court. Answer: TRUE Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 12) Intermediate appellate courts review new evidence or testimony that was not seen or heard in the lower courts. Answer: FALSE Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 13) Intermediate appellate court decisions are final and cannot be appealed to any higher courts. Answer: FALSE Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept

14) The intermediate appellate courts do not allow the parties to have oral hearings. Answer: FALSE Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 15) No new evidence or testimony is heard in the state supreme courts. Answer: TRUE Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 16) Decisions of highest state courts are final unless a question of law is involved that is appealable to the U.S. Supreme Court. Answer: TRUE Diff: 1 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 17) Explain the differences between limited- and general-jurisdiction trial courts in the state court systems. In your answer, provide some examples of limited-jurisdiction trial courts. Answer: Limited-jurisdiction trial courts, also called inferior courts, can only hear matters of a limited nature. Some examples of limited-jurisdiction trial courts are traffic court, juvenile court, justice-of-the-peace court, probate court, family law court, small-claims court, and specialized misdemeanor criminal court. Most limited-jurisdiction trial courts keep records of proceedings. The decisions of limited-jurisdiction trial courts are usually appealable to general-jurisdiction trial courts or appellate courts. On the other hand, general-jurisdiction trial courts, also known as courts of record, hear matters that do not fall within the jurisdiction of a limited-jurisdiction trial court. Trial testimony and evidence are stored for future reference. Decisions of general-jurisdiction trial courts are appealable to an intermediate appellate court or to the state supreme court. Diff: 2 LO: 2.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept

18) The ________ established by Congress have limited jurisdiction. A) state supreme courts B) state appeals courts C) special federal courts D) courts of records Answer: C Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 19) Which of the following courts are the federal court system's trial courts of general jurisdiction? A) the U.S. district courts B) the U.S. Tax Courts C) the U.S. courts of appeals D) the U.S. courts of federal claims Answer: A Diff: 2 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 20) The geographical area served by each U.S. court of appeals is referred to as a ________. A) district B) county C) range D) circuit Answer: D Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 21) The ________ has special appellate jurisdiction to review the decisions of the Court of Federal Claims, the Patent and Trademark Office, and the Court of International Trade. A) U.S. District Court B) U.S. Court of Appeals for the Federal Circuit C) First Circuit Court D) District of Columbia Circuit Answer: B Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept

22) The ________ hears cases brought against the United States. A) U.S. Supreme Court B) U.S. Tax Court C) U.S. Court of Federal Claims D) U.S. District Court Answer: C Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 23) Which of the following courts are considered as the federal court system's intermediate appellate courts? A) the U.S. Courts of Appeals for Veterans Claims B) the U.S. courts of appeals C) the U.S. district courts D) the U.S. courts of federal claims Answer: B Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 24) Why was the Court of Appeals for the Federal Circuit created? A) It was created to exercise appellate jurisdiction over members of the armed services. B) It was created to hear cases that involve federal tax laws. C) It was created to provide uniformity in the application of federal law in certain areas, particularly patent law. D) It was created to hear appeals from intermediate appellate state courts and certain trial courts. Answer: C Diff: 2 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 25) Which of the following courts was created by Article III of the U.S. Constitution? A) the U.S. Supreme Court B) the U.S. Tax Court C) the U.S. Court of Appeals D) the U.S. Court of Federal Claims Answer: A Diff: 2 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept

26) The U.S. Supreme Court is composed of ________ justices. A) nine B) six C) ten D) three Answer: A Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 27) How are the justices of the U.S. Supreme Court appointed? A) They are nominated by the president and confirmed by the U.S. Senate. B) They are appointed by the president of the United States. C) They are nominated and confirmed by the Chief Justice of the U.S. Supreme Court. D) They are nominated by the Associate Justices and confirmed by the Chief Justice of the U.S. Supreme Court. Answer: A Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 28) Which of the following statements is true of the U.S. Supreme Court? A) The U.S. Supreme Court's decisions are appealable. B) The U.S. Supreme Court hears appeals only from the federal circuit courts of appeals. C) The U.S. Supreme Court does not hear any new evidence or testimony in reviewed cases. D) The U.S. Supreme Court does not grant any oral hearings to the parties. Answer: C Diff: 2 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 29) Federal judges of the U.S. district courts are appointed for 14-year terms. Answer: FALSE Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept

30) Pursuant to the power given to it by Article III of the U.S. Constitution, Congress has established the U.S. courts of appeals. Answer: TRUE Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 31) In the United States, each state has only a single district court. Answer: FALSE Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 32) The federal district courts are empowered to impanel juries, receive evidence, hear testimony, and decide cases. Answer: TRUE Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 33) The first 12 circuits of the federal court system are geographical. Answer: TRUE Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 34) In the U.S. courts of appeals, the parties file legal briefs with the court and are given a short oral hearing. Answer: TRUE Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 35) In the U.S. circuit courts of appeals, an en banc review refers to an appeal heard by a threejudge panel. Answer: FALSE Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept

36) Appeals from the Court of International Trade are heard by the U.S. Court of Appeals for the Federal Circuit. Answer: TRUE Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 37) The highest court in the land is the Supreme Court of the United States, which is located in Washington DC. Answer: TRUE Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 38) The Chief Justice of the Supreme Court is elected by the Associate Justices of the U.S. Supreme Court. Answer: FALSE Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 39) The decisions of the U.S. Supreme Court can be appealed to higher courts. Answer: FALSE Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 40) What is the jurisdiction of the U.S. Supreme Court? Answer: The Supreme Court, which is an appellate court, hears appeals from federal circuit courts of appeals and, under certain circumstances, from federal district courts, special federal courts, and the highest state courts. No new evidence or testimony is heard. As with other appellate courts, the lower court record is reviewed to determine whether there has been an error that warrants a reversal or modification of the decision. Legal briefs are filed, and the parties are granted a brief oral hearing. The Supreme Court's decision is final. Diff: 1 LO: 2.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept

41) ________ refers to an official notice that the Supreme Court will review a case. A) Writ of certiorari B) Stare decisis C) En banc review D) Sua sponte Answer: A Diff: 1 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 42) In the U.S. Supreme Court, if all the justices voting agree as to the outcome and reasoning used to decide a case, it is a ________ decision. A) tie B) plurality C) majority D) unanimous Answer: D Diff: 1 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 43) In the U.S. Supreme Court, if a majority of the justices agree as to the outcome of a case but not as to the reasoning for reaching the outcome, it is a ________ decision. A) unanimous B) majority C) plurality D) tie Answer: C Diff: 1 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 44) Mary has already won her case at the U.S. Court of Appeals. When the case is reviewed by the Supreme Court, only eight judges are present. Four of the judges vote for Mary while the other four vote against her. Which of the following will be the result of this case? A) The case will be sent to the U.S. Court of Appeals for a review. B) Mary will win the case as she had already won at the U.S. Court of Appeals. C) The case will be reviewed again by the U.S. Supreme Court when all the judges are present. D) Mary will win and the case will set a precedent for later cases. Answer: B Diff: 2 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Application of knowledge Classification: Application 10 Copyright © 2019 Pearson Education, Inc.

45) Which of the following is true about a plurality decision of the Supreme Court? A) It settles a case but does not set the precedent for later cases. B) It affirms the decision of the lower court. C) It settles a case and sets the precedent for later cases. D) It causes a case to be reviewed again at a later date. Answer: A Diff: 2 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 46) Which of the following is true about a majority decision reached by the U.S. Supreme Court? A) All the judges agree as to the outcome and reasoning used to decide a case. B) A majority of the judges agree as to the outcome but not the reasoning used to decide a case. C) A majority of the justices agree as to the outcome and reasoning used to decide a case. D) An equal number of judges vote for and against the petitioner and the case remains undecided. Answer: C Diff: 1 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 47) Which of the following similarities is observed between tie and plurality decisions reached by the U.S. Supreme Court? A) The decisions can be appealed against in the U.S. courts of appeals. B) The decisions do not set precedent for later cases. C) The decision of the lower court is affirmed. D) New evidence and testimony is heard before reaching decisions. Answer: B Diff: 2 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept

48) Sue, a resident of the state of New York, is visiting her aunt in Iowa. On her way, her car is hit by Jerry, a resident of the state of Iowa who is drunk. Sue is injured in the accident. Which of the following actions is Sue allowed to take? A) Sue can sue Jerry and bring the case to Iowa state court provided that the dollar amount of the controversy exceeds $75,000. B) Sue can file a case against Jerry in the New York state court as she is a resident of that state. C) Sue can file a case against Jerry only in the Iowa state court as this is a matter that involves state negligence law. D) Sue can sue Jerry and bring the case to Iowa federal court as this is a case that involves diversity of citizenship. Answer: D Diff: 3 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Application of knowledge Classification: Application 49) A petitioner must file a petition for certiorari, asking the Supreme Court to hear the case. Answer: TRUE Diff: 1 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 50) A tie decision by the U.S. Supreme Court sets a precedent for later cases. Answer: FALSE Diff: 1 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 51) A justice who agrees with the outcome of a case but not the reason proffered by other justices can issue a dissenting opinion that sets forth his or her reasons for deciding the case. Answer: FALSE Diff: 1 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 52) The U.S. Supreme Court hears new evidence and testimony that was not permitted in the U.S. district court. Answer: FALSE Diff: 1 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept

53) The U.S. Congress gives the Supreme Court discretion to decide what cases it will hear. Answer: TRUE Diff: 1 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 54) Describe the different types of decisions issued by the U.S. Supreme Court — unanimous, majority, plurality, and tie. In your answer, specify whether each kind of decision becomes binding precedent. Answer: In a unanimous decision, all the justices who hear a case agree as to both its outcome and the reasoning behind the outcome. A unanimous decision becomes precedent. A majority opinion occurs if five, six, seven, or eight justices agree on both outcome and reasoning. A majority opinion becomes precedent, just like a unanimous decision. A plurality occurs when a majority of the justices agree as to outcome but disagree as to the reasoning leading to that outcome. A plurality decision settles the case but does not provide precedent. A tie can occur only when the Court sits without all nine justices. If a tie occurs, the lower court decision is affirmed. A tie decision does not provide precedent. Diff: 2 LO: 2.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 55) ________ refer to cases arising under the U.S. Constitution, treaties, and federal statutes and regulations. A) Federal question cases B) Diversity of citizenship cases C) Federal crimes cases D) Copyrights and trademarks cases Answer: A Diff: 1 LO: 2.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept

56) In which of the following cases do federal and state courts have concurrent jurisdiction? A) bankruptcy cases B) diversity of citizenship cases C) antitrust cases D) patents cases Answer: B Diff: 1 LO: 2.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept 57) In which of the following cases do federal courts have exclusive jurisdiction? A) cases involving sales and lease contracts B) federal question cases C) suits against the United States D) diversity of citizenship cases Answer: C Diff: 1 LO: 2.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept 58) Altonvista Inc., a company based in California, is sued by a plaintiff from the state of Texas. Which of the following statements would apply to this situation? A) The case must be heard in the California federal court as this is a subject matter in which federal courts have exclusive jurisdiction. B) If the plaintiff chooses to bring the case to the California federal court, it would stay in the federal court. C) If the plaintiff decides to bring the case to the California federal court, Altonvista Inc. can have the case moved to a California state court. D) The case can only be heard in a California state court as the matter is not subject to federal jurisdiction. Answer: B Diff: 2 LO: 2.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Application of knowledge Classification: Application

59) For federal question cases to be brought in a federal court, the dollar amount of the controversy must exceed $75,000. Answer: FALSE Diff: 1 LO: 2.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept 60) If a plaintiff brings a diversity of citizenship case in state court, it will remain there unless a defendant removes the case to federal court. Answer: TRUE Diff: 1 LO: 2.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept 61) The federal court must apply federal laws in deciding diversity of citizenship cases. Answer: FALSE Diff: 1 LO: 2.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept 62) Antitrust, bankruptcy, patent and copyright cases can be heard by state courts. Answer: FALSE Diff: 1 LO: 2.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept

63) Donna Driver, an Idaho resident, operated her vehicle negligently, causing an accident in Boise, Idaho. Donna veered into oncoming traffic, hitting Valerie Victim's expensive new automobile. Valerie, a resident of Wyoming, was only in Idaho for a short business trip. The damage to Valerie's vehicle is estimated to be $25,000, which is the amount Valerie now seeks in damages. Neither Donna nor Valerie was physically or emotionally injured. In what court(s) can Valerie properly file a lawsuit seeking damages? Why? Answer: There is no federal question in this case. There is only a question of state negligence law. Valerie can only bring her case in Idaho state court. Even though the parties are residents of different states, Valerie cannot bring her case in federal court because the amount in controversy does not exceed $75,000, the minimum required for removing to federal court on the basis of diversity of citizenship. Diff: 1 LO: 2.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Application 64) Jeremy crashes his friend John's car because he is an incompetent driver. Emily, John's sister, is outraged and wants John to sue his friend. John refuses to file a case against his long-time friend. Which of the following is Emily allowed to do in this situation? A) She can sue Jeremy on John's behalf, as she has standing to sue. B) She can sue Jeremy, provided that John gives his consent. C) She can file a case in the state court where she will have standing to sue. D) She cannot sue Jeremy as she has no stake in the outcome of the case. Answer: D Diff: 2 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Application of knowledge Classification: Application 65) ________ refers to a court's jurisdiction over the parties to a lawsuit. A) In rem jurisdiction B) Quasi in rem jurisdiction C) In personam jurisdiction D) Sua sponte jurisdiction Answer: C Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept

66) ________ refers to jurisdiction to hear a case because of jurisdiction over the property of the lawsuit. A) In rem jurisdiction B) Quasi in rem jurisdiction C) Private jurisdiction D) In personam jurisdiction Answer: A Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 67) ________ refers to jurisdiction that allows a plaintiff who obtains a judgment in one state to try to collect the judgment by attaching property of the defendant located in another state. A) In rem jurisdiction B) In personam jurisdiction C) Private jurisdiction D) Quasi in rem jurisdiction Answer: D Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 68) Why do courts need to accomplish a service of process? A) to obtain personal jurisdiction over the plaintiff in a lawsuit B) to obtain personal jurisdiction over the defendant in a lawsuit C) to obtain jurisdiction to hear a case where the court has jurisdiction over the property in the lawsuit D) to obtain jurisdiction over nonresidents who were not served summons within a state Answer: B Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept

69) Bill is trying to sell his house in Oklahoma City to George who lives in Arkansas. They have a dispute over the terms of the contract and Bill decides to sue George. Which of the following statements is true in this situation? A) The Arkansas state court will hear this case as it has in personam jurisdiction over George. B) The Arkansas state court has in rem jurisdiction to hear this case. C) The Oklahoma state court has in rem jurisdiction to hear this case. D) The Oklahoma state court does not have jurisdiction to hear this case as the defendant is from another state. Answer: C Diff: 2 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Application of knowledge Classification: Application 70) Jill wins a lawsuit against Terry in the Wyoming state court. The court passes a judgment for Terry to pay $20,000 to Jill. Immediately after the case is settled, Terry moves to Colorado, where she owns a house, and refuses to pay Jill the money. Which of the following is the best course of action for Jill? A) file a lawsuit against Terry in a Colorado state court to enforce the Wyoming court judgment B) file another case against Terry in the Wyoming state court to collect the money against Terry's property C) file a case against Terry in Wyoming to force Terry to sell her house in Colorado to pay the money D) file a case in the Colorado federal court as this qualifies as a federal question case Answer: A Diff: 2 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Application of knowledge Classification: Application 71) ________ refers to a concept that requires lawsuits to be heard by a court with jurisdiction that is nearest the location in which an incident occurred or where the parties reside. A) Jurisdiction B) Venue C) Circuit D) Doctrine of stare decisis Answer: B Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept

72) Donald, who is a resident of Louisiana, is robbed in Oklahoma County, Oklahoma. The robber, who is a resident of the state of Texas, is soon apprehended. Which of the following is the proper venue to hear this case? A) state court in Louisiana because the plaintiff is from Louisiana B) state court in Texas because the defendant is from Texas C) Oklahoma federal court because the robber has committed a federal crime D) Oklahoma County Court because it is nearest in location to the scene of the crime Answer: D Diff: 2 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Application of knowledge Classification: Application 73) ________ refers to a contract provision that designates a certain court to hear any dispute concerning nonperformance of the contract. A) No-contest clause B) Choice-of-law clause C) Forum-selection clause D) Arbitration clause Answer: C Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 74) ________ refers to a contract provision that designates a certain state's law or country's law that will be applied in any dispute concerning nonperformance of the contract. A) Choice-of-law clause B) Forum-shopping C) Arbitration clause D) Forum-selection clause Answer: A Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 75) A plaintiff, by filing a lawsuit with a court, gives the court in personam jurisdiction over him- or herself. Answer: TRUE Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept

76) Parties are not allowed to argue against the imposition of jurisdiction by a court. Answer: FALSE Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 77) A change of venue may be requested in order to find a jury that is not prejudiced. Answer: TRUE Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 78) Where a long-arm statute is present, a defendant need not have minimum contact with a state for that state's courts to have jurisdiction over the defendant. Answer: FALSE Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 79) A forum-selection clause forbids parties to a contract to designate and agree to the jurisdiction of a court that otherwise might not have personal jurisdiction. Answer: FALSE Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 80) Describe the need for forum-selection and choice-of-law clauses. Answer: One issue that often comes up when parties from different states or countries have a legal dispute is which jurisdiction's court will be used. Also, sometimes there is a dispute as to which jurisdiction's laws apply to a case. When the parties have not agreed in advance, courts must make the decision about which court has jurisdiction and what law applies. This situation causes ambiguity, and resolving it will cost the parties time and money. Therefore, parties sometimes agree in their contract as to what state's courts, what federal court, or what country's court will have jurisdiction to hear a legal dispute should one arise. Such clauses in contracts are called forum-selection clauses or choice-of-forum clauses. Of course, the selected court must have jurisdiction to hear the case. In addition to agreeing to a forum, the parties also often agree in contracts as to what state's law or country's law will apply in resolving a dispute. These clauses are called choice-of-law clauses. The selected law may be of a jurisdiction that does not have jurisdiction to hear the case. Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 20 Copyright © 2019 Pearson Education, Inc.

81) Discuss the significance of the Zippo Manufacturing Company v. Zippo Dot Com, Inc. case in terms of jurisdiction in cyberspace. Answer: A seminal case that addressed jurisdiction in cyberspace was Zippo Manufacturing Company v. Zippo Dot Com, Inc. Zippo Manufacturing Company (Zippo) manufacturers its well-known line of tobacco lighters in Bradford, Pennsylvania, and sells them worldwide. Zippo Dot Com, Inc. (Dot Com), which was a California corporation with its principal place of business and its servers located in Sunnyvale, California, operated an Internet website that transmitted information and sexually explicit material to its subscribers. Three thousand of Dot Com's 140,000 paying subscribers worldwide were located in Pennsylvania. Zippo sued Dot Com in U.S. District Court in Pennsylvania for trademark infringement. Dot Com defended, alleging that it was not subject to personal jurisdiction in Pennsylvania because the "minimum contacts" and "traditional notions of fair play and substantial justice" standards were not met and therefore did not permit Pennsylvania to assert jurisdiction over it. The court held that Dot Com was subject to personal jurisdiction under the Pennsylvania longarm statute and ordered Dot Com to defend itself in Pennsylvania. Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 82) Discuss the need and significance of the long-arm statute. Answer: In most states, a state court can obtain jurisdiction in a civil lawsuit over persons and businesses located in another state or country through the state's long-arm statute. These statutes extend a state's jurisdiction to nonresidents who are not served a summons within the state. The nonresident defendant in the civil lawsuit must have had some minimum contact with the state such that the maintenance of that lawsuit in that state does not offend traditional notions of fair play and substantial justice. The exercise of long-arm jurisdiction is generally permitted over nonresidents who have (1) committed torts within the state (e.g., caused an automobile accident in the state), (2) entered into a contract either in the state or that affects the state (and allegedly breached the contract), or (3) transacted other business in the state that allegedly caused injury to another person. Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept

83) Compare and contrast between in rem and quasi in rem jurisdiction. Answer: A court may have jurisdiction to hear and decide a case because it has jurisdiction over the property of the lawsuit. This is called in rem jurisdiction ("jurisdiction over the thing"). Sometimes a plaintiff who obtains a judgment against a defendant in one state will try to collect the judgment by attaching property of the defendant that is located in another state. This is permitted under quasi in rem jurisdiction, or attachment jurisdiction. Under the Full Faith and Credit Clause of the U.S. Constitution (Article IV, Section 1), a judgment of a court of one state must be given "full faith and credit" by the courts of another state. Diff: 1 LO: 2.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 3 Judicial, Alternative, and E-Dispute Resolution 1) An attorney who receives a percentage of the amount recovered in a personal injury lawsuit, but who receives no compensation whatsoever if the lawsuit is not won or settled in the client's favor, is utilizing what kind of fee arrangement? A) hourly rate B) retainer C) flat fee D) contingency fee Answer: D Diff: 1 LO: 3.1 Describe how attorneys are compensated. AACSB: Analytical thinking Classification: Concept 2) When an attorney and client have entered into a contingency fee arrangement, it is possible that the attorney will receive no compensation at all. Answer: TRUE Diff: 1 LO: 3.1 Describe how attorneys are compensated. AACSB: Analytical thinking Classification: Concept 3) What are the advantages and disadvantages to both client and attorney when entering into a contingency fee agreement for attorney's fees? Answer: A distinct advantage for the client is that no fees are paid up front. When a client is unable to pay an attorney up front, a contingency fee arrangement is ideal. A possible disadvantage to the client is that the attorney generally receives a substantial portion — 35 to 40 percent — of a favorable settlement or award of damages. A client can negotiate the terms or shop law firms in order to enter into an agreeable contract for representation under a contingency fee arrangement. For the attorney, there is a definite downside: The attorney is paid nothing if the lawsuit is not won or settled in the client's favor. The advantages for the attorney are twofold. The attorney can work for clients who would otherwise be unable to pay for representation. Second, the payout has potential to be larger than under the terms of an hourly or flat-fee arrangement. Diff: 2 LO: 3.1 Describe how attorneys are compensated. AACSB: Analytical thinking Classification: Concept

4) Which of the following is NOT one of the four major pretrial phases? A) pleadings B) settlement Conference C) discovery D) litigation Answer: D Diff: 1 LO: 3.2 Describe the pretrial litigation process. AACSB: Analytical thinking Classification: Concept 5) Which of the following is NOT one of the four major pretrial pleadings? A) complaint B) interrogatory C) cross-complaint D) answer Answer: B Diff: 1 LO: 3.2 Describe the pretrial litigation process. AACSB: Analytical thinking Classification: Concept 6) Litigation is the process of bringing, maintaining, and defending a lawsuit. Answer: TRUE Diff: 1 LO: 3.2 Describe the pretrial litigation process. AACSB: Analytical thinking Classification: Concept 7) The paperwork that is filed with the court to initiate and respond to a lawsuit is referred to as the pleadings. Answer: TRUE Diff: 1 LO: 3.2 Describe the pretrial litigation process. AACSB: Analytical thinking Classification: Concept

8) Briefly explain the steps involved in the pretrial litigation process. Answer: To initiate a lawsuit, the plaintiff must file a complaint in the proper court. The complaint names the parties to the lawsuit, alleges the ultimate facts and law violated, and contains a "prayer for relief" for a remedy to be awarded by the court. Following this, the defendant must file an answer to the complaint and can also file a cross-complaint against the plaintiff to claim damages. The plaintiff replies to the defendant's cross complaint. If other persons have an interest in a lawsuit, they may intervene and become parties to the lawsuit. A statute of limitations establishes the period during which a plaintiff must bring a lawsuit against a defendant. If a lawsuit is not filed within this time period, the plaintiff loses his or her right to sue. Diff: 2 LO: 3.2 Describe the pretrial litigation process. AACSB: Analytical thinking Classification: Concept 9) Why are pretrial hearings necessary, especially if both parties have pursued the lawsuit with full knowledge? Answer: One of the major purposes of pretrial hearings is to facilitate the settlement of a case. This saves on legal expenses incurred by both parties. It also helps to save the time of the court, which can be used to pursue other (and more crucial) cases. If no settlement is reached, the pretrial hearing is used to identify the major trial issues and other relevant factors. Diff: 2 LO: 3.2 Describe the pretrial litigation process. AACSB: Analytical thinking Classification: Concept 10) In a litigation process, the party who files a complaint is called the ________. A) bailiff B) plaintiff C) prosecutor D) defendant Answer: B Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept

11) ________ refers to the document a plaintiff files with the court that serves on the defendant to initiate a lawsuit. A) Complaint B) Order C) Appeal D) Rejoinder Answer: A Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 12) Once a complaint has been filed with the court, the court will issue a(n) ________, directing the defendant to appear in court. A) answer B) rejoinder C) summons D) judicial restraint Answer: C Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 13) Which of the following terms denotes the defendant's written response to a plaintiff's complaint that is filed with the court and served on the plaintiff? A) summons B) answer C) rejoinder D) rebuttal Answer: B Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 14) In which of the following cases is a default judgment entered? A) A defendant admits all the allegations in the complaint. B) There is insufficient evidence to resolve the dispute. C) The court believes that the lawsuit can be settled before/without trial. D) A defendant does not file a written response to a plaintiff's complaint. Answer: D Diff: 2 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Reflective thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

15) A defendant who believes that he or she has been injured by the plaintiff can file a(n) ________ against the plaintiff. A) injunction B) cross-complaint C) rejoinder D) rebuttal Answer: B Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 16) A(n) ________ is a document filed by the original plaintiff to answer the defendant's crosscomplaint. A) rejoinder B) answer C) reply D) plea Answer: C Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 17) The act of other interested parties joining as parties to an existing lawsuit is termed as ________. A) intervention B) consolidation C) class action D) arbitration Answer: A Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 18) Which of the following can be filed by the defendant of a lawsuit? A) complaint B) answer C) reply D) injunction Answer: B Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

19) Which of the following statements is true about the pretrial litigation process? A) To initiate a lawsuit, the plaintiff must file an appeal in the proper court. B) If the plaintiff does not answer a complaint, a default judgment is entered against him or her. C) A plaintiff files a cross-complaint against the defendant to seek damages. D) A default judgment establishes the defendant's liability. Answer: D Diff: 2 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Reflective thinking Classification: Concept 20) The statute of limitations establishes the period within which ________. A) a plaintiff must bring a lawsuit against a defendant B) a defendant must file a written answer against a plaintiff's complaint C) a defendant can file a cross-complaint against the plaintiff D) a motion for judgment on the pleadings can be made by either party Answer: A Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 21) The state of Idaho has a two-year statute of limitations for personal injury actions. Graham was injured by Alice in a car accident on January 1, 2011. If Graham wants to bring a lawsuit against Alice on January 15, 2013, which of the following is most likely to be the outcome? A) Graham is allowed to sue Alice after appealing for an extension of the statute of limitations. B) Graham is not allowed to sue Alice, having lost his right to sue her. C) Graham can sue Alice but will not receive damages. D) Graham can sue Alice but is not entitled to a jury trial. Answer: B Diff: 3 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Application of knowledge Classification: Application 22) To initiate a lawsuit, the plaintiff must file a complaint in the proper court. Answer: TRUE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept

23) The complaint and summons are served on the plaintiff. Answer: FALSE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 24) An answer is the defendant's written response to a plaintiff's complaint that is filed with the court and served on the plaintiff. Answer: TRUE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 25) If the defendant does not answer the complaint, a default judgment is entered against him or her. Answer: TRUE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 26) Once a default judgment is established, the plaintiff only has to prove damages. Answer: TRUE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 27) While answering a complaint, a defendant cannot assert affirmative defenses. Answer: FALSE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 28) A plaintiff who believes that he or she has been injured by the defendant can file a crosscomplaint against the defendant. Answer: FALSE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept

29) A reply is a document filed by the original plaintiff in response to the defendant's crosscomplaint. Answer: TRUE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 30) A defendant can answer a complaint and file a cross-complaint at the same time. Answer: TRUE Diff: 2 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 31) The act of people interested in the lawsuit joining as parties to an existing lawsuit is called arbitration. Answer: FALSE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 32) Despite their interest in a lawsuit, third parties may not become parties to the lawsuit. Answer: FALSE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 33) The statute of limitations for all lawsuits in the United States is two years. Answer: FALSE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 34) In a case of personal injury due to an accident, the statute of limitations begins to "run" at the time the accident occurs. Answer: TRUE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept

35) A plaintiff can appeal for the extension of the statute of limitations and sue the defendant. Answer: FALSE Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 36) What happens if a defendant is served with a complaint and a summons, but the defendant chooses not to answer, hoping that the lawsuit will go away? Answer: If a defendant does not answer the complaint, default judgment will be entered against him or her. A default judgment establishes the defendant's liability. Plaintiff is relieved of the duty to prove his or her case. Plaintiff must then only establish damages. Diff: 1 LO: 3.3 Define complaint, summons, and answer, and describe the pleading process. AACSB: Analytical thinking Classification: Concept 37) In which of the following cases does a class action occur? A) There are no factual disputes to be decided by the jury. B) The defendant has multiple grounds for appeal. C) A group of plaintiffs collectively bring a lawsuit against a defendant. D) The plaintiff does not reply to the defender's cross-complaint. Answer: C Diff: 2 LO: 3.4 Define class action and describe the requirements for bringing a class action lawsuit. AACSB: Reflective thinking Classification: Concept 38) A class action is a court order directing the defendant to appear in court and answer the complaint. Answer: FALSE Diff: 1 LO: 3.4 Define class action and describe the requirements for bringing a class action lawsuit. AACSB: Analytical thinking Classification: Concept 39) When a group of plaintiffs with common claims collectively bring a lawsuit against a defendant, it is known as consolidation. Answer: FALSE Diff: 1 LO: 3.4 Define class action and describe the requirements for bringing a class action lawsuit. AACSB: Analytical thinking Classification: Concept

40) A class action lawsuit is certified only if there is commonality among the plaintiffs' claims. Answer: TRUE Diff: 1 LO: 3.4 Define class action and describe the requirements for bringing a class action lawsuit. AACSB: Analytical thinking Classification: Concept 41) When is it appropriate for a court to certify a class to maintain a class action lawsuit? What factors weigh in favor of certification? What factors weigh against certification? Answer: A class action lawsuit is appropriate when a group of plaintiffs collectively bring a lawsuit against a defendant. To obtain certification, the class must have common legal and factual claims, it must be impracticable for individual claimants to bring multiple lawsuits against the defendant, the claims and defenses must be typical for both plaintiffs and defendant, and the representative parties must be able to adequately protect the interests of the class. Certification is not appropriate if there is not sufficient commonality among plaintiffs' claims or if the court finds a class action is not suitable to the facts of the case. Diff: 2 LO: 3.4 Define class action and describe the requirements for bringing a class action lawsuit. AACSB: Analytical thinking Classification: Concept 42) The term ________ refers to the oral testimony given by a party or witness prior to trial. A) class action B) deposition C) interrogatory D) intervention Answer: B Diff: 1 LO: 3.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 43) Which of the following statements is true of deposition? A) A deposition has to be a written statement. B) A witness' deposition is voluntary and not pursuant to a court order. C) Deposition is given post trial. D) A deponent is given a chance to correct his or her deposition. Answer: D Diff: 2 LO: 3.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept

44) ________ are written questions submitted by one party to a lawsuit to another party. A) Depositions B) Rejoinders C) Interrogatories D) Summons Answer: C Diff: 1 LO: 3.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 45) Which of the following statements is true of deposition? A) A deposition is a written testimony given by a witness during the trial. B) A deposition establishes the period during which a plaintiff must bring a lawsuit against a defendant. C) Depositions are written questions submitted by one party to a lawsuit to another party. D) Depositions are used to impeach testimony given by witnesses at trial. Answer: D Diff: 2 LO: 3.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 46) ________, a pretrial litigation process, serves several functions, including preventing surprises, allowing parties to prepare thoroughly for trial, preserving evidence, saving court time, and promoting the settlement of cases. A) Pretrial motions B) Discovery C) Pleadings D) Settlement conference Answer: B Diff: 1 LO: 3.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 47) A deposition is oral testimony given by a party or witness during the trial. Answer: FALSE Diff: 1 LO: 3.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept

48) Interventions are written questions submitted by one party to a lawsuit to the other party. Answer: FALSE Diff: 1 LO: 3.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 49) In movies and on television, courtroom scenes often include surprises at trial — surprise evidence, surprise testimony and even surprise witnesses. In reality, are such surprises at trial common? In your answer, discuss the process known as discovery and its purposes. Answer: Surprises supply drama in television and movies, but they are discouraged in our legal system; thus, they are rare. In fact, the purpose of the pretrial discovery process is to prevent surprises, allow the parties to prepare thoroughly for trial, preserve evidence, save the court time, and promote settlement of disputes. Diff: 1 LO: 3.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 50) Which of the following motions asserts that there are no factual disputes to be decided by the jury, and that the judge can apply the proper law to the undisputed facts and decide the case without a jury? A) motion for summary judgment B) motion for judgment on the pleadings C) motion for a directed verdict D) motion for judgment notwithstanding the verdict Answer: A Diff: 1 LO: 3.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept 51) A ________ alleges that if all the facts presented in the paperwork filed with the court to initiate or respond to the lawsuit are true, the party making the motion would win the lawsuit when the proper law is applied to these facts. A) motion for judgment on the pleadings B) motion for summary judgment C) motion for judgment notwithstanding the verdict D) motion to set aside judgment Answer: A Diff: 1 LO: 3.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept

52) A pretrial motion is made to try and dispose of all or part of a lawsuit prior to trial. Answer: TRUE Diff: 1 LO: 3.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept 53) The motion for summary judgment alleges that if all the facts presented in the pleadings are taken as true, the party making the motion would win the lawsuit when the proper law is applied to these asserted facts. Answer: FALSE Diff: 1 LO: 3.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept 54) The motion for judgment on the pleadings alleges that if the defendant does not file an answer to the plaintiff's complaint, the defendant's liability is established. Answer: FALSE Diff: 1 LO: 3.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept 55) Motions for summary judgment are supported by evidence outside of the pleadings. Answer: TRUE Diff: 1 LO: 3.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept 56) In deciding the motion for judgment on the pleadings, the judge also considers facts outside the pleadings. Answer: FALSE Diff: 1 LO: 3.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept

57) A tree falls from Helen Homeowner's property onto the parked car of Nelly Neighbor, who lives next-door to Helen. The car was very valuable and is now a total loss. Both parties agree that the tree was not diseased. They also agree that the tree fell because of an act of nature — an ice storm that had weighed down the tree's limbs. The only question is whether, under applicable state law, the homeowner on whose land the tree grew is liable for the loss or whether the automobile owner must bear the loss for an event caused by an act of nature. Can this case be disposed of prior to trial with a pretrial motion? If so, what pretrial motion would be appropriate in this case? In your answer, discuss whether evidence outside the pleadings could properly be considered. Answer: A motion for summary judgment is appropriate. The parties agree as to the facts of the case. The judge can apply the relevant state law to the undisputed facts and decide the case. In this case, the judge could come to a conclusion and issue a summary judgment in the moving party's favor. Evidence outside the pleadings could be considered. For example, affidavits, relevant documents, and depositions are often considered in determining motions for summary judgment. Diff: 2 LO: 3.6 Contrast the different types of pretrial motions. AACSB: Application of knowledge Classification: Application 58) What is the purpose of a pretrial hearing? A) requesting the other party to produce all documents relevant to the case B) assessing the factual accuracy of the deposition of witnesses C) instructing the judge to decide the case without a jury D) facilitating the settlement of a case before it goes to trial Answer: D Diff: 2 LO: 3.7 Describe the goals and procedures of a settlement conference. AACSB: Analytical thinking Classification: Concept 59) A pretrial hearing is also known as a settlement conference. Answer: TRUE Diff: 1 LO: 3.7 Describe the goals and procedures of a settlement conference. AACSB: Analytical thinking Classification: Concept

60) Why would a judge require the parties to a lawsuit to appear before the court for a pretrial settlement conference? Answer: The purpose of a settlement conference is to promote compromise and work toward a settlement in lieu of trial. Settlement saves the court time, energy and resources. Even if the parties are unable to reach settlement prior to trial, a pretrial hearing can help the parties to identify major trial issues in order to promote efficiency. Diff: 1 LO: 3.7 Describe the goals and procedures of a settlement conference. AACSB: Analytical thinking Classification: Concept 61) ________ is the process whereby the judge and attorneys ask prospective jurors questions to determine whether they would be biased in their decisions. A) Consolidation B) Trial of fact C) Voir dire D) Intervention Answer: C Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 62) What is direct examination? A) inspection and verification of all documents related to a trial by the judge B) inspection and verification of all documents related to a trial by the jurors C) witnesses being questioned by the plaintiff's attorney D) prospective jurors being questioned by the judge or lawyers of each party Answer: C Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 63) What is cross-examination? A) inspection of evidence by the trier of facts B) prospective jurors being questioned by the judge or lawyers of each party C) witnesses being questioned by the plaintiff's attorney D) witnesses being questioned by the defendant's attorney Answer: D Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept

64) Which of the following statements best describes re-direct examination? A) The plaintiff's attorney questions the witness who was questioned by the defendant's attorney. B) The plaintiff's attorney questions the witness before he or she is questioned by the defendant's attorney. C) The defendant's attorney questions the witness who was questioned by the plaintiff's attorney. D) The defendant's attorney questions the witness before he or she is questioned by the plaintiff's attorney. Answer: A Diff: 2 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 65) Which of the following statements is true of the plaintiff's case? A) The plaintiff's attorney examines the witnesses during cross-examination. B) The defendant's attorney examines the witnesses during re-direct examination. C) The defendant's attorney can ask questions only about the subjects that were brought up during the direct examination. D) Documents and other evidence have to be introduced before the first witness is subject to direct examination. Answer: C Diff: 2 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 66) After the defendant's attorney has finished calling witnesses, the plaintiff's attorney can call witnesses and put forth evidence to disprove the defendant's case. This is called a ________. A) rebuttal B) rejoinder C) closing argument D) deliberation Answer: A Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept

67) During a ________, the defendant's attorney can call additional witnesses and introduce other evidence to counter the rebuttal. A) closing argument B) rejoinder C) cross-examination D) re-direct examination Answer: B Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 68) What are jury instructions? A) instructions from the jury to the plaintiff's attorney about settling a case before trial B) instructions from jury informing the judge on what grounds the case can be dismissed C) instructions to the jury from both parties over the duration within which the case has to be settled D) instructions to inform the jury about what law to apply when they decide the case Answer: D Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 69) What is jury deliberation? A) jurors re-questioning a particular witness from one of the parties B) jurors considering the evidence and attempting to reach a decision C) jury and the judge disagreeing on the outcome of the case D) jurors being replaced in case of illness or disqualification Answer: B Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 70) Which of the following terms refer to the overturn of verdict when jury misconduct is detected? A) remittitur B) judgment notwithstanding the verdict C) motion for summary judgment D) motion for judgment on the pleadings Answer: B Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 17 Copyright © 2019 Pearson Education, Inc.

71) In a civil case John Deer vs. Jane Doe, the judge finds that the jury was swayed by the fact that Jane Doe was a woman when passing the verdict in her favor. Owing to this, the judge reduces the damages awarded to Jane by $20,000. This act is called ________. A) remittitur B) judgment notwithstanding the verdict C) motion for summary judgment D) motion for judgment on the pleadings Answer: A Diff: 3 LO: 3.8 Describe the trial process. AACSB: Application of knowledge Classification: Application 72) In a jury trial, the judge is the trier of fact. Answer: FALSE Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 73) Voir dire is the process whereby the jurors ask prospective judges questions to determine whether they would be biased in their decisions. Answer: FALSE Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 74) A trial is conducted with a jury only when the defendant requests a jury trial. Answer: FALSE Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 75) After a witness is sworn in, he or she is cross-examined by the plaintiff's attorney. Answer: FALSE Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept

76) After the defendant's attorney completes his or her questions, the plaintiff's attorney can question the witness in a re-direct examination. Answer: TRUE Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 77) In a rejoinder, the defendant's attorney can call additional witnesses and introduce other evidence to counter the rebuttal. Answer: TRUE Diff: 1 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 78) Differentiate between trials with and without jury. Answer: Pursuant to the Seventh Amendment to the U.S. Constitution, a party to a civil action at law is guaranteed the right to a jury trial in a case in federal court. If either party requests a jury, the trial will be by jury. If both parties waive their right to a jury, the trial will occur without a jury. The judge sits as the trier of fact in nonjury trials. Lawyers for each party and the judge can ask prospective jurors questions to determine whether they would be biased in their decisions. Biased jurors can be prevented from sitting on a particular case. Diff: 2 LO: 3.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 79) Which of the following is NOT generally available to litigants? A) electronic filing of pleadings B) virtual jury trials C) electronic scheduling of hearings and conferences D) email correspondence with opposing counsel Answer: B Diff: 3 LO: 3.9 Explain how electronic technology is being used in courts and legal proceedings. AACSB: Application of knowledge Classification: Application 80) In some jurisdictions, electronic filing of pleadings is mandatory. Answer: TRUE Diff: 1 LO: 3.9 Explain how electronic technology is being used in courts and legal proceedings. AACSB: Analytical thinking Classification: Concept

81) Explain some of the ways in which electronic filings and electronic communications have changed the practice of law. Answer: Traditionally litigators have been buried in paper. Now, however, pleadings, interrogatories, motions, briefs, memoranda, and other documents can be created and transmitted electronically. These documents can be served on the opposing party electronically and filed with the clerk of the court electronically. Scheduling is almost always now accomplished electronically. More and more often, conferences and even some pretrial hearings are conducted via "virtual courthouses." Diff: 1 LO: 3.9 Explain how electronic technology is being used in courts and legal proceedings. AACSB: Analytical thinking Classification: Concept 82) Which of the following statements is true about appeals? A) Only the plaintiff can appeal the court's decision in a civil case. B) Only the defendant can appeal the court's decision in a criminal case. C) An appeal can be made before the trial court gives its final judgment. D) An appellate court cannot reverse a lower court's decision. Answer: B Diff: 2 LO: 3.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept 83) The appealing party in an appeal is called a(n) ________. A) appellate B) appellee C) respondent D) petitioner Answer: D Diff: 1 LO: 3.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept 84) Which of the following statements is true about appellate courts? A) Appellate courts cannot reverse a finding of fact made by the jury. B) Appellate courts cannot reverse a finding of fact made by the judge. C) Appellate courts permit brief oral arguments between attorneys. D) An appellate court cannot reverse a decision of a lower court. Answer: C Diff: 2 LO: 3.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept

85) Appellate courts will frequently reverse a finding of fact made by a jury. Answer: FALSE Diff: 1 LO: 3.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept 86) On rare occasions, an appellate court will overturn a jury verdict is there was not sufficient evidence at trial to support the jury's findings. Answer: TRUE Diff: 1 LO: 3.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept 87) Only the defendant can appeal in a criminal case. Answer: TRUE Diff: 1 LO: 3.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept 88) When will an appellate court reverse a lower court decision? In your answer, address whether an appellate court will reverse a trial court's finding of fact. Why or why not? Answer: An appellate court will reverse a lower court decision if it finds an error of law in the record. Generally, an appellate court will not reverse a finding of fact made by a jury or by a judge if there was no jury. On rare occasions, an appellate court will reverse a trial court's verdict if the trial record indicates there was insufficient evidence to support the trier of fact's findings. Diff: 2 LO: 3.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept 89) What can a party to a lawsuit do if he or she is displeased with the trial court's judgment? Answer: In a civil case, either party can appeal the trial court's decision once a final judgment is entered. Only the defendant can appeal in a criminal case. The appeal is made to the appropriate appellate court. A notice of appeal must be filed by a party within a prescribed time after judgment is entered. An appellate court will reverse a lower court decision if it finds an error of law in the record. Diff: 2 LO: 3.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept

90) Which of the following is a method of alternative dispute resolution? A) pretrial hearing B) settlement conference C) appeal D) fact-finding Answer: D Diff: 1 LO: 3.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept 91) Rita Fuller and Robert Morgan are contending parties to a lawsuit involving the division of their inheritance from their grandmother. They wish to settle their case out of court. Rita and Robert engage in discussions and bargaining with the presence of their attorneys and finally conclude that Robert keeps 60 percent of the inheritance while Rita gets the remainder. In this scenario, the ________ method of alternative dispute resolution is used. A) negotiation B) arbitration C) mini-trial D) mediation Answer: A Diff: 3 LO: 3.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Application of knowledge Classification: Application 92) Which of the following statements best represents the distinction between binding and nonbinding arbitration? A) Unlike nonbinding arbitration, binding arbitration takes place at a court, in the presence of a judge. B) If the arbitration is nonbinding, the decision and award of the arbitrator can be appealed to the courts. C) A nonbinding arbitration takes place at a court, in the presence of the jury. D) A nonbinding arbitration implies that the arbitrator's decision must be reinforced by the courts. Answer: B Diff: 2 LO: 3.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Reflective thinking Classification: Concept

93) Which of the following statements is true about the Federal Arbitration Act (FAA) of 1925? A) The FAA restricts parties from obtaining a court order to compel arbitration with an arbitration agreement. B) The FAA restricts federal courts from hearing issues of law that have been decided by an arbitrator. C) The FAA provides that arbitration agreements involving commerce are revocable contracts under ordinary circumstances. D) Breach of contract cases and tort claims are not candidates for arbitration as per the FAA. Answer: B Diff: 2 LO: 3.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept 94) Which of the following is the most common form of alternative dispute resolution (ADR)? A) negotiation B) mini-trial C) arbitration D) fact-finding Answer: C Diff: 1 LO: 3.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept 95) Negotiation is a procedure whereby the parties choose an impartial third party to hear and decide the dispute. Answer: FALSE Diff: 1 LO: 3.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept 96) Binding arbitration is subject to appeal in a court of law. Answer: FALSE Diff: 1 LO: 3.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept

97) Why might a business prefer alternative dispute resolution (ADR) to litigation? Answer: The use of the court system to resolve disputes can take years and can cost a tremendous amount of money. Normal business operations might be disrupted during litigation. Additionally, some forms of ADR like negotiation and mediation facilitate reaching a voluntary settlement. Thus, the parties to a dispute — rather than a jury — can control their own outcome. Diff: 1 LO: 3.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept 98) Which of the following is NOT an advantage of e-dispute resolution? A) Settlement negotiating can be accomplished electronically. B) Arbitration and mediation service charges are reasonable. C) A settlement can be reached relatively quickly. D) The process is more subjective than face-to-face meetings and negotiation. Answer: D Diff: 2 LO: 3.12 Describe forms of e-dispute resolution. AACSB: Analytical thinking Classification: Concept 99) During electronic mediation, the parties to a dispute are assigned individual "chat rooms" used for online conversations with a mediator. Answer: TRUE Diff: 1 LO: 3.12 Describe forms of e-dispute resolution. AACSB: Analytical thinking Classification: Concept 100) Although e-dispute resolution may save the parties to a legal dispute time and energy, the legal fees associated with e-dispute resolution are exorbitant. Answer: FALSE Diff: 1 LO: 3.12 Describe forms of e-dispute resolution. AACSB: Analytical thinking Classification: Concept

101) Describe in brief the concepts of electronic dispute resolution, electronic arbitration, and electronic mediation. Answer: Electronic technologies have made it possible to settle disputes online. This is referred to as electronic dispute resolution, or e-dispute resolution. Many ADR providers offer electronic arbitration, or e-arbitration services. Most of these services allow a party to a legal dispute to register the dispute with the service and then notify the other party by e-mail of the registration of the dispute. Most online arbitration, called electronic arbitration or e-arbitration, requires the registering party to submit an amount that the party is willing to accept or pay to the other party in the online arbitration. The other party is afforded the opportunity to accept the offer. If that party accepts the offer, a settlement has been reached; however, the other party may return a counteroffer. The process continues until a settlement is reached or one or both parties remove themselves from the online ADR process. Several websites offer online mediation, called electronic mediation or e-mediation. In an online mediation, the parties sit before their computers and sign on to the website. A chat room is assigned to each party and the mediator, and another is set aside for both parties and the mediator. The individual chat rooms are used for private conversations with the online mediator, and the other chat room is for conversations between both parties and the mediator. Diff: 2 LO: 3.12 Describe forms of e-dispute resolution. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 4 Constitutional Law for Business and E-Commerce 1) The ________ was a document that restricted the newly created U.S. federal government from levying and collecting taxes, regulating commerce with foreign countries, and regulating interstate commerce. A) U.S. Constitution B) Declaration of Independence C) Bill of Rights D) Articles of Confederation Answer: D Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 2) When the states ratified the Constitution, they delegated ________ powers to the federal government. A) enumerated B) reserved C) police D) statutory Answer: A Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 3) Reserved powers are given to the ________ by the Constitution. A) federal government B) judiciary C) state governments D) U.S. Congress Answer: C Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept

4) Esteos is a country in which the federal government and the twelve state governments share powers. The form of government in Esteos is called ________. A) authoritarianism B) federalism C) unitarianism D) democracy Answer: B Diff: 2 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Application of knowledge Classification: Application 5) The legislative branch of the U.S. federal government is ________. A) monocameral B) bicameral C) tricameral D) polycameral Answer: B Diff: 2 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 6) The ________ is responsible for making federal law. A) President B) executive branch C) legislative branch D) Supreme Court Answer: C Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 7) Why have checks and balances been built into the U.S. Constitution? A) to keep a check on the number and frequency of amendments made to the Constitution B) to ensure that the judiciary is not biased or corrupt C) to prevent any one of the three branches of the government from becoming too powerful D) to ensure that people of all races and ethnicities are uniformly represented Answer: C Diff: 2 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept

8) The primary purpose of the Constitutional Convention of 1787 was to limit the power of the federal government of America and restrict it from levying or collecting taxes. Answer: FALSE Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 9) The U.S. Constitution limits the government's ability to restrict individual rights. Answer: TRUE Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 10) The form of government in the United States of America is known as federalism. Answer: TRUE Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 11) In federalism, the federal government and the state governments share powers. Answer: TRUE Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 12) When the states ratified the Constitution, they delegated certain powers–called enumerated powers–to the federal government. Answer: TRUE Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 13) Reserved powers are delegated to the judiciary by the president of the United States. Answer: FALSE Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept

14) The House of Representatives has the power to impeach the president for certain activities, such as treason, bribery, and other crimes. Answer: TRUE Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 15) Checks and balances built into the Constitution ensure that amendments to the Constitution are not contradictory to existing laws. Answer: FALSE Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 16) The president is not elected by popular vote but instead is selected by the Electoral College, whose representatives are appointed by state delegations. Answer: TRUE Diff: 1 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept

17) How is the federal government divided? Why are checks and balances necessary? Explain with instances. Answer: The federal government is divided into three branches: a. Legislative branch: It is the part of the U.S. government that makes federal laws. It is also known as the Congress (the Senate and the House of Representatives). b. Executive branch: It is the part of the U.S. government that enforces the federal law; it consists of the president and vice president. c. Judicial branch: It is the part of the U.S. government that interprets the law. It consists of the Supreme Court and other federal courts. Checks and balances are built into the Constitution to ensure that no one branch of the federal government becomes too powerful. Examples of some of the checks and balances in the U.S. system of government are as follows: • The judicial branch has the authority to examine the acts of the other two branches of government and determine whether those acts are constitutional. • The executive branch can enter into treaties with foreign governments only with the advice and consent of the Senate. • The legislative branch has the power of impeachment. The House of Representatives can impeach the president for treason, bribery and other crimes, and the Senate has the power to try an impeachment case. Diff: 2 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 18) How is power divided between the federal government and the state governments? Answer: The federal government and the 50 state governments share powers under our system of government called federalism. When the states ratified the Constitution, they delegated certain powers–called enumerated powers–to the federal government. For example, the federal government is authorized to regulate interstate commerce and foreign affairs. Any powers that are not specifically delegated to the federal government by the Constitution are reserved to the state governments. These are called reserved powers. State governments are empowered to deal with local affairs. For example, states enact laws that provide for the formation and regulation of partnerships and corporations. Cities adopt zoning laws that designate certain portions of the city as residential areas and other portions as business and commercial areas. Diff: 2 LO: 4.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept

19) The ________ provides that federal law takes precedence over state or local law. A) preemption doctrine B) executive branch C) Due Process Clause D) Free Exercise Clause Answer: A Diff: 1 LO: 4.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 20) Which of the following is established by the Supremacy Clause of the U.S. Constitution? A) The president is the supreme and sovereign head of the United States. B) The legislative branch of the federal government is the supreme law-making authority in the country. C) The judiciary is the supreme law-enforcing authority and cannot be influenced by anyone, however powerful, in any manner. D) The U.S. Constitution and federal treaties, laws, and regulations are the supreme law of the land. Answer: D Diff: 2 LO: 4.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 21) Any state or local law that "directly and substantially" conflicts with valid federal law is preempted under the ________. A) Supremacy Clause B) Commerce Clause C) Due Process Clause D) Free Exercise Clause Answer: A Diff: 1 LO: 4.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept

22) Which of the following statements is true about the Supremacy Clause of the U.S. Constitution? A) A particular federal statute cannot exclusively regulate a specific area or activity. B) Any state or local law that "directly and substantially" conflicts with valid federal law is preempted. C) A particular federal statute can expressly provide for exclusive jurisdiction. D) Any state or local law that "directly and substantially" conflicts with valid federal law is held valid until such a time that the relevance of the federal law is tested and held in harmony with the cultural diversity in the state. Answer: B Diff: 2 LO: 4.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 23) The concept of federal law taking precedence over state or local law is called the preemption doctrine. Answer: TRUE Diff: 1 LO: 4.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 24) The Supremacy Clause establishes that the fundamental, legal, and political authority is vested in the citizens of the U.S.A. Answer: FALSE Diff: 1 LO: 4.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 25) The Indian Gaming Regulatory Act sets the terms of ________ on tribal land. A) casino gambling B) hunting and gathering C) agriculture and animal rearing D) mining Answer: A Diff: 1 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept

26) Santo belongs to the Eliok tribe in an Indian reservation in southern Nevada. He wants to open a casino in the reservation. However, the state authority denies the tribe permission to open a casino in its own territory. Which of the following permits the tribe to bring suit in federal court and force the state to comply? A) Establishment Clause B) Indian Gaming Regulatory Act C) Dormant Commerce Clause D) Indian Reorganization Act Answer: B Diff: 2 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Application of knowledge Classification: Application 27) Which of the following statements is true about the Foreign Commerce Clause of the United States? A) The federal government has the exclusive power to regulate commerce with foreign countries. B) A state can enact a law that forbids a foreign country from doing business in that state, if that country engages in activities that are not condoned by that state. C) Direct regulation of foreign commerce by the federal government violates the Commerce Clause. D) A state government is only permitted to regulate foreign trade indirectly. Answer: A Diff: 2 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept 28) Fierra Inc. is a German automobile manufacturer that has a five percent market share in the United States' automobile market. The company has a unit in North Carolina that imports Fierra's automobiles from its parent company in Germany and assembles them. Which of the following measures is in accordance with the Foreign Commerce Clause of the U.S.? A) The government of North Carolina imposes an additional 10 percent tax on Fierra cars. B) The government of Georgia bans the sale of Fierra cars. C) The government of North Carolina asks Fierra Inc. to shut down its import unit in the state. D) The federal government imposes an additional 100 percent tax only on Fierra cars being sold in North Carolina. Answer: D Diff: 2 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Application of knowledge Classification: Application

29) Which of the following statements is true about states' police power? A) Police power restricts states from regulating inter-state commerce, although it happens within their borders. B) The states are allowed to regulate army activities within their borders. C) The states are given the authority to enact laws that regulate the conduct of business within their borders. D) The police force of a state is controlled by the federal police department. Answer: C Diff: 2 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept 30) Which of the following is enacted under state police power? A) personal property laws B) intellectual property laws C) corporate governance laws D) equal opportunity laws Answer: A Diff: 2 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept 31) Kingsland is a country that has been exporting apples to the United States for over a century, shipping 300 tons to Georgia each month. However, in the last transaction, Kingsland violated a trading norm that was not condoned by Georgia. Which of the following measures should be taken to regulate apple imports from Kingsland? A) Georgia can stop trading with Kingsland after serving a notice. B) Georgia can stop trading with Kingsland without serving a notice. C) Georgia can appeal to the federal authority that can stop imports from Kingsland. D) Georgia can make Kingsland export its apples to North Carolina. Answer: C Diff: 3 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Application of knowledge Classification: Application

32) If the federal government has chosen not to regulate an area of interstate commerce that it has the power to regulate under its Commerce Clause powers, this area of commerce is subject to the ________. A) Free Exercise Clause B) Dormant Commerce Clause C) Due Process Clause D) Privileges and Immunities Clause Answer: B Diff: 1 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept 33) The Due Process Clause of the U.S. Constitution grants Congress the power "to regulate commerce with foreign nations, and among the several states, and with Indian tribes." Answer: FALSE Diff: 1 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept 34) The United States considers Native American tribes as "domestic dependent" nations with limited sovereignty. Answer: TRUE Diff: 1 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept 35) Indian Gaming Regulatory Act establishes the requirements for conducting casino gambling and other gaming activities on tribal land. Answer: TRUE Diff: 1 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept

36) State governments do not have the power to regulate commerce with foreign nations. Answer: TRUE Diff: 1 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept 37) Police power permits states and local governments to enact laws to protect or promote the public health, safety, morals, and general welfare. Answer: TRUE Diff: 1 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept 38) If the federal government has chosen not to regulate an area of commerce despite possessing the Commerce Clause powers to regulate it, the area is subject to Dormant Commerce Clause. Answer: TRUE Diff: 1 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept 39) The power to regulate interstate commerce lies exclusively with the federal government. Answer: FALSE Diff: 1 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept 40) E-commerce is not subject to the Commerce Clause of the Constitution as most businesses that conduct e-commerce over the Internet do not have any physical location. Answer: FALSE Diff: 2 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept

41) How has the U.S. government regulated commerce with Native Americans? Answer: In general, the United States treats Native Americans as belonging to separate nations, similarly to the way it treats Spain or France; however, it still considers Native Americans "domestic dependent" nations with limited sovereignty. Today, many Native Americans live on reservations set aside for various tribes. In the late 1980s, the federal government authorized Native American tribes to operate gaming facilities. Congress passed the Indian Gaming Regulatory Act, a federal statute that establishes the requirements for conducting casino gambling and other gaming activities on tribal land. This act allows Native Americans to negotiate with the states for gaming compacts and ensures that the states do so in good faith. If a state fails to do so, the tribe can bring suit in federal court, forcing the state to comply. Today, casinos operated by Native Americans can be found in many states. Profits from the casinos have become an important source of income for members of certain tribes. Diff: 2 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept 42) Why is it unconstitutional for a state government to ban products imported from a foreign country, despite that country engaging in activities not condonable by that state? Answer: The Commerce Clause of the U.S. Constitution gives the federal government the exclusive power to regulate commerce with foreign nations. This is referred to as the Foreign Commerce Clause. Direct and indirect regulation of foreign commerce by state or local governments that unduly burdens foreign commerce violates the Commerce Clause and is therefore unconstitutional. The federal government could enact a law that forbids another country from doing business in the United States if that country engages in activities that are not condoned by the United States. A state, however, could not enact a law that forbids a foreign country from doing business in that state if that country engages in activities that are not condoned by that state. Diff: 2 LO: 4.3 Explain the Commerce Clause and the federal government's authority to regulate interstate and foreign commerce. AACSB: Analytical thinking Classification: Concept

43) Michigan law permits in-state wineries to sell wine directly to consumers, including by mail, Internet, and other means of sale. Michigan law prohibits out-of-state wineries from selling wine directly to Michigan consumers, including over the Internet. Michigan requires out-of-state wineries to sell their wine to Michigan wholesalers, who then sell the wine to Michigan retailers, who then sell the wine to Michigan consumers. Which of the following is true? A) The Michigan law is a valid exercise of state police power, as Michigan has exclusive authority to regulate business within its borders. B) The Michigan law unduly burdens interstate e-commerce; thus, the Michigan law violates the Commerce Clause. C) The Michigan law violates the Privileges and Immunities Clause of the U.S. Constitution. D) The Michigan law is a valid exercise of Michigan's law-making authority as a "domestic dependent" entity with limited sovereignty. Answer: B Diff: 2 LO: 4.4 Describe how Commerce Clause is applied to e-commerce. AACSB: Analytical thinking Classification: Concept 44) E-commerce is not subject to the Commerce Clause of the Constitution as most businesses that conduct e-commerce over the Internet do not have any physical location. Answer: FALSE Diff: 2 LO: 4.4 Describe how Commerce Clause is applied to e-commerce. AACSB: Analytical thinking Classification: Concept 45) The first ten amendments to the U.S. Constitution are collectively known as the ________. A) Due Process Clause B) Privileges Clause C) Bill of Rights D) Articles of Confederation Answer: C Diff: 1 LO: 4.5 Describe the Bill of Rights and the process for amending the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 46) The Bill of Rights establishes the United States as a federal nation and divides power between the center and the states. Answer: FALSE Diff: 2 LO: 4.5 Describe the Bill of Rights and the process for amending the U.S. Constitution. AACSB: Analytical thinking Classification: Concept

47) Which of the following statements is true about the freedom of speech guaranteed by the Bill of Rights? A) The Freedom of Speech Clause was added to the Constitution in the Third Amendment. B) The Freedom of Speech Clause protects speech only, not conduct. C) There is no provision for fully protected speech in the Constitution. D) Burning the American flag in protest to a federal government military action is in violation of the Freedom of Speech Clause. Answer: B Diff: 2 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 48) Jerome wears a t-shirt that bears a picture of the current U.S. president. Under this picture, there are words that imply that the president is doing a bad job of running the country. In accordance to the Freedom of Speech Clause, which of the following is valid? A) Criticizing the current president is fully protected speech, and Jerome cannot be prosecuted. B) Jerome could be arrested as his t-shirt violates the Freedom of Speech doctrine. C) Jerome wearing the t-shirt is an instance of limited protected speech. D) Wearing the t-shirt makes Jerome liable for prosecution on the basis of defamatory language. Answer: A Diff: 3 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Application of knowledge Classification: Application 49) A group of students organizing a protest march demanding that the government be overthrown would be an instance of ________ speech. A) limited protected B) prohibited C) unprotected D) fully protected Answer: C Diff: 2 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept

50) Which of the following is a form of limited protected speech? A) defamatory language B) speech that incites the violent or revolutionary overthrow of the government C) dangerous speech D) offensive speech Answer: D Diff: 2 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 51) Which of the following is a form of unprotected speech? A) offensive speech B) defamatory language C) commercial speech D) political speech Answer: B Diff: 2 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 52) Advertising is categorized as ________ speech. A) fully protected B) limited protected C) uncensored D) unprotected Answer: B Diff: 2 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 53) The First Amendment's Freedom of Speech Clause protects both speech and conduct. Answer: FALSE Diff: 1 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept

54) Lila, a newspaper columnist from Chicago, is unhappy with the soaring price of fuel in the United States. She publishes an article that criticizes the government's refusal to offer gasoline at a subsidized price. This is an example of fully protected speech. Answer: TRUE Diff: 2 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 55) Advertising is categorized as limited protected speech. Answer: TRUE Diff: 2 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 56) The U.S. government can gag citizens from criticizing the President. Answer: FALSE Diff: 1 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 57) Speech that is offensive to many members of the society but is not obscene or violent is held unprotected by the U.S. Supreme Court. Answer: FALSE Diff: 2 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 58) The Supreme Court has held that the content of offensive speech may not be forbidden but that it may be restricted by the government. Answer: TRUE Diff: 2 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept

59) Distinguish between limited protected speech and unprotected speech as categorized by the U.S. Supreme Court. Answer: Limited protected speech refers to speech that the government may not prohibit but that is subject to time, place, and manner restrictions. Two major forms of limited protected speech are offensive speech and commercial speech. The U.S. Supreme Court has held that certain speech is unprotected speech that is not protected by the First Amendment and may be totally forbidden by the government. The Supreme Court has held that the following types of speech are unprotected speech–dangerous speech, fighting words that are likely to provoke a hostile or violent response from an average person, speech that incites the violent or revolutionary overthrow of the government, defamatory language, child pornography, and obscene speech. Diff: 2 LO: 4.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 60) The ________ prohibits the government from promoting one religion over another. A) Due Process Clause B) Privileges Clause C) Establishment Clause D) Free Exercise Clause Answer: C Diff: 1 LO: 4.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Analytical thinking Classification: Concept 61) The ________ Clause prevents the government from enacting laws that either prohibit or inhibit individuals from participating in or practicing their chosen religions. A) Due Process B) Privileges C) Establishment D) Free Exercise Answer: D Diff: 1 LO: 4.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Analytical thinking Classification: Concept

62) The ________ prohibits the government from promoting one religion over another. A) Due Process Clause B) Privileges Clause C) Establishment Clause D) Free Exercise Clause Answer: C Diff: 1 LO: 4.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Analytical thinking Classification: Concept 63) The ________ Clause prevents the government from enacting laws that either prohibit or inhibit individuals from participating in or practicing their chosen religions. A) Due Process B) Privileges C) Establishment D) Free Exercise Answer: D Diff: 1 LO: 4.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Analytical thinking Classification: Concept 64) The Establishment Clause guarantees that there will be no state-sponsored religion. Answer: TRUE Diff: 1 LO: 4.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Analytical thinking Classification: Concept 65) The Establishment Clause prohibits the government from enacting laws that either prohibit or inhibit individuals from participating in or practicing their chosen religions. Answer: FALSE Diff: 1 LO: 4.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Analytical thinking Classification: Concept

66) A(n) ________ test is applied to classifications of people based on a suspect class. A) strict scrutiny B) intermediate scrutiny C) intellectual basis D) cogent basis Answer: A Diff: 1 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 67) Vanessa is born to American parents from a minority group in Miami. She applies to a public university that offers scholarships only to students from minority groups. Which of the following standards of review is used to decide if the university violates the Equal Protection Clause by offering Vanessa the scholarship? A) rational basis B) intermediate scrutiny C) strict scrutiny D) cogent basis Answer: C Diff: 2 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Application of knowledge Classification: Application 68) The lawfulness of government classifications based on a protected class other than a suspect class or a fundamental right is examined using a(n) ________ test. A) strict scrutiny B) intermediate scrutiny C) intellectual basis D) cogent basis Answer: B Diff: 1 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept

69) An organization provides six months of maternity leave to its female employees, whereas its male employees can avail paternity leave for a maximum of two weeks. Which of the following tests is used to examine the lawfulness of this classification? A) rational basis B) intermediate scrutiny C) strict scrutiny D) cogent basis Answer: B Diff: 2 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Application of knowledge Classification: Application 70) The lawfulness of all government classifications that do not involve suspect or protected classes is examined using a(n) ________. A) investigative challenge test B) intermediate basis test C) due process test D) rational basis test Answer: D Diff: 1 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 71) The federal government's Social Security program, which pays benefits to older members of society but not to younger members of society, is lawful as examined by a(n) ________ test. A) rational basis B) intermediate scrutiny C) investigative challenge D) due process Answer: A Diff: 2 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept

72) Which of the following is an instance of a decision involving the Equal Protection Clause being made on the basis of a rational basis test? A) The government requires only men above the age of 18 to volunteer for military service. B) The government establishes a trust fund to provide financial aid to minority groups. C) A state government employs measures to improve living conditions in the reservations. D) The government provides subsidies to farmers but not to carpenters or lumberjacks. Answer: D Diff: 2 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 73) The Equal Protection Clause of the Fourteenth Amendment provides that a state cannot promote one religion over other religions. Answer: FALSE Diff: 1 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 74) The Equal Protection Clause makes the classification of individuals based on their race unlawful. Answer: FALSE Diff: 2 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 75) Strict scrutiny tests are applied to classifications that do not involve a suspect or protected class. Answer: FALSE Diff: 1 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept

76) The lawfulness of government classifications based on a protected class other than a suspect class or a fundamental right, such as a classification based on gender, is examined using an intermediate scrutiny test. Answer: TRUE Diff: 1 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 77) Explain the purpose of the Equal Protection Clause and describe and explain the different levels of judicial scrutiny given to government classifications based on race, gender and age. Answer: The Equal Protection Clause was drafted to guarantee equal rights to all persons. The clause prohibits our government from enacting laws that classify similarly situated persons differently. The Supreme Court has developed a three-tiered system of review for equal protection challenges. When similarly situated persons are classified and treated differently based on a suspect class or fundamental right, the Court will apply strict scrutiny. The government must demonstrate an extremely important reason for classifying and treating persons differently based on a suspect class or fundamental right. Race is a suspect class. When similarly situated persons are classified and treated differently based on a protected class which is not a suspect class or fundamental right, then intermediate scrutiny is applied. Under intermediate scrutiny, the government must demonstrate an important reason for its classification. All other government classifications receive rational basis review. In other words, if the government classification is not based on a suspect class, fundamental right or protected class, then the government classification receives the lowest of the three levels of judicial scrutiny — mere rational basis review. Classifications based on age receive this lowest level of review; the government must only have a justifiable reason for a classification based on age. Diff: 2 LO: 4.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 78) Which of the following amendments to the U.S. Constitution contains the Due Process, Equal Protection, and Privileges and Immunities Clauses? A) the Twelfth Amendment B) the Thirteenth Amendment C) the Fourteenth Amendment D) the Fifteenth Amendment Answer: C Diff: 1 LO: 4.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept 22 Copyright © 2019 Pearson Education, Inc.

79) Which of the following provisions is made by the Due Process Clause? A) No person shall be deprived of life, liberty, or property without due process of the law. B) No state can regulate foreign trade directly or indirectly without due process of the law. C) Motions for amendments to the Constitution cannot be made without a majority in the House of Representatives. D) Violation of freedom of speech makes the violator liable for immediate prosecution with due process of the law. Answer: A Diff: 2 LO: 4.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept 80) ________ requires that government statutes, ordinances, regulations, and other laws be clear on their face and not overly broad in scope. A) Procedural due process B) Substantive due process C) The intermediate scrutiny test D) The rational scrutiny test Answer: B Diff: 1 LO: 4.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept 81) A certain state in the United States declares that its citizens should only wear modest clothing. Which of the following conclusions is made when this law is tested for substantive due process? A) unconstitutional for compulsion B) invalid for violation of the Equal Protection Clause C) void for vagueness D) invalid for violating freedom of expression Answer: C Diff: 2 LO: 4.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept

82) ________ requires that the government give a person proper notice and hearing of legal action before that person is deprived of his or her life, liberty, or property. A) Procedural due process B) Substantive due process C) The Supremacy Clause D) The Equal Protection Clause Answer: A Diff: 1 LO: 4.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept 83) Substantive due process requires that the government give a person proper notice and hearing of legal action before that person is deprived of his or her life, liberty, or property. Answer: FALSE Diff: 1 LO: 4.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept 84) The ________ empowers the government to seize private property for public use, and the ________ requires the government to pay private property owners for this seized property. A) substantive due process requirement; procedural due process obligation B) strict scrutiny requirement; rational basis obligation C) Due Process Clause; Equal Protection Clause D) Takings Clause; Just Compensation Clause Answer: D Diff: 1 LO: 4.10 Explain how the government can take private property but must pay just compensation for the taking. AACSB: Analytical thinking Classification: Concept 85) Under the Fifth Amendment, the government must compensate private property owners when the government takes land and/or buildings for public use, but the government has no such obligation to compensate farmers when crops or produce are taken for a governmental purpose. Answer: FALSE Diff: 1 LO: 4.10 Explain how the government can take private property but must pay just compensation for the taking. AACSB: Analytical thinking Classification: Concept

86) The ________ Clause in the Constitution collectively prohibits states from enacting laws that unduly discriminate in favor of their residents. A) Due Process B) Equal Protection C) Establishment D) Privileges and Immunities Answer: D Diff: 1 LO: 4.11 Explain how the privileges and immunities doctrine protects citizens from unfavorable treatment by the government. AACSB: Analytical thinking Classification: Concept 87) A state can enact a law that prevents residents of other states from owning property or businesses in that state. Answer: FALSE Diff: 1 LO: 4.11 Explain how the privileges and immunities doctrine protects citizens from unfavorable treatment by the government. AACSB: Analytical thinking Classification: Concept 88) The Privileges and Immunities Clause prohibits states from enacting laws that unduly discriminate in favor of their residents. Answer: TRUE Diff: 1 LO: 4.11 Explain how the privileges and immunities doctrine protects citizens from unfavorable treatment by the government. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 5 Intentional Torts and Negligence 1) Which of the following is an intentional tort? A) breach of duty of care B) defect in product manufacture C) disparagement D) negligence Answer: C Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 2) The threat of immediate harm or offensive contact is termed as ________. A) battery B) assault C) disparagement D) libel Answer: B Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 3) Which of the following statements is true of the tort of assault? A) Physical contact is the only requirement for a tort of assault. B) An attack is considered an assault only if the defendant was provoked to attack a plaintiff. C) An attack is not considered an assault if the defendant was provoked to attack a plaintiff. D) Actual physical contact between plaintiff and defendant is not necessary. Answer: D Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept

4) John was on his way home when an assailant stopped his car and threatened to physically harm him if he ever saw him drive on that street again. John can sue the assailant to recover damages for ________. A) assault B) battery C) libel D) disparagement Answer: A Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 5) Which of the following best describes battery? A) unauthorized and harmful or offensive physical contact with another person that causes injury B) an action that arouses reasonable apprehension of imminent harm C) oral or written defamation of another person's character D) intentional confinement or restraint of another person without that person's consent Answer: A Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 6) Which of the following torts constitutes battery? A) stealing a person's wallet B) threatening to shoot a person C) blackmailing a person D) poisoning a person's drink Answer: D Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 7) Which of the following statements is true of battery? A) Battery refers to intentional infliction of emotional distress. B) Assault and battery often occur together. C) Actual physical contact is not necessary for a tort to be termed as battery. D) Indirect physical contact between the victim and the perpetrator is not battery. Answer: B Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept

8) Harvey was at his college reunion where he met Raymond, his former roommate. Harvey and Raymond did not get along well at the reunion. Offended by something Raymond mentioned, Harvey punched him in the face, which broke his jaw. Harvey is liable for ________. A) breach of duty of care B) disparagement C) battery D) assault Answer: C Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 9) Which of the following actions would make Sarah liable for battery? A) She publishes an article asking the current U.S. President to quit because she thinks he is not doing a good job. B) She extends her backyard fence, encroaching on two feet of her neighbor's land. C) She smuggles marijuana into the country. D) She slaps her ex-husband because he denied her alimony. Answer: D Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 10) Michael wanted to shoot Gary but accidentally injured Stella with the bullet. Which of the following can Stella use to recover damages from Michael? A) doctrine of unintentional tort B) doctrine of proximate cause C) doctrine of negligence D) transferred intent doctrine Answer: D Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application

11) Jessica is babysitting Kyle one afternoon when Kyle starts bleeding from his nose. Jessica manages to stop the bleeding and rushes out to the nearest pharmacy–three miles away–to get medication for him. While doing so, she locks the house from outside and asks Kyle not to leave the house until she returns. The only way he can get out of the house is by breaking a window. Due to a roadblock on her way back, Jessica is delayed by an hour. Which of the following statements is true in this case? A) Jessica is liable for kidnapping. B) Jessica is liable for negligence as well as breach of duty of care. C) Jessica can be sued for false imprisonment. D) Jessica is not liable for an intentional tort. Answer: D Diff: 3 LO: 5.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 12) ________ refers to an attempt by another person to take over a living person's name or identity for commercial purposes. A) Invasion of the right to privacy B) Misappropriation of the right to publicity C) Defamation of character D) Disparagement Answer: B Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 13) Sending an objectionable e-mail to a third party and signing another's name constitute the tort of ________. A) invasion of the right to privacy B) defamation of character C) battery D) intentional misrepresentation Answer: A Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept

14) The tort of defamation of character requires a plaintiff to prove that the defendant ________. A) publicized a private fact about the plaintiff B) insulted people closely related to the plaintiff, such as family or friends C) published an untrue statement of fact about the plaintiff to a third party D) made one or more financial deals with the plaintiff under a false identity Answer: C Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 15) Tom is a famous athlete. A magazine published an interview with his ex-girlfriend in which she falsely claimed that Tom took performance enhancing drugs for several years. Tom can sue his ex-girlfriend for ________. A) slander B) invasion of the right to privacy C) tort of appropriation D) negligent infliction of emotional distress Answer: A Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 16) Libel and slander constitute ________. A) the tort of outrage B) defamation of character C) the tort of appropriation D) intentional misrepresentation Answer: B Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 17) Which of the following instances depicts intentional infliction of emotional distress? A) A farmer's crops are set on fire by an unidentified miscreant. B) A gym teacher verbally abuses an overweight kid in every gym class and the kid suffers severe emotional distress. C) A cosmetics company uses Julia Roberts' image without her consent to depict her as its brand ambassador. D) A beverage-manufacturer claims that its competitor uses coffee beans of poor quality. Answer: B Diff: 3 LO: 5.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 5 Copyright © 2019 Pearson Education, Inc.

18) An actor wins a part in a play over another actor. To get back at the selected actor, the rejected actor files a lawsuit against the selected actor alleging intentional infliction of emotional distress, defamation, and negligence. The jury returns a verdict exonerating the defendant. The defendant is now entitled to sue the plaintiff for ________. A) tort of outrage B) malicious prosecution C) intentional misrepresentation D) misappropriation of the right to publicity Answer: B Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 19) Making false statements about a competitor's products, services, property, or business reputation could make a company liable for ________. A) intentional misrepresentation B) tort of appropriation C) disparagement D) misappropriation of the right to publicity Answer: C Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 20) A tort can be considered an assault without there being any actual physical contact. Answer: TRUE Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 21) Direct physical contact, such as intentionally hitting someone with a fist, is considered battery. Answer: TRUE Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 22) Assault and battery are mutually exclusive torts that do not occur together. Answer: FALSE Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

23) A threat of future harm or moral pressure is not considered false imprisonment. Answer: TRUE Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 24) If a shoplifting suspect is detained for an unreasonably long time and is found to be innocent, the merchant is liable for the tort of malicious prosecution. Answer: FALSE Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 25) If a defendant makes an untrue statement of fact about the plaintiff and the statement is intentionally or accidentally published to a third party, the defendant is held liable for misappropriation of the right to publicity. Answer: FALSE Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 26) If a magazine publishes a false statement about a public personality, it is liable for invasion of the right to privacy. Answer: FALSE Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 27) If a newspaper review calls a commercially successful actor talentless, it is liable for defamation of character. Answer: FALSE Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 28) In a lawsuit for malicious prosecution, the original defendant sues the original plaintiff. Answer: TRUE Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

29) Jessica files a frivolous lawsuit against Thomas, claiming emotional distress because he plucked flowers from her garden without her permission. The judge exonerates Thomas who can now sue Jessica for malicious prosecution. Answer: TRUE Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 30) Malicious prosecution is a tort that permits a person to recover for emotional distress caused by the defendant's negligent conduct. Answer: FALSE Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 31) A bystander who suffers severe emotional distress on witnessing a heinous crime can claim damages for intentional infliction of emotional distress. Answer: FALSE Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 32) If a woman is informed of her husband being run over by a bus the previous night, she can recover damages for negligent infliction of emotional distress. Answer: FALSE Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 33) A disparagement is an untrue statement made by one person or business about the products, services, property, or reputation of another business. Answer: TRUE Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept

34) Intentional misrepresentation occurs when a wrongdoer deceives another person out of money, property, or something else of value. Answer: TRUE Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 35) If a person did not have knowledge that his representation of facts was false, he is still liable for fraud. Answer: FALSE Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 36) Disparagement refers to the liability of a professional who breaches his or her duty of ordinary care. Answer: FALSE Diff: 1 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 37) How is assault different from battery? Answer: Assault is (1) the threat of immediate harm or offensive contact or (2) any action that arouses reasonable apprehension of imminent harm. Actual physical contact is unnecessary. Battery is unauthorized and harmful or offensive physical contact with another person that causes injury. Direct physical contact, such as intentionally hitting someone with a fist, is battery. Indirect physical contact between the victim and the perpetrator is also battery, as long as injury results. Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept

38) Explain the torts of appropriation and invasion of the right to privacy with examples. Answer: Any attempt by another person to appropriate a living person's name or identity for commercial purposes is actionable. The wrongdoer is liable for the tort of misappropriation of the right to publicity (also called the tort of appropriation). For example, if an advertising agency places Megan Fox's photo on a billboard advertising a product without her permission, it has engaged in the tort of misappropriation of the right to publicity. The law recognizes each person's right to live his or her life without being subjected to unwarranted and undesired publicity. A violation of this right constitutes the tort of invasion of the right to privacy. If a fact is public information, there is no claim to privacy. Secretly taking photos of another person with a cell phone camera in a men's or women's locker room would constitute invasion of the right to privacy. Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 39) Monica told a prospective patient that a certain cosmetic surgeon had been banned from practicing by the American Medical Council, but this is untrue. Is Monica liable for intentional tort? Why or why not? Answer: Monica is liable for defamation of character. The tort of defamation of character requires a plaintiff to prove that: a. The defendant made an untrue statement of fact about the plaintiff. b. The statement was intentionally or accidentally published to a third party. In this context, publication simply means that a third person heard or saw the untrue statement. It does not require appearance in newspapers, magazines, or books. Diff: 2 LO: 5.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 40) ________ is a doctrine that says a person is liable for harm that is the foreseeable consequence of his or her actions. A) Tort of outrage B) Tort of misappropriation C) Disparagement D) Unintentional tort Answer: D Diff: 1 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept

41) The obligation people owe each other not to cause any unreasonable harm or risk of harm is termed as ________. A) libel B) res ipsa loquitur C) the Good Samaritan law D) duty of care Answer: D Diff: 1 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 42) Throwing a lit match on the ground in the forest and causing a fire is a breach of ________. A) appropriation B) the Good Samaritan law C) duty of care D) res ipsa loquitur Answer: C Diff: 2 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Application of knowledge Classification: Application 43) Which of the following is true about the duty of care? A) Breach of duty of care is not actionable unless the plaintiff suffers injury or injury to his or her property. B) Reasonable person standard is used to determine the amount of damages that a defendant owes a plaintiff. C) A firefighter who refuses to put out a fire when his safety is not at stake does not breach his duty of care. D) The damages recoverable for breach of the duty of care are independent of the effect of the injury on the plaintiff's life or profession. Answer: A Diff: 2 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept

44) George, Jerry, and Harry are passengers on a flight from Chicago to New York. They injure their legs when their seatbelts fail and become unfastened during take-off. The airline is sued by all three together for injuries caused, and the airline is found to be negligent and is directed by the court to pay damages to the injured parties. Which of the following parties is entitled to recover maximum damages? A) George, a retired professor who gets a pension of $50,000 a year B) Jerry, a football player who earns $2 million a year C) Harry, a chartered accountant who earns $200,000 a year D) George, Jerry, and Harry Answer: B Diff: 3 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Application of knowledge Classification: Application 45) What is meant by "causation in fact"? A) the facts stated by a plaintiff during trial B) a defendant's negligent act that caused the plaintiff's injuries C) a defendant's defense against a case of negligence D) a defendant's plea of guilt due to negligence Answer: B Diff: 1 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Application of knowledge Classification: Application 46) ________ is a point along a chain of events caused by a negligent party after which this party is no longer legally responsible for the consequences of his or her actions. A) Causation in fact B) Point of reason C) Point of appropriation D) Proximate cause Answer: D Diff: 1 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept

47) Under negligence, a person is liable only for ________ events. A) intervening B) foreseeable C) superseding D) overruling Answer: B Diff: 1 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 48) A pedestrian trips and falls on a poorly lighted sidewalk in front of Kate Geller's house and is injured. If the pedestrian sues for damages, which of the following parties would be liable to pay the damages? A) the civic authority B) Kate Geller C) the residents' association of the locality D) the pedestrian Answer: B Diff: 2 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Application of knowledge Classification: Application 49) Reasonable person standard is a test used to determine whether a tort is intentional or unintentional. Answer: FALSE Diff: 1 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 50) If a plaintiff is injured, the damages recoverable depend on the effect of the injury on the plaintiff's life or profession. Answer: TRUE Diff: 1 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 51) Causation in fact refers to a point along a chain of events caused by a negligent party after which the party is no longer legally responsible for the consequences of his or her actions. Answer: FALSE Diff: 1 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 13 Copyright © 2019 Pearson Education, Inc.

52) If a defendant's act caused a plaintiff's injuries, there is causation in fact. Answer: TRUE Diff: 1 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 53) When and how can a plaintiff claim damages if the defendant has breached a duty of care? Answer: Even though a defendant's negligent act may have breached a duty of care owed to the plaintiff, this breach is not actionable unless the plaintiff suffers injury to his or her person or property. That is, the plaintiff must have suffered some injury before he or she can recover any damages. Additionally, the defendant's negligent act must be proven to have been both the actual cause and the proximate cause of plaintiff's injury. The damages recoverable depend on the effect of the injury on the plaintiff's life or profession. Diff: 2 LO: 5.2 Explain the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 54) If a lawyer fails to file a document with the court on time, causing his client's case to be dismissed, he would be liable for ________. A) professional malpractice B) intentional misrepresentation C) tort of appropriation D) breach of the duty of care Answer: A Diff: 2 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 55) Martha is walking along a street with her son when he is hit by a passing car just as he steps off the pavement. He dies in his mother's arms, leaving her traumatized. The court hearing the case rules that Martha's son was "not responsible for the accident." Martha can sue the person who killed her son to recover damages for ________. A) tort of outrage B) breach of duty of care C) negligent infliction of emotional distress D) transfer of intent Answer: C Diff: 2 LO: 5.3 List and describe special negligence doctrines. AACSB: Application of knowledge Classification: Application

56) The violation of a statute that proximately causes an injury is termed as ________. A) disparagement B) res ipsa loquitur C) negligence per se D) misappropriation Answer: C Diff: 1 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 57) In order to claim damages for negligence per se, the plaintiff has to prove that ________. A) the defendant was in exclusive control of the situation B) the plaintiff was within a class of persons meant to be protected by the violated statute C) the defendant made a false representation of material fact D) the plaintiff was affected by malicious statements made by the defendant about his or her character Answer: B Diff: 1 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 58) ________ is a doctrine that raises a presumption of negligence and switches the burden to the defendant to prove that he or she was not negligent. A) Res ipsa loquitur B) Negligence per se C) Doctrine of proximate cause D) Doctrine of comparative negligence Answer: A Diff: 1 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 59) ________ is a statute that relieves medical professionals from liability for ordinary negligence when they stop and render aid to victims in emergency situations. A) Good Samaritan law B) Assumption of the risk C) Duty of care D) Res ipsa loquitur Answer: A Diff: 1 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 15 Copyright © 2019 Pearson Education, Inc.

60) John watched his brother die in a road accident. The perpetrator was driving under the influence of alcohol. John can recover damages for negligent infliction of emotional distress because of the mental trauma he suffered from watching his brother die. Answer: TRUE Diff: 2 LO: 5.3 List and describe special negligence doctrines. AACSB: Application of knowledge Classification: Application 61) Res ipsa loquitor is a tort in which the violation of a statute or an ordinance constitutes the breach of the duty of care. Answer: FALSE Diff: 1 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 62) A doctor driving on the wrong side of the road crashes into an eight-year-old boy riding a bicycle. Fearing the consequences, the doctor flees without reporting the accident or giving firstaid to the boy. The doctor is liable for professional malpractice. Answer: FALSE Diff: 2 LO: 5.3 List and describe special negligence doctrines. AACSB: Application of knowledge Classification: Application 63) A lawyer who fails to file a document with the court on time, causing the client's case to be dismissed is liable for legal malpractice. Answer: TRUE Diff: 1 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 64) The violation of a statute that proximately causes an injury is termed as negligence per se. Answer: TRUE Diff: 1 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept

65) A homeowner is liable for negligence per se if he or she fails to repair a damaged sidewalk in front of his or her home and a pedestrian who trips on the unrepaired sidewalk is injured. Answer: TRUE Diff: 2 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 66) In order to claim damages for negligence per se, the plaintiff need not prove that he or she was within a class of persons meant to be protected by the statute. Answer: FALSE Diff: 1 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 67) Res ipsa loquitur switches the burden to the plaintiff to prove that the defendant was negligent. Answer: FALSE Diff: 2 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 68) Res ipsa loquitur applies when the plaintiff had exclusive control of the instrumentality or situation that caused his or her own injury. Answer: FALSE Diff: 2 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 69) If a nurse administers CPR to save the life of a dying man and negligently injures the man's arm in the process, the nurse cannot be sued as he or she is protected by Good Samaritan statutes. Answer: TRUE Diff: 2 LO: 5.3 List and describe special negligence doctrines. AACSB: Application of knowledge Classification: Application 70) Punitive damages are awarded only when there is no gross negligence. Answer: FALSE Diff: 1 LO: 5.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 17 Copyright © 2019 Pearson Education, Inc.

71) A commercial airliner crashes into the Atlantic Ocean, killing all passengers and crew onboard. What special negligence doctrine would be applicable in the ensuing lawsuits against the airline? What factors must be established in order for plaintiffs to successfully employ this special negligence doctrine? Answer: Res ipsa loquitur would be applicable in the post-crash lawsuits. Res ipsa loquitur means "the thing speaks for itself" in Latin. Once it has been established that defendant had exclusive control over the aircraft and that the injury would not have occurred but for someone's negligence, then the burden of proof would be shifted to the defendant airline. There would be a presumption of negligence which the airline would then have to disprove or be held liable for the crash. Diff: 2 LO: 5.3 List and describe special negligence doctrines. AACSB: Application of knowledge Classification: Application 72) The term ________ refers to a defense a defendant can use against a plaintiff who knowingly and voluntarily entered into or participated in an activity that had a high probability of resulting in injury to the plaintiff. A) superseding event B) comparative negligence C) assumption of risk D) intervening event Answer: C Diff: 1 LO: 5.4 Describe the defenses that can be raised against a claim of negligence. AACSB: Analytical thinking Classification: Concept 73) In order to use the defense of assumption of risk, the defendant has to prove that the plaintiff ________. A) assumed there was no risk involved and entered into the activity that injured him or her B) was injured after the defendant's liability for the risk ended C) was injured in an activity that had no risk of any manner D) had knowledge of the specific risk and voluntarily assumed the risk Answer: D Diff: 2 LO: 5.4 Describe the defenses that can be raised against a claim of negligence. AACSB: Analytical thinking Classification: Concept

74) Prado Loyola is a race-car driver who has signed an agreement with the racing team Provolt, stating that Provolt is not responsible for the dangers involved in racing and that Loyola participates in all car races voluntarily, with full knowledge of the risk of injury or death that might result as a consequence. During the course of the race, a slight drizzle that covers the windshield affects Loyola's visibility, and he misses a turn, resulting in a crash. Which of the following defenses can the Provost team cite to protect itself from liability in the event that Loyola sues them? A) res ipsa loquitur B) assumption of the risk C) private necessity D) breach of the duty of care Answer: B Diff: 2 LO: 5.4 Describe the defenses that can be raised against a claim of negligence. AACSB: Application of knowledge Classification: Application 75) ________ refers to a doctrine that says a plaintiff who is partially at fault for his or her own injury cannot recover against the negligent defendant. A) Contributory negligence B) Comparative negligence C) Comparative fault D) Assumption of risk Answer: A Diff: 1 LO: 5.4 Describe the defenses that can be raised against a claim of negligence. AACSB: Analytical thinking Classification: Concept 76) Under the ________ doctrine, damages are apportioned according to fault. A) contributory negligence B) comparative fault C) proximate cause D) assumption of risk Answer: B Diff: 1 LO: 5.4 Describe the defenses that can be raised against a claim of negligence. AACSB: Analytical thinking Classification: Concept

77) A person driving over the prescribed speed limit in a suburban area hits and injures a pedestrian jaywalking against a red "Do Not Walk" sign. The jury finds that the driver holds 80 percent of the responsibility for the accident and the jaywalker holds 20 percent of the responsibility. The pedestrian suffered $100,000 in injuries. If the state in which this case is heard adopts the doctrine of contributory negligence to interpret such cases, the pedestrian is entitled to recover ________. A) $20,000 from the driver B) $80,000 from the driver C) $100,000 from the driver D) no damages from the driver Answer: D Diff: 2 LO: 5.4 Describe the defenses that can be raised against a claim of negligence. AACSB: Application of knowledge Classification: Application 78) A defendant can be held liable for injuries caused by a superseding event. Answer: FALSE Diff: 1 LO: 5.4 Describe the defenses that can be raised against a claim of negligence. AACSB: Analytical thinking Classification: Concept 79) Assumption of risk is a defense a defendant can use against a plaintiff who knowingly and voluntarily participates in a risky activity that results in injury. Answer: TRUE Diff: 1 LO: 5.4 Describe the defenses that can be raised against a claim of negligence. AACSB: Analytical thinking Classification: Concept 80) Comparative negligence is a doctrine that says a plaintiff who is partially at fault for his or her own injury cannot recover against the negligent defendant. Answer: FALSE Diff: 1 LO: 5.4 Describe the defenses that can be raised against a claim of negligence. AACSB: Analytical thinking Classification: Concept

81) A young man visiting an amusement park spots a mechanical bull ride. He watches several customers ride the mechanical bull, and he decides it looks like fun. He pays a fee to ride the mechanical bull. The attendant at the ride gives the young man a piece of paper to sign prior to riding the mechanical bull. The paper says, "I understand that riding this mechanical bull is a dangerous activity which could result in serious injury." The young man signs the paper, hops up on the mechanical bull, is thrown onto the surrounding mat, and suffers a compound fracture to his leg. Is the amusement park liable in tort? Why or why not? Answer: The young man would not be successful in a lawsuit against the amusement park because the amusement park could successfully raise the defense of assumption of the risk. The young man knowingly and willingly took part in a dangerous activity. The amusement park would be relieved of liability for injuries resulting from the dangers inherent in mechanical bull riding. Diff: 1 LO: 5.4 Describe the defenses that can be raised against a claim of negligence. AACSB: Application of knowledge Classification: Application 82) According to the doctrine of ________, a participant in a covered activity will be held liable for any injuries caused by the activity, even if he or she was not negligent. A) strict liability B) assumption of risk C) comparative negligence D) contributive negligence Answer: A Diff: 1 LO: 5.5 Define and apply the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 83) A participant in an activity covered by strict liability laws will be held liable for any injuries caused by the activity, even if he or she was not negligent. Answer: TRUE Diff: 1 LO: 5.5 Define and apply the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept

84) Explain the doctrine of strict liability with examples. Answer: Strict liability is liability without fault. That is, a participant in a covered activity will be held liable for any injuries caused by the activity, even if he or she was not negligent. This doctrine holds that (1) there are certain activities that can place the public at risk of injury even if reasonable care is taken and (2) the public should have some means of compensation if such injury occurs. Strict liability is imposed for abnormally dangerous activities that cause injury or death. Activities such as crop dusting, blasting, fumigation, burning of fields, storage of explosives, and the keeping of animals and pets are usually considered activities to which strict liability applies. Diff: 2 LO: 5.5 Define and apply the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 6 Product and Strict Liability 1) ________ is a tort related to defective products in which the defendant has breached a duty of due care and caused harm to the plaintiff. A) Misrepresentation B) Negligence C) Nuisance D) Fraud Answer: B Diff: 1 LO: 6.1 Describe how a defendant is liable for negligently producing a product. AACSB: Analytical thinking Classification: Concept 2) Diane bought an action figure for David, her 3-year-old son, from Terrence's Toy Shop. The packaging did not mention that the toy contained small detachable parts. David accidentally swallowed and choked on one of the detachable parts and had to be taken to the hospital. On which of the following product liability charges can Diane sue Terrence's Toy Shop for damages? A) negligence B) misrepresentation C) fraud D) nuisance Answer: A Diff: 2 LO: 6.1 Describe how a defendant is liable for negligently producing a product. AACSB: Application of knowledge Classification: Application 3) Negligence requires a defendant to be at fault for causing the plaintiff's injuries. Answer: TRUE Diff: 1 LO: 6.1 Describe how a defendant is liable for negligently producing a product. AACSB: Analytical thinking Classification: Concept 4) In a negligence lawsuit, parties who were not actually negligent are also liable to the plaintiff. Answer: FALSE Diff: 1 LO: 6.1 Describe how a defendant is liable for negligently producing a product. AACSB: Analytical thinking Classification: Concept

5) An injured party may bring a negligence lawsuit against the distributors and retailers of the defective product. Answer: FALSE Diff: 2 LO: 6.1 Describe how a defendant is liable for negligently producing a product. AACSB: Analytical thinking Classification: Concept 6) Intentional misrepresentation occurs when a seller or lessor ________. A) fails to warn customers about the dangerous propensities of a product B) shows negligence in product design C) fails to assemble a product carefully D) conceals a defect in a product Answer: D Diff: 1 LO: 6.2 Describe how a defendant is liable for misrepresenting the quality of a product. AACSB: Analytical thinking Classification: Concept 7) Bartie's Inc. sells watercolors and pastels that are marketed as safe for use by children. However, several accounts of lead poisoning were reported in children who used the products. An investigation revealed that the company was knowingly manufacturing colors that contained a significant amount of a toxic heavy metal. Which of the following torts has Bartie's committed? A) battery B) disparagement C) misrepresentation D) professional malpractice Answer: C Diff: 2 LO: 6.2 Describe how a defendant is liable for misrepresenting the quality of a product. AACSB: Application of knowledge Classification: Application 8) Intentional misrepresentation occurs when a seller or lessor conceals a defect in a product. Answer: TRUE Diff: 1 LO: 6.2 Describe how a defendant is liable for misrepresenting the quality of a product. AACSB: Analytical thinking Classification: Concept

9) Because manufacturers, sellers and lessors often intentionally misrepresent the quality of their products, fraud is commonly the basis for a product liability lawsuit. Answer: FALSE Diff: 1 LO: 6.2 Describe how a defendant is liable for misrepresenting the quality of a product. AACSB: Analytical thinking Classification: Concept 10) Intentional misrepresentation occurs when a seller or lessor affirmatively misrepresents the quality of a product. Answer: TRUE Diff: 1 LO: 6.2 Describe how a defendant is liable for misrepresenting the quality of a product. AACSB: Analytical thinking Classification: Concept 11) Compare the tort doctrines of negligence and misrepresentation. Answer: Negligence requires the defendant to be at fault for causing the plaintiff's injuries. To be successful, the plaintiff must prove that the defendant breached a duty of due care to the plaintiff and thereby caused the plaintiff's injuries. In other words, the plaintiff must prove that the defendant was at fault for causing the plaintiff's injuries. Failure to exercise due care includes failing to assemble a product carefully, negligent product design, negligent inspection or testing of a product, negligent packaging, failure to warn of the dangerous propensities of a product, and such. It is important to note that in a negligence lawsuit only a party who was actually negligent is liable to the plaintiff. A buyer or lessee who is injured because a seller or lessor fraudulently misrepresented the quality of a product can sue the seller for the tort of intentional misrepresentation, or fraud. Recovery is limited to persons who were injured because they relied on the misrepresentation. Intentional misrepresentation occurs when a seller or lessor either (1) affirmatively misrepresents the quality of a product or (2) conceals a defect in it. Because most reputable manufacturers, sellers, and lessors do not intentionally misrepresent the quality of their products, fraud is not often used as the basis for product liability actions. Diff: 2 LO: 6.2 Describe how a defendant is liable for misrepresenting the quality of a product. AACSB: Analytical thinking Classification: Concept

12) ________ is a tort doctrine that makes manufacturers, distributors, wholesalers, retailers, and others in the chain of distribution of a defective product liable for the damages caused by the defect, irrespective of fault. A) Absolute liability B) Contingent liability C) Superior responsibility D) Strict liability Answer: D Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 13) Henry is undergoing a surgery at Sacred Heart Hospital to insert an artificial pacemaker that will keep his heartbeat regular. The pacemaker is manufactured by Benford Inc. In this case, Dr. DeBenedetto, the surgeon, is considered as the dominant element. If the pacemaker fails to function as expected after the surgery, who would be strictly liable for its failure? A) Benford Inc. B) Dr. DeBenedetto C) Henry D) Sacred Heart Hospital Answer: A Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Application of knowledge Classification: Application 14) Which of the following statements is true about strict liability? A) It applies only to manufacturers of a defective product. B) It is liability without fault. C) It requires privity of contract between the plaintiff and the defendant. D) It covers casual sales and transactions. Answer: B Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept

15) Allenby Spares Inc. is a shop that sells spare automotive parts from various manufacturers. A customer buys a faulty brake manufactured by TurboDiezel Inc. from Allenby Spares and is involved in an accident caused by the faulty brake in his vehicle. Which of the following is true of this situation? A) Allenby Spares cannot be held strictly liable since the brake was manufactured by TurboDiezel. B) TurboDiezel cannot be held strictly liable as the company is not the seller in this case. C) Neither Allenby nor TurboDiezel can be held strictly liable for the faulty brake. D) Allenby Spares can be held strictly liable for the faulty brake as it is part of the distribution chain. Answer: D Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Application of knowledge Classification: Application 16) Martin wins a car in a lottery. As he already owns a car, he decides to sell the new one to his friend Ted. While driving the car, Ted gets into a head-on collision with another car. Due to a defective Supplemental Restraint System (SRS) in the vehicle, the airbag does not deploy and Ted is seriously injured. Which of the following statements is true of this situation? A) Martin can be held strictly liable because he sold the car to Ted. B) The car manufacturer cannot be held strictly liable as Ted had not bought the car from it. C) Martin cannot be held strictly liable as the sale of the car counts as a casual transaction. D) The driver of the other car can be held strictly liable due to his or her involvement in the accident. Answer: C Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Application of knowledge Classification: Application 17) Bertha, a surgeon, performed a kidney transplant on one of her patients. The surgery was not successful and the patient did not survive. Which of the following statements is true in this case? A) Bertha cannot be held strictly liable as she is providing a service. B) Bertha can be held strictly liable for the death of her patient. C) Bertha and the medical staff assisting in the surgery are strictly liable for the death. D) The donor of the kidney can be held strictly liable for the death of the patient. Answer: A Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Application of knowledge Classification: Application

18) ________ refers to all manufacturers, distributors, wholesalers, retailers, lessors, and subcomponent manufacturers involved in a transaction. A) Demand chain B) Chain of command C) Chain of distribution D) Value chain Answer: C Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 19) According to the doctrine of strict liability, which of the following parties is strictly liable for injuries caused by a defective product? A) only the manufacturers of the products B) only the parties directly involved in the sale of the product to the customer C) all parties providing services related to the product D) all parties in the chain of distribution Answer: D Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 20) Betty buys a lawnmower manufactured by FlatPlanes Inc. from Harvey's department store. A defect in the design of the blades causes the lawnmower to kick back on operation, injuring Betty. Which of the following remedial actions is Betty entitled to? A) Betty can sue Harvey's department store for negligence. B) Betty can sue either Harvey's department store or FlatPlanes for strict liability. C) Betty can only sue FlatPlanes for strict liability as it manufactured the defective lawnmower. D) Betty can only sue Harvey's department store for strict liability as it sold her the defective lawnmower. Answer: B Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Application of knowledge Classification: Application

21) Which of the following statements is true about the strict liability doctrine? A) Privity of contract between the injured party and defendant is mandatory. B) Injured bystanders cannot recover damages under the strict liability doctrine. C) Parties in the chain of distribution are strictly liable only to the customer who buys the product. D) Injured bystanders are entitled to the same protection as the consumer or user. Answer: D Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 22) John was driving his friend, Mary, back to her home in his new car. On the way to Mary's home, the car's brakes malfunctioned and they got into an accident. Which of the following is true in this situation? A) Mary can recover from a strict liability lawsuit against the manufacturer of John's car. B) Mary can file a strict liability lawsuit against John. C) Mary can file a negligence lawsuit against the dealership that sold John his car. D) John can file a negligence lawsuit against the dealership from which he bought the car. Answer: A Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 23) ________ refers to monetary damages that are awarded to punish a defendant who either intentionally or recklessly injured the plaintiff. A) Reliance damages B) Consequential damages C) Punitive damages D) Nominal damages Answer: C Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 24) The liability of manufacturers, sellers, lessors, and others for injuries caused by defective products is commonly referred to as product liability. Answer: TRUE Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept

25) Under the doctrine of strict liability, a plaintiff cannot recover punitive damages for reckless conduct of the defendant. Answer: FALSE Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 26) Strict liability applies to services but not products. Answer: FALSE Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 27) Under the doctrine of strict liability, bystanders who are injured by a defective product are entitled to the same protection as the consumers or users. Answer: TRUE Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 28) The doctrine of strict liability holds the manufacturers of a defective product solely liable for injuries caused by that product. Answer: FALSE Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 29) A defendant who has not been negligent but is made to pay a strict liability judgment can bring a separate action against the negligent party in the chain of distribution to recover his losses. Answer: TRUE Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 30) Privity of contract between the plaintiff and the defendant is not required in a strict liability suit. Answer: TRUE Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 8 Copyright © 2019 Pearson Education, Inc.

31) A seller of a defective product cannot be held strictly liable if it can be proved that he or she took all possible care in the preparation and sale of the product. Answer: FALSE Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 32) Casual sales and transactions are not covered under the strict liability doctrine. Answer: TRUE Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 33) In hybrid transactions that involve both services and products, the dominant element of the transaction dictates whether strict liability applies. Answer: TRUE Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 34) The doctrine of strict liability applies to sellers and lessors of products who are engaged in the business of selling and leasing products. Answer: TRUE Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 35) To recover for strict liability, the injured party need not show that a product was defective. Answer: FALSE Diff: 1 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept

36) Under a theory of strict liability, who in the chain of distribution may be held strictly liable for injuries caused by a defective product? What public policy considerations are behind the inclusion of all of these parties in the list of possible defendants? Answer: All parties in the chain of distribution of a defective product are strictly liable for injuries caused by that product. Manufacturers, distributors, wholesalers, retailers, lessors, and subcomponent manufacturers can all be assessed liability. There are several public policy considerations behind the breadth of the list. First, plaintiff will have more parties from whom to recover damages for injuries. This is very important when the negligent party has gone out of business or has no money to pay a judgment. Second, there is a presumption that sellers and lessors insure against the risk of a strict liability lawsuit and spread the cost to their consumers by raising product prices. Finally, threat of strict liability may result in all parties in the chain of distribution being more careful about products distributed. Diff: 2 LO: 6.3 Define the doctrine of strict liability. AACSB: Analytical thinking Classification: Concept 37) Which of the following is NOT a common type of product defect upon which a strict liability lawsuit may be based? A) defect in manufacture B) defect in delivery C) failure to warn D) defect in packaging Answer: B Diff: 1 LO: 6.4 List the types of defects upon which a strict liability lawsuit may be based. AACSB: Analytical thinking Classification: Concept 38) One common defect upon which a strict liability lawsuit may be based is failure to warn. Answer: TRUE Diff: 1 LO: 6.4 List the types of defects upon which a strict liability lawsuit may be based. AACSB: Analytical thinking Classification: Concept 39) Plaintiffs can allege multiple product defects in one lawsuit. Answer: TRUE Diff: 1 LO: 6.4 List the types of defects upon which a strict liability lawsuit may be based. AACSB: Analytical thinking Classification: Concept

40) What are product defects? What are the most common defects that will allow plaintiffs to recover for strict liability? Answer: Product defects occur when there is something wrong, inadequate, or improper in the manufacture, design, packaging, warning, or instructions about a product. The most common types of defects are defect in manufacture, defect in design, failure to warn, defect in packaging, and failure to provide adequate instructions. Diff: 2 LO: 6.4 List the types of defects upon which a strict liability lawsuit may be based. AACSB: Analytical thinking Classification: Concept 41) A defect in manufacture occurs when a manufacturer fails to ________. A) design a product that is safe for users B) adequately check the quality of a product C) warn customers about the possible dangers of the product D) provide proper packaging for the products Answer: B Diff: 1 LO: 6.5 Describe defects in manufacture. AACSB: Analytical thinking Classification: Concept 42) Dorothy purchases a chair made by Woode Designs Inc. While making the chair, the legs were not fixed properly to the base. When Dorothy sat on the chair, it broke and she was injured. In a strict liability lawsuit, which of the following can Dorothy cite as a defect in the chair? A) failure to provide adequate instructions B) defect in design C) failure to warn D) defect in manufacture Answer: D Diff: 2 LO: 6.5 Describe defects in manufacture. AACSB: Application of knowledge Classification: Application 43) A defect in manufacture occurs when the manufacturer fails to warn customers about the dangerous propensities of its products. Answer: FALSE Diff: 1 LO: 6.5 Describe defects in manufacture. AACSB: Analytical thinking Classification: Concept

44) Failure to properly assemble a product constitutes a defect in design by the manufacturer. Answer: FALSE Diff: 2 LO: 6.5 Describe defects in manufacture. AACSB: Analytical thinking Classification: Concept 45) Clayton Inc. is a toy manufacturer that has released a new line of action figures. The toys are meant for children between the ages of one and two. However, they come with tiny detachable weapons that can be accidentally swallowed by children of that age. Which of the following defects do the action figures have that will make them strictly liable for any injuries caused? A) defect in design B) failure to provide adequate instructions C) failure to avoid supervening event D) defect in packaging Answer: A Diff: 2 LO: 6.6 Describe defects in design. AACSB: Application of knowledge Classification: Application 46) Which of the following statements is true when there is a defect in design of a product? A) There was a failure to provide adequate instruction on use of the product. B) There was a failure to warn customers about the possible dangers of using the product. C) A single item is defectively designed, and it has the potential to cause injury. D) All the products are defectively designed and have the potential to cause injury. Answer: D Diff: 2 LO: 6.6 Describe defects in design. AACSB: Analytical thinking Classification: Concept 47) ________ is a doctrine that says automobile manufacturers are under a duty to design automobiles by taking into account the possibility of harm from a person's body striking something inside the automobile in the case of a car crash. A) Crash avoidance B) Crashworthiness C) Risk compensation D) Conspicuity Answer: B Diff: 1 LO: 6.6 Describe defects in design. AACSB: Analytical thinking Classification: Concept

48) A toy manufacturer sells G.I. Joe figurines containing detachable limbs and weapons that could be swallowed by small children. It can be subject to a strict liability action owing to a defect in design. Answer: TRUE Diff: 2 LO: 6.6 Describe defects in design. AACSB: Application of knowledge Classification: Application 49) A risk-utility analysis requires showing that a product is more dangerous than the ordinary consumer would expect. Answer: FALSE Diff: 1 LO: 6.6 Describe defects in design. AACSB: Analytical thinking Classification: Concept 50) Courts can apply a consumer expectation test to evaluate the adequacy of a product's design. Answer: FALSE Diff: 1 LO: 6.6 Describe defects in design. AACSB: Analytical thinking Classification: Concept 51) Describe how courts can evaluate the adequacy of a product's design. Answer: In evaluating the adequacy of a product's design, a court may apply a risk-utility analysis. This requires the court to consider the gravity of the danger posed by the design, the likelihood that injury will occur, the availability and cost of producing a safer alternative design, the social utility of the product, and other factors. Some courts apply a consumer expectation test, which requires a showing that the product is more dangerous than the ordinary consumer would expect. Diff: 2 LO: 6.6 Describe defects in design. AACSB: Analytical thinking Classification: Concept 52) What is the purpose of the crashworthiness doctrine? Answer: Sometimes, when an automobile is involved in an accident, the driver or passengers are not injured by the blow itself. Instead, they are injured when their bodies strike something inside their own automobile (e.g., the dashboard, the steering wheel). This is commonly referred to as the "second collision." The courts have held that automobile manufacturers are under a duty to design automobiles to take into account the possibility of this second collision. This is called the crashworthiness doctrine. Diff: 2 LO: 6.6 Describe defects in design. AACSB: Analytical thinking Classification: Concept 13 Copyright © 2019 Pearson Education, Inc.

53) ________ refers to a defect that occurs when a manufacturer does not place information about the dangers of using a product on its packaging, causing injury if the dangers are unknown. A) Failure to warn B) Defect in manufacture C) Failure to provide adequate instructions D) Defect in packaging Answer: A Diff: 1 LO: 6.7 Describe defects of failure to warn. AACSB: Analytical thinking Classification: Concept 54) Kicker's Inc. has produced a new kind of candy bar, but it fails to mention on the packaging that the bar contains gluten and nuts. Consequently, many consumers who eat the bars suffer from severe allergic reactions. Which of the following can the injured customers cite as a defect in a strict liability lawsuit against Kicker's? A) defect in design B) defect in packaging C) failure to warn D) failure to provide adequate instructions Answer: C Diff: 2 LO: 6.7 Describe defects of failure to warn. AACSB: Application of knowledge Classification: Application 55) Manufacturers and sellers have a duty to warn consumers about risks and side effects of products that could pose danger. Answer: TRUE Diff: 1 LO: 6.7 Describe defects of failure to warn. AACSB: Analytical thinking Classification: Concept 56) When the containers of a product are not tamperproof, it is termed as a ________. A) defect in manufacture B) defect in design C) defect in packaging D) failure to warn Answer: C Diff: 1 LO: 6.8 Describe defects in packaging. AACSB: Analytical thinking Classification: Concept

57) Spring Stream sells bottled water that it claims contains vital minerals and salts not found in rival brands. The company also claims that using tamperproof seals on the bottles would minimize the health benefits of the water. As a result, some merchants refill the used water bottles with contaminated water and resell them. People who drink the water suffer from various water-borne diseases. Which of the following forms the grounds on which affected customers can bring a strict liability lawsuit against Spring Stream? A) There was a defect in the manufacture of the bottled water. B) There was a defect in the packaging of the bottled water. C) The company failed to provide warnings about the dangers of contaminated water. D) There was a defect in the design of the water bottles. Answer: B Diff: 2 LO: 6.8 Describe defects in packaging. AACSB: Application of knowledge Classification: Application 58) A tamperproof seal on a product is considered as a defect in packaging. Answer: FALSE Diff: 1 LO: 6.8 Describe defects in packaging. AACSB: Analytical thinking Classification: Concept 59) When a drug manufacturer places prescription drugs in containers that can be easily opened by children, the manufacturer can be subjected to strict liability action due to defect in packaging. Answer: TRUE Diff: 2 LO: 6.8 Describe defects in packaging. AACSB: Analytical thinking Classification: Concept

60) Michael wanted to build a small princess castle for his daughter in the backyard. He decided to turn it into a do-it-yourself project, so he bought the disassembled parts of the castle from Big Ben Forts Inc. However, after the purchase, he found that the manual provided by the company gave vague directions that were hard to understand. He built the castle by following the manual, but after a few days the castle collapsed and injured his daughter who was playing inside. Which of the following actions can Michael take in this situation? A) He can file a negligence lawsuit against the store from which he bought the castle. B) He can file a strict liability lawsuit against Big Ben Forts for failure to warn about the possible dangers of the product. C) He can file a strict liability lawsuit against Big Ben Forts for failure to provide adequate instructions on assembling the product. D) He can sue Big Ben Forts for defects in the packaging of their products. Answer: C Diff: 2 LO: 6.9 Describe other defects upon which a strict liability action may be brought. AACSB: Application of knowledge Classification: Application 61) ________ is a defect that occurs when a manufacturer does not provide detailed directions for safe assembly and use of a product. A) Failure to warn B) Failure to provide adequate instructions C) Defect in manufacture D) Defect in design Answer: B Diff: 1 LO: 6.9 Describe other defects upon which a strict liability action may be brought. AACSB: Analytical thinking Classification: Concept 62) ________ refers to an alteration or a modification of a product by a party in the chain of distribution that absolves all prior sellers from strict liability. A) Generally known danger B) Assumption of the risk C) Abnormal misuse D) Supervening event Answer: D Diff: 1 LO: 6.9 Describe other defects upon which a strict liability action may be brought. AACSB: Analytical thinking Classification: Concept

63) Manufacturers and others in the chain of distribution are not strictly liable for failure to provide adequate instructions on assembly and use of a product. Answer: FALSE Diff: 1 LO: 6.9 Describe other defects upon which a strict liability action may be brought. AACSB: Analytical thinking Classification: Concept 64) Inadequate testing of a product can support a product liability lawsuit based on strict liability. Answer: TRUE Diff: 1 LO: 6.9 Describe other defects upon which a strict liability action may be brought. AACSB: Analytical thinking Classification: Concept 65) Clive buys a rifle from Gun Manufacturing Company and goes hunting. During the hunting expedition, he accidentally shoots himself in the foot. Which of the following would be true of this case? A) Clive can bring a strict liability lawsuit against the company for its failure to warn him about the possible dangers of firearms. B) Clive can bring a strict liability lawsuit against the company for failure to provide adequate instructions on the use of the rifle. C) Clive cannot take any action because the handling of firearms entails generally known dangers. D) Clive cannot take any action against the company because he had abnormally misused the product. Answer: C Diff: 2 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Application of knowledge Classification: Application 66) Companies that manufacture products according to government specifications are not liable if such products cause injury because ________. A) the companies have government contractor defense B) the use of these products entails generally known dangers C) these products are abnormally misused D) people assume the risk when using these products Answer: A Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept

67) A man tries to swallow a pen as part of a circus act. The pen gets lodged in his throat, and he is taken to a hospital for immediate medical attention. The man sues the company that manufactured the pen. Which of the following would be the best defense for the pen manufacturer in this lawsuit? A) It can claim that the product carried generally known dangers. B) It can claim that the product was abnormally misused. C) It can claim that the injury was caused by a supervening event. D) It can claim that the plaintiff had assumed the risk when buying the product. Answer: B Diff: 2 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Application of knowledge Classification: Application 68) Bill buys a truck and replaces the regular tires with large tires to turn the vehicle into a monster truck. When he tries to drive the truck, the oversized tires cause the truck to roll over and crash. Bill then files a strict liability lawsuit against the truck manufacturer to recover for his injuries. Which of the following is the best defense for truck manufacturer in this lawsuit? A) government contractor defense B) assumption of the risk C) generally known danger D) supervening event Answer: D Diff: 2 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Application of knowledge Classification: Application 69) To assert ________ as a defense, the defendant must prove that the plaintiff knew and appreciated the risk of the product. A) supervening event B) assumption of the risk C) generally known dangers D) abnormal misuse Answer: B Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept

70) A pharmaceutical company has disclosed a list of side effects of its new prescription drug. A consumer who takes the drug in the right doses suffers from one of these side effects and sues the company for product liability. Which of the following would be the pharmaceutical company's defense in this lawsuit? A) The consumer was injured due to a supervening event. B) The consumer had assumed the disclosed risks when purchasing the drug. C) The side effects suffered by the consumer were generally known dangers of the drug. D) The consumer abnormally misused the drug. Answer: B Diff: 2 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Application of knowledge Classification: Application 71) ________ refers to a statute that requires an injured person to bring an action within a certain number of years from the time that he or she was injured by a defective product. A) Statute of limitations B) Statute of frauds C) Statute of repose D) Statute of general application Answer: A Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept 72) ________ refers to a statute that limits the seller's liability to a certain number of years from the date when the product was first sold. A) Statute of limitations B) Statute of frauds C) Statute of general application D) Statute of repose Answer: D Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept

73) The term ________ refers to a defense that says a person who is injured by a defective product but has been negligent and is partially responsible for his or her own injuries cannot recover from the defendant. A) contributory negligence B) negligence per se C) assumption of risk D) comparative negligence Answer: A Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept 74) The term ________ refers to the doctrine that applies to strict liability actions that says a plaintiff who is contributorily negligent for his or her injuries is responsible for a proportional share of the damages. A) negligence per se B) assumption of risk C) comparative fault D) contributory negligence Answer: C Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept 75) Ruggers Corp. is a maker of a range of highly popular cruise motorcycles. Tim buys a Ruggers motorcycle from a dealership and suffers an accident. While recuperating from his injuries, he learns that Ruggers has recalled all motorcycles it had manufactured and sold in the previous two years, owing to a previously unknown defect in their braking systems. Tim brings a product liability lawsuit against the motorcycle manufacturer and claims $50,000 in damages. The defect in the motorcycle is found to be half responsible for the accident, while Tim's own negligence of traffic rules contributed to the rest. Under the doctrine of contributory negligence, what would be the ruling of the court hearing this case? A) Tim can recover $25,000 worth of damages from Ruggers and the rest from the dealership from which he purchased the motorcycle. B) Tim can recover $50,000 worth of damages from the motorcycle manufacturer. C) Tim can recover $50,000 worth of damages, plus any punitive damages that may be awarded by the jury. D) Tim cannot recover any damages from the motorcycle manufacturer. Answer: D Diff: 2 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Application of knowledge Classification: Application

76) The plaintiff in a product liability lawsuit has suffered $100,000 worth of damages from an automobile accident. A defect in manufacture of the plaintiff's vehicle is found to be 60 percent responsible for the accident, while the plaintiff's own negligence is 40 percent responsible. Under the doctrine of comparative negligence, how much would the defendant–the manufacturer of the vehicle–have to pay the plaintiff in damages? A) $60,000 B) $40,000 C) $100,000 D) The defendant would not have to pay any amount in damages. Answer: A Diff: 2 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Application of knowledge Classification: Application 77) Manufacturers and sellers are strictly liable for failing to warn customers of the generally known dangers of a product. Answer: FALSE Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept 78) The statute of limitations begins to run when a product is first sold. Answer: FALSE Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept 79) The statute of repose begins to run when the plaintiff suffers injury. Answer: FALSE Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept 80) Under the doctrine of comparative negligence, if the defendant is 50 percent responsible for injuries worth $10,000 suffered by the plaintiff, then the defendant must pay $5,000 in damages. Answer: TRUE Diff: 2 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Application of knowledge Classification: Application

81) Under the defense of contributory negligence, if Mary is partially responsible for her injuries, then she can recover partial damages from the defendant. Answer: FALSE Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept 82) A manufacturer of matches is not strictly liable if an arsonist uses its matches to burn down a building. Answer: TRUE Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Application of knowledge Classification: Application 83) If the statute of limitations for strict liability for a particular state is two years and a plaintiff brings a product liability suit to court three years after the injury, the defendant is relieved of liability. Answer: TRUE Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Application of knowledge Classification: Application 84) If the statute of repose for strict liability is five years and an injured party files a suit seven years after the date of purchase of a defective product, the manufacturer or seller of that defective product is relieved of liability. Answer: TRUE Diff: 2 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept 85) Any alteration or modification of a product after it leaves the seller's possession can make the seller strictly liable for injuries caused by the product. Answer: FALSE Diff: 1 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept

86) Describe the functions of the statute of limitations and the statute of repose. Answer: Most states have statutes of limitations that require an injured person to bring an action within a certain number of years from the time that he or she was injured by a defective product. If the plaintiff does not bring the lawsuit in the allotted time, he loses the right to sue. Some states have enacted statutes of repose, which limit a manufacturer's and seller's liability to a certain number of years from the date when the product was first sold. The period of repose varies from state to state. Diff: 2 LO: 6.10 List and describe the defenses that may be raised against a strict liability claim. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 7 Intellectual Property and Cyber Piracy 1) Intellectual property falls into a category of property known as ________. A) moveable property B) real property C) tangible property D) intangible property Answer: D Diff: 1 LO: 7.1 Define intellectual property and list the types of intellectual property. AACSB: Analytical thinking Classification: Concept 2) Which of the following is considered to be a part of intellectual property? A) buildings B) vehicles C) business contracts D) patents Answer: D Diff: 1 LO: 7.1 Define intellectual property and list the types of intellectual property. AACSB: Analytical thinking Classification: Concept 3) Which of the following is NOT a major category of intellectual property protection? A) trade-names B) copyrights C) trademarks D) patents Answer: A Diff: 1 LO: 7.1 Define intellectual property and list the types of intellectual property. AACSB: Analytical thinking Classification: Concept 4) Intellectual property falls into a category of property known as intangible rights. Answer: TRUE Diff: 1 LO: 7.1 Define intellectual property and list the types of intellectual property. AACSB: Analytical thinking Classification: Concept

5) Intellectual property is a term that describes property that is developed through an intellectual and creative process. Answer: TRUE Diff: 1 LO: 7.1 Define intellectual property and list the types of intellectual property. AACSB: Analytical thinking Classification: Concept 6) Tangible property is generally much easier to steal than intellectual property rights. Answer: FALSE Diff: 1 LO: 7.1 Define intellectual property and list the types of intellectual property. AACSB: Analytical thinking Classification: Concept 7) Is intellectual property easier or more difficult to steal than other forms of property? Why? Answer: Intellectual property is generally easier to steal because of its intangible nature. In contrast, real estate is virtually impossible to steal. Tangible property like equipment, furniture, and other personal property can be physically protected to prevent theft. Intellectual property is more vulnerable to theft. Think of illegally downloaded movies, music, and video games. Diff: 1 LO: 7.1 Define intellectual property and list the types of intellectual property. AACSB: Analytical thinking Classification: Concept 8) A ________ is a product formula, pattern, design, compilation of data, customer list, or other covert business information. A) copyright B) patent C) trade secret D) trademark Answer: C Diff: 1 LO: 7.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept

9) A closely guarded formula for a recipe protected by a soft drink manufacturer would be considered as an example of a ________. A) copyright B) patent C) trademark D) trade secret Answer: D Diff: 1 LO: 7.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 10) If a competitor reverse engineers a trade secret, then the competitor is ________. A) allowed to use the trade secret but not the trademarked name B) rightfully allowed co-ownership to the trade secret and its original trademark C) not allowed to gain commercially from the trade secret D) obliged to inform the original owner of the trade secret Answer: A Diff: 2 LO: 7.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 11) A competitor can lawfully use a rival's trade secret if the competitor got the trade secret by means of ________. A) cross-licensing B) reverse engineering C) patenting D) copyrighting Answer: B Diff: 1 LO: 7.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 12) Apart from recovering damages, and recovering profits made by the offender, successful plaintiffs in a misappropriation of a trade secret case can also ________. A) obtain the offender's trademarks or brand name as payoff B) ask for transfer of any of the offender's patents to the plaintiff C) ask to acquire the offender's trade secrets as payoff D) obtain an injunction prohibiting the offender from divulging the trade secret Answer: D Diff: 2 LO: 7.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

13) What federal statute was enacted by the Congress to protect trade secrets? A) Economic Espionage Act B) Sarbanes-Oxley Act C) Lanham Act D) Telecommunication Act Answer: A Diff: 1 LO: 7.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 14) According to the Economic Espionage Act, ________. A) persons who have reverse engineered a trade secret can use that trade secret, and the related trademark B) the rights to a trade secret will have to be renewed after a specified period of time C) trade secrets can be shared for a limited amount of time D) it is a federal crime to steal another's trade secret Answer: D Diff: 1 LO: 7.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 15) A competitor can lawfully discover a trade secret by performing reverse engineering. Answer: TRUE Diff: 1 LO: 7.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 16) The world famous Coca-Cola recipe is a closely guarded trade secret but not a patented recipe. Answer: TRUE Diff: 2 LO: 7.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept

17) Give an account of the Economic Espionage Act and its importance in combating cyber piracy. Answer: Congress enacted the federal Economic Espionage Act (EEA), which makes it a federal crime to steal another's trade secrets. Under the EEA, it is a federal crime for any person to convert a trade secret to his or her benefit or for the benefit of others, knowing or intending that the act would cause injury to the owner of the trade secret. One of the major reasons for the passage of the EEA was to address the ease of stealing trade secrets through computer espionage and using the Internet. Confidential information can be downloaded onto a CD or Flash drive, placed in a pocket, and taken from the legal owner. Computer hackers can crack into a company's computers and steal customer lists, databases, formulas, and other trade secrets. The EEA is a very important weapon in addressing computer and Internet espionage and penalizing those who commit it. The EEA provides for severe criminal penalties. The act imposes prison terms on individuals of up to fifteen years per criminal violation. Diff: 2 LO: 7.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 18) A ________ is a grant by the federal government upon the inventor of an invention for the exclusive right to use, sell, or license the invention for a limited amount of time. A) copyright B) patent C) trade secret D) trademark Answer: B Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 19) How do patent laws help an inventor? A) They let the inventor keep his patents indefinitely. B) They help the inventor meet potential buyers for his patented inventions. C) They provide protection for patented inventions from infringement. D) They help the inventor guard his patented invention from the public. Answer: C Diff: 2 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept

20) In the context of patents, which of the following is a key function of the U.S. Court of Appeals for the Federal Circuit? A) It hears appeals rejected from state courts regarding patent issues. B) It accepts applications for new patents. C) It helps to enact new patent laws. D) It helps to promote uniformity in patent laws. Answer: D Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 21) What is a patent number? A) a number assigned to a patent during application B) a number assigned to a patent when the patent is pending C) a number assigned to a patent once the patent is granted D) a number assigned to a patent when it comes under investigation Answer: C Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 22) A ________ is a patent that protects the functionality of a patent. A) method patent B) design patent C) utility patent D) process patent Answer: C Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 23) Which of the following statements is true of patenting a scientific principle? A) A Patent for a scientific principle has to be applied directly at the U.S. Court of Appeals for the Federal Circuit. B) A scientific principle cannot be patented. C) Patent for a scientific principle has to be applied at the U.S. Patent and Trademark Office. D) A scientific principle can only be patented once a universal consensus has been reached on its validity. Answer: B Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

24) According to the public use doctrine for patents, ________. A) a patent will not be granted if the invention was already in public use for more than a year prior to the filing of the patent application B) an invention cannot be used in the public domain prior to it being granted a patent C) the inventor has to test his invention in the public domain, to measure its validity, before being granted a patent D) the invention will come into the public domain once its term period has expired Answer: A Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 25) When does a patent enter the public domain? A) when the patent has been challenged in court and found to be an infringement B) when the patent term period has expired C) when the government deems that the practical purpose of the invention is universally applicable and cannot be controlled by one individual or group of people D) when the invention is either obvious or not a novel one Answer: B Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 26) Which of the following statements is true of the patent period in the United States? A) It follows the first-to-invent rule. B) The patent period for an invention is 17 years. C) The patent term begins to run from the date the patent application is filed. D) The patent term begins to run from the date the patent is issued. Answer: C Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 27) Which of the following types of patents is valid only for a period of 14 years? A) utility patent B) process patent C) business method patent D) design patent Answer: D Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

28) A patent can only be claimed for a limited amount of time. Answer: TRUE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 29) A patent number is given to a patent that is still under consideration. Answer: FALSE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 30) Abstractions and scientific principles cannot be patented unless they are part of the tangible environment. Answer: TRUE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 31) Improvements to existing machines, processes, or compositions of matter cannot be patented. Answer: FALSE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 32) If an invention is obvious, then it does not qualify for a patent. Answer: TRUE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 33) Utility patents for inventions are valid for the whole of the inventor's life and 70 years after that. Answer: FALSE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept

34) The patent term begins to run from the date the patent is issued. Answer: FALSE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 35) In the United States, the first party to file a patent on an invention receives the patent even though some other party was the first to invent the invention. Answer: TRUE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 36) A patent in the public domain can be purchased by a non-patent holder. Answer: FALSE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 37) Non-patented inventions that have been in public use for over a year can still be patented. Answer: FALSE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 38) Utility patents for inventions are valid for 20 years. Answer: TRUE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 39) A provisional application for a patent gives an inventor three months to prepare a final patent application. Answer: TRUE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept

40) A utility patent is a patent that may be obtained for the ornamental nonfunctional design of an item. Answer: FALSE Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 41) What is a provisional patent application? Answer: A provisional right gives an inventor 3 months to prepare and file a final and complete patent application. Diff: 1 LO: 7.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 42) ________ is a legal right that gives the author of qualifying subject matter, and who meets other requirements established by law, the exclusive right to publish, produce, sell, license, and distribute the work. A) Trade secret B) Trademark C) Copyright D) Patent Answer: C Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 43) Which of the following is suitable for copyrighting? A) buildings B) musical compositions C) business methods D) product logos Answer: B Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept

44) Which of the following is a provision made under the Berne Convention? A) The treaty makes it mandatory to place the copyright symbol on all copyrighted works. B) The treaty sets the rules for how copyright can be dealt with when sharing copyrighted work between governments. C) The treaty eliminates the need to place the copyright symbol or the word "copyright" on a copyrighted work. D) The treaty stipulates the time period a copyright can be retained by the copyright holder before it enters the public domain. Answer: C Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 45) For how long is the copyright protection provided to individuals under the Copyright Term Extension Act of 1998? A) Individuals are granted 120 years copyright protection from the year of first publication of the work. B) Individuals are granted 95 years copyright protection from the year of creation of the work. C) Individuals are granted copyright protection for their lifetime plus 70 years. D) Individuals are granted 20 years of copyright protection, after which it has to be renewed for a fee. Answer: C Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 46) What happens to a copyrighted work after it has finished its copyright period? A) The work will enter the public domain to be used for free. B) A non-copyright holder can purchase the rights to the work. C) The copyright can be renewed for a fee by the original creator of the work. D) The government takes over ownership of the work, and provides it to the public domain for a fee. Answer: A Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept

47) Which of the following would be considered a copyright infringement? A) a brief quotation in a news report B) use of copyrighted material in a spoof or satire C) using several clips of a documentary movie D) reproduction by a teacher or student of a small part of the work to illustrate a lesson Answer: C Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 48) Which of the following accurately describes the fair use doctrine with reference to copyrighted material? A) It stipulates the time period for which a copyright holder can retain his copyright. B) It permits certain limited use of a copyright by someone other than the copyright holder without the permission of the copyright holder. C) It permits use of copyright material by someone other than the copyright holder at a fixed fee. D) It guides the U.S. Copyright Office in determining what works require copyrights based on the works' validity. Answer: B Diff: 2 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 49) In terms of copyright law, the use of copyrighted material in a satire or parody would be an example of ________. A) copyright infringement B) application of fair use doctrine C) piracy D) copyright sharing Answer: B Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept

50) Uploading copyrighted material to an unauthorized web site by a non-copyright holder would count as an act of copyright infringement under the ________. A) Digital Millennium Copyright Act B) Berne Convention Act C) Sonny Bono Copyright Term Extension Act D) No Electronic Theft Act Answer: D Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 51) How is a copyright different from a patent? A) Copyrights are applied for inventions, while a patent is applied for tangible writings. B) Patents have a limited term period, while copyrights carry lifelong terms. C) Patents fall under the federal law, while copyrights fall under state law. D) Copyrights should be novel and useful, while patents need not be so. Answer: B Diff: 2 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 52) Copyrights are addressed separately by different state laws. Answer: FALSE Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 53) Copyright for a work can only be claimed once the U.S. Copyright Office issues it. Answer: FALSE Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept

54) After the copyright period runs out, the work enters the public domain. Answer: TRUE Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 55) Copyrights owned by businesses are protected for 95 years from the year of first publication. Answer: TRUE Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 56) The fair use doctrine for copyrights allows certain limited unauthorized use of copyrighted materials. Answer: TRUE Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 57) The fair use doctrine for copyrights does not allow reproduction of a work in a legislative or judicial proceeding. Answer: FALSE Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 58) The No Electronic Theft Act (NET Act) can be invoked for copyright infringements that do not involve financial gain. Answer: TRUE Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept

59) Explain the process of copyright registration. Answer: To be protected under federal copyright law, a work must be the original work of the author. Published and unpublished works are registered with the U.S. Copyright Office in Washington, DC. Registration of a copyright is permissive and voluntary and can be effectuated at any time during the term of the copyright. Copyright registration creates a public record of the copyrighted work. A copyright registration certificate is issued to the copyright holder. Registration permits a holder to obtain statutory damages for copyright infringement, which may be greater than actual damages, and attorney's fees. Diff: 1 LO: 7.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 60) ________ is any trade name, symbol, word, logo, design, or device used to identify and distinguish goods of a manufacturer or seller or services of a provider from those of other manufacturers, sellers, or providers. A) Trade secret B) Trademark C) Patent D) Copyright Answer: B Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 61) Which of the following intellectual properties is protected by the Lanham Act? A) trademark B) trade secret C) copyright D) patent Answer: A Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept

62) John Crichton had applied for a trademark logo at the U.S. Patent and Trademark Office for his new startup company, stating that he would use the logo in commerce within the next six months. But even after six months, he had not yet used the logo. Which of the following recourses does trademark law allow John Crichton so that he can retain his logo until he uses it in commerce? A) Apply for a 6-month extension for the logo. B) Change the logo slightly, and reapply for the newly altered logo. C) Pay a fine so that the trademark gets registered immediately. D) Cancel the current application and apply for the same logo again. Answer: A Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Application of knowledge Classification: Application 63) A company logo would be an example of a ________. A) trade secret B) patent C) trademark D) copyright Answer: C Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 64) A ________ mark is a mark that confirms that a seller of a product or service has met certain geographical location requirements, quality standards, material standards, or mode of manufacturing standards established by the owner of the mark. A) guarantee B) certification C) service D) collective membership Answer: B Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept

65) A mark that indicates that a person has met the standards set by an organization and is a member of that organization is known as a(n) ________ mark. A) collective membership B) certification C) service D) ownership Answer: A Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 66) "Just Do It" is a famous tagline used by the Nike Corporation. Which of the following types of intellectual property would this tagline come under? A) patent B) trade secret C) trademark D) copyright Answer: C Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 67) What is acquiring secondary meaning in trademark terms? A) when a mark that resembles a mark already registered with the federal PTO is used for a new product or service B) when descriptive words are used that have no direct relevance to a product or service C) when ordinary words establish new meaning due to its attachment to a product or service D) when a distinctive mark or design is created for a new product or service Answer: C Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept

68) A ________ is a term for a mark that has become a common term for a product line or type of service and therefore has lost its trademark protection. A) service mark B) orphan work C) generic name D) private brand Answer: C Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 69) ________ is a type of trademark dilution where a famous mark is linked to products of inferior quality or is portrayed in an unflattering, immoral, or reprehensible context likely to evoke negative beliefs about the mark's owner. A) Blurring B) Tarnishment C) Trolling D) Astroturfing Answer: B Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 70) A company slogan is an example of a trademark. Answer: TRUE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 71) A trademark is only issued if the registrant proves he has used the mark in commerce. Answer: TRUE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept

72) The trademark symbol "TM" is used to indicate a registered mark. Answer: FALSE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 73) The trademark symbol "SM" is used to indicate a mark associated with a product. Answer: FALSE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 74) A party that does not register its brand name has no legal right over it. Answer: FALSE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 75) The trademark symbols "TM" and "SM" can be used with marks that have not been registered. Answer: TRUE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 76) A service mark is used to distinguish the product of the holder from those of its competitors. Answer: FALSE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept

77) A party has to be a member of an organization to use a certification mark. Answer: FALSE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 78) A collective membership mark identifies different products in the same product line of an organization. Answer: FALSE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 79) Ordinary words or symbols that have taken on a secondary meaning will qualify as marks. Answer: TRUE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 80) Distinctive marks are ordinary words or symbols that have acquired special meaning with a product or service. Answer: FALSE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 81) Trademarks that have become generic names are protected under federal trademark law. Answer: FALSE Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept

82) Explain what a generic name is with reference to trademarks. Answer: Once a company has been granted a trademark or service mark, the company usually uses the mark as a brand name to promote its goods or services. The owner of the mark wants to promote its brand so that consumers and users will easily recognize the brand name. However, sometimes a company may be too successful in promoting a mark, and at some point in time, the public begins to use the brand name as a common name to denote the type of product or service being sold rather than as the trademark or service mark of the individual seller. A trademark that becomes a common term for a product line or type of service is called a generic name. Once a trademark becomes a generic name, the term loses its protection under federal trademark law. Diff: 1 LO: 7.5 Define trademark and service mar kand describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 83) In a dilution lawsuit, the plaintiff needs to show proof of actual harm suffered in order to win the lawsuit. Answer: FALSE Diff: 1 LO: 7.6 Define dilution and describe the forms of dilution of a trademark. AACSB: Analytical thinking Classification: Concept 84) Give an account of trademark dilution. Answer: Dilution is broadly defined as the lessening of the capacity of a famous mark to identify and distinguish its holder's goods and services, regardless of the presence or absence of competition between the owner of the mark and the other party. The two most common forms of dilution are blurring and tarnishment. Blurring occurs where a party uses another party's famous mark to designate a product or service in another market so that the unique significance of the famous mark is weakened. Tarnishment occurs where a famous mark is linked to products of inferior quality or is portrayed in an unflattering, immoral, or reprehensible context likely to evoke negative beliefs about the mark's owner. Diff: 1 LO: 7.6 Define dilution and describe the forms of dilution of a trademark. 7.4 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 8 Criminal Law and Cyber Crime 1) A collection of criminal statutes is referred to as a ________. A) constitution B) bill C) charter D) penal code Answer: D Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 2) ________ include environmental laws, securities laws, and antitrust laws and provide for criminal violations and penalties. A) Regulatory statutes B) Constitutions C) Charters D) Resolutions Answer: A Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 3) Who is the plaintiff in a criminal lawsuit? A) the respondent B) the government C) a private party D) the victim Answer: B Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept

4) In the United States, what recourse does an accused person have in case he or she cannot afford a private defense lawyer? A) The government will provide an attorney to the accused free of charge. B) The accused will have to spend his or her time in jail until he or she can obtain enough money to afford an attorney. C) A public defender will be appointed to the accused by the government for a nominal fee. D) He or she will have to defend himself or herself when the trial starts. Answer: A Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 5) ________ are the most serious of crimes and are considered inherently evil. A) Infractions B) Misdemeanors C) Felonies D) Summary offences Answer: C Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 6) A(n) ________ is considered a less serious crime than a felony and is not inherently evil but prohibited by society. A) indictable offence B) violation C) felony D) misdemeanor Answer: D Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 7) A person found speeding is considered to have committed a(n) ________. A) indictable offence B) violation C) felony D) misdemeanor Answer: B Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 2 Copyright © 2019 Pearson Education, Inc.

8) Tim Talon has been found by a court of law to be guilty of reckless driving and killing a pedestrian as a consequence. His defense was that he was driving under the influence of alcohol and lost control of his automobile. He was subsequently punished for his crime. How would the court classify Tim Talon's case for intent? A) general intent crime B) criminal intent crime C) nonintent crime D) specific intent crime Answer: C Diff: 2 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Application of knowledge Classification: Application 9) Which two elements are required to find a defendant guilty of an intent crime? A) criminal act and criminal intent B) victim and criminal intent C) criminal act and proof of gain D) motive and criminal intent Answer: A Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 10) ________ crimes require that the perpetrator either knew or should have known that his or her actions would lead to harmful results. A) General intent B) Nonintent C) Specific intent D) Explicit intent Answer: A Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 11) A person charged with a crime in the United States is presumed innocent until proven guilty. Answer: TRUE Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept

12) A crime is the violation of a statute for which the government imposes a punishment. Answer: TRUE Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 13) If the accused cannot afford a private defense lawyer, the government will provide one free of charge. Answer: TRUE Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 14) In a criminal lawsuit, the government is represented by a lawyer called a defense attorney. Answer: FALSE Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 15) Monetary damages and equitable remedies are provided in a civil lawsuit. Answer: TRUE Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 16) In a criminal lawsuit, guilt has to be proven beyond any reasonable doubt. Answer: TRUE Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 17) A civil lawsuit does not require a unanimous jury vote. Answer: TRUE Diff: 1 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept

18) Explain the role of penal codes and regulatory statutes in criminal law. Answer: Statutes are the primary source of criminal law. Most states have adopted comprehensive penal codes that define in detail the activities considered to be crimes within their jurisdictions and the penalties that will be imposed for their commission. A comprehensive federal criminal code defines federal crimes. In addition, state and federal regulatory statutes often provide for criminal violations and penalties. The state and federal legislatures are continually adding to the list of crimes. The penalty for committing a crime may consist of the imposition of a fine, imprisonment, both, or some other form of punishment. Diff: 2 LO: 8.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 19) A(n) ________ is a document for a person's detainment that is based on a showing of probable cause that the person committed a crime. A) no-knock warrant B) possessory warrant C) execution warrant D) arrest warrant Answer: D Diff: 1 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 20) ________ is defined as the substantial likelihood that a person either committed or is about to commit a crime. A) Reasonable suspicion B) Reasonable doubt C) Probable cause D) Preponderance of evidence Answer: C Diff: 1 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept

21) Which of the following statements best describes a difference between indictments and information statements? A) Indictments are issued by a grand jury, while an information statement is issued by a magistrate. B) Indictments are issued before a trial, while an information statement is issued after a trial. C) Information statements are issued without determining guilt, while an indictment is issued where guilt is evident. D) Information statements are issued to dismiss a case before it goes to trial, while an indictment is issued to bring a case to trial. Answer: A Diff: 2 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 22) A(n) ________ is a charge of having committed a crime, usually a felony, based on the judgment of a grand jury. A) indictment B) information statement C) arraignment D) plea Answer: A Diff: 1 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 23) At what stage of the criminal procedure is the accused asked to enter a plea? A) when the accused is being booked B) when the accused is taken to an arraignment C) when the accused is being arrested D) when an indictment or information statement is being issued Answer: B Diff: 1 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept

24) What is nolo contendere in legal proceedings? A) a plea by which the defense attorney sets out reasons as to why the case should not go to trial B) a guilty plea where the defendant does not admit the act and asserts innocence though there is sufficient evidence against the defendant C) a plea where the accused agrees to the imposition of a penalty but does not admit guilt D) a plea by which the defense attorney exhibits evidence that the defendant is not fit to stand for trial Answer: C Diff: 2 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 25) A(n) ________ is an agreement in which the accused admits to a lesser crime than charged, and in return, the government agrees to impose a lesser sentence than might have been obtained had the case gone to trial. A) plea bargain B) indictment C) arraignment D) nolo contendere Answer: A Diff: 1 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 26) Roland and Kelly were involved in a car accident in which Kelly was badly injured and had to be hospitalized. After investigation, it was found that Roland's negligence was the cause of the accident. He was duly charged with reckless driving, which is classified as a crime. What action should Roland take to avoid being sued by Kelly, who held him liable for her injuries and subsequent hospital bills? A) enter into a plea of nolo contendere B) plead not guilty and go to trial C) enter into a plea bargain with the government and pay a nominal penalty set by the government D) plead guilty and serve the punishment set by the government as it will serve as the all-binding punishment for the crime Answer: A Diff: 2 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Application of knowledge Classification: Application

27) When is the felony murder rule applied? A) when the murder was committed without intent while committing another crime B) when the crime involves the intended murder of another person C) when the felon in the case was killed while the crime transpired D) when the reason for the death is found to be involuntary manslaughter Answer: A Diff: 1 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 28) A nolo contendere plea can be used as evidence of liability against the accused at a subsequent civil trial. Answer: FALSE Diff: 1 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 29) The case against the accused is dismissed if neither an indictment nor an information statement is issued. Answer: TRUE Diff: 1 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 30) An indictment is a charge of guilt against the defendant. Answer: FALSE Diff: 1 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 31) If a defendant is found not guilty in a criminal case, the government can retry the case with a new jury. Answer: FALSE Diff: 1 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept

32) Why do governments and defendants enter into plea bargains? Answer: The government engages in plea bargaining to save costs, avoid the risks of a trial, and prevent further overcrowding of the prisons. In return, the government agrees to impose a lesser penalty or sentence on the accused than might have been obtained had the case gone to trial and the accused found guilty. The accused often agrees to a plea bargain to avoid the risks of trial where if he or she was found guilty, he or she would be subject to a greater penalty than the penalty imposed by the plea bargain he or she has agreed to with the government. Diff: 2 LO: 8.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 33) A jury that cannot come to a unanimous decision about the defendant's guilt is called a(n) ________. A) open jury B) grand jury C) hung jury D) struck jury Answer: C Diff: 1 LO: 8.3 Describe a criminal trial and the standard of proof that must be met to find a person guilty of a crime. AACSB: Analytical thinking Classification: Concept 34) What is the necessary condition for an accused person to be found guilty by a jury? A) At least half the jurors have to find the defendant guilty of the crime. B) All the jurors have to unanimously agree that the defendant is guilty of the crime. C) More than 50 percent of the jurors have to find the defendant guilty of the crime. D) The jury's verdict has to be approved by the presiding judge. Answer: B Diff: 2 LO: 8.3 Describe a criminal trial and the standard of proof that must be met to find a person guilty of a crime. AACSB: Analytical thinking Classification: Concept

35) The wrongful or fraudulent taking of another's personal intangible properties such as trade secrets, computer programs, and other business property is considered as a(n) ________. A) larceny B) robbery C) aggravated burglary D) aggravated robbery Answer: A Diff: 1 LO: 8.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept 36) ________ is a crime that involves the willful or malicious burning of a building. A) Larceny B) Arson C) Battery D) Embezzlement Answer: B Diff: 1 LO: 8.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept 37) Theft committed by an unauthorized entry through an unlocked door would be considered burglary. Answer: TRUE Diff: 1 LO: 8.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept 38) Discuss receiving stolen property as a crime. Answer: A person commits the crime of receiving stolen property if he or she (1) knowingly receives stolen property and (2) intends to deprive the rightful owner of that property. Knowledge and intent can be inferred from the circumstances. The stolen property can be any tangible property like personal property, money, negotiable instruments, and stock certificates. Diff: 1 LO: 8.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept

39) Which of the following crimes is an example of a white-collar crime? A) larceny B) arson C) forgery D) battery Answer: C Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 40) The fraudulent making or alteration of a written document that affects the legal liability of another person is called ________. A) extortion B) larceny C) embezzlement D) forgery Answer: D Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 41) ________ is the fraudulent conversion of property by a person to whom that property was entrusted. A) Bribery B) Extortion C) Embezzlement D) Forgery Answer: C Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 42) ________ is a crime in which one person gives another person money, property, favors, or anything else of value for a favor in return. A) Battery B) Bribery C) Larceny D) Embezzlement Answer: B Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

43) The crime of ________ involves the obtaining of property from another, with his or her consent, induced by wrongful use of actual or threatened force, violence, or fear. A) bribery B) extortion C) money laundering D) embezzlement Answer: B Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 44) Which of the following does the Money Laundering Control Act prohibit? A) the fraudulent conversion of property by a person to whom that property was entrusted B) obtaining property from another, with his or her consent, induced by wrongful use of actual or threatened force C) the use of mails or wires to defraud another person D) knowingly engaging in a financial transaction that involves the proceeds of an unlawful activity Answer: D Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 45) Richard Bell, an organized crime boss and casino owner, has made a lot of money with his illegal drug operations and illegal gambling. He stashes away most of this drug money in personal lockers. In order to make it look like he earned it legitimately, Richard hired crooks to take the drug money and spend it in Richard's casinos in discreet amounts. The crooks are supposed to lose the money on purpose so that the casino can claim this as winnings. The crooks are then paid a small amount for their services. What crime is Richard committing in converting his drug money to alleged legal money? A) misappropriation B) embezzlement C) money laundering D) extortion Answer: C Diff: 2 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Application

46) Mark and Jack work as clerks at the New Bank of North America, which they plan to rob. In order to plan and execute the robbery, Mark and Jack obtained the floor plans of the bank and studied the security arrangements and movements of security personnel. They even got weapons, in case force is required, as they plan to rob the bank during working hours. But the police got information about the plan and arrested Mark and Jack, and thus prevented the robbery from taking place. Which of the following crimes has been committed by Mark and Jack? A) criminal conspiracy B) extortion C) money laundering D) larceny Answer: A Diff: 2 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Application 47) Crimes committed by businesspersons are referred to as blue-collar crimes. Answer: FALSE Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 48) The offeror cannot be found liable for the crime of bribery if the person to whom the bribe is offered rejects the bribe. Answer: FALSE Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 49) Extortion of private persons is commonly referred to as blackmail. Answer: TRUE Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 50) Extortion of public officials is called extortion under color of official right. Answer: TRUE Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept

51) Criminal fraud is the crime of obtaining title to property through deception or trickery. Answer: TRUE Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 52) The government can forfeit any property involved in a money laundering offense. Answer: TRUE Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 53) The Racketeer Influenced and Corrupt Organizations Act (RICO) applies only to organized crimes. Answer: FALSE Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 54) Persons injured by a Racketeer Influenced and Corrupt Organizations Act (RICO) violation can bring a private civil RICO action against the violator. Answer: TRUE Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 55) In a criminal conspiracy, the commission of the act is not necessary. Answer: TRUE Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept

56) Give an account of the Racketeer Influenced and Corrupt Organizations Act (RICO) in business law. Answer: Organized crime has a pervasive influence on many parts of the U.S. economy. To combat this activity, Congress enacted the Organized Crime Control Act. The Racketeer Influenced and Corrupt Organizations Act (RICO) is part of this act. Originally, RICO was intended to apply only to organized crime. However, the broad language of its statute has been used against non-organized crime defendants as well. RICO, which provides for both criminal and civil penalties, is one of the most important laws affecting business today. RICO makes it a federal crime to acquire or maintain an interest in, use income from, or conduct or participate in the affairs of an enterprise through a pattern of racketeering activity. Business-related crimes, such as bribery, embezzlement, mail fraud, and wire fraud, are also considered racketeering. RICO provides for the forfeiture of any property or business interests that were gained because of its violations. This provision allows the government to recover investments made with monies derived from racketeering activities. Persons injured by a RICO violation can bring a private civil RICO action against the violator to recover damages for injury to business or property. Diff: 3 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 57) Discuss mail fraud and wire fraud. Answer: Federal law prohibits the use of mail or wires—telephone, television, radio, computer– to defraud another person. These crimes are called mail fraud and wire fraud, respectively. The government often includes these crimes in a criminal charge against a defendant who is charged with committing another crime but who also used the mail or wires to further his or her crime. Sometimes the government prosecutes a suspect under these statutes if there is insufficient evidence to prove the real crime that the criminal was attempting to commit or did commit. Persons convicted of mail or wire fraud are subject to imprisonment and the imposition of monetary fines. Diff: 1 LO: 8.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 58) A crime that is committed using computers, e-mail, the Internet, or other electronic means is commonly referred to as ________. A) larceny B) cybercrime C) forgery D) mail fraud and wire fraud Answer: B Diff: 1 LO: 8.6 List and describe cybercrimes. AACSB: Analytical thinking Classification: Concept

59) The ________ makes it a federal crime for anyone to access and acquire information intentionally from a protected computer without authorization. A) Identity Theft and Assumption Deterrence Act B) Information Infrastructure Protection Act C) Counterfeit Access Device and Computer Fraud and Abuse Act D) Racketeer Influenced and Corrupt Organizations Act Answer: B Diff: 1 LO: 8.6 List and describe cybercrimes. AACSB: Analytical thinking Classification: Concept 60) The Information Infrastructure Protection Act makes it a crime for anyone to access and acquire information intentionally from a protected computer without authorization. Answer: TRUE Diff: 1 LO: 8.6 List and describe cybercrimes. AACSB: Analytical thinking Classification: Concept 61) Merely observing data on a protected computer without authorization does not amount to a federal crime. Answer: FALSE Diff: 1 LO: 8.6 List and describe cybercrimes. AACSB: Analytical thinking Classification: Concept 62) Discuss identity theft as a cybercrime. Answer: In identity theft — or ID theft — one person steals information about another person to pose as that person and take the innocent person's money or property or to purchase goods and services using the victim's credit information. To commit ID theft, thieves obtain certain information about the victim. This could be the victim's name, Social Security number, credit card numbers, bank account information, and other personal information. With the use of computers, criminals can obtain the information they need to commit ID theft more easily. Credit card fraud is one of the crimes most commonly committed by ID thieves. To address the growing problem of ID theft, Congress enacted the Identity Theft and Assumption Deterrence Act. This statute makes it a federal crime to transfer or use, without authority, the identity of another person knowingly and with the intent to commit any unlawful activity as defined by federal law and state and local felony laws. Violators can be sentenced to prison for up to 15 years and have any property used in the commission of ID theft forfeited to the government. Diff: 2 LO: 8.6 List and describe cybercrimes. AACSB: Analytical thinking Classification: Concept

63) Which of the following types of protection does the Fourth Amendment provide to U.S. citizens? A) protection against self-incrimination B) protection against being tried for the same case twice C) protection from unreasonable search and seizure by the government D) protection from cruel and unusual punishment for a criminal defendant Answer: C Diff: 1 LO: 8.7 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 64) In which of the following circumstances is a warrantless search permitted? A) if evidence is not in plain view B) if evidence is likely to be destroyed C) if the suspect has been previously convicted D) if there is no probable cause Answer: B Diff: 2 LO: 8.7 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 65) According to the ________, evidence obtained from an unreasonable search and seizure can generally be prohibited from introduction at a trial or an administrative proceeding against the person searched. A) presumption of innocence doctrine B) double jeopardy rule C) exclusionary rule D) Miranda rights Answer: C Diff: 1 LO: 8.7 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 66) The Fifth Amendment protects people from unreasonable search and seizure by the government. Answer: FALSE Diff: 1 LO: 8.7 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept

67) Warrantless searches are permitted where it is likely that evidence will be destroyed. Answer: TRUE Diff: 1 LO: 8.7 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 68) The exclusionary rule allows for evidence obtained from an unreasonable search and seizure to be introduced in trial. Answer: FALSE Diff: 1 LO: 8.7 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 69) What three exceptions have been carved out of the Fourth Amendment requirement that law enforcement officers obtain a warrant prior to conducting a search? If law enforcement officers conduct an unlawful search, may evidence from the search be used against the criminal defendant? Answer: Warrantless searches are permitted only (1) incident to arrest, (2) where evidence is in "plain view," or (3) in exigent circumstances such as when it is likely that evidence will be destroyed. Warrantless searches are judged by the probable cause standard. Evidence obtained from an unreasonable search and seizure is considered tainted evidence ("fruit of a tainted tree"). Under the exclusionary rule, such evidence can generally be prohibited from introduction at a trial or an administrative proceeding against the person searched. However, this evidence is freely admissible against other persons. Diff: 2 LO: 8.7 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 70) The Miranda rights refer to the ________ provision of the Fifth Amendment of the U.S. Constitution. A) double jeopardy B) unreasonable searches and seizures C) privilege against self-incrimination D) parole eligibility Answer: C Diff: 1 LO: 8.8 Explain the Fifth Amendment privilege against self-incrimination. AACSB: Analytical thinking Classification: Concept

71) Gregory Aimes, who is being tried for murder, has appointed Linda Steve as the attorney for his defense. When being questioned about the case, Gregory confesses to Linda that he committed the murder. Linda cannot divulge this information to the proper authorities due to the attorney-client privilege wherein all information exchanged between the client and the attorney is confidential. Under which of the following conditions can Linda lawfully break away from her attorney-client privilege with Gregory? A) if Gregory asks that Linda be replaced as his attorney B) if Linda voluntarily resigns as Gregory's attorney C) if Gregory is acquitted of all charges in the case D) if Gregory discloses a planned future murder to Linda Answer: D Diff: 2 LO: 8.8 Explain the Fifth Amendment privilege against self-incrimination. AACSB: Application of knowledge Classification: Application 72) The Fifth Amendment to the U.S. Constitution provides that no person shall be compelled in any criminal case to be a witness against himself. Answer: TRUE Diff: 1 LO: 8.8 Explain the Fifth Amendment privilege against self-incrimination. AACSB: Analytical thinking Classification: Concept 73) Corporations and businesses can seek protection under privilege against self-incrimination. Answer: FALSE Diff: 1 LO: 8.8 Explain the Fifth Amendment privilege against self-incrimination. AACSB: Analytical thinking Classification: Concept 74) Obtaining nontestimonial evidence like fingerprints and body fluids violates the privilege against self-incrimination provision. Answer: FALSE Diff: 1 LO: 8.8 Explain the Fifth Amendment privilege against self-incrimination. AACSB: Analytical thinking Classification: Concept 75) A confession of a person who has not been read the Miranda rights is not admissible in court. Answer: TRUE Diff: 2 LO: 8.8 Explain the Fifth Amendment privilege against self-incrimination. AACSB: Analytical thinking Classification: Concept 19 Copyright © 2019 Pearson Education, Inc.

76) A suspect can assert his Fifth Amendment privilege even after he is given a grant of immunity. Answer: FALSE Diff: 1 LO: 8.8 Explain the Fifth Amendment privilege against self-incrimination. AACSB: Analytical thinking Classification: Concept 77) The attorney-client privilege can only be raised by the defendant. Answer: FALSE Diff: 1 LO: 8.8 Explain the Fifth Amendment privilege against self-incrimination. AACSB: Analytical thinking Classification: Concept 78) When does a government grant immunity from prosecution? Answer: On occasion, the government may want to obtain information from a suspect who has asserted his or her Fifth Amendment privilege against self-incrimination. The government can often achieve this by offering the suspect immunity from prosecution. Immunity from prosecution means that the government agrees not to use against a person granted immunity any evidence given by that person. Once immunity is granted, the suspect loses the right to assert his or her Fifth Amendment privilege. Diff: 1 LO: 8.8 Explain the Fifth Amendment privilege against self-incrimination. AACSB: Analytical thinking Classification: Concept 79) The Double Jeopardy Clause of the Fifth Amendment protects persons from ________. A) evidence procured through unreasonable search and seizures B) confessions obtained through physical force during an interrogation C) being tried twice for the same crime D) being subjected to a heavier penalty or longer imprisonment than originally sentenced Answer: C Diff: 1 LO: 8.9 Explain the protections provided by the double jeopardy clause, the right to a public jury trial, the right to counsel, and protection against cruel and unusual punishment. AACSB: Analytical thinking Classification: Concept

80) Which of the following would violate the Double Jeopardy Clause? A) The criminal act violates more than one jurisdiction, and each jurisdiction tries the accused in turn. B) A case reaches a hung jury in court, and the government reopens the case with a new jury. C) A person is tried for a case similar to one of which he was acquitted earlier. D) The government reopens a case after new incriminating evidence is found against an acquitted person. Answer: D Diff: 2 LO: 8.9 Explain the protections provided by the double jeopardy clause, the right to a public jury trial, the right to counsel, and protection against cruel and unusual punishment. AACSB: Analytical thinking Classification: Concept 81) Which of the following rights was provided under the Sixth Amendment? A) right against self-incrimination B) right to public jury trial C) right to due process D) double jeopardy Answer: B Diff: 1 LO: 8.9 Explain the protections provided by the double jeopardy clause, the right to a public jury trial, the right to counsel, and protection against cruel and unusual punishment. AACSB: Analytical thinking Classification: Concept 82) Which of the following amendments to the U.S. Constitution protects criminal defendants from cruel and unusual punishment and also protects criminals from torture? A) Fifth Amendment B) Eighth Amendment C) Fourth Amendment D) Fourteenth Amendment Answer: C Diff: 1 LO: 8.9 Explain the protections provided by the double jeopardy clause, the right to a public jury trial, the right to counsel, and protection against cruel and unusual punishment. AACSB: Analytical thinking Classification: Concept 83) The Miranda rights assure the arrested that a lawyer will be appointed to the arrested if he or she cannot afford one. Answer: TRUE Diff: 1 LO: 8.9 Explain the protections provided by the double jeopardy clause, the right to a public jury trial, the right to counsel, and protection against cruel and unusual punishment. AACSB: Analytical thinking Classification: Concept 21 Copyright © 2019 Pearson Education, Inc.

84) The Fourth Amendment protects people from being tried twice for the same crime. Answer: FALSE Diff: 1 LO: 8.9 Explain the protections provided by the double jeopardy clause, the right to a public jury trial, the right to counsel, and protection against cruel and unusual punishment. AACSB: Analytical thinking Classification: Concept 85) A defendant is protected by the Double Jeopardy Clause if his case reaches a hung jury. Answer: FALSE Diff: 1 LO: 8.9 Explain the protections provided by the double jeopardy clause, the right to a public jury trial, the right to counsel, and protection against cruel and unusual punishment. AACSB: Analytical thinking Classification: Concept 86) The Sixth Amendment guarantees that a criminal defendant has the right to a public jury trial. Answer: TRUE Diff: 1 LO: 8.9 Explain the protections provided by the double jeopardy clause, the right to a public jury trial, the right to counsel, and protection against cruel and unusual punishment. AACSB: Analytical thinking Classification: Concept 87) The Eighth Amendment prohibits capital punishment. Answer: FALSE Diff: 1 LO: 8.9 Explain the protections provided by the double jeopardy clause, the right to a public jury trial, the right to counsel, and protection against cruel and unusual punishment. AACSB: Analytical thinking Classification: Concept 88) If a criminal defendant is found not guilty at the conclusion of a jury trial, can the criminal defendant be retried? Why or why not? Answer: The Double Jeopardy Clause of the Fifth Amendment protects persons from being tried twice for the same crime. However, if the same act violates the laws of two or more jurisdictions, each jurisdiction may try the accused. Diff: 1 LO: 8.9 Explain the protections provided by the double jeopardy clause, the right to a public jury trial, the right to counsel, and protection against cruel and unusual punishment. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 9 Nature of Traditional and E-Contracts 1) Which of the following is an acceptable consideration for a contract? A) arrest B) penalty C) money D) sentence Answer: C Diff: 1 LO: 9.1 Define contract and describe the elements necessary to form a valid contract. AACSB: Analytical thinking Classification: Concept 2) Which of the following statements is true of contracts? A) The offeror is the party to whom an offer to enter into a contract is made. B) An offeree is the authority that supervises the signing of a contract. C) A contract is created when the offer is made and before it is accepted. D) To have an enforceable contract, there must be mutual assent by the parties. Answer: D Diff: 2 LO: 9.1 Define contract and describe the elements necessary to form a valid contract. AACSB: Analytical thinking Classification: Concept 3) Ross makes an offer to Elizabeth to sell his automobile to her for $10,000. In this case, Ross is the offeree and Elizabeth is the offeror. Answer: FALSE Diff: 1 LO: 9.1 Define contract and describe the elements necessary to form a valid contract. AACSB: Application of knowledge Classification: Application 4) Provision of services qualifies as a consideration for an enforceable contract. Answer: TRUE Diff: 1 LO: 9.1 Define contract and describe the elements necessary to form a valid contract. AACSB: Analytical thinking Classification: Concept 5) Agreement to a contract requires an offer by the offeror and an acceptance of the offer by the offeree. Answer: TRUE Diff: 1 LO: 9.1 Define contract and describe the elements necessary to form a valid contract. AACSB: Analytical thinking Classification: Concept 1 Copyright © 2019 Pearson Education, Inc.

6) If the law requires that a contract be in writing, failure of such a contract to be in writing does not impact its enforcement. Answer: FALSE Diff: 1 LO: 9.1 Define contract and describe the elements necessary to form a valid contract. AACSB: Analytical thinking Classification: Concept 7) Explain the basic requirements that must be met for a contract to be enforceable. Answer: The requirements for a contract to be enforceable are: 1. Agreement. To have an enforceable contract, there must be an agreement between the parties. This requires an offer by the offeror and an acceptance of the offer by the offeree. There must be mutual assent by the parties. 2. Consideration. A promise must be supported by a bargained-for consideration that is legally sufficient. Money, personal property, real property, provision of services, and such qualify as consideration. 3. Contractual capacity. The parties to a contract must have contractual capacity for the contract to be enforceable against them. Contracts cannot be enforced against parties who lacked contractual capacity when they entered into the contracts. 4. Lawful object. The object of a contract must be lawful. Most contracts have a lawful object. However, contracts that have an illegal object are void and will not be enforced. Diff: 2 LO: 9.1 Define contract and describe the elements necessary to form a valid contract. AACSB: Analytical thinking Classification: Concept 8) Which of the following is true of the UCC (Uniform Commercial Code)? A) The UCC aims to create a uniform system of accounting among the 50 states. B) The common law of contracts normally takes precedence over the provisions of the UCC. C) Article 2 of the UCC prescribes a set of uniform rules for the creation and enforcement of rules of taxation. D) Article 2A of the UCC prescribes a set of uniform rules for the creation and enforcement of contracts for the lease of goods. Answer: D Diff: 2 LO: 9.2 List and describe the sources of contract law. AACSB: Analytical thinking Classification: Concept

9) Which of the following is true of the Restatement of the Law of Contracts? A) It serves as a reference for guidance in contract disputes. B) It does not identify negotiable instruments as formal contracts. C) Its goal is to create a uniform system of commercial law among the 50 states. D) It is the absolute federal law for contracts drafted in the United States of America. Answer: A Diff: 2 LO: 9.2 List and describe the sources of contract law. AACSB: Analytical thinking Classification: Concept 10) Common law of contracts refers to contract law developed primarily by state courts. Answer: TRUE Diff: 1 LO: 9.2 List and describe the sources of contract law. AACSB: Analytical thinking Classification: Concept 11) The goal of the Uniform Commercial Code (UCC) is to regularize foreign trade norms among the 50 states of the United States of America. Answer: FALSE Diff: 1 LO: 9.2 List and describe the sources of contract law. AACSB: Analytical thinking Classification: Concept 12) Article 2 of the Uniform Commercial Code (UCC) prescribes a set of uniform rules for the creation and enforcement of contracts for the sale of goods. Answer: TRUE Diff: 1 LO: 9.2 List and describe the sources of contract law. AACSB: Analytical thinking Classification: Concept 13) Restatement of the Law of Contracts is the agreed upon federal law in the United States. Answer: FALSE Diff: 1 LO: 9.2 List and describe the sources of contract law. AACSB: Analytical thinking Classification: Concept

14) Describe three major sources of contract law in the United States. Answer: Three sources of contract law are the common law of contracts, the Uniform Commercial Code, and the Restatement (Second) of Contracts. Common law of contracts developed from early court decisions that became precedent for later decisions. There is limited federal common law of contracts, but a large body of state common law of contracts exists. Although the general principles remain the same throughout the country, there is some variation from state to state. The Uniform Commercial Code (UCC), first drafted by the National Conference of Commissioners on Uniform State Laws in 1952, has been amended several times. Its goal is to create a uniform system of commercial law among the fifty states. The provisions of the UCC normally take precedence over the common law of contracts. Every state has adopted at least part of the UCC. In 1932, the American Law Institute, a group comprised of law professors, judges, and lawyers, completed the Restatement of the Law of Contracts, a compilation of contract law principles as agreed upon by the drafters. The Restatement, currently in its second edition, is not law; however, lawyers and judges often refer to it for guidance in contract disputes because of its stature. Diff: 2 LO: 9.2 List and describe the sources of contract law. AACSB: Analytical thinking Classification: Concept 15) The ________ states that the intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties. A) Restatement of the Law of Contracts B) Restatement (Second) of Contracts C) objective theory of contracts D) common law of contracts Answer: C Diff: 1 LO: 9.3 Explain the objective theory of contracts. AACSB: Analytical thinking Classification: Concept 16) According to the objective theory of contracts, the intent to enter into an express or impliedin-fact contract is judged by the ________. A) reasonable person standard B) legality of the contract C) doctrine of equity D) common law of contracts Answer: A Diff: 1 LO: 9.3 Explain the objective theory of contracts. AACSB: Analytical thinking Classification: Concept

17) The objective theory of contracts states that the intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties. Answer: TRUE Diff: 1 LO: 9.3 Explain the objective theory of contracts. AACSB: Analytical thinking Classification: Concept 18) Under the objective theory of contracts, the subjective intent of a party to enter into a contract is irrelevant. Answer: TRUE Diff: 1 LO: 9.3 Explain the objective theory of contracts. AACSB: Analytical thinking Classification: Concept 19) Explain the objective theory of contracts. In your answer, provide an example of an offer that would not result in a valid contract. Answer: The intent to enter into a contract is determined using the objective theory of contracts. Under this theory, the proper consideration is whether a reasonable person viewing the circumstances would conclude that the parties intended to be legally bound. For example, the statement "I will buy your building for $2 million" is a valid offer because it indicates the offeror's present intent to contract. On the other hand, consider this scenario: A frustrated business owner of Company A has lunch with the owner of Company B and, in the course of their conversation, Company A's owner exclaims in frustration, "For $200, I'd sell the whole computer division!" An offer such as that cannot result in a valid contract. Diff: 2 LO: 9.3 Explain the objective theory of contracts. AACSB: Analytical thinking Classification: Concept 20) Two brothers Sam and Jim were fighting over the division of their ancestral property. After ten years of legal battle, a frustrated Sam contacted a powerful politician who subjected Jim to extreme duress to make him sign a contract of assent in favor of Sam. When Jim takes this contract to court, the contract will be declared ________. A) enforceable B) conditionally enforceable C) voidable D) unenforceable Answer: C Diff: 3 LO: 9.4 List and describe the classifications of contracts. AACSB: Application of knowledge Classification: Application

21) A contract is a(n) ________ if the offeror's promise is answered with the offeree's promise of acceptance. A) unilateral contract B) bilateral contract C) executed contract D) executory contract Answer: B Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 22) Windsor, the owner of Windsor's Sandwiches, contacts a new supplier, Gary. He tells Gary that he will pay him $375 if Gary delivers 20 pounds of cheese the following morning. Gary promises to make the delivery as requested by Windsor. This creates a(n) ________ contract between them. A) unilateral B) bilateral C) implied-in-law D) executory Answer: B Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Application of knowledge Classification: Application 23) A contract is ________ if the offeror's offer can be accepted only by the performance of an act by the offeree. A) unilateral B) bilateral C) implied-in-law D) executory Answer: A Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept

24) Yvonne finds a carpenter to do some repairs for her house and tells him that if he finishes the job within Saturday, she would pay him $1,000. This offer creates a(n) ________ contract. A) executed B) executory C) unilateral D) bilateral Answer: C Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Application of knowledge Classification: Application 25) Martha contacts a bakery to get a cake for her son's birthday party. She tells the baker that she will pay him $150 for the cake if he delivers the cake on Friday evening. If the baker does not deliver the cake on Friday evening, which of the following will hold true? A) Martha can sue the baker to recover $150 in damages. B) Martha can sue the baker but cannot recover damages. C) The baker has to give $150 plus cost of the replacement cake to Martha as he entered into a verbal contract with her. D) Martha cannot sue the baker. Answer: D Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Application of knowledge Classification: Application 26) Alan tells Sherry that he will pay her $5,000 if she runs the Boston Marathon. Once Sherry starts running the marathon, Alan ________. A) can revoke the contract as informal verbal agreements are not binding B) cannot revoke the contract C) can reduce the money on offer D) can only increase the money on offer Answer: B Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Application of knowledge Classification: Application

27) Which of the following is an informal contract? A) check B) bank draft C) lease D) recognizance Answer: C Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 28) What is recognizance? A) a party's acknowledgement in court that he or she will pay a specified sum of money if a certain event occurs B) a sealed document that contains a formal contract whose contents are known to both parties and the referee who supervised its signing C) a sealed document that contains an informal contract whose contents are known only to the parties D) a party's acknowledgement in court that he or she is not liable to pay any money if a certain event occurs Answer: A Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 29) Which of the following statements is true of contracts? A) Parties to an informal contract can use any words they choose to express their contract. B) A contract under seal is disclosed only to the offeror of the contract. C) A letter of credit is an informal contract. D) A void contract is the same as a voidable contract. Answer: A Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 30) Which of the following is a necessary condition for a contract to be considered valid? A) It cannot be enforced by just one of the parties involved. B) It is enforceable by at least one of the parties. C) It can be voided by one of the parties. D) It can be voided by both parties. Answer: B Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 8 Copyright © 2019 Pearson Education, Inc.

31) Harry in a drunken state agrees to give his car to Ben as a token of friendship. Once sober, Harry asks Ben to return his car. This contract is considered ________. A) valid B) void C) voidable D) unenforceable Answer: C Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Application of knowledge Classification: Application 32) An offeror uses blackmail to make an offeree sign a contract that involves the sale of the offeree's house. The contract is ________. A) valid B) void C) voidable D) unenforceable Answer: C Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Application of knowledge Classification: Application 33) If a contract is required to be in writing under the Statute of Frauds but is not, then the contract is ________. A) valid B) void C) voidable D) unenforceable Answer: D Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 34) A contract that has been fully performed on both sides is called an ________ contract. A) executory B) executed C) option D) executive Answer: B Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 9 Copyright © 2019 Pearson Education, Inc.

35) Contracts that have been fully performed by one side but not by the other are classified as ________ contracts. A) executory B) executed C) void D) voidable Answer: A Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 36) Elizabeth signs a contract to purchase a new car from Spadace Motors. She is yet to pay for the car and thus Spadace Motors has not delivered the car to Elizabeth. This is an example of a(n) ________ contract. A) void B) unenforceable C) executed D) executory Answer: D Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 37) Which of the following is true of enforcing a contract? A) A contract is only considered valid if it is enforceable by both parties. B) In an unenforceable contract, at least one party has the option to void his or her contractual obligations. C) Void contracts are enforceable in cases involving mutual mistakes. D) Parties may voluntarily perform a contract that is unenforceable. Answer: D Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 38) If ambiguity is detected while determining the type of a contract, it is presumed to be a bilateral contract. Answer: TRUE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept

39) A contract is bilateral contract if the offeror's promise is answered with the offeree's promise of acceptance. Answer: TRUE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 40) An act of performance is necessary to create a bilateral contract. Answer: FALSE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 41) A unilateral contract can be accepted without the performance of an act by the offeree. Answer: FALSE Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 42) An offer to create a unilateral contract cannot be accepted by a promise to perform. Answer: TRUE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 43) An offer to create a unilateral contract can be revoked by the offeror any time prior to the offeree's performance of the requested act. Answer: TRUE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 44) A letter of credit is considered an informal contract as it does not have a special method of creation. Answer: FALSE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept

45) Checks and drafts are considered informal contracts as their method of creation varies from one bank to another. Answer: FALSE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 46) Contracts under seal are thus named because they are highly confidential, and the parties to these contracts are not allowed to talk about their terms. Answer: FALSE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 47) In a recognizance, a party acknowledges in court that he or she will pay a specified sum of money if a certain event occurs. Answer: TRUE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 48) If one of the parties to a contract can enforce the contract, it is considered valid. Answer: TRUE Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 49) A voidable contract is also termed as an unenforceable contract. Answer: FALSE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 50) If one of the parties of a contract has the option to void his or her contractual obligations, the contract is considered voidable. Answer: TRUE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept

51) A contract that has been fully performed by both sides is called an executory contract. Answer: FALSE Diff: 1 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 52) Compare valid, void, voidable, and unenforceable contracts. Answer: 1. Valid contract. A valid contract meets all the essential elements to establish a contract. In other words, it (a) consists of an agreement between the parties, (b) is supported by legally sufficient consideration, (c) is between parties with contractual capacity, and (d) accomplishes a lawful object. A valid contract is enforceable by at least one of the parties. 2. Void contract. A void contract has no legal effect. It is as if no contract had ever been created. A contract to commit a crime is void. If a contract is void, neither party is obligated to perform the contract and neither party can enforce the contract. 3. Voidable contract. A voidable contract is a contract in which at least one party has the option to void his or her contractual obligations. If the contract is voided, both parties are released from their obligations under the contract. If the party with the option chooses to ratify the contract, both parties must fully perform their obligations. 4. Unenforceable contract. With an unenforceable contract, there is some legal defense to the enforcement of the contract. If a contract is required to be in writing under the Statute of Frauds but is not, the contract is unenforceable. Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept 53) What are the possible problems that can come up in a unilateral contract? Answer: In a unilateral contract, problems arise if the offeror attempts to revoke an offer after the offeree has begun performance. Generally, an offer to create a unilateral contract can be revoked by the offeror any time prior to the offeree's performance of the requested act. However, the offer cannot be revoked if the offeree has begun or has substantially completed performance. Diff: 2 LO: 9.4 List and describe the classifications of contracts. AACSB: Analytical thinking Classification: Concept

54) A(n) ________ contract is stated orally or in written words. A) express B) implied-in-law C) implied-in-fact D) quasi Answer: A Diff: 1 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Analytical thinking Classification: Concept 55) Which of the following elements must be established to create an implied-in-fact contract? A) A plaintiff provided a property or services gratuitously. B) A plaintiff made a defendant sign a contract and then changed its terms, calling the new terms "previously implied." C) A defendant was given an opportunity to reject a property or services provided by a plaintiff but failed to do so. D) A defendant accepted a property or services offered by a plaintiff as a fee for an illegal activity. Answer: C Diff: 2 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Analytical thinking Classification: Concept 56) An oral agreement to purchase a neighbor's bicycle is a(n) ________ contract. A) voidable B) void C) express D) implied Answer: C Diff: 2 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Analytical thinking Classification: Concept 57) In a(n) ________ contract, agreement between parties is inferred from their conduct. A) implied-in-law B) implied-in-fact C) express D) formal Answer: B Diff: 1 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Analytical thinking Classification: Concept 14 Copyright © 2019 Pearson Education, Inc.

58) A(n) ________ is an equitable doctrine whereby a court may award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed. A) bilateral contract B) unilateral contract C) implied-in-fact contract D) quasi contract Answer: D Diff: 1 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Analytical thinking Classification: Concept 59) Which of the following statements is true of the doctrine of quasi contract? A) It allows a court to award monetary damages to a defendant because no actual contract existed between the parties. B) It applies only where there is an enforceable contract between the parties. C) It is an equitable doctrine intended to prevent unjust enrichment. D) Agreement between parties to a quasi contract has been inferred from their conduct. Answer: C Diff: 2 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Analytical thinking Classification: Concept 60) Stella gets injured in a motor accident and is brought to the hospital by a passerby. Stella subsequently passes into a coma. The doctors and other staff perform the necessary medical procedures to save her life. Stella comes out of her coma two months later and is released from the hospital after the doctors are satisfied by her recovery. Under the doctrine of ________ contract, Stella has to pay the hospital for its services. A) express contract B) quasi contract C) implied-in-fact contract D) formal contract Answer: B Diff: 2 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Application of knowledge Classification: Application

61) Kyle goes to a used-car showroom to buy a sedan. He signs an agreement with the store that bears the name of the car, price, and other details. This is an example of a(n) ________ contract. A) unilateral B) implied-in-law C) implied-in-fact D) express Answer: D Diff: 2 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Application of knowledge Classification: Application 62) Which of these is an instance of a quasi contract? A) an employee receiving his or her paycheck every month B) an unconscious man being nursed at a hospital, having been brought in by a passer-by C) two companies signing a business agreement that spans an undefined duration D) a woman hiring a caterer only after the caterer promises to deliver the food on time Answer: B Diff: 3 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Application of knowledge Classification: Application 63) Express contract can be stated orally. Answer: TRUE Diff: 1 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Analytical thinking Classification: Concept 64) To create an implied-in-fact contract, it must be established that a plaintiff provided a property or services gratuitously. Answer: FALSE Diff: 2 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Analytical thinking Classification: Concept 65) A quasi contract is an equitable doctrine whereby a court may award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed. Answer: TRUE Diff: 1 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Analytical thinking Classification: Concept

66) An implied-in-law contract is a contract in which agreement between parties has been inferred from their conduct. Answer: FALSE Diff: 1 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Analytical thinking Classification: Concept 67) How are unjust enrichment and unjust detriment prevented, in the context of contracts? Answer: The doctrine of quasi-contract is intended to prevent unjust enrichment and unjust detriment. It allows a court to award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed between the parties. Recovery is generally based on the reasonable value of the services received by the defendant. It does not apply where there is an enforceable contract between the parties. A quasi-contract is imposed where (1) one person confers a benefit on another, who retains the benefit, and (2) it would be unjust not to require that person to pay for the benefit received. Diff: 2 LO: 9.5 Describe and distinguish between express and implied contracts. AACSB: Analytical thinking Classification: Concept 68) ________ is a doctrine that permits judges to make decisions based on fairness, equality, moral rights, and natural law. A) The common law of contracts B) The Restatement of the Law of Contracts C) Equity D) Letter of credit Answer: C Diff: 1 LO: 9.6 Define equity and learn how to apply the doctrine to contract disputes. AACSB: Analytical thinking Classification: Concept 69) Which of the following is true of the equity doctrine? A) Equity is resorted to when an award of money damages would not be the proper remedy. B) In an action in equity, a jury decides the equitable issue. C) An equitable action could be tried with a judge or a jury. D) The doctrine of equity cannot be applied in contract cases. Answer: A Diff: 2 LO: 9.6 Define equity and learn how to apply the doctrine to contract disputes. AACSB: Analytical thinking Classification: Concept

70) Equity is a doctrine that permits judges to make decisions based on fairness, equality, moral rights, and natural law. Answer: TRUE Diff: 1 LO: 9.6 Define equity and learn how to apply the doctrine to contract disputes. AACSB: Analytical thinking Classification: Concept 71) There is no right to a jury trial in an equitable action. Answer: TRUE Diff: 1 LO: 9.6 Define equity and learn how to apply the doctrine to contract disputes. AACSB: Analytical thinking Classification: Concept 72) Explain the doctrine of equity with reference to contracts. Answer: Equity is a doctrine that permits judges to make decisions based on fairness, equality, moral rights, and natural law. Equity is resorted to when (1) an award of money damages "at law" would not be the proper remedy or (2) fairness requires the application of equitable principles. Today, in most states of the United States, the courts of law and equity have been merged into one court. In an action "in equity," the judge decides the equitable issue; there is no right to a jury trial in an equitable action. The doctrine of equity is sometimes applied in contract cases. Diff: 2 LO: 9.6 Define equity and learn how to apply the doctrine to contract disputes. AACSB: Analytical thinking Classification: Concept 73) The ________ establishes uniform legal rules for the formation and enforcement of electronic contracts and licenses. A) common law of contracts B) Restatement of the Law of Contracts C) Uniform Computer Information Transactions Act D) Uniform Commercial Code Answer: C Diff: 1 LO: 9.7 Learn how contract law applies to electronic commerce (e-commerce). AACSB: Analytical thinking Classification: Concept

74) Michael Harrison opens an online store where people from all over the world can purchase and download iPhone apps. Which of the following should Michael consult to know the rules of trading through his online store? A) the common law of contracts B) the objective law of contracts C) the Uniform Computer Information Transactions Act D) the Uniform Commercial Code Answer: C Diff: 2 LO: 9.7 Learn how contract law applies to electronic commerce (e-commerce). AACSB: Application of knowledge Classification: Application 75) Which of the following is true of the Uniform Computer Information Transactions Act? A) It establishes the rules for operation of franchises in the United States of America. B) It does not become law until a state adopts it as a statute. C) It solely deals with the formation of electronic contracts, not licenses. D) It addresses most of the legal issues that are encountered while starting an entrepreneurial venture. Answer: B Diff: 2 LO: 9.7 Learn how contract law applies to electronic commerce (e-commerce). AACSB: Analytical thinking Classification: Concept 76) Companies are not permitted to issue licenses by e-commerce. Answer: FALSE Diff: 2 LO: 9.7 Learn how contract law applies to electronic commerce (e-commerce). AACSB: Analytical thinking Classification: Concept 77) Traditional contract rules do not apply to e-contracts. Answer: FALSE Diff: 1 LO: 9.7 Learn how contract law applies to electronic commerce (e-commerce). AACSB: Analytical thinking Classification: Concept 78) The UCITA (Uniform Computer Information Transactions Act) is a model act that does not become law until a state legislature adopts it as a statute for the state. Answer: TRUE Diff: 1 LO: 9.7 Learn how contract law applies to electronic commerce (e-commerce). AACSB: Analytical thinking Classification: Concept 19 Copyright © 2019 Pearson Education, Inc.

79) The UCITA (Uniform Computer Information Transactions Act) establishes uniform legal rules for the formation and enforcement of electronic contracts and licenses. Answer: TRUE Diff: 1 LO: 9.7 Learn how contract law applies to electronic commerce (e-commerce). AACSB: Analytical thinking Classification: Concept 80) The UCITA (Uniform Computer Information Transactions Act) is a law common to all states and does not require state legislatures to adopt it as a statute for the state. Answer: FALSE Diff: 1 LO: 9.7 Learn how contract law applies to electronic commerce (e-commerce). AACSB: Analytical thinking Classification: Concept 81) Explain the purpose of the Uniform Computer Information Transactions Act. In your answer, discuss why uniformity of contract law is particularly important in the information age. Answer: The National Conference of Commissioners on Uniform State Laws (a group of lawyers, judges, and legal scholars) drafted the Uniform Computer Information Transactions Act (UCITA). The UCITA establishes uniform legal rules for the formation and enforcement of electronic contracts and licenses. The UCITA addresses most of the legal issues that are encountered while conducting e-commerce over the Internet. The widespread use of e-contracts globally has led to a need for uniform laws to govern transactions and protect consumers. Because of this need for uniformity of e-commerce rules, states are attempting to adopt uniform laws to govern the creation and enforcement of cyberspace contracts and licenses. Diff: 1 LO: 9.7 Learn how contract law applies to electronic commerce (e-commerce). AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 10 Agreement 1) A(n) ________ is a voluntary exchange of promises between two or more legally competent persons to do, or refrain from doing, an act. A) offer B) advertisement C) agreement D) proposal Answer: C Diff: 1 LO: 10.1 Define agreement. AACSB: Analytical thinking Classification: Concept 2) What is the key difference between an agreement and a contract? A) A contract is always enforceable in the court of law, while an acceptance may or may not be. B) A contract can only be between two individuals, while an acceptance can have two or more people involved. C) A contract requires mutual assent from all parties, while an acceptance needs only to be accepted by a majority of people involved. D) A contract need not be legally binding, while an agreement must be legally binding. Answer: A Diff: 2 LO: 10.1 Define agreement. AACSB: Analytical thinking Classification: Concept 3) A contract requires an offer and an acceptance. Answer: TRUE Diff: 1 LO: 10.1 Define agreement. AACSB: Analytical thinking Classification: Concept 4) An agreement is created when the offeree receives the offer. Answer: FALSE Diff: 1 LO: 10.1 Define agreement. AACSB: Analytical thinking Classification: Concept

5) Without mutual assent, there is no contract. Answer: TRUE Diff: 1 LO: 10.1 Define agreement. AACSB: Analytical thinking Classification: Concept 6) Section 24 of the Restatement (Second) of Contracts defines a(n) ________ as the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. A) order B) offer C) advertisement D) revocation Answer: B Diff: 1 LO: 10.2 Define offer and describe express and implied terms of an offer. AACSB: Analytical thinking Classification: Concept 7) Which of the following statements is true of an offer that was not communicated? A) The offer stays valid for 30 days from the date of creation. B) The offer cannot be accepted by the offeree if not communicated. C) The offeree can claim an offer that was not communicated. D) The offer is considered to be an implied term. Answer: B Diff: 1 LO: 10.2 Define offer and describe express and implied terms of an offer. AACSB: Analytical thinking Classification: Concept 8) A term in a contract that can reasonably be supplied by the courts is referred to as a(n) ________. A) intent term B) unconditional term C) objective term D) implied term Answer: D Diff: 1 LO: 10.2 Define offer and describe express and implied terms of an offer. AACSB: Analytical thinking Classification: Concept

9) An offer is not effective until it is actually received by the offeree. Answer: TRUE Diff: 1 LO: 10.2 Define offer and describe express and implied terms of an offer. AACSB: Analytical thinking Classification: Concept 10) The offeree must objectively intend to be bound by the offer for the offer to be effective. Answer: FALSE Diff: 1 LO: 10.2 Define offer and describe express and implied terms of an offer. AACSB: Analytical thinking Classification: Concept 11) The offer must be communicated to the offeree for the offer to be effective. Answer: TRUE Diff: 1 LO: 10.2 Define offer and describe express and implied terms of an offer. AACSB: Analytical thinking Classification: Concept 12) Identification of the subject matter and quantity would be an implied term. Answer: FALSE Diff: 1 LO: 10.2 Define offer and describe express and implied terms of an offer. AACSB: Analytical thinking Classification: Concept 13) Identification of the parties of a contract would be an express term. Answer: TRUE Diff: 1 LO: 10.2 Define offer and describe express and implied terms of an offer. AACSB: Analytical thinking Classification: Concept 14) Implied terms in a contract can be supplied by the courts. Answer: TRUE Diff: 1 LO: 10.2 Define offer and describe express and implied terms of an offer. AACSB: Analytical thinking Classification: Concept

15) Give an account of the express terms that are parts of an offer. Answer: The terms of an offer must be clear enough for the offeree to be able to decide whether to accept or reject the terms of the offer. To be considered definite, an offer generally must contain the following terms: (1) identification of the parties, (2) identification of the subject matter and quantity, (3) consideration to be paid, and (4) time of performance. Complex contracts usually state additional terms. Most offers and contracts set forth express terms that identify the parties, the subject matter of the contract, the consideration to be paid by the parties, and the time of performance, as well as other terms of the offer and contract. If the terms are indefinite, the courts usually cannot enforce the contract or determine an appropriate remedy for its breach. Diff: 2 LO: 10.2 Define offer and describe express and implied terms of an offer. AACSB: Analytical thinking Classification: Concept 16) The Restatement (Second) of Contracts states that the terms of the offer should be "reasonably certain." Accordingly, courts can supply some missing terms. What terms might be supplied? What terms CANNOT usually be implied? Answer: A court can supply a missing term if a reasonable term can be implied. The definition of reasonable depends on the circumstances. Generally, time of performance can be implied. Price can be implied if there is a market or source from which to determine the price of the item or service (e.g., the Carfax or Kelley Blue Book for a used automobile price). The parties or subject matter of the contract usually cannot be implied if an item or a service is unique or personal, such as the construction of a house or the performance of a professional sports contract. Diff: 2 LO: 10.2 Define offer and describe express and implied terms of an offer. AACSB: Analytical thinking Classification: Concept 17) An invitation to make an offer for the sale of goods is a(n) ________. A) proposal B) reward C) advertisement D) bid Answer: C Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept

18) Which of the following would be considered an offer to form a unilateral contract? A) an advertisement B) an auction without reserve C) a reward offer D) an auction with reserve Answer: C Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 19) Which one of the following would constitute a reward? A) a person buying a car after seeing an ad about it B) a person returning a lost item after seeing an ad about it C) a seller accepting a bid for an item D) a seller making an invitation for offers Answer: B Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 20) Which of the following is true for legally claiming a reward? A) A promise of completing the requested act is sufficient for a claimant to claim the reward. B) Knowledge of the reward before completing the requested act is necessary to claim the reward. C) The claimant can claim the reward even if he or she came to know of the reward subsequent to completing the act. D) The offeror cannot withdraw the reward once the offer has been placed in the public domain. Answer: B Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 21) In which of the following types of offers does the seller offer the goods for sale? A) a revocation B) a reward C) an auction with reserve D) an auction without reserve Answer: D Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept

22) Which of the following is true for an auction with reserve? A) The seller retains the right to refuse the highest bidder. B) Invitations to make an offer are not allowed. C) Goods cannot be withdrawn from sale after the offer has been made. D) A bid once made cannot be withdrawn and is legally binding. Answer: A Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 23) Which of the following is true for an auction without reserve? A) The bidder is considered the offeror. B) The seller need not accept the highest bid. C) The goods on sale cannot be withdrawn. D) The auctioneer is not allowed to set a minimum bid. Answer: C Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 24) An agreement that an offeror will not sell his property for a specified period subsequent to the offeree paying consideration to the offeror is referred to as a(n) ________. A) unequivocal acceptance B) contract of adhesion C) option contract D) firm offer Answer: C Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 25) Advertisements are considered to be invitations to make an offer. Answer: TRUE Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 26) A reward is a form of bilateral contract. Answer: FALSE Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

27) Unless otherwise expressly stated, an auction is considered an auction with reserve. Answer: TRUE Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 28) In an auction with reserve, the seller retains the right to refuse the highest bidder. Answer: TRUE Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 29) In an auction with reserve, the bidder can withdraw his or her bid after an acceptance has been indicated from the offeror. Answer: FALSE Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 30) In an auction with reserve, the bidder is the offeror. Answer: TRUE Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 31) In an auction without reserve, the seller is the offeree. Answer: FALSE Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 32) In an auction without reserve, the seller is obliged to sell the goods to the highest bidder. Answer: TRUE Diff: 1 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept

33) Explain the difference between an auction with reserve and an auction without reserve. If not specified, which is the default form of auction? Answer: In an auction, the seller offers goods for sale through an auctioneer. Unless otherwise expressly stated, an auction is considered an auction with reserve, that is, it is an invitation to make an offer. The seller retains the right to refuse the highest bid and withdraw the goods from sale. A contract is formed only when the auctioneer strikes the gavel down or indicates acceptance by some other means. The bidder may withdraw the bid prior to that time. If an auction is expressly announced to be an auction without reserve, the participants reverse the roles: The seller is the offeror, and the bidders are the offerees. The seller must accept the highest bid and cannot withdraw the goods from sale. However, if the auctioneer has set a minimum bid that it will accept, the auctioneer has to sell the item only if the highest bid is equal to or greater than the minimum bid. Diff: 3 LO: 10.3 List and describe special types of offers, including advertisements and auctions. AACSB: Analytical thinking Classification: Concept 34) A response by an offeree that contains terms and conditions different from or in addition to those of the offer is called a(n) ________. A) rejection B) counteroffer C) revocation D) acceptance Answer: B Diff: 1 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Analytical thinking Classification: Concept 35) Which of the following statements is true of a counteroffer? A) An offeree that makes the counteroffer is still considered the offeree. B) A counteroffer terminates the existing offer. C) A counteroffer can only be made by the offeror. D) A counteroffer need not be communicated to the offeror. Answer: B Diff: 1 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Analytical thinking Classification: Concept

36) Luke offered to sell his farm to Kent at $75,000, an offer which Kent declined. A week later, Luke offered to sell the farm for $65,000, stating it was the final offer that would be valid for one month only. Two days later, Kent offered to pay $60,000 for the farm. Luke received Kent's offer a week later and he declined it. After ten days, Kent agreed to buy the farm for $65,000, but Luke refused to sell the farm. Kent decided to sue Luke for a breach of contract. The judge ruled in favor of Luke. Which one of the following is the reason for the ruling in Luke's favor? A) Luke's original offer of $75,000 is still valid, even though rejected. B) Kent's counteroffer of $60,000 had rendered the offer for $65,000 invalid. C) Kent's acceptance was past the set time period in the offer. D) Kent acted in an incompetent manner toward the offer. Answer: B Diff: 3 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Application of knowledge Classification: Application 37) A(n) ________ is a withdrawal of an offer by the offeror that terminates the offer. A) rejection B) advertisement C) revocation D) counteroffer Answer: C Diff: 1 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Analytical thinking Classification: Concept 38) Which of the following statements is true of a revocation? A) It can be made by the offeree. B) It needs to be received by the offeree to be effective. C) It can be done even after acceptance of the offer. D) It can be applied to an option contract. Answer: B Diff: 1 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Analytical thinking Classification: Concept

39) After losing her watch, Jennifer had put up a reward offer in the local newspaper for anyone who could find and return her watch. However, after two weeks she decides to buy a new watch and not pay the reward anymore. Betty, who found the watch and saw the reward offer, returns the watch to Jennifer after 20 days. Which of the following would be true about Betty receiving or not receiving the reward? A) Betty will not receive the reward as Jennifer had already revoked it. B) Betty will not receive the reward as Jennifer had stopped publishing the reward offer. C) Betty cannot claim the reward because she had not performed all the requested acts. D) Betty can claim the reward because Jennifer had not published a notice of revocation. Answer: D Diff: 2 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Application of knowledge Classification: Application 40) Which of the following is true of an option contract? A) If the offeree chooses not to buy the property, then money paid in consideration must be returned. B) If money is paid as consideration, then that is not applied to the sale price. C) Death or incompetency of either party terminates an option contract. D) The offer cannot be revoked during the option period. Answer: D Diff: 2 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Analytical thinking Classification: Concept 41) Ron uses his status message on his Facebook account to invite his friends to buy his desktop computer. His friend Carl is interested and calls Ron to express his interest. Ron tells him that he is selling the computer for $400. Carl offers to pay $350 and Ron accepts the offer. Carl's response to Ron's offer to sell for $400 is considered as a(n) ________. A) mirror image rule acceptance B) rejection C) unequivocal acceptance D) counteroffer Answer: D Diff: 2 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Application of knowledge Classification: Application

42) An offeror can revoke his or her offer even after an agreement or acceptance has been reached. Answer: FALSE Diff: 1 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Analytical thinking Classification: Concept 43) A rejection of an offer is not effective until it is actually received by the offeror. Answer: TRUE Diff: 1 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Analytical thinking Classification: Concept 44) A counteroffer is a rejection of the original offer. Answer: TRUE Diff: 1 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Analytical thinking Classification: Concept 45) During a counteroffer, the previous offeror remains the offeror. Answer: FALSE Diff: 1 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Analytical thinking Classification: Concept 46) How can an offeror revoke an offer? Answer: Under the common law, an offeror may revoke (i.e., withdraw) an offer any time prior to its acceptance by the offeree. Generally, an offer can be so revoked even if the offeror promised to keep the offer open for a longer time. The revocation may be communicated to the offeree by the offeror or by a third party and made by (1) the offeror's express statement or (2) an act of the offeror that is inconsistent with the offer. Generally, a revocation of an offer is not effective until it is actually received by the offeree. Diff: 2 LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer. AACSB: Analytical thinking Classification: Concept

47) If a fire destroys an office building that has been listed for sale, the offer is automatically terminated due to ________. A) supervening illegality B) death or incompetency of the offeror C) destruction of the subject matter D) lapse of time Answer: C Diff: 1 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Analytical thinking Classification: Concept 48) Peter plans to sell his two houses, numbered Lot 1 and Lot 2, at $800,000 each. David, who was interested in buying Lot 2, could not make up his mind on the final offer and asks Peter to give him a week to decide. Peter accepts, but David takes two weeks to decide the counteroffer. Before he could give David a reply to his counteroffer, Peter is killed in a fire that burned down Lot 1. Which of the following would be true in this case? A) The offer is terminated due to lapse of time. B) The offer is terminated due to destruction of the subject matter. C) The offer is terminated due to death of the offeror. D) David can still buy the house for Peter's original offer. Answer: C Diff: 2 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Application of knowledge Classification: Application 49) An offer is terminated on the grounds of "supervening illegality" when ________. A) the set period in the offer has expired B) the subject matter in the offer has been destroyed C) a statute or court decision deems an object of the offer unlawful D) the offeror or offeree passes away prior to the offer being accepted Answer: C Diff: 1 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Analytical thinking Classification: Concept

50) Techstate, a hardware manufacturer in the United States, has an existing contract with a client based in the Republic of Karthasia, which is going through a domestic political crisis. The resulting upheaval in that country has led to some of the shipments to the client being destroyed by warring factions. As a sanction against the country, the United States government places an embargo on all exports to that country by U.S. firms. What will be the state of the contract between Techstate and the client in Karthasia after the embargo? A) It will be terminated due to destruction of subject matter. B) It will be terminated due to incompetency of the offeror. C) It will be terminated due to lapse of time. D) It will be terminated due to supervening illegality. Answer: D Diff: 2 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Application of knowledge Classification: Application 51) An offer is terminated on the grounds of "lapse of time" if ________. A) the offeror dies before the offeree has accepted the offer B) the offer is not communicated to the offeree C) the offeror has communicated to the offeree a set time which is not mentioned in the offer D) the offer is not accepted within a stated time period Answer: D Diff: 1 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Analytical thinking Classification: Concept 52) George made an offer to Jacob to sell his house for $1 million. The offer was received by Jacob on May 1, 2014, and he stipulated that he had 13 days to accept it. But Jacob could not arrange the money, and on May 16, 2014 he made a counteroffer to buy the house for $850,000. Which of the following is true of the original offer made by George to Jacob? A) It is terminated by the counteroffer. B) It is still valid as the house has not been sold. C) It is invalid due to lapse of the stated time. D) It is invalid due to incompetency of the offeree. Answer: C Diff: 2 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Application of knowledge Classification: Application 53) An option contract is terminated upon the death of the offeror. Answer: FALSE Diff: 1 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Analytical thinking Classification: Concept 13 Copyright © 2019 Pearson Education, Inc.

54) An offer is terminated if the subject matter of the offer is destroyed. Answer: TRUE Diff: 1 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Analytical thinking Classification: Concept 55) If the object of an offer is made illegal prior to the acceptance of the offer, then the offer terminates. Answer: TRUE Diff: 1 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Analytical thinking Classification: Concept 56) An offer terminates upon the expiration of a stated time in the offer. Answer: TRUE Diff: 1 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Analytical thinking Classification: Concept 57) If no time is stated in an offer, then the offer stays valid indefinitely. Answer: FALSE Diff: 1 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Analytical thinking Classification: Concept 58) Give an account of termination of offer due to lapse of time. Answer: An offer expires at the lapse of time of an offer. An offer may state that it is effective only until a certain date. Unless otherwise stated, the time period begins to run when the offer is actually received by the offeree and terminates when the stated time period expires. If no time is stated in an offer, the offer terminates after a "reasonable time" dictated by the circumstances. Diff: 1 LO: 10.5 Describe how offers are terminated by operation of law. AACSB: Analytical thinking Classification: Concept

59) In the above question, Ron's response, agreeing to sell the computer to Carl, is considered as a(n) ________. A) mirror image rule acceptance B) rejection C) counteroffer D) equivocal response Answer: A Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Application of knowledge Classification: Application 60) A(n) ________ is a manifestation of assent by the offeree to the terms of the offer in a manner invited or required by the offer as measured by the objective theory of contracts. A) acceptance B) revocation C) proposal D) counteroffer Answer: A Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 61) The legal power to accept an offer belongs to the ________. A) offeror B) offeree C) agent D) seller Answer: B Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept

62) Mandy decided to sell her iPad and made an offer for $250 to her friend Shelly. Shelly told Mandy she was willing to buy the iPad, but she would be glad if Shelly could lower her asking price. Mandy lowered the price to $210 and Shelly bought it. Which of the following would describe Shelly's response to Mandy for her first offer? A) counteroffer B) rejection C) equivocal response D) grumbling acceptance Answer: C Diff: 2 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Application of knowledge Classification: Application 63) Quentin is a member of the Album of the Month Club and receives a new music CD every month without fail. The Club usually gives its members a time period within which they can reject the selection and stop shipment of the CD, failing which the CD will be shipped. Last month, Quentin received a CD from Album of the Month Club, a copy of which a friend had already gifted him. As he was away, Quentin had not found time to reject the selection and had to buy the CD. What kind of an offer-acceptance model does Album of the Month Club have? A) mirror image rule acceptance B) silence as acceptance C) acceptance-upon-dispatch D) unequivocal acceptance Answer: B Diff: 2 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Application of knowledge Classification: Application 64) The mirror image rule states that ________. A) the offeree's counteroffer should match the value of the offeror's offer B) the offeree is allowed to modify the terms of the offer C) the offeror can modify the terms of the offer even after the offeree has accepted them D) the offeree must accept the terms as stated in the offer Answer: D Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept

65) Which of the following contradicts the mirror image rule? A) silence as acceptance B) option contract C) counteroffer D) acceptance-upon-dispatch Answer: C Diff: 2 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 66) The ________ states that an acceptance is effective when it is dispatched, even if it is lost in transmission. A) rule of silence as acceptance B) mirror image rule C) mailbox rule D) mutual assent rule Answer: C Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 67) Which of the following is a difference between acceptance and revocation? A) Revocation is valid only if the offeree receives it, while an offeree's acceptance is valid when dispatched. B) Revocation can be done by the offeror or offeree, while an acceptance can only be done by the offeree. C) An acceptance must be received by the offeror to be valid, while a revocation need not be received by the offeree. D) A revocation can be made after acceptance, while an acceptance cannot be made after revocation. Answer: A Diff: 2 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept

68) ________ is a stipulation in an offer that says the acceptance must be by a specified means of communication. A) An option contract B) The mirror image rule C) Implied authorization D) Express authorization Answer: D Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 69) The term ________ refers to a mode of acceptance that is indicated from what is customary in similar transactions, usage of trade, or prior dealings between the parties. A) express authorization B) implied authorization C) option contract D) unequivocal acceptance Answer: B Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 70) Bilateral contracts are accepted only upon the offeree's performance of the required act. Answer: FALSE Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 71) Only the offeree has the legal power to accept an offer and create a contract. Answer: TRUE Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 72) An offer that is made to two or more persons jointly must be accepted jointly. Answer: TRUE Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept

73) A contract is created upon an equivocal response to an offer from the offeree. Answer: FALSE Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 74) An unequivocal acceptance must not contain conditions or exceptions. Answer: TRUE Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 75) To meet the mirror image rule, the offeree must accept the terms of the offer without modification. Answer: TRUE Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 76) Under the mailbox rule, an acceptance is only effective when it is received. Answer: FALSE Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 77) If an offeree dispatches a rejection before an acceptance, then the rejection will not be applicable. Answer: FALSE Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 78) An offer cannot stipulate that acceptance must be by a specified means of communication. Answer: FALSE Diff: 1 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept

79) Explain the importance of "time of acceptance" of contracts. Answer: Under the common law of contracts, acceptance of a bilateral contract occurs when the offeree dispatches the acceptance by an authorized means of communication. This rule is called the acceptance-upon-dispatch rule or, more commonly, the mailbox rule. Under this rule, the acceptance is effective when it is dispatched, even if it is lost in transmission. If an offeree first dispatches a rejection and then sends an acceptance, the mailbox rule does not apply to the acceptance. The problem of lost acceptances can be minimized by expressly altering the mailbox rule. The offeror can do this by stating in the offer that acceptance is effective only upon actual receipt of the acceptance. Diff: 2 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept 80) Explain implied and express authorizations. Answer: An acceptance must be properly dispatched. The acceptance must be properly addressed, packaged in an appropriate envelope or container, and have prepaid postage or delivery charges. Most offers do not expressly specify the means of communication required for acceptance. The common law recognizes certain implied means of communication. Implied authorization may be inferred from what is customary in similar transactions, usage of trade, or prior dealings between the parties. An offer can stipulate that acceptance must be by a specified means of communication. Such stipulation is called express authorization. If the offeree uses an unauthorized means of communication to transmit the acceptance, the acceptance is not effective, even if it is received by the offeror within the allowed time period, because the means of communication was a condition of acceptance. Diff: 2 LO: 10.6 Define acceptance and apply the mirror image rule. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 11 Consideration and Promissory Estoppel 1) A contract is said to have legal value if ________. A) both the promisor and the promisee receive a legal benefit B) the promisor suffers a legal detriment C) the promisee suffers a legal detriment D) the promisee receives a legal benefit Answer: C Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 2) Under which of the following conditions is a contract said to have legal value? A) the promisor receives a legal benefit B) the promisor suffers a legal detriment C) both promisor and promisee receives a legal benefit D) both promisor and promisee suffers a legal detriment Answer: A Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 3) Mark, who recently won a lottery, tells Sean that he will split his lottery winnings with him if Sean can arrange Mark's interview with his boss. Sean talks to his boss and the meeting is arranged. But when Sean goes to collect half of Mark's lottery winnings, Mark refuses to pay. What is the act of consideration in this scenario? A) Mark telling Sean he will split his lottery winnings with him B) Sean arranging the interview C) Mark going for the interview D) Sean asking for half of the lottery winnings Answer: B Diff: 2 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Application of knowledge Classification: Application

4) Which of the following is supported by consideration? A) written contract B) gift promise C) illusory promise D) preexisting duty Answer: A Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 5) AtlasNow Construction Company, a general contractor, plans to place a bid for building a hospital. It requests bids from subcontractors for plumbing and other construction related services that will be needed for building the hospital. Catapipes Plumbing Company, a plumbing subcontractor, submits the lowest bid for the plumbing work, and AtlasNow incorporates Catapipes's low bid in its own bid for the general contract. Based on all of the subcontractors' bids, AtlasNow submits the lowest overall bid to build the hospital and is awarded the contract. Which of the following conditions is required for the two companies to enter into a legally enforceable contract? A) The considerations must be beneficial to both parties involved. B) The considerations must be detrimental to both parties involved. C) The considerations must be mentioned in writing in the contract. D) The considerations must be bargained-for exchange of a service or product. Answer: D Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Application of knowledge Classification: Application 6) To be enforceable, a contract must be supported by consideration. Answer: TRUE Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 7) If a contract that was lacking in consideration is performed by the parties, the parties cannot subsequently assert lack of consideration to undo the performed contract. Answer: TRUE Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept

8) A promise is something of legal value given in exchange of a consideration. Answer: FALSE Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 9) Forbearance of a legal right can be provided as consideration. Answer: TRUE Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 10) A consideration need not be of legal value to be enforceable. Answer: FALSE Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 11) A contract is considered to be supported by legal value if the promisor suffers a legal detriment. Answer: FALSE Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 12) Considerations can only be monetary or economic in nature. Answer: FALSE Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 13) An out-of-court settlement in exchange for dropping a lawsuit is an example of consideration. Answer: TRUE Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept

14) A contract is considered to be supported by legal value if the promisee receives a legal benefit. Answer: FALSE Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 15) What is contract consideration? Answer: Consideration must be given before a contract can exist. Consideration is defined as something of legal value given in exchange for a promise. Consideration can come in many forms. The most common types consist of either a tangible payment, e.g., money, property, or the performance of an act, e.g., providing legal services. Less usual forms of consideration include the forbearance of a legal right, e.g., accepting an out-of-court settlement in exchange for dropping a lawsuit, and noneconomic forms of consideration, e.g., refraining from "drinking, using tobacco, swearing, or playing cards for a specified time period." Written contracts are presumed to be supported by consideration. Diff: 1 LO: 11.1 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 16) Under which of the following conditions can one convert a gift promise into an enforceable promise? A) if the promisee offers a consideration B) if the promisor offers a consideration C) if the promisee receives a legal benefit D) if the promisor suffers a legal detriment Answer: A Diff: 1 LO: 11.2 Define gift promise and identify whether gift promises are enforceable. AACSB: Analytical thinking Classification: Concept 17) Which of the following is true of a gift promise? A) A gift promise can be enforced in a court of law. B) A completed gift promise cannot be cancelled for lack of consideration. C) A gift promise contains considerations. D) The promisee can take legal action if the promisor does not uphold the promise. Answer: B Diff: 1 LO: 11.2 Define gift promise and identify whether gift promises are enforceable. AACSB: Analytical thinking Classification: Concept

18) For a gift promise to be enforceable, the promisee must offer a consideration. Answer: TRUE Diff: 1 LO: 11.2 Define gift promise and identify whether gift promises are enforceable. AACSB: Analytical thinking Classification: Concept 19) A gift promise requires the promisee to provide consideration. Answer: FALSE Diff: 1 LO: 11.2 Define gift promise and identify whether gift promises are enforceable. AACSB: Analytical thinking Classification: Concept 20) A gift promise is enforceable if the promisor withdraws from his promise. Answer: FALSE Diff: 1 LO: 11.2 Define gift promise and identify whether gift promises are enforceable. AACSB: Analytical thinking Classification: Concept 21) A completed gift promise cannot be rescinded for lack of consideration. Answer: TRUE Diff: 1 LO: 11.2 Define gift promise and identify whether gift promises are enforceable. AACSB: Analytical thinking Classification: Concept 22) What is a gift promise? When can a gift promise be enforced? Can a completed gift promise be rescinded? Answer: Gift promises are promises that lack consideration; thus, gift promises are not enforceable. To change a gift promise into an enforceable promise, the promisee must offer to do something in exchange–that is, in consideration–for the promise. A completed gift promise cannot be rescinded for lack of consideration. Once a gift promise is completed, the gifts are considered irrevocable gifts. Diff: 1 LO: 11.2 Define gift promise and identify whether gift promises are enforceable. AACSB: Analytical thinking Classification: Concept

23) ________ is a promise to refrain from doing an unlawful act, and therefore is a promise that will not support a contract. A) Preexisting duty B) Illusory promise C) Illegal consideration D) Gift promise Answer: C Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 24) Which of the following is true of an illegal consideration? A) Contract requires that either both parties suffer legal detriment. B) Contract requires that the promisor receives a legal benefit. C) Contract requires that the promisee suffer a legal detriment. D) Contracts based on illegal consideration are void. Answer: D Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 25) With regard to unenforceable contracts, an extortion call in which a man agrees to pay money in return for his family's safety would be considered as a(n) ________. A) preexisting duty B) illusory promise C) illegal consideration D) past consideration Answer: C Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Application of knowledge Classification: Application

26) A contract into which both parties enter but in which one or both of the parties can choose not to perform their contractual obligations is known as ________. A) illusory promise B) gift promise C) preexisting duty D) illegal consideration Answer: A Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 27) Why does an illusory contract lack consideration? A) because the consideration promised is unlawful and therefore void B) because the person promises to perform an act or do something he or she is already under an obligation to do C) because one or both parties can choose not to perform their contractual obligations D) because the compensation paid is for work done in the past Answer: C Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 28) Mary buys a lottery ticket and promises to buy her friend Sharon a new pair of shoes if she checks the lottery results while Mary is away. Sharon agrees to do so, provided she has the time for it. What kind of contract do Mary and Sharon have? A) preexisting duty B) past consideration C) illegal consideration D) illusory promise Answer: D Diff: 2 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Application of knowledge Classification: Application

29) Mary buys a lottery ticket and promises to buy her friend Sharon a new pair of shoes if she checks the lottery results while Mary is away. Sharon agrees to do so, provided she has the time for it. If Sharon fails to check the results and Mary wins the lottery, which of the following would be true of the contract between Mary and Sharon? A) Mary can claim for breach of contract against Sharon. B) Sharon can claim for breach of contract against Mary. C) Neither Mary nor Sharon can claim breach of contract. D) Mary's promise is supported by consideration. Answer: C Diff: 2 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Application of knowledge Classification: Application 30) A promise lacks consideration if a person promises to perform an act or do something he or she is already under an obligation to do. This is called a(n) ________. A) illegal consideration B) preexisting duty C) gift promise D) illusory promise Answer: B Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Application of knowledge Classification: Application 31) Dean Campenella is a detective with the California state police. During the investigation of a missing child, Campenella found new clues that led to the capture of a serial killer involved in another case. Since Campenella was not involved in the serial killer case, and found the clues while investigating another case, Campenella demanded a special reward from the state police department for his help in catching the killer. But his demand was declined citing lack of consideration. Campenella's demand lacks consideration under which of the following? A) preexisting duty B) illegal consideration C) gift promise D) illusory promise Answer: A Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Application of knowledge Classification: Application

32) Hartman, who worked for Aratize Inc. for 25 years, decides to retire. Upon hearing the news of his retirement, the president of Aratize announces a bonus of $250,000 to Hartman for his exceptional services toward Aratize thus far. But upon retiring, Hartman isn't paid the bonus. Hartman decides to sue the president and Aratize to recover the promised bonus. Which of the following is true in this case? A) It will be enforceable in court because it is a gift promise. B) It will not be enforceable in court because of past consideration. C) It will not be enforceable because the president is not authorized to make such a promise. D) It will not be enforceable because it is an unlawful consideration. Answer: B Diff: 2 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Application of knowledge Classification: Application 33) Corey in a desperate need to get to the airport decides to take his neighbor Tanner's help. Tanner agrees to help and drives Corey to the airport. Upon arrival at the airport, Corey promises to pay Tanner $25 for the gas fill. Corey's promise falls under which of the following contracts? A) illegal consideration B) illusory promise C) preexisting duty D) past consideration Answer: D Diff: 2 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Application of knowledge Classification: Application 34) Corey in a desperate need to get to the airport decides to take his neighbor Tanner's help. Tanner agrees to help and drives Corey to the airport. Upon arrival at the airport, Corey promises to pay Tanner $25 for the gas fill. Which of the following conditions would have made the contract between Corey and Tanner enforceable? A) if Tanner had driven Corey to the airport in the past B) if Corey, upon arrival, had promised to pay gas money to Tanner whenever he could C) if the promise to pay gas money had been made before the trip was made D) if Tanner was contracted to drive Corey to the airport as a duty Answer: C Diff: 2 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Application of knowledge Classification: Application

35) James had a contract with Frasier to fix a plumbing issue at Frasier's home. The contract was made for $3,000. After the work was completed, Frasier then refused to pay anything unless James agreed to accept $2,500. James's attempt to make a new contract is void because it lacks consideration under the ________ concept. A) illegal consideration B) gift promise C) past consideration D) preexisting duty Answer: D Diff: 2 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Application of knowledge Classification: Application 36) Contracts based on illegal consideration are valid. Answer: FALSE Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 37) Illusory promises require both parties to perform their contractual obligations. Answer: FALSE Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 38) Illusory promises are enforceable if one of the parties has performed their contractual obligation. Answer: FALSE Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 39) An illusory promise is an example of a contract that lacks consideration. Answer: TRUE Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

40) Preexisting duty promise is unenforceable because of the introduction of a new consideration. Answer: FALSE Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 41) The preexisting rule allows for midstream changes to be enforceable in a contract. Answer: FALSE Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 42) A promise based on past consideration is not enforceable. Answer: TRUE Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 43) Contracts falling under past consideration are unenforceable. Answer: TRUE Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 44) A new promise can include a past consideration for it to be enforceable. Answer: FALSE Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept

45) Explain the preexisting duty principle in private sector contracts. Answer: In the private sector, the preexisting duty rule often arises when one of the parties to an existing contract seeks to change the terms of the contract during the course of its performance. Such midstream changes are unenforceable: The parties have a preexisting duty to perform according to the original terms of the contract. Sometimes a party to a contract runs into substantial unforeseen difficulties while performing his or her contractual duties. If the parties modify their contract to accommodate these unforeseen difficulties, the modification will be enforced even though it is not supported by new consideration. Diff: 1 LO: 11.3 Describe contracts that lack consideration, such as those involving illegal consideration, an illusory promise, a preexisting duty, or past consideration. AACSB: Analytical thinking Classification: Concept 46) A contract in which a seller agrees to sell all of its production to a single buyer is known as a(n) ________. A) requirements contract B) output contract C) best-efforts contract D) option contract Answer: B Diff: 1 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Analytical thinking Classification: Concept 47) Which of the following is true of output contracts? A) It cannot contain the best-efforts clause. B) It provides the seller with reduced selling costs. C) It assures the purchaser that the seller will use his or her best efforts to achieve the contract's objective. D) It assures the seller of a purchaser for all its outputs. Answer: D Diff: 1 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Analytical thinking Classification: Concept

48) Which of the following is true of a buyer with an output contract? A) The buyer cannot sue the seller if the seller shares some of its output with another buyer. B) The buyer can choose to buy when and what he wants from the seller. C) The buyer is obliged to buy all the goods sold by the seller. D) The buyer cannot enforce the best-efforts clause in the output contract. Answer: C Diff: 1 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Analytical thinking Classification: Concept 49) A(n) ________ is a contract in which a buyer agrees to purchase all of its requirements for an item from one seller. A) option contract B) requirements contract C) best-efforts contract D) output contract Answer: B Diff: 1 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Analytical thinking Classification: Concept 50) Poweroxi Inc. produces rocket propellant fuel that is used in space shuttles. NASA is an agency that requires rocket propellant fuel to send its rockets to space. NASA enters into a contract with Poweroxi Inc. to purchase all of the propellant fuel it will need that year from Poweroxi. What would this contract be an example of? A) requirements contract B) output contract C) option contract D) yield contract Answer: A Diff: 2 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Application of knowledge Classification: Application

51) Poweroxi Inc. produces rocket propellant fuel that is used in space shuttles. NASA is an agency that requires rocket propellant fuel to send its rockets to space. NASA enters into a contract with Poweroxi Inc. to purchase all of the propellant fuel it will need that year from Poweroxi. Which of the following conditions would constitute a breach in contract? A) if Poweroxi sold to another purchaser B) if Poweroxi sold to another purchaser at a lower price C) if NASA purchased fuel from another seller D) if NASA stopped purchasing from Poweroxi due to lack of need Answer: C Diff: 2 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Analytical thinking Classification: Concept 52) In an output contract, the buyer agrees to make all of its purchases from one buyer. Answer: FALSE Diff: 1 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Analytical thinking Classification: Concept 53) Output contracts serve the legitimate business purposes of assuring the seller of a purchaser for all its output. Answer: TRUE Diff: 1 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Analytical thinking Classification: Concept 54) A requirements contract is a contract in which a buyer agrees to purchase all of its requirements for an item from one seller. Answer: TRUE Diff: 1 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Analytical thinking Classification: Concept

55) A requirements contract is unenforceable due to lack of consideration. Answer: FALSE Diff: 1 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Analytical thinking Classification: Concept 56) Imposition of the best-efforts duty provides sufficient consideration to make a contract enforceable. Answer: TRUE Diff: 1 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Analytical thinking Classification: Concept 57) What is a best-efforts contract? Answer: A best-efforts contract is a contract that contains a clause that requires one or both of the parties to use their best efforts to achieve the objective of the contract. The courts generally have held that the imposition of the best-efforts duty provides sufficient consideration to make a contract enforceable. A party can sue another company for failing to use its promised best efforts. Diff: 1 LO: 11.4 List and describe special business contracts, including output contracts, requirements contracts, and best-efforts contracts. AACSB: Analytical thinking Classification: Concept 58) ________ is an agreement whereby the parties agree to accept something different in satisfaction of the original contract. A) Counteroffer B) Accord C) Promissory estoppel D) Mirror image acceptance Answer: B Diff: 1 LO: 11.5 Define accord and satisfaction in settling a disputed claim. AACSB: Analytical thinking Classification: Concept

59) Toughones, a car part manufacturer, signed a contract to license computer software from Vizera Inc. for $250,000. This software is to be used to keep track of inventory, accounts receivable, and other financial data. After the software was installed, the computer system worked, but it had a few glitches. Toughones refused to pay the full amount mentioned in the contract. To settle the dispute, the parties agree that $180,000 is to be paid as full and final payment for the software. Toughones paid $180,000 as agreed. What kind of agreement did Toughones and Vizera reach in the end? A) accord and satisfaction B) preexisting duty C) counteroffer D) mirror image acceptance Answer: A Diff: 1 LO: 11.5 Define accord and satisfaction in settling a disputed claim. AACSB: Application of knowledge Classification: Application 60) James had a contract with Frasier to fix a plumbing issue at Frasier's home. The contract was made for $3,000. After the work was completed, Frasier then refused to pay anything unless James agreed to accept $2,500. In the above scenario, to avoid legal nuisance, Frasier decides to compromise with James. He asks James to fix a tap in the barn for $250, and modify the current contract to include the tap in the barn. James agrees to this, and does as asked while Frasier remakes the contract. Which of the following would this kind of settlement be referred to as? A) duress B) past consideration C) accord D) mirror image rule acceptance Answer: C Diff: 2 LO: 11.5 Define accord and satisfaction in settling a disputed claim. AACSB: Application of knowledge Classification: Application 61) Which of the following is true of an accord? A) The accord terminates the original contract. B) The nonbreaching party cannot enforce the original contract if the accord is not satisfied. C) It is enforceable even though no new consideration is given. D) An accord is only reached when both parties of the contract fail to meet their contractual obligations. Answer: C Diff: 1 LO: 11.5 Define accord and satisfaction in settling a disputed claim. AACSB: Analytical thinking Classification: Concept 16 Copyright © 2019 Pearson Education, Inc.

62) An accord is enforceable even though no new consideration is given. Answer: TRUE Diff: 1 LO: 11.5 Define accord and satisfaction in settling a disputed claim. AACSB: Analytical thinking Classification: Concept 63) If the accord is performed, it is called a satisfaction. Answer: TRUE Diff: 1 LO: 11.5 Define accord and satisfaction in settling a disputed claim. AACSB: Analytical thinking Classification: Concept 64) Once an accord has been reached, the original contract cannot be enforced under any circumstance. Answer: FALSE Diff: 1 LO: 11.5 Define accord and satisfaction in settling a disputed claim. AACSB: Analytical thinking Classification: Concept 65) An accord is a compromise reached between two parties to settle a claim. Answer: TRUE Diff: 1 LO: 11.5 Define accord and satisfaction in settling a disputed claim. AACSB: Analytical thinking Classification: Concept 66) If the accord is not satisfied, the other party can sue to enforce the accord. Answer: TRUE Diff: 1 LO: 11.5 Define accord and satisfaction in settling a disputed claim. AACSB: Analytical thinking Classification: Concept 67) What is accord and satisfaction in contractual terms? Answer: In some situations, one of the parties to a contract believes that he or she did not receive what he or she was due. This party may attempt to reach a compromise with the other party, e.g., by paying less consideration than was provided for in the contract. If the two parties agree to a compromise, a settlement of the claim has been reached. The settlement agreement is called an accord. If the accord is performed, it is called a satisfaction. This type of settlement is called an accord and satisfaction, or a compromise. Diff: 1 LO: 11.5 Define accord and satisfaction in settling a disputed claim. AACSB: Analytical thinking Classification: Concept 17 Copyright © 2019 Pearson Education, Inc.

68) ________ is an equity doctrine that permits a court to order enforcement of a contract that lacks consideration. A) Illusory promise B) Gift promise C) Promissory estoppel D) Option contract Answer: C Diff: 1 LO: 11.6 Define and apply the equitable doctrine of promissory estoppel. AACSB: Analytical thinking Classification: Concept 69) Which of the following is true of a promissory estoppel? A) It is invoked in cases having option contract infringements. B) It permits a court to order enforcement of a contract that lacks consideration. C) It allows for a party to claim goods, which were revoked, for which it has already paid consideration. D) It is invoked in cases that involve a promissory note to pay considerations at a later time. Answer: B Diff: 1 LO: 11.6 Define and apply the equitable doctrine of promissory estoppel. AACSB: Analytical thinking Classification: Concept 70) AtlasNow Construction Company, a general contractor, plans to place a bid for building a hospital. It requests bids from subcontractors for plumbing and other construction related services that will be needed for building the hospital. Catapipes Plumbing Company, a plumbing subcontractor, submits the lowest bid for the plumbing work, and AtlasNow incorporates Catapipes's low bid in its own bid for the general contract. Based on all of the subcontractors' bids, AtlasNow submits the lowest overall bid to build the hospital and is awarded the contract. If Catapipes Plumbing plans to withdraw its bid, what legal doctrine can help AtlasNow from being meted out injustice due to lack of consideration? A) promissory estoppel B) freedom of contract C) acquiescence D) exclusionary rule Answer: A Diff: 2 LO: 11.6 Define and apply the equitable doctrine of promissory estoppel. AACSB: Application of knowledge Classification: Application

71) Which of the following is true of applying promissory estoppels to a contract? A) Both parties must suffer legal detriment. B) Injustice would be caused if the promise were not enforced. C) They can be applied for illusory promise contracts. D) They can be applied for gift promise contracts. Answer: B Diff: 1 LO: 11.6 Define and apply the equitable doctrine of promissory estoppel. AACSB: Analytical thinking Classification: Concept 72) Promissory estoppel is an equity doctrine that permits parties to enforce a contract that includes consideration. Answer: FALSE Diff: 1 LO: 11.6 Define and apply the equitable doctrine of promissory estoppel. AACSB: Analytical thinking Classification: Concept 73) Promissory estoppels can be invoked for cases that include consideration. Answer: FALSE Diff: 1 LO: 11.6 Define and apply the equitable doctrine of promissory estoppel. AACSB: Analytical thinking Classification: Concept 74) A promissory estoppel is usually used to provide a remedy to a party who has relied on another party's promise. Answer: TRUE Diff: 1 LO: 11.6 Define and apply the equitable doctrine of promissory estoppel. AACSB: Analytical thinking Classification: Concept 75) Define and describe the doctrine of promissory estoppel. Answer: Promissory estoppel is an equity doctrine that permits a court to order enforcement of a contract that lacks consideration. Promissory estoppel is applied to avoid injustice. It is usually used to provide a remedy to a party who has relied on another party's promise, but that party has withdrawn its promise and is not subject to a breach of contract action because consideration is lacking. The doctrine of promissory estoppel prevents the promisor from revoking his or her promise based on lack of consideration. Therefore, the person who has detrimentally relied on the promise for performance may sue the promisor for performance or other remedy the court feels is fair to award in the circumstances. Diff: 1 LO: 11.6 Define and apply the equitable doctrine of promissory estoppel. AACSB: Analytical thinking Classification: Concept 19 Copyright © 2019 Pearson Education, Inc.

Business Law, 10e (Cheeseman) Chapter 12 Capacity and Legality 1) The ________ is a legal principle that allows minors to cancel most contracts they have entered into with adults. A) duty of restoration B) duty of restitution C) contract of adhesion D) infancy doctrine Answer: D Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of a minor under the infancy doctrine? A) A minor is bound to an adult's decisions in a contract between them. B) A minor can disaffirm contracts he or she has entered into with adults. C) A minor cannot enter into a legal contract with another minor. D) A minor cannot choose to enforce a contract at his or her whim. Answer: B Diff: 2 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 3) Which of the following is true of a minor's right to disaffirm a contract? A) A minor must reach the age of majority to disaffirm a contract. B) Contracts that come under the necessaries of life can be disaffirmed by minors. C) Minors are exempt from duty of restoration during the period of minority. D) A minor can expressly disaffirm a contract orally or in writing. Answer: D Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept

4) ________ is the act of a minor to rescind a contract under the infancy doctrine, either orally, in writing, or by the minor's conduct. A) Ratification B) Disaffirmance C) Sanction D) Adherence Answer: B Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 5) ________ is a rule that states that a minor is obligated only to return the goods or property he or she has received from the adult in the condition it is in at the time of disaffirmance. A) Duty of restoration B) Duty of restitution C) Infancy doctrine D) Emancipation doctrine Answer: A Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 6) ________ is a rule that states that if a minor has transferred money, property, or other valuables to the competent party before disaffirming the contract, that party must place the minor in status quo. A) Emancipation doctrine B) Infancy doctrine C) Duty of restitution D) Duty of restoration Answer: C Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept

7) 16-year-old Frank bought a video game console from John for $150. Frank is a minor, while John is a competent adult. A month later, the console started malfunctioning on its own. Frank returned the console to John. If Frank disaffirms his contract with John for buying the console, which of the following will be considered true? A) John is not bound by the contract any more as the exchange has been completed. B) Frank can reclaim full refund on the amount he paid. C) Frank can only ask for full refund once he has reached the age of majority. D) Frank is legally obligated to fix the console before returning it to John. Answer: B Diff: 2 LO: 12.1 Define and describe the infancy doctrine. AACSB: Application of knowledge Classification: Application 8) ________ is the act of a minor after he or she has reached the age of majority, by which he or she accepts a contract entered into when he or she was a minor. A) Exculpation B) Restitution C) Ratification D) Emancipation Answer: C Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 9) If a minor ratifies a contract while still being a minor, ________. A) the contract can still be disaffirmed by the minor B) the minor is bound by the terms of the contract C) the minor is exempt from the duty of restitution D) the minor has to hold the adult in status quo in case of disaffirmance Answer: A Diff: 2 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept

10) If a minor entered into a contract, and then ratified the contract after reaching the age of majority, which of the following is he or she exempt from? A) duty of restoration B) duty of restitution C) necessaries of life D) infancy doctrine Answer: D Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 11) In order for a minor to be bound by a contract with an adult after he or she becomes an adult, he or she must ________. A) disaffirm the contract before reaching the age of majority B) complete his or her contractual duties of restitution and restoration C) ratify the contract after reaching the age of majority D) place the adult in status quo until reaching the age of maturity Answer: C Diff: 2 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 12) Which of the following is true of the ratification of a contract by a minor? A) A minor can only ratify a contract after reaching the age of majority. B) A minor cannot ratify a contract that falls under the necessaries of life doctrine. C) A minor can ratify a contract during the period of minority if he or she so wishes. D) A minor can ratify a contract under the guidance of a parent or legal guardian. Answer: A Diff: 2 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 13) The act or process of a minor voluntarily leaving home and living apart from his or her parents is referred to as ________. A) restitution B) emancipation C) restoration D) adhesion Answer: B Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

14) The equitable doctrine of ________ obligates a minor to pay only reasonable value for goods or services received that are necessaries of life. A) emancipation B) restraint of contract C) contract of adhesion D) quasi-contract Answer: D Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 15) Which of the following is true of a minor's duty toward a contract for necessaries of life? A) Minors need to reach the age of majority to enter into contracts for necessaries of life. B) Minors are exempt from paying for contracts for necessaries of life. C) Minors must pay the reasonable value of necessaries of life for which they contract. D) Parents are liable to provide necessaries of life to their minor children if they become emancipated. Answer: C Diff: 2 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 16) People below the age of majority are considered minors. Answer: TRUE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 17) Any age below the statutory age of majority is called the period of minority. Answer: TRUE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 18) The infancy doctrine binds an adult to a minor's decision on a contract. Answer: TRUE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept

19) The infancy doctrine gives adults the right to disaffirm contracts entered with minors. Answer: FALSE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 20) A minor may not affirm one part of a contract and disaffirm another part. Answer: TRUE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 21) A minor can disaffirm a contract any time after reaching the age of majority. Answer: FALSE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 22) According to a minor's duty of restoration, the goods received from an adult should be returned in status quo after the contract has been disaffirmed by the minor. Answer: FALSE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 23) If a minor does not disaffirm a contract upon reaching the age of majority, the contract is considered as ratified. Answer: TRUE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 24) A ratified contract can be disaffirmed even after the minor reaches the age of majority. Answer: FALSE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept

25) The emancipation doctrine helps a minor to enforce the necessaries of life contract on negligent parents. Answer: FALSE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 26) If a minor ratifies a contract while still being a minor, the contract cannot be disaffirmed. Answer: FALSE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 27) The parental duty of support is terminated if a minor becomes emancipated. Answer: TRUE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 28) Minors are not obligated to pay for the necessaries of life that they contract for. Answer: FALSE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 29) The duty of restitution states that a competent party should be placed in status quo by the minor upon disaffirmance of a contract. Answer: FALSE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 30) If both parties to a contract are minors, both parties have the right to disaffirm the contract. Answer: TRUE Diff: 1 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept

31) Describe the infancy doctrine with reference to legal contracts. Answer: Minors do not always have the maturity, experience, or sophistication needed to enter into contracts with adults. To protect minors, the law recognizes the infancy doctrine, which gives minors the right to disaffirm most contracts they have entered into with adults. This right is based on public policy, which reasons that minors should be protected from the unscrupulous behavior of adults. Under the infancy doctrine, a minor has the option of choosing whether to enforce a contract. The adult party is bound to the minor's decision. If both parties to a contract are minors, both parties have the right to disaffirm the contract. Diff: 2 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 32) What is the minor's duty of restoration in a disaffirmed contract? Answer: Generally, a minor is obligated only to return the goods or property he or she has received from the adult in the condition it is in at the time of disaffirmance, even if the item has been consumed, lost, or destroyed or has depreciated in value by the time of disaffirmance. This rule, called the duty of restoration, is based on the rationale that if a minor had to place the adult in status quo upon disaffirmance of a contract, there would be no incentive for an adult not to deal with a minor. Diff: 2 LO: 12.1 Define and describe the infancy doctrine. AACSB: Analytical thinking Classification: Concept 33) Which of the following is true of a contract with an adjudged insane person? A) The adjudged insane person is bound by the terms of the contract. B) The contract is void. C) Only the competent party can enforce the contract. D) The competent party is legally obligated to uphold the contract. Answer: B Diff: 2 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept 34) Which of the following is true of a contract where one of the parties is insane but not adjudged insane? A) The contract is voidable by the competent party. B) The contract is only voidable by the insane person. C) Only the court appointed legal guardian to the insane person can modify contracts. D) The non-insane person must be placed in status quo if the insane person voids the contract. Answer: B Diff: 2 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept 8 Copyright © 2019 Pearson Education, Inc.

35) A person who has alternating periods of sanity and insanity can enter into contracts ________. A) when he or she is in a lucid interval B) when there is a legal guardian appointed by the court for that person C) once he or she has been adjudged to be insane D) only once he or she has been adjudged to be legally insane Answer: A Diff: 2 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept 36) Which of the following groups is legally deprived from directly entering into contracts? A) minors B) persons adjudged insane C) persons with alternating states of sanity and insanity D) intoxicated persons Answer: B Diff: 1 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept 37) A person who was legally insane at the time of entering a contract is relieved of his or her duties from the contract. Answer: TRUE Diff: 1 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept 38) In a contract involving a competent person and a person adjudged insane, either party can enforce the contract. Answer: FALSE Diff: 1 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept 39) Any contract entered into by a person who has been adjudged insane is void. Answer: TRUE Diff: 1 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept

40) The court-appointed guardian is the only person who has the legal authority to enter into contracts on behalf of a person who has been adjudged insane. Answer: TRUE Diff: 1 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept 41) A person who is insane but not adjudged insane is appointed a legal guardian to act on his or her behalf. Answer: FALSE Diff: 1 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept 42) In a contract involving a competent person and a person who is insane but not adjudged insane, the competent party can void the contract. Answer: FALSE Diff: 1 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept 43) A person who is insane but not adjudged insane cannot void a contract he or she has entered into. Answer: FALSE Diff: 1 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept 44) What is legal insanity? Answer: The law protects people suffering from substantial mental incapacity from enforcement of contracts against them because such persons may not understand the consequences of their actions in entering into a contract. To be relieved of his or her duties under a contract, a person must have been legally insane at the time of entering into the contract. This state is called legal insanity. The person's mental incapacity must render that person incapable of understanding or comprehending the nature of the transaction. Mental incapacity may arise because of mental illness, brain damage, mental retardation, senility, and the like. Mere weakness of intellect, slight psychological or emotional problems, or delusions does not constitute legal insanity. Diff: 2 LO: 12.2 Define legal insanity and explain how it can affect contractual capacity. AACSB: Analytical thinking Classification: Concept

45) Contracts entered into by intoxicated persons are ________. A) fully enforceable at the option of either party B) voidable by both parties C) void on their face D) voidable only by the intoxicated person Answer: D Diff: 1 LO: 12.3 Explain how intoxication may affect contractual capacity. AACSB: Analytical thinking Classification: Concept 46) Which of the following is true regarding contracts entered into by an intoxicated person? A) The contract would be void. B) Only the sober party may disaffirm the contract. C) When the intoxicated person becomes sober, he or she may ratify the contract. D) The contract is fully enforceable by the sober party. Answer: C Diff: 1 LO: 12.3 Explain how intoxication may affect contractual capacity. AACSB: Analytical thinking Classification: Concept 47) A contract with an intoxicated person is not voidable by the other party if that party had contractual capacity. Answer: TRUE Diff: 1 LO: 12.3 Explain how intoxication may affect contractual capacity. AACSB: Analytical thinking Classification: Concept 48) A person who disaffirms a contract based on intoxication must be returned to status quo. Answer: TRUE Diff: 1 LO: 12.3 Explain how intoxication may affect contractual capacity. AACSB: Analytical thinking Classification: Concept 49) The intoxicated person is not legally obligated to return consideration, received under the contract, to the competent party. Answer: FALSE Diff: 1 LO: 12.3 Explain how intoxication may affect contractual capacity. AACSB: Analytical thinking Classification: Concept

50) After becoming sober, an intoxicated person can ratify the contracts he or she entered into while intoxicated. Answer: TRUE Diff: 1 LO: 12.3 Explain how intoxication may affect contractual capacity. AACSB: Analytical thinking Classification: Concept 51) Intoxicated persons are liable in quasi-contract to pay the reasonable value for necessaries they receive. Answer: TRUE Diff: 1 LO: 12.3 Explain how intoxication may affect contractual capacity. AACSB: Analytical thinking Classification: Concept 52) If an intoxicated person enters into a contract to purchase dinner and drinks for everyone in a restaurant, may that person disaffirm the contract and refuse to pay for the restaurant bill after becoming sober? Answer: The intoxicated person can disaffirm the contract after becoming sober, but only if the person was so intoxicated when the contract was entered into that he or she was incapable of understanding or comprehending the nature of the transaction. The intoxicated person generally must return all consideration received under the contract to the other party and make restitution that returns the other party to status quo. In this case, the food and beverages cannot be returned as they have already been consumed. To return the restaurant owner to status quo would require paying a reasonable value for food and beverages consumed. Diff: 2 LO: 12.3 Explain how intoxication may affect contractual capacity. AACSB: Application of knowledge Classification: Application 53) ________ set an upper limit on the interest rate that can be charged on certain types of loans. A) Federal banking reforms B) State usury laws C) Congressional committees D) Chambers of commerce Answer: B Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept

54) The state of Transas has set a maximum interest rate of 12 percent on loans. Matt borrows $10,000 from Tony to pay off a gambling debt. Both are residents of Transas. They sign a contract, which states that Matt would have to pay $1,500 as interest in one year to pay off the loan. Later, Matt gets to know about the state usury limit and sues Tony. What is the nature of the contract between Matt and Tony? A) It is illegal as it violates gambling statutes. B) It is legal as both parties were competent when the contract was signed. C) The contract is void as it violates usury laws. D) The contract is void as it is a contract to commit a crime. Answer: C Diff: 2 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Application of knowledge Classification: Application 55) Which of the following is an example of a contract contrary to statutes by its very existence? A) a usurious loan contract B) a contract between two minors C) a contract where one party is insane but not adjudged insane D) a contract of adhesion Answer: A Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept 56) Which of the following is true of a contract, the object of which has become unlawful after the creation of the contract? A) The contract is still legal as the object was legal at the time of creating that contract. B) The contract is illegal even if the parties don't complete the contractual agreement. C) The parties of the contract will be discharged from that contract. D) Both parties are still obligated to complete their contractual agreements. Answer: C Diff: 2 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept

57) The term ________ refers to a doctrine that states that the courts will refuse to enforce or rescind an illegal contract and will leave the parties where it finds them. A) disaffirmance B) exculpatory clause C) emancipation D) effect of illegality Answer: D Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept 58) What is the doctrine of in pari delicto with reference to contracts? A) It is a situation in which both parties are considered equally at fault in an illegal contract. B) It is a situation where one party has unknowingly signed a contract to commit crimes. C) It gives minors the right to disaffirm a contract. D) It is a special exemption right to circumvent usury laws. Answer: A Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept 59) In which of the following situations would the effect of illegality be an exception? A) when both parties of an illegal contract execute their agreements B) when both parties of an illegal contract are considered in pari delicto C) when person is justifiably ignorant of the law or fact that made the contract illegal D) when a person completes his act of an illegal contract but is not paid for his consideration Answer: C Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept

60) ________ is a licensing statute with the primary purpose of increasing earnings for the government. A) Usury statute B) Ratification statute C) Regulatory licensing statute D) Revenue-raising statute Answer: D Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept 61) Damien, a first-year law student, offers his services to Mr. Jenkins to help draft his will. Mr. Jenkins agrees to Damien's offer, and promises to pay him $400 for his services. Damien completes the draft of the will. But when Damien goes to collect his payment, Mr. Jenkins refuses payment. Damien knew that he had no legal recourse to enforce the contract. What statute had Damien violated in his contract with Mr. Jenkins? A) revenue-raising statute B) regulatory licensing statute C) usury statute D) ratification statute Answer: B Diff: 2 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Application of knowledge Classification: Application 62) According to the regulatory licensing statute, ________. A) unlicensed persons can recover payment for services B) only licensed persons can recover payment for services C) persons breaching a revenue-raising statute cannot recover payment for services D) all government-licensed persons have to pay an annual fee to renew their licenses Answer: B Diff: 2 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept

63) Lenders can charge interests set higher than the state limit. Answer: FALSE Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept 64) If the object of a contract becomes illegal after the contract is entered into, the parties are discharged from the contract. Answer: TRUE Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept 65) A person can sue for nonperformance even if it is an illegal contract. Answer: FALSE Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept 66) Persons who entered into an illegal contract but withdrew before the illegal act was performed can sue to recover consideration. Answer: TRUE Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept 67) At common law, parties to an illegal contract were considered in equal fault. Answer: TRUE Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept

68) Judges can define morality based on their individual views. Answer: FALSE Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept 69) Unlicensed persons cannot recover payment for services where they do not have the required license. Answer: TRUE Diff: 1 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept 70) What are gambling statutes? Answer: All states either prohibit or regulate gambling, wagering, lotteries, and games of chance via gambling statutes. States provide various criminal and civil penalties for illegal gambling. There are many exceptions to wagering laws. Many states have enacted statutes that permit games of chance under a certain dollar amount, bingo games, lotteries conducted by religious and charitable organizations, and the like. Many states also permit and regulate horse racing, harness racing, dog racing, and state-operated lotteries. Diff: 2 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept 71) What are licensing statutes? Answer: All states have licensing statutes that require members of certain professions and occupations to be licensed by the state in which they practice. In most instances, a license is granted to a person who demonstrates that he or she has the proper schooling, experience, and moral character required by the relevant statute. Sometimes, a written examination is also required. Some statutes expressly provide that unlicensed persons cannot enforce contracts to provide these services. Diff: 2 LO: 12.4 Identify illegal contracts that are contrary to statutes and those that violate public policy. AACSB: Analytical thinking Classification: Concept

72) A(n) ________ is a contractual provision that relieves one or both of the parties to a contract from tort liability. A) contract of adhesion B) exculpatory clause C) duty of restitution D) fundamental breach Answer: B Diff: 1 LO: 12.5 Describe covenants not to compete and exculpatory clauses and identify when they are lawful. AACSB: Analytical thinking Classification: Concept 73) Bobby voluntarily enrolls in a skydiving course at OpenSkies Pvt. Ltd., an adventure firm. He signs a contract that relieves OpenSkies of liability. After receiving proper instruction, he jumps from an airplane. Unfortunately, Bobby is injured when he could not steer his parachute toward the target area while landing. He sues the parachute center for damages. But the court found that the contract protected OpenSkies from damages, as Bobby had voluntarily joined the course knowing all the risks involved. What kind of contractual provision protected OpenSkies from having to pay Bobby damages? A) noncompete clause B) exculpatory clause C) duty of restitution D) disaffirmance Answer: B Diff: 2 LO: 12.5 Describe covenants not to compete and exculpatory clauses and identify when they are lawful. AACSB: Application of knowledge Classification: Application 74) A ________ is a contract that provides that a seller of a business or an employee will not engage in a similar business or occupation within a specified geographical area for a specified time following the sale of the business or termination of employment. A) quasi-contract B) contract in restraint of trade C) covenant not to compete D) contract of adhesion Answer: C Diff: 1 LO: 12.5 Describe covenants not to compete and exculpatory clauses and identify when they are lawful. AACSB: Analytical thinking Classification: Concept

75) Darren is a certified interior designer with a lucrative client list in the city of Kelsa, situated in the state of Touslon. His business affords him a substantial amount of goodwill from his clients. Darren sells his accounting interior designing business to Glenda. When he sells his business to Glenda, Darren agrees not to open another interior designing firm in the city of Kelsa for a 25-year period. What kind of agreement exists between Darren and Glenda in this case? A) contract in restraint of trade B) covenant not to compete C) unconscionable contract D) quasi-contract Answer: B Diff: 2 LO: 12.5 Describe covenants not to compete and exculpatory clauses and identify when they are lawful. AACSB: Application of knowledge Classification: Application 76) An exculpatory clause must be reciprocal to be considered enforceable. Answer: FALSE Diff: 1 LO: 12.5 Describe covenants not to compete and exculpatory clauses and identify when they are lawful. AACSB: Analytical thinking Classification: Concept 77) An exculpatory clause that results from superior bargaining power is usually found to be void. Answer: TRUE Diff: 1 LO: 12.5 Describe covenants not to compete and exculpatory clauses and identify when they are lawful. AACSB: Analytical thinking Classification: Concept

78) Ashley's employment contract contains a covenant not to compete. It states that when she leaves her current employment, she must not work in a similar business or start a similar business in Georgia, Alabama or Florida for a period of twelve years. If Ashley leaves her current job, could her employer enforce this covenant not to compete? Why or why not? Answer: No, the noncompete clause would not be enforceable. Employers often do not want an employee who resigns or is terminated to work in a position that competes with the employer for a certain length of time after the employee is gone. Noncompete clauses are common and often enforceable, but three things must be reasonable: (1) the line of business protected, (2) the geographic area protected, and (3) the duration of the restriction. A covenant that is found to be unreasonable is not enforceable as written. If a covenant not to compete is unreasonable, the courts may either refuse to enforce it or change it so that it is reasonable. In Ashley's case, the restriction based on line of business is unclear ("similar business"), thus unreasonably broad. Both the time and geographic area are also unreasonable. Diff: 2 LO: 12.5 Describe covenants not to compete and exculpatory clauses and identify when they are lawful. AACSB: Application of knowledge Classification: Application 79) A(n) ________ is a contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair as to be unjust. A) unconscionable contract B) contract of adhesion C) contract in restraint of trade D) quasi-contract Answer: A Diff: 1 LO: 12.6 Define unconscionable contract and determine when such contracts are unlawful. AACSB: Analytical thinking Classification: Concept 80) How is the doctrine of unconscionability related to public policy? A) The doctrine of unconscionability is based on public policy. B) All contracts contrary to public policy are considered unconscionable. C) Both are used to save a contracting party from a bad bargain. D) Both are very distinctly defined by law. Answer: A Diff: 2 LO: 12.6 Define unconscionable contract and determine when such contracts are unlawful. AACSB: Analytical thinking Classification: Concept

81) Preprinted forms whose terms the consumer cannot negotiate, and must sign in order to obtain a product or service are referred to as ________. A) contracts of adhesion B) quasi-contracts C) contracts in restraint of trade D) voidable contracts Answer: A Diff: 1 LO: 12.6 Define unconscionable contract and determine when such contracts are unlawful. AACSB: Analytical thinking Classification: Concept 82) Which of the following elements has to be proved for a contract to be deemed unconscionable? A) that the weaker party did not enter the contract under duress B) that the parties had equal bargaining power C) that the dominant party justly used its bargaining power D) that the adhering party had no reasonable alternative Answer: D Diff: 2 LO: 12.6 Define unconscionable contract and determine when such contracts are unlawful. AACSB: Analytical thinking Classification: Concept 83) An unconscionable contract can be enforced if the unconscionable clause is removed from it. Answer: TRUE Diff: 1 LO: 12.6 Define unconscionable contract and determine when such contracts are unlawful. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 13 Genuineness of Assent and Undue Influence 1) ________ is an action to undo a contract. A) Rescission B) Recession C) Restitution D) Inception Answer: A Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of a unilateral mistake? A) Only one mistake or ambiguity is present in the subject matter of the entire contract. B) Out of several contracts drafted simultaneously between two parties, one has a mistake in its subject matter that does not concern the other contracts. C) Only one party is mistaken about a material fact regarding the subject matter of a contract. D) A single mistake about a material fact in the subject matter of a contract appears several times in the contract. Answer: C Diff: 2 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 3) Heather chooses to buy a scarf at Macy's and reads the price on the tag as $50. She uses her credit card to pay for the scarf, but post-purchase, she notices that the price tag actually says $500. This is an instance of a(n) ________. A) bilateral mistake B) mutual mistake of value C) innocent misrepresentation D) unilateral mistake Answer: D Diff: 2 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Application of knowledge Classification: Application

4) Kevin goes to the store to purchase a fully automatic washing machine. He browses through several models of washing machines, but does not let the salesperson know that he wants a fully automatic model. While signing the sales contract, he does not notice that the model he is purchasing is a semi-automatic machine. After purchase, which of the following options does Kyle have? A) Exchange the machine with a fully automatic one and sue the store if it does not accept it. B) Demand a full cash refund from the store for fraud in concealment. C) Sue the store for its innocent misrepresentation. D) Keep the semi-automatic washing machine as he made a unilateral mistake. Answer: D Diff: 3 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Application of knowledge Classification: Application 5) In which of the following cases of assent is the rescission of a contract unenforceable? A) mutual mistake of value B) misrepresentation of a material fact C) silence as misrepresentation D) innocent misrepresentation Answer: A Diff: 2 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 6) Which of the following constitutes a mutual mistake of a material fact? A) Martha selling her house to Graham and hiding the fact that its first floor is damaged B) Martha and Graham agreeing on the sale of a house, both referring to different houses C) Graham buying a house from Martha without asking her details of damages D) Martha selling Graham an old vase for $20, both of them unaware that it is a valuable antique collectible Answer: B Diff: 3 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Application of knowledge Classification: Application

7) ________ is a mistake made by both parties concerning an object that is important to the subject matter of a contract. A) Mutual mistake of value B) Mutual mistake of material fact C) Elementary unilateral mistake D) Fraud by concealment Answer: B Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 8) A contract in which both parties are mistaken about the value of the object of the contract is considered ________. A) unenforceable B) unconscionable C) enforceable D) void Answer: C Diff: 2 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 9) John buys a watch for $100 at a vintage store. Later, the store learns that the watch was worn by Sean Connery in a James Bond movie and wishes to rescind the sales contract they have with John. Which of the following statements is true in this scenario? A) The store can rescind the contract immediately and refund $100 to John. B) The store can recover from John the difference between the value of the watch and the amount paid by John. C) The store can declare the contract void and pay John no money. D) The store cannot rescind or void the contract. Answer: D Diff: 3 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Application of knowledge Classification: Application 10) Assent of a party to a contract may be manifested in any manner sufficient to show agreement, including conduct. Answer: TRUE Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept

11) Unilateral mistake is a mistake in which only one party is mistaken about a material fact regarding the subject matter of a contract. Answer: TRUE Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 12) An action to undo a contract is called restitution. Answer: FALSE Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 13) Mistakes in clerical or mathematical errors that are not the result of gross negligence are considered unilateral mistakes. Answer: TRUE Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 14) In most cases of a unilateral mistake, the mistaken party is permitted to rescind the contract. Answer: FALSE Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 15) A material fact is a fact that is irrelevant to the subject matter of a contract but pertains to the conduct of the parties. Answer: FALSE Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 16) An ambiguity in a contract may constitute a mutual mistake of a material fact. Answer: TRUE Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept

17) If there has been a mutual mistake of material fact, the contract cannot be rescinded. Answer: FALSE Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 18) A unilateral mistake occurs if both parties know the object of the contract but are mistaken as to its value. Answer: FALSE Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 19) When a mutual mistake of value occurs, the contract remains enforceable by either party. Answer: TRUE Diff: 1 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 20) Explain the three kinds of mistakes that can be made by either party while entering a contract. When are contracts involving mistakes rescinded? Answer: A mistake occurs where one or both of the parties to a contract have an erroneous belief about the subject matter, value, or some other aspect of the contract. Mistakes may be either unilateral or mutual. A unilateral mistake is a mistake in which only one party is mistaken about a material fact regarding the subject matter of a contract. In most cases of unilateral mistake, the mistaken party will not be permitted to rescind the contract. The contract will be enforced on its terms. Mutual mistake of a material fact is a mistake made by both parties concerning a material fact that is important to the subject matter of a contract. If there has been a mutual mistake, the contract may be rescinded on the grounds that no contract has been formed because there has been no "meeting of the minds" between the parties. A mutual mistake of value exists if both parties know the object of the contract but are mistaken as to its value. Here, the contract remains enforceable by either party because the identity of the subject matter of the contract is not at issue. Diff: 2 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept

21) How is a mistake different from fraud? Answer: A mistake occurs where one or both of the parties to a contract have an erroneous belief about the subject matter, value, or some other aspect of the contract. Mistakes may be either unilateral or mutual. The law permits rescission of some contracts made in mistake. Intentional misrepresentation is commonly referred to as fraudulent misrepresentation, or fraud. An intentional misrepresentation occurs when one person consciously decides to induce another person to rely and act on a misrepresentation. When fraudulent misrepresentation is used to induce another to enter into a contract, the innocent party's assent to the contract is not genuine, and the contract is voidable by the innocent party. The innocent party can either rescind the contract and obtain restitution or enforce the contract and sue for contract damages. Diff: 2 LO: 13.1 Explain how mutual mistake of fact excuses performance. AACSB: Analytical thinking Classification: Concept 22) ________ is an event that occurs when one person consciously decides to induce another person to rely and act on a misrepresentation. A) Fraudulent misrepresentation B) Unilateral mistake C) Bilateral mistake D) Erroneous misrepresentation Answer: A Diff: 1 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 23) Intentional misrepresentation is commonly referred to as ________. A) erroneous misrepresentation B) fraud C) duress D) undue influence Answer: B Diff: 1 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept

24) To prove fraud, which of the following elements must be shown? A) The innocent party knew the wrongdoer. B) The innocent party was the one who detected fraud. C) The wrongdoer assumed a false identity. D) The wrongdoer intended to deceive the innocent party. Answer: D Diff: 2 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 25) Which of the following is true of misrepresentation of a material fact? A) It can occur only by the words of the wrongdoer. B) A misrepresentation is actionable as fraud only if it is the sole factor in inducing the innocent party to enter into the contract. C) It is actionable as fraud if the misrepresentation is of a past or existing material fact. D) Predictions about the future are considered basis for fraud. Answer: C Diff: 2 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 26) What is scienter? A) knowledge that a representation is false B) undue influence used on a party to sign a contract C) another term for duress D) damages paid to a victim of a scam Answer: A Diff: 1 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 27) Which of the following is true of misrepresentation? A) A misrepresentation is not actionable unless the innocent party relied on the misrepresentation and acted on it. B) An innocent party who acts in reliance on a misrepresentation need not justify his or her reliance. C) An innocent party must prove that the wrongdoer's misrepresentation was the sole reason he or she entered into the contract. D) An innocent party need not prove economic injury to recover damages for fraud. Answer: A Diff: 2 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

28) Jeffrey became a victim of fraud when he entered a pyramid scheme which turned out to be a scam. In order to claim damages, Jeffrey has to prove which of the following? A) misrepresentation B) motive of the fraudster C) economic injury D) involvement in the pyramid scheme Answer: C Diff: 2 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Application of knowledge Classification: Application 29) The measure of damages from a misrepresentation is ________. A) the actual value of the property B) the represented value of the property C) the difference between the value of the property as represented and the actual value of the property D) twice the actual value of the property which includes punitive damages Answer: C Diff: 1 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 30) Intentional misrepresentation is considered fraud. Answer: TRUE Diff: 1 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 31) A misrepresentation of a material fact is actionable as fraud only if it occurs by words. Answer: FALSE Diff: 1 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 32) To be actionable as fraud, the misrepresentation must have been the sole factor in inducing the innocent party to enter into the contract. Answer: FALSE Diff: 1 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept

33) Predictions about the future generally do not form the basis for fraud. Answer: TRUE Diff: 1 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 34) Scienter means knowledge that a representation is false or that it was made without sufficient knowledge of the truth. Answer: TRUE Diff: 1 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 35) A misrepresentation is considered fraud even if it is made without intent to deceive another party. Answer: FALSE Diff: 2 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 36) The measure of damages awarded to the innocent party for fraud is the difference between the value of the property as represented and the actual value of the property. Answer: TRUE Diff: 1 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept 37) What should be shown to prove fraud? Answer: To prove fraud, the following elements must be shown: 1. The wrongdoer made a false representation of material fact. 2. The wrongdoer intended to deceive the innocent party. 3. The innocent party justifiably relied on the misrepresentation. 4. The innocent party was injured. Diff: 1 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Analytical thinking Classification: Concept

38) Sally entered into a contract to purchase a car at Acme Auto Sales. During a sales pitch, the Acme salesperson told Sally that the automobile was in excellent condition and that she could expect to drive it for many years because of its extremely low mileage. The odometer on the automobile read 10,000 miles. A week after her car purchase, Sally took the car to a trusted mechanic to get the engine checked out. The mechanic inspected the engine and told Sally that the car had many more miles on it than the odometer indicated. The mechanic told Sally that she had undoubtedly been the victim of odometer rollback. What kind of fraud (intentional misrepresentation) was likely committed? Why? What are the required elements of fraud and were all of these elements present in this scenario? Answer: Fraud in the inducement was likely committed. Here, the innocent party (Sally) knew what she was signing, but she had been fraudulently induced to enter into the contract. The elements of fraud are: 1. The wrongdoer made a false representation of material fact. 2. The wrongdoer intended to deceive the innocent party. 3. The innocent party justifiably relied on the misrepresentation. 4. The innocent party was injured. In Sally's case, the wrongdoer made a false representation of the car's mileage which is a material fact. To prove that a person intended to deceive an innocent party, the person making the misrepresentation must have either had knowledge that the representation was false or made it without sufficient knowledge of the truth. The auto dealer either knew the odometer had been rolled back or made the statement without sufficient knowledge. Sally justifiably relied on the salesperson's statements and was injured. Diff: 3 LO: 13.2 Describe the elements of intentional misrepresentation (fraud). AACSB: Application of knowledge Classification: Application 39) ________ occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing. A) Fraud in the inducement B) Fraud in the inception C) Fraud by concealment D) Fraud by suppression Answer: B Diff: 1 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept

40) Millie receives a parcel from her aunt in Indonesia. The delivery man asks her to sign an authorization document to receive the parcel. Millie signs without reading the document, as she is in a hurry. However, on the other side of the document are contract terms that transfer all of Millie's property to the delivery man. This is an instance of ________. A) fraud in the inception B) fraud in the inducement C) fraud by concealment D) misrepresentation of law Answer: A Diff: 3 LO: 13.3 List and describe the various types of fraud. AACSB: Application of knowledge Classification: Application 41) ________ occurs when the party knows what he or she is signing but has fraudulently been led into the contract. A) Fraud in the factum B) Fraud in the inducement C) Fraud by concealment D) Misrepresentation of law Answer: B Diff: 1 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 42) Alice offers Richard a chance to work in her affiliate marketing program which, she claims, will make him a millionaire in three months. Richard makes the "mandatory investment" of $12,000 and becomes an affiliate. Soon, he realizes that such a program does not exist and that Alice has disappeared with the money. This is an instance of ________. A) misrepresentation of law B) fraud in the factum C) fraud in inducement D) duress Answer: C Diff: 3 LO: 13.3 List and describe the various types of fraud. AACSB: Application of knowledge Classification: Application

43) Contracts involving fraud in inducement are ________. A) valid B) void C) voidable D) non-rescindable Answer: C Diff: 1 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 44) Melissa Harrison, a realtor, sells a house to the Smiths. Before the sale is finalized, Mr. Smith asks Melissa for details of repairs the house has undergone over the years. Melissa gives him details of minor repairs but hides all documents regarding a major plumbing defect that was repaired last year. Three months after the Smiths moved in, the defect reappeared flooding the first floor, damaging their expensive carpet and furniture. Melissa is liable for which of the following frauds? A) fraud in the inception B) fraud in the inducement C) fraud by concealment D) fraud in the factum Answer: C Diff: 3 LO: 13.3 List and describe the various types of fraud. AACSB: Application of knowledge Classification: Application 45) Which of the following occurs when one party intentionally hides a material fact from another party? A) fraud in the inducement B) fraud in concealment C) silence as misrepresentation D) misrepresentation of law Answer: B Diff: 1 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept

46) Joe buys a trailer from a used-car dealership. On enquiry, the dealer tells him that the trailer is in great condition. However, three days later, the trailer breaks down. Investigation by Joe reveals that the trailer had seven previous owners and that the engine has been replaced thrice. An automobile expert tells Joe that the trailer is dangerous. Which of the following frauds would the dealer be liable for? A) fraud in the factum B) fraud in the inducement C) fraud by concealment D) misrepresentation of law Answer: C Diff: 3 LO: 13.3 List and describe the various types of fraud. AACSB: Application of knowledge Classification: Application 47) Which of the following is generally NOT actionable as fraud? A) misrepresentation of law B) silence as misrepresentation C) marriage to obtain rights of immigration D) identity theft Answer: A Diff: 2 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 48) Which of the following is true of misrepresentation? A) Innocent misrepresentation is grounds for the aggrieved party to sue for damages. B) Misrepresentation of law is generally not actionable as fraud. C) Innocent misrepresentation cannot be treated as a mutual mistake. D) Misrepresentation of law can never be grounds for rescission of the contract. Answer: B Diff: 2 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept

49) Harry finds an old stereo in his attic. He sells the stereo to Jake for $50 telling him that it is fully functional, which Harry thinks is true. However, it turns out to be broken. Which of the following statements is true in this context? A) Jake can sue Harry for fraud in the inducement. B) Jake cannot rescind the deal but can sue Harry for fraud by concealment. C) Jake can sue Harry for innocent misrepresentation. D) Jake can rescind the deal but cannot sue Harry for innocent misrepresentation. Answer: D Diff: 3 LO: 13.3 List and describe the various types of fraud. AACSB: Application of knowledge Classification: Application 50) While signing a contract, one of the parties misinterpreted a legal clause. Neither of the parties is a legal professional. Which of the following statements holds well in this scenario? A) The party who misinterpreted the law is actionable for fraud. B) The party who misinterpreted the law may rescind the contract. C) The party who misinterpreted the law is not actionable for fraud. D) The contract is declared unenforceable as the law has been misinterpreted. Answer: C Diff: 2 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 51) Fraud in the factum occurs if a person is deceived as to the nature of his or her act and does not know what he or she is signing. Answer: TRUE Diff: 1 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 52) Contracts involving fraud in the inception are void. Answer: TRUE Diff: 1 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 53) Fraud in inducement occurs when the party does not know the terms of the contract. Answer: FALSE Diff: 2 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 14 Copyright © 2019 Pearson Education, Inc.

54) Contracts involving fraud in inducement are not voidable. Answer: FALSE Diff: 1 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 55) When one party takes specific action to cover a material fact from another party, fraud by enticement occurs. Answer: FALSE Diff: 1 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 56) During the sale of a house, if the seller does not inform the buyer about construction flaws of the house despite the buyer's inquiry, the seller is liable for fraud by concealment. Answer: TRUE Diff: 2 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 57) If a seller does not disclose legal disputes involving the property being sold, he or she is liable for silence as misrepresentation. Answer: TRUE Diff: 2 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 58) A misrepresentation of law is actionable as fraud as the innocent party cannot know every legal detail that applies to the situation. Answer: FALSE Diff: 2 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 59) Misrepresentation of law is a fraud that occurs when a person makes a statement of fact that he or she honestly and reasonably believes to be true even though it is not. Answer: FALSE Diff: 1 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 15 Copyright © 2019 Pearson Education, Inc.

60) If an innocent misrepresentation has been made, the aggrieved party may sue for damages. Answer: FALSE Diff: 1 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 61) Innocent misrepresentation is treated as a unilateral mistake. Answer: FALSE Diff: 1 LO: 13.3 List and describe the various types of fraud. AACSB: Analytical thinking Classification: Concept 62) Explain fraud in the inducement with an example. Answer: Fraud in the inducement occurs when the party knows what he or she is signing but has been fraudulently induced to enter into the contract. Example: Lyle tells Candice that he is forming a partnership to invest in drilling for oil in an oil field and invites her to invest in this venture. In reality, though, there is no oil field, and Lyle intends to use whatever money he receives from Candice for his personal expenses. Candice relies on Lyle's statements and invests $30,000. Lyle absconds with Candice's $30,000 investment. Here, there has been fraud in the inducement. Candice has been induced to give Lyle $30,000 based on Lyle's misrepresentation of fact. Candice can rescind the contract and recover the money from Lyle, if she can find him and locate his money or property. Diff: 2 LO: 13.3 List and describe the various types of fraud. AACSB: Application of knowledge Classification: Application 63) ________ is a situation in which one party threatens to do a wrongful act unless the other party enters into a contract. A) Scienter B) Duress C) Battery D) Assault Answer: B Diff: 1 LO: 13.4 Describe duress. AACSB: Analytical thinking Classification: Concept

64) Which of the following constitutes duress? A) an event that occurs when one person consciously decides to induce another person to rely and act on a misrepresentation B) a situation in which one person takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person to enter into a contract C) a threat to commit extortion unless someone enters into a contract D) the knowledge that a representation is false or that it was made without sufficient knowledge of the truth Answer: C Diff: 2 LO: 13.4 Describe duress. AACSB: Analytical thinking Classification: Concept 65) What is physical duress? A) physically damaging the contract documents B) signing a contract without the knowledge that it represents fraudulent information C) threatening to physically harm someone if he or she does not sign a contract D) persuading a person to rescind a valid contract by misrepresenting the facts Answer: C Diff: 2 LO: 13.4 Describe duress. AACSB: Analytical thinking Classification: Concept 66) Gary and Mary are siblings involved in a legal tangle over who gets possession of their ancestral home. Gary threatens to kill Mary's husband if she does not sign papers declaring Gary's sole ownership of their home. This is an instance of ________. A) scienter B) battery C) undue influence D) duress Answer: D Diff: 2 LO: 13.4 Describe duress. AACSB: Application of knowledge Classification: Application

67) Which of the following constitutes duress? A) a plaintiff threatening a criminal lawsuit unless the defendant enters into a contract B) a teacher threatening a student that he will be expelled if he is found with cigarettes again C) a wife threatening to commit suicide if her abusive husband does not stop beating her D) a father using his dominant and fiduciary position to unduly influence his son into committing a crime Answer: A Diff: 3 LO: 13.4 Describe duress. AACSB: Application of knowledge Classification: Application 68) Which of the following is true of duress? A) It is liable for fraud. B) A threat should involve physical harm for it to be actionable as duress. C) It is a threat issued to make another person sign a contract. D) Intoxicating a person to sign a contract is considered duress. Answer: C Diff: 2 LO: 13.4 Describe duress. AACSB: Analytical thinking Classification: Concept 69) Lucy wants a divorce from her husband but he wants to stay in the marriage. She threatens to bring a false criminal lawsuit claiming physical abuse from him if he does not sign the divorce papers. This is an instance of ________. A) fraud B) duress C) undue influence D) scienter Answer: B Diff: 2 LO: 13.4 Describe duress. AACSB: Application of knowledge Classification: Application 70) Duress is a situation in which one party threatens to do a wrongful act unless the other party enters into a contract. Answer: TRUE Diff: 1 LO: 13.4 Describe duress. AACSB: Analytical thinking Classification: Concept

71) Duress is said to have occurred only where a threat involved a physical harm. Answer: FALSE Diff: 1 LO: 13.4 Describe duress. AACSB: Analytical thinking Classification: Concept 72) Physical duress occurs when there is physical harm to the contractual document, such as complete or partial destruction or manipulation of content. Answer: FALSE Diff: 2 LO: 13.4 Describe duress. AACSB: Analytical thinking Classification: Concept 73) A threat to bring a civil lawsuit does not constitute duress unless such a suit is frivolous or brought in bad faith. Answer: TRUE Diff: 1 LO: 13.4 Describe duress. AACSB: Analytical thinking Classification: Concept 74) Does threatening a lawsuit unless someone signs a contract constitute duress? Why or why not? Explain your answer for both criminal and civil lawsuits. Answer: Duress occurs when one party threatens to do some wrongful act unless the other party enters a contract. A threat to bring (or not drop) a criminal lawsuit unless someone enters a contract constitutes duress even if the criminal lawsuit is well founded. A threat to bring (or not drop) a civil lawsuit, however, does not constitute duress unless such a suit is frivolous or brought in bad faith. Diff: 2 LO: 13.4 Describe duress. AACSB: Application of knowledge Classification: Application 75) ________ is a situation in which one person takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person to enter into a contract. A) Duress B) Undue influence C) Fraud D) Scienter Answer: B Diff: 1 LO: 13.5 Define the equitable doctrine of undue influence. AACSB: Analytical thinking Classification: Concept 19 Copyright © 2019 Pearson Education, Inc.

76) Which of the following is true of undue influence in entering contracts? A) Undue influence need not require the overcoming of the innocent party's free will. B) Undue influence is not grounds for prosecution, as the innocent party has complete freedom to evaluate the terms of the contract. C) A contract that is entered into because of undue influence is not voidable. D) A fiduciary or confidential relationship must have existed between the parties for undue influence to be proven. Answer: D Diff: 2 LO: 13.5 Define the equitable doctrine of undue influence. AACSB: Analytical thinking Classification: Concept 77) When Stella Finman found out that she was terminally ill, she drafted a will leaving all her property to her son. During her period of illness, Stella was financially and emotionally supported by her lawyer as her son was mostly away. When the will was read upon her death, it said that her lawyer would get a 20 percent stake in Finman Corp., a company Stella owned. Upon investigation, it was revealed that Stella's lawyer took advantage of Stella's weakness and persuaded her to change the contractual terms. This is an instance of ________. A) undue influence B) battery C) duress D) fraud Answer: A Diff: 3 LO: 13.5 Define the equitable doctrine of undue influence. AACSB: Application of knowledge Classification: Application 78) Which of the following scenarios makes Tim liable for undue influence? A) Tim uses a false identity, borrows $10,000 from Kelly, and disappears with the money. B) Tim threatens to kill Carlos if Carlos does not sign a contract that transfers all his property to Tim. C) Tim takes advantage of his grandmother's illness and persuades her to sign a will leaving all her property to him. D) Tim threatens to bring a lawsuit against David if David does not make him a partner in his firm. Answer: C Diff: 3 LO: 13.5 Define the equitable doctrine of undue influence. AACSB: Application of knowledge Classification: Application

79) Taking advantage of another person's mental, emotional, or physical weakness and unduly persuading that person to enter into a contract constitutes duress. Answer: FALSE Diff: 1 LO: 13.5 Define the equitable doctrine of undue influence. AACSB: Analytical thinking Classification: Concept 80) If there is a confidential relationship between two people, any contract made by the servient party that benefits the dominant party is presumed to be entered into under undue influence. Answer: TRUE Diff: 1 LO: 13.5 Define the equitable doctrine of undue influence. AACSB: Analytical thinking Classification: Concept 81) For a situation to be considered "undue influence," the persuasion by the wrongdoer must overcome the free will of the innocent party. Answer: TRUE Diff: 1 LO: 13.5 Define the equitable doctrine of undue influence. AACSB: Analytical thinking Classification: Concept 82) Explain undue influence with an example. Answer: Undue influence occurs when one person (the dominant party) takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person (the servient party) to enter into a contract. The persuasion by the wrongdoer must overcome the free will of the innocent party. A contract that is entered into because of undue influence is voidable by the innocent party. Example: Mr. Johnson, who is 70 years old, has a stroke and is partially paralyzed. He is required to use a wheelchair, and he needs constant nursing care. Prior to his stroke, Mr. Johnson had executed a will, leaving his property upon his death equally to his four grandchildren. Edward, a licensed nurse, is hired to care for Mr. Johnson on a daily basis, and Mr. Johnson relies on Edward's care. Edward works for Mr. Johnson for two years before Mr. Johnson passes away. It is later discovered that Mr. Johnson had executed a written contract with Edward three months before he died, deeding a valuable piece of real estate to Edward. If it is shown that Edward has used his dominant and fiduciary position to unduly influence Mr. Johnson to enter into this contract, then the contract is invalid. If no undue influence is shown, the contract with Edward is valid, and Edward will receive the property deeded to him by Mr. Johnson. Diff: 2 LO: 13.5 Define the equitable doctrine of undue influence. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 14 Statute of Frauds and Equitable Exceptions 1) The ________ requires certain contracts to be in writing. A) part performance exception B) common law of contracts C) equal dignity rule D) Statute of Frauds Answer: D Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 2) Which of the following is an exception to the Statute of Frauds? A) contracts under promissory estoppel B) agents' contracts C) merger clause D) prenuptial agreement Answer: A Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 3) Which of the following contracts is required to be in writing in most states? A) contracts for the sale of goods for $100 B) contracts for the lease of goods with payments of $500 C) promises to write a will D) contracts falling under the promissory estoppel Answer: C Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 4) Which of the following statements is true of the writing requirement of contracts, according to the Statute of Frauds? A) Contracts for the sale of goods for $500 need not be in writing. B) Contracts for the lease of goods with payments of $101 must be in writing. C) Finder's fee contracts need not be in writing. D) Promises made in consideration of marriage must be in writing. Answer: D Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 1 Copyright © 2019 Pearson Education, Inc.

5) Which of the following statements is true of the Statute of Frauds? A) An executory contract that is not in writing even though the Statute of Frauds requires it to be is enforceable by either party. B) Executed oral contracts that should have been in writing under the Statute of Frauds can be rescinded. C) If an oral contract that should have been in writing under the Statute of Frauds is already executed, either party may seek to rescind the contract. D) Most states require contracts to pay compensation for services rendered in negotiating the purchase of a business to be in writing. Answer: D Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 6) Which of the following is considered a real property? A) a fixture permanently affixed to a building B) fifty-one percent partnership in a firm C) a club membership D) diamond jewelry Answer: A Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 7) Which of the following is an interest in real property given to a lender as security for the repayment of a loan? A) lease B) mortgage C) life estate D) easement Answer: B Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept

8) Which of the following phrases explains the term lease? A) an interest in real property given to a lender as security for the repayment of a loan B) an interest in real property for a person's lifetime C) the transfer of the right to use real property for a specified period of time D) a right to use someone else's land without owning or hiring it Answer: C Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 9) Ida moves to New York from Poland and wants to live in an apartment. However, she does not have sufficient money to buy one. Her colleague Henry said Ida can live in his old apartment for a year, if she pays him $25,000. This contract would be considered a(n) ________. A) lease B) mortgage C) installment D) easement Answer: A Diff: 3 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Application of knowledge Classification: Application 10) Which of the following interests in real property transfers to another person after the present holder's death? A) easement B) mortgage C) installment D) life estate Answer: D Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 11) A right to use someone else's land without owning or leasing it is called ________. A) mortgage B) easement C) life estate D) leasehold Answer: B Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

12) Which of the following is an instance of a mortgage? A) Richard pays Ellen $1000 a month to live in her apartment. B) Richard pays Ellen $12,000 a year to live in her apartment. C) Richard gives his country estate as collateral to a bank from where he has borrowed money to buy an apartment. D) Richard has been living in an apartment for thirty years and upon his death, the apartment will be transferred to somebody else. Answer: C Diff: 3 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Application of knowledge Classification: Application 13) Which of the following grants a person the right to use real property for a specified period of time? A) lease B) mortgage C) sale D) barter Answer: A Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 14) The ________ states that an executory contract which cannot be performed by its own terms within one year of its formation must be in writing. A) parol evidence rule B) common law of contracts C) merger clause D) one-year rule Answer: D Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 15) Which of the following does the one-year rule state? A) Every contract in writing is subject to yearly renewal. B) The terms of a written contract can be modified within a year of its formation. C) A contract that cannot be performed on its own terms within a year should be in writing. D) Valid contracts cannot be rescinded by either party until a year after their formation. Answer: C Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

16) Good Faith Consultants partnered with QuickFind IT Solutions for a period of six months. After three months, they wanted to extend the contract by two years. According to the Statute of Frauds, which of the following is true of the contract? A) The modification to the duration of the contract should be in writing. B) A new contract must be formed. C) The contract can be oral both before and after modification. D) Only the original contract should be in writing. Answer: A Diff: 3 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Application of knowledge Classification: Application 17) A(n) ________ occurs when one person agrees to answer for the debts or duties of another person. A) main purpose exception B) mortgage C) guaranty contract D) implied integration Answer: C Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 18) A ________ is a person who agrees to pay a debt if the primary debtor does not. A) secondary contractor B) third-party contractor C) lessee D) guarantor Answer: D Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 19) In a guaranty situation, the original contract is between the ________. A) creditor and the guarantor B) debtor and the creditor C) debtor and the guarantor D) creditor and the lessee Answer: B Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

20) Which of the following statements is true of a guaranty contract? A) The guaranty contract is between the guarantor and the debtor. B) A guaranty contract need not be in writing. C) The guarantor's liability is secondary. D) The original contract is between the creditor and the guarantor. Answer: C Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 21) Nina wants to borrow money from Tina, but Tina refuses to lend the money unless another person promises to pay the money in case Nina cannot clear the debt. James agrees to pay the debt if Nina does not. James is the ________ in this transaction. A) creditor B) debtor C) guarantor D) facilitator Answer: C Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Application of knowledge Classification: Application 22) The ________ states that if the main purpose of a transaction and an oral collateral contract is to provide pecuniary benefit to the guarantor, the collateral contract does not have to be in writing to be enforced. A) merger clause B) leading object exception C) collateral contract rule D) parol evidence rule Answer: B Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept

23) The ________ says that agents' contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable. A) merger clause B) common law of contracts C) doctrine of equity D) equal dignity rule Answer: D Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 24) Jonas enters into an oral contract with Chelsea to lease his house to her for $100,000. Chelsea pays him $100,000 and moves in. A month later, Jonas learns that his state requires contracts for the lease of goods with payments of $1,000 or more to be in writing. Which of the following options does either party have now? A) Jonas can evict Chelsea as the contract does not comply with the Statute of Frauds and is hence void. B) The contract cannot be rescinded by either party as it has already been executed. C) Chelsea can rescind the contract on the grounds of noncompliance with the Statute of Frauds. D) Jonas can rescind the contract on the grounds of noncompliance with the Statute of Frauds. Answer: B Diff: 3 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Application of knowledge Classification: Application 25) Statute of Frauds is a state statute that requires certain types of contracts to be in writing. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 26) In most states, contracts for the sale of goods for $900 do not require to be in writing. Answer: FALSE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept

27) In most states, contracts for the lease of goods with payments of $2000 require to be in writing. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 28) Trees, crops, minerals, and timber are barred from being included in contracts involving interests in real property. Answer: FALSE Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 29) Built-in cabinets in a house would be considered as permanent parts of the real property. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 30) Under the Statute of Frauds, any contract that transfers an ownership interest in real property must be in writing to be enforceable. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 31) A lease is an interest in real property given to a lender as security for the repayment of a loan. Answer: FALSE Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 32) A life estate will be transferred to another party in the event of the holder's death. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept

33) The transfer of the right to use real property for a specified period of time is known as a lease. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 34) An easement is a form of real property security given by a borrower to a lender. Answer: FALSE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 35) According to the Statute of Frauds, an executory contract that cannot be performed by its own terms within one year of its formation must be in writing. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 36) An easement contract occurs when one person agrees to answer for the debts or duties of another person. Answer: FALSE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 37) In a guaranty situation, there is only one contract among three parties. Answer: FALSE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 38) The primary contract in a guarantee situation is between the debtor and the creditor. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept

39) In a guarantee situation, the guarantor's liability is secondary. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 40) A guaranty contract between people with no bad credit history can be oral. Answer: FALSE Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 41) The main purpose exception to the Statute of Frauds allows oral collateral contracts to be enforced if there is a monetary benefit to the guarantor. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 42) Equal dignity rule says that agents' contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 43) If an oral contract that should have been in writing under the Statute of Frauds is already executed, neither party can seek to rescind the contract on the grounds of noncompliance with the Statute of Frauds. Answer: TRUE Diff: 1 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept

44) Explain the creation and working of guaranty contracts. Answer: A guaranty contract occurs when one person agrees to answer for the debts or duties of another person. Guaranty contracts are required to be in writing under the Statute of Frauds. In a guaranty situation, there are at least three parties and two contracts. The first contract, which is known as the original contract, or primary contract, is between the debtor and the creditor. It does not have to be in writing (unless another provision of the Statute of Frauds requires it to be). The second contract, called the guaranty contract, is between the person who agrees to pay the debt if the primary debtor does not (i.e., the guarantor) and the original creditor. The guarantor's liability is secondary because it does not arise unless the party primarily liable fails to perform. Diff: 2 LO: 14.1 List the common contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 45) Section 2-201(1) of the Uniform Commercial Code (UCC) is the basic Statute of Frauds provision for ________. A) sales contracts B) lease contracts C) all contracts involving interests in real property D) mortgage contracts Answer: A Diff: 1 LO: 14.2 Describe the UCC Statute of Frauds that applies to the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 46) Section 2A-201(1) of the Uniform Commercial Code (UCC) states which of the following? A) All lease contracts must be in writing. B) Lease contracts involving payments of $1,000 or more must be in writing. C) All sales contracts must be in writing. D) Sales contracts involving payments of $500 or more must be in writing. Answer: B Diff: 1 LO: 14.2 Describe the UCC Statute of Frauds that applies to the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 47) Section 2-201(1) of the Uniform Commercial Code (UCC) states that ________. A) all lease contracts must be in writing B) lease contracts involving payments of $1,000 or more must be in writing C) all sales contracts must be in writing D) sales contracts involving payments of $500 or more must be in writing Answer: D Diff: 1 LO: 14.2 Describe the UCC Statute of Frauds that applies to the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

48) Santos told his friend Ernesto that he would sell Ernesto his car for $5,000. However, on the day of the sale, Santos refused to sell the car for the agreed-upon price and demanded more money. Which of the following statements is true in this scenario? A) Ernesto can sue Santos as their oral sales contract was binding. B) Santos has violated Section 2-201(1) of the Uniform Commercial Code (UCC). C) The oral contract to trade a car for $5,000 is not binding, according to the Uniform Commercial Code (UCC). D) Santos has violated Section 2A-201(1) of the Uniform Commercial Code (UCC). Answer: C Diff: 3 LO: 14.2 Describe the UCC Statute of Frauds that applies to the sale and lease of goods. AACSB: Application of knowledge Classification: Application 49) Jim's landlord insists on a written agreement to lease his apartment for $25,000 in order to comply with ________ of the Uniform Commercial Code (UCC). A) Section 2-201(1) B) Section 2A-201(1) C) the merger clause D) the equal dignity rule Answer: B Diff: 2 LO: 14.2 Describe the UCC Statute of Frauds that applies to the sale and lease of goods. AACSB: Application of knowledge Classification: Application 50) Section 2-201(1) of the Uniform Commercial Code (UCC) states that a unilateral promise to pay money or property in consideration for a promise to marry must be in writing. Answer: FALSE Diff: 2 LO: 14.2 Describe the UCC Statute of Frauds that applies to the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 51) If Johnny made an oral contract to sell Peter his truck for $15,000, this contract must be enforced. Answer: FALSE Diff: 2 LO: 14.2 Describe the UCC Statute of Frauds that applies to the sale and lease of goods. AACSB: Application of knowledge Classification: Application

52) Section 2A-201(1) of the Uniform Commercial Code (UCC) states that lease contracts involving payments of $1,000 or more must be in writing. Answer: TRUE Diff: 1 LO: 14.2 Describe the UCC Statute of Frauds that applies to the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 53) If a modification of the lease contract increases the lease payment to $1,000 or more, the modification has to be in writing to be enforceable. Answer: TRUE Diff: 1 LO: 14.2 Describe the UCC Statute of Frauds that applies to the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 54) Why is it a bad idea for Edward and his landlord to make an oral lease contract for $30,000? Suggest an alternative and explain how it is beneficial to an oral contract. Answer: It is a bad idea for Edward and his landlord to make an oral lease contract for $30,000 as such a contract is vulnerable to fraud. Instead, they must create a written contract in accordance to Section 2A-201(1) of the Uniform Commercial Code (UCC), which is the Statute of Frauds provision that applies to the lease of goods. It states that lease contracts involving payments of $1,000 or more must be in writing. If a lease payment of an original lease contract is less than $1,000, it does not have to be in writing under the UCC Statute of Frauds. However, if a modification of the lease contract increases the lease payment to $1,000 or more, the modification has to be in writing to be enforceable. The most recent revision to UCC 2A-201 requires that lease contracts involving payments of $20,000 or more must be in writing to be enforceable. Diff: 2 LO: 14.2 Describe the UCC Statute of Frauds that applies to the sale and lease of goods. AACSB: Application of knowledge Classification: Application 55) The doctrine of ________ allows the court to order an oral contract for the sale of land or transfer of another interest in real property to be specifically performed if it has been partially performed and performance is necessary to avoid injustice. A) part performance B) undue performance C) equitable performance D) promissory estoppel Answer: A Diff: 1 LO: 14.3 Describe and apply the equitable doctrine of part performance. AACSB: Analytical thinking Classification: Concept

56) ________ is an equitable doctrine that permits enforcement of oral contracts that should have been in writing. A) Promissory estoppel B) Merger clause C) Main purpose exception D) Leading object exception Answer: A Diff: 1 LO: 14.3 Describe and apply the equitable doctrine of part performance. AACSB: Analytical thinking Classification: Concept 57) The doctrine of part performance allows the court to order an oral contract for the sale of land or transfer of another interest in real property to be specifically performed if performance is necessary to avoid injustice. Answer: TRUE Diff: 1 LO: 14.3 Describe and apply the equitable doctrine of part performance. AACSB: Analytical thinking Classification: Concept 58) The doctrine of part performance is an exception to the Statute of Frauds' writing requirement that courts can apply in order to achieve justice in situations where it is not possible to return the parties to their status quo. Answer: TRUE Diff: 2 LO: 14.3 Describe and apply the equitable doctrine of part performance. AACSB: Analytical thinking Classification: Concept 59) Tom and Jerry agreed orally that Tom would sell his condominium to Jerry. It was agreed that Jerry would pay Tom $1,000 per month for 8 years as well as paying property taxes and maintenance costs for the condominium. Four years into the arrangement, the condominium had increased in value significantly, and Tom wanted to rescind the oral agreement. What doctrine could be applied by a court to reach justice? Explain the doctrine. Answer: The applicable doctrine, an exception to the Statute of Frauds' writing requirement, is the doctrine of part performance. If an oral contract for the sale of land or transfer of other interests in real property has been partially performed, it may not be possible to return the parties to their status quo. To solve this problem, the courts have developed the equitable doctrine of part performance. This doctrine allows the court to order such an oral contract to be specifically performed if performance is necessary to avoid injustice. In the case of Tom and Jerry, Jerry had paid part of the purchase price and had taken possession of the property. The doctrine of part performance would allow a court to enforce the oral agreement between Tom and Jerry. Diff: 2 LO: 14.3 Describe and apply the equitable doctrine of part performance. AACSB: Application of knowledge Classification: Application 14 Copyright © 2019 Pearson Education, Inc.

60) Which of the following statements is true of signature on a written contract? A) The contract should be signed by the party who seeks enforcement. B) The signature of the person who is enforcing the contract is not necessary. C) The signature must appear at the end of the writing. D) A person's nickname or initials are not binding legal signatures. Answer: B Diff: 2 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept 61) ________ refers to the integration made by express reference in one document that refers to and incorporates another document within it. A) Implied integration B) Incorporation by reference C) Executory contract D) Merger clause Answer: B Diff: 1 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept 62) Which of the following statements is true of interpreting contract words and terms? A) Where a preprinted form contract is used, preprinted words prevail over typed words. B) Preprinted words prevail over handwritten words. C) Specific terms are presumed to qualify general terms. D) If there is an ambiguity in a contract, the ambiguity will be resolved in favor of the party who drafted the contract. Answer: C Diff: 2 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept 63) Which of the following is an example of a specific term qualifying general term? A) Currency referred to as bank transfer B) Pounds referred to as length C) Bills referred to as papers D) Dollars referred to as Australian dollars Answer: D Diff: 2 LO: 14.4 Describe the formality of written contracts. AACSB: Application of knowledge Classification: Application

64) Any writing—including letters, telegrams, invoices, sales receipts, checks, and handwritten agreements written on scraps of paper—can be an enforceable contract. Answer: TRUE Diff: 1 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept 65) The signature of the person who is enforcing the contract is necessary. Answer: FALSE Diff: 1 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept 66) A person's nickname or initials that indicate his or her intent are not considered binding signatures. Answer: FALSE Diff: 1 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept 67) The Uniform Commercial Code (UCC) does not permit several writings to be integrated to form a single written contract. Answer: FALSE Diff: 1 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept 68) Incorporation by reference is an integration made by express reference in one document that refers to and incorporates another document within it. Answer: TRUE Diff: 1 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept 69) Placing several documents in the same envelope indicates implied integration. Answer: TRUE Diff: 1 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept

70) While interpreting contract words and terms, specific terms are presumed to qualify general terms. Answer: TRUE Diff: 1 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept 71) If there is an ambiguity in a contract, the ambiguity will be resolved in favor of the party who drafted the contract. Answer: FALSE Diff: 1 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept 72) How are contract words and terms interpreted? Answer: If the parties have not defined the words and terms of a contract, the courts apply the following standards of interpretation: 1. Ordinary words are given their usual meaning according to the dictionary. 2. Technical words are given their technical meaning, unless a different meaning is clearly intended. 3. Specific terms are presumed to qualify general terms. For example, if a provision in a contract refers to the subject matter as "corn," but a later provision refers to the subject matter as "feed corn" for cattle, this specific term qualifies the general term. 4. If both parties are members of the same trade or profession, words will be given their meaning as used in the trade (i.e., usage of trade). If the parties do not want trade usage to apply, the contract must indicate that. 5. Where a preprinted form contract is used, typed words in a contract prevail over preprinted words. Handwritten words prevail over both preprinted and typed words. 6. If there is an ambiguity in a contract, the ambiguity will be resolved against the party who drafted the contract. Diff: 2 LO: 14.4 Describe the formality of written contracts. AACSB: Analytical thinking Classification: Concept

73) Any oral or written words outside the four corners of a written contract are termed as ________. A) parol evidence B) exclusive integration C) leading object exception D) main purpose exception Answer: A Diff: 1 LO: 14.5 Describe the parol evidence rule. AACSB: Analytical thinking Classification: Concept 74) ________ says that if a written contract is a complete and final statement of the parties' agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract. A) Main purpose exception B) Leading object exception C) Parol evidence rule D) Promissory estoppel Answer: C Diff: 1 LO: 14.5 Describe the parol evidence rule. AACSB: Analytical thinking Classification: Concept 75) ________ stipulates that the contract is a complete integration and the exclusive expression of the parties' agreement. A) Promissory estoppel B) Merger clause C) Main purpose exception D) Leading object exception Answer: B Diff: 1 LO: 14.5 Describe the parol evidence rule. AACSB: Analytical thinking Classification: Concept

76) In which of the following cases is parol evidence admitted by a court? A) when the plaintiff reduces the value of damages he expects B) when the evidence explains ambiguous language C) when the defendant does not wish to appeal D) when the defendant takes the case to the appellate court Answer: B Diff: 2 LO: 14.5 Describe the parol evidence rule. AACSB: Analytical thinking Classification: Concept 77) Any oral or written words outside the four corners of the written contract are called parol evidence. Answer: TRUE Diff: 1 LO: 14.5 Describe the parol evidence rule. AACSB: Analytical thinking Classification: Concept 78) A merger clause stipulates that the contract is a complete integration and the exclusive expression of the parties' agreement. Answer: TRUE Diff: 2 LO: 14.5 Describe the parol evidence rule. AACSB: Analytical thinking Classification: Concept 79) When is parol evidence admitted in court? Answer: Parol evidence may be admitted in court if it: 1. shows that a contract is void or voidable (e.g., evidence that the contract was induced by fraud, misrepresentation, duress, undue influence, or mistake). 2. explains ambiguous language. 3. concerns a prior course of dealing or course of performance between the parties or a usage of trade. 4. fills in the gaps in a contract (e.g., if a price term or time of performance term is omitted from a written contract, the court can hear parol evidence to imply the reasonable price or time of performance under the contract). 5. corrects an obvious clerical or typographical error. The court can reform the contract to reflect the correction. Diff: 2 LO: 14.5 Describe the parol evidence rule. AACSB: Analytical thinking Classification: Concept

80) Under which of the following conditions does a promissory estoppel provide for the enforceability of an oral contract? A) when the promise induces action or forbearance of action by another B) when the reliance on the oral promise was unforeseeable C) when enforcing the oral promise provides for faster resolution of the case D) when the oral promise provides for reduced damages to the defendant Answer: A Diff: 1 LO: 14.6 Define promissory estoppel and apply this equitable doctrine. AACSB: Analytical thinking Classification: Concept 81) Promissory estoppel is an equitable doctrine that permits enforcement of oral contracts that should have been in writing. Answer: TRUE Diff: 1 LO: 14.6 Define promissory estoppel and apply this equitable doctrine. AACSB: Analytical thinking Classification: Concept 82) Explain the doctrine of equitable estoppel. Answer: The doctrine of promissory estoppel, or equitable estoppel, is an equitable exception to the strict application of the Statute of Frauds. The version of promissory estoppel in the Restatement (Second) of Contracts provides that if parties enter into an oral contract that should be in writing under the Statute of Frauds, the oral promise is enforceable against the promisor if three conditions are met: (1) The promise induces action or forbearance of action by another, (2) the reliance on the oral promise was foreseeable, and (3) injustice can be avoided only by enforcing the oral promise. Where this doctrine applies, the promisor is estopped (prevented) from raising the Statute of Frauds as a defense to the enforcement of the oral contract. Diff: 1 LO: 14.6 Define promissory estoppel and apply this equitable doctrine. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 15 Third-Party Rights and Discharge 1) A party who owes a duty of performance under a contract is called the ________. A) obligor B) assignor C) assignee D) obligee Answer: A Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 2) An obligee who transfers the right to receive performance is called the ________. A) subsequent assignor B) obligor C) assignor D) assignee Answer: C Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 3) Kimlon Informatics has to recover $5000 from a client for its services. The recovery period is 100 days but Kimlon needs the money immediately. It sells the right of collecting money from its client to Quikcollect, a collection agency. Here, Kimlon Informatics is the ________. A) obligor B) assignor C) subassignee D) assignee Answer: B Diff: 3 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Application of knowledge Classification: Application

4) Which of the following rights is generally assignable in the United States? A) personal service contract B) a future right C) legal action D) recovery of debt Answer: D Diff: 2 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 5) A famous actor signs a contract with a movie studio where she agrees to star in a comedy. Which of the following is true of assignment of such a contract? A) The movie studio can assign the contract to another movie studio. B) The movie studio is at liberty to include the actor in a different movie. C) If the actor is injured, she can assign the contract to another popular actor. D) Both the actor and the studio can agree that their contract can be assigned. Answer: D Diff: 3 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Application of knowledge Classification: Application 6) Mr. Jacob, who is terminally ill, writes a will transferring all his assets to his daughter Silvia, in the event of his death. The doctors say that Mr. Jacob will live for about six months. A day after the will is written, Silvia wishes to transfer her expected inheritance to her son, Jacob Jr. This assignment will be ________. A) valid B) conditionally valid C) invalid D) re-assignable by Jacob Jr. Answer: C Diff: 2 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Application of knowledge Classification: Application

7) Ellen, who has a good driving record, purchases automobile insurance from an insurance company. Ellen cannot assign her rights to be insured to another driver for which of the following reasons? A) The assignment would materially alter the risk and duties of the insurance company. B) Claiming insurance is a future right and hence cannot be assigned. C) Insurance is a personal service contract and hence cannot be assigned. D) Personal contracts like insurance are assignable only with the agreement of all parties involved in the contract. Answer: A Diff: 2 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Application of knowledge Classification: Application 8) Howard is injured by Penny in a car accident, caused due to Penny's negligence. Which of the following statements holds true for Howard's right to assign? A) Howard cannot assign the recovery of punitive damages from Penny. B) Howard can only assign the recovery of his medical expenses from Penny. C) Howard's right to sue Penny cannot be assigned. D) Howard can only assign his right to take the case to the appellate court. Answer: C Diff: 2 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Application of knowledge Classification: Application 9) A legal right that arises out of a breach of contract is ________. A) assignable B) not assignable C) subject to approval clause D) considered a future right Answer: A Diff: 2 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept

10) Which of the following is true of an assignment of a right? A) Unconditional assignment of a contract right retains all the assignor's rights. B) The obligor is entitled to performance from the assignor. C) The assignor loses the right to sue the obligor directly for nonperformance in an unconditional assignment. D) The obligor cannot raise personal defenses against the assignee. Answer: C Diff: 2 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 11) Who should provide a notice of assignment to the obligor? A) an assignee B) an assignor C) an obligee D) a facilitator Answer: A Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 12) Karen borrows $10,000 from Celeste. Karen is to pay Celeste the principal amount, with 8 percent interest, over the next five years in 60 equal monthly payments. After one year of receiving proper payments from Karen, Celeste assigns this right to receive future payments to Larry. Who has the duty to notify Karen about the assignment? A) Celeste B) Larry C) Karen's attorney D) the authority who drafted the contract Answer: B Diff: 2 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Application of knowledge Classification: Application

13) Which of the following is true in the event an assignee does not provide a notice of assignment to the obligor? A) The assignee's only course of action is to sue the obligee for damages. B) The assignee cannot sue the assignor for damages. C) The obligor's only recourse is to sue the assignee for damages. D) The assignee cannot sue the obligor to recover payment. Answer: D Diff: 3 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 14) A(n) ________ is used if the obligor does not want to deal with or render performance to an unknown third party. A) anti-assignment clause B) approval clause C) novation agreement D) anti-delegation clause Answer: A Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 15) Approval clauses require that the ________ approve any assignment of a contract. A) obligee B) obligor C) assignor D) assignee Answer: B Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 16) What does the American Rule for successive assignments provide? A) The last assignment in time prevails, regardless of notice. B) The first notified assignment prevails. C) The first assignment in time prevails, regardless of notice. D) Only notified assignments prevail. Answer: C Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept

17) Which of the following is used to resolve a case where the obligee fraudulently makes successive assignments of the same right to a number of assignees, providing that the first assignee to give notice to the obligor prevails? A) the English rule B) an approval clause C) an anti-assignment clause D) a novation agreement Answer: A Diff: 2 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 18) What does the English rule for successive assignments provide? A) The first assignment in time prevails, regardless of notice. B) The first assignment in time prevails, pending notice. C) The first assignee to give notice to the obligor prevails. D) The first assignee who receives a tangible token prevails. Answer: C Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 19) Which of the following is an illustration of the possession of tangible token rule? A) An obligee who is owed $10,000 assigns the right of collecting $5,000 each to two assignees. B) The right of collecting $10,000 is recorded in the assignee's savings account passbook. C) The assignee can re-assign the right only to a subassignee selected by the obligee. D) An obligee cannot assign a right to collection more than once. Answer: B Diff: 2 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Application of knowledge Classification: Application 20) The party to whom a duty is owed is the ________. A) delegator B) delegatee C) obligor D) obligee Answer: D Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept

21) Privity of contract refers to the transfer of contractual rights by an obligee to another party. Answer: FALSE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 22) A party who is owed a right under a contract is called an obligor. Answer: FALSE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 23) An obligee who transfers the right to receive performance is called an assignor. Answer: TRUE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 24) Terms such as "sell," "convey," and "give" indicate the intent to transfer a contract right. Answer: TRUE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 25) In the United States, sales contracts and contracts for the payment of money are not assignable. Answer: FALSE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 26) Contracts for the provision of personal services are generally not assignable. Answer: TRUE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept

27) A person is permitted to assign a currently nonexistent right that he or she expects to have in the future. Answer: FALSE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 28) The right to sue another party for a violation of personal rights can be assigned. Answer: FALSE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 29) A legal right that arises out of a breach of contract may be assigned. Answer: TRUE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 30) An obligor can raise any personal defenses he or she may have directly against an assignee. Answer: TRUE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 31) If the assignee fails to provide notice of assignment to the obligor and the obligor continues to render performance to the assignor, the assignee can sue the obligor. Answer: FALSE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 32) Anti-assignment clause in a contract prohibits the assignment of rights under the contract. Answer: TRUE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept

33) Approval clauses require that the assignee approve any assignment of a contract. Answer: FALSE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 34) The American rule provides that the first assignment in time prevails, regardless of notice. Answer: TRUE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 35) The English rule provides that the final assignment in time prevails, regardless of notice. Answer: FALSE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 36) Under the possession of tangible token rule, the first assignee who receives delivery of the tangible token prevails over subsequent assignees. Answer: TRUE Diff: 1 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 37) Explain assignment of rights. Answer: The transfer of contractual rights is called an assignment of rights. A party who owes a duty of performance under a contract is called the obligor. A party who is owed a right under a contract is called the obligee. An obligee who transfers the right to receive performance is called an assignor. The party to whom the right has been transferred is called the assignee. The assignee can assign the right to yet another person called a subsequent assignee, or subassignee. Diff: 2 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept

38) What happens when an obligor does not get a notice of assignment? Answer: When an assignor makes an assignment of a right under a contract, the assignee is under a duty to notify the obligor that (1) the assignment has been made and (2) performance must be rendered to the assignee. If the assignee fails to provide notice of assignment to the obligor, the obligor may continue to render performance to the assignor, who no longer has a right to it. The assignee cannot sue the obligor to recover payment because the obligor has performed according to the original contract. The assignee's only course of action is to sue the assignor for damages. Diff: 2 LO: 15.1 Describe assignment of contract rights and what contract rights are assignable. AACSB: Analytical thinking Classification: Concept 39) Where there is a valid delegation of duties but the delegatee has not assumed the duties under a contract, the delegation is called a(n) ________. A) condition precedent B) declaration of duties C) express condition D) discharge Answer: B Diff: 1 LO: 15.2 Describe delegation of duties and what duties cannot be delegated. AACSB: Analytical thinking Classification: Concept 40) Which of the following contractual duties CAN be delegated? A) a professional, well-known singer hired to perform at a concert delegates to an unknown singer B) a plastic surgeon hired to perform a complex surgery delegates to a new surgeon C) a law firm hired to represent a client delegates to a new but qualified lawyer in the firm D) an artist hired to paint a portrait delegates to his art student Answer: C Diff: 2 LO: 15.2 Describe delegation of duties and what duties cannot be delegated. AACSB: Analytical thinking Classification: Concept 41) A(n) ________ occurs when there is a transfer of both rights and duties under a contract. A) assignment and delegation B) declaration of duties C) assumption of duties D) discharge Answer: A Diff: 1 LO: 15.2 Describe delegation of duties and what duties cannot be delegated. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

42) The party to whom the duty is owed is the delegatee. Answer: FALSE Diff: 1 LO: 15.2 Describe delegation of duties and what duties cannot be delegated. AACSB: Analytical thinking Classification: Concept 43) In a case of assumption of duties, the delegatee is not liable for nonperformance. Answer: FALSE Diff: 1 LO: 15.2 Describe delegation of duties and what duties cannot be delegated. AACSB: Analytical thinking Classification: Concept 44) If a delegatee has not assumed the duties under a contract, the delegatee is not liable to the obligee for nonperformance. Answer: TRUE Diff: 1 LO: 15.2 Describe delegation of duties and what duties cannot be delegated. AACSB: Analytical thinking Classification: Concept 45) An assignment and delegation occurs when there is a transfer of both rights and duties under a contract. Answer: TRUE Diff: 1 LO: 15.2 Describe delegation of duties and what duties cannot be delegated. AACSB: Analytical thinking Classification: Concept 46) What could the parties to a contract include in the language of the contract to indicate that the duties required cannot be delegated? Are such efforts to prevent delegation always effective? Answer: The parties to a contract can include an anti-delegation clause indicating that the duties cannot be delegated. Anti-delegation clauses are usually enforced. Some courts, however, have held that duties that are totally impersonal in nature–such as the payment of money–can be delegated despite such clauses. Diff: 1 LO: 15.2 Describe delegation of duties and what duties cannot be delegated. AACSB: Analytical thinking Classification: Concept

47) The term ________ refers to a third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the promisor. A) third-party contractor B) third-party assignee C) subassignee D) intended third-party beneficiary Answer: D Diff: 1 LO: 15.3 Define third-party beneficiary and distinguish between intended and incidental beneficiaries. AACSB: Analytical thinking Classification: Concept 48) A(n) ________ refers to a contracting party who directs that the benefit be conferred on another person. A) assignee B) promisor C) promisee D) donee beneficiary Answer: C Diff: 1 LO: 15.3 Define third-party beneficiary and distinguish between intended and incidental beneficiaries. AACSB: Analytical thinking Classification: Concept 49) A(n) ________ is an original creditor who becomes a beneficiary under the debtor's new contract with another party. A) donee beneficiary B) creditor beneficiary C) incidental creditor D) subsequent assignee Answer: B Diff: 1 LO: 15.3 Define third-party beneficiary and distinguish between intended and incidental beneficiaries. AACSB: Analytical thinking Classification: Concept

50) Which of the following is true of third-party beneficiaries? A) A creditor beneficiary is an unintended beneficiary. B) An intended third-party beneficiary cannot enforce the contract against the promisor. C) An incidental beneficiary cannot sue under other people's contracts. D) Incidental beneficiary is a third party who is benefitted intentionally. Answer: C Diff: 2 LO: 15.3 Define third-party beneficiary and distinguish between intended and incidental beneficiaries. AACSB: Analytical thinking Classification: Concept 51) A third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the promisor is called an incidental beneficiary. Answer: FALSE Diff: 1 LO: 15.3 Define third-party beneficiary and distinguish between intended and incidental beneficiaries. AACSB: Analytical thinking Classification: Concept 52) The promisee is the contracting party who agrees to confer performance for the benefit of the third person. Answer: FALSE Diff: 1 LO: 15.3 Define third-party beneficiary and distinguish between intended and incidental beneficiaries. AACSB: Analytical thinking Classification: Concept 53) A creditor beneficiary refers to an original creditor who becomes a beneficiary under the debtor's new contract with another party. Answer: TRUE Diff: 1 LO: 15.3 Define third-party beneficiary and distinguish between intended and incidental beneficiaries. AACSB: Analytical thinking Classification: Concept 54) An incidental beneficiary has no rights to enforce or sue under other people's contracts. Answer: TRUE Diff: 1 LO: 15.3 Define third-party beneficiary and distinguish between intended and incidental beneficiaries. AACSB: Analytical thinking Classification: Concept 13 Copyright © 2019 Pearson Education, Inc.

55) Harry's grandmother leaves him a house and a Rolls Royce in her will. What rights does Harry have, in the context of his new inheritance? Answer: Harry is an intended beneficiary, a third party who is not in privity of contract but who has rights under the contract and can enforce the contract against the promisor. An intended third-party beneficiary can enforce the contract against the party who promised to render performance. Diff: 2 LO: 15.3 Define third-party beneficiary and distinguish between intended and incidental beneficiaries. AACSB: Application of knowledge Classification: Application 56) Which of the following phrases describes the term covenant? A) an unconditional promise to perform B) a breach of contract C) mutual rescission of a contract D) successive assignments of a right Answer: A Diff: 1 LO: 15.4 Define covenant and describe how it is an unconditional promise to perform. AACSB: Analytical thinking Classification: Concept 57) Which of the following is true of covenants and conditions? A) A covenant is a conditional promise to perform. B) A conditional promise becomes a covenant if the condition is met. C) A contract cannot contain conditions to excuse performance. D) A party cannot sue over breach of a covenant by the other party. Answer: B Diff: 2 LO: 15.4 Define covenant and describe how it is an unconditional promise to perform. AACSB: Analytical thinking Classification: Concept 58) A covenant is an unconditional promise to perform. Answer: TRUE Diff: 1 LO: 15.4 Define covenant and describe how it is an unconditional promise to perform. AACSB: Analytical thinking Classification: Concept

59) Nonperformance of a covenant is not considered a breach of contract because a covenant is an unconditional promise. Answer: FALSE Diff: 2 LO: 15.4 Define covenant and describe how it is an unconditional promise to perform. AACSB: Analytical thinking Classification: Concept 60) Distinguish between conditions and covenants. Answer: A covenant is an unconditional promise to perform. Nonperformance of a covenant is a breach of contract that gives the other party the right to sue. Some contract provisions are conditions rather than covenants. A conditional promise (or qualified promise) is not as definite as a covenant. The promisor's duty to perform or not perform arises only if the condition does or does not occur. It becomes a covenant if the condition is met. Diff: 2 LO: 15.4 Define covenant and describe how it is an unconditional promise to perform. AACSB: Analytical thinking Classification: Concept 61) KnockKnock is a manufacturer of stainless steel locks that are well-known for their durability. The company contacts a new stainless steel supplier and enters into a supply contract. The contract states that KnockKnock would purchase only if the steel from the supplier was high-grade Type 102 stainless steel. This is an instance of a ________. A) condition subsequent B) concurrent condition C) covenant D) condition precedent Answer: D Diff: 2 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Application of knowledge Classification: Application 62) The ________ is an objective test that applies to commercial contracts and contracts involving mechanical fitness. A) reasonable person test B) personal satisfaction test C) express condition test D) cognitive inventory test Answer: A Diff: 1 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Analytical thinking Classification: Concept 15 Copyright © 2019 Pearson Education, Inc.

63) A(n) ________ refers to a condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract. A) condition precedent B) condition subsequent C) concurrent condition D) implied condition Answer: A Diff: 1 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Analytical thinking Classification: Concept 64) A(n) ________ refers to a condition whose occurrence or nonoccurrence of a specific event automatically excuses the performance of an existing contractual duty to perform. A) condition precedent B) condition subsequent C) concurrent condition D) implied condition Answer: B Diff: 1 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Analytical thinking Classification: Concept 65) James hires Franco for a painting job. Their contract explicitly states that Franco's employment can be terminated if he is employed by another party during the contract period. Two weeks into the job, James finds out that Franco is also working for a painting agency two blocks away and terminates his employment. This is an instance of ________. A) condition precedent B) condition subsequent C) concurrent condition D) implied condition Answer: B Diff: 3 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Application of knowledge Classification: Application

66) In which of the following conditions is a party's absolute duty to perform conditioned on the other party's absolute duty to perform? A) condition precedent B) condition subsequent C) concurrent condition D) implied condition Answer: C Diff: 2 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Analytical thinking Classification: Concept 67) A contract between a retailer and a supplier provides that payment is due upon delivery of goods by the supplier. The retailer's duty to pay and the supplier's duty to deliver constitutes ________. A) an implied condition B) a condition precedent C) a condition subsequent D) concurrent conditions Answer: D Diff: 2 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Application of knowledge Classification: Application 68) If the conditions are met, a qualified promise becomes a covenant. Answer: TRUE Diff: 1 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Analytical thinking Classification: Concept 69) Condition precedent refers to a condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract. Answer: TRUE Diff: 1 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Analytical thinking Classification: Concept

70) A reasonable person test is a subjective test that applies to contracts involving personal taste and comfort. Answer: FALSE Diff: 1 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Analytical thinking Classification: Concept 71) Condition subsequent exists when the parties to a contract must render performance simultaneously. Answer: FALSE Diff: 1 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Analytical thinking Classification: Concept 72) The reasonable person test is used to judge contracts involving mechanical fitness. Answer: TRUE Diff: 1 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Analytical thinking Classification: Concept 73) In concurrent conditions, each party's duty to perform is conditioned on the other party's duty to perform. Answer: TRUE Diff: 1 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Analytical thinking Classification: Concept

74) Explain the difference between a condition precedent and a condition subsequent. Give an example of each. Answer: If a contract requires the occurrence (or nonoccurrence) of an event before a party is obligated to perform a contractual duty, this is a condition precedent. For example, a business might offer an employment contract to a college senior on the condition that the senior must graduate. A condition subsequent exists when there is a condition in a contract that provides that the occurrence (or nonoccurrence) of a specific event automatically excuses the performance of an existing duty to perform. For example, an employment contract might include a provision that an employee must submit to and pass random drug tests in order to remain employed. Diff: 2 LO: 15.5 Distinguish between conditions precedent, conditions subsequent, and concurrent conditions. AACSB: Analytical thinking Classification: Concept 75) Which of the following is true of discharge of performance by agreement? A) A partially executed contract cannot be rescinded. B) Mutual rescission requires parties to enter into a second agreement that expressly terminates the first one. C) A party is allowed to rescind a contract without the consent of the other party. D) Unilateral rescission is not regarded as breach of contract. Answer: B Diff: 2 LO: 15.6 Explain when the performance of a contract is discharged by agreement or impossibility of performance. AACSB: Analytical thinking Classification: Concept 76) Which of the following refers to an agreement that substitutes a new party for one of the original contracting parties and relieves the existing party of liability on the contract? A) novation B) substituted contract C) mutual rescission D) accord Answer: A Diff: 1 LO: 15.6 Explain when the performance of a contract is discharged by agreement or impossibility of performance. AACSB: Analytical thinking Classification: Concept

77) ________ is a clause in a contract in which the parties specify certain events that will excuse nonperformance. A) Approval clause B) Express condition C) Force majeure D) Implied-in-fact condition Answer: C Diff: 1 LO: 15.6 Explain when the performance of a contract is discharged by agreement or impossibility of performance. AACSB: Analytical thinking Classification: Concept 78) Lionel Richmond is a soccer player who has a six-year contract with the Christshire United soccer team. Two years into the contract, he meets with an accident which results in the complete amputation of his right leg. On what basis is Richmond discharged from further performance of the contract? A) novation B) substituted contract C) accord and satisfaction D) discharge by impossibility Answer: D Diff: 2 LO: 15.6 Explain when the performance of a contract is discharged by agreement or impossibility of performance. AACSB: Application of knowledge Classification: Application 79) Unilateral rescission of a contract constitutes a breach of that contract. Answer: TRUE Diff: 1 LO: 15.6 Explain when the performance of a contract is discharged by agreement or impossibility of performance. AACSB: Analytical thinking Classification: Concept 80) A substituted contract substitutes a new party for one of the original contracting parties. Answer: FALSE Diff: 1 LO: 15.6 Explain when the performance of a contract is discharged by agreement or impossibility of performance. AACSB: Analytical thinking Classification: Concept

81) When is nonperformance by a contractual party excusable? Answer: Nonperformance is excused if a contract becomes impossible to perform. It must be objective impossibility, not subjective. The following types of objective impossibility excuse nonperformance: 1. the death or incapacity of the promisor prior to the performance of a personal service contract 2. the destruction of the subject matter of a contract prior to performance 3. a supervening illegality that makes performance of the contract illegal Diff: 2 LO: 15.6 Explain when the performance of a contract is discharged by agreement or impossibility of performance. AACSB: Analytical thinking Classification: Concept 82) The aggrieved party loses the right to sue if the lawsuit is not brought within the ________. A) privity of contract B) notice of assignment C) future right D) statute of limitations Answer: D Diff: 2 LO: 15.7 Define statute of limitations and explain how it applies to contract disputes. AACSB: Analytical thinking Classification: Concept 83) A statute of limitations establishes the time period during which a lawsuit must be brought. Answer: TRUE Diff: 1 LO: 15.7 Define statute of limitations and explain how it applies to contract disputes. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 16 Remedies for Breach of Traditional and E-Contracts 1) Which of the following statements is true of a breach of contract? A) Strict performance by a party discharges that party's duties under the contract. B) Inferior performance constitutes a minor breach of contract. C) Substantial performance constitutes a material breach. D) The most common remedy for a breach of contract is an award of equitable remedies. Answer: A Diff: 2 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 2) ________ is a situation in which a party to a contract renders performance exactly as required by the contract. A) Substantial performance B) Strict performance C) Anticipatory repudiation D) Restitution Answer: B Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 3) Which of the following terms refers to an unconditional and absolute offer by a contracting party to perform his or her obligations under a contract? A) injunction B) writ of garnishment C) tender of performance D) writ of attachment Answer: C Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept

4) Poole Contractors makes a contract with Delta Resources to pay $50,000 for the supply of 500 truckloads of sand within a week. Delta Resources delivers the sand two days after the contract was made, and Poole Contractors pays it $50,000 promised in the contract. This is an instance of ________. A) substantial performance B) material breach C) minor breach D) strict performance Answer: D Diff: 2 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Application of knowledge Classification: Application 5) Which of the following statements is true of discharge of contracts? A) Anticipatory breach discharges the breaching party's obligations to the contract. B) Substantial performance is sufficient to discharge a contract. C) Tender of performance discharges a party's contractual obligations. D) Tender is a conditional offer by contracting party to perform his or her obligations under the contract. Answer: C Diff: 2 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 6) When does a minor breach occur? A) when a party rescinds the contract before actual work on the contract has commenced B) when a party renders substantial performance of his or her contractual duties C) when the party who is being offered goods or services rescinds the contract D) when the party who is offering goods or services rescinds the contract Answer: B Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept

7) Nett Labs orders 30 desktop computers from iDeal, a local computer dealer. Nett Labs requires that each computer has a 2.6 GHz processor, 500 GB hard disk, and Windows operating system. iDeal supplies 30 desktop computers, each with a 2 GHz processor, 500 GB hard disk, and Windows operating system. Which of the following terms hold true for iDeal's performance? A) complete performance B) material breach C) substantial performance D) anticipatory breach Answer: C Diff: 2 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Application of knowledge Classification: Application 8) A(n) ________ breach of a contract occurs when a party renders inferior performance of his or her contractual obligations that impairs or destroys the essence of the contract. A) material B) minor C) anticipatory D) defensive Answer: A Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 9) Which of the following constitutes material breach? A) inferior performance B) substantial performance C) anticipatory repudiation D) rescission without notification Answer: A Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept

10) ________ occurs when one contracting party informs the other that he or she will not perform his or her contractual duties when due. A) Restitution B) Rescission C) Anticipatory repudiation D) Material breach Answer: C Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 11) Which of the following is true in a case of anticipatory breach? A) It occurs when a contracting party fails to inform the other party in advance about nonperformance of his or her contractual duties when due. B) In case of anticipatory breach, nonbreaching party's obligations under the contract are not discharged. C) The nonbreaching party must wait until performance is due to sue the breaching party. D) Anticipatory breach can be derived from the conduct of the breaching party without being expressly stated by that party. Answer: D Diff: 2 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 12) When a party commits an anticipatory breach, the nonbreaching party ________. A) must wait until the performance was due before suing B) is immediately discharged from his or her own duties C) cannot seek damages because he or she received advance notice of the breach D) loses his or her right to sue after the due date for performance is reached Answer: B Diff: 2 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 13) Strict performance by a party discharges that party's duties under the contract. Answer: TRUE Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept

14) Tender of performance discharges a party's contractual obligations. Answer: TRUE Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 15) Minor breach occurs when a party renders substantial performance of his or her contractual duties. Answer: TRUE Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 16) When there is substantial performance of a contract, the nonbreaching party may sue to recover the cost to repair the defect. Answer: TRUE Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 17) Material breach of a contract occurs when a party renders considerable performance of his or her contractual obligations. Answer: FALSE Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 18) A nonbreaching party cannot rescind the contract in the event of a material breach. Answer: FALSE Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 19) In the event of a material breach, the nonbreaching party is discharged from further performance under the contract. Answer: TRUE Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept

20) Anticipatory repudiation occurs when one contracting party informs the other that he or she will not perform his or her contractual duties when due. Answer: TRUE Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 21) In an anticipatory breach, the nonbreaching party does not have the right to sue the breaching party until performance is due. Answer: FALSE Diff: 1 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 22) Distinguish minor breach from material breach. Answer: A minor breach occurs when a party renders substantial performance of his or her contractual duties. In other words, it occurs when a party to a contract renders performance that deviates slightly from complete performance. The nonbreaching party may try to convince the breaching party to elevate his or her performance to complete performance. If the breaching party does not correct the breach, the nonbreaching party can sue to recover damages. A material breach of a contract occurs when a party renders inferior performance of his or her contractual obligations that impairs or destroys the essence of the contract. Where there has been a material breach of contract, the nonbreaching party may rescind the contract and seek restitution of any compensation paid under the contract to the breaching party. The nonbreaching party is discharged from any further performance under the contract. Alternatively, the nonbreaching party may treat the contract as being in effect and sue the breaching party to recover damages. Diff: 2 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Analytical thinking Classification: Concept 23) Howard and Ali enter into a contract where Ali has to ship goods within six weeks of signing the contract. Two weeks into the contract, Ali informs Howard that he cannot provide the shipment on time. What type of contractual breach does this constitute? Suggest Howard's course of action following the breach of contract. Answer: Ali's actions constitute an anticipatory breach. An anticipatory breach (or anticipatory repudiation) of a contract occurs when a contracting party informs the other party in advance that he or she will not perform his or her contractual duties when due. Where there is an anticipatory repudiation, the nonbreaching party's–Howard's, in this case–obligations under the contract are discharged immediately. Howard also has the right to sue Ali when the anticipatory breach occurs; there is no need to wait until performance is due. Diff: 3 LO: 16.1 Describe complete, substantial, and inferior performance of contractual duties. AACSB: Application of knowledge Classification: Application 6 Copyright © 2019 Pearson Education, Inc.

24) Which of the following is true of monetary damages? A) Nominal damages are paid once the nonbreaching party has suffered a financial loss. B) Anticipatory breaches cannot be awarded monetary damages. C) Liquidated damages are set by the court to the breaching party. D) Consequential damages are considered monetary damages. Answer: D Diff: 2 LO: 16.2 Describe the monetary damages that can be awarded when there is a breach of contract. AACSB: Analytical thinking Classification: Concept 25) Which of the following is NOT a type of monetary damages? A) compensatory B) consequential C) equitable D) liquidated Answer: C Diff: 2 LO: 16.2 Describe the monetary damages that can be awarded when there is a breach of contract. AACSB: Analytical thinking Classification: Concept 26) Monetary damages can be recovered only for a material breach. Answer: FALSE Diff: 1 LO: 16.2 Describe the monetary damages that can be awarded when there is a breach of contract. AACSB: Analytical thinking Classification: Concept 27) ________ place the nonbreaching party in the same position as if the contract had been fully performed. A) Tort damages B) Compensatory damages C) Nominal damages D) Consequential damages Answer: B Diff: 1 LO: 16.3 Define compensatory damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept

28) Kinlin, a furniture retailer, has a contract with William, a carpenter. The agreement states that William must deliver five tables and that Kinlin would pay $2,000 per table. However, William manages to deliver only four tables and Kinlin needs to buy the fifth table from another supplier for $3,000. How much money can Kinlin recover from William? A) $10,000 B) $2,000 C) $3,000 D) $1,000 Answer: D Diff: 3 LO: 16.3 Define compensatory damages and describe when they can be awarded. AACSB: Application of knowledge Classification: Application 29) The amount of compensatory damages that will be awarded for breach of contract depends on which party breached the contract. Answer: TRUE Diff: 1 LO: 16.3 Define compensatory damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept 30) A contractor cannot recover the profits he or she would have made on the contract if the owner breaches the construction contract before construction begins. Answer: FALSE Diff: 1 LO: 16.3 Define compensatory damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept 31) If the builder breaches a construction contract either before or during construction, the owner can recover the increased cost above the contract price that he or she has to pay to have the work completed by another contractor. Answer: TRUE Diff: 1 LO: 16.3 Define compensatory damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept 32) If the employee breaches the contract, the employer can recover the costs to hire a new employee. Answer: TRUE Diff: 1 LO: 16.3 Define compensatory damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept 8 Copyright © 2019 Pearson Education, Inc.

33) How are compensatory damages awarded for construction contracts? Answer: The compensatory damages recoverable for a breach of a construction contract vary with the stage of completion of the project when the breach occurs. A contractor may recover the profits he or she would have made on the contract if the owner breaches the construction contract before construction begins. If the builder breaches a construction contract either before or during construction, the owner can recover the increased cost above the contract price that he or she has to pay to have the work completed by another contractor. Diff: 2 LO: 16.3 Define compensatory damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept 34) Mary buys a new toaster for $500. The toaster's label bears a disclaimer stating that the manufacturer is not liable for consequential damages. One day, while Mary is using the toaster, it starts emitting sparks and the electrical wiring of the kitchen gets damaged. The electrician tells Mary that the toaster malfunctioned and that the cost of repairs would be $2,000. What monetary damages can Mary recover from the manufacturer of the toaster? A) $500 B) $2,500 C) $2,000 D) damages cannot be recovered Answer: A Diff: 3 LO: 16.4 Define consequential damages and describe when they can be awarded. AACSB: Application of knowledge Classification: Application 35) Consequential damages are unforeseeable damages. Answer: FALSE Diff: 1 LO: 16.4 Define consequential damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept 36) Consequential damages arise from circumstances outside a contract. Answer: TRUE Diff: 1 LO: 16.4 Define consequential damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept

37) To be liable for consequential damages, the breaching party need not know nor have reason to know that the breach will cause special damages to the other party. Answer: FALSE Diff: 2 LO: 16.4 Define consequential damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept 38) Disclaimer of consequential damages is unlawful in most instances. Answer: FALSE Diff: 2 LO: 16.4 Define consequential damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept 39) ________ damages are awarded when the nonbreaching party sues the breaching party even though no financial loss has resulted from the breach. A) Consequential B) Compensatory C) Nominal D) Liquidated Answer: C Diff: 1 LO: 16.5 Define nominal damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept 40) Which of the following statements is true of nominal damages? A) They are also known as compensatory damages. B) Only damages above $1,000 can qualify as nominal damages. C) Most courts favor nominal damages lawsuits. D) They are awarded even when a breach did not result in financial loss. Answer: D Diff: 2 LO: 16.5 Define nominal damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept

41) QuickClicks, an online advertising company, makes a contract to purchase six computers from Comptail, a local retailer, for $20,000. However, Comptail breaches the contract by not delivering the computers on time. The next day, QuickClicks manages to purchase the computers from another retailer for $18,000 and receives immediate delivery. QuickClicks can bring a lawsuit against Comptail to recover ________ damages. A) consequential B) compensatory C) nominal D) liquidated Answer: C Diff: 2 LO: 16.5 Define nominal damages and describe when they can be awarded. AACSB: Application of knowledge Classification: Application 42) Nominal damages may be awarded when no financial loss resulted from the breach. Answer: TRUE Diff: 1 LO: 16.5 Define nominal damages and describe when they can be awarded. AACSB: Analytical thinking Classification: Concept 43) Which of the following terms refers to a nonbreaching party's legal duty to avoid or reduce damages caused by a breach of contract? A) tender of performance B) mitigation of damages C) liquidation of damages D) disclaimer of consequential damages Answer: B Diff: 1 LO: 16.6 Explain mitigation of damages and describe when this is required. AACSB: Analytical thinking Classification: Concept 44) Which of the following statements is true of mitigation of damages? A) The breaching party must make efforts to mitigate damages resulting from the breach of contract. B) If an employer breaches an employment contract, he or she owes a duty to mitigate damages by trying to find substitute employment for the employee. C) The extent of mitigation of damages required is common to all kinds of contracts. D) If an employer breaches a contract, the employee is only required to accept comparable employment. Answer: D Diff: 2 LO: 16.6 Explain mitigation of damages and describe when this is required. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

45) Rudy was working as an applications developer in a software firm in San Jose. His employment contract was for three years at $100,000 a year. Two years into the contract, Rudy's employer fired him as a part of downsizing. Which of the following jobs could Rudy take in order to mitigate damages? A) Any job that offers $100,000 or more a year. B) Another software applications developer job, irrespective of the salary. C) A job in any software firm in any part of the country. D) An applications developer job in San Jose for $100,000 a year or more. Answer: D Diff: 2 LO: 16.6 Explain mitigation of damages and describe when this is required. AACSB: Application of knowledge Classification: Application 46) An employee who has been dismissed improperly accepts a job that is not comparable. Which of the following can be a subsequent course of action? A) The employee can sue the prior employer for damages. B) The previous employer must offer salary compensation on a monthly basis, until the employee's new salary becomes comparable to the compensation at the previous job. C) The employee can sue the prior employer to recover his or her salary for one year. D) The employee can take no legal action against his or her prior employer after accepting a different job. Answer: A Diff: 2 LO: 16.6 Explain mitigation of damages and describe when this is required. AACSB: Analytical thinking Classification: Concept 47) Andrew is employed as a chief financial officer of EasyMoney in New York City, for a salary of $200,000 per year on a three-year contract. His employer terminates Andrew with two years left on the contract. Andrew accepts employment as a financial analyst at a different firm that pays $150,000 per year. Which of the following hold true in this scenario? A) Andrew cannot take any legal action against his prior employer after accepting another job. B) Andrew's prior employer must pay Andrew two years' worth of his previous salary. C) Andrew can only sue to receive nominal damages. D) Andrew can sue his prior employer and recover $100,000. Answer: D Diff: 2 LO: 16.6 Explain mitigation of damages and describe when this is required. AACSB: Application of knowledge Classification: Application

48) Mitigation of damages is a nonbreaching party's legal duty to avoid or reduce damages caused by a breach of contract. Answer: TRUE Diff: 1 LO: 16.6 Explain mitigation of damages and describe when this is required. AACSB: Analytical thinking Classification: Concept 49) If an employer breaches an employment contract, the employee owes a duty to mitigate damages by trying to find substitute employment. Answer: TRUE Diff: 2 LO: 16.6 Explain mitigation of damages and describe when this is required. AACSB: Analytical thinking Classification: Concept 50) As a part of downsizing, Richmond and Sons fired an employee before his employment contract lapsed. Is the employee obliged to mitigate damages? Explain. Answer: If a contract has been breached, the law places a duty on the innocent nonbreaching party to make reasonable efforts to mitigate the resulting damages. The extent of mitigation of damages required depends on the type of contract involved. If an employer breaches an employment contract, the employee owes a duty to mitigate damages by trying to find substitute employment. The employee is only required to accept comparable employment. Diff: 2 LO: 16.6 Explain mitigation of damages and describe when this is required. AACSB: Application of knowledge Classification: Application 51) Parties to a contract agree in advance to pay ________ damages if the contract is breached. A) nominal B) compensatory C) liquidated D) consequential Answer: C Diff: 1 LO: 16.7 Define liquidated damages and describe when they are awarded. AACSB: Analytical thinking Classification: Concept

52) Which of the following hold true in a case of liquidated damages? A) For liquidated damages to be lawful, the actual damages must be precisely determined. B) Liquidated damages are enforceable even if actual damages are later determined to be different. C) A liquidated damages clause is considered a penalty if actual damages are not determinable in advance. D) If a liquidated damages clause is found to be a penalty, it continues to be enforceable. Answer: B Diff: 2 LO: 16.7 Define liquidated damages and describe when they are awarded. AACSB: Analytical thinking Classification: Concept 53) Parties to a contract agree upon liquidated damages after the contract has been breached. Answer: FALSE Diff: 1 LO: 16.7 Define liquidated damages and describe when they are awarded. AACSB: Analytical thinking Classification: Concept 54) Liquidated damages are awarded only if actual damages are precisely determined. Answer: FALSE Diff: 2 LO: 16.7 Define liquidated damages and describe when they are awarded. AACSB: Analytical thinking Classification: Concept 55) How are liquidated damages awarded? Answer: Under certain circumstances, the parties to a contract may agree in advance to the amount of damages payable upon a breach of contract. These damages are called liquidated damages. To be lawful, the actual damages must be difficult or impracticable to determine, and the liquidated amount must be reasonable in the circumstances. An enforceable liquidated damages clause is an exclusive remedy, even if actual damages are later determined to be different. Diff: 2 LO: 16.7 Define liquidated damages and describe when they are awarded. AACSB: Analytical thinking Classification: Concept

56) ________ is an action to undo a contract. A) Rescission B) Recession C) Restitution D) Retribution Answer: A Diff: 1 LO: 16.8 Describe rescission of a contract and the payment of restitution. AACSB: Analytical thinking Classification: Concept 57) ________ is a term that denotes the return of goods or property received from the other party to undo a contract. A) Rescission B) Recession C) Restitution D) Retribution Answer: C Diff: 1 LO: 16.8 Describe rescission of a contract and the payment of restitution. AACSB: Analytical thinking Classification: Concept 58) Jenson and Johnson enter into a contract that involves Johnson paying Jenson $1,000 for shoveling the snow from his driveway throughout winter. Jenson, who was paid before work commenced, materially breached some of the conditions of the contract on the very first day. He should refund $1,000 to Johnson as ________. A) compensatory damages B) restitution C) liquidated damages D) consequential damages Answer: B Diff: 2 LO: 16.8 Describe rescission of a contract and the payment of restitution. AACSB: Application of knowledge Classification: Application 59) Restitution is an action to undo a contract. Answer: FALSE Diff: 1 LO: 16.8 Describe rescission of a contract and the payment of restitution. AACSB: Analytical thinking Classification: Concept

60) To rescind a contract, the parties must make restitution of the consideration they received under the contract. Answer: TRUE Diff: 1 LO: 16.8 Describe rescission of a contract and the payment of restitution. AACSB: Analytical thinking Classification: Concept 61) The return of goods or property received from the other party to rescind a contract is known as restitution. Answer: TRUE Diff: 1 LO: 16.8 Describe rescission of a contract and the payment of restitution. AACSB: Analytical thinking Classification: Concept 62) Which of the following is used in case of a breach of contract that cannot be adequately compensated through a legal remedy? A) mitigation of damages B) liquidation of damages C) equitable remedies D) tort remedies Answer: C Diff: 1 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept 63) An award of ________ orders the breaching party to perform the acts promised in a contract. A) reformation B) injunction C) restitution D) specific performance Answer: D Diff: 1 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept

64) Which of the following is true of specific performance? A) Specific performance of personal service contracts is not granted. B) Specific performance is not awarded if the subject matter of the contract is unique. C) Specific performance exempts works of art, antiques, and heirlooms as subject matter. D) Specific performance is not available to enforce land contracts. Answer: A Diff: 2 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept 65) ________ refers to an equitable doctrine that permits the court to rewrite a contract to express the parties' true intentions. A) Reformation B) Injunction C) Conjunction D) Garnishment Answer: A Diff: 1 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept 66) A court order that prohibits a person from doing a certain act is termed as a(n) ________. A) rescission B) reformation C) injunction D) restitution Answer: C Diff: 1 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept 67) Kimberly Inc., a jewelry manufacturer, and JKCent, a retailer, draft a contract that permits JKCent to retail Kimberly's jewelry in its stores. However, the parties discover a minor clerical error six months into the contract and the court rewrites their contract. This is an instance of ________. A) restitution B) rescission C) injunction D) reformation Answer: D Diff: 2 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Application of knowledge Classification: Application 17 Copyright © 2019 Pearson Education, Inc.

68) Kinetosphere Automation Inc. (K.A.) makes a mandatory employment contract with all its employees. The contract states that K.A.'s employees are not to work for any other organization while they are employed by it. If K.A. finds an employee who is also serving another company, it can approach the court to obtain a(n) ________ to prevent the employee from working in the other company. A) restitution B) rescission C) injunction D) subjugation Answer: C Diff: 2 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Application of knowledge Classification: Application 69) Specific performance is awarded if the subject matter of the contract is unique. Answer: TRUE Diff: 1 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept 70) Specific performance is not awarded in contracts for the sale of land. Answer: FALSE Diff: 1 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept 71) Specific performance of personal service contracts is not granted. Answer: TRUE Diff: 1 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept 72) An injunction is an equitable doctrine that permits the court to rewrite a contract to express the parties' true intentions. Answer: FALSE Diff: 1 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept

73) To obtain an injunction, the requesting party must show that he or she will suffer irreparable injury if the injunction is not issued. Answer: TRUE Diff: 1 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept 74) An unconditional and absolute offer by a contracting party to perform his or her obligations under the contract is known as an injunction. Answer: FALSE Diff: 1 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept 75) Rosco enters into a contract to sell his beachfront home to Rhonda. On the scheduled date of closing, Rhonda shows up with funds to purchase the home. Rosco does not show up for the real estate closing and subsequently refuses to sell his beachfront home to Rhonda. What equitable remedy is available to Rhonda? Explain the reasons why this equitable remedy would be available for breach of a real estate contract. Answer: Rhonda can bring an action for specific performance against Rosco and obtain a court judgment ordering Rosco to sell the beachfront home to her. Courts have the discretion to award this remedy if the subject matter of the contract is unique. Specific performance is available to enforce land contracts because every piece of real property is unique. Diff: 2 LO: 16.9 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Application of knowledge Classification: Application 76) Which of the following statements is NOT true regarding arbitration of contract disputes? A) A judge or jury decides the outcome. B) Most arbitration agreements stipulate decisions cannot be appealed to the courts. C) Arbitration occurs only when the parties have entered into an arbitration agreement. D) Arbitration clauses are common in consumer and business contracts. Answer: A Diff: 1 LO: 16.10 Identify when contract disputes are to be resolved using arbitration. AACSB: Analytical thinking Classification: Concept

77) The Federal Arbitration Act promotes the arbitration of contract disputes whether the dispute involves federal or state law. Answer: TRUE Diff: 1 LO: 16.10 Identify when contract disputes are to be resolved using arbitration. AACSB: Analytical thinking Classification: Concept 78) Most arbitration agreements stipulate that the arbitrator's decision cannot be appealed to the courts. Answer: TRUE Diff: 1 LO: 16.10 Identify when contract disputes are to be resolved using arbitration. AACSB: Analytical thinking Classification: Concept 79) Many credit card agreements, employment contracts, electronic contracts, and software licenses contain arbitration clauses requiring any disputes arising from the contracts to be heard through a nonjudicial process. Answer: TRUE Diff: 1 LO: 16.10 Identify when contract disputes are to be resolved using arbitration. AACSB: Analytical thinking Classification: Concept 80) Which of the following torts arises when a third party induces a contracting party to breach the contract with another party? A) intentional interference with contractual relations B) breach of the covenant of good faith and fair dealing C) tort of bad faith D) malicious breach of contractual relations Answer: A Diff: 1 LO: 16.11 Describe torts associated with contracts, including the tort of bad faith. AACSB: Analytical thinking Classification: Concept

81) Alan is a subject matter expert for First University, with an employment contract of three years. Two years into the contract, Second University–fully aware of Alan's contract–offers him twice the compensation for a similar post. Alan breaches his contract and takes up the offer. First University can recover damages from Second University for which of the following torts? A) malicious breach of contractual relations B) malicious inducement of contractual breach C) intentional interference with contractual relations D) breach of the covenant of good faith and fair dealing Answer: C Diff: 2 LO: 16.11 Describe torts associated with contracts, including the tort of bad faith. AACSB: Application of knowledge Classification: Application 82) Intentional interference with contractual relations arises when a third party induces a contracting party to breach the contract with another party. Answer: TRUE Diff: 1 LO: 16.11 Describe torts associated with contracts, including the tort of bad faith. AACSB: Analytical thinking Classification: Concept 83) The recovery for breach of contract is usually limited to contract damages. Answer: TRUE Diff: 1 LO: 16.11 Describe torts associated with contracts, including the tort of bad faith. AACSB: Analytical thinking Classification: Concept 84) A famous news anchor signs a five-year contract to report the news for a certain national television news channel. Two years into the contract, another national television news channel, with full knowledge of the anchor's contract with the first news channel, offers the anchor twice the amount of money that she is currently making to breach her contract and sign and work for the second news channel. The news anchor breaches her contract and signs to work for the second channel. In this case, what tort action can the first news channel bring against the second news channel? In your answer, discuss the required elements of this tort and the type(s) of damages that would be available. Answer: Here, the second news channel intentionally interfered with the anchor's contract with the first news channel. The first news channel can recover tort damages–including punitive damages–from the second news channel for the tort of intentional interference with a contract. The following elements must be proven: 1. a valid, enforceable contract between the contracting parties, 2. third-party knowledge of this contract, and 3. third-party inducement to breach the contract. Diff: 3 LO: 16.11 Describe torts associated with contracts, including the tort of bad faith. AACSB: Application of knowledge Classification: Application 21 Copyright © 2019 Pearson Education, Inc.

Business Law, 10e (Cheeseman) Chapter 17 Digital Law and E-Commerce 1) The computers that constitute the web use a standard set of rules known as ________ for the exchange of information. A) POP B) POP3 C) HTTP D) IMAP Answer: C Diff: 1 LO: 17.1 Describe the Internet. AACSB: Analytical thinking Classification: Concept 2) Which of the following is an example of web-browsing software? A) Microsoft Internet Explorer B) Adobe Acrobat Reader C) Outlook Express D) BitTorrent Answer: A Diff: 2 LO: 17.1 Describe the Internet. AACSB: Analytical thinking Classification: Concept 3) Which of the following is true of the web? A) Only businesses—not individuals—can have their own websites. B) Individuals need not register with a service provider to access the web. C) A website can have several online addresses. D) Each website must have a unique online address. Answer: D Diff: 2 LO: 17.1 Describe the Internet. AACSB: Analytical thinking Classification: Concept 4) The web consists of computers that support a standard set of rules for the exchange of information called Hypertext Transfer Protocol. Answer: TRUE Diff: 1 LO: 17.1 Describe the Internet. AACSB: Analytical thinking Classification: Concept

5) Each website has a unique online address. Answer: TRUE Diff: 1 LO: 17.1 Describe the Internet. AACSB: Analytical thinking Classification: Concept 6) Which of the following statements is true of email contracts? A) All email contracts require consideration, capacity, and lawful object. B) Email contracts are exempted from the requirements of the Statute of Frauds. C) All email contracts are enforceable even if they don't meet the requirements of a traditional contract. D) Several emails cannot be integrated to determine the parties' agreement. Answer: A Diff: 2 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 7) Which of the following acts regulates spam e-mail on the Internet? A) Anticybersquatting Consumer Protection Act B) Controlling the Assault of Non-Solicited Pornography and Marketing Act C) Communications Decency Act D) Uniform Computer Information Transactions Act Answer: B Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 8) Which of the following is true of the CAN-SPAM Act? A) It regards spam e-mail as a punishable offence. B) It prohibits spammers from sending sexually explicit e-mails. C) It approves businesses to use spam as long as they do not lie. D) It provides a civil right of action to individuals who have received unsolicited spam. Answer: C Diff: 2 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept

9) The CAN-SPAM Act ________. A) regulates spam sent internationally to Americans from other countries B) provides a civil right of action to individuals who have received unsolicited spam C) prohibits the messages themselves from containing graphic, sexually explicit material D) prohibits businesses from using spam to further their commercial interests Answer: C Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 10) ________ are companies that provide consumers and businesses with access to the Internet. A) ISPs B) BPOs C) DSLs D) IPOs Answer: A Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 11) Which of the following is true of the Communications Decency Act of 1996? A) Businesses can send spam e-mails as long as they don't lie. B) ISPs are not liable for the content transmitted over their networks by e-mail users and websites. C) Businesses are liable for invading the right to privacy if they send unsolicited e-mails. D) The number of servers an ISP can access in a geographical location is limited. Answer: B Diff: 2 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 12) LetsConnect is a three-month-old Internet service provider in the United States of America. In the last two months, it was discovered that several LetsConnect users exchanged online material that is illegal in the United States. The ISP took no measures to investigate the matter or prevent it. Which of the following holds true in this case? A) The users of LetsConnect are not liable for the material they exchanged. B) The ISP is not liable for the content transmitted over its network. C) The ISP will be prosecuted for abusing the freedom of speech. D) The ISP will be prosecuted for violating the Communications Decency Act. Answer: B Diff: 2 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Application of knowledge Classification: Application 3 Copyright © 2019 Pearson Education, Inc.

13) E-mail contracts are enforceable even if they don't meet traditional contract requirements. Answer: FALSE Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 14) E-mail contracts do not meet the requirements of the Statute of Frauds. Answer: FALSE Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 15) Agreements made through text communications are generally unenforceable even if the requirements necessary to form a traditional contract are present. Answer: FALSE Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 16) The CAN-SPAM Act does not end spam but instead approves businesses to use spam as long as they do not lie. Answer: TRUE Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 17) The CAN-SPAM Act does not regulate spam sent to Americans from other countries. Answer: TRUE Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 18) ISPs provide e-mail accounts to users, Internet access, and storage on the Internet. Answer: TRUE Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept

19) The term ISP refers to users who disguise computer viruses as executable programs and send them across the Internet. Answer: FALSE Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 20) ISPs are not liable for the content transmitted over their networks by e-mail users and websites. Answer: TRUE Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 21) According to the Communications Decency Act, Internet service providers (ISPs) are not liable for the content transmitted over their networks by e-mail users and websites. Answer: TRUE Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 22) An Internet service provider is generally liable for defamatory material posted on the web by a subscriber to the Internet service provider's network. Answer: FALSE Diff: 2 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Application of knowledge Classification: Application 23) What measures has Congress taken to regulate spam e-mail? Answer: In 2003, Congress enacted the federal Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act). The act (1) prohibits spammers from using falsified headers in e-mail messages, including the originating domain name and e-mail address; (2) prohibits deceptive subject lines that mislead a recipient about the contents or subject matter of the message; (3) requires that recipients of spam be given the opportunity to opt out and not have the spammer send e-mail to the recipient's address; and (4) requires spammers who send sexually oriented e-mail to properly label it as such. The Federal Trade Commission (FTC), a federal administrative agency, is empowered to enforce the CAN-SPAM Act. In effect, the CAN-SPAM Act does not end spam but instead approves businesses to use spam as long as they do not lie. Diff: 1 LO: 17.2 Explain how email contracts and text contracts are formed AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

24) Which of the following is true of e-commerce? A) Lessors cannot use web addresses to lease goods. B) Intellectual property cannot be explicitly listed for sale on a website. C) A web contract is not binding as opposed to an e-mail contract. D) A web contract is not valid if it does not fulfill all the elements of a traditional contract. Answer: D Diff: 2 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Analytical thinking Classification: Concept 25) Barney wants to rent an apartment and posts an advertisement in a classifieds website. Two days later, Michael, who wants to rent out his apartment, e-mails Barney and they finalize the deal over the Internet. Barney pays Michael through an online transfer. This is an example of ________. A) e-licensing B) e-commerce C) cybersquatting D) spamming Answer: B Diff: 2 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Application of knowledge Classification: Application 26) The ________ recognizes electronic contracts as meeting the writing requirement of the Statute of Frauds for most contracts. A) Uniform Commercial Code B) Uniform Computer Information Transactions Act C) E-SIGN Act D) Communications Decency Act Answer: C Diff: 1 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Analytical thinking Classification: Concept

27) What does the E-SIGN Act provide? A) Electronically signed contracts cannot be denied effect because they are in electronic form. B) Electronic records can be sent to consumers who make purchases, without their specific consent to receiving the record. C) It defines which technologies should be used to create a legally binding signature in cyberspace. D) Only smart card verification creates a legally binding signature in cyberspace. Answer: A Diff: 2 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Analytical thinking Classification: Concept 28) Jessica wants to buy a laptop from the website of Tenn Computers. Before confirming the purchase, the website asks her to provide biometric identification using an electronic scanner. This is an example of ________. A) an e-licensing B) an e-signature C) an exclusive license D) cybersquatting Answer: B Diff: 2 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Application of knowledge Classification: Application 29) Which of the following is an example of an e-signature? A) using a credit card at the grocery store to pay for groceries B) using a debit card to fill gas at the local gas station C) ordering Chinese food over the phone and paying with a credit card D) paying the electricity bill online using a smart card Answer: D Diff: 2 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Analytical thinking Classification: Concept 30) Under the E-SIGN Act, an e-signature can be verified by using ________. A) a smart card B) a domain name C) HTTP D) an ISP Answer: A Diff: 2 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Application of knowledge Classification: Application 7 Copyright © 2019 Pearson Education, Inc.

31) A(n) ________ is any computer system that has been established by a seller to accept orders. A) electronic agent B) top-level extension C) cybersquatter D) licensor Answer: A Diff: 2 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Analytical thinking Classification: Concept 32) A web contract is enforceable only if it meets the requirements of a traditional contract. Answer: TRUE Diff: 1 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Analytical thinking Classification: Concept 33) The E-SIGN Act is a not a federal statute and state legislatures are required to adopt it in order for it to become a state law. Answer: FALSE Diff: 1 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Analytical thinking Classification: Concept 34) Counteroffers are not effective against electronic agents. Answer: TRUE Diff: 1 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Analytical thinking Classification: Concept

35) How does an electronic agent react to a counteroffer? Explain with an illustration. Answer: Most web pages use electronic ordering systems that do not have the ability to evaluate and accept counteroffers or to make counteroffers. Most state laws recognize this limitation and provide that an e-contract is formed if an individual takes action that causes the electronic agent to cause performance or promise benefits to the individual. Thus, counteroffers are not effective against electronic agents. Example: Fred orders an mp3 player from an online shopping site. He selects the model and pays via online banking. After ordering on the website, Fred sends an e-mail to the manufacturer stating, "I will accept the product I ordered if, after two weeks of use, I am satisfied with the product." However, because Fred has placed the order with an electronic agent, he has ordered the product, and his counteroffer is ineffectual. Diff: 2 LO: 17.3 Describe electronic commerce and Web contracts. AACSB: Analytical thinking Classification: Concept 36) The ________ establishes a uniform and comprehensive set of rules that govern the creation, performance, and enforcement for computer information transactions. A) CAN-SPAM Act B) UCITA C) ECPA D) ACPA Answer: B Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 37) Which of the following is true of the UCITA? A) It establishes a uniform set of rules that prohibit all forms of cybersquatting. B) It defines which technologies should be used to create a legally binding signature in cyberspace. C) It aims at eliminating all domain names registered in bad faith. D) It provides uniform rules for contracts involving computer information transactions and software and information licenses. Answer: D Diff: 2 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept

38) A ________ refers to a contract that transfers limited rights in intellectual property and informational rights. A) lien B) tender C) license D) trademark Answer: C Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 39) A ________ is an owner of intellectual property or informational rights who transfers rights in the property or information to another party. A) lessor B) lessee C) licensee D) licensor Answer: D Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 40) A ________ refers to a party who is granted limited rights in or access to intellectual property or informational rights owned by another party. A) lessor B) lessee C) licensee D) licensor Answer: C Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 41) Which of the following is true of licenses? A) A license grants the licensee complete control over intellectual property. B) An exclusive license is granted to only one licensee for a specific period. C) A licensee has complete control over the information he or she is allowed to access. D) A licensee has the right to use information rights beyond the licensor's control. Answer: B Diff: 2 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

42) An exclusive license is defined as ________. A) a license that grants access to exclusive information for a limited period B) a license that restricts the licensee to some information only C) a license that grants rights to only one party for a specific period D) a license that grants licensees only a few rights in intellectual property Answer: C Diff: 2 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 43) A(n) ________ is a contract by which the owner of a software or a digital application grants limited rights to the owner of a computer or digital device to use the software or digital application for a limited period and under specified conditions. A) e-license B) ISPS C) domain D) digital signature Answer: A Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 44) A(n) ________ is a detailed and comprehensive written agreement between a licensor and a licensee that sets forth the express terms of their agreement. A) digital signature B) electronic agent C) licensing agreement D) electronic signature Answer: C Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept

45) While downloading a license to a software program, Harriet reads the Terms of Agreement document which states that the company is not liable for any unforeseen damages that arise from the software. Harriet clicks on "Accept" and continues to install the program. The document is an example of a(n) ________. A) digital signature B) digital identification C) licensing agreement D) implicit contract Answer: C Diff: 2 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Application of knowledge Classification: Application 46) A license is a contract that transfers complete rights in intellectual property and informational rights. Answer: FALSE Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 47) Data and software do not constitute intellectual property. Answer: FALSE Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 48) A licensor is a party who is granted limited rights in intellectual property or informational rights owned by another person or company. Answer: FALSE Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 49) An exclusive license means that for the specified duration of the license, the licensor will not grant rights in the same information to any other person. Answer: TRUE Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept

50) An e-license is a contract whereby the owner of software grants limited rights to the owner of a computer or digital device to use the software. Answer: TRUE Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 51) If Jim purchases an online license for a computer game, he becomes an e-licensor. Answer: FALSE Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Application of knowledge Classification: Application 52) The parties to a contract for the licensing of information owe a duty to perform the obligations stated in the contract. Answer: TRUE Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 53) Breach of contract by one party to a licensing agreement gives the nonbreaching party the right to recover damages. Answer: TRUE Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 54) Briefly explain the working of an e-license. Answer: An electronic license, or e-license, is a contract whereby the owner of a software or a digital application grants limited rights to the owner of a computer or digital device to use the software or a digital application for a limited period and under specified conditions. The owner of the program or application is the electronic licensor, or e-licensor, and the owner of the computer or digital device to whom the license is granted is the electronic licensee, or e-licensee. An e-license grants the contractual rights expressly described in the license and the right to use information rights within the licensor's control that are necessary to exercise the expressly described rights. Diff: 1 LO: 17.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept

55) The ________ is a federal statute that makes it a crime to intercept an electronic communication at the point of transmission, while in transit, when stored by a router or server, or after receipt by intended recipient. A) UCITA B) ECPA C) ACPA D) ICANN Answer: B Diff: 1 LO: 17.5 Describe laws that protect privacy in cyberspace. AACSB: Analytical thinking Classification: Concept 56) The ECPA is a federal statute that ________. A) establishes that businesses are allowed to send spam e-mails as long as they do not lie B) rules that ISPs are not liable for the content transmitted over their networks by e-mail users and websites C) establishes that an e-signature is as effective as a pen-inscribed signature on paper D) makes it a crime to intercept an electronic communication at the point of transmission Answer: D Diff: 2 LO: 17.5 Describe laws that protect privacy in cyberspace. AACSB: Analytical thinking Classification: Concept 57) If Alice, Bob's daughter, reads e-mails stored in Bob's personal e-mail folder, she has violated the ________ and is liable for prosecution. A) UCITA B) ACPA C) ECPA D) ICANN Answer: C Diff: 2 LO: 17.5 Describe laws that protect privacy in cyberspace. AACSB: Analytical thinking Classification: Concept

58) Who among the following can access Henry's stored electronic communications without violating the ECPA? A) Henry's colleague at work, who is working on the same project as Henry and needs the information B) Henry's wife, who suspects him of cheating on her C) Henry's boss, who suspects him of leaking confidential information D) Henry's personal financial advisor, who wants to see if he has sufficient funds to make an investment Answer: C Diff: 3 LO: 17.5 Describe laws that protect privacy in cyberspace. AACSB: Application of knowledge Classification: Application 59) Which of the following entities does the ECPA permit to access stored electronic communication? A) law enforcement entities performing an investigation B) the owner of the website where the user has an e-mail account C) the Internet service provider D) the bank where an account holder keeps his finances Answer: A Diff: 2 LO: 17.5 Describe laws that protect privacy in cyberspace. AACSB: Analytical thinking Classification: Concept 60) The ECPA is a federal statute that makes it a crime to intercept an electronic communication at the point of transmission, while in transit, when stored by a router or server, or after receipt by the intended recipient. Answer: TRUE Diff: 1 LO: 17.5 Describe laws that protect privacy in cyberspace. AACSB: Analytical thinking Classification: Concept 61) The UCITA makes it illegal to access another person's stored e-mail only. Answer: FALSE Diff: 1 LO: 17.5 Describe laws that protect privacy in cyberspace. AACSB: Analytical thinking Classification: Concept

62) The ECPA provides that stored electronic communications may not be accessed by the party or entity providing the electronic communication service. Answer: FALSE Diff: 1 LO: 17.5 Describe laws that protect privacy in cyberspace. AACSB: Analytical thinking Classification: Concept 63) Joan reads e-mails from Harold's personal e-mail folder. Which statute has Joan violated and why? Under what circumstances is she permitted to read Harold's e-mail? Answer: Joan has violated the Electronic Communications Privacy Act (ECPA). The ECPA makes it a crime to intercept an electronic communication at the point of transmission, while in transit, when stored by a router or server, or after receipt by the intended recipient. The ECPA makes it illegal to access stored e-mail as well as e-mail in transmission. According to the exceptions provided by the ECPA, Joan can only read Harold's e-mail if she is his employer who suspects illegal activity or if she belongs to a law enforcement entity that is investigating Harold's activities. Diff: 2 LO: 17.5 Describe laws that protect privacy in cyberspace. AACSB: Application of knowledge Classification: Application 64) A(n) ________ uniquely identifies an individual's or company's website. A) e-signature B) digital footprint C) e-mail address D) domain name Answer: D Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 65) Which of the following top-level domain name extensions is most commonly used by ISPs, web-hosting companies, and other businesses that are directly involved in the infrastructure of the Internet? A) .net B) .com C) .biz D) .org Answer: A Diff: 2 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept

66) ________ is the most widely used domain extension in the world and is preferred by businesses. A) .net B) .com C) .biz D) .org Answer: B Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 67) Which of the following domain extensions signifies a resource website and is an unrestricted global name that may be used by businesses, individuals, and organizations? A) .name B) .coop C) .mobi D) .info Answer: D Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 68) Jonathan Smith, a neurosurgeon in Oregon, wants to start a website that makes it possible for neurosurgeons across the world to work on cases in collaboration. Which of the following domain extensions is most apt for Smith's website? A) .com B) .coop C) .biz D) .pro Answer: D Diff: 2 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Application of knowledge Classification: Application

69) The ________ is a private nonprofit organization that oversees the registration and regulation of domain names. A) UCITA B) ACPA C) ICANN D) ECPA Answer: C Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 70) The ________ is a federal statute that permits trademark owners and famous persons to recover domain names that use their names where the domain name has been registered by another person or business in bad faith. A) UCITA B) ACPA C) ICANN D) ECPA Answer: B Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 71) An electronic license is a unique name that identifies an individual's or company's website. Answer: FALSE Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 72) A database maintained by the InterNIC contains all the domain names that have been registered. Answer: TRUE Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 73) The .org domain name extension represents a U.S. website. Answer: FALSE Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 18 Copyright © 2019 Pearson Education, Inc.

74) The .pro domain name extension is available to professionals, such as doctors, lawyers, and consultants. Answer: TRUE Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 75) The .biz extension is used for large-business websites. Answer: FALSE Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 76) .bz is a restricted domain extension and can only be used by businesses or organizations in Brazil. Answer: FALSE Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 77) Registering a domain name of another party's trademarked name or famous person's name in bad faith is called cybersquatting. Answer: TRUE Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 78) The Anticybersquatting Consumer Protection Act (ACPA) is a federal statute that makes online impersonation of another person, misrepresentation of another person, business, or organization using inappropriate words, images, or other media illegal. Answer: FALSE Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept

79) The ACPA is federal statute that permits trademark owners and famous persons to recover domain names that use their names where the domain name has been registered by another person or business in bad faith. Answer: TRUE Diff: 1 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 80) What is cybersquatting? Can trademark owners recover domain names registered in bad faith? Answer: Sometimes a party will register a domain name of another party's trademarked name or famous person's name. This is called cybersquatting. Often the domain name owner will have registered the domain name in order to obtain payment for the name from the trademark holder or the famous person whose name has been registered as a domain name. The Anticybersquatting Consumer Protection Act (ACPA) is a federal statute that permits trademark owners and famous persons to recover domain names that use their names where the domain name has been registered by another person or business in bad faith. Diff: 2 LO: 17.6 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 18 Formation of Sales and Lease Contracts 1) The ________ is a model act passed in 1949 that includes comprehensive laws that cover most aspects of commercial transactions. A) Gramm-Leach Bliley Act B) Social Security Amendment C) Uniform Sales Act D) Uniform Commercial Code Answer: D Diff: 1 LO: 18.1 Describe the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 2) Every state except Louisiana has enacted the majority of the Uniform Commercial Code (UCC) as a commercial statute. Answer: TRUE Diff: 1 LO: 18.1 Describe the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 3) Which of the following articles in the UCC deals with the sale of goods? A) Article 2 B) Article 4 C) Article 5 D) Article 8 Answer: A Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 4) A ________ is defined as the passing of title of goods from a seller to a buyer for a price. A) lease B) sale C) loan D) gift Answer: B Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept

5) Which of the following would be considered goods? A) company shares B) crops C) trade secrets D) money Answer: B Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 6) Which of the following sales would be covered by Article 2 of the Uniform Commercial Code? A) the sale of intangible goods B) the sale of tangible goods C) the sale of real estate D) the sale of stocks Answer: B Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 7) Which of the following describes a mixed sale? A) a sale that involves two or more intangible goods B) a sale that involves the passing of title of goods from a seller to a buyer for a price C) a sale that involves the possession and use of named goods for a set term D) a sale that involves the provision of a service and a good in the same transaction Answer: D Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 8) Which of the following is true for goods under the purview of Article 2 of the Uniform Commercial Code? A) Goods can be replaced by money. B) Intangible goods must be exchanged for other intangible goods. C) Goods in the contract must be movable. D) Immovable goods like real estate must have provisions of service attached to their contracts. Answer: C Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept

9) Article 2 of the Uniform Commercial Code (UCC) is also applied by federal courts to sales contracts governed by federal law. Answer: TRUE Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 10) Article 2 of the UCC applies to sales contracts for the sale of intangible goods. Answer: FALSE Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 11) If a person buys a computer, the sales contract for it would be subject to Article 2 of the UCC. Answer: TRUE Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 12) Only movable goods come under the scope of Article 2 of the UCC. Answer: TRUE Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 13) Contracts for the provision of services are not covered by Article 2 of the UCC. Answer: TRUE Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 14) Sales that contain provisions of services and goods in the same transaction are not covered by Article 2 of the UCC. Answer: FALSE Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept

15) Article 2 of the UCC defines a merchant as a person who deals in the goods of the kind involved in the transaction. Answer: TRUE Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 16) How are contracts for the provision of services treated under Article 2 of the Uniform Commercial Code? Answer: Contracts for the provision of services–including legal services, medical services, and dental services–are not covered by Article 2. Sometimes, however, a sale involves both the provision of a service and a good in the same transaction. This sale is referred to as a mixed sale. Article 2 applies to mixed sales only if the goods are the predominant part of the transaction. Whether the sale of goods is the predominant part of a mixed sale is decided by courts on a caseby-case basis. Diff: 1 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 17) How does the Uniform Commercial Code (UCC) define a merchant? Answer: Generally, Article 2 of the UCC applies to all sales contracts, whether they involve merchants or not. However, Article 2 contains several provisions that either apply only to merchants or impose a greater duty on merchants. The UCC defines a merchant as (1) a person who deals in the goods of the kind involved in the transaction or (2) a person who, by his or her occupation, holds himself or herself out as having knowledge or skill peculiar to the goods involved in the transaction. Diff: 2 LO: 18.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 18) A ________ is a transfer of the right to the possession and use of named goods for a set term in return for certain consideration. A) trade B) gift C) lease D) sale Answer: C Diff: 1 LO: 18.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept

19) A person who transfers the right of possession and use of goods under a lease is known as the ________. A) lessor B) lessee C) seller D) consignee Answer: A Diff: 1 LO: 18.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept 20) Which of the following does Article 2A of the Uniform Commercial Code govern? A) mixed sales B) sale of goods C) leases D) letters of credit Answer: C Diff: 1 LO: 18.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept 21) Which of the following is true of a finance lease? A) It involves leasing out money to a lessee. B) The lessor is the supplier of goods. C) It consists of a lessor, a lessee, and a supplier. D) The lessee acquires the title of the goods. Answer: C Diff: 1 LO: 18.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept

22) Whistle Cabs, a taxi service company, has been ordered by the traffic department to update its taximeters to digital ones. Whistle Cabs decides to contract with Running Electricals, who provides digital taximeters. But to acquire it on such short notice, Whistle Cabs approaches Goldmint Bank. Goldmint Bank purchases the taximeters and delivers them to Whistle Cabs. The contract with Goldmint Bank allows the taxi service company to use the taximeters for a period of time by providing monthly rentals until that period is completed. What is the nature of the contract made between Goldmint, Whistle Cab, and Running Electricals? A) counteroffer B) lease C) sale of goods D) option contract Answer: B Diff: 2 LO: 18.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Application of knowledge Classification: Application 23) Miranda Airways, a commercial air carrier, has a contract with Wurtherton Inc., an airplane manufacturer, to purchase a new plane. Due to a sudden shortage of cash, Miranda Airways goes to MetrosBank. MetrosBank issues a document to Wurtherton, which says that if Miranda does not pay for the transaction, MetrosBank would. Wurtherton considers the offer and then sends an acceptance with additional terms. The additional terms stipulate that Miranda Airways could have the new airplane for a period of 10 years and then return it to Wurtherton. Miranda Airways agrees to the acceptance, and Wurtherton hands over the new airplane to them. What is the nature of the contract between Miranda Airways and Wurtherton? A) sale of goods B) lease C) counteroffer D) option contract Answer: B Diff: 2 LO: 18.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Application of knowledge Classification: Application 24) Article 2A of the UCC deals with lessors and lessees. Answer: TRUE Diff: 1 LO: 18.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept

25) In a lease contract, the title of goods is passed from the lessor to the lessee. Answer: FALSE Diff: 1 LO: 18.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept 26) A finance lease involves a lessor leasing money to a lessee. Answer: FALSE Diff: 1 LO: 18.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept 27) In a finance lease, the lessor manufactures and supplies the goods of the contract. Answer: FALSE Diff: 1 LO: 18.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept 28) Under the Uniform Commercial Code, if the time, place, and manner of delivery of goods are not mentioned in a contract, ________. A) the place of delivery is the buyer's place of business B) the contract is void for lack of definiteness C) the place of delivery is the seller's place of business D) the seller is obligated to pay for shipping to the buyer's place of business Answer: C Diff: 2 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept 29) What is the function of the gap-filling rule used under the UCC? A) It helps open terms be "read into" a contract. B) It helps a merchant revoke his offer even after acceptance. C) It assures the offeree that goods will be held open for a reasonable time. D) It protects the offeror from additional terms that may be added by the offeree. Answer: A Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept

30) According to the gap-filling rule, if a sales contract does not contain a specific price, ________. A) the contract has to be redrafted to include a price B) the contract is considered void due to indefiniteness C) the contract can be enforced by either party by fixing an open term price D) the contract cannot be enforced upon the buyer Answer: C Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept 31) The ________ states that a merchant who offers to buy, sell, or lease goods and gives a written and signed assurance on a separate form that the offer will be held open cannot revoke the offer for the time stated or, if no time is stated, for a reasonable time. A) gap-filling rule B) firm offer rule C) mirror image rule D) open term rule Answer: B Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept 32) Which of the following is true of consideration for modifying a sales or lease contract under the Uniform Commercial Code? A) An agreement modifying a contract needs no consideration to be binding. B) Modifying a contract requires consideration from the offeree's side. C) An offeror who modifies a contract must do so by providing reasonable consideration. D) The party providing the consideration must complete it within three months of acceptance. Answer: A Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept

33) Stelwire LLC, a vintage car dealer, advertises the sale of a 1964 Ford Thunderbolt. Ralph responds to the advertisement with an offer of $80,000 for the car. Stelwire signs a written assurance to keep that offer open to Ralph for a fortnight. Five days before the fortnight is up, Stelwire sells the car to another buyer. At the end of the fortnight period, Ralph tenders $80,000 for the car, but the car has already been sold. Ralph then buys the same model car from another dealer for $90,000 and sues Stelwire for breach of contract. The court rules that Stelwire is liable to Ralph for breach of contract and orders Stelwire to pay Ralph the difference of $10,000 he paid extra to the second dealer for the car. Which of the following rules governs the execution of this contract? A) firm offer rule B) mirror image rule C) battle of the forms rule D) gap-filling rule Answer: A Diff: 2 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Application of knowledge Classification: Application 34) Under the UCC, an agreement sufficient to constitute a contract for the sale or lease of goods may be found even though the moment of its making is undetermined. Answer: TRUE Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept 35) The UCC does not allow for open terms to be read into a sales or lease contract. Answer: FALSE Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept 36) According to the UCC, a seller or buyer who reserves the right to fix a price must do so in good faith. Answer: TRUE Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept

37) If the parties to a sales contract do not agree to the time, place, and manner of delivery of the goods, the place for delivery is the seller's place of business. Answer: TRUE Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept 38) The open price term requires a contract to mention a specific price. Answer: FALSE Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept 39) The common law of contract allows for gap-filling terms that are implied in the contract. Answer: FALSE Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept 40) The formation of sales and lease contracts requires consideration. Answer: TRUE Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept 41) The firm offer rule allows the offeror to revoke an offer at any point of time prior to its acceptance. Answer: FALSE Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept 42) Modification to a sales or lease contract is binding even if it is made under duress. Answer: FALSE Diff: 1 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept

43) Explain open delivery term. Answer: If the parties to a sales contract do not agree to the time, place, and manner of delivery of the goods, the place for delivery is the seller's place of business. If the seller does not have a place of business, delivery is to be made at the seller's residence. If identified goods are located at some other place, and both parties know of this fact at the time of contracting, that place is the place of delivery. If goods are to be shipped but the shipper is not named, the seller is obligated to make the shipping arrangements. Such arrangements must be made in good faith and within limits of commercial reasonableness. Diff: 2 LO: 18.4 Describe the formation of sales and lease contracts and define the firm offer rule. AACSB: Analytical thinking Classification: Concept 44) A contract is created when ________. A) the acceptance has been received by the offeror B) an acknowledgement is sent by the offeror to the offeree of receiving an acceptance C) the offeree dispatches the acceptance D) a written acceptance has been passed between the offeror and the offeree Answer: C Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 45) Which of the following is true of additional terms being added under the Uniform Commercial Code? A) They are considered to be counteroffers. B) They can be added when the sale is between two merchants. C) They can be added into the contract without the consent of the offeror. D) They can be added in a sale that involves one or both parties being nonmerchants. Answer: D Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept

46) A shipment that is offered to a buyer as a replacement for the original shipment when the original shipment cannot be filled is referred to as a(n) ________. A) consideration B) accommodation C) surrogate D) open delivery Answer: B Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 47) How are additional terms in an acceptance to a contract viewed under the common law? A) They are viewed as proposed additions to the contract. B) They are seen as a counteroffer. C) They are allowed into the contract by the battle of the forms rule. D) They must be accepted under the mirror image rule. Answer: B Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 48) When do additional terms contained in an acceptance become part of the contract as per the battle of the forms rule? A) if the additional terms materially alter the original contract B) if the sale is between two nonmerchants C) if the additional terms expressly limit the acceptance to the terms of the offer D) if the offeror notifies the offeree that he or she does not object to the additional terms Answer: D Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept

49) Kimberley, a merchant-seller in Kansas, had an oral contract to sell goods to Jane, a merchant-buyer in Memphis for $100,000. Two days after contracting, Kimberley sends a sufficient written confirmation to Jane of the agreed-upon transaction. Jane, who has reason to know the contents of the written confirmation, fails to object to the contents of the confirmation immediately. Two weeks after receiving the written confirmation, Jane receives a delivery of the goods from Kimberley. Jane immediately sends an objection to the confirmation to Kimberley. Which of the following is true of the contract between Kimberley and Jane? A) The Statute of Frauds can be raised against the contract because a letter of objection was sent to the offeror. B) The offer is valid as the offeree knew the contents of the confirmation and did not object within 10 days. C) The contract is void as the offeror did not receive a letter of confirmation from the offeree for delivery. D) The Statute of Frauds can be raised because the offeree did not sign the contract. Answer: B Diff: 2 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Application of knowledge Classification: Application 50) The ________ says that if a written contract is a complete and final statement of the parties' agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract. A) parol evidence rule B) firm offer rule C) open terms rule D) gap-filling rule Answer: A Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 51) When is the course of performance considered in a written contract? A) when oral modification is required for a written contract B) when a sale or lease contract is not evidenced by writing C) when the express terms of a written contract are not clear D) when there is a prior oral or written agreement statement contradicting the written agreement Answer: C Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 13 Copyright © 2019 Pearson Education, Inc.

52) What is "course of dealing" when interpreting the express terms of a written statement? A) the previous conduct of the parties regarding the contract in question B) the conduct of the parties in prior transactions and contracts C) the conduct of contractual parties with parties not involved in the contract D) any practice of dealing that is regularly observed or adhered to in an industry Answer: B Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 53) Which of the following is an example of an irrevocable offer? A) counteroffer B) gift promise C) option contract D) accommodation Answer: C Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 54) Which of the following is true for terms to be expressed in a contract under the common law of contract? A) Additional terms can be added during acceptance. B) Additional terms can be added without consideration. C) Gap-filling rules are permitted for time, delivery, and prices of goods. D) Contract must contain all the material terms of the parties' agreement. Answer: D Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept

55) Which of the following acceptances is allowed for an offer under common law? A) mirror image rule acceptance B) open term acceptance C) deposited rule acceptance D) additional terms acceptance Answer: A Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 56) Miranda Airways, a commercial air carrier, has a contract with Wurtherton Inc., an airplane manufacturer, to purchase a new plane. Due to a sudden shortage of cash, Miranda Airways goes to MetrosBank. MetrosBank issues a document to Wurtherton that if Miranda does not pay for the transaction, MetrosBank would. Wurtherton considers the offer and then sends an acceptance with additional terms. The additional terms stipulate that Miranda Airways could have the new airplane for a period of 10 years and then return it to Wurtherton. Miranda Airways agrees to the acceptance, and Wurtherton hands over the new airplane to them. What Uniform Commercial Code rule was applied when Miranda Airways agreed to the additional terms acceptance provided by Wurtherton? A) firm offer rule B) mirror image rule C) battle of the forms rule D) gap-filling rule Answer: C Diff: 2 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Application of knowledge Classification: Application 57) A contract is created only when the offeror receives the offeree's acceptance. Answer: FALSE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept

58) If one or both parties to a sales contract are merchants, any additional terms are considered proposed additions to the contract. Answer: FALSE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 59) Under common law, the inclusion of additional terms in the acceptance of an offer is considered a counteroffer rather than an acceptance. Answer: TRUE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 60) Under common law's mirror image rule, an offeree's acceptance must be on the same terms as the offer. Answer: TRUE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 61) Mirror image rule is more liberal than UCC 2-207(1). Answer: FALSE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 62) Shipment of the original offer to a buyer is called accommodation. Answer: FALSE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept

63) The battle of the forms takes place between a merchant and a nonmerchant. Answer: FALSE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 64) The battle of the forms occurs when the offeror receives an acceptance drafted from the offeree's own form contract. Answer: TRUE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 65) Under the common law, a written contract must be signed by the party against whom enforcement is sought. Answer: TRUE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 66) The written confirmation rule requires that both parties to an oral agreement send written confirmation of the sale or lease. Answer: FALSE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 67) Option contracts are examples of irrevocable offers. Answer: TRUE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept

68) A sales contract evidenced by writing cannot be contradicted by a prior oral or written agreement. Answer: TRUE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 69) Course of performance between the parties is taken into account when the express terms of their written contract are not clear. Answer: TRUE Diff: 1 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 70) What are the methods and manners of acceptance as defined by the Uniform Commercial Code (UCC)? Answer: Unless otherwise unambiguously indicated by language or circumstance, an offer to make a sales or lease contract may be accepted in any manner and by any reasonable medium of acceptance. If an order or other offer to buy goods requires prompt or current shipment, the offer is accepted if the seller (1) promptly promises to ship the goods or (2) promptly ships either conforming or nonconforming goods. The shipment of conforming goods signals acceptance of the buyer's offer. Acceptance of goods occurs after the buyer or lessee has a reasonable opportunity to inspect them and signifies that (1) the goods are conforming, (2) he or she will take or retain the goods despite of their nonconformity, or (3) he or she fails to reject the goods within a reasonable time after tender or delivery. Diff: 2 LO: 18.5 Describe acceptance and define the UCC's additional terms rule and written confirmation rule. AACSB: Analytical thinking Classification: Concept 71) The ________ requires all contracts for the sale of goods costing $500 or more and lease contracts involving payments of $1,000 or more to be in writing. A) parol evidence rule B) gap-filling rule C) firm offer rule D) Statute of Frauds Answer: D Diff: 1 LO: 18.6 Describe the UCC Statute of Frauds for sales and lease contracts. AACSB: Analytical thinking Classification: Concept 18 Copyright © 2019 Pearson Education, Inc.

72) In which of the following situations involving oral contracts can the Statute of Frauds be raised? A) if a written confirmation has not been objected by a party in an oral agreement B) if the seller of specially manufactured goods has made a commitment for their procurement C) if the party against whom enforcement of an oral contract is sought has not admitted of such a contract in pleadings in court D) when a contract that requires written confirmation has been agreed-on orally Answer: D Diff: 1 LO: 18.6 Describe the UCC Statute of Frauds for sales and lease contracts. AACSB: Analytical thinking Classification: Concept 73) Article 2 of the Uniform Commercial code requires that all contracts for the sale of goods priced at $500 or more must be in writing. Answer: TRUE Diff: 1 LO: 18.6 Describe the UCC Statute of Frauds for sales and lease contracts. AACSB: Analytical thinking Classification: Concept 74) Article 2(A) of the Uniform Commercial code requires that all lease contracts requiring payments of $500 or more must be in writing. Answer: FALSE Diff: 1 LO: 18.6 Describe the UCC Statute of Frauds for sales and lease contracts. AACSB: Analytical thinking Classification: Concept 75) In which of the following can the Statute of Frauds be raised under the common law of contract? A) when a seller of specially manufactured goods has made commitments for the procurement for an oral agreement B) when the party against whom enforcement of an oral sales or lease contract is sought admits to such a contract in court C) when the writing must be signed by the party against whom enforcement is sought D) when there has been no written confirmation of a contract between two merchants Answer: C Diff: 1 LO: 18.6 Describe the UCC Statute of Frauds for sales and lease contracts. AACSB: Analytical thinking Classification: Concept

76) A computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part, without review or action by an individual, is known as ________. A) electronic agent B) electronic record C) digital mapper D) automation Answer: A Diff: 1 LO: 18.7 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept 77) A ________ is a document that is issued by a bank on behalf of a buyer who purchases goods on credit from a seller that guarantees that if the buyer does not pay for the goods, then the bank will pay the seller. A) remittance advice B) certified check C) cashier's check D) letter of credit Answer: D Diff: 1 LO: 18.7 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept 78) Article 5 of the Uniform Commercial Code governs ________. A) sales of intangible goods B) finance leases C) letters of credit D) general provisions Answer: C Diff: 1 LO: 18.7 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept

79) Miranda Airways, a commercial air carrier, has a contract with Wurtherton Inc., an airplane manufacturer, to purchase a new plane. Due to a sudden shortage of cash, Miranda Airways goes to MetrosBank. MetrosBank issues a document to Wurtherton that if Miranda does not pay for the transaction, MetrosBank would. Wurtherton considers the offer and then sends an acceptance with additional terms. The additional terms stipulate that Miranda Airways could have the new airplane for a period of 10 years and then return it to Wurtherton. Miranda Airways agrees to the acceptance, and Wurtherton hands over the new airplane to them. Which of the following documents did MetrosBank issue to Wurtherton to help Miranda Airways secure the airplane? A) a bill of exchange B) a proforma invoice C) a letter of credit D) a remittance advice Answer: C Diff: 1 LO: 18.7 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Application of knowledge Classification: Application 80) E-signature is the signature of a person that appears on an electronic record but is not recognized as a lawful signature. Answer: FALSE Diff: 1 LO: 18.7 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept 81) Electronic agent is a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part, without review or action by an individual. Answer: TRUE Diff: 1 LO: 18.7 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept 82) Article 5 of the UCC governs letter of credit. Answer: TRUE Diff: 1 LO: 18.7 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept

83) What are the different terms used in electronic contracting? Answer: Electronic means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. Electronic agent means a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part, without review or action by an individual. Electronic record means a record created, generated, sent, communicated, received, or stored by electronic means. Record means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. Diff: 1 LO: 18.7 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 19 Title to Goods and Risk of Loss 1) In which of the following does the title to the goods pass from the seller to the buyer? A) option contract B) rental agreement C) lease D) sale of goods Answer: D Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 2) What kinds of goods are termed as future goods? A) goods that exist but are to be sold at a future date B) goods that are not yet in existence C) goods that can be sold partly in the present and partly at a later date D) goods that exist without a title Answer: B Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 3) Which of the following contracts is an example of future goods? A) an option contract for a real estate property B) a contract to buy a car off a dealer's lot C) a preordered video game D) a contract to sell a newborn animal Answer: C Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 4) The term ________ refers to the legal, tangible evidence of ownership of goods. A) tenure B) title C) possession D) pledge Answer: B Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 1 Copyright © 2019 Pearson Education, Inc.

5) In a shipment contract, when is the title to the goods considered to have passed to the buyer? A) when the seller makes the offer to the buyer B) when the seller hands over the goods to the common carrier C) when the seller tenders delivery of the goods at the specified destination D) when the goods are at the time and place of the shipment Answer: D Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 6) In a destination contract, when is the title to the goods considered to have passed to the buyer? A) when the buyer specifies a specific destination in the sales contract B) when the seller tenders delivery of the goods at the specified destination C) when the seller makes the shipping arrangements D) when the seller hands over the goods to the common carrier Answer: B Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 7) A(n) ________ is an actual piece of paper, such as a warehouse receipt or bill of lading, which is required in some transactions of pickup and delivery of sold goods. A) destination contract B) letter of credit C) document of title D) acceptance draft Answer: C Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 8) Which of the following is true for the passage of title in a contract requiring a document of title? A) The title passes when the shipping arrangements are made. B) The title passes at the time and place of contracting. C) The title passes when the destination of delivery is first mentioned in the contract. D) The title passes when and where the seller delivers the document to the buyer. Answer: D Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept

9) Jason orders one hundred remote-controlled toy cars from RyBy Toys. In the contract, it is stipulated that RyBy Toys will transport the toy cars via FlyByNight, a national carrier service. RyBy Toys makes the arrangements and hands over the toys to FlyByNight without the remotecontrollers. What was the nature of the contract between Jason and RyBy Toys? A) lease contract B) destination contract C) option contract D) shipment contract Answer: D Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Application of knowledge Classification: Application 10) Which of the following is an example of delivery of goods without moving them? A) a contract requiring a document of title B) a shipment contract C) a destination contract D) a contract with the term ex-ship Answer: A Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 11) Thomas signed a sales contract with Bricklay's, a firm that supplies bricks for private individuals. The contract specified the type and amount of bricks needed, and that Thomas would pick up the bricks from the Bricklay's warehouse 15 days later. Thomas received a document of title, but failed to pick up the goods on the stipulated date. In this scenario, at what point of time is the title to goods passed over to Thomas? A) when the sales contract is signed by both Thomas and Bricklay's B) when Thomas receives the document of title C) when Thomas picks up the bricks from the Bricklay's warehouse D) when the stipulated date of pick-up of the bricks expires Answer: B Diff: 2 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Application of knowledge Classification: Application

12) Nebula Crystals, a firm in New York that manufactures crystal figurines, was contracted by Ruth from Florida to deliver a thousand such crystal figurines. The contract required the firm to deliver and tender the goods alongside the vessel SS Dew Express at the New York harbor. Which of the following shipment term expresses such conditions? A) no-arrival, no-sale B) ex-ship C) F.A.S. port of shipment D) C.I.F. Answer: C Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Application of knowledge Classification: Application 13) From the following options, identify the commonly used shipping term that calls for the seller to arrange to ship the goods and put the goods in the carrier's possession. A) no-arrival, no-sale contract B) F.O.B. (free on board) C) ex-ship D) C.I.F. (cost, insurance, and freight) Answer: B Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 14) Article 2 of the Uniform Commercial Code establishes precise rules for determining the passage of title in sales contracts. Answer: TRUE Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 15) Goods that are part of a larger mass of goods are identified when the specific merchandise is designated. Answer: TRUE Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept

16) Goods that are already in existence but which are to be sold at a future date are known as future goods. Answer: FALSE Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 17) The UCC allows the title of goods to be passed without its identification. Answer: FALSE Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 18) An undeveloped real estate property is an example of future goods. Answer: FALSE Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Application of knowledge Classification: Application 19) A shipment contract requires the seller to deliver goods to a destination specified in the sales contract. Answer: FALSE Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 20) In a destination contract, title passes to the buyer when the seller tenders delivery of the goods at the specified destination. Answer: TRUE Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 21) A shipment contract requires the seller to ship the goods to the buyer via a common carrier. Answer: TRUE Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept

22) If a document of title is required, title must pass when and where the seller delivers the goods to the buyer. Answer: FALSE Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 23) If no document of title is required, title only passes at the time and place of delivery. Answer: FALSE Diff: 1 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 24) What is the method of identification of goods specified under UCC guidelines? Answer: Identification of goods can be made at any time and in any manner explicitly agreed to by the parties of a contract. In the absence of such an agreement, the UCC mandates when identification occurs: Already existing goods are identified when a contract is made and names the specific goods sold or leased. Goods that are part of a larger mass of goods are identified when the specific merchandise is designated. Future goods are goods not yet in existence. Future goods other than crops and unborn young are identified when the goods are shipped, marked, or otherwise designated by the seller or lessor as the goods to which the contract refers. Diff: 2 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept 25) What is the passage of title to goods? Answer: Once the goods that are the subject of a contract exist and have been identified, title to the goods may be transferred from the seller to the buyer. Article 2 of the UCC establishes precise rules for determining the passage of title in sales contracts. Under the UCC, title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed upon by the parties. If the parties do not agree to a specific time, title passes to the buyer when and where the seller's performance with reference to the physical delivery is completed. Diff: 2 LO: 19.1 Describe how title to goods passes in sales contracts. AACSB: Analytical thinking Classification: Concept

26) ________ is a shipping term in a contract that requires the seller to bear the expense and risk of loss until the goods are unloaded from the ship at its port of destination. A) Ex-ship B) No-sale, no-arrival C) Free on board point of shipment D) Cost, insurance, and freight (C.I.F.) Answer: A Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 27) Which of the following is true for the shipping term F.O.B. (free on board) point of shipment? A) It requires the seller to bear the expense and risk of loss until the goods are tendered to the buyer at the place of destination. B) It refers to a pricing term that includes the cost of the goods and the costs of insurance and freight. C) It requires the seller to bear the expense and risk of loss of the goods until delivery has been tendered. D) The buyer bears the shipping expense and risk of loss while the goods are in transit. Answer: D Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 28) Which of the following is true of a contract with the no-arrival, no-sale term? A) The buyer bears shipping costs and the risk of loss during transport. B) The seller does not have to deliver replacement goods to the buyer in case of damages. C) The seller does not have to bear the expense and risk of loss of the goods during transportation. D) The buyer has to arrange for the shipment to be handed over to a carrier. Answer: B Diff: 2 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept

29) How are the shipping terms C.I.F. and F.O.B. point of shipment similar to each other? A) Both require the seller to bear the expense and risk of loss until the goods are tendered to the buyer at the place of destination. B) Both require the seller to bear the expenses and risk of loss when handing the shipment to a carrier. C) Both require the seller to deliver and tender the goods alongside the named vessel provided by the buyer. D) Both require the seller to bear the expense and risk of loss until the goods are unloaded from the ship at its port of destination. Answer: B Diff: 2 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 30) Which of the following parties to a shipment contract bears the risk of loss of goods during transport? A) the seller B) the carrier C) the buyer D) the seller and the carrier Answer: C Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 31) The ________ bears the risk of loss during transportation in a destination contract. A) buyer B) seller C) carrier D) shipper Answer: B Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept

32) Which of the following could contain the term "no-arrival, no-sale" in their contract? A) shipment contract B) destination contract C) a contract to sell real estate D) consignment contract Answer: B Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 33) Which of the following is true of a destination contract containing a "no-arrival, no-sale" clause? A) The seller is required to bear the expense and risk during transportation. B) The seller is required to replace any goods lost in transit. C) The buyer does not have to pay for destroyed goods. D) The risk of loss passes once the shipping has been arranged. Answer: A Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 34) A holder of goods who is not a seller or a buyer is referred to as a(n) ________. A) consignor B) broker C) bailee D) consignee Answer: C Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept

35) Kenneth purchased a car from his local dealership, Quartent Cars. However, since the car was not available in the color that Kenneth favored, the sales contract stipulated that Kenneth could immediately pick up the car of his preferred color from a nearby warehouse. The warehouse was owned by Mr. Henderson. Kenneth received the document of title for the car upon payment and presented it to Mr. Henderson a week later. But Mr. Henderson informed Kenneth that the car was damaged during a fire at the warehouse. According to the UCC, which of the following parties holds the risk of loss for the damage caused to the car? A) The risk is to be borne by Kenneth. B) Mr. Henderson has to take up the loss. C) Quartent Cars must take the risk of loss. D) The risk is to be borne jointly by Mr. Henderson and Quartent Cars. Answer: A Diff: 2 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Application of knowledge Classification: Application 36) Kenneth purchased a car from his local dealership, Quartent Cars. However, since the car was not available in the color that Kenneth favored, the sales contract stipulated that Kenneth could immediately pick up the car of his preferred color from a nearby warehouse. The warehouse was owned by Mr. Henderson. Kenneth received the document of title for the car upon payment and presented it to Mr. Henderson a week later. But Mr. Henderson informed Kenneth that the car was damaged during a fire at the warehouse. What role does Mr. Henderson fulfill in the contract? A) the seller B) the consignee C) the bailee D) the supplier Answer: C Diff: 2 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Application of knowledge Classification: Application

37) Kenneth purchased a car from his local dealership, Quartent Cars. However, since the car was not available in the color that Kenneth favored, the sales contract stipulated that Kenneth could immediately pick up the car of his preferred color from a nearby warehouse. The warehouse was owned by Mr. Henderson. Kenneth received the document of title for the car upon payment and presented it to Mr. Henderson a week later. But Mr. Henderson informed Kenneth that the car was damaged during a fire at the warehouse. If Mr. Henderson had refused the document of title provided by Kenneth, who would have borne the risk of loss to the car? A) The risk would have to be borne jointly by Quartent Cars and Kenneth. B) The risk would have to be borne by Kenneth. C) The risk would have to be borne by Quartent Cars. D) The risk would have to be borne by Mr. Henderson. Answer: C Diff: 2 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Application of knowledge Classification: Application 38) Common law places the risk of loss of goods on the party who held title. Answer: TRUE Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 39) Article 2 of the Uniform Commercial Code (UCC) adopts rules for risk of loss that are closely tied to title. Answer: FALSE Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 40) In an F.O.B. point of shipment, the buyer bears the risk of loss while the goods are in transit. Answer: TRUE Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept

41) In an F.A.S. port of shipment, the buyer bears the shipping costs and the risk of loss during transport. Answer: TRUE Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 42) In an F.O.B. place of destination, the buyer has to bear the expense and risk of loss until the goods are tendered at the place of destination. Answer: FALSE Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 43) The term "Ex-ship" requires the seller to bear the expense and risk of loss until the goods are unloaded from the ship at its port of destination. Answer: TRUE Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 44) In a no-arrival, no-sale contract, the seller is not required to deliver replacement goods to the buyer. Answer: TRUE Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 45) C.&F. is a pricing term that means that the price includes the cost of the goods and the costs of insurance and freight. Answer: FALSE Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept

46) In a destination contract, the seller is required to replace any goods lost in transit. Answer: TRUE Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 47) The delivery term "no-arrival, no-sale" can be added to a shipment contract. Answer: FALSE Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 48) If the bailee refuses to honor a document of title or other direction to deliver, the risk of loss remains on the buyer. Answer: FALSE Diff: 1 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept 49) Define "bailee" and explain who bears the risk of loss when a bailee is in possession of the goods. Answer: A bailee is a holder of goods who is not a seller or a buyer. Goods sold by a seller to a buyer are sometimes in the possession of a bailee (e.g., a warehouse). If such goods are to be delivered to the buyer without the seller moving them, the risk of loss passes to the buyer when (1) the buyer receives a negotiable document of title, (2) the bailee acknowledges the buyer's right to possession of the goods, or (3) the buyer receives a nonnegotiable document of title or other written direction to deliver and has a reasonable time to present the document or direction to the bailee and demand the goods. If the bailee refuses to honor the document or direction, the risk of loss remains on the seller. Diff: 2 LO: 19.2 Describe what party bears the risk of loss of goods where there is no breach of the sales contract. AACSB: Analytical thinking Classification: Concept

50) In which of the following cases is a buyer in breach of a sales contract? A) if the buyer refuses to accept nonconforming goods B) if the buyer accepts nonconforming goods C) if the buyer refuses to accept conforming goods D) if the buyer asks replacements for defective goods Answer: C Diff: 1 LO: 19.3 Describe what party bears the risk of loss of goods where there has been a breach of a sales contract. AACSB: Analytical thinking Classification: Concept 51) Jason orders one hundred remote-controlled toy cars from RyBy Toys. In the contract, it is stipulated that RyBy Toys will transport the toy cars via FlyByNight, a national carrier service. RyBy Toys makes the arrangements and hands over the toys to FlyByNight without the remotecontrollers. In the event that the goods are destroyed in transit, which of the following parties would bear the risk of loss as per the sales contract? A) Jason would bear the risk of loss irrespective of the fate of the goods. B) FlyByNight would bear the risk of loss as they had the responsibility to deliver the goods. C) RyBy Toys would bear the risk as they shipped nonconforming goods. D) The risk of loss would be shared between RyBy Toys and Jason. Answer: C Diff: 1 LO: 19.3 Describe what party bears the risk of loss of goods where there has been a breach of a sales contract. AACSB: Application of knowledge Classification: Application 52) Jason orders one hundred remote-controlled toy cars from RyBy Toys. In the contract, it is stipulated that RyBy Toys will transport the toy cars via FlyByNight, a national carrier service. RyBy Toys makes the arrangements and hands over the toys to FlyByNight without the remotecontrollers. Which of the following is a breach of contract? A) Jason refusing the delivery of toys B) Jason accepting the delivery of toys C) RyBy shipping the toys without remote-controllers D) FlyByNight delivering the toys without remote-controllers Answer: C Diff: 1 LO: 19.3 Describe what party bears the risk of loss of goods where there has been a breach of a sales contract. AACSB: Application of knowledge Classification: Application

53) Acceptance of nonconforming goods is a breach of contract by the buyer. Answer: FALSE Diff: 1 LO: 19.3 Describe what party bears the risk of loss of goods where there has been a breach of a sales contract. AACSB: Analytical thinking Classification: Concept 54) When is a buyer in breach of a sales contract? Answer: A buyer breaches a sales contract if he or she refuses to take delivery of conforming goods, repudiates the contract, or otherwise breaches the contract. A buyer who breaches a sales contract before the risk of loss would normally pass to him or her bears the risk of loss of any goods identified to the contract. The risk of loss rests on the buyer for only a commercially reasonable time. The buyer is liable only for any loss in excess of insurance recovered by the seller. Diff: 2 LO: 19.3 Describe what party bears the risk of loss of goods where there has been a breach of a sales contract. AACSB: Analytical thinking Classification: Concept 55) A(n) ________ involves the seller entrusting possession of goods to a buyer on a trial basis. A) destination contract B) option contract C) unequivocal transaction D) conditional sale Answer: D Diff: 1 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept 56) The term ________ refers to a type of sale in which there is no actual sale unless and until the buyer accepts the goods. A) consignment B) sale or return contract C) sale on approval D) option contract Answer: C Diff: 1 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept

57) Which of the following is a difference between a sale or return contract and a sale on approval contract? A) For sale or return, the risk of loss is borne by the buyer; while in a sale on approval, it is borne by the seller. B) For sale or return, the goods are sold to the buyer; while in a sale on approval, the buyer is allowed a time period to test the goods. C) For sale or return, failure to notify rejection is not acceptance; while in a sale on approval, failure to notify rejection is acceptance. D) For sale or return, goods sold can be returned; while in a sale on approval, goods sold can never be returned. Answer: A Diff: 2 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept 58) ________ refers to an arrangement in which a seller delivers goods to a buyer to sell on his or her behalf. A) Consignment B) Void entitlement C) Entrustment D) Leasing Answer: A Diff: 1 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept 59) What is the role of a financing statement in a consignment if the consignor files it? A) It protects the consignor from bearing a risk of loss for the goods. B) It protects the consignor from possible payment revocation by the consignee. C) It gives the buyer's creditors claim over the goods. D) It gives the seller's creditors claim over the goods. Answer: D Diff: 1 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept

60) A consignment deal would be an example of a(n) ________. A) unconditional contract B) sale or return contract C) sale or approval contract D) unequivocal contract Answer: B Diff: 1 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept 61) In a sale on approval, there is no sale unless and until the buyer accepts the goods. Answer: TRUE Diff: 1 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept 62) In a sale or return contract, the buyer has the option of returning all the goods to the seller. Answer: TRUE Diff: 1 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept 63) In a sale or return contract, the risk of loss and title is with the seller even when the buyer takes possession of the goods. Answer: FALSE Diff: 1 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept 64) In a sale on approval, the risk of loss and title to the goods remain with seller until the buyer's acceptance. Answer: TRUE Diff: 1 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept 65) A consignment is treated as a sale or return contract under the UCC. Answer: TRUE Diff: 1 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept 17 Copyright © 2019 Pearson Education, Inc.

66) What is a sale or return contract and who bears the risk of loss of goods in a sale or return contract? Answer: In a sale or return contract, the seller delivers goods to a buyer with the understanding that the buyer may return them if they are not used or resold within a stated period of time (or within a reasonable time, if no specific time is stated). The sale is considered final if the buyer fails to return the goods within the specified time or within a reasonable time, if no time is specified. The buyer has the option of returning all the goods or any commercial unit of the goods. In a sale or return contract, the risk of loss and title to the goods passes to the buyer when the buyer takes possession of the goods. Diff: 2 LO: 19.4 Describe which party bears the risk of loss of goods in conditional sales contracts. AACSB: Analytical thinking Classification: Concept 67) In the case of an ordinary lease, if the lessor is a merchant, the risk of loss remains with the lessor even after the lessee receives the goods. Answer: FALSE Diff: 1 LO: 19.5 Describe what party bears the risk of loss of goods in lease contracts. AACSB: Analytical thinking Classification: Concept 68) In a lease transaction, title to the leased goods passes to the lessee. Answer: FALSE Diff: 1 LO: 19.5 Describe what party bears the risk of loss of goods in lease contracts. AACSB: Analytical thinking Classification: Concept 69) Article 2A (Leases) of the UCC establishes rules regarding title and risk of loss for leased goods. Answer: TRUE Diff: 1 LO: 19.5 Describe what party bears the risk of loss of goods in lease contracts. AACSB: Analytical thinking Classification: Concept 70) Article 2A (Leases) of the UCC establishes rules regarding title and risk of loss for leased goods. Answer: TRUE Diff: 1 LO: 19.5 Describe what party bears the risk of loss of goods in lease contracts. AACSB: Analytical thinking Classification: Concept

71) Explain in detail the risk of loss in lease contracts. Answer: The parties to a lease contract are the party who leases the goods (the lessor) and the party who receives the goods (the lessee). The lessor and the lessee may agree as to who will bear the risk of loss of the goods if they are lost or destroyed. If the parties do not so agree, the UCC provides the following risk of loss rules: 1. In the case of an ordinary lease, if the lessor is a merchant, the risk of loss passes to the lessee on the receipt of the goods. 2. If the lease is a finance lease and the supplier is a merchant, the risk of loss passes to the lessee on the receipt of the goods. A finance lease is a three-party transaction consisting of a lessor, a lessee, and a supplier (or vendor). 3. If a tender of delivery of goods fails to conform to the lease contract, the risk of loss remains with the lessor or supplier until cure or acceptance. Diff: 1 LO: 19.5 Describe what party bears the risk of loss of goods in lease contracts. AACSB: Analytical thinking Classification: Concept 72) A title for goods obtained by a seller through fraud, impersonation, or a dishonored check is referred to as a(n) ________. A) unenforceable title B) voidable title C) conditional title D) unequivocal title Answer: B Diff: 1 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Analytical thinking Classification: Concept 73) Robert steals a truckload of plasma televisions that belong to Karson Electronics Store. He then resells it to Stu-Mart, which is unaware of the stolen nature of the goods. Karson Electronics Store then traces the plasma televisions to Stu-Mart. Robert is also arrested for the theft. Which of the following is true for Karson's legal course for reclaiming the televisions or recovering damages? A) Stu-Mart is a good-faith purchaser here and as such does not have to hand over the televisions to Karson. B) Stu-mart must hand over the televisions to Karson as its title to the goods is void. C) Karson's only recourse is against Robert to claim damages. D) Karson's cannot reclaim the goods, but can sue Stu-Mart for negligence and damages. Answer: B Diff: 2 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Application of knowledge Classification: Application

74) Steve brings his watch to Knell Watches to be repaired. Knell Watches sells and repairs watches. Steve entrusts his watch at Knell's until it is repaired. The watch store repairs the watch, but then sells it to Kevin, who buys the watch with a fraudulent check that bounced. Kevin then resells the watch to his friend Jonathan, who is unaware of the stolen nature of the watch. Who can legally claim ownership over the watch in court? A) Jonathan B) Steve C) Knell Watches D) Kevin Answer: A Diff: 2 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Application of knowledge Classification: Application 75) Steve brings his watch to Knell Watches to be repaired. Knell Watches sells and repairs watches. Steve entrusts his watch at Knell's until it is repaired. The watch store repairs the watch, but then sells it to Kevin, who buys the watch with a fraudulent check that bounced. Kevin then resells the watch to his friend Jonathan, who is unaware of the stolen nature of the watch. According to the entrustment rule, what legal recourse does Steve have to reclaim the watch or collect damages? A) Steve can sue Kevin for damages. B) Steve can sue Knell Watches for damages. C) Steve can reclaim the watch from Jonathan. D) Steve cannot reclaim the watch but can sue Jonathan for damages. Answer: B Diff: 2 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Application of knowledge Classification: Application 76) Steve brings his watch to Knell Watches to be repaired. Knell Watches sells and repairs watches. Steve entrusts his watch at Knell's until it is repaired. The watch store repairs the watch, but then sells it to Kevin, who buys the watch with a fraudulent check that bounced. Kevin then resells the watch to his friend Jonathan, who is unaware of the stolen nature of the watch. What kind of title did Kevin hold over the watch when he fraudulently bought the watch? A) an unequivocal title B) a conditional title C) a voidable title D) a void title Answer: C Diff: 2 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Application of knowledge Classification: Application

77) Which of the following is a good faith purchaser? A) a person who pays sufficient consideration for goods to someone he honestly believes has good title B) a person who buys stolen goods without being aware of it C) a buyer who agrees to hold goods for a person until the delivery of the goods is made D) a buyer to whom goods are delivered by a seller to sell on the seller's behalf Answer: A Diff: 2 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Analytical thinking Classification: Concept 78) In a case in which a buyer purchases goods from a thief who has stolen them, the purchaser does not acquire title to the goods. Answer: TRUE Diff: 1 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Analytical thinking Classification: Concept 79) A person with voidable title to goods can transfer the goods title to a good faith purchaser for value. Answer: TRUE Diff: 1 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Analytical thinking Classification: Concept 80) The real owner cannot reclaim goods from a good faith purchaser. Answer: TRUE Diff: 1 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Analytical thinking Classification: Concept 81) An entrusted merchant has the power to transfer all rights in the goods to a buyer in the ordinary course of business. Answer: TRUE Diff: 1 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Analytical thinking Classification: Concept

82) A seller has voidable title interest to goods if he or she obtained the goods through fraud. Answer: TRUE Diff: 1 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Analytical thinking Classification: Concept 83) How does the UCC treat goods that were fraudulently obtained? Answer: A seller or lessor has voidable title or voidable leasehold interest to goods if he or she obtained the goods through fraud, if his or her check for the payment of the goods or lease is dishonored, or if he or she impersonated another person. A person with voidable title to goods can transfer good title to a good faith purchaser for value or a good leasehold interest to a good faith subsequent lessee. A good faith purchaser or lessee for value is someone who pays sufficient consideration or rent for the goods to the person he or she honestly believes has good title to or leasehold interest in those goods. The real owner cannot reclaim goods from such a purchaser or lessee. Diff: 2 LO: 19.6 Identify who bears the risk of loss when goods are stolen and resold. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 20 Remedies for Breach of Sales and Lease Contracts 1) A(n) ________ is an action a party to a sales or lease contract is required by law to carry out. A) obligation B) breach C) capture D) revocation Answer: A Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 2) Failure of a party to perform an obligation in a sales or lease contract is known as ________. A) revocation B) breach C) acceptance D) replevin Answer: B Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 3) The obligation of a seller to transfer and deliver goods to the buyer or lessee in accordance with a sales or lease contract is known as ________. A) the rule of capture B) deliverance C) replevin D) tender of delivery Answer: D Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

4) A sales contract that requires the seller to send the goods to the buyer but not to a specifically named destination is known as a(n) ________. A) shipment contract B) destination contract C) option contract D) consignment contract Answer: A Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 5) A(n) ________ is a sales contract that requires the seller to deliver goods to the buyer's place of business or another specified location. A) consignment contract B) option contract C) shipment contract D) destination contract Answer: D Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 6) A person buying goods from the place where the goods are manufactured would be an example of ________ delivery. A) noncarrier case B) carrier case C) shipment contract D) destination contract Answer: A Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 7) Which of the following is true for a "perfect tender rule" delivery? A) The seller can reject delivery of certain parts of the goods. B) The buyer can only reject parts of the goods and not the whole shipment. C) The buyer can seek remedies for accepting nonconforming goods. D) The seller can seek remedies for nonconforming goods that were accepted by the buyer. Answer: C Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 2 Copyright © 2019 Pearson Education, Inc.

8) When is a delivery considered to be complete in a shipment contract? A) when the buyer receives the shipment B) when the seller hands over the shipment to the carrier C) when the shipment reaches the destination that the buyer specified D) when the seller notifies the buyer of the shipment in transit Answer: B Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 9) In a destination contract, delivery is completed when the shipment ________. A) reaches the destination specified in the contract B) is inspected by the buyer and approved C) is handed over to the carrier by the seller D) is in transit to the destination specified in the contract Answer: A Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 10) A(n) ________ is a type of contract that requires or authorizes goods to be delivered and accepted in separate lots. A) option contract B) installment contract C) consignment D) lease contract Answer: B Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 11) Which of the following is true of a contract in which the goods were destroyed, of no fault of the buyer or seller, before the title to goods passed to the buyer? A) The buyer has to still pay for the destroyed goods. B) The seller and buyer are excused from contractual obligations. C) The buyer can successfully claim for replacements from the seller. D) The seller is obligated to make a new shipment as the previous contract. Answer: B Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

12) Which of the following is true for the perfect tender rule under installment contracts? A) The buyer cannot seek remedies against the seller for accepting nonconforming goods. B) The seller cannot invoke the right to cure rule. C) The buyer can reject a shipment only if it impairs the value of the entire contract. D) The buyer can reject replacements or cured goods. Answer: C Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 13) Under the UCC, what course of action can the sellers pursue in case of shipment of nonconforming or defective goods? A) tender of delivery B) right to cure C) perfect tender rule D) replevin Answer: B Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 14) What is the right to cure in sales or lease contracts? A) The right of the buyer to ask for a replacement of nonconforming goods. B) The right of the seller to ship nonconforming goods on grounds of prior acceptance. C) The right of the seller to fix nonconforming goods. D) The right of the buyer to reject shipment of conforming goods. Answer: C Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 15) The seller's or lessor's general obligation is to transfer and deliver the goods to the buyer or lessee. Answer: TRUE Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

16) For noncarrier deliveries, if the seller or lessor has no place of business, the place of delivery is the seller's or lessor's residence. Answer: TRUE Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 17) Destination contracts are an example of noncarrier delivery. Answer: FALSE Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 18) A sales contract requires the seller to send the goods to the buyer at a specifically named destination. Answer: FALSE Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 19) In a shipment contract, delivery occurs when the shipment reaches the destination. Answer: FALSE Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 20) Under the perfect tender rule, the buyer can reject a whole shipment of nonconforming goods. Answer: TRUE Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 21) The right to cure rule can be invoked by the seller. Answer: TRUE Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

22) The right to cure rule allows buyers to claim replacements for nonconforming goods. Answer: FALSE Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 23) How does the UCC deal with issues that are not present in the express terms of a contract? Answer: Generally, the common law of contracts only obligates the parties to perform their contracts according to the express terms of their contract. There is no breach of contract unless the parties fail to meet these terms. Recognizing that certain situations may develop that are not expressly provided for in a contract and that strict adherence to the terms of a contract without doing more may not be sufficient to accomplish the contract's objective, the UCC adopts two broad principles that govern the performance of sales and lease contracts: good faith and reasonableness. The term commercial reasonableness is used to establish certain duties of merchants under the UCC. Diff: 1 LO: 20.1 Describe seller and lessor performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 24) Which of the following would be considered a breach of contract? A) acceptance of nonconforming goods by a buyer B) nonacceptance of conforming goods by a buyer C) delivery of conforming goods by a seller D) nondelivery of goods to a buyer that has a document of title Answer: B Diff: 1 LO: 20.2 Describe buyer and lessee performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 25) Unless otherwise agreed to by the parties, if the buyer purchases goods on credit sale from the seller, the credit period starts from the time ________. A) the goods are shipped B) the buyer receives the goods C) the contract is signed by the buyer D) the buyer accepts the shipment Answer: A Diff: 1 LO: 20.2 Describe buyer and lessee performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

26) Unless otherwise agreed, the buyer's payment in a shipment contract is due to the seller when ________. A) shipment is in transit B) goods are delivered C) contract is signed D) shipment is handed over to the carriers Answer: B Diff: 1 LO: 20.2 Describe buyer and lessee performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 27) Which of the following constitutes an acceptance by the buyer? A) asking for inspection of goods upon its arrival B) not passing the title of the goods to another buyer C) failing to reject the goods within a reasonable time after delivery D) accepting nonconforming goods Answer: C Diff: 1 LO: 20.2 Describe buyer and lessee performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 28) Acceptance of a part of any commercial unit is acceptance of the entire unit. Answer: TRUE Diff: 1 LO: 20.2 Describe buyer and lessee performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 29) Acceptance occurs if the buyer resells the goods delivered by the seller. Answer: TRUE Diff: 1 LO: 20.2 Describe buyer and lessee performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 30) A buyer cannot revoke his acceptance if he or she has already accepted nonconforming goods. Answer: FALSE Diff: 1 LO: 20.2 Describe buyer and lessee performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

31) Revocation of acceptance is not effective until the seller or lessor is so notified. Answer: TRUE Diff: 1 LO: 20.2 Describe buyer and lessee performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 32) Explain how payments are made for contracts under the UCC? Answer: Goods that are accepted must be paid for. Unless the parties to a contract agree otherwise, payment is due from a buyer when and where the goods are delivered, even if the place of delivery is the same as the place of shipment. Buyers often purchase goods on credit extended by the seller. Unless the parties agree to other terms, the credit period begins to run from the time the goods are shipped. A lessee must pay lease payments in accordance with the lease contract. The goods can be paid for in any manner currently acceptable in the ordinary course of business unless the seller demands payment in cash or unless the contract names a specific form of payment. If the seller requires cash payment, the buyer must be given an extension of time necessary to procure the cash. If the buyer pays by check, payment is conditional on the check being honored when it is presented to the bank for payment. Diff: 1 LO: 20.2 Describe buyer and lessee performance of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 33) The right of a seller or lessor to refuse to send goods to a buyer or lessee upon breach of a sales or lease contract by the buyer or lessee or the insolvency of the buyer or lessee is known as the ________. A) right to recover purchase rent B) right to reclaim goods C) right to withhold delivery D) right to dispose of goods Answer: C Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

34) In which of the following does a seller have the right to stop delivery of goods in transit regardless of the size of the shipment? A) the buyer repudiates the contract B) the buyer has payments due C) the seller learns of the buyer's insolvency D) the seller has been ordered for specific performance Answer: C Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 35) The ________ is the right of a seller or lessor to demand the return of goods from the buyer or lessee under specified situations. A) right to dispose of goods B) right to recover damages C) right to recover purchase price D) right to reclaim goods Answer: D Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 36) Which of the following is true of a seller's right to dispose of goods from a breach of contract? A) Any profit made on the resale or release of the goods has to be shared with the original buyer. B) Incidental charges can be recovered from the original buyer. C) The seller cannot resell the goods unless the original buyer agrees to it. D) The buyer can only dispose of goods that have already been delivered. Answer: B Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

37) Which of the following is a right to remedy that a seller can claim while the goods are in possession of the buyer? A) right to dispose of goods B) right to withhold delivery of goods C) right to stop delivery of goods in transit D) right to reclaim goods Answer: D Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 38) Klint Microsystems, a microprocessor manufacturer, was contracted by Zeitar Studios to manufacture specially designed microchips to be used in an audio engineering process. Zeitar was to pay Klint $300,000 as per the contract. Klint decided to redesign their existing microchips and make them suitable for Zeitar. While the finished microchips were being shipped via a carrier, Klint was informed of Zeitar's insolvency. Klint cancelled the shipment before it was delivered. Klint then resold the chips to another studio where they had to settle for $150,000 as the chips were now only suitable for specific audio engineering processes. What right to remedy did Klint exercise when they stopped shipment to Zeitar? A) right to dispose of goods B) right to stop goods in transit C) right to obtain specific performance D) right to recover purchase rent Answer: B Diff: 2 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Reflective thinking Classification: Application

39) Klint Microsystems, a microprocessor manufacturer, was contracted by Zeitar Studios to manufacture specially designed microchips to be used in an audio engineering process. Zeitar was to pay Klint $300,000 as per the contract. Klint decided to redesign their existing microchips and make them suitable for Zeitar. While the finished microchips were being shipped via a carrier, Klint was informed of Zeitar's insolvency. Klint cancelled the shipment before it was delivered. Klint then resold the chips to another studio where they had to settle for $150,000 as the chips were now only suitable for specific audio engineering processes. What legal action can Klint take against Zeitar? A) sue and recover lost profits B) sue to recover purchase price C) get a court order asking for specific performance D) exercise the buyer's right to cover Answer: A Diff: 2 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Reflective thinking Classification: Application 40) Klint Microsystems, a microprocessor manufacturer, was contracted by Zeitar Studios to manufacture specially designed microchips to be used in an audio engineering process. Zeitar was to pay Klint $300,000 as per the contract. Klint decided to redesign their existing microchips and make them suitable for Zeitar. While the finished microchips were being shipped via a carrier, Klint was informed of Zeitar's insolvency. Klint cancelled the shipment before it was delivered. Klint then resold the chips to another studio where they had to settle for $150,000 as the chips were now only suitable for specific audio engineering processes. What right to remedy did Klint exercise when selling the microchips to another studio? A) right to claim lost profits B) right to cover C) right to dispose of goods D) right to recover damages Answer: C Diff: 2 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Reflective thinking Classification: Application

41) Which of the following is a seller's remedy? A) right to recover damages for nondelivery B) right to dispose of goods C) right to replevy goods D) right to obtain specific performance Answer: B Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 42) Goods in possession of bailees are considered to be in transit. Answer: TRUE Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 43) The right to withhold delivery is available to the seller if the buyer or lessee wrongfully rejects or revokes acceptance of the goods. Answer: TRUE Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 44) The buyer or lessee can recover any damages incurred on the disposition of the goods. Answer: FALSE Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 45) A seller can recover incidental charges incurred on the disposition of goods if a buyer breaches a sales or lease contract. Answer: TRUE Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

46) If a buyer breaches a sales contract before the seller has delivered the goods, the seller cannot recover damages from the buyer. Answer: FALSE Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 47) A seller can recover lost profits in a case where damages measured by the difference between contract price and market price would not put the seller in the same position as the performance of the contract would have. Answer: TRUE Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 48) A lost volume seller can recover damages from a defaulting buyer who has sold to another buyer. Answer: TRUE Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 49) Give an account of the seller's right to recover damages for breach of contract. Answer: If a buyer or lessee repudiates a sales or lease contract or wrongfully rejects tendered goods, the seller or lessor has the right to recover damages caused by the buyer's or lessee's breach. Generally, the amount of damages is calculated as the difference between the contract price or rent and the market price or rent of the goods at the time and place the goods were to be delivered to the buyer or lessee plus incidental damages. Diff: 1 LO: 20.3 List and describe seller and lessor remedies for buyer and lessee breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

50) Which of the following is true of a buyer's right of inspection? A) Cost of inspection is shared by the seller and buyer if goods are conforming. B) Cost of inspection can be recovered from the seller if goods are nonconforming. C) Goods can only be inspected before shipment is made by the seller. D) Inspection has to be performed after the goods in the contract have been accepted. Answer: B Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 51) Which of the following is a ground for revoking an acceptance? A) if the seller makes a timely cure of nonconforming goods B) if the goods are accepted after the nonconformity is discovered C) if the buyer has accepted only one commercial unit from the entire unit D) if the nonconformity substantially impairs the value of the goods to the buyer Answer: D Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 52) Which of the following is essential for a revocation of acceptance to be effective? A) The seller must be notified of the revocation within a reasonable time. B) The seller's promise to timely cure if the nonconformity is not met. C) The nonconformity must be discovered before acceptance is given. D) The nonconformity substantially impairs the value of the goods to the buyer. Answer: A Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 53) What is the similarity between a buyer's remedy of capture and replevy? A) both are invoked when the buyer has to cover B) both are invoked for accepting nonconforming goods C) both help the buyer to receive damages D) both help the buyer recover goods from the seller Answer: D Diff: 2 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 14 Copyright © 2019 Pearson Education, Inc.

54) Pollard entered into a sales contract to purchase a specific Picasso painting from Jenson for $15 million. When Pollard tenders payment, Jenson refuses to sell the painting to the buyer. Which of the following legal rights to remedy can Pollard exercise to retrieve the Picasso painting from Jenson? A) right to cover B) right to recover damages for nondelivery C) right to obtain specific performance D) right to cancel the contract Answer: C Diff: 2 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Reflective thinking Classification: Application 55) Blue Rorschach Inc. has an immediate requirement for 80 laptops and contracts with Zenzo Electronics for 80 Dell laptops at $550 each. However, Zenzo Electronics breaches the contract and fails to deliver the laptops. Blue Rorschach then immediately contracts Dell Computers, buys 100 laptops at $600 per laptop and then sues Zenzo Electronics for the breach of contract. What is the amount of legal damages that Blue Rorschach can recover from Zenzo because of the breach of contract? A) $4,400 B) $5,000 C) $4,000 D) $44,000 Answer: C Diff: 2 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Reflective thinking Classification: Application

56) Blue Rorschach Inc. has an immediate requirement for 80 laptops and contracts with Zenzo Electronics for 80 Dell laptops at $550 each. However, Zenzo Electronics breaches the contract and fails to deliver the laptops. Blue Rorschach then immediately contracts Dell Computers, buys 100 laptops at $600 per laptop and then sues Zenzo Electronics for the breach of contract. What legal right to remedy did Blue Rorschach exercise when contracting Dell Computers and suing Zenzo for failure of delivery of goods? A) right to replevy goods B) right to cover C) right to recover damages for accepted nonconforming goods D) right to obtain specific performance Answer: B Diff: 2 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Reflective thinking Classification: Application 57) The term ________ refers to an action by a buyer or lessor to recover scarce goods wrongfully withheld by a seller or lessor. A) revocation B) replevin C) accommodation D) damages Answer: B Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 58) Which one of the following is a remedy for buyers in cases where the seller or lessor tenders nonconforming goods, and the buyer or lessee accepts them? A) cover and then recover damages B) deduct damages from the unpaid purchase or rent price C) replevy the goods D) sue for specific performance Answer: B Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Reflective thinking Classification: Concept

59) The UCC alters the perfect tender rule with regard to installment contracts. Answer: TRUE Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 60) If the goods are rejected for nonconformance, the cost of inspection can be recovered from the seller. Answer: TRUE Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 61) If the goods conform to the contract, the seller pays for the inspection. Answer: FALSE Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 62) The right to recover the goods from an insolvent seller applies to unfinished goods. Answer: FALSE Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 63) A decree of specific performance is a court order that demands the seller or lessor to perform the contract. Answer: TRUE Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

64) The right to replevy goods can be invoked by the seller. Answer: FALSE Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 65) If a buyer accepts nonconforming goods, the buyer may seek remedies against the seller. Answer: TRUE Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 66) The right to cover can be invoked by the buyer if the seller delivers nonconforming goods. Answer: TRUE Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 67) A buyer or lessee who rightfully covers may sue the seller or lessor for additional expenses paid. Answer: TRUE Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 68) Replevin actions are also possible on goods not identified in the contract. Answer: FALSE Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept

69) The measure of damages for nondelivery is the difference between the contract price and the market price at the time the breach is realized. Answer: TRUE Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 70) When does a buyer have the right to cancel a sales or lease contract? Answer: If a seller or lessor fails to deliver conforming goods or repudiates the contract, the buyer or lessee may cancel the sales or lease contract. The buyer or lessee can also cancel a sales or lease contract if the buyer or lessee rightfully rejects the goods or justifiably revokes acceptance of the goods. The contract may be canceled with respect to the affected goods, or if there is a material breach, the whole contract may be canceled. A buyer or lessee who rightfully cancels a contract is discharged from any further obligations on the contract and retains his or her rights to other remedies against the seller or lessor. Diff: 1 LO: 20.4 List and describe buyer and lessee remedies for seller and lessor breach of sales and lease contracts. AACSB: Reflective thinking Classification: Concept 71) Mansfield Dairies entered into a contract with Aratez Inc., a dairy product food processing company, to provide dairy products for a period of four years. The contract included a provision for a one-year limitation period in case of breach. But with less than a year left on the contract, Mansfield Dairies stopped shipment of milk products to Aratez Inc. Under the UCC statute of limitations, which of the following would be true with reference to Aratez's right to bring a lawsuit against Mansfield Dairies for breach of contract? A) The lawsuit could be filed anytime within one year from the breach. B) The lawsuit could only be filed after the expiration of the contract. C) The lawsuit could not be filed as there was less than a year left to complete the contract. D) The lawsuit could be filed any time within four years from the breach. Answer: A Diff: 2 LO: 20.5 List and describe additional performance issues. AACSB: Reflective thinking Classification: Application

72) Damages that will be paid on a breach of contract that are established in advance are known as ________. A) contemptuous damages B) aggravated damages C) installment damages D) liquidated damages Answer: D Diff: 1 LO: 20.5 List and describe additional performance issues. AACSB: Analytical thinking Classification: Concept 73) A(n) ________ can be obtained in writing from the other party if there is an indication that a contract will be breached by that party. A) adequate assurance of performance B) replevy C) right to obtain specific performance D) good faith agreement Answer: A Diff: 1 LO: 20.5 List and describe additional performance issues. AACSB: Analytical thinking Classification: Concept 74) ________ is a rule which provides that an action for breach of any written or oral sales or lease contract must commence within four years after the cause of action accrues. A) Perfect tender rule B) Specific performance decree C) Replevin D) Statute of limitations Answer: D Diff: 1 LO: 20.5 List and describe additional performance issues. AACSB: Analytical thinking Classification: Concept 75) Pre-established damages agreed to in a contract are known as liquidated damages. Answer: TRUE Diff: 1 LO: 20.5 List and describe additional performance issues. AACSB: Analytical thinking Classification: Concept

76) Liquidated damages can be claimed in addition to actual damages. Answer: FALSE Diff: 1 LO: 20.5 List and describe additional performance issues. AACSB: Analytical thinking Classification: Concept 77) A party in a contract that uses its bargaining power unfairly can render the contract unconscionable. Answer: TRUE Diff: 1 LO: 20.5 List and describe additional performance issues. AACSB: Analytical thinking Classification: Concept 78) An unconscionable contract can be enforced if the unconscionable clause is removed. Answer: TRUE Diff: 1 LO: 20.5 List and describe additional performance issues. AACSB: Analytical thinking Classification: Concept 79) The UCC statutes of limitations cannot be reduced by the contracting parties. Answer: FALSE Diff: 1 LO: 20.5 List and describe additional performance issues. AACSB: Analytical thinking Classification: Concept 80) What is the doctrine of unconscionability under the UCC? Answer: UCC Article 2 and Article 2A have adopted the equity doctrine of unconscionability. Under this doctrine, a court may determine as a matter of law that a contract is an unconscionable contract. To prove unconscionability, there must be proof that the parties had substantially unequal bargaining power, that the dominant party misused its power in contracting, and that it would be manifestly unfair or oppressive to enforce the contract. If a court finds that a contract or any clause in a contract is unconscionable, the court may refuse to enforce the contract, it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. Diff: 1 LO: 20.5 List and describe additional performance issues. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 21 Warranties 1) A ________ is a seller's or lessor's express or implied assurance to a buyer or lessee that the goods sold or leased meet certain quality standards. A) bond B) caveat emptor C) warranty D) collateral Answer: C Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 2) What was the doctrine of caveat emptor in sales or lease contracts? A) It was a law that balanced risk of loss between seller and buyer. B) It was a law that stated the risk of loss was on the buyer. C) It was a law that gave more protection to the buyer in a sales contract. D) It was a law that stipulated the issue of warrants in sale or lease transactions. Answer: B Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 3) A warranty that is created when a seller or lessor makes an affirmation that the goods he or she is selling or leasing meet certain standards of quality, description, performance, or condition is known as a(n) ________ warranty. A) implied B) conditional C) closed D) express Answer: D Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept

4) Which of the following is true of express warranties? A) A manufacturer is liable for express warranties made by wholesalers. B) A retailer is liable for the express warranties made by manufacturers of goods it sells. C) A retailer is not allowed to make warranties on manufacturer goods. D) A manufacturer is obligated by law to make an express warranty on all its goods. Answer: B Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 5) Which of the following would constitute the creation of an express warranty for goods? A) description of the goods B) commendation of the goods C) prior experience with the goods D) affirmation of the value of the goods Answer: A Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 6) A commendation of goods made by a seller or lessor that does not create an express warranty is referred to as a(n) ________. A) statement of opinion B) implied warranty C) guarantee D) caveat emptor Answer: A Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 7) A statement of opinion may be which of the following? A) a type of guarantee B) an affirmation of the value of the goods C) an implied assurance not expressly stated D) an explicit description of the goods Answer: B Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept

8) Sam expressed an interest in buying a painting from Jasper, who claimed that the painting was a family heirloom. Jasper's asking price was $15,000, but Sam was only willing to offer $13,000. Jasper told him that it was a very old painting worth a fortune and that others would gladly pay $20,000 for it. He also told him that he was only selling it under its market value because he needed the money immediately. He then implied that Sam could sell it for a higher rate if he wanted. In legal terms, Jasper's words to Sam would be considered as ________. A) an express warranty B) an implied warranty of merchantability C) a statement of opinion D) an oral contract Answer: C Diff: 2 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Application of knowledge Classification: Application 9) Sam expressed an interest in buying a painting from Jasper, who claimed that the painting was a family heirloom. Jasper's asking price was $15,000, but Sam was only willing to offer $13,000. Jasper told him that it was a very old painting worth a fortune and that others would gladly pay $20,000 for it. He also told him that he was only selling it under its market value because he needed the money immediately. He then implied that Sam could sell it for a higher rate if he wanted. Sam decided to buy the painting for $15,000 on the condition that if he found that the painting was worth less than $15,000, Jasper would have to take the painting back and refund Sam. Which of the following warranties did this sales contract have? A) an implied warranty of merchantability B) an express warranty C) a statement of opinion D) an implied warranty of fitness Answer: B Diff: 2 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Application of knowledge Classification: Application 10) Damages that are generally equal to the difference between the value of the goods as warranted and the actual value of the goods accepted at the time and place of acceptance are known as ________. A) punitive damages B) incidental damages C) compensatory damages D) future damages Answer: C Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

11) Where there has been a breach of warranty, the buyer or lessee may sue the seller or lessor to recover ________ damages. A) compensatory B) future C) punitive D) liquidated Answer: A Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 12) Warranties are the buyer's or lessee's assurance that the goods meet certain standards. Answer: TRUE Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 13) Only written express warranties are valid. Answer: FALSE Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 14) Express warranties must contain the word "express" in writing to be legitimate. Answer: FALSE Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 15) Sellers and lessors are not required to make express warranties. Answer: TRUE Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 16) An express warranty is created upon description of the goods. Answer: TRUE Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

17) A manufacturer is liable for express warranties made by wholesalers and retailers. Answer: FALSE Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 18) A retailer is not liable for the express warranties made by manufacturers of goods it sells. Answer: FALSE Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 19) A seller's or lessor's statement of opinion of the goods does not create an express warranty. Answer: TRUE Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 20) An affirmation of the value of goods creates an express warranty. Answer: FALSE Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 21) Thoroughly and completely explain express warranties. Answer: Express warranties are created when a seller or lessor affirms that the goods he or she is selling or leasing meet certain standards of quality, description, performance, or condition. Express warranties can be either written, oral, or inferred from the seller's conduct. It is not necessary to use formal words such as warrant or guarantee to create an express warranty. Express warranties can be made by mistake because the seller or lessor does not have to specifically intend to make the warranty. Sellers and lessors are not required to make express warranties. Generally, express warranties are made to entice consumers and others to buy or lease their products. Buyers and lessees can recover for breach of an express warranty if the warranty induced the buyer to purchase the product or the lessee to lease the product. Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept

22) What damages are recoverable for a breach of warranty? Answer: Where there has been a breach of warranty, the buyer or lessee may sue the seller or lessor to recover compensatory damages. The amount of recoverable compensatory damages is generally equal to the difference between the value of the goods as warranted and the actual value of the goods accepted at the time and place of acceptance. A purchaser or lessee can recover for personal injuries that are caused by a breach of warranty. Diff: 1 LO: 21.1 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 23) Which of the following is NOT one of the three most common forms of implied warranties? A) the implied warranty of merchantability B) the implied warranty of fitness for human consumption C) the implied warranty of fitness for a particular purpose D) the implied warranty of purity Answer: D Diff: 1 LO: 21.2 List and describe implied warranties. AACSB: Analytical thinking Classification: Concept 24) The three most common forms of implied warranties are the implied warranty of merchantability, the implied warranty of fitness for human consumption, and the implied warranty of fitness for a particular purpose. Answer: TRUE Diff: 1 LO: 21.2 List and describe implied warranties. AACSB: Analytical thinking Classification: Concept 25) Unless properly disclaimed, a warranty is implied that sold or leased goods are fit for the ordinary purpose for which they are sold or leased, as well as other assurances, known as the implied warranty of ________. A) volatility B) cause of action C) assertion D) merchantability Answer: D Diff: 1 LO: 21.3 Describe the implied warranty of merchantability. AACSB: Analytical thinking Classification: Concept

26) That "goods must be fit for the ordinary purposes for which they are used," would be an example of a(n) ________. A) implied warranty B) explicit warranty C) statement of opinion D) stamp of approval Answer: A Diff: 1 LO: 21.3 Describe the implied warranty of merchantability. AACSB: Analytical thinking Classification: Concept 27) Which of the following would constitute an implied warranty? A) affirmation of the facts of the goods B) description of the goods C) model or sample of the goods D) adequate packaging and labeling of the goods Answer: D Diff: 1 LO: 21.3 Describe the implied warranty of merchantability. AACSB: Analytical thinking Classification: Concept 28) In a shipment of containers of widgets, which of the following would be considered an implied warranty? A) that the seller of the widgets has given an oral approval of the widgets in the containers B) that the description of the uses of widgets is mentioned in the contract C) that the widgets are of an even kind, quality, and quantity within each unit D) that a sample of the widget was given to the buyer for inspection Answer: C Diff: 1 LO: 21.3 Describe the implied warranty of merchantability. AACSB: Analytical thinking Classification: Concept 29) Which of the following is true of how an implied warranty of merchantability is created? A) It is made by the buyer or lessee. B) It is implied by law if the seller or lessor is a nonmerchant. C) It is implied by law if the seller or lessor is a merchant. D) It has to be explicitly expressed in a contract. Answer: C Diff: 1 LO: 21.3 Describe the implied warranty of merchantability. AACSB: Analytical thinking Classification: Concept

30) Express warranties are always implied by law. Answer: FALSE Diff: 1 LO: 21.3 Describe the implied warranty of merchantability. AACSB: Analytical thinking Classification: Concept 31) If a seller is a merchant with respect to certain goods, there is an implied warranty that the quality of the goods must pass without objection in the trade. Answer: TRUE Diff: 1 LO: 21.3 Describe the implied warranty of merchantability. AACSB: Analytical thinking Classification: Concept 32) The implied warranty of merchantability warrants that goods must be fit for the ordinary purposes for which they are used. Answer: TRUE Diff: 1 LO: 21.3 Describe the implied warranty of merchantability. AACSB: Analytical thinking Classification: Concept 33) Implied warranties are expressly stated in the sales or lease contract. Answer: FALSE Diff: 1 LO: 21.3 Describe the implied warranty of merchantability. AACSB: Analytical thinking Classification: Concept 34) The implied warranty of merchantability does not apply to sales or leases by nonmerchants or casual sellers. Answer: TRUE Diff: 1 LO: 21.3 Describe the implied warranty of merchantability. AACSB: Analytical thinking Classification: Concept

35) An implied warranty of ________ is a warranty that applies to food or drink consumed on or off the premises of restaurants, grocery stores, fast-food outlets, and vending machines. A) statement of opinion B) express warranty C) stamp of approval D) fitness for human consumption Answer: D Diff: 1 LO: 21.4 Describe the implied warranty of fitness for human consumption. AACSB: Analytical thinking Classification: Concept 36) A test to determine merchantability based on unfamiliar objects found in food is known as the ________. A) foreign substance test B) consumer expectation test C) contamination test D) contagion test Answer: A Diff: 1 LO: 21.4 Describe the implied warranty of fitness for human consumption. AACSB: Analytical thinking Classification: Concept 37) Which of the following is a similarity between the foreign substance food test and the consumer expectation test? A) They are both used to determine a buyer's knowledge of a particular food product. B) They are both used to determine a buyer's interest in a particular food product. C) They are both part of the implied warranty of fitness for human consumption. D) They are both part of the express warranty an eatery provides. Answer: C Diff: 1 LO: 21.4 Describe the implied warranty of fitness for human consumption. AACSB: Analytical thinking Classification: Concept 38) The ________ is used to determine merchantability of food products based on what the average buyer is supposed to find in particular food products. A) foreign substance food test B) contagion test C) contamination test D) consumer expectation test Answer: D Diff: 1 LO: 21.4 Describe the implied warranty of fitness for human consumption. AACSB: Analytical thinking Classification: Concept 9 Copyright © 2019 Pearson Education, Inc.

39) Under the foreign substance test, if a person were injured by a chicken bone while eating a chicken salad sandwich, then the implied warranty would be breached. Answer: FALSE Diff: 1 LO: 21.4 Describe the implied warranty of fitness for human consumption. AACSB: Analytical thinking Classification: Concept 40) Under the consumer expectation test, if a person were injured by eating a nail in a cherry pie, then the implied warranty would be breached. Answer: FALSE Diff: 1 LO: 21.4 Describe the implied warranty of fitness for human consumption. AACSB: Analytical thinking Classification: Concept 41) Under the foreign substance test, the court asks what a consumer would expect to find or not find in food or drink that he or she consumes. Answer: FALSE Diff: 1 LO: 21.4 Describe the implied warranty of fitness for human consumption. AACSB: Analytical thinking Classification: Concept 42) The implied warranty of fitness for human consumption applies to vending machines. Answer: TRUE Diff: 1 LO: 21.4 Describe the implied warranty of fitness for human consumption. AACSB: Analytical thinking Classification: Concept 43) The foreign substance test is used to find breaches in the implied warranty of fitness for human consumption. Answer: TRUE Diff: 1 LO: 21.4 Describe the implied warranty of fitness for human consumption. AACSB: Analytical thinking Classification: Concept

44) An implied warranty of ________ is a warranty that arises where a seller or lessor warrants that the goods will meet the buyer's or lessee's expressed needs. A) merchantability B) fitness for a particular purpose C) fitness for human consumption D) good title Answer: B Diff: 1 LO: 21.5 Describe the implied warranty of fitness for a particular purpose. AACSB: Analytical thinking Classification: Concept 45) Mark goes to Tony's Lumber Yard to buy some lumber to build a new roof for his cabin. Mark tells Tony, the lumber yard owner, to provide him an exact type of wood that can resist the wood decay caused due to the damp environment around the cabin. Mark buys the lumber after Tony assures him that the wood is exactly what Mark is looking for. But then the dampness affects the wood and it caves in. Which of the following warranties has Tony explicitly breached by not providing Mark the lumber he needed? A) express warranty B) statement of opinion C) implied warranty of fitness for human consumption D) implied warranty of fitness for a particular purpose Answer: D Diff: 2 LO: 21.5 Describe the implied warranty of fitness for a particular purpose. AACSB: Application of knowledge Classification: Application 46) An implied warranty of fitness for a particular purpose is breached if the goods do not meet the buyer's or lessee's expressed needs. Answer: TRUE Diff: 1 LO: 21.5 Describe the implied warranty of fitness for a particular purpose. AACSB: Analytical thinking Classification: Concept 47) The implied warranty of fitness for a particular purpose applies only to merchants. Answer: FALSE Diff: 1 LO: 21.5 Describe the implied warranty of fitness for a particular purpose. AACSB: Analytical thinking Classification: Concept

48) Explain the implied warranty of fitness for a particular purpose. Answer: The UCC contains an implied warranty of fitness for a particular purpose. This implied warranty attaches to the sale or lease of goods if the seller or lessor has made statements that the goods will meet the buyer's or lessee's needs or purpose. This implied warranty is breached if the goods do not meet the buyer's or lessee's expressed needs. The warranty applies to both merchant and nonmerchant sellers and lessors. Diff: 1 LO: 21.5 Describe the implied warranty of fitness for a particular purpose. AACSB: Analytical thinking Classification: Concept 49) A statement that negates express and implied warranties is known as a ________. A) warranty disclaimer B) limited warranty C) warranty infringement D) warranty of no interference Answer: A Diff: 1 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept 50) Which of the following is true of the display of warranty disclaimers? A) It can be implied as an understanding between the buyer and seller. B) It should be conspicuous and noticeable. C) It need only be present in the contract. D) It must be published in the local newspaper before actually being displayed. Answer: B Diff: 1 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept 51) A warranty disclaimer is considered to be conspicuous when ________. A) the seller implies the disclaimer B) a reasonable person is able to notice it C) it is present in the contract D) it is expressed and approved by both seller and buyer Answer: B Diff: 1 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept

52) Implied warranties of quality cannot be disclaimed. Answer: FALSE Diff: 1 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept 53) An express warranty can only be limited if the warranty disclaimer and the warranty can be reasonably construed with each other. Answer: TRUE Diff: 1 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept 54) To be effective, a disclaimer of the implied warranty of merchantability must specifically mention the term merchantability. Answer: TRUE Diff: 1 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept 55) A disclaimer of the implied warranty of fitness for a particular purpose may be oral. Answer: FALSE Diff: 1 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept 56) A disclaimer of the implied warranty of merchantability must be in writing to be valid. Answer: FALSE Diff: 1 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept 57) An "as is" disclaimer implies that all implied warranties are disclaimed. Answer: TRUE Diff: 1 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept

58) Written disclaimers must be conspicuously displayed to be valid. Answer: TRUE Diff: 1 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept 59) Written disclaimers must be conspicuously displayed to be valid, meaning these disclaimers must be noticeable to a reasonable person. Answer: TRUE Diff: 1 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept 60) Explain the different types of warranty disclaimers. Answer: The first type is the "as is" disclaimer. Expressions such as "as is," "with all faults," or other language that makes it clear to the buyer that there are no implied warranties disclaims all implied warranties. An "as is" disclaimer is often included in sales contracts for used products. The second is the disclaimer of the implied warranty of merchantability. If the "as is" type of disclaimer is not used, a disclaimer of the implied warranty of merchantability must specifically mention the term merchantability for the implied warranty of merchantability to be disclaimed. These disclaimers may be oral or written. The third is the disclaimer of the implied warranty of fitness for a particular purpose. If the "as is" type of disclaimer is not used, a disclaimer of the implied warranty of fitness for a particular purpose may contain general language, without specific use of the term fitness. The disclaimer has to be in writing. Diff: 2 LO: 21.6 Identify warranty disclaimers and determine when they are unlawful. AACSB: Analytical thinking Classification: Concept 61) What of the following is true of an "as is" disclaimer? A) It disclaims all implied warranties. B) It disclaims all express warranties. C) It is a type of implied warranty. D) It cannot be replaced by another warranty. Answer: A Diff: 1 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Analytical thinking Classification: Concept

62) What type of transaction is covered under the Magnuson-Moss Warranty Act? A) consumer transactions B) commercial transactions C) industrial transactions D) governmental transactions Answer: A Diff: 1 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Analytical thinking Classification: Concept 63) The ________ is a federal statute that regulates written warranties on consumer products. A) Purchaser's Act B) Industry Loss Warranty Act C) Magnuson-Moss Warranty Act D) Consumer Warranty Act Answer: C Diff: 1 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Analytical thinking Classification: Concept 64) A warranty that guarantees that a defective product will be repaired or replaced free during the warranty period is known as a(n) ________. A) implied warranty B) full warranty C) disclaimer warranty D) limited warranty Answer: B Diff: 1 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Analytical thinking Classification: Concept 65) A full warranty is an example of a(n) ________. A) express warranty B) disclaimer warranty C) implied warranty of fitness for a particular purpose D) implied warranty of fitness for human consumption Answer: A Diff: 1 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Analytical thinking Classification: Concept

66) Which of the following is true of the Magnuson-Moss Warranty Act? A) It requires all warrantors to make express written warranties. B) It obligates all warrantors to make disclaimer warranties for their products. C) It authorizes warrantors to establish an informal dispute-resolution procedure. D) Implied warranties are voidable under this Act. Answer: C Diff: 1 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Analytical thinking Classification: Concept 67) Kirsten just bought a car that had a one-year warranty stating that it covered the cost of parts, but not labor. It also stated that the warranty only covered the powertrain, and no other part. What kind of warranty did Kirsten's car have? A) full warranty B) limited warranty C) disclaimer warranty D) implied warranty of fitness for a particular purpose Answer: B Diff: 2 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Application of knowledge Classification: Application 68) The Magnuson-Moss Warranty Act does not govern warranties of commercial or industrial transactions. Answer: TRUE Diff: 1 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Analytical thinking Classification: Concept 69) In a limited warranty, the warrantor must guarantee that a defective product will be repaired or replaced free during the warranty period. Answer: FALSE Diff: 1 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Analytical thinking Classification: Concept 70) The Magnuson-Moss Warranty Act does not require a seller or lessor to make an express written warranty. Answer: TRUE Diff: 1 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Analytical thinking Classification: Concept 16 Copyright © 2019 Pearson Education, Inc.

71) Limited warranties are made more often by sellers and lessors than are full warranties. Answer: TRUE Diff: 1 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Analytical thinking Classification: Concept 72) What is the difference between a full warranty and a limited warranty? Answer: For a warranty to qualify as a full warranty, the warrantor must guarantee that a defective product will be repaired or replaced free during the warranty period. The warrantor must indicate whether there is a time limit on the full warranty. In a limited warranty, the warrantor limits the scope of the warranty in some way. A warranty that covers the costs of parts, but not labor, to fix a defective product is a limited warranty. Diff: 2 LO: 21.7 Describe the protections provided by the Magnuson-Moss Warranty Act. AACSB: Analytical thinking Classification: Concept 73) Eliza buys a car from TinCar Autos with a warranty that says that any defect of the car will be repaired or replaced free for a period of six months after the sale. TinCar has taken security interests in the car. Before completely paying for the car, Eliza sells the car to Mona for cash. Mona is unaware of TinCar's security interest in the car. After Eliza misses several of her payments, TinCar discovers that Mona has the car, and repossesses it. What kind of warranty did TinCar provide to Eliza? A) limited warranty B) full warranty C) warranty of good title D) warranty of no interference Answer: D Diff: 2 LO: 21.8 List and describe warranties of title and possession. AACSB: Application of knowledge Classification: Application 74) A warranty in which the seller warrants that he or she has valid title to the goods he or she is selling and that the transfer of title is rightful is known as a warranty ________. A) of no security interests B) of no interference C) of good title D) against infringements Answer: C Diff: 1 LO: 21.8 List and describe warranties of title and possession. AACSB: Analytical thinking Classification: Concept

75) Monty, a career criminal, steals a diamond from Prime Cut Jewelers. He then sells it to Adamas Jewelers, who is unaware of the stolen nature of the diamond. If Prime Cut discovers that the diamond is with Adamas, and reclaims the diamond, what warranty breach can Adamas declare to recover the cost from Monty? A) warranty against infringements B) warranty of no security interests C) warranty of no interference D) warranty of good title Answer: D Diff: 2 LO: 21.8 List and describe warranties of title and possession. AACSB: Application of knowledge Classification: Application 76) A ________ is a warranty in which sellers of goods warrant that the goods they sell are delivered free from any third-party security interests, liens, or encumbrances that are unknown to the buyer. A) warranty of good title B) warranty of quiet possession C) warranty against infringements D) warranty of no security interests Answer: D Diff: 1 LO: 21.8 List and describe warranties of title and possession. AACSB: Analytical thinking Classification: Concept 77) Eliza buys a car from TinCar Autos with a warranty that says any defect of the car will be repaired or replaced free for a period of six months after the sale. TinCar has taken security interests in the car. Before completely paying off for the car, Eliza sells the car to Mona for cash. Mona is unaware of TinCar's security interest in the car. After Eliza misses several of her payments, TinCar discovers that Mona has the car, and repossesses it. Which warranty breach can Mona assert to recover from Eliza? A) warranty of no security interests B) warranty against infringements C) warranty of good title D) warranty of no interference Answer: A Diff: 2 LO: 21.8 List and describe warranties of title and possession. AACSB: Application of knowledge Classification: Application

78) An automatic warranty provided by a seller or lessor who is a merchant that regularly deals in goods of the kind sold or leased which warrants that the goods are delivered free of any thirdparty patent, trademark, or copyright claim is known as ________. A) warranty of no security interests B) warranty against infringements C) warranty of good title D) warranty of no interference Answer: B Diff: 1 LO: 21.8 List and describe warranties of title and possession. AACSB: Analytical thinking Classification: Concept 79) StoryBoard Creatives approached Logos Studios with a script for a movie. Logos Studios liked the script, and bought the rights for the script from StoryBoard. Subsequently, Mr. Simpson, a former employee of StoryBoard claimed that he had the copyright to that script. Mr. Simpson proved his copyright in court. He then notified Logos Studios that they could not start production on the script without his permission, and adequate payment of fees. Logos Studios then rescinded the contract with StoryBoard based on the breach of ________. A) warranty of no security interests B) warranty against infringements C) warranty of no interference D) warranty of good title Answer: B Diff: 2 LO: 21.8 List and describe warranties of title and possession. AACSB: Application of knowledge Classification: Application 80) A ________ is a warranty in which the lessor warrants that no person holds a claim or an interest in the goods that arose from an act or omission of the lessor that will interfere with the lessee's enjoyment of his or her leasehold interest. A) warranty against infringements B) warranty of good title C) warranty of quiet possession D) warranty of no security interests Answer: C Diff: 1 LO: 21.8 List and describe warranties of title and possession. AACSB: Analytical thinking Classification: Concept

81) Joe's Alternative Realty leased a piece of real estate to WideEye Builders. While still on lease, Joe's Alternative Realty gave that same piece of real estate as security interest to procure a loan from Cloudnine Bank. The real estate, which was collateral, was eventually repossessed by the bank from WideEye Builders, after Joe's Alternative Realty defaulted on their loan payment. What warranty had Joe's Alternative Realty breached with WideEye? A) warranty against infringements B) warranty of good title C) warranty of no interference D) warranty of no security interests Answer: C Diff: 2 LO: 21.8 List and describe warranties of title and possession. AACSB: Application of knowledge Classification: Application 82) A person selling stolen property would be breaching the warranty of good title. Answer: TRUE Diff: 1 LO: 21.8 List and describe warranties of title and possession. AACSB: Analytical thinking Classification: Concept 83) Persons who transfer goods without proper title breach the warranty of quiet possession. Answer: FALSE Diff: 1 LO: 21.8 List and describe warranties of title and possession. AACSB: Analytical thinking Classification: Concept 84) The warranty against infringements protects trademarks and copyright claims. Answer: TRUE Diff: 1 LO: 21.8 List and describe warranties of title and possession. AACSB: Analytical thinking Classification: Concept 85) The warranty of no interference warrants that goods sold are free from any third-party security interests, or encumbrances that are unknown to the buyer. Answer: FALSE Diff: 1 LO: 21.8 List and describe warranties of title and possession. AACSB: Analytical thinking Classification: Concept

86) Define and explain warranties against infringements. If this warranty is breached, which party(ies) could recover? Answer: Unless otherwise agreed, a seller or lessor who is a merchant regularly dealing in goods of the kind sold or leased automatically warrants that the goods are delivered free of any thirdparty patent, trademark, or copyright claims. This is called the warranty against infringements. If this warranty is breached, the rightful owner of the patent, trademark or copyright can recover for that breach. Diff: 2 LO: 21.8 List and describe warranties of title and possession. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 22 Creation of Negotiable Instruments 1) ________ are special forms of contracts that satisfy the requirements established by Article 3 of the Uniform Commercial Code (UCC). A) Banknotes B) Negotiable instruments C) Letters of credit D) Stocks Answer: B Diff: 1 LO: 22.1 Define negotiable instrument and describe the functions of negotiable instruments. AACSB: Analytical thinking Classification: Concept 2) ________ of the Uniform Commercial Code (UCC) is a model code that establishes rules for the creation of, transfer of, enforcement of, and liability on negotiable instruments. A) Article 5 B) Article 3 C) Article 2 D) Article 2A Answer: B Diff: 1 LO: 22.1 Define negotiable instrument and describe the functions of negotiable instruments. AACSB: Analytical thinking Classification: Concept 3) Article 3 of the Uniform Commercial Code (UCC) governs the use of negotiable instruments. Answer: TRUE Diff: 1 LO: 22.1 Define negotiable instrument and describe the functions of negotiable instruments. AACSB: Analytical thinking Classification: Concept 4) The primary benefit of a negotiable instrument is that it can be used as a substitute for money. Answer: TRUE Diff: 1 LO: 22.1 Define negotiable instrument and describe the functions of negotiable instruments. AACSB: Analytical thinking Classification: Concept 5) The creation of a negotiable instrument is known as negotiation. Answer: FALSE Diff: 1 LO: 22.1 Define negotiable instrument and describe the functions of negotiable instruments. AACSB: Analytical thinking Classification: Concept 1 Copyright © 2019 Pearson Education, Inc.

6) Negotiable instruments help in creating a credit economy. Answer: TRUE Diff: 1 LO: 22.1 Define negotiable instrument and describe the functions of negotiable instruments. AACSB: Analytical thinking Classification: Concept 7) List and briefly explain the functions of a negotiable instrument. Answer: Negotiable instruments serve the following functions: 1. Substitute for money. Merchants and consumers often do not carry cash for fear of loss or theft. Thus, certain forms of negotiable instruments—such as checks—serve as substitutes for money. 2. Act as credit devices. Some forms of negotiable instruments extend credit from one party to another. A seller may sell goods to a customer on a customer's promise to pay for the goods at a future time, or a bank may lend money to a buyer who signs a note promising to repay the money. 3. Act as record-keeping devices. Negotiable instruments often serve as record-keeping devices. Banks may return canceled checks to checking account customers each month or allow customers to view them online. These act as a record-keeping device for the preparation of financial statements, tax returns, and the like. Diff: 2 LO: 22.1 Define negotiable instrument and describe the functions of negotiable instruments. AACSB: Analytical thinking Classification: Concept 8) Which one of the following is a three-party instrument? A) a promissory note B) a certificate of deposit C) an ordinary lease D) a draft Answer: D Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept

9) A ________ is a three-party instrument that is an unconditional written order by one party that orders a second party to pay money to a third party. A) draft B) promissory note C) certificate of deposit D) lease Answer: A Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 10) In a draft transaction, the drawee is the party who ________. A) demands the draft B) pays the money stated in a draft C) writes an order for a draft D) receives the money from a draft Answer: B Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 11) A ________ is a type of draft that is always paid at a future date. A) sight draft B) bill of exchange C) time draft D) demand draft Answer: C Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept

12) Which of the following is true of a draft? A) It is always a two-party transaction. B) It is an unconditional written promise to pay. C) It is a note created upon deposition of money. D) It is a written order by one party that orders a second party to pay a third party. Answer: D Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 13) Who is the acceptor of a draft in a draft transaction? A) the drawer B) the drawee C) the payee D) the financee Answer: B Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 14) A sight draft that arises when a seller extends credit to a buyer with the sale of goods is known as a ________. A) check B) time draft C) trade acceptance D) demand draft Answer: C Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept

15) Which of the following is true of a trade acceptance? A) The buyer is the payee. B) The seller is both the drawer and payee. C) The draft is countersigned by the drawee's bank. D) The draft is only as good as the drawer's creditworthiness. Answer: B Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 16) Which of the following is a similarity between a demand draft and a trade acceptance? A) both are examples of sight drafts B) both require credit to be extended to the buyer C) both have the drawer to be the payee as well D) both are considered two-party transactions Answer: A Diff: 2 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 17) A ________ is a distinct form of draft drawn on a financial institution and payable on demand. A) promissory note B) check C) deed D) letter of credit Answer: B Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept

18) Who is the drawee of a check? A) the drawer of the check B) the financial institute where the drawer has an account C) the party to whom a check is written D) the financee to whom the check is drawn Answer: B Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 19) Which of the following is a characteristic of a check? A) It always draws its money from a financial institute. B) It is created when credit is extended to a buyer by a seller. C) It is a two-party instrument. D) It is an unconditional written promise to pay. Answer: A Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 20) A ________ is a two-party negotiable instrument that is an unconditional written pledge by one party to pay money to another party. A) bill of exchange B) check C) certificate of deposit D) promissory note Answer: D Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept

21) Which of the following is true of a promissory note? A) It is a three-party instrument. B) It is not an order to pay. C) The party who makes the promise is the lender. D) The payee cannot transfer a note to a third party. Answer: B Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 22) If a promissory note is secured by a piece of real estate, then the note is called a(n) ________. A) collateral note B) mortgage note C) demand note D) installment note Answer: A Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 23) A two-party negotiable instrument that is a special form of note created when a person deposits money at a financial institution in exchange for the institution's promise to pay back the amount of the deposit plus an agreed-on rate of interest upon the expiration of a set time period agreed upon by the parties is known as a ________. A) collateral note B) check C) certificate of deposit D) bill of exchange Answer: C Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept

24) Which of the following is true of a certificate of deposit? A) It is a promise to pay. B) It is used to extend credit to a buyer. C) It is a three-party instrument. D) It can be made to pay on demand. Answer: A Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 25) Which of the following must a promissory note contain to make it negotiable? A) an acknowledgement of debt B) an implied promise to pay C) an unconditional promise to pay D) a promise to negotiate Answer: C Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 26) A ________ is an exception in promissory notes, as it does not require the maker's unconditional and affirmative promise to pay. A) trade acceptance B) collateral note C) remittance advice D) certificate of deposit Answer: D Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept

27) A promise or order is only considered negotiable if ________. A) the promise or order to pay is unconditional B) it states that the promise or order is subject to or governed by another writing C) the rights to the promise or order are stated in another writing D) an express condition to payment is mentioned Answer: A Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 28) Roger, a lawyer, borrowed money from Jax to start a business. He gave a promissory note to Jax promising to pay the money back anytime within the next five years. But in order to accept the note, Jax demanded a security deposit. Roger gave the gold that he owned as security. Roger in turn demanded that a specific clause be added to the promissory note to allow faster repayment of the loan in case he inherited money within the next five years. But even after five years, Roger was unable to complete payment. He made a new promissory note promising to finish payment within the next year, and promised to provide free legal service to Jax for the next two years. What kind of promissory note did Jax secure from Roger for the original amount? A) a collateral note B) a mortgage note C) an installment note D) a time note Answer: A Diff: 2 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Application of knowledge Classification: Application

29) Roger, a lawyer, borrowed money from Jax to start a business. He gave a promissory note to Jax promising to pay the money back anytime within the next five years. But in order to accept the note, Jax demanded a security deposit. Roger gave the gold that he owned as security. Roger in turn demanded that a specific clause be added to the promissory note to allow faster repayment of the loan in case he inherited money within the next five years. But even after five years, Roger was unable to complete payment. He made a new promissory note promising to finish payment within the next year, and promised to provide free legal service to Jax for the next two years. Which of the following clause did Roger ask to add in the first promissory note? A) a prepayment clause B) an acceleration clause C) an extension clause D) a forestallment clause Answer: B Diff: 2 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Application of knowledge Classification: Application 30) Mike deposited $100,000 in a bank and procured a certificate of deposit on it, payable to himself, for repayment in five years with a five percent interest rate. A year after that, Mike borrowed $25,000 from Jill, and gave her a promissory note to repay it in one year. As collateral, Mike gave Jill the certificate of deposit and asked to put in a prepayment clause, to which Jill agreed. They agreed that Mike could repay in monthly payments, as mentioned in the note. In which of the following ways will the prepayment clause help Jill? A) It helps Jill to shorten the repayment period when she wishes. B) It helps Jill acquire the whole amount in one payment in case Mike defaults. C) It allows Mike to repay earlier than the stipulated time. D) It obligates Mike to pay interest on the money he defaults. Answer: C Diff: 2 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Application of knowledge Classification: Application

31) Mike deposited $100,000 in a bank and procured a certificate of deposit on it, payable to himself, for repayment in five years with a five percent interest rate. A year after that, Mike borrowed $25,000 from Jill, and gave her a promissory note to repay it in one year. As collateral, Mike gave Jill the certificate of deposit and asked to put in a prepayment clause, to which Jill agreed. They agreed that Mike could repay in monthly payments, as mentioned in the note. What kind of promissory note have Jill and Mike decided on? A) a time note B) a bearer's note C) a mortgage note D) an installment note Answer: D Diff: 2 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Application of knowledge Classification: Application 32) Mike deposited $100,000 in a bank and procured a certificate of deposit on it, payable to himself, for repayment in five years with a five percent interest rate. A year after that, Mike borrowed $25,000 from Jill, and gave her a promissory note to repay it in one year. As collateral, Mike gave Jill the certificate of deposit and asked to put in a prepayment clause, to which Jill agreed. They agreed that Mike could repay in monthly payments, as mentioned in the note. If Mike defaults on the payment even after one year, which of the following is true of the foreclosure options Jill has with the certificate of deposit Mike gave her? A) The bank has to pay her only after the five-year period mentioned in the CD. B) The bank does not have to pay her for the CD. C) The bank has to pay her the difference of $75,000. D) The bank has to pay her $25,000 with one year interest of 5 percent on demand. Answer: B Diff: 2 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Application of knowledge Classification: Application 33) Acceptance of drafts can be done orally. Answer: FALSE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept

34) In a draft transaction, the payee is called the acceptor of the draft. Answer: FALSE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 35) In a draft transaction, the payee or the drawer is allowed to freely transfer drafts as a negotiable instrument to another party. Answer: TRUE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 36) A bill of exchange is a type of sight draft. Answer: TRUE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 37) A trade acceptance is legally a two-party transaction. Answer: FALSE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 38) A check is a type of promissory note. Answer: FALSE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept

39) The financial institution upon which a check is written is the payee of a check. Answer: FALSE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 40) A promissory note is a two-party transaction. Answer: TRUE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 41) Promissory notes are never payable on demand. Answer: FALSE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 42) Security posted by a promissory note maker to the lender for repayment of money is known as collateral. Answer: TRUE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 43) A promissory note is a two-party instrument. Answer: TRUE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept

44) A certificate of deposit is an order to pay. Answer: FALSE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 45) In a certificate of deposit, the depositor is the payee. Answer: TRUE Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept 46) What is a trade acceptance? Answer: A trade acceptance or bill of exchange is a sight draft that arises when credit is extended by the seller to the buyer with the sale of goods. With this type of draft, the seller is both the drawer and the payee. The buyer to whom credit is extended is the drawee. Even though only two actual parties are involved, it is considered a three-party instrument because three legal positions are involved. A trade acceptance is not countersigned by the drawee's bank, so it is only as good as the buyer-drawee's creditworthiness. Diff: 1 LO: 22.2 Describe types of negotiable instruments, including drafts, checks, promissory notes, and certificates of deposit. AACSB: Analytical thinking Classification: Concept

47) Roger, a lawyer, borrowed money from Jax to start a business. He gave a promissory note to Jax promising to pay the money back anytime within the next five years. But in order to accept the note, Jax demanded a security deposit. Roger gave the gold that he owned as security. Roger in turn demanded that a specific clause be added to the promissory note to allow faster repayment of the loan in case he inherited money within the next five years. But even after five years, Roger was unable to complete payment. He made a new promissory note promising to finish payment within the next year, and promised to provide free legal service to Jax for the next two years. Which of the following is true of the validity of the new promissory note made by Roger? A) It must contain interest on the old principal to become a valid instrument. B) It must contain a specific date or time to be considered valid. C) It is not a negotiable instrument. D) It is a negotiable instrument if Jax accepts it. Answer: C Diff: 2 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Application of knowledge Classification: Application 48) Which of the following statements is true of a negotiable instrument? A) It should be signed by the payee. B) It need not state a fixed amount of money. C) It should not require any undertaking other than the payment of money. D) It can be either written or oral. Answer: C Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 49) A fundamental requirement for a negotiable instrument is that it must ________. A) be supplemented with interest upon payment B) be secured with collateral C) contain a drawer, drawee, and a payee D) be in a permanent state Answer: D Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept

50) The ________ requirement of negotiable instruments says that negotiable instruments must be able to be easily transported between areas. A) portability B) permanence C) signature D) transparency Answer: A Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 51) The Uniform Commercial Code (UCC) signature requirement indicates that a negotiable instrument must be signed by ________. A) a witness B) the maker or drawer C) the drawee D) the financee Answer: B Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 52) Once an appointed authorized representative signs a negotiable instrument, while unambiguously disclosing his or her agency status, and the identity of the maker or drawer, then ________. A) the authorized agent becomes personally liable to pay for the negotiable instrument B) the signature binds the maker or drawer of the negotiable instrument to the instrument C) the agent cannot sign another negotiable instrument until this instrument's transaction is complete D) the agent is obligated with secondary liability to the instrument Answer: B Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept

53) A(n) ________ is type of instrument that is payable to anyone in physical possession of the instrument and presents it for payment when it is due. A) certificate of deposit B) order instrument C) bearer instrument D) check Answer: C Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 54) Which of the following is true of a bearer paper? A) It will mention a specific person as payee. B) It will not specify a payee. C) It will contain the term "payable to the order of." D) It will contain an additional undertaking besides the payment of money. Answer: B Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 55) In order to be considered valid, a negotiable instrument need not state a fixed amount of money. Answer: FALSE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 56) If the payee of the instrument is not mentioned on the face of the instrument, it is not a negotiable instrument. Answer: TRUE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 57) A negotiable instrument must be in writing in order to be considered valid. Answer: TRUE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept

58) The Uniform Commercial Code (UCC) signature requirement indicates that a negotiable instrument must be signed by the drawer if it is a certificate of deposit. Answer: FALSE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 59) Trade names or assumed names cannot be used for signing negotiable instruments. Answer: FALSE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 60) Rubber-stamps are not recognized as signing instruments under the Uniform Commercial Code (UCC). Answer: FALSE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 61) A maker or drawer can appoint an agent to sign a negotiable instrument on his or her behalf. Answer: TRUE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 62) To be negotiable, a draft or check must contain the drawer's unconditional order to pay a payee. Answer: TRUE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 63) An acknowledgement of debt is sufficient to consider a promissory note as a negotiable instrument. Answer: FALSE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept

64) A conditional promise is not a negotiable instrument. Answer: TRUE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 65) A promise or an order becomes conditional if it refers to a different writing for a description of rights to collateral, prepayment, or acceleration. Answer: FALSE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 66) Promises to pay and orders to pay must be unconditional in order to be negotiable. Answer: TRUE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 67) An order instrument is payable to anyone in physical possession of the instrument and presents it for payment when it is due. Answer: FALSE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 68) To qualify as a negotiable instrument, a promise cannot state any other undertaking by the person promising other than the payment of money. Answer: TRUE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 69) Instruments that are payable on demand are called order instruments. Answer: FALSE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept

70) Instruments that are payable upon an uncertain act or event are not negotiable. Answer: TRUE Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 71) How does an authorized representative's signature work for negotiable instruments? Answer: A maker or drawer can appoint an agent to sign a negotiable instrument on his or her behalf. In such circumstances, the representative's signature binds the maker or drawer. A maker or drawer is liable on a negotiable instrument signed by an authorized agent. The agent is not personally liable on the negotiable instrument if his or her signature properly unambiguously discloses his or her agency status and the identity of the maker or drawer. In the case of an organization, the agent's signature is proper if the organization's name is preceded or followed by the name of the authorized agent. Diff: 1 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 72) Explain the requirement for a fixed amount in negotiable instruments? Answer: To be negotiable, an instrument must contain a promise or an order to pay a fixed amount of money. The fixed amount requirement ensures that the value of the instrument can be determined with certainty. The principal amount of the instrument must appear on the face of the instrument. An instrument does not have to be payable with interest, but if it is, the amount of interest being charged may be expressed as either a fixed or variable rate. The amount or rate of interest may be stated or described in the instrument or may require reference to information not contained in the instrument. If an instrument provides for interest but the amount of interest cannot be determined from the description, interest is payable at the judgment rate (legal rate) in effect at the place of payment of the instrument. Diff: 2 LO: 22.3 Identify and describe the requirements for creating a negotiable instrument. AACSB: Analytical thinking Classification: Concept 73) A(n) ________ is a clause in an instrument that allows the payee or holder to speed up payment of the principal amount of the instrument, plus accrued interest, upon the occurrence of an event. A) acceleration clause B) prepayment clause C) extension clause D) forestallment clause Answer: A Diff: 1 LO: 22.4 Describe prepayment, acceleration, and extension clauses. AACSB: Analytical thinking Classification: Concept 20 Copyright © 2019 Pearson Education, Inc.

74) A clause in an instrument that allows the date of maturity of the instrument to be prolonged to sometime in the future is referred to as the ________. A) forestallment clause B) acceleration clause C) prepayment clause D) extension clause Answer: D Diff: 1 LO: 22.4 Describe prepayment, acceleration, and extension clauses. AACSB: Analytical thinking Classification: Concept 75) A(n) ________ is a clause in an instrument that permits the maker to pay the amount due prior to the date of the instrument. A) prepayment clause B) acceleration clause C) extension clause D) forestallment clause Answer: A Diff: 1 LO: 22.4 Describe prepayment, acceleration, and extension clauses. AACSB: Analytical thinking Classification: Concept 76) An acceleration clause permits the maker to pay the amount due prior to the due date of an instrument. Answer: FALSE Diff: 1 LO: 22.4 Describe prepayment, acceleration, and extension clauses. AACSB: Analytical thinking Classification: Concept 77) A prepayment clause allows the payee or holder to accelerate payment of the principal amount of an instrument. Answer: FALSE Diff: 1 LO: 22.4 Describe prepayment, acceleration, and extension clauses. AACSB: Analytical thinking Classification: Concept 78) An extension clause allows the date of maturity of an instrument to be extended into the future. Answer: TRUE Diff: 1 LO: 22.4 Describe prepayment, acceleration, and extension clauses. AACSB: Analytical thinking Classification: Concept 21 Copyright © 2019 Pearson Education, Inc.

79) A nonnegotiable contract is rendered either nontransferable or unenforceable. Answer: FALSE Diff: 1 LO: 22.5 Distinguish between a nonnegotiable instrument and a negotiable instrument. AACSB: Analytical thinking Classification: Concept 80) What are nonnegotiable contracts? Answer: If a promise or an order to pay does not meet one of the requirements of negotiability, it is a nonnegotiable contract and is therefore not subject to the provisions of Uniform Commercial Code (UCC) Article 3. A promise or an order that conspicuously states that it is not negotiable or is not subject to Article 3 is not a negotiable instrument and is therefore a nonnegotiable contract. A nonnegotiable contract is not rendered either nontransferable or unenforceable. A nonnegotiable contract can be enforced under normal contract law. If the maker or drawer of a nonnegotiable contract fails to pay it, the holder of the contract can sue the nonperforming party for breach of contract. Diff: 1 LO: 22.5 Distinguish between a nonnegotiable instrument and a negotiable instrument. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 23 Holder in Due Course and Transferability 1) The transfer of rights under a nonnegotiable contract is known as a(n) ________. A) assignment B) negotiation C) indorsement D) dishonored instrument Answer: A Diff: 1 LO: 23.1 Describe how a nonnegotiable contract is transferred by assignment. AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of an assignment? A) It is considered as a negotiation under Article 3 of the Uniform Commercial Code (UCC). B) The transferee is known as a holder in due course. C) Defenses to the enforcement of the contract against the assignor can be raised against the assignee. D) Only negotiable instruments can become assignments. Answer: C Diff: 1 LO: 23.1 Describe how a nonnegotiable contract is transferred by assignment. AACSB: Analytical thinking Classification: Concept 3) Which of the following would constitute the creation of an assignment? A) the transfer is of nonnegotiable instruments B) a transfer qualifies as a negotiation under Article 3 C) a transferee qualifies as a holder in due course D) the indorsement falls under the shelter principle Answer: A Diff: 1 LO: 23.1 Describe how a nonnegotiable contract is transferred by assignment. AACSB: Analytical thinking Classification: Concept

4) If a transferred negotiable instrument fails to qualify under Article 3 of the Uniform Commercial Code (UCC), it is known as a(n) ________. A) assignment B) nonnegotiable contract C) indorsement D) restrictive indorsement Answer: A Diff: 1 LO: 23.1 Describe how a nonnegotiable contract is transferred by assignment. AACSB: Analytical thinking Classification: Concept 5) The transfer of rights under a nonnegotiable contract is known as an assignment. Answer: TRUE Diff: 1 LO: 23.1 Describe how a nonnegotiable contract is transferred by assignment. AACSB: Analytical thinking Classification: Concept 6) Explain the transfer of nonnegotiable contracts by assignment. Answer: An assignment is the transfer of rights under a contract. It transfers the rights of the transferor to the transferee. Because normal contract principles apply, the assignee acquires only the rights that the assignor possessed. Thus, any defenses to the enforcement of the contract that could have been raised against the assignor can also be raised against the assignee. A nonnegotiable contract is a contract that lacks one or more of the requirements to be a negotiable instrument. An assignment occurs when a nonnegotiable contract is transferred. In the case of a negotiable instrument, assignment occurs when the instrument is transferred but the transfer fails to qualify as a negotiation under Article 3 of the Uniform Commercial Code (UCC). In this case, the transferee is an assignee rather than a holder. Diff: 1 LO: 23.1 Describe how a nonnegotiable contract is transferred by assignment. AACSB: Analytical thinking Classification: Concept 7) Which of the following makes negotiable instruments transferable to a third party? A) an insurance B) an indorsement C) a bill of exchange D) a trade acceptance Answer: B Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept

8) The transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes a holder is referred to as a(n) ________. A) negotiation B) assignment C) indorsement D) insurance Answer: A Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept 9) A(n) ________ is an instrument that is payable to a specific payee or indorsed to a specific indorsee. A) bearer bond B) bearer paper C) allonge D) order paper Answer: D Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept 10) Which of the following is a similarity between bearer paper and order paper? A) both require a specific payee to be named B) both require indorsements to be considered negotiable C) both require delivery to be considered negotiable D) both can be claimed by whoever presents the instrument for payment Answer: C Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept 11) Which of the following is true of a bearer paper? A) both indorsement and delivery are required for it to be negotiable B) only indorsement is necessary for it to be negotiable C) only delivery is necessary for it to be negotiable D) a payee must be specified in the paper Answer: C Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept

12) An instrument that is not payable to a specific payee or indorsee is known as a(n) ________. A) order paper B) bearer paper C) allonge D) draft Answer: B Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept 13) Which of the following can be exchanged for cash by merely having possession of the instrument? A) a certificate of deposit B) an allonge C) an order instrument D) a bearer instrument Answer: D Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept 14) Negotiable instruments are used as a substitute for money. Answer: TRUE Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept 15) An instrument can be converted from order paper to bearer paper and vice versa many times until the instrument is paid. Answer: TRUE Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept 16) Nonnegotiable instruments are negotiated by holders in due course. Answer: FALSE Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept

17) An instrument that is payable to a specific payee or indorsed to a specific indorsee is called a bearer paper. Answer: FALSE Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept 18) For an order paper to be negotiated there must be delivery and indorsement. Answer: TRUE Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept 19) An instrument that is not payable to a specific payee or indorsee is called an order paper. Answer: FALSE Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept 20) Indorsements are required to negotiate bearer papers. Answer: FALSE Diff: 1 LO: 23.2 Describe how a negotiable instrument is transferred by negotiation. AACSB: Analytical thinking Classification: Concept 21) Which of the following would be a legitimate method to convert an order paper to a bearer paper? A) indorsement B) adding the term "pay to the order of" C) delivering the order paper D) specifying a payee Answer: A Diff: 1 LO: 23.3 Describe how a negotiable instrument is transferred by indorsement. AACSB: Analytical thinking Classification: Concept

22) A(n) ________ is a signature and other directions written by or on behalf of the holder somewhere on an instrument. A) recommendation B) assignment C) indorsement D) reference Answer: C Diff: 1 LO: 23.3 Describe how a negotiable instrument is transferred by indorsement. AACSB: Analytical thinking Classification: Concept 23) A separate piece of paper attached to an instrument on which an indorsement is written is known as a(n) ________. A) bill of exchange B) allonge C) supplement D) appendage Answer: B Diff: 1 LO: 23.3 Describe how a negotiable instrument is transferred by indorsement. AACSB: Analytical thinking Classification: Concept 24) ________ are required to negotiate order paper, but they are not required to negotiate bearer paper. A) Securities B) Collaterals C) Indorsements D) Warranties Answer: C Diff: 1 LO: 23.3 Describe how a negotiable instrument is transferred by indorsement. AACSB: Analytical thinking Classification: Concept 25) Which of the following is true of an allonge? A) It must contain the name of the payee to be valid. B) It must be accepted by the payee to be valid. C) It must be affixed to the indorsement. D) It must be provided only on demand. Answer: C Diff: 1 LO: 23.3 Describe how a negotiable instrument is transferred by indorsement. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

26) If there is no space for an indorsement on the instrument, a new instrument has to be made to accommodate the indorsement. Answer: FALSE Diff: 1 LO: 23.3 Describe how a negotiable instrument is transferred by indorsement. AACSB: Analytical thinking Classification: Concept 27) The allonge must be affixed to an instrument to be valid. Answer: TRUE Diff: 1 LO: 23.3 Describe how a negotiable instrument is transferred by indorsement. AACSB: Analytical thinking Classification: Concept 28) Explain, in as much detail as possible, how an indorsement is made. Answer: An indorsement is the signature of a signer–other than as a maker, a drawer, or an acceptor–that is placed on an instrument to negotiate it to another person. The signature may appear alone, name an individual to whom the instrument is to be paid, or be accompanied by other. The person who indorses an instrument is called the indorser. If the indorsement names a payee, this person is called the indorsee. An indorsement is usually placed on the reverse side of the instrument, such as on the back of a check. If there is no room on the instrument, the indorsement may be written on a separate piece of paper called an allonge. The allonge must be affixed to the instrument. Diff: 1 LO: 23.3 Describe how a negotiable instrument is transferred by indorsement. AACSB: Analytical thinking Classification: Concept 29) An indorsement that does not specify a particular indorsee is known as a ________. A) blank indorsement B) special indorsement C) qualified indorsement D) restrictive indorsement Answer: A Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept

30) Which of the following indorsements can be negotiated just by delivery? A) unqualified indorsement B) special indorsement C) special qualified indorsement D) blank indorsement Answer: D Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 31) Which order paper when indorsed becomes a bearer paper? A) unqualified indorsement B) blank indorsement C) special indorsement D) special qualified indorsement Answer: B Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 32) An indorsement that contains the signature of the indorser and specifies the person to whom the indorser intends the instrument to be payable is known as a(n) ________. A) qualified indorsement B) unqualified indorsement C) blank indorsement D) special indorsement Answer: D Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 33) Which of the following is true of a special indorsement? A) It is only considered valid if it includes words of negotiation. B) It requires the signature of the indorser to be valid. C) It can be negotiated just on delivery. D) It is considered a bearer instrument. Answer: B Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept

34) An indorsement whereby the indorser promises to pay the holder or any subsequent indorser the amount of the instrument if the maker, drawer, or acceptor defaults is referred to as a(n) ________. A) competent indorsement B) promissory indorsement C) unqualified indorsement D) qualified indorsement Answer: C Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 35) Which of the following is true of an unqualified indorsement? A) It does not limit or disclaim liability. B) It obligates the indorser to pay for the instrument. C) It guarantees payment of the instrument if the maker defaults. D) It protects subsequent indorsees from liability. Answer: A Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 36) A(n) ________ indorsement includes the notation "without recourse" or similar language that disclaims liability of the indorser. A) qualified B) unqualified C) promissory D) competent Answer: A Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 37) Which of the following is true of a qualified indorsement? A) An instrument containing a qualified indorsement can only be negotiated once. B) An indorsement once qualified will protect all subsequent indorsers. C) A qualified indorsement protects only the indorser who wrote the indorsement. D) A qualified indorsement obligates the indorser to pay in case the maker defaults. Answer: C Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 9 Copyright © 2019 Pearson Education, Inc.

38) A(n) ________ is an indorsement that has no instructions or conditions attached to the payment of the funds. A) indorsement in trust B) indorsement for deposit C) nonrestrictive indorsement D) restrictive indorsement Answer: C Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 39) An indorsement that contains some sort of instruction from the indorser is known as a ________. A) nonrestrictive indorsement B) restrictive indorsement C) qualified indorsement D) special indorsement Answer: B Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 40) A(n) ________ is an indorsement that states that it is for the benefit or use of the indorser or another person. A) indorsement in trust B) indorsement for deposit C) indorsement prohibiting further indorsement D) indorsement for collection Answer: A Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 41) Which of the following indorsements would be considered a nonrestrictive indorsement? A) pay to the order of Jane Doe B) pay to Jane Doe only C) for deposit only D) pay to Jane Doe, trustee Answer: A Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

42) What happens if the name of the indorsee or payee is misspelled in an indorsement? A) The instrument becomes nonnegotiable. B) The instrument can be indorsed with the misspelled name. C) The instrument has to be remade to be valid. D) The instrument cannot be subsequently indorsed. Answer: B Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 43) Which of the following is true of an indorsement to multiple persons using the virgule? A) it can only be indorsed further with the signature of the drawer B) neither person can individually negotiate the instrument C) either person can individually negotiate the instrument D) such an instrument cannot be subsequently negotiated Answer: C Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 44) If an instrument is payable to multiple persons using the word "and," then the instrument ________. A) cannot be negotiated any further B) cannot be negotiated by either party individually C) can only be further negotiated with the endorsement of both payees D) can only be further negotiated with the signature of the drawer Answer: C Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 45) An order paper that is indorsed in blank becomes bearer paper. Answer: TRUE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept

46) A special indorsement does not specify to whom the indorser intends the instrument to be payable. Answer: FALSE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 47) A special indorsement is negotiable by indorsement and delivery. Answer: TRUE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 48) A holder can convert a blank indorsement into a special indorsement by adding his or her signature on it. Answer: FALSE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 49) Unqualified indorsements are considered negotiable instruments. Answer: TRUE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 50) A qualified indorsement puts limited liability on the indorsee. Answer: TRUE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 51) A qualified indorsement protects subsequent indorsers from liability. Answer: FALSE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept

52) An instrument containing a qualified indorsement can be further negotiated. Answer: TRUE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 53) A specially qualified indorsement can only be negotiated by indorsement and delivery. Answer: TRUE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 54) Nonrestrictive indorsements contain instructions from the indorser. Answer: FALSE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 55) An indorsement that purports to prohibit further negotiation of an instrument does not destroy the negotiability. Answer: TRUE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 56) An indorser is allowed to indorse an instrument so as to make the indorsee his collecting agent. Answer: TRUE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 57) A restrictive indorsement can also be a bearer instrument. Answer: FALSE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept

58) An indorsement with just the indorsee's signature on it, and a specific payee, would be an example of a nonrestrictive indorsement. Answer: TRUE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 59) Where the name of the payee is misspelled, the indorsement becomes invalid. Answer: FALSE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 60) If an instrument is payable jointly using the word "and," both persons' indorsements are necessary to negotiate the instrument. Answer: TRUE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 61) If a virgule is used, both parties are necessary to negotiate the instrument. Answer: FALSE Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept 62) What are qualified indorsements? Answer: The Uniform Commercial Code (UCC) permits qualified indorsements, which are indorsements that disclaim or limit liability on the instrument. A qualified indorser does not guarantee payment of the instrument if the maker, drawer, or acceptor defaults on it. A qualified indorsement is created by placing a notation such as "without recourse" or other similar language that disclaims liability as part of the indorsement. A qualified indorsement protects only the indorser who wrote an indorsement on the instrument. Subsequent indorsers must also place a qualified indorsement on the instrument to be protected from liability. An instrument containing a qualified indorsement can be further negotiated. A qualified indorsement is often used by persons who sign instruments in a representative capacity. Diff: 1 LO: 23.4 List and describe the types of indorsements. AACSB: Analytical thinking Classification: Concept

63) A person who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or to his order, or to bearer, or in blank is referred to as a(n) ________. A) holder B) holder in due course C) assignor D) assignee Answer: A Diff: 1 LO: 23.5 Define holder and holder in due course. AACSB: Analytical thinking Classification: Concept 64) A person who takes a negotiable instrument for value, in good faith, and without notice that it is defective or overdue is referred to as a(n) ________. A) holder B) holder in due course C) unqualified indorser D) assignee Answer: B Diff: 1 LO: 23.5 Define holder and holder in due course. AACSB: Analytical thinking Classification: Concept 65) Which of the following qualifications renders a person a holder in due course of a negotiable instrument? A) he takes the negotiable instrument for value B) he is subject to claims and defenses against the transferor C) he is in possession of an instrument issued in his name D) he is in possession of an instrument issued in another's name Answer: A Diff: 1 LO: 23.5 Define holder and holder in due course. AACSB: Analytical thinking Classification: Concept

66) Tilda purchases an automobile from Ronston. At the time of sale, Ronston tells Tilda that the car has had only one previous owner and has been driven only 25,000 miles. Tilda, relying on these statements, purchases the car. She pays 10 percent down and signs a promissory note to pay the remainder of the purchase price, with interest, in fifteen equal monthly installments. Ronston transfers the note to Patty. Tilda then discovers that the car has actually had three previous owners and has been driven 250,000 miles. Which of the following is the legal outcome if Patty is a holder in due course (HDC)? A) Tilda must pay Patty; find recourse with Ronston. B) Patty must pay Tilda; find recourse with Ronston. C) Patty pays no one; indorsement is considered void. D) Tilda can rescind the note; refuse to pay Patty. Answer: A Diff: 2 LO: 23.5 Define holder and holder in due course. AACSB: Application of knowledge Classification: Application 67) The holder of a negotiable instrument has the same rights as the holder of an ordinary nonnegotiable contract. Answer: TRUE Diff: 1 LO: 23.5 Define holder and holder in due course. AACSB: Analytical thinking Classification: Concept 68) A holder in due course is subject to all the claims and defenses that can be asserted against the transferor. Answer: FALSE Diff: 1 LO: 23.5 Define holder and holder in due course. AACSB: Analytical thinking Classification: Concept 69) What is the difference between a holder and holder in due course? Answer: A holder is a person in possession of an instrument that is payable to bearer or an identified person who is in possession of an instrument payable to that person. The holder of a negotiable instrument has the same rights as an assignee of an ordinary nonnegotiable contract. That is, the holder is subject to all the claims and defenses that can be asserted against the transferor. A holder in due course (HDC) is a holder who takes an instrument for value, in good faith, and without notice that it is defective or overdue. An HDC takes a negotiable instrument free of all claims and most defenses that can be asserted against the transferor of the instrument. Diff: 2 LO: 23.5 Define holder and holder in due course. AACSB: Analytical thinking Classification: Concept 16 Copyright © 2019 Pearson Education, Inc.

70) Under which of the following Uniform Commercial Code (UCC) requirements is a holder considered a "holder in due course," given that the holder performs the agreed-upon promise in a negotiable instrument? A) taking in good faith requirement B) taking for value requirement C) taking without notice of defect requirement D) no evidence of forgery, alteration, or irregularity requirement Answer: B Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept 71) Under the Uniform Commercial Code's ________ requirement, a person cannot qualify as a holder in due course (HDC) if he or she has noticed that the instrument is overdue. A) no evidence of forgery, alteration, or irregularity B) taking in good faith C) taking without notice of defect D) taking for value Answer: C Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept 72) An instrument that is refused payment when presented for payment is called a ________. A) blank instrument B) restrictive instrument C) demand instrument D) dishonored instrument Answer: D Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept

73) The ________ is a doctrine that says a holder who does not qualify as a holder in due course in his or her own right becomes a holder in due course if he or she acquires an instrument through a holder in due course. A) exclusionary rule B) acceleration clause C) shelter principle D) good faith principle Answer: C Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept 74) Which of the following requirements has to be met for a holder to qualify as a holder in due course (HDC) under the shelter principle? A) The holder must not be in possession of a prior negotiable instrument. B) The holder must have notice of a defense or claim against the payment of the instrument. C) The holder must have been a party to a fraud or an illegality affecting the instrument. D) The holder must have acquired the instrument from an HDC. Answer: D Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept 75) Lisa buys a used car from Kelly. She pays 10 percent of the cost down and signs a negotiable promissory note promising to pay Kelly the remainder of the purchase price, with interest, in 12 equal monthly installments. At the time of sale, Kelly lied about the mileage of the automobile. Later, Kelly negotiated the note to Frances, who has no notice of the lie. Frances, a holder in due course (HDC), negotiated the note to Zoe, who is not an HDC. Which of the following is Zoe in regards to the promissory note? A) a holder in due course B) a holder C) an assignee D) an assignor Answer: A Diff: 2 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Application of knowledge Classification: Application

76) To qualify as an HDC, a person must be the holder of a negotiable instrument that was taken for value. Answer: TRUE Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept 77) Value has been given by the holder if he or she acquires a security interest in or lien on an instrument. Answer: TRUE Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept 78) The good faith test for an HDC applies to both transferor and transferee. Answer: FALSE Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept 79) An indorsee who accepts a defective instrument qualifies as a holder in due course. Answer: FALSE Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept 80) A holder of a defective instrument cannot qualify as a holder in due course (HDC) if he or she has notice that the instrument is defective (HDC). Answer: TRUE Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept 81) If a person promises to perform but has not yet done so, no value has been given, and that person is not an HDC. Answer: TRUE Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept

82) Explain the requirement for a holder in due course (HDC) under the Uniform Commercial Code (UCC) that there be no evidence of forgery, alteration, or irregularity with respect to a negotiable instrument. Answer: The UCC has a no evidence of forgery, alteration, or irregularity requirement. Under this rule, a holder does not qualify as an HDC if at the time the instrument was issued or negotiated to the holder, it bore apparent evidence of forgery or alteration or was otherwise so irregular or incomplete as to call into question its authenticity. Clever and undetectable forgeries and alterations are not classified as obvious irregularities. Determining whether a forgery or an alteration is apparent and whether the instrument is so irregular or incomplete that its authenticity should be questioned are issues of fact that must be decided on a case-by-case basis. Diff: 1 LO: 23.6 Identify and describe the requirements for becoming a holder in due course. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 24 Liability, Defenses, and Discharge 1) Liability in which a person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on the instrument is referred to as ________. A) warranty liability B) unqualified liability C) contract liability D) accommodation Answer: C Diff: 1 LO: 24.1 Describe signature liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 2) A person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on it. Answer: TRUE Diff: 1 LO: 24.1 Describe signature liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 3) A signature on a negotiable instrument can be any name, word, or mark used in lieu of a written signature. Answer: TRUE Diff: 1 LO: 24.1 Describe signature liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 4) A signature in the lower-right corner of a promissory note indicates that the signer is the maker of the note. Answer: TRUE Diff: 1 LO: 24.1 Describe signature liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 5) Marks used in lieu of a written signature cannot be used for indorsements. Answer: FALSE Diff: 1 LO: 24.1 Describe signature liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept

6) Absolute liability to pay a negotiable instrument, subject to certain universal or real defenses is known as ________. A) primary liability B) secondary liability C) warranty liability D) signature liability Answer: A Diff: 1 LO: 24.2 Describe primary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 7) In the context of instruments that are merely promises to pay, which of the following has primary liability? A) the person in physical possession of the instrument B) the drawer of the instrument C) the drawee of the instrument D) the payee of the instrument Answer: B Diff: 1 LO: 24.2 Describe primary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 8) A drawee is primarily liable on a draft when ________. A) the instrument is issued B) the instrument is dishonored C) the instrument is presented for payment D) the drawee is an acceptor to the instrument Answer: D Diff: 1 LO: 24.2 Describe primary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 9) A check is only accepted once it has been certified by the bank. Answer: TRUE Diff: 1 LO: 24.2 Describe primary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept

10) The payee of a cashier's check is also primarily liable on the instrument. Answer: FALSE Diff: 1 LO: 24.2 Describe primary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 11) Liability on a negotiable instrument that is imposed on a party only when the party primarily liable on the instrument defaults and fails to pay the instrument when due is referred to as ________. A) secondary liability B) unqualified liability C) fringe liability D) warranty liability Answer: A Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 12) Those who are secondarily liable on negotiable instruments they endorse are known as ________. A) unqualified indorsers B) qualified indorsers C) accommodation parties D) agents Answer: A Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 13) Martin borrows $15,000 from Tom, in the form of a check, and signs a promissory note, promising to pay Tom this amount plus 10 percent interest in one year. Tom indorses the note and negotiates it to Fronston. Fronston indorses the note and negotiates it to Liza. Liza presents the note to Martin for payment when the note is due. Martin refuses to pay the note. Who is secondarily liable to pay Liza? A) Tom B) Frontston C) Martin D) the bank that issued the check to Tom Answer: B Diff: 2 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Application of knowledge Classification: Application 3 Copyright © 2019 Pearson Education, Inc.

14) Those who disclaim liability and are not secondarily liable on instruments they endorse are referred to as ________. A) unqualified indorsers B) qualified indorsers C) agents D) accommodation parties Answer: B Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 15) Stanley, who owes Milton money, indorses a draft to him with the term "without recourse." The instrument later is dishonored. What liability does Stanley have on the instrument? A) He has no liabilities on the instrument. B) He has to pay Milton if the instrument defaults. C) He has primary liabilities. D) He has secondary liabilities. Answer: A Diff: 2 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Application of knowledge Classification: Application 16) Lolek, who owes Stanislaw money, indorses a draft to him with the term "without recourse." The instrument later is dishonored. Which of the following types of indorsers is Lolek? A) a holder B) an agent C) an unqualified indorser D) a qualified indorser Answer: D Diff: 2 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Application of knowledge Classification: Application 17) ________ is a demand for acceptance or payment of an instrument made upon the maker, acceptor, drawee, or other payer by or on behalf of the holder. A) Accommodation B) Duress C) Presentment D) Allonge Answer: C Diff: 2 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

18) A person who signs an instrument and lends his or her name, and credit to another party to the instrument is referred to as a(n) ________. A) agent B) qualified indorser C) unqualified indorser D) accommodation party Answer: D Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 19) In which of the following is an accommodation party primarily liable? A) guarantee of payment B) guarantee of collection C) guarantee of demand D) guarantee of promise Answer: A Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 20) An accommodation party is secondarily liable if the accommodation is in a ________. A) guarantee of promise B) guarantee of demand C) guarantee of collection D) guarantee of payment Answer: C Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 21) Calvin, a college student, wants to purchase an automobile on credit from IronTilt Motors. He does not have sufficient income or the credit history to justify the extension of credit to him alone. Calvin asks his father to co-sign a note to IronTilt Motors, which he does. What role does Calvin's father fulfill here so that Calvin can buy the car? A) an accommodation party B) an agent C) a principal D) a qualified indorser Answer: A Diff: 2 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Application of knowledge Classification: Application 5 Copyright © 2019 Pearson Education, Inc.

22) Rhodes, a college student, wants to purchase a motorcycle on credit from Landier Motors. He does not have sufficient income or the credit history to justify the extension of credit to him alone. Rhodes asks his father to cosign a note to Landier Motors, which he does. What kind of liability does Rhodes's father come under? A) secondary liability B) primary liability C) fringe liability D) warranty liability Answer: A Diff: 2 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Application of knowledge Classification: Application 23) A person who has been authorized to sign a negotiable instrument on behalf of another person is known as a(n) ________. A) holder in due course B) accommodation party C) agent D) principal Answer: C Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 24) A person who authorizes an agent to sign a negotiable instrument on his or her behalf is known as a(n) ________. A) agent B) accommodation party C) principal D) assignor Answer: C Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept

25) Sylvester, acting as a representative agent for Jerry, signs a negotiable instrument with the signature—Jerry, by Sylvester, agent. What kind of liability does Sylvester have for this type of signature? A) He is not liable on the instrument. B) He is liable to the payee. C) He is liable to Jerry. D) He is liable to the HDC of the instrument. Answer: A Diff: 2 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Application of knowledge Classification: Application 26) Cameron, a purported agent, signs a contract and promissory note to purchase a building for Burnstar Constructions, a purported principal. Though Cameron is an unauthorized representative, Burnstar Constructions, the purported principal, likes the deal and accepts it. Which of the following is true of the deal ratified by Burnstar Constructions? A) The deal is invalid due to the fraud in the inducement rule. B) The deal is invalid due to the fraud in the inception rule. C) Burnstar Constructions is liable on the note. D) Cameron is liable on the note. Answer: C Diff: 2 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Application of knowledge Classification: Application 27) An unqualified indorser has secondary liability on negotiable instruments. Answer: TRUE Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 28) A qualified indorser is only liable for secondary liability. Answer: FALSE Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 29) A presentment is a demand for the acceptance of a dishonored instrument. Answer: FALSE Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

30) An accommodation party who signs an instrument guaranteeing payment is secondarily liable on the instrument. Answer: TRUE Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 31) A person represented by an agent is known as the principal. Answer: TRUE Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 32) An agent is only liable on the instrument that he or she signs in if it clearly mentions the principal. Answer: FALSE Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 33) A purported principal is liable for an unauthorized signature by a purported agent if the purported principal ratifies the unauthorized signature. Answer: TRUE Diff: 1 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 34) What are the requirements for imposing secondary liability for a negotiable instrument? Answer: A party is secondarily liable on a negotiable instrument only if the following requirements are met: The instrument is properly presented for payment. Presentment is a demand for acceptance or payment of an instrument made upon the maker, acceptor, drawee, or other payer by or on behalf of the holder. The instrument is dishonored. An instrument is a dishonored instrument when acceptance or payment of the instrument is refused or cannot be obtained from the party required to accept or pay the instrument within the prescribed time after presentment is duly made. Notice of the dishonor is timely given to the person to be held secondarily liable on the instrument. A secondarily liable party cannot be compelled to accept or pay an instrument unless proper notice of dishonor has been given. Diff: 2 LO: 24.3 Describe secondary liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 8 Copyright © 2019 Pearson Education, Inc.

35) Martha draws a check payable to the order of Stella. Stella indorses the check to Karen. But Leslie steals the check from Karen, forges Karen's indorsement, and cashes the check at a liquor store. Who is liable on the check? A) the liquor store B) Martha C) Stella D) Leslie Answer: A Diff: 2 LO: 24.4 Describe liability for forged indorsements and explain the imposter rule and the fictitious payee rule. AACSB: Application of knowledge Classification: Application 36) Martha draws a check payable to the order of Stella. Stella indorses the check to Karen. But Leslie steals the check from Karen, forges Karen's indorsement, and cashes the check at a liquor store. When the forgery is exposed, whom can the liquor store legally recover from? A) Martha B) Leslie C) Karen D) Stella Answer: B Diff: 2 LO: 24.4 Describe liability for forged indorsements and explain the imposter rule and the fictitious payee rule. AACSB: Application of knowledge Classification: Application 37) Susan purchases goods by telephone from Parker. Susan has never met Parker. Brenton goes to Susan and pretends to be Parker. Susan draws a check payable to the order of Parker and gives the check to Brenton, believing him to be Parker. Brenton forges Parker's indorsement and indorses the check to his brother, William, with the term "without recourse." William then cashes the check at a liquor store. Under the imposter rule, who is liable on the check? A) Brenton B) the liquor store C) Susan D) William Answer: C Diff: 2 LO: 24.4 Describe liability for forged indorsements and explain the imposter rule and the fictitious payee rule. AACSB: Application of knowledge Classification: Application

38) The ________ states that a drawer or maker is liable on a forged or unauthorized indorsement if the person signing as or on behalf of a drawer or maker intends the named payee to have no interest in the instrument or when the person identified as the payee is a fabricated person. A) imposter rule B) fictitious payee rule C) fraud in the inception rule D) fraud in the inducement rule Answer: B Diff: 1 LO: 24.4 Describe liability for forged indorsements and explain the imposter rule and the fictitious payee rule. AACSB: Analytical thinking Classification: Concept 39) Maria is the treasurer of Rex Caldwell Corporation. As treasurer, she makes out and signs the payroll checks for the company. Maria draws a payroll check payable to the order of her maid Carolyn Doss, who does not work for the company. Maria does not intend Carolyn to receive this money. She indorses Carolyn's name on the check and names herself as the indorsee. She cashes the check at a liquor store. Under which rule of forged instruments is Maria accountable? A) good faith rule B) exclusionary rule C) imposter rule D) fictitious payee rule Answer: D Diff: 2 LO: 24.4 Describe liability for forged indorsements and explain the imposter rule and the fictitious payee rule. AACSB: Application of knowledge Classification: Application 40) Which of the following is a similarity between the fictitious payee rule and the imposter rule? A) Both hold the drawee liable on the instrument. B) Both hold the drawer liable on the instrument. C) Both put the risk of loss on the forger. D) Both put the risk of loss on the indorsee. Answer: B Diff: 2 LO: 24.4 Describe liability for forged indorsements and explain the imposter rule and the fictitious payee rule. AACSB: Analytical thinking Classification: Concept

41) An imposter is someone who impersonates a payee and induces the maker or drawer to issue an instrument in the payee's name and give the instrument to the imposter. Answer: TRUE Diff: 1 LO: 24.4 Describe liability for forged indorsements and explain the imposter rule and the fictitious payee rule. AACSB: Analytical thinking Classification: Concept 42) What are forged negotiable instruments? Answer: Article 3 of the Under the Uniform Commercial Code (UCC) establishes certain rules for assessing liability when a negotiable instrument has been paid over a forged indorsement. With few exceptions, an unauthorized indorsement is wholly inoperative as the indorsement of the person whose name is signed. Where an indorsement on an instrument has been forged or is unauthorized, the general rule is that the loss falls on the party who first takes the forged instrument after the forgery. Diff: 1 LO: 24.4 Describe liability for forged indorsements and explain the imposter rule and the fictitious payee rule. AACSB: Analytical thinking Classification: Concept 43) Implied warranties are made when a negotiable instrument is originally issued. Answer: FALSE Diff: 1 LO: 24.5 Describe warranty liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 44) Warranty liability is imposed whether or not the transferor signed the instrument. Answer: TRUE Diff: 1 LO: 24.5 Describe warranty liability for negotiable instruments. AACSB: Analytical thinking Classification: Concept 45) What is a transfer of an instrument? A) issuance of the instrument B) presentment of the instrument for payment C) passage of the instrument other than issuance and presentment D) cancellation of the instrument Answer: C Diff: 1 LO: 24.6 List and describe transfer warranties. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

46) Transfer warranties would be applicable to which of the following placements of a negotiable instrument? A) indorsement B) issuance C) presentment D) accommodation Answer: A Diff: 1 LO: 24.6 List and describe transfer warranties. AACSB: Analytical thinking Classification: Concept 47) Jennifer signs a promissory note to pay $2,500 to Clara. Clara negotiates the instrument and indorses it to Anthony. Anthony alters the note to make the payment amount $25,000 and negotiates the note to Nicholas. Nicholas indorses the note and negotiates it to Mack. Nicholas and Mack are both unaware of Anthony's alteration. If Mack presents the note to Jennifer for payment, how much, if anything is Jennifer obligated to pay? A) $25,000 B) $22,500 C) $2,500 D) Jennifer is not obliged to pay Mack Answer: C Diff: 2 LO: 24.6 List and describe transfer warranties. AACSB: Application of knowledge Classification: Application 48) "All signatures are genuine or authorized" is a transfer warranty that a transferor of a negotiable instrument for consideration makes. Answer: TRUE Diff: 1 LO: 24.6 List and describe transfer warranties. AACSB: Analytical thinking Classification: Concept 49) Transfer warranties cannot be disclaimed with respect to checks. Answer: TRUE Diff: 1 LO: 24.6 List and describe transfer warranties. AACSB: Analytical thinking Classification: Concept

50) Transfer warranties cannot be disclaimed if the indorsement states "without recourse." Answer: FALSE Diff: 1 LO: 24.6 List and describe transfer warranties. AACSB: Analytical thinking Classification: Concept 51) A transferee who took an instrument in good faith may recover damages for breach of transfer warranty from the warrantor equal to the loss suffered. Answer: TRUE Diff: 1 LO: 24.6 List and describe transfer warranties. AACSB: Analytical thinking Classification: Concept 52) Joan signs a promissory note to pay $1,000 to Alex. Alex cleverly raises the note to $10,000 and negotiates the note to Ned. Ned indorses the note and negotiates it to Mark. When Mark presents the note to Joan for payment, she has to pay only the original amount of the note, $1,000. Answer: TRUE Diff: 2 LO: 24.6 List and describe transfer warranties. AACSB: Application of knowledge Classification: Application 53) Which of the following is a characteristic of a presentment warranty on an instrument presented for payment? A) The transferor has no knowledge of any insolvency. B) The transferor has good title to the instrument. C) No defenses of any party are good against the transferor. D) The instrument has not been materially altered. Answer: D Diff: 1 LO: 24.7 List and describe presentment warranties. AACSB: Analytical thinking Classification: Concept 54) Presentment warranties are made by the drawer of a check or draft. Answer: FALSE Diff: 1 LO: 24.7 List and describe presentment warranties. AACSB: Analytical thinking Classification: Concept

55) List the presentment warranties related to negotiable instruments. Answer: Any person who presents a draft or check for payment or acceptance makes the following presentment warranties to a drawee or an acceptor who pays or accepts the instrument in good faith: 1. The presenter has good title to the instrument or is authorized to obtain payment or acceptance of the person who has good title. 2. The instrument has not been materially altered. 3. The presenter has no knowledge that the signature of the maker or drawer is unauthorized. Diff: 2 LO: 24.7 List and describe presentment warranties. AACSB: Analytical thinking Classification: Concept 56) A ________ defense is a type of defense that can be raised against both holders and HDCs. A) universal B) personal C) fraud in the inducement D) breach of contract Answer: A Diff: 1 LO: 24.8 Describe how defenses may be raised to the payment of negotiable instruments. AACSB: Analytical thinking Classification: Concept 57) A(n) ________ defense is a type of defense that can be raised against enforcement of a negotiable instrument by an ordinary holder but not against an HDC. A) discharge in bankruptcy B) extreme duress C) personal D) universal Answer: C Diff: 1 LO: 24.8 Describe how defenses may be raised to the payment of negotiable instruments. AACSB: Analytical thinking Classification: Concept 58) A holder in due course takes an instrument free from personal defenses but not universal defenses. Answer: TRUE Diff: 1 LO: 24.8 Describe how defenses may be raised to the payment of negotiable instruments. AACSB: Analytical thinking Classification: Concept

59) Personal and universal defenses can be raised against a normal holder of a negotiable instrument. Answer: TRUE Diff: 1 LO: 24.8 Describe how defenses may be raised to the payment of negotiable instruments. AACSB: Analytical thinking Classification: Concept 60) If a universal defense is proven, the holder or HDC cannot recover on the negotiable instrument. Answer: TRUE Diff: 1 LO: 24.8 Describe how defenses may be raised to the payment of negotiable instruments. AACSB: Analytical thinking Classification: Concept 61) Harold borrows $20,000 from Alex and signs a note promising to pay Alex this amount plus interest in one year. Alex negotiates the note to Reese, an HDC. Before the note is due, Harold declares bankruptcy. According to the discharge in bankruptcy defense, which of the following is true? A) Reese can recover from Harold. B) Reese can recover from Alex. C) Alex can recover from Harold. D) Reese cannot enforce the instrument. Answer: B Diff: 2 LO: 24.9 List and describe the universal (real) defenses that can be raised against holder in due course (HDC) status. AACSB: Application of knowledge Classification: Application 62) Adjudicated mental incompetence is a universal defense that can be raised against holders and HDCs. Answer: TRUE Diff: 1 LO: 24.9 List and describe the universal (real) defenses that can be raised against holder in due course (HDC) status. AACSB: Analytical thinking Classification: Concept

63) Material alteration consists of adding to any part of a signed instrument, removing any part of a signed instrument, or making changes to the dollar amount of the instrument. Answer: TRUE Diff: 1 LO: 24.9 List and describe the universal (real) defenses that can be raised against holder in due course (HDC) status. AACSB: Analytical thinking Classification: Concept 64) A minor who does not misrepresent his or her age can disaffirm negotiable instruments. Answer: TRUE Diff: 1 LO: 24.9 List and describe the universal (real) defenses that can be raised against holder in due course (HDC) status. AACSB: Analytical thinking Classification: Concept 65) What is material alteration as a universal defense to a negotiable instrument? Answer: Universal defense is a defense that can be raised against both holders and HDCs. An instrument that has been fraudulently and materially altered cannot be enforced by an ordinary holder. Material alteration consists of adding to any part of a signed instrument, removing any part of a signed instrument, making changes in the number or relations of the parties, or completing an incomplete instrument without having the authority to do so. Under the Uniform Commercial Code (UCC) rule that words control figures, correcting the figure on a check to correspond to the written amount on the check is not a material alteration. If an alteration is not material, the instrument can be enforced by a holder for the original amount in which the drawer wrote the check. Diff: 1 LO: 24.9 List and describe the universal (real) defenses that can be raised against holder in due course (HDC) status. AACSB: Analytical thinking Classification: Concept 66) ________ is a type of personal defense when a wrongdoer makes a false statement to another person to lead them to enter into a contract and issue a negotiable instrument. A) Forgery B) Discharge in bankruptcy C) Fraud in the inducement D) Extreme duress Answer: C Diff: 1 LO: 24.10 List and describe personal defenses that can be raised against ordinary holders of negotiable instruments. AACSB: Analytical thinking Classification: Concept

67) Discharge of an instrument by payment or cancellation is a type of ________. A) warranty liability B) transfer warranty C) personal defense D) universal defense Answer: C Diff: 1 LO: 24.10 List and describe personal defenses that can be raised against ordinary holders of negotiable instruments. AACSB: Analytical thinking Classification: Concept 68) Which of the following is a rule that eliminates HDC status with regard to negotiable instruments that arise out of certain consumer credit transactions? A) FTC HDC rule B) exclusionary rule C) imposter rule D) fictitious payee rule Answer: A Diff: 1 LO: 24.10 List and describe personal defenses that can be raised against ordinary holders of negotiable instruments. AACSB: Analytical thinking Classification: Concept 69) Extreme duress is considered a personal defense. Answer: FALSE Diff: 1 LO: 24.10 List and describe personal defenses that can be raised against ordinary holders of negotiable instruments. AACSB: Analytical thinking Classification: Concept 70) Fraud in the inception is a type of personal defense. Answer: FALSE Diff: 1 LO: 24.10 List and describe personal defenses that can be raised against ordinary holders of negotiable instruments. AACSB: Analytical thinking Classification: Concept

71) The defense of breach of contract is effective against an HDC. Answer: FALSE Diff: 1 LO: 24.10 List and describe personal defenses that can be raised against ordinary holders of negotiable instruments. AACSB: Analytical thinking Classification: Concept 72) Fraud in the inducement is a personal defense that is not effective against HDCs. Answer: TRUE Diff: 1 LO: 24.10 List and describe personal defenses that can be raised against ordinary holders of negotiable instruments. AACSB: Analytical thinking Classification: Concept 73) A contract made by a person who has not yet been adjudicated to be mentally incompetent is considered void. Answer: FALSE Diff: 1 LO: 24.10 List and describe personal defenses that can be raised against ordinary holders of negotiable instruments. AACSB: Analytical thinking Classification: Concept 74) Discharge of an instrument by payment can be raised against enforcement of a negotiable instrument by an ordinary holder. Answer: TRUE Diff: 1 LO: 24.10 List and describe personal defenses that can be raised against ordinary holders of negotiable instruments. AACSB: Analytical thinking Classification: Concept 75) The FTC rules apply to consumer credit transactions in which the buyer signs a sales contract that includes a promissory note. Answer: TRUE Diff: 1 LO: 24.10 List and describe personal defenses that can be raised against ordinary holders of negotiable instruments. AACSB: Analytical thinking Classification: Concept

76) What is the defense of fraud in the inducement? Answer: Fraud in the inducement occurs when a wrongdoer makes a false statement or misrepresentation to another person to lead that person to enter into a contract with the wrongdoer. Negotiable instruments often arise out of such transactions. Fraud in the inducement is a personal defense that is not effective against HDCs. It is effective against ordinary holders, however. Diff: 1 LO: 24.10 List and describe personal defenses that can be raised against ordinary holders of negotiable instruments. AACSB: Analytical thinking Classification: Concept 77) A(n) ________ is an action or event that relieves certain parties from liability on negotiable instruments. A) presentment B) discharge C) accommodation D) breach of contract Answer: B Diff: 1 LO: 24.11 Describe how parties are discharged from liability on negotiable instruments. AACSB: Analytical thinking Classification: Concept 78) All parties are discharged from liability on a negotiable instrument when ________. A) the instrument is presented for payment B) the signature of the indorser is intentionally struck out C) the instrument is accidentally destroyed or mutilated D) a drawee in good faith pays an unaccepted instrument in full to the holder Answer: D Diff: 1 LO: 24.11 Describe how parties are discharged from liability on negotiable instruments. AACSB: Analytical thinking Classification: Concept 79) ________ refers to a situation in which certain parties are discharged from liability on an instrument by the action of the holder. A) Impairment of the right of recourse B) Fraud in the inception C) Fraud in the inducement D) Discharge in bankruptcy Answer: A Diff: 1 LO: 24.11 Describe how parties are discharged from liability on negotiable instruments. AACSB: Analytical thinking Classification: Concept 19 Copyright © 2019 Pearson Education, Inc.

80) Which of the following actions by a holder constitutes the complete cancellation of a negotiable instrument? A) destruction or mutilation of the negotiable instrument to eliminate obligation B) deliberately striking out the signature of an indorser C) releasing an obligor from liability D) surrendering collateral without the consent of the parties who would benefit from it Answer: A Diff: 1 LO: 24.11 Describe how parties are discharged from liability on negotiable instruments. AACSB: Analytical thinking Classification: Concept 81) Which of the following actions by the holder causes an impairment of the right of recourse? A) releasing an obligor party from liability B) withholding collateral that would benefit that party C) writing "canceled" on the face of the instrument D) destruction of the instrument with the intent of eliminating the obligation Answer: A Diff: 1 LO: 24.11 Describe how parties are discharged from liability on negotiable instruments. AACSB: Analytical thinking Classification: Concept 82) An instrument is not considered canceled if it is destroyed or mutilated by accident or by an unauthorized third party. Answer: TRUE Diff: 1 LO: 24.11 Describe how parties are discharged from liability on negotiable instruments. AACSB: Analytical thinking Classification: Concept 83) The holder of a negotiable instrument can discharge the liability of any party to the instrument by cancellation. Answer: TRUE Diff: 1 LO: 24.11 Describe how parties are discharged from liability on negotiable instruments. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 25 Banking System and Electronic Financial Transactions 1) In banking terminology, a creditor-debtor relationship is created when a customer ________. A) fails to maintain adequate funds in his bank checking account B) makes a deposit into a bank C) writes a check against his account D) writes a postdated check drawn on his bank Answer: B Diff: 2 LO: 25.1 Describe the bank—customer relationship. AACSB: Analytical thinking Classification: Concept 2) Article 3 of the Uniform Commercial Code establishes the ________. A) requirements for negotiable instruments, such as checks B) rules that regulate bank deposit procedures for checking accounts C) rules that regulate the creation and collection of and liability for wire transfers D) guidelines for ownership of securities by investors Answer: A Diff: 2 LO: 25.1 Describe the bank—customer relationship. AACSB: Analytical thinking Classification: Concept 3) Which of the following is a provision of Article 4 of the Uniform Commercial Code? A) establishing the requirements for negotiable instruments, such as checks B) establishing the rules and principles that regulate bank deposit procedures for checking accounts offered by commercial banks C) stipulating the rules that regulate the creation and collection of and liability for wire transfers D) reviewing and revising guidelines for ownership of securities by investors Answer: B Diff: 2 LO: 25.1 Describe the bank—customer relationship. AACSB: Analytical thinking Classification: Concept

4) Article 4A of the Uniform Commercial Code establishes the ________. A) requirements for negotiable instruments, such as checks B) rules and principles that regulate bank deposit and collection procedures for checking accounts offered by commercial banks C) rules that regulate the creation and collection of and liability for wire transfers D) guidelines for ownership of securities by investors Answer: C Diff: 2 LO: 25.1 Describe the bank—customer relationship. AACSB: Analytical thinking Classification: Concept 5) A creditor-debtor relationship between a customer and a bank is created if the customer writes a check against his or her checking account. Answer: FALSE Diff: 1 LO: 25.1 Describe the bank—customer relationship. AACSB: Analytical thinking Classification: Concept 6) Describe the principal-agent relationship with respect to checks. Answer: In a principal-agent relationship, the customer is the principal and the bank is the agent. A principal-agent relationship is created if (1) the deposit is a check that a bank must collect for a customer or (2) the customer writes a check against his or her account. The bank is obligated to follow the customer's order to collect or pay the check. The rights and duties of a bank and a checking account customer are contractual. The signature card and other bank documents signed by the customer form the contract. Diff: 2 LO: 25.1 Describe the bank—customer relationship. AACSB: Analytical thinking Classification: Concept 7) A(n) ________ is an order by the drawer to the drawee bank to pay a specified sum of money from the drawer's checking account to the named payee (or holder). A) ordinary check B) promissory note C) bill of exchange D) credit memo Answer: A Diff: 1 LO: 25.2 Describe ordinary checks and identify the parties to an ordinary check. AACSB: Analytical thinking Classification: Concept

8) Jill Scott is an accountant with Cameron and Associates, a law firm in downtown Seattle. The firm maintains a checking account with Southern Rock Bank for its operating expenses. On the 10th of every month, Jill gets an inventory report from the office manager listing the office supplies that are needed. Jill places the appropriate orders with Office Depot and writes them a check against the office's checking account. Who is the drawee in this banking transaction? A) Jill Scott B) Office Depot C) Cameron and Associates D) Southern Rock Bank Answer: D Diff: 1 LO: 25.2 Describe ordinary checks and identify the parties to an ordinary check. AACSB: Application of knowledge Classification: Application 9) Fabiola is an accountant with Rovers and Associates, a law firm in downtown Memphis. The firm maintains a checking account with Portris Bank for its operating expenses. On the 7th of every month, Fabiola gets an inventory report from the office manager listing the office supplies that are needed. Fabiola places the appropriate orders with Office Depot and writes them a check against the office's checking account. In the above banking transaction, Rovers and Associates is the ________. A) indorser B) payee C) drawer D) drawee Answer: C Diff: 1 LO: 25.2 Describe ordinary checks and identify the parties to an ordinary check. AACSB: Application of knowledge Classification: Application 10) Edda receives a check for $100 from Sheldon. Sheldon has a balance of $3,600 in his checking account with Rosemund Bank. In this case, Edda is the ________. A) drawer B) drawee C) payer D) payee Answer: D Diff: 1 LO: 25.2 Describe ordinary checks and identify the parties to an ordinary check. AACSB: Application of knowledge Classification: Application

11) Checks are the most common form of negotiable instruments used in the United States. Answer: TRUE Diff: 1 LO: 25.2 Describe ordinary checks and identify the parties to an ordinary check. AACSB: Analytical thinking Classification: Concept 12) The drawee is the party to whom a check is written. Answer: FALSE Diff: 1 LO: 25.2 Describe ordinary checks and identify the parties to an ordinary check. AACSB: Analytical thinking Classification: Concept 13) The drawer of a check is the customer who maintains the checking account and writes (draws) checks against the account. Answer: TRUE Diff: 1 LO: 25.2 Describe ordinary checks and identify the parties to an ordinary check. AACSB: Analytical thinking Classification: Concept 14) Which of the following is implied when a bank certifies a check? A) The bank agrees to accept the check when it is presented for payment. B) The bank cashes the check only if the holder himself presents it for payment. C) The bank withholds payment on the check until the drawer authorizes payment. D) The bank holds the check as guarantee for repayment of a loan taken by a customer. Answer: A Diff: 1 LO: 25.3 List and describe special forms of checks and identify the parties to these checks. AACSB: Analytical thinking Classification: Concept 15) Which of the following statements is true of certified checks? A) Banks are obligated to certify checks for amounts greater than $10,000. B) Certified checks are payable at any time from the date they are issued. C) A drawer can stop payment on a certified check if it is indorsed. D) Banks can charge a fraction of the check value as a fee for certifying it. Answer: B Diff: 2 LO: 25.3 List and describe special forms of checks and identify the parties to these checks. AACSB: Analytical thinking Classification: Concept

16) How is a cashier's check different from an ordinary check? A) Cashier's checks can be postdated, but ordinary checks cannot be postdated. B) Unlike ordinary checks, cashier's checks do not require the purchaser to hold a checking account at that bank. C) Unlike ordinary checks, cashier's checks are cancellable negotiable instruments upon issue. D) Cashier's checks are three-party checks, while ordinary checks involve only two parties. Answer: B Diff: 2 LO: 25.3 List and describe special forms of checks and identify the parties to these checks. AACSB: Analytical thinking Classification: Concept 17) A person can purchase a(n) ________ from a bank by paying the bank the amount of the check plus a fee for issuing the check. A) indorsed check B) ordinary check C) blank check D) cashier's check Answer: D Diff: 1 LO: 25.3 List and describe special forms of checks and identify the parties to these checks. AACSB: Analytical thinking Classification: Concept 18) Certified checks become stale after two years from the date of their issue. Answer: FALSE Diff: 2 LO: 25.3 List and describe special forms of checks and identify the parties to these checks. AACSB: Analytical thinking Classification: Concept 19) A cashier's check is a two-party check. Answer: TRUE Diff: 1 LO: 25.3 List and describe special forms of checks and identify the parties to these checks. AACSB: Analytical thinking Classification: Concept 20) It is not necessary to have a checking account at the issuing bank to purchase a cashier's check. Answer: TRUE Diff: 1 LO: 25.3 List and describe special forms of checks and identify the parties to these checks. AACSB: Analytical thinking Classification: Concept

21) Briefly explain certified checks. Answer: When a bank certifies a check, it agrees in advance (1) to accept the check when it is presented for payment and (2) to pay the check out of funds set aside from the customer's account and either placed in a special certified check account or held in the customer's account. Certified checks do not become stale. Thus, they are payable at any time from the date they are issued. A check is a certified check when the bank writes or stamps the word "certified" across the face of an ordinary check. The certification should also contain the date, the amount being certified, and the name and title of the person at the bank who certifies the check. Note that a bank is not obligated to certify a check. A bank's refusal to do so is not a dishonor of a check. The drawer cannot stop payment on a certified check. Diff: 2 LO: 25.3 List and describe special forms of checks and identify the parties to these checks. AACSB: Analytical thinking Classification: Concept 22) When a bank pays the holder of a properly drawn check, it is said to have ________ the check. A) certified B) indorsed C) honored D) collected Answer: C Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept 23) A check that has been outstanding for more than ________ is considered stale. A) six months B) one year C) three months D) nine months Answer: A Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept

24) John writes a check for $100 on his account at the Sacred Heart Bank to repay the $100 he owes Perry. He gives the check to Eliot and tells her to hand it over to Perry. However, Eliot loses the check before she can give it to Perry. Later, John realizes that he had not written Perry's name on the lost check. According to the provisions of the Uniform Commercial Code (UCC), on which of the following parties should the risk of loss of the check be placed? A) Eliot B) Perry C) John D) Sacred Heart Bank Answer: C Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Application of knowledge Classification: Application 25) Francis Jeffers purchased a cashier's check in the amount of $5,000 from Northern Star Bank. The check was made payable to Kyle Naughton and was delivered to him. Twelve months later, the Northern Star Bank branch manager informed Jeffers that the cashier's check was still outstanding. Jeffers subsequently signed a form requesting that payment be stopped and a replacement check be issued. Northern Star Bank issued a replacement check to Jeffers. Eight months later, Naughton deposited the original cashier's check in his bank, which was paid by Northern Star Bank. Northern Star Bank requested that Jeffers repay the bank $5,000. When he refused, Northern Star Bank sued Jeffers to recover this amount and the court awarded Northern Star Bank damages amounting to $5,500. In which of the following circumstances, if true, would the court have ruled in Jeffers' favor? A) Jeffers cashed the replacement check before Naughton had presented the original check at his bank. B) Jeffers paid Naughton the $5,000 in cash after obtaining the replacement check from Northern Star Bank. C) Jeffers indemnified Northern Star Bank for potential damages arising from the issue of the replacement check. D) Jeffers renewed the stop-payment order on the original check at the end of six months. Answer: D Diff: 3 LO: 25.4 Describe when a bank must honor a check. AACSB: Application of knowledge Classification: Application

26) Mrs. Dawson wrote a check to Kevin for $50 on New Year's Day for clearing the snow from her driveway on Christmas Eve. However, when Kevin tries to cash the check at Mrs. Dawson's bank, he is told that the check is stale. Which of the following is the most likely reason for Mrs. Dawson's check being dishonored by the bank? A) Mrs. Dawson did not have enough funds in her checking account. B) Mrs. Dawson had dated the check for the previous year instead of the current year. C) Mrs. Dawson had not identified Kevin as the payee while writing out the check. D) Mrs. Dawson had given Kevin a check which was dated over six months ahead of the date of issue. Answer: B Diff: 2 LO: 25.4 Describe when a bank must honor a check. AACSB: Application of knowledge Classification: Application 27) Greg owes Timothy $1,000 and gives him a check to repay the amount. When Timothy presents it at Greg's bank five months later, however, the bank refuses to pay the check. The bank was willing to act in good faith, but is not liable for the dishonor of the check. Which of the following, if true, would explain the dishonor of the check by Greg's bank? A) Timothy filled in his name as the payee on the check as Greg had forgotten to do so. B) Greg had not filled in the amount, so Timothy duly wrote $1,000 on the check before he presented it to the bank. C) Greg had issued a stop-payment order on the check immediately after giving it to Timothy. D) Greg had postdated the check four months from the date of giving the check to Timothy. Answer: C Diff: 2 LO: 25.4 Describe when a bank must honor a check. AACSB: Application of knowledge Classification: Application 28) In which of the following cases is an overdraft created in a drawer's account? A) a properly payable check issued by the drawer is presented for payment, but the drawer's account does not have sufficient funds in it B) the drawer issues a stop-payment order for a check, but the bank still goes ahead and pays the holder of the check C) the bank pays the holder of a check in which the amount payable is altered to indicate a higher amount than was originally intended D) the payee presents the check after six months from the date of the check and the bank still pays the holder Answer: A Diff: 2 LO: 25.4 Describe when a bank must honor a check. AACSB: Reflective thinking Classification: Synthesis

29) Which of the following is an accurate description of wrongful dishonor of a check? A) A bank refusing to honor a properly payable check when there are sufficient funds in the drawer's account. B) A bank refusing to honor a certified check when it is presented for payment more than a year from its date of issue. C) A bank refusing to honor a check which has been outstanding for only a few days more than six months from the date of issue. D) A bank refusing to honor an ordinary check when it believes that the payee has altered the amount on the check. Answer: A Diff: 2 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept 30) In which of the following cases is a bank obliged to file a Currency Transaction Report (CTR) with the Internal Revenue Service? A) The bank receives instructions from a customer to certify an ordinary check worth $10,000 issued in a foreigner's name. B) The bank receives an ordinary check worth $13,000 payable to a customer's checking account. C) A customer deposits $20,000 through a cashier's check in his or her checking account. D) A customer issues stop-payment instructions on a check worth $15,000 issued to a payee. Answer: C Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Application of knowledge Classification: Application 31) When the drawee bank receives a properly drawn and payable check, the bank is under a duty to honor the check and charge (debit) the drawer's account the amount of the check if there are sufficient funds in the customer's checking account at the bank. Answer: TRUE Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept 32) A check that has been outstanding for more than three months is considered stale, and the bank is under no obligation to pay it. Answer: FALSE Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept

33) The Uniform Commercial Code places the risk of loss of an incomplete item on the drawee. Answer: FALSE Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept 34) Under UCC guidelines, to require a bank to abide by a postdated check, the drawer must give separate written notice to the bank, describing the check with reasonable certainty and notifying the bank not to pay the check until the date on the check. Answer: TRUE Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept 35) An oral order to stop payment on a check is binding on the payer bank for a period of 14 calendar days. Answer: TRUE Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept 36) A stop-payment order can be issued either by the drawer or the payee. Answer: FALSE Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept 37) If the drawer does not have enough money in his or her account when a properly payable check is presented for payment, the payer bank is obligated to honor the check and create an overdraft in the drawer's account. Answer: FALSE Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept 38) If a bank does not honor a check when there are sufficient funds in the drawer's account to pay a properly payable check, it is liable for wrongful dishonor. Answer: TRUE Diff: 1 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

39) The federal Currency Reporting Law requires financial institutions and other entities to file a Currency Transaction Report (CTR) with the Internal Revenue Service (IRS) in the event of the detection of suspected criminal activity by bank customers involving a financial transaction of $1,000 or more in funds. Answer: TRUE Diff: 2 LO: 25.4 Describe when a bank must honor a check. AACSB: Analytical thinking Classification: Concept 40) George, John, Paul, Ringo, and Brian are five friends from Iowa. George owes John $100, John owes Paul $200, Paul owes Ringo $300, and Ringo owes Brian $400. John and Paul find a check belonging to George. John names himself as the payee on the check, fills in $200 as the amount, and forges George's signature on it. He indorses the check to Paul and asks him to consider his debt repaid, while keeping the knowledge of the forgery to himself. Paul, in turn, indorses the check to Ringo and pays Ringo the remaining $100 in cash. Predictably, Ringo indorses the check to Brian, who presents the check to George's bank and receives payment. Who among the following can the bank recover the money from, once the forgery is detected? A) George B) Paul C) Brian D) Ringo Answer: B Diff: 2 LO: 25.5 Identify what parties are liable for altered and forged checks. AACSB: Application of knowledge Classification: Application 41) A check that has been modified without authorization and thus modifies the legal obligation of a party is known as a(n) ________. A) stale check B) incomplete check C) altered check D) forged check Answer: C Diff: 1 LO: 25.5 Identify what parties are liable for altered and forged checks. AACSB: Analytical thinking Classification: Concept 42) The payer bank cannot charge the customer's account if it pays a check over the forged signature. Answer: TRUE Diff: 1 LO: 25.5 Identify what parties are liable for altered and forged checks. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

43) If a payer bank pays the altered amount on an altered check, it can recover the altered amount minus the original tenor from the party who presented the altered check for payment. Answer: TRUE Diff: 2 LO: 25.5 Identify what parties are liable for altered and forged checks. AACSB: Analytical thinking Classification: Concept 44) The drawer's failure to report a forged or altered check to the bank within six months of receiving the bank statement and canceled checks containing it relieves the bank of any liability for paying the instrument. Answer: FALSE Diff: 2 LO: 25.5 Identify what parties are liable for altered and forged checks. AACSB: Analytical thinking Classification: Concept 45) A forged signature is wholly inoperative as the signature of a drawer. Answer: TRUE Diff: 1 LO: 25.5 Identify what parties are liable for altered and forged checks. AACSB: Analytical thinking Classification: Concept 46) If a checking account customer fails to report a series of forgeries or alterations by the same wrongdoer on the same account within 30 days from receiving the monthly statement of account, then the bank is discharged from liability on all similar forged or altered checks after that date and prior to notification. Answer: TRUE Diff: 2 LO: 25.5 Identify what parties are liable for altered and forged checks. AACSB: Analytical thinking Classification: Concept 47) A checking account customer owes a duty to examine the monthly statements of account promptly and with reasonable care to determine whether any payment was not authorized because of alteration of a check or a forged signature. Answer: TRUE Diff: 1 LO: 25.5 Identify what parties are liable for altered and forged checks. AACSB: Analytical thinking Classification: Concept

48) What are altered checks? What are the actions that a bank can take when it encounters a case of check alteration? Answer: Sometimes a check is altered before it is presented for payment. This is an unauthorized change in the check that modifies the legal obligation of a party. The payer bank can dishonor an altered check if it discovers the alteration. If the payer bank pays the altered check, it can charge the drawer's account for the original tenor of the check but not the altered amount. If the payer bank has paid the altered amount, it can recover the difference between the altered amount and the original tenor from the party who presented the altered check for payment. This is because the presenter of the check for payment and each prior transferor warrant that the check has not been altered. This is called the presentment warranty. If there has been an alteration, each party in the chain of collection can recover from the preceding transferor based on a breach of this warranty. The ultimate loss usually falls on the party that first paid the altered check because that party was in the best position to identify the alteration. The forger is liable for the difference between the original tenor and the altered amount–if he or she can be found and is not judgment proof. Diff: 3 LO: 25.5 Identify what parties are liable for altered and forged checks. AACSB: Analytical thinking Classification: Concept 49) The bank where the payee or holder of a check has an account is known as the ________. A) payer bank B) depository bank C) intermediary bank D) private bank Answer: B Diff: 1 LO: 25.6 Describe the Federal Reserve System and the collection process for checks. AACSB: Analytical thinking Classification: Concept 50) Banks in the collection process that are not the depository or payer bank are called ________ banks. A) intermediary B) terminal C) collecting D) provisional Answer: A Diff: 1 LO: 25.6 Describe the Federal Reserve System and the collection process for checks. AACSB: Analytical thinking Classification: Concept

51) The check collection process, which may involve multiple banks, is governed by Revised Article 3 of the UCC. Answer: FALSE Diff: 2 LO: 25.6 Describe the Federal Reserve System and the collection process for checks. AACSB: Analytical thinking Classification: Concept 52) Which of the following is true of the "deferred posting rule"? A) It allows banks to fix an afternoon hour of 2:00 or later as a cutoff hour for the purpose of processing checks and deposits. B) According to this rule, when a customer deposits a check for collection, the depository bank does not have to pay the customer until the check clears. C) It mandates banks to mail their checking account customers monthly statements of their accounts and any canceled checks should accompany this statement. D) According to this rule, a customer is liable for payment to his bank if he fails to report any unauthorized transactions within 30 days from the receipt of the account statement. Answer: A Diff: 2 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept 53) A check is finally paid when ________. A) the depository bank credits the customer's account with an option to reverse the credit in case of dishonoring of the check B) the payer bank fails to dishonor the check within certain statutory time periods C) the drawer settles for the check while holding a right to revoke the settlement D) the final bank in the collection process tentatively credits the account of the prior transferor Answer: B Diff: 2 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept 54) If a drawer and a payee or holder have accounts at different banks, the payer bank and depository bank are not the same bank. In this case, the check is called a(n) ________. A) non-negotiable instrument B) presentment warranty C) stale check D) "on them" item Answer: D Diff: 1 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept 14 Copyright © 2019 Pearson Education, Inc.

55) Instead of depositing an "on them" check for collection, a depositor can physically submit the check for payment at the payer bank. This is called ________. A) provisional credit B) indorsement of the check C) presentment across the counter D) final settlement Answer: C Diff: 1 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept 56) The ________ is a government agency that insures deposits at most banks and savings institutions in the United States. A) Federal Deposit Insurance Corporation B) Federal Reserve System C) Resolution Trust Corporation D) Bureau of Federal Credit Unions Answer: A Diff: 1 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept 57) If there are major failures of several large banks or many small banks, and the Federal Deposit Insurance Corporation (FDIC) insurance fund is insufficient to cover all of the depositors' losses, which of the following bodies is responsible for paying the depositors money owed by the FDIC? A) the Federal Reserve System B) the boards of the failed banks C) the National Credit Union Administration D) the U.S. government Answer: D Diff: 2 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept 58) If a drawer and a payee or holder have accounts at different banks, the check is called an "on them" item when it is presented for payment by the payee. Answer: TRUE Diff: 1 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept

59) The deferred posting rule allows banks to fix an afternoon hour of 2:00 P.M. or later as a cutoff hour for the purpose of processing checks and deposits. Answer: TRUE Diff: 2 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept 60) If the drawer and the payee of a check have accounts at the same bank, the check is called an "on them" item when it is presented for payment by the payee. Answer: FALSE Diff: 2 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept 61) In the case of presentment across the counter, the payer bank has six banking days to dishonor the check. Answer: FALSE Diff: 1 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept 62) Except for the collecting bank, each bank in the collection process, including the payer bank, must take proper action on an "on them" check prior to its midnight deadline. Answer: TRUE Diff: 2 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept 63) A deposit of cash to an account becomes available for withdrawal at the opening of the next banking day following the deposit. Answer: TRUE Diff: 2 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept

64) If there are major failures of several large banks or many small banks, and the Federal Deposit Insurance Corporation (FDIC) insurance fund is insufficient to cover all of the depositors' losses, then the U.S. government will pay the depositors the money owed by the FDIC. Answer: TRUE Diff: 2 LO: 25.7 Describe bank payment rules, including posting and settlement. AACSB: Analytical thinking Classification: Concept 65) The term ________ refers to the computer and electronic technology that makes it possible for banks to offer electronic payment and collection systems to bank customers. A) electronic protocols application software (EPAS) B) electronic funds transfer system (EFTS) C) originating depository financial institution (ODFI) D) open real-time currency application (ORCA) Answer: B Diff: 2 LO: 25.8 List and describe the various forms of electronic banking. AACSB: Analytical thinking Classification: Concept 66) Which of the following is one of the provisions of the Electronic Funds Transfer Act and Regulation E of the Federal Reserve Board? A) A bank can send unsolicited EFTS debit cards to a consumer only if the cards are valid for use. B) If a customer notifies the issuing bank of a stolen or lost debit card within two days of the loss, the customer's liability is limited to a maximum of $500. C) A bank must provide annual statements of electronic funds transfers to customers who conduct such transactions in a given financial year. D) Other than for a telephone transaction, a bank must provide a customer with a written receipt of a transaction made through a computer terminal. Answer: D Diff: 2 LO: 25.8 List and describe the various forms of electronic banking. AACSB: Analytical thinking Classification: Concept

67) The Pittsburgh Peelers are a professional soccer team playing in Major League Soccer. They recently approached Darth Water, a leading sports-drink manufacturer, to sponsor their team for the upcoming season. Darth Water agrees to sponsor the team for an amount of $1 million, to be paid in installments over the course of the season. Darth Water instructs its bank, Orange County Bank, to wire the funds to Pittsburgh Peelers' bank, the Jersey Shore Bank. Which of the following parties is the originator of the wire transfer in the above case? A) Pittsburgh Peelers B) Jersey Shore Bank C) Darth Water D) Orange County Bank Answer: C Diff: 1 LO: 25.8 List and describe the various forms of electronic banking. AACSB: Application of knowledge Classification: Application 68) Article 4A of the Uniform Commercial Code governs commercial and consumer wire transfers. Answer: FALSE Diff: 2 LO: 25.8 List and describe the various forms of electronic banking. AACSB: Analytical thinking Classification: Concept 69) According to the Electronic Funds Transfer Act and Regulation E adopted by the Federal Reserve Board, a bank can send unsolicited electronic funds transfer system (EFTS) debit cards to a consumer only if the cards are not valid for use. Answer: TRUE Diff: 2 LO: 25.8 List and describe the various forms of electronic banking. AACSB: Analytical thinking Classification: Concept 70) If a customer notifies the issuing bank within two days of learning that his or her debit card has been lost or stolen, the customer is liable for only $100 for unauthorized use. Answer: FALSE Diff: 1 LO: 25.8 List and describe the various forms of electronic banking. AACSB: Analytical thinking Classification: Concept

71) Electronic Fund Transfer Act (EFTA) regulates consumer and commercial electronic funds transfers. Answer: FALSE Diff: 1 LO: 25.8 List and describe the various forms of electronic banking. AACSB: Analytical thinking Classification: Concept 72) Article 4A of the Uniform Commercial Code (UCC) applies only to commercial electronic funds transfers. Answer: TRUE Diff: 1 LO: 25.8 List and describe the various forms of electronic banking. AACSB: Analytical thinking Classification: Concept 73) What is the significance of bank statements to an electronic fund transfer customer? Answer: A bank must provide a monthly statement to an electronic funds transfer customer at the end of the month in which the customer conducts a transaction. The statement must include the date and amount of the transfer, the name of the retailer, the location and identification of the terminal, and the fees charged for the transaction. Bank statements must also contain the address and telephone number where inquiries or errors can be reported. The statement can be provided electronically by the bank. A bank is liable for wrongful dishonor when it fails to pay an electronic funds transfer when there are sufficient funds in the customer's account to do so. Diff: 3 LO: 25.8 List and describe the various forms of electronic banking. AACSB: Analytical thinking Classification: Concept 74) The ________ is a federal statute, enacted by the Congress in 2010, that reorganizes federal government supervision of the banking system, regulates previous unregulated financial products and institutions, and adds a new consumer protection agency to protect consumers from abusive lending and banking practices. A) Dodd-Frank Wall Street Reform and Consumer Protection Act B) Depository Institutions Deregulation and Monetary Control Act C) Financial Institutions Reform, Recovery, and Enforcement Act D) Riegle-Neal Interstate Banking and Branching Efficiency Act Answer: A Diff: 1 LO: 25.9 Describe banking reform measures. AACSB: Analytical thinking Classification: Concept

75) Which of the following is one of the purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010? A) monitoring the legitimacy of consumer and commercial wire transfers B) establishing the reporting requirements for financial transactions, including off-balance-sheet transactions C) regulating financial products and services D) overseeing, inspecting, and disciplining accounting firms in their roles as auditors of public companies Answer: C Diff: 2 LO: 25.9 Describe banking reform measures. AACSB: Analytical thinking Classification: Concept 76) Which of the following regulatory agencies was set up under the provisions of the DoddFrank Wall Street Reform and Consumer Protection Act? A) Federal Deposit Insurance Corporation B) Consumer Financial Protection Bureau C) National Credit Union Administration D) U.S. Securities and Exchange Commission Answer: B Diff: 1 LO: 25.9 Describe banking reform measures. AACSB: Analytical thinking Classification: Concept 77) The Federal Deposit Insurance Corporation was created under the provisions of the DoddFrank Wall Street Reform and Consumer Protection Act of 2010. Answer: FALSE Diff: 1 LO: 25.9 Describe banking reform measures. AACSB: Analytical thinking Classification: Concept 78) The Dodd-Frank Wall Street Reform and Consumer Protection Act grants powers to the Federal Reserve to monitor and regulate institutions it supervises, including bank holding companies, savings bank holding companies, and affiliates of holding companies. Answer: TRUE Diff: 1 LO: 25.9 Describe banking reform measures. AACSB: Analytical thinking Classification: Concept

79) The Dodd-Frank Wall Street Reform and Consumer Protection Act reorganized and streamlined the federal government agencies that regulate the banking industry and strengthened bank regulatory oversight by federal agencies. Answer: TRUE Diff: 1 LO: 25.9 Describe banking reform measures. AACSB: Analytical thinking Classification: Concept 80) What changes did the Dodd-Frank Wall Street Reform and Consumer Protection Act make to reform lending regulation? Answer: After the country suffered a major financial and economic depression in the mid-2000s, Congress decided that the bank system needed to be reformed. To accomplish this, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires mortgage lenders to make a reasonable and good-faith determination that a borrower has the ability to repay the loan. This must be based upon the verified and documented income and assets of the proposed borrower. In a foreclosure action brought by a lender, a borrower may assert a violation of this standard as a defense to the lender recovering money from the borrower. Diff: 2 LO: 25.9 Describe banking reform measures. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 26 Credit, Mortgages, and Debtor's Rights 1) The party borrowing money is usually called a ________. A) creditor B) mortgagee C) debtor D) beneficiary Answer: C Diff: 1 LO: 26.1 Define credit and identify the parties to a credit transaction. AACSB: Analytical thinking Classification: Concept 2) In a transaction involving the extension of credit, there are two parties — the creditor and the lender. Answer: FALSE Diff: 1 LO: 26.1 Define credit and identify the parties to a credit transaction. AACSB: Analytical thinking Classification: Concept 3) In a transaction involving the extension of credit, there are two parties — the creditor and the debtor. Answer: TRUE Diff: 1 LO: 26.1 Define credit and identify the parties to a credit transaction. AACSB: Analytical thinking Classification: Concept 4) Credit that does not require any collateral to protect the payment of the debt is referred to as ________. A) unsecured credit B) secured credit C) fair credit D) equal credit Answer: A Diff: 1 LO: 26.2 Define unsecured credit and describe the liability of the debtor. AACSB: Analytical thinking Classification: Concept

5) Ashton borrows $25,000 from Amanda. Amanda lends the money to Ashton without taking an interest in collateral for the loan. Amanda is relying on Ashton's credit standing when she makes the loan. What kind of creditor is Amanda? A) an unsecured creditor B) a secured creditor C) an administrative claim creditor D) a post-petition creditor Answer: A Diff: 2 LO: 26.2 Define unsecured credit and describe the liability of the debtor. AACSB: Application of knowledge Classification: Application 6) Unsecured credits require collateral to protect the payment of the debt. Answer: FALSE Diff: 1 LO: 26.2 Define unsecured credit and describe the liability of the debtor. AACSB: Analytical thinking Classification: Concept 7) A collection action against a debtor who is judgment proof is not likely to be successful. Answer: TRUE Diff: 1 LO: 26.2 Define unsecured credit and describe the liability of the debtor. AACSB: Analytical thinking Classification: Concept 8) An unsecured creditor is a creditor who has to rely on collateral to secure payment. Answer: FALSE Diff: 1 LO: 26.2 Define unsecured credit and describe the liability of the debtor. AACSB: Analytical thinking Classification: Concept 9) If the debtor is judgment proof, the debtor has little or no property and income, thus the creditor may never collect. Answer: TRUE Diff: 1 LO: 26.2 Define unsecured credit and describe the liability of the debtor. AACSB: Analytical thinking Classification: Concept

10) Credit that requires collateral, which ensures payment of the loan, is referred to as ________. A) unsecured credit B) secured credit C) equal credit D) fair credit Answer: B Diff: 1 LO: 26.3 Define secured credit and describe the rights of the creditor. AACSB: Analytical thinking Classification: Concept 11) When is a creditor a secured creditor? A) when the creditor has been guaranteed payment by a trustee B) when the creditor gives a loan without security C) when the creditor has been paid back his or her debt D) when the creditor has a security interest in collateral Answer: D Diff: 1 LO: 26.3 Define secured credit and describe the rights of the creditor. AACSB: Analytical thinking Classification: Concept 12) The property on which a security interest is taken is called collateral. Answer: TRUE Diff: 1 LO: 26.3 Define secured credit and describe the rights of the creditor. AACSB: Analytical thinking Classification: Concept 13) The function of collateral is to secure payment of the loan. Answer: TRUE Diff: 1 LO: 26.3 Define secured credit and describe the rights of the creditor. AACSB: Analytical thinking Classification: Concept 14) An arrangement where an owner of real property borrows money from a lender and pledges the real property as collateral to secure the repayment of the loan is known as a(n) ________. A) consignment B) foreclosure C) mortgage D) assignment Answer: C Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

15) Roundwell Motors purchases a manufacturing plant for $15 million, pays $5 million in cash as down payment, and borrows the remaining $10 million from Home Providence Bank. To secure the loan, Roundwell gives the plant as collateral to Home Providence Bank. What kind of collateral arrangement is in place between Roundwell Motors and Home Providence Bank? A) a mortgage B) a garnishment C) a land sales contract D) an accommodation Answer: A Diff: 2 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Application of knowledge Classification: Application 16) Roundwell Motors purchases a manufacturing plant for $15 million, pays $5 million in cash as down payment, and borrows the remaining $10 million from Home Providence Bank. To secure the loan, Roundwell gives the plant as collateral to Home Providence Bank. If Roundwell defaults on their payment, what is the recourse available to Home Providence to recover the loan? A) buy the plant from Roundwell B) return it to Roundwell C) foreclose on it D) hand it over to the government Answer: C Diff: 2 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Application of knowledge Classification: Application 17) A ________ is an instrument that gives a creditor a security interest in the debtor's real property that is pledged as collateral for a loan. A) credit report B) letter of credit C) remittance advice D) deed of trust Answer: D Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept

18) Which of the following is true of a deed of trust? A) The legal right of the property is with the creditor until payment. B) The legal rights to possession of real property lie with a trustee. C) The trustor has legal rights to possession of the real property. D) The deed of trust is a two-party instrument. Answer: B Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 19) A ________ is an instrument that evidences a borrower's debt to the lender for a real property. A) note B) consignment C) collateral D) deed of trust Answer: A Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 20) Which of the following real property transactions places legal title in real property with a trustee? A) land sales contract B) garnishment C) deed of trust D) mortgage Answer: C Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 21) Who is the beneficiary in a deed of trust transaction? A) the creditor B) the debtor C) the trustee D) the trustor Answer: A Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept

22) A ________ requires a mortgage or deed of trust to be recorded in the county recorder's office of the county in which the real property is located. A) recording statute B) real property statute C) mortgage statute D) compilation statute Answer: A Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 23) Ethan purchases a house for $250,000. He borrows $200,000 from StarCross Bank and gives the bank a mortgage on the house for this amount. StarCross Bank fails to record the mortgage. Ethan then applies to borrow $200,000 from Pentalon Bank. Pentalon Bank reviews the real estate recordings and finds no mortgage recorded against the property, so it lends Ethan $200,000. Pentalon Bank records its mortgage. Later, Ethan defaults on both loans. In this case, which of the following would be true in case of the possible foreclosure on the collateral? A) StarCross Bank can foreclose because they made the first loan. B) Pentalon Bank can foreclose because they recorded the mortgage. C) The collateral has to be returned to Ethan since there is a violation of the recording statute. D) None of the parties involved can claim ownership of the collateral as it passes into the public domain. Answer: B Diff: 2 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Application of knowledge Classification: Application 24) A legal procedure by which a secured creditor causes the judicial sale of the secured real estate to pay a defaulted loan is known as ________. A) attachment B) accountability C) land sales contract D) foreclosure sale Answer: D Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept

25) A power stated in a mortgage or deed that permits foreclosure without court proceedings and sale of the property through an auction is known as ________. A) reconveyance B) foreclosure sale C) power of sale D) garnishment Answer: C Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 26) A ________ is a judgment of a court that permits a secured lender to recover other property or income from a defaulting debtor if the collateral is insufficient to repay the unpaid loan. A) deficiency judgment B) garnishment C) lien release D) foreclosure judgment Answer: A Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 27) Wesley buys a house for $1,000,000. He puts $400,000 down and borrows $600,000 from a bank, which takes a mortgage on the property to secure the loan. Wesley defaults, and when the bank forecloses on the property, it is worth only $500,000. There is a shortage of 100,000, as the foreclosure sale price was $500,000. The bank brings a legal action against Wesley. Which of the following can help the bank recover the shortage from Wesley? A) right of redemption B) lien release C) deficiency judgment D) garnishment Answer: C Diff: 2 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Application of knowledge Classification: Application

28) The ________ prohibits deficiency judgments regarding certain types of mortgages, such as those on residential property. A) foreclosure statute B) mortgage statute C) recording statute D) antideficiency statute Answer: D Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 29) To which of the following type of mortgages does the antideficiency statute apply? A) foreign currency mortgages B) home improvement mortgages C) first purchase money mortgages D) second purchase money mortgages Answer: C Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 30) A right that allows the mortgagor to redeem real property after default and before foreclosure is known as ________. A) garnishment B) right of redemption C) lien release D) power of sale Answer: B Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 31) Which of the following is true of the right of redemption for mortgages? A) The mortgagor has to pay the full amount of the debt incurred by the mortgagee. B) The title of possession is passed on to the mortgagee upon completion of redemption. C) The mortgagee is allowed to pay back partial interest until the statutory period of redemption. D) The right to redemption is enacted after the foreclosure is complete. Answer: A Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept

32) An arrangement in which the owner of real property sells property to a purchaser and extends credit to the purchaser is known as ________. A) a lien release B) a credit release C) accommodation D) land sales contract Answer: D Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 33) What is the statutory period of redemption? A) The time limit that a trustee can claim legal title to the real property. B) The time allotted to a mortgagor to pay the full debt on real property even after foreclosure. C) The time by which the mortgagor has to pay at least part of his or her debts. D) The time allotted by which a mortgagee must start legal proceedings against a defaulter. Answer: B Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 34) A ________ is a contractor's, laborer's, and material person's statutory lien that makes the real property to which services or materials have been provided security for the payment of the services and materials. A) material lien B) judgment lien C) tax lien D) mechanic's lien Answer: D Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 35) A ________ is a written document signed by a contractor, subcontractor, laborer, or material person, waiving his or her statutory lien against real property. A) garnishment B) accommodation C) lien release D) notice of lien Answer: C Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 9 Copyright © 2019 Pearson Education, Inc.

36) Foreclosure sales are permitted only in select states. Answer: FALSE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 37) A mortgage is a two-party instrument. Answer: TRUE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 38) In a mortgage transaction, the creditor is known as the mortgagee. Answer: TRUE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 39) In a deed of trust, the creditor is the beneficiary. Answer: TRUE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 40) A deed of trust is a two-party instrument. Answer: FALSE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 41) In a deed of trust, the note is the instrument that evidences the borrower's debt to the lender. Answer: TRUE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept

42) A written reconveyance transfers the title of a real property from the trustee. Answer: TRUE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 43) A recording statute gives potential purchasers of real property the ability to determine whether there are existing liens on a property. Answer: TRUE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 44) An improperly recorded document is effective against subsequent purchasers of real property. Answer: FALSE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 45) Default is a situation where the debtor has not made payment when it is due. Answer: TRUE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 46) Surplus money obtained from a foreclosure sale must be given to the mortgagor. Answer: TRUE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 47) The power of sale foreclosure is implied in mortgages and deeds of trust. Answer: FALSE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept

48) A court action is necessary for a power of sale foreclosure to be considered valid. Answer: FALSE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 49) A deficiency judgment protects a mortgagor from being personally sued in case there is a foreclosure sale deficiency. Answer: FALSE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 50) The right of redemption only allows the redemption of a partial interest of the mortgagor. Answer: FALSE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 51) A lienholder must file a notice of lien with the county recorder's office in the county in which the real property subject to the lien is located. Answer: TRUE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 52) A lien release signed by a supplier prevents the supplier from later pursing a mechanic's lien against real property. Answer: TRUE Diff: 1 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept

53) What are foreclosure sales? Answer: A debtor's default may trigger a legal action for foreclosure. Any party having an interest in the property, including owners of the property, and other mortgagees or lienholders, must be named as defendants. If the mortgagee's case is successful, the court will issue a judgment that orders the real property to be sold at a judicial sale. The procedures for a foreclosure action and sale are governed by state law. Any surplus must be paid to the mortgagor. All states permit foreclosure sales. Diff: 2 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 54) What is an antideficiency statute? Answer: Several states have enacted statutes that prohibit deficiency judgments regarding certain types of mortgages, such as loans for the original purchase of residential property. These statutes are called antideficiency statutes. Antideficiency statutes usually apply only to first purchase money mortgages. Second mortgages and other subsequent mortgages, even mortgages that refinance the first mortgage, usually are not protected by antideficiency statutes. Diff: 2 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept 55) Explain the procedure for obtaining a mechanic's lien. Answer: Although the procedures for obtaining a mechanic's lien vary from state to state, the following requirements generally must be met: 1. The lienholder must file a notice of lien with the county recorder's office in the county in which the real property subject to the lien is located. 2. The notice must state the amount of the claim, the name of the claimant, the name of the owner of the real property, and a description of the real property. 3. The notice must be filed within a specified time period after the services have been performed or materials have been delivered. 4. Notice of the lien must be given to the owner of the real property. Diff: 2 LO: 26.4 Describe real property financing, foreclosure procedures, and deficiency judgments. AACSB: Analytical thinking Classification: Concept

56) An arrangement in which a third party promises to be primarily liable with the borrower for the payment of the borrower's debt is referred to as a(n) ________. A) garnishment B) accommodation C) surety arrangement D) guaranty arrangement Answer: C Diff: 1 LO: 26.5 Describe and distinguish between surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 57) Which of the following is true about a surety's liability to pay in a surety arrangement? A) The surety is secondarily liable for payment. B) The surety is primarily liable for payment. C) The principal debtor must be in default before the surety can be approached. D) The surety can only be approached as a last resort to the creditor. Answer: B Diff: 1 LO: 26.5 Describe and distinguish between surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 58) A(n) ________ is an arrangement in which a third party promises to be secondarily liable for the payment of another's debt. A) guaranty arrangement B) surety arrangement C) insolvency arrangement D) accommodation Answer: A Diff: 1 LO: 26.5 Describe and distinguish between surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 59) Which of the following is true of a guarantor in a guaranty arrangement? A) The guarantor is primarily liable to the principal debtor's debt when it is due. B) The guarantor can be approached even if the principal debtor is not in default. C) The creditor can seek first remedy from a guarantor. D) The guarantor has full legal rights to possession of the real property in this type of arrangement. Answer: A Diff: 1 LO: 26.5 Describe and distinguish between surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 14 Copyright © 2019 Pearson Education, Inc.

60) A surety is primarily liable for paying the principal debtor's debt when it is due in a surety arrangement. Answer: TRUE Diff: 1 LO: 26.5 Describe and distinguish between surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 61) Payment can be obtained from a guarantor even if the principal debtor has not defaulted. Answer: FALSE Diff: 1 LO: 26.5 Describe and distinguish between surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 62) In a guaranty agreement, the guarantor is primarily liable on the debt. Answer: FALSE Diff: 1 LO: 26.5 Describe and distinguish between surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 63) A prejudgment court order that permits the seizure of a debtor's property while a lawsuit is pending is known as a ________. A) writ of exigent B) writ of attachment C) writ of execution D) writ of garnishment Answer: B Diff: 1 LO: 26.6 List and describe collection remedies. AACSB: Analytical thinking Classification: Concept

64) Tara lost a large sum of money to Judy when she invested in what she alleged was a fraudulent investment scheme run by Judy. As a result, Tara sued Judy for fraud. However, as it would take more than a year before the case was heard, Tara was afraid that Judy would transfer any money or property she had to avoid having to pay a judgment if she lost at trial. Which of the following would help Tara stop Judy from doing so? A) writ of attachment B) writ of execution C) writ of garnishment D) writ of exigent Answer: A Diff: 2 LO: 26.6 List and describe collection remedies. AACSB: Application of knowledge Classification: Application 65) A writ of ________ is a postjudgment court order that permits the seizure of a debtor's property that is in the debtor's possession. A) execution B) garnishment C) exigent D) attachment Answer: A Diff: 1 LO: 26.6 List and describe collection remedies. AACSB: Analytical thinking Classification: Concept 66) Alan wins a $50,000 judgment against Henderson, but Henderson refuses to pay the amount of the judgment to Alan. Alan obtains a postjudgment writ from the court directing the sheriff to seize Henderson's automobile and other property and have them publicly auctioned off to satisfy the judgment. Which of the following writs did Alan use? A) writ of attachment B) writ of garnishment C) writ of execution D) writ of exigent Answer: C Diff: 2 LO: 26.6 List and describe collection remedies. AACSB: Application of knowledge Classification: Application

67) A postjudgment court order that permits the seizure of a debtor's property that is in the possession of third parties is known as the ________. A) writ of attachment B) writ of prohibition C) writ of exigent D) writ of garnishment Answer: D Diff: 1 LO: 26.6 List and describe collection remedies. AACSB: Analytical thinking Classification: Concept 68) Gunther wins a $25,000 judgment against Krissa, and Krissa refuses to pay. Krissa works for Iniversal Electronics. Gunther obtains a postjudgment writ of garnishment from the court ordering Iniversal Electronics to pay 25 percent of Krissa's weekly disposable earnings directly to Gunther. However, Gunther is not satisfied with this, and he asks the court to increase Krissa's pay deduction to 50 percent, which the court refuses to do. Which federal Act allows Krissa to retain 75 percent or more of her earnings in a writ of garnishment? A) Fair Credit Reporting Act B) Fair Credit Billing Act C) Title III of the Consumer Credit Protection Act D) Fair Debt Collection Practices Act Answer: C Diff: 2 LO: 26.6 List and describe collection remedies. AACSB: Application of knowledge Classification: Application 69) Stanley lost a court case and was ordered to pay $50,000 to Wade. The day after the judgment, Stanley went missing, leaving Wade with no direct contact to recover the money. Wade then obtained a writ ordering the bank with Stanley's savings account to pay Wade. Which of the following writs did Wade use? A) writ of garnishment B) writ of attachment C) writ of prohibition D) writ of exigent Answer: A Diff: 2 LO: 26.6 List and describe collection remedies. AACSB: Application of knowledge Classification: Application

70) Which of the following Acts protects debtors who are subject to writ of garnishment from excessive action? A) Fair Credit Billing Act B) Consumer Leasing Act C) Truth-in-Lending Act D) Title III of the Consumer Credit Protection Act Answer: D Diff: 1 LO: 26.6 List and describe collection remedies. AACSB: Analytical thinking Classification: Concept 71) Which of the following is a prejudgment writ? A) writ of garnishment B) writ of execution C) writ of attachment D) writ of exigent Answer: C Diff: 1 LO: 26.6 List and describe collection remedies. AACSB: Analytical thinking Classification: Concept 72) A writ of attachment releases a property in the creditor's possession to the debtor. Answer: FALSE Diff: 1 LO: 26.6 List and describe collection remedies. AACSB: Analytical thinking Classification: Concept 73) Execution is a postjudgment court order that permits the seizure of the debtor's property that is in the possession of the debtor. Answer: TRUE Diff: 1 LO: 26.6 List and describe collection remedies. AACSB: Analytical thinking Classification: Concept 74) The proceeds from the sale of real or personal property authorized by a writ of execution are used to pay the creditor the amount of the final judgment. Answer: TRUE Diff: 1 LO: 26.6 List and describe collection remedies. AACSB: Analytical thinking Classification: Concept

75) Garnishment is a court order that permits the seizure of a debtor's property that is in the debtor's possession. Answer: FALSE Diff: 1 LO: 26.6 List and describe collection remedies. AACSB: Analytical thinking Classification: Concept 76) The garnishor is the party that is in possession of the debtor's property. Answer: FALSE Diff: 1 LO: 26.6 List and describe collection remedies. AACSB: Analytical thinking Classification: Concept 77) The ________ Act of 2010 is a federal statute that requires increased disclosure of credit information and terms to consumers and regulates consumer credit providers and others. A) Fair Credit Billing B) Consumer Leasing C) Mortgage Reform and Anti-Predatory Lending D) Consumer Financial Protection Answer: D Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 78) Which of the following is designed put the burden on mortgage lenders to verify that a borrower can afford to repay the loan for which he or she has applied? A) Fair Credit Reporting Act B) Consumer Financial Protection Act of 2010 C) Truth-in-Lending Act D) Mortgage Reform and Anti-Predatory Lending Answer: D Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept

79) Which of the following federal statutes requires creditors to disclose finance charges, including interest, points, and other fees paid? A) Fair Debt Collection Practices Act B) Consumer Financial Protection Act of 2010 C) Mortgage Reform and Anti-Predatory Lending Act of 2010 D) Truth-in-Lending Act Answer: D Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 80) Regulation Z is an administrative agency regulation that sets forth detailed rules for compliance with the ________ Act. A) Fair Credit Reporting B) Truth-in-Lending C) Fair Credit Billing D) Fair Debt Collection Practices Answer: B Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 81) Creditors that violate the Consumer Leasing Act are subject to the civil and criminal penalties provided in the ________ Act. A) Truth-in-Lending B) Fair Credit Billing C) Fair Credit and Charge Card Disclosure D) Fair Debt Collection Practices Answer: A Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 82) Which of the following protects consumers' ability to challenge information contained in a credit file? A) Fair Credit Billing Act B) Equal Credit Opportunity Act C) Fair Debt Collection Practices Act D) Fair Credit Reporting Act Answer: D Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 20 Copyright © 2019 Pearson Education, Inc.

83) The ________ Act of 2003 permits consumers to place fraud alerts in their credit files. A) Fair Debt Collection Practices B) Fair Credit Billing C) Fair and Accurate Credit Transactions D) Fair Credit Reporting Answer: C Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 84) Melissa owes her bank money for credit card bills. For the past two weeks, debt collectors have been harassing her for bill payment by coming to her workplace. Her boss tells her to not have such meetings at the workplace, and despite requesting the collection agency not to do so, the collectors continue to visit her at her workplace. Which of the following Acts would protect Melissa from such harassment? A) Fair and Accurate Credit Transactions Act B) Fair Credit Reporting Act C) Fair Debt Collection Practices Act D) Fair Credit and Charge Card Disclosure Act Answer: C Diff: 2 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Application of knowledge Classification: Application 85) Tim has been approached by Kent regarding the payment of Tim's credit card bill. Kent says he is acting on behalf of the bank to get assurance that Tim will pay the bill within a specific period of time. Kent is an outside agent who is not an employee of the bank. Which of the following legislations has the bank violated by contracting Kent to contact Tim? A) Fair Credit Reporting Act B) Fair and Accurate Credit Transactions Act C) Fair Credit and Charge Card Disclosure Act D) Fair Debt Collection Practices Act Answer: D Diff: 2 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Application of knowledge Classification: Application

86) Which of the following statements is true of the Consumer Financial Protection Bureau (CFPB)? A) It is a non-federal agency that governs consumer finance and mortgage area. B) The automobile industry is exempt from its supervision. C) The credit card and debit card industry is beyond its purview. D) It lacks investigative and subpoena powers. Answer: B Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 87) The Consumer Financial Protection Bureau (CFPB) has authority to supervise all participants in the consumer finance and mortgage area, including depository institutions. Answer: TRUE Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 88) The Dodd-Frank Wall Street Reform and Consumer Protection Act regulates mortgage lending. Answer: TRUE Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 89) The Fair Credit Billing Act requires that creditors promptly acknowledge consumer billing complaints in writing and investigate billing errors. Answer: TRUE Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 90) Casual leases between consumers are subject to the Consumer Leasing Act. Answer: FALSE Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept

91) The Fair and Accurate Credit Transactions Act (FACTA) of 2003 permits credit reporting companies to place fraud alerts in their credit files. Answer: FALSE Diff: 1 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 92) How does the Mortgage Reform and Anti-Predatory Lending Act of 2010 help regulate mortgage transactions? Answer: The act requires mortgage originators and lenders to verify the assets and income of prospective borrowers, their credit history, employment status, debt-to-income ratio, and other relevant factors when making a decision to extend credit. The act is particularly designed to regulate the subprime mortgage market, that is, the home loan market where lenders made loans to unqualified borrowers. The act puts the burden on lenders to verify that a borrower can afford to repay the loan for which he or she has applied. The act provides civil remedies for borrowers to sue lenders for engaging in deceptive and predatory practices and for violating the provisions of the act. Diff: 2 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 93) Briefly explain the key features of the Consumer Financial Protection Act of 2010. Answer: Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act is entitled the Consumer Financial Protection Act of 2010. The act is designed to increase relevant disclosure regarding consumer financial products and services and to eliminate deceptive and abusive loan practices. The act is also designed to prevent hidden fees and charges. The new law requires disclosure of relevant information to consumers in plain language that permits consumers to understand the costs, benefits, and risks associated with consumer financial products and services. The act requires that credit card companies provide calculators that give the payoff terms under different scenarios, such as if only minimum payments are made or the payments that are needed to pay the balance off in one year and such. Other provisions limit fees for using debit cards to be reasonable and proportional to the cost incurred in processing the payment. Diff: 2 LO: 26.7 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 27 Secured Transactions 1) A property in which a security interest is taken is called ________. A) collateral B) escrow C) attachment D) leverage Answer: A Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 2) Which of the following is considered tangible personal property? A) car B) mutual fund investment C) trademark D) patent Answer: A Diff: 2 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 3) ________ is a situation in which a creditor agrees to extend credit only if the purchaser pledges some personal property as collateral for the loan. A) Floating lien B) Attachment C) Mortgage D) Secured credit Answer: D Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept

4) Which article of the Uniform Commercial Code governs secured transactions in personal property? A) Article 8 B) Article 9 C) Article 18 D) Article 19 Answer: B Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 5) When a creditor extends credit to a debtor and takes a security interest in some personal property of the debtor, it is called a ________. A) super-priority lien B) collateral claim C) collateral disposition D) secured transaction Answer: D Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 6) A ________ has an ownership or other interest in the collateral and owes payment of a secured obligation. A) creditor B) debtor C) seller D) lender Answer: B Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept

7) William buys a $500,000 house from Keith Geller through a realtor. He makes a down payment of $200,000. He borrows the rest from Smith and Sons, a lending firm, and places his new house as collateral for the loan. Who is the debtor in this case? A) William B) Keith Geller C) Smith and Sons D) the realtor Answer: A Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Application of knowledge Classification: Application 8) John buys a new car with the help of a loan. He permits the creditor to take possession of the car if he cannot repay the loan in time. Here, the car is the ________. A) after-acquired property B) collateral C) intangible personal property D) floating lien Answer: B Diff: 2 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 9) Which of the following transactions occurs when a seller sells goods to a buyer on credit and retains a security interest in the goods? A) two-party secured B) three-party secured C) perfected D) attached Answer: A Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept

10) A business purchases an airplane from an airplane manufacturer. The business obtains a loan to purchase the airplane from a bank, which obtains a security interest in the airplane. The airplane manufacturer is paid for the airplane out of the proceeds of the loan. This is a(n) ________ transaction. A) two-party secured B) three-party secured C) perfected D) attached Answer: B Diff: 2 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Application of knowledge Classification: Application 11) When a buyer obtains a loan from a bank to pay a seller, the transaction is known as a(n) ________. A) attachment B) floating lien C) two-party secured transaction D) three-party secured transaction Answer: D Diff: 2 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 12) The property in which a security interest is taken is called collateral. Answer: TRUE Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 13) Article 9 of the Uniform Commercial Code (UCC) governs transactions secured by tangible or intangible personal property. Answer: TRUE Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept

14) Tangible personal property includes securities, patents, trademarks, and copyrights. Answer: FALSE Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 15) If a lender extends unsecured credit to a debtor, the creditor takes no interest in any collateral to secure the loan. Answer: TRUE Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 16) The extension of secured credit requires a debtor's pledge of some personal property as collateral for a loan. Answer: TRUE Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 17) In secured credit, the creditor cannot recover the collateral despite the debtor's defaults on the loan. Answer: FALSE Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 18) Article 9 of the Uniform Commercial Code governs secured transactions in personal property. Answer: TRUE Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept

19) Intangible personal property cannot be used as collateral for a security agreement. Answer: FALSE Diff: 2 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 20) In a secured transaction, the debtor is the secured party. Answer: FALSE Diff: 2 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 21) Security interest is the rate of interest per annum which is entitled to the party that secures payment or performance of an obligation. Answer: FALSE Diff: 2 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 22) A two-party secured transaction occurs when a seller sells goods to a buyer on credit and retains a security interest in the goods. Answer: TRUE Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 23) A three-party secured transaction occurs when a seller sells goods to a buyer who has obtained financing from a third-party lender who takes a security interest in the goods sold. Answer: TRUE Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept

24) In a three-party secured transaction, the party that purchases the goods or services is known as the buyer-secured creditor. Answer: FALSE Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 25) What is a secured transaction? Answer: Most lenders take a security interest in either the item purchases or some other personal property of the debtor because they are reluctant to lend large sums of money simple on the borrower's promise to repay. The property in which a security interest is taken is called collateral. When a creditor extends credit to a debtor and takes a security interest in some property of the debtor, it is called a secured transaction. If the debtor does not pay the debt, the creditor can foreclose on and recover the collateral. Diff: 1 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 26) Distinguish between two-party and three-party secured transactions, and provide some examples. Answer: Two-party secure transactions occur, for example, when a seller sells goods to a buyer on credit and retains a security interest in the goods. Students' examples may vary. Example: A farmer purchases equipment on credit from a farm equipment dealer. The dealer retains a security interest in the farm equipment that becomes collateral for the loan. This is a two-party secured transaction. The farmer is the buyer-debtor and the farm equipment dealer is the seller-lender-secured creditor. A three-party secured transaction arises when a seller sells goods to a buyer who has obtained financing from a third-party lender (e.g., bank) and the third-party lender takes a security interest in the goods. Example: A business purchases an airplane from an airplane manufacturer. The business obtains a loan to purchase the airplane from a bank, which obtains a security interest in the airplane. The airplane manufacturer is paid for the airplane out of the proceeds of the loan. This is a three-party secured transaction. The airplane manufacturer is the seller, the purchasing business is the buyerdebtor, and the bank is the lender-secured creditor. Diff: 2 LO: 27.1 Define secured transaction and describe Revised Article 9 of the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept

27) A ________ is a written document signed by a debtor that creates a security interest in personal property. A) license B) lease agreement C) security agreement D) chattel paper Answer: C Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 28) A(n) ________ is a situation in which a creditor has an enforceable security interest against a debtor and can satisfy the debt out of the designated collateral. A) floating lien B) secured transaction C) attachment D) redemption Answer: C Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 29) Which of the following terms refers to goods that are physically united with other goods in such a manner that the identity of the original goods is not lost? A) inventories B) general intangibles C) accessions D) stocks Answer: C Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 30) Which of the following is considered intangible personal property? A) vehicles B) equipment C) accessions D) deposit accounts Answer: D Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 8 Copyright © 2019 Pearson Education, Inc.

31) A(n) ________ refers to a security interest in property that was not in the possession of the debtor when the security agreement was executed. A) floating lien B) after-acquired property C) attachment D) future advance Answer: A Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 32) A(n) ________ is property that a debtor acquires after the execution of a security agreement. A) floating lien B) after-acquired property C) attachment D) future advance Answer: B Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 33) Kimberly borrows $50,000 from a bank. She gives the bank a security interest in her ________ inventory. This implies that if Kimberly does not repay the loan in the stipulated period, the bank can claim any assets she purchased after signing the security agreement. A) floating lien B) future advance C) attached D) after-acquired Answer: D Diff: 2 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Application of knowledge Classification: Application 34) Which of the following refers to the assets resulting from the exchange or disposal of collateral subject to a security agreement? A) sale proceeds B) future advances C) floating lien D) after-acquired property Answer: A Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 9 Copyright © 2019 Pearson Education, Inc.

35) A ________ is a record that evidences both a monetary obligation and a security interest in specific goods and software used in the goods. A) chattel paper B) citation C) financing statement D) document of possession Answer: A Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 36) To be valid, a security agreement must set forth the creditor's rights on the debtor's default. Answer: TRUE Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 37) Attachment is a situation in which the value of a creditor's collateral is insufficient to satisfy the debt for which it is collated. Answer: FALSE Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 38) Chattel paper is a record that evidences both a monetary obligation and a security interest in specific goods and software used in the goods. Answer: TRUE Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 39) Chattel paper is considered tangible personal property. Answer: FALSE Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept

40) Accessions are pieces of individual property or goods that are not united with any other property. Answer: FALSE Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 41) A floating lien is a security interest in property that was not in the possession of the debtor when the security agreement was executed. Answer: TRUE Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 42) After-acquired property is property obtained by the creditor after a security agreement has been executed. Answer: FALSE Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 43) The term "sales proceeds" refers to the resulting assets from the sale, exchange, or disposal of collateral subject to a security agreement. Answer: TRUE Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 44) Attachments are funds advanced to a debtor from a line of credit secured by collateral. Answer: FALSE Diff: 1 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept

45) Define floating lien and explain the three types of property to which a floating lien can attach. Answer: A floating lien is a security interest in property that was not in the possession of the debtor when the security agreement was executed. A floating lien can attach to (1) after-acquired property, (2) sale proceeds, and (3) future advances (discussed below). (1) After-acquired property is property that the debtor acquires after the security agreement is executed. (2) Unless otherwise stated in a security agreement, if a debtor sells, exchanges, or disposes of collateral, the secured party automatically has the right to receive the sale proceeds. (3) When a debtor establishes a continuing or revolving line of credit at a bank, personal property of the debtor may be designated as collateral. Any future advances made against the line of credit are subject to the security interest in the collateral. A new security agreement does not have to be executed each time a future advance is taken. Diff: 2 LO: 27.2 Describe how a security interest in personal property is created. AACSB: Analytical thinking Classification: Concept 46) ________ is a process that establishes the right of a secured creditor against other creditors who claim an interest in the collateral. A) Disposition of collateral B) Retention of collateral C) Perfection of a security interest D) Repossession of a security interest Answer: C Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept 47) A ________ is a document filed by a secured creditor with the appropriate government office that constructively notifies the world of his or her security interest in personal property. A) security disclosure B) financing statement C) possession statement D) custodial statement Answer: B Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept

48) Which of the following is true of financing statements? A) They cannot be electronically filed. B) They are effective for one year from the date of filing. C) They cannot be extended once they expire. D) They are available for review by the public. Answer: D Diff: 2 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept 49) Which of the following is true of perfection by possession of collateral? A) A creditor cannot take possession of the collateral until a financing statement is filed. B) No financing statement has to be filed if the creditor has physical possession of the collateral. C) A debtor cannot acquire security against the collateral without filing a financing statement. D) A financing statement can be filed only against intangible personal property placed as collateral. Answer: B Diff: 2 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept 50) A ________ is an interest a creditor automatically obtains when he or she extends credit to a consumer to purchase consumer goods. A) purchase money security interest B) cumulative security interest C) future advance monetary interest D) default interest Answer: A Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept

51) Perfection ________ is a situation where the creditor does not have to file a financing statement or take possession of the goods to perfect a security interest. A) by possession of collateral B) by attachment C) by claim D) without statement Answer: B Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept 52) Marcia buys a $3,000 high-definition plasma television for her home on credit extended by the seller, Better Buy. Better Buy requires Marcia to sign a security agreement. Better Buy has a ________ interest in the television that is automatically perfected at the time of the credit sale. A) cumulative security B) future advance monetary C) default D) purchase money security Answer: D Diff: 2 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Application of knowledge Classification: Application 53) Kelly borrows $12,000 from Terry Oswald to pay for her mother's surgery. The debtrepayment period is 15 months, but Kelly manages to repay it in 11 months. Which of the following must be filed by Oswald after receiving the final installment of his money? A) financing statement B) statement of collateral claim C) termination statement D) continuation statement Answer: C Diff: 2 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Application of knowledge Classification: Application

54) Perfection of a security interest establishes the right of a secured creditor against other creditors who claim an interest in the collateral. Answer: TRUE Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept 55) Perfection by investment of collateral is one of the methods of perfecting a security interest under the UCC. Answer: FALSE Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept 56) A financing statement refers to a document filed by a secured creditor with the appropriate government office that constructively notifies the world of his or her security interest in personal property. Answer: TRUE Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept 57) A financing statement covering fixtures is called a continuation statement. Answer: FALSE Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept 58) Financing statements are effective for five years from the date of filing. Answer: TRUE Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept

59) Only one continuation statement can be filed for a financing statement. Answer: FALSE Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept 60) A purchase money security interest is an interest that a creditor automatically obtains when he or she extends credit to a consumer to purchase consumer goods. Answer: TRUE Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept 61) A termination statement is filed when the secured party wishes to claim the collateral because the debt has not been paid. Answer: FALSE Diff: 1 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept 62) What is a financing statement? What is its significance in perfecting a security interest? Answer: A financing statement is a document filed by a secured creditor with the appropriate government office that constructively notifies the world of his or her security interest in personal property. Often, a creditor's physical possession of collateral is impractical because it would deprive the debtor of use of the collateral (e.g., farm equipment, industrial machinery, consumer goods). At other times, it is simply impossible (e.g., accounts receivable). Filing a financing statement in the appropriate government office is the most common method of perfecting a creditor's security interest in such collateral. This is called perfection by filing a financing statement. Diff: 2 LO: 27.3 Describe the perfection of a security interest through the filing of a financing statement and other means. AACSB: Analytical thinking Classification: Concept

63) Which of the following is true of the priority of claims? A) If two or more secured parties claim an interest in the same collateral but only one has perfected his or her security interest, the perfected security interest has priority. B) Although one of the parties to claim an interest in the collateral has perfected his or her security interest, all the parties are given fair and equal priority. C) If two or more secured parties claim an interest in the same collateral but neither has a perfected claim, they are given equal priority irrespective of attachments. D) If two or more secured parties claim an interest in the same collateral but neither has a perfected claim, the first to claim has priority. Answer: A Diff: 2 LO: 27.4 Explain the UCC rule for determining priority among conflicting claims. AACSB: Analytical thinking Classification: Concept 64) Darrel, Smith, Keith, and Aaron are claimants to a collateral interest. Smith and Darrel secure their interests. Aaron takes physical possession of the collateral. Keith files a financing statement some time later. Who among the four will have highest priority of claim to the collateral? A) Darrel B) Smith C) Keith D) Aaron Answer: D Diff: 3 LO: 27.4 Explain the UCC rule for determining priority among conflicting claims. AACSB: Application of knowledge Classification: Application 65) A creditor who has the only secured interest in the debtor's collateral has priority over unsecured interests. Answer: TRUE Diff: 1 LO: 27.4 Explain the UCC rule for determining priority among conflicting claims. AACSB: Analytical thinking Classification: Concept

66) Explain the priority of claims for secured and unsecured transactions. Answer: Two or more creditors often claim an interest in the same collateral or property. The priority of the claims is determined according to (1) whether the claim is unsecured or secured and (2) the time at which secured claims were attached or perfected. The UCC establishes rules for determining priority of claims of creditors. The UCC rules for establishing priority of claims are as follows: 1. A creditor who has the only secured interest in the debtor's collateral has priority over unsecured interests. 2. If two or more secured parties claim an interest in the same collateral but neither has a perfected claim, the first to attach has priority. 3. If two or more secured parties claim an interest in the same collateral but only one has perfected his or her security interest, the perfected security interest has priority. 4. If two or more secured parties have perfected security interests in the same collateral, the first to perfect (e.g., by filing a financing statement, by taking possession of the collateral) has priority. 5. If a security interest in goods is perfected but the goods are later commingled with other goods in which there are also perfected security interests, and the goods become part of a product or mass and lose their identity, the security interests rank equal and according to the ratio that the original cost of goods of each security interest bears to the cost of the total product or mass. Diff: 2 LO: 27.4 Explain the UCC rule for determining priority among conflicting claims. AACSB: Analytical thinking Classification: Concept 67) Which of the following is a default? A) repaying a debt before it is due B) bankruptcy of the debtor C) increase of rate of interest by the creditor midway through debt repayment D) theft of the collateral Answer: B Diff: 2 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept

68) What is repossession? A) a right granted to a debtor to take possession of the collateral after repayment of the debt B) a right granted to a debtor to take possession of the collateral before repayment of the debt C) a right granted to a secured creditor to take possession of the collateral on default by the debtor D) an act of possession of the collateral by the court owing to default by both debtor and creditor Answer: C Diff: 1 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept 69) The term ________ refers to a secured creditor's possession of collateral on a debtor's default and proposal to retain the collateral in satisfaction of the debtor's obligation. A) repossession B) disposal of the goods C) disposing of collateral D) retaining the collateral Answer: D Diff: 1 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept 70) The term ________ refers to a secured creditor's repossession of collateral on a debtor's default and selling, leasing, or otherwise disposing of it in a commercially reasonable manner. A) repossession B) disposal of the goods C) disposition of collateral D) retaining of collateral Answer: C Diff: 1 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept

71) Which of the following is true of disposition of collateral? A) Disposition of collateral must be a public proceeding. B) The debtor is entitled to receive any surplus collateral that remains after disposition. C) The debtor need not be notified of the disposition as the creditor has complete claim on the collateral. D) Disposition of collateral occurs when the default is by the creditor. Answer: B Diff: 2 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept 72) Which of the following permits a secured lender to recover other property or income from a defaulting debtor if the collateral is insufficient to repay the unpaid loan? A) Redemption right B) Deficiency judgment C) Disposition of collateral D) Retention of collateral Answer: B Diff: 1 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept 73) Gregory borrows $200,000 from Mountain Bank to purchase a plot of land, and Mountain Bank perfects its security interest. Gregory defaults on the loan, and owes an outstanding balance of $80,000. His house has gone down in value to $160,000 at the time of default, but he has other personal assets to satisfy the debt. Which of the following is a course of action for Mountain Bank to recover the debt after foreclosing on the loan? A) proceed to judgment against Gregory B) file a financing statement C) release a termination statement D) proceed to repossess the collateral Answer: A Diff: 2 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Application of knowledge Classification: Application

74) A(n) ________ is a statutory lien given to workers who furnish services or materials for personal property in the ordinary course of business. A) super-priority lien B) floating lien C) artisan's lien D) judgment lien Answer: C Diff: 1 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept 75) After a debtor's default, if the proceeds from the disposition of collateral are not sufficient to satisfy the debt to the secured party, the debtor is personally liable to the secured party for the payment of the deficiency. Answer: TRUE Diff: 1 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept 76) The inability of a debtor to pay a debt because of bankruptcy does not constitute default. Answer: FALSE Diff: 1 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept 77) Repossession refers to a right granted to a secured creditor to take possession of collateral in the event of a default by the debtor. Answer: TRUE Diff: 1 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept 78) Retention of collateral refers to a debtor's repossession of the collateral after paying the debt. Answer: FALSE Diff: 1 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept 21 Copyright © 2019 Pearson Education, Inc.

79) An artisan's lien is a statutory lien given to workers who furnish services or materials on or for personal property in the ordinary course of business. Answer: TRUE Diff: 1 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept 80) For an artisan's lien to be effective, the artisan must be in possession of the property. Answer: TRUE Diff: 1 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept 81) What is a deficiency judgment? Explain, and provide some examples. Answer: Unless otherwise agreed, after a debtor's default, if the proceeds from the disposition of collateral are not sufficient to satisfy the debt to the secured party, the debtor is personally liable to the secured party for the payment of the deficiency. The secured party may bring an action to recover a deficiency judgment against the debtor. Students' examples may vary. Example: Sean borrows $15,000 from First Bank to purchase a new automobile. He signs a security agreement, giving First Bank a purchase money security interest in the automobile. Sean defaults after making payments that reduce the debt to $13,250. First Bank repossesses the automobile and sells it at a public auction for $11,000. The selling expenses and sales commission are $1,250. This amount is deducted from the proceeds. The remaining $9,750 is applied to the $13,250 balance of the debt. Sean remains personally liable to First Bank for the $3,500 deficiency ($13,250 balance - $9,750 proceeds). Diff: 2 LO: 27.5 Define default and describe the remedies available to the secured party if there has been a default. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 28 Bankruptcy and Reorganization 1) Which of the following chapters of the bankruptcy code deals with adjustment of debts of a family farmer or fishermen with regular income? A) Chapter 7 B) Chapter 12 C) Chapter 11 D) Chapter 13 Answer: B Diff: 1 LO: 28.1 Describe bankruptcy law and list the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 2) Bankruptcy law is exclusively federal law; there are no state bankruptcy laws. Answer: TRUE Diff: 1 LO: 28.1 Describe bankruptcy law and list the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 3) Article I, Section 8, Clause 4 of the U.S. Constitution states that the President has the power to establish uniform laws pertaining to bankruptcies. Answer: FALSE Diff: 1 LO: 28.1 Describe bankruptcy law and list the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 4) Bankruptcy is primarily a state law. Answer: FALSE Diff: 1 LO: 28.1 Describe bankruptcy law and list the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 5) Bankruptcy petitions cannot be filed by the debtor without the assistance of an attorney or filing service. Answer: FALSE Diff: 2 LO: 28.1 Describe bankruptcy law and list the types of bankruptcy. AACSB: Analytical thinking Classification: Concept

6) The fees of any attorney or filing service used for filing bankruptcy must be paid by the debtor. Answer: TRUE Diff: 1 LO: 28.1 Describe bankruptcy law and list the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 7) The bankruptcy courts are part of the federal court system. Answer: TRUE Diff: 1 LO: 28.1 Describe bankruptcy law and list the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 8) A U.S. Trustee is a federal government official who has responsibility for handling and supervising many of the administrative tasks associated with a bankruptcy case. Answer: TRUE Diff: 1 LO: 28.1 Describe bankruptcy law and list the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 9) Chapter 7 of the Bankruptcy Code of the bankruptcy act of 2005 primarily deals with ________. A) reorganization B) adjustment of debts of a family farmer or fisherman with regular income C) adjustment of debts of an individual with regular income D) liquidation Answer: D Diff: 1 LO: 28.1 Describe bankruptcy law and list the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 10) The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has been criticized as being too "creditor-friendly." Answer: TRUE Diff: 2 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept

11) Which of the following federal acts substantially amended the federal bankruptcy law in 2005? A) Bankruptcy Reform Act of 1978 B) Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 C) the Nelson Act D) the Chandler Act Answer: B Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 12) Which of the following is true of bankruptcy law in the United States? A) The 1978 bankruptcy law made it easier for debtors to be relieved of much of their debt. B) The 1978 bankruptcy law was deemed to be "creditor friendly." C) The bankruptcy act of 2005 makes it easier for debtors to be relieved of their debts under federal bankruptcy law. D) The 2005 bankruptcy act has been called "debtor friendly." Answer: A Diff: 2 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 13) The Bankruptcy Reform Act of 1978 made it easier for debtors to file for bankruptcy and have their unpaid debts discharged. Answer: TRUE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 14) The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 makes it more difficult for debtors to file for bankruptcy and have their unpaid debts discharged. Answer: TRUE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 15) There are separate state and federal bankruptcy laws. Answer: FALSE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

16) Bankruptcy proceedings are carried out at special U.S. Bankruptcy Courts created by the Congress. Answer: TRUE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 17) Which of the following is true of the bankruptcy procedure? A) A driven petition is a petition filed by a debtor that states that he or she has debts. B) A debtor must receive prepetition credit counseling within 180 days prior to filing his or her petition for bankruptcy. C) A voluntary petition is filed by creditors of a debtor, alleging that the debtor is not paying his or her debts as they become due. D) A complaint is a document filed with a bankruptcy court that starts a bankruptcy proceeding. Answer: B Diff: 2 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 18) Sam wants to file a petition for bankruptcy. Which of the following is true in this context? A) Sam need not submit a list of creditors; it is obtained by the court upon investigation. B) Sam's bankruptcy petition cannot be filed electronically. C) Only Sam's attorney can file his bankruptcy petition. D) Sam's attorney is liable for perjury if information filed by Sam is incorrect. Answer: D Diff: 2 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 19) The filing of either a voluntary petition or an unchallenged involuntary petition constitutes a(n) ________. A) reaffirmation agreement B) discharge C) order for relief D) composition Answer: C Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept

20) Which of the following is true of the meeting of the creditors? A) A meeting of the creditors is called before the court grants an order for relief. B) The bankruptcy judge cannot attend the meeting of the creditors. C) In the first meeting of the creditors, a debtor is questioned by a jury constituted for the purpose. D) Questions regarding the debtor's possible concealment of assets are not permitted during the meeting of the creditors. Answer: B Diff: 2 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 21) Which of the following best defines a proof of claim? A) a statement by the debtor that states that he or she has debts B) a document required to be filed by a debtor showing property that is exempt from constituting the bankruptcy estate C) a document required to be filed by a creditor that states the amount of his or her claim against the debtor D) a statement by creditors alleging that the debtor is not paying his or her debts as they become due Answer: C Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 22) A(n) ________ is a document required to be filed by an equity security holder that states the amount of his or her interest against the debtor. A) proof of claim B) proof of interest C) voluntary petition D) involuntary petition Answer: B Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept

23) A bankruptcy trustee is a ________. A) legal representative of a debtor's estate B) claimant to the debtor's estate on behalf of a creditor C) federal government official responsible for supervising a bankruptcy case D) bankruptcy judge, appointed by a U.S. Bankruptcy Court Answer: A Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 24) The suspension of certain legal actions by creditors against a debtor or the debtor's property is known as a(n) ________. A) discharge of debt B) composition C) automatic stay D) order for relief Answer: C Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 25) Why is a discharge of debt granted? A) to divide the bankruptcy estate equally among all creditors B) to relieve the debtor of the responsibility to pay some of or all of the debt C) to divide the bankruptcy estate according to the debt owed to each creditor D) to suspend certain legal actions by creditors against a debtor's property Answer: B Diff: 2 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 26) A(n) ________ is an agreement entered into by the creditor and the debtor whereby the debtor agrees to pay the creditor for a debt that is dischargeable in bankruptcy. A) reaffirmation agreement B) order for relief C) discharge agreement D) acceptance agreement Answer: A Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept

27) A complaint is a document filed with a bankruptcy court that starts a bankruptcy proceeding. Answer: FALSE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 28) A voluntary petition is a petition filed by a creditor that states that the debtor has paid his debts. Answer: FALSE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 29) The 2005 act requires an attorney certification whereby an attorney who represents a client in bankruptcy must certify the accuracy of the information contained in the bankruptcy petition. Answer: TRUE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 30) An order for relief occurs upon the filing of either a voluntary petition or an unchallenged involuntary petition. Answer: TRUE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 31) The bankruptcy judge cannot attend the first meeting of the creditors. Answer: TRUE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 32) In a meeting of the creditors, the bankruptcy judge questions the debtor. Answer: FALSE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept

33) A proof of claim is a document required to be filed by a creditor that states the amount of his or her claim against the debtor. Answer: TRUE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 34) A secured creditor whose claim exceeds the value of the collateral may submit a proof of claim and become an unsecured claimant as to the difference. Answer: TRUE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 35) All creditors must file a proof of interest before a bankruptcy proceeding. Answer: FALSE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 36) A bankruptcy trustee is a legal representative of a creditor's claim to an estate. Answer: TRUE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 37) An automatic stay refers to the suspension of certain legal actions by creditors against a debtor or the debtor's property. Answer: TRUE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 38) A creditor's action of perfecting liens against a debtor's property cannot be stayed. Answer: FALSE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept

39) Unscheduled claims are not dischargeable in bankruptcy. Answer: TRUE Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 40) Describe the procedure for filing a bankruptcy petition. Answer: 1. Voluntary petition–A voluntary petition is a petition filed by the debtor. A voluntary petition can be filed by the debtor in Chapter 7 (liquidation), Chapter 11 (reorganization), Chapter 12 (family farmer or fisherman), and Chapter 13 (adjustment of debts) bankruptcy cases. The petition has to state that the debtor has debts. 2. Involuntary petition–An involuntary petition is a petition that is filed by a creditor or creditors and places the debtor into bankruptcy. An involuntary petition can be filed in Chapter 7 (liquidation) and Chapter 11 (reorganization) cases; an involuntary petition cannot be filed in Chapter 12 (family farmer or fisherman) or Chapter 13 (adjustment of debts) cases. Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 41) How does a court order to discharge debts benefit the debtor? Under what circumstances do courts grant a discharge? Answer: In Chapter 7 (liquidation), Chapter 11 (reorganization), Chapter 12 (family farmer and family fisherman), and Chapter 13 (adjustment of debts) bankruptcies, if the requirements are met, the court grants the debtor a discharge of all or some of his, her, or its debts. When discharge is granted, the debtor is relieved of responsibility to pay the discharged debts. In other words, the debtor is no longer legally liable to pay the discharged debts. Diff: 1 LO: 28.2 Describe bankruptcy procedures, including filing petitions for bankruptcy proceedings. AACSB: Analytical thinking Classification: Concept 42) A reaffirmation agreement is an agreement whereby a creditor agrees to discharge the debtor of certain debts that may be included in the bankruptcy. Answer: FALSE Diff: 1 LO: 28.3 Describe how the bankruptcy estate is determined. AACSB: Analytical thinking Classification: Concept

43) Gifts that a debtor is entitled to receive within 180 days after a bankruptcy petition is filed are part of the debtor's bankruptcy estate. Answer: TRUE Diff: 1 LO: 28.3 Describe how the bankruptcy estate is determined. AACSB: Analytical thinking Classification: Concept 44) Which of the following is true of a debtor's bankruptcy estate? A) Only intangible personal property constitutes the bankruptcy estate. B) No property solely owned by the debtor is exempted from the bankruptcy estate. C) Creditors are allowed to claim exempt property. D) Government benefits and compensations are exempted from the bankruptcy estate. Answer: D Diff: 2 LO: 28.3 Describe how the bankruptcy estate is determined. AACSB: Analytical thinking Classification: Concept 45) Which of the following would be part of the bankruptcy estate of a debtor? A) interest in jewelry worth $1,000 B) unmatured life insurance policy owned by the debtor C) interests in wrongful death benefits D) interest of $3,500 in a motor vehicle Answer: D Diff: 2 LO: 28.3 Describe how the bankruptcy estate is determined. AACSB: Analytical thinking Classification: Concept 46) Briefly explain what is included in a bankruptcy estate. Answer: The bankruptcy estate includes all the debtor's legal and equitable interests in real, personal, tangible, and intangible property, wherever located, that exist when the petition is filed, and all interests of the debtor and the debtor's spouse in community property. Certain exempt property is not part of the bankruptcy estate. Exempt property is property of the debtor that he or she can keep and that does not become part of the bankruptcy estate. The creditors cannot claim this property. Gifts, inheritances, life insurance proceeds, and property from divorce settlements that the debtor is entitled to receive within 180 days after the petition is filed are part of the bankruptcy estate. Earnings from property of the estate–such as rents, dividends, and interest payments are property of the estate. Earnings from services performed by an individual debtor are not part of the bankruptcy estate in a Chapter 7 liquidation bankruptcy. Diff: 2 LO: 28.3 Describe how the bankruptcy estate is determined. AACSB: Analytical thinking Classification: Concept

47) Exempt property may not be retained by a debtor who files for bankruptcy. Answer: FALSE Diff: 1 LO: 28.4 List and describe the exempt property that a debtor is permitted to keep. AACSB: Analytical thinking Classification: Concept 48) What is a homestead exemption? A) investment in realty that a debtor must forfeit B) equity in a home that a debtor is permitted to retain C) remainder of the debtor's interest in commercial property that is returned to him after fulfilling creditors' claims D) all of the debtor's assets converted to cash Answer: B Diff: 1 LO: 28.4 List and describe the exempt property that a debtor is permitted to keep. AACSB: Analytical thinking Classification: Concept 49) ________ is a form of bankruptcy in which the debtor's nonexempt property is sold for cash, the cash is distributed to the creditors, and any unpaid debts are discharged. A) Abusive filing B) Dissolution of debt C) Liquidation D) Reorganization Answer: C Diff: 1 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 50) Which of the following is true of Chapter 7 liquidation? A) The debtor is not permitted to keep any of his or her assets. B) The 2005 bankruptcy act has eased the process of applying for a Chapter 7 bankruptcy. C) The debtor's future income cannot be reached to pay the discharged debt. D) Petitioning for Chapter 7 liquidation does not permit the debtor to petition for bankruptcy under any other chapter. Answer: C Diff: 2 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept

51) Which of the following is true of the median income test? A) If a family has median family income equal to the state's median family income, the debtor does not qualify for a Chapter 7 bankruptcy. B) If a family has median family income below the state's median family income, the debtor is subject to the "means" test. C) If a family has median family income below the state's median family income, the debtor automatically qualifies for a Chapter 7 bankruptcy. D) A debtor's debts are not discharged if the family median income is more than the state's median family income. Answer: C Diff: 2 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 52) The ________ is a bankruptcy rule that applies to a debtor who has a median family income that exceeds the state's median family income for families the same size as the debtor's family. A) means test B) median income test C) Chapter 13 discharge D) Chapter 13 plan of payment Answer: A Diff: 1 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 53) A means test is used to determine whether ________. A) the debtor's median family income is less than the state's median family income B) the debtor's median family income is more than the state's median family income C) the debtor has the capability to pay prepetition debts out of postpetition income D) the debtor would qualify to file for bankruptcy under Chapter 13 Answer: C Diff: 2 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept

54) If the value of the secured interest is less than the value of the collateral securing a loan, the secured creditor is ________. A) an undersecured creditor B) an oversecured creditor C) in default D) exempt from Chapter 7 bankruptcy Answer: B Diff: 1 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 55) Under the 2005 bankruptcy act, if non-exempt personal property of an individual debtor secures a claim or is subject to an unexpired lease, the debtor ________. A) must surrender the property B) can appeal for exemption of the property C) must terminate the lease with immediate effect D) cannot redeem the property Answer: A Diff: 2 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 56) What is a Chapter 7 discharge? A) The termination of the legal duty of an individual debtor to pay both secured and unsecured debts before he or she is granted a court trial. B) The termination of the legal duty of an individual debtor to pay unsecured debts that remain unpaid upon the completion of a Chapter 7 proceeding. C) The cancellation of all debts of a debtor that remain unpaid upon the completion of a Chapter 13 proceeding. D) An instruction to the debtor to propose a plan to pay all or a portion of the debts he or she owes in installments. Answer: B Diff: 1 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept

57) If a person's debts are subject to a Chapter 7 discharge, what does it mean? A) that he or she needs to repay only unsecured debts B) that he or she needs to repay only secured debts C) that he or she needs to pay his prepetition debts with his postpetition income D) that he or she need not repay the debt Answer: D Diff: 2 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 58) The 2005 bankruptcy act provides that after already getting relief under other chapters of the Bankruptcy Code, a debtor can be granted Chapter 7 relief in which of these situations? A) six years following Chapter 11 relief B) four years following Chapter 11 relief C) six years following Chapter 12 relief D) twelve years following Chapter 13 relief Answer: C Diff: 1 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 59) The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires that before an individual debtor receives a discharge in a Chapter 7 or Chapter 13 bankruptcy, the debtor must attend a personal financial management course approved by the U.S. Trustee. Answer: TRUE Diff: 1 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 60) Liquidation is also called straight bankruptcy. Answer: TRUE Diff: 1 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 61) Liquidation is a form of bankruptcy in which the debtor's exempt property is auctioned. Answer: FALSE Diff: 1 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept

62) The median income test is a bankruptcy rule that states that if a debtor's median family income is at or below the state's median family income for a family the same size as the debtor's family, the debtor can receive Chapter 7 relief. Answer: TRUE Diff: 1 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 63) If the value of the collateral securing a secured loan is less than the secured interest, the secured creditor is an oversecured creditor. Answer: FALSE Diff: 1 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 64) Unpaid debts that the debtor incurred prior to the date of the order for relief are discharged under Chapter 7. Answer: TRUE Diff: 1 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept 65) What is liquidation? How does the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 affect the process of liquidation? Answer: In liquidation, the debtor is permitted to keep a substantial portion of his or her assets (exempt assets); the debtor's nonexempt property is sold for cash, and the cash is distributed to the creditors; and any of the debtor's unpaid debts are discharged. The debtor's future income, even if he or she becomes rich, cannot be reached to pay the discharged debt. The 2005 act substantially restricts the ability of many debtors to obtain a Chapter 7 liquidation bankruptcy. The 2005 act added the median income test and the dollar-based means test that a debtor must pass before being permitted to obtain a discharge of debts under Chapter 7. Thus, the 2005 act reduces the number of debtors who can escape their prepetition debts entirely. Diff: 2 LO: 28.5 Describe the provisions of a Chapter 7 liquidation bankruptcy. AACSB: Analytical thinking Classification: Concept

66) ________ is a rehabilitation form of bankruptcy that permits bankruptcy courts to supervise the debtor's plan for the payment of unpaid debts in installments over the plan period. A) Chapter 7 B) Chapter 13 C) Chapter 11 D) Chapter 12 Answer: B Diff: 1 LO: 28.6 Describe a Chapter 13 adjustment of debts of an individual with regular income bankruptcy. AACSB: Analytical thinking Classification: Concept 67) Which of the following is true of a Chapter 13 petition? A) It can be filed by all individual debtors, irrespective of their income. B) The petitioner need not demand an extension or composition. C) To qualify for Chapter 13, the debts must primarily be consumer debt. D) Creditors can file a Chapter 13 petition claiming payment from a debtor. Answer: C Diff: 2 LO: 28.6 Describe a Chapter 13 adjustment of debts of an individual with regular income bankruptcy. AACSB: Analytical thinking Classification: Concept 68) A(n) ________ provides for the reduction of a debtor's debts. A) extension B) liquidation C) limitation D) composition Answer: D Diff: 1 LO: 28.6 Describe a Chapter 13 adjustment of debts of an individual with regular income bankruptcy. AACSB: Analytical thinking Classification: Concept

69) Which of the following constitutes the property of a Chapter 13 estate? A) nonexempt property of the debtor before the case is closed B) exempt property of the debtor before the case is closed C) debtor's income before and after the case is closed D) property that is exempt from Chapter 7 estate Answer: A Diff: 1 LO: 28.6 Describe a Chapter 13 adjustment of debts of an individual with regular income bankruptcy. AACSB: Analytical thinking Classification: Concept 70) Paulo Dessario is the owner of Paulo's Pizzeria, which has not been doing well in the last year. He files for bankruptcy under Chapter 13. Which of the following is true of Chapter 13? A) Paulo must terminate all his business operations in the United States. B) If the pizzeria is not exempt from the Chapter 13 estate, Paulo must close it. C) Paulo is allowed to continue operating the pizzeria, whether or not it is exempt. D) Paulo can only operate the pizzeria but cannot remain in possession of it. Answer: C Diff: 2 LO: 28.6 Describe a Chapter 13 adjustment of debts of an individual with regular income bankruptcy. AACSB: Application of knowledge Classification: Application 71) Which of the following is true of Chapter 13 discharge? A) It is granted before a Chapter 13 plan of payment is enforced. B) It is not granted if the debtor has received Chapter 7 discharge in the last four years. C) It is granted only for the secured unpaid debts of a debtor. D) All unpaid taxes are discharged under Chapter 13 discharge. Answer: B Diff: 2 LO: 28.6 Describe a Chapter 13 adjustment of debts of an individual with regular income bankruptcy. AACSB: Analytical thinking Classification: Concept 72) Under Chapter 13, a debtor retains more property than is exempt under Chapter 7 liquidation. Answer: TRUE Diff: 1 LO: 28.6 Describe a Chapter 13 adjustment of debts of an individual with regular income bankruptcy. AACSB: Analytical thinking Classification: Concept

73) A composition provides a longer period of time for a debtor to pay his or her debts. Answer: FALSE Diff: 1 LO: 28.6 Describe a Chapter 13 adjustment of debts of an individual with regular income bankruptcy. AACSB: Analytical thinking Classification: Concept 74) The property of a Chapter 13 estate consists of nonexempt property acquired after a case is closed. Answer: FALSE Diff: 1 LO: 28.6 Describe a Chapter 13 adjustment of debts of an individual with regular income bankruptcy. AACSB: Analytical thinking Classification: Concept 75) Chapter 13 discharges are granted to debtors before their plans of payment begin. Answer: FALSE Diff: 1 LO: 28.6 Describe a Chapter 13 adjustment of debts of an individual with regular income bankruptcy. AACSB: Analytical thinking Classification: Concept 76) Which of the following bankruptcy methods allows the reorganization of the debtor's financial affairs? A) Chapter 11 B) Chapter 13 C) Chapter 7 D) Chapter 12 Answer: A Diff: 1 LO: 28.7 Describe how businesses are reorganized in Chapter 11 bankruptcy. AACSB: Analytical thinking Classification: Concept

77) A person filing for bankruptcy under Chapter 11 and left in place to operate the business during the reorganization proceeding is known as the ________. A) trustee B) debtor-in-possession C) consignor D) regent Answer: B Diff: 1 LO: 28.7 Describe how businesses are reorganized in Chapter 11 bankruptcy. AACSB: Analytical thinking Classification: Concept 78) What is an executory contract? A) a contract that cannot be discharged under Chapter 13 B) a contract that the debtor is obliged to perform despite filing for bankruptcy C) an agreement between several creditors and a single debtor, dividing the debtor's property D) a contract that has not been fully performed Answer: D Diff: 1 LO: 28.7 Describe how businesses are reorganized in Chapter 11 bankruptcy. AACSB: Analytical thinking Classification: Concept 79) Which of the following does a Chapter 11 automatic stay provide? A) automatic discharge of secured debts B) suspension of certain legal actions against the debtor C) creditors' foreclosure on assets given as collateral for loans D) automatic discharge of unsecured debts Answer: B Diff: 1 LO: 28.7 Describe how businesses are reorganized in Chapter 11 bankruptcy. AACSB: Analytical thinking Classification: Concept 80) Which of the following is true of Chapter 11 of the Bankruptcy Code? A) Chapter 11 is a rehabilitation form of bankruptcy that permits bankruptcy courts to supervise the debtor's plan for the payment of unpaid debts. B) The filing of a Chapter 11 petition immediately enables creditors to recover the debtor's property. C) Chapter 11 helps the debtor reorganize with a new capital structure so that the debtor emerges from bankruptcy as a viable concern. D) Chapter 11 does not permit a debtor to reject executory contracts or unexpired leases. Answer: C Diff: 2 LO: 28.7 Describe how businesses are reorganized in Chapter 11 bankruptcy. AACSB: Analytical thinking Classification: Concept 19 Copyright © 2019 Pearson Education, Inc.

81) Which of the following is a feature of a Chapter 11 plan of reorganization? A) an equilateral division of the Chapter 11 estate among all creditors B) division of the bankruptcy estate according to the debt to be paid to each creditor C) discharge of a debtor's unsecured debts and payment of secured debts D) a proposed new capital structure for a debtor to assume when it emerges from Chapter 11 bankruptcy Answer: D Diff: 1 LO: 28.7 Describe how businesses are reorganized in Chapter 11 bankruptcy. AACSB: Analytical thinking Classification: Concept 82) A(n) ________ provision is a provision whereby the court confirms a plan of reorganization over an objecting class of creditors if certain requirements are met. A) cram-down B) acceptance C) discharge D) liquidation Answer: A Diff: 1 LO: 28.7 Describe how businesses are reorganized in Chapter 11 bankruptcy. AACSB: Analytical thinking Classification: Concept 83) A debtor-in-possession is a debtor who is left in place to operate the business during the reorganization proceeding. Answer: TRUE Diff: 1 LO: 28.7 Describe how businesses are reorganized in Chapter 11 bankruptcy. AACSB: Analytical thinking Classification: Concept 84) The acceptance method is a method whereby a bankruptcy court confirms a plan of reorganization if the creditors accept the plan and if other requirements are met. Answer: TRUE Diff: 1 LO: 28.7 Describe how businesses are reorganized in Chapter 11 bankruptcy. AACSB: Analytical thinking Classification: Concept 85) An executory contract refers to a contract or lease that has not been fully performed. Answer: TRUE Diff: 1 LO: 28.7 Describe how businesses are reorganized in Chapter 11 bankruptcy. AACSB: Analytical thinking Classification: Concept 20 Copyright © 2019 Pearson Education, Inc.

86) Briefly explain the Chapter 11 plan of reorganization. Answer: The debtor has the exclusive right to file a Chapter 11 plan of reorganization with the bankruptcy court within the first 120 days after the date of the order for relief. Under the 2005 act, this period may be extended up to 18 months. The debtor has the right to obtain creditor approval of the plan, but if the debtor fails to do so, any party of interest (e.g., a trustee, a creditor, an equity holder) may propose a plan. The plan of reorganization sets forth the proposed new financial structure of the debtor. This includes the portion of the unsecured debts proposed to be paid by the debtor and the unsecured debt the debtor proposes to have discharged. The plan must specify the executory contracts and unexpired leases that the debtor proposes to reject that have not previously been rejected in the bankruptcy proceeding. The plan also designates how equity holders are to be treated, describes any new equity investments that are to be made in the debtor, and includes other relevant information. The debtor must supply the creditors and equity holders with a disclosure statement that contains adequate information about the proposed plan of reorganization so that they can make an informed judgment about the plan. Diff: 2 LO: 28.7 Describe how businesses are reorganized in Chapter 11 bankruptcy. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 29 Agency Formation and Termination 1) An agent is a party who ________. A) agrees to act on behalf of another B) employs another person to act on his or her behalf C) directs a worker under an express or implied contract of employment D) receives the services of another for remuneration Answer: A Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept 2) A party who employs another person to act on his or her behalf is known as a(n) ________. A) agent B) principal C) independent contractor D) employee Answer: B Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept 3) Which of the following constitutes an agency? A) principal-agent relationship B) agent-agent relationship C) principal-principal relationship D) agent-independent contractor relationship Answer: A Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept

4) A(n) ________ is a fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act. A) assignment B) garnishment C) accommodation D) agency Answer: D Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept 5) Martin, who wants to sell a house he owns, authorizes his concierge, Wilhelm, to find a potential buyer and finalize a deal above a stipulated price. Wilhelm contracts Chris, a real estate broker, and instructs him to only find a potential buyer and send them over to Wilhelm for the sale. Martin then contracts ReNowait Goodhouses, a home improvement company to renovate the house. ReNowait completes its work and Martin pays them. Chris then searches for a suitable buyer and finds one in George. George buys the house and Chris is paid for his services. Who performs the role of the agent in this land sale transaction? A) Wilhelm B) Martin C) Chris D) George Answer: A Diff: 2 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Application of knowledge Classification: Application 6) Greg, who wants to sell a car he owns, authorizes his concierge, Walter, to find a potential buyer and finalize a deal above a stipulated price. Walter contracts Jacob, an independent car sales broker, and instructs him to only find a potential buyer and send them over to Walter for the sale. Greg then contracts CarWreckers, an automobile modification company to renovate his car. CarWreckers completes its work and Greg pays them. Jacob then searches for a suitable buyer and finds one in Carl. Carl buys the car and Jacob is paid for his services. Who is the principal during the car sale transaction? A) CarWreckers B) Carl C) Greg D) Walter Answer: C Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Application of knowledge Classification: Application 2 Copyright © 2019 Pearson Education, Inc.

7) Martin, who wants to sell a house he owns, authorizes his concierge, Wilhelm, to find a potential buyer and finalize a deal above a stipulated price. Wilhelm contracts Chris, a real estate broker, and instructs him to only find a potential buyer and send them over to Wilhelm for the sale. Martin then contracts ReNowait Goodhouses, a home improvement company to renovate the house. ReNowait completes its work and Martin pays them. Chris then searches for a suitable buyer and finds one in George. George buys the house and Chris is paid for his services. What sort of commercial relationship exists between Martin and Wilhelm? A) employer-employee relationship B) agent-agent relationship C) agent-independent contractor relationship D) principal-agent relationship Answer: D Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Application of knowledge Classification: Application 8) A(n) ________ is a relationship formed when an employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf. A) agent-independent contractor relationship B) principal-agent relationship C) agent-agent relationship D) employer-employee relationship Answer: B Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept 9) Which of the following types of relationship exists when a person hires another person to perform some form of physical service but does not authorize that person to enter into contracts on his or her behalf? A) employer-employee relationship B) employer-agent relationship C) principal-third party relationship D) principal-agent relationship Answer: A Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept

10) Which of the following is true of an employer-employee relationship? A) An employee has implied power of attorney towards the principal. B) An employee has authority to act on behalf of the principal. C) An employee can enter into contracts on behalf of the employer. D) An employee is hired to perform a physical task or service. Answer: D Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept 11) Agency law is a mixture of tort law and contract law. Answer: TRUE Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept 12) A principal who signs a contract with a third party is obligated to perform that contract. Answer: TRUE Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept 13) A principal works on behalf of an agent. Answer: FALSE Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept 14) Agency relationships created against public policy are void and unenforceable. Answer: TRUE Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept 15) Minors can appoint an agent without court approval. Answer: FALSE Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept

16) A principal-agent relationship exists when an employer hires an employee to perform some form of physical service. Answer: FALSE Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept 17) An employer-employee relationship exists when an employer gives an employee authority to act and enter into contracts on his or her behalf. Answer: FALSE Diff: 1 LO: 29.1 Define agency and identify the parties to a principal-agent relationship. AACSB: Analytical thinking Classification: Concept 18) Martin, who wants to sell a house he owns, authorizes his concierge, Wilhelm, to find a potential buyer and finalize a deal above a stipulated price. Wilhelm contracts Chris, a real estate broker, and instructs him to only find a potential buyer and send them over to Wilhelm for the sale. Martin then contracts ReNowait Goodhouses, a home improvement company to renovate the house. ReNowait completes its work and Martin pays them. Chris then searches for a suitable buyer and finds one in George. George buys the house and Chris is paid for his services. What role does ReNowait Goodhouses perform? A) agent B) independent contractor C) principal D) trustee Answer: B Diff: 2 LO: 29.2 Describe a principal-independent contractor relationship. AACSB: Application of knowledge Classification: Application

19) Martin, who wants to sell a house he owns, authorizes his concierge, Wilhelm, to find a potential buyer and finalize a deal above a stipulated price. Wilhelm contracts Chris, a real estate broker, and instructs him to only find a potential buyer and send them over to Wilhelm for the sale. Martin then contracts ReNowait Goodhouses, a home improvement company to renovate the house. ReNowait completes its work and Martin pays them. Chris then searches for a suitable buyer and finds one in George. George buys the house and Chris is paid for his services. What role does Chris perform? A) independent contractor B) agent C) principal D) trustee Answer: A Diff: 2 LO: 29.2 Describe a principal-independent contractor relationship. AACSB: Application of knowledge Classification: Application 20) Which of the following is true of a principal-independent contractor relationship? A) Principals are bound by the authorized contracts of their independent contractors. B) Independent contractors cannot be authorized by principals. C) Independent contractors are employees of the principals. D) Principals cannot directly employ independent contractors. Answer: A Diff: 1 LO: 29.2 Describe a principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 21) If a person employs an architect to design the layout of his or her own home, it would constitute a(n) ________ relationship. A) employer-employee B) principal-independent contractor C) principal-agent D) agent-independent contractor Answer: B Diff: 1 LO: 29.2 Describe a principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 22) A principal can authorize an independent contractor to enter into contracts. Answer: TRUE Diff: 1 LO: 29.2 Describe a principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

23) What is an independent contractor? Provide several examples. Answer: Principals often employ outsiders–persons, and businesses that are not employees–to perform certain tasks on their behalf. These persons and businesses are called independent contractors. Independent contractors operate their own business or profession. The arrangement creates a principal independent contractor relationship. A principal can authorize an independent contractor to enter into contracts. Principals are bound by the authorized contracts of their independent contractors. Diff: 1 LO: 29.2 Describe a principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 24) Marlon intends to sell a piece of real estate he owns and contracts Nita, a real estate broker, to make the sale. In the contract, Marlon authorizes Nita to make the sale at or above a minimum price he wants and the date by which he wants the sale to be completed. The contract also stipulates that Marlon will not hire another broker to sell that piece of land until the contract period expires. Nita finds a suitable buyer, makes the sale in time, and is paid by Marlon for her services. Which of the following types of agency existed between Marlon and Nita? A) apparent agency B) agency by ratification C) implied agency D) express agency Answer: D Diff: 2 LO: 29.3 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application 25) Marlon intends to sell a piece of real estate he owns and contracts Nita, a real estate broker, to make the sale. In the contract, Marlon authorizes Nita to make the sale at or above a minimum price he wants and the date by which he wants the sale to be completed. The contract also stipulates that Marlon will not hire another broker to sell that piece of land until the contract period expires. Nita finds a suitable buyer, makes the sale in time, and is paid by Marlon for her services. What kind of contract existed between Marlon and Nita? A) an apparent agency contract B) a ratified contract C) an exclusive agency contract D) an exclusive principal contract Answer: C Diff: 2 LO: 29.3 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application

26) An agency that occurs when a principal and an agent categorically agree to enter into an agency agreement with each other is known as a(n) ________. A) agency by ratification B) implied agency C) apparent agency D) express agency Answer: D Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application 27) A(n) ________ is a contract a principal and agent enter into that says the principal cannot employ another agent other than the one stated. A) exclusive principal contract B) exclusive agency contract C) ratified contract D) apparent agency contract Answer: B Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 28) Which of the following is true of an express agency? A) The agency involved is allowed to have multiple agents if desired. B) The agency is implied from the conduct of the parties. C) The agency comes to effect when the principal ratifies an unauthorized act. D) The agency arises when a principal creates the appearance of an agency that does not exist. Answer: A Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 29) A power of attorney is an example of a(n) ________ agreement. A) agency by ratification B) apparent agency C) express agency D) implied agency Answer: C Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept

30) Which of the following is true of a general power of attorney? A) A power of attorney can be oral. B) Only lawyers can be agents of a power of attorney. C) A power of attorney cannot be claimed once the principal is incapacitated. D) It may allow the agent to sign legal documents on the principal's behalf. Answer: D Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 31) Taylor gives a power of attorney to his twin brother Corey, permitting Corey to make all decisions on his behalf while he is abroad. Per the terms of the power of attorney, Corey is allowed make decisions to buy or sell stocks on Taylor's behalf, sell Taylor's real estate if he deems it to be in Taylor's best interest, pursue or defend lawsuits on Taylor's behalf, and make all other relevant decisions for Taylor. What kind of power of attorney would confer such powers to Corey? A) a special power of attorney B) a limited power of attorney C) an implied power of attorney D) a general power of attorney Answer: D Diff: 2 LO: 29.3 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application 32) Which of the following is true about a special power of attorney? A) It is an implied form of the power of attorney. B) It limits the agent's powers to those enumerated in the agreement. C) It allows the agent to act in any matters on the principal's behalf. D) It only allows certified lawyers to be agents. Answer: B Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept

33) Which of the following is true about a durable power of attorney? A) It is only effective as long as the principal is able. B) It remains effective even though the principal is incapacitated. C) It is effective even when the agency is an oral agreement. D) It is only effective if the agent is a certified lawyer. Answer: B Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 34) Canton has listed his house for sale but cannot be present for the sale because he needs to go out of town. He intends to give his brother Stratham the power of attorney to make decisions regarding the selling of his house while he is gone. What kind of power of attorney should Canton execute? A) a general power of attorney B) a special power of attorney C) a limited power of attorney D) an implied power of attorney Answer: B Diff: 2 LO: 29.3 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application 35) An express agency agreement that is often used to give an agent the control to sign legal documents on behalf of the principal is known as a(n) ________. A) assignment B) accommodation C) power of attorney D) letter of credit Answer: C Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept

36) A power of attorney where a principal confers powers on an agent to act in specified matters on the principal's behalf is referred to as a(n) ________. A) implied power of attorney B) general power of attorney C) limited power of attorney D) special power of attorney Answer: D Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 37) An agency that occurs when a principal and an agent do not expressly create an agency but is inferred from the conduct of the parties is known as a(n) ________. A) apparent agency B) agency by ratification C) implied agency D) agency coupled with an interest Answer: C Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 38) Marcus employs a real estate broker, Dean, to sell his house. Dean's express powers are to advertise and market the house for sale, show the house to prospective buyers, and accept offers from them. He is not allowed to seal a deal without Marcus' consent. Marcus goes away on a month-long trip where he cannot be contacted. During this time, a short circuit in the house causes a power outage. Dean uses his authority to hire an electrician to repair the circuits and restore electricity in the house. Marcus then comes back and pays Dean for the repairs. What is the nature of the agency that Dean used to fix the problem in the house? A) implied agency B) agency by ratification C) power of attorney D) express agency Answer: A Diff: 2 LO: 29.3 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application

39) Frank Hannigan sees a grand piano that his musician friend Scott Kristoff had been looking for in an antique store. Frank enters into a contract to purchase the grand piano from the antique seller and signs the contract, "Frank Hannigan, agent for Scott Kristoff." But because Frank is not Scott's agent, Scott is not bound by the contract. If Scott decides to accept the contract, what kind of agency would be created? A) express agency B) implied agency C) agency by ratification D) power of attorney Answer: C Diff: 2 LO: 29.3 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application 40) An agency by ratification occurs when the principal ________. A) accepts an unauthorized act created by an unauthorized agent B) accepts an authorized act created by an authorized agent C) creates the appearance of an agency that in actuality does not exist D) accepts an act carried out under the implied authority of an agent Answer: A Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 41) If a principal and an agent enter into an express agency contract, the principal cannot employ any agent other than the exclusive agent. Answer: TRUE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 42) An express agency contract cannot be orally agreed upon. Answer: FALSE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept

43) A power of attorney gives an agent the power to sign legal documents on behalf of the principal. Answer: TRUE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 44) A general power of attorney limits the agent to those acts enumerated by the agreement. Answer: FALSE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 45) A special power of attorney empowers the agent to act in any matters on the principal's behalf without limitation. Answer: FALSE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 46) An agent given a power of attorney is known as an attorney-in-fact. Answer: TRUE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 47) Only a lawyer can become an attorney-in-fact. Answer: FALSE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 48) Powers of attorney can be oral. Answer: FALSE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept

49) A durable power of attorney remains effective even if the principal is incapacitated. Answer: TRUE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 50) Agency can be implied from the conduct of the involved parties. Answer: TRUE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 51) In an agency by ratification, the agent is relieved of any liability for misrepresentation. Answer: TRUE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 52) An agency by ratification occurs when a principal ratifies an authorized act. Answer: FALSE Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 53) What is an implied agency? Answer: In many situations, a principal and an agent do not expressly create an agency. Instead, the agency is implied from the conduct of the parties. This type of agency is referred to as an implied agency. The extent of the agent's authority is determined from the facts and circumstances of the particular situation. Implied authority can be conferred by industry custom, prior dealing between the parties, the agent's position and acts deemed necessary to carry out the agent's duties, and other factors the court deems relevant. Implied authority cannot conflict with express authority or with stated limitations on express authority. Diff: 1 LO: 29.3 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept

54) Which of the following describes an agency by estoppel? A) an agency that arises when a principal ratifies a contract created by an unauthorized agent B) an agency created when a principal and an agent expressly agree to enter into an agency agreement C) an agency that is not expressly stated but is implied and inferred in the conduct of the parties D) an agency that arises when a principal creates the appearance of an agency that in actuality does not exist Answer: D Diff: 1 LO: 29.4 Define apparent agency. AACSB: Analytical thinking Classification: Concept 55) Which of the following is true of an apparent agency? A) The authority of an apparent agent is implied from the conduct of the parties. B) The third-party is not bound to a contract created by an apparent agent. C) The principal is bound to the contracts entered into by an apparent agent. D) The actions of an apparent agent create an apparent agency. Answer: C Diff: 1 LO: 29.4 Define apparent agency. AACSB: Analytical thinking Classification: Concept 56) A duty that a principal owes to pay an agreed-upon amount to the agent, either upon the completion of the agency or at some other mutually agreeable time, is known as a principal's ________. A) duty to reimburse B) duty to cooperate C) duty to indemnify D) duty to compensate Answer: D Diff: 1 LO: 29.5 List and describe the duties of a principal. AACSB: Analytical thinking Classification: Concept

57) Ronald, the purchasing manager of Tellys Supermarket in Georgia, was asked to purchase an order of the latest videogame console, FunCase, to keep in the supermarket. However, due to a truckers' strike, he had to make a trip to the FunCase warehouse, which was in Florida. Ronald paid for the trip himself, went to the warehouse, procured the shipment, and returned. After he got back, Tellys Supermarket paid Ronald for the trip he made to Florida. What duty of the principal did Tellys Supermarket perform when they paid Ronald for the trip to Florida? A) duty to cooperate B) duty to reimburse C) duty to compensate D) duty to indemnify Answer: B Diff: 2 LO: 29.5 List and describe the duties of a principal. AACSB: Application of knowledge Classification: Application 58) The ________ is principal's duty to cover the agent for any losses the agent suffers because of the principal's conduct. A) duty to cooperate B) duty to indemnify C) duty to compensate D) duty to reimburse Answer: B Diff: 1 LO: 29.5 List and describe the duties of a principal. AACSB: Analytical thinking Classification: Concept 59) What is imputed knowledge? A) information collected by a principal prior to engaging in an agency B) information collected by a principal on an agency C) information learned by an agent that is attributed to the principal D) information learned by a principal that is attributed to an agent Answer: C Diff: 1 LO: 29.6 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept

60) Ashley owns a piece of vacant real estate through which a small river runs. Ashley hires Warren, a licensed real estate broker, to list the property for sale and help sell the property. While inquiring in the neighborhood, Ashley's neighbor Lenny tells Warren that a chemical plant upstream has polluted his property and that Warren should have environmental engineers test Ashley's property as well. Warren does not tell Ashley about Lenny's suggestion. Warren manages to find a buyer for Ashley's property in Martha. It is later discovered that the property Martha bought from Ashley is polluted. What important agent's duty has Warren failed to perform? A) duty to indemnify B) duty to account C) duty to reimburse D) duty to notify Answer: D Diff: 1 LO: 29.6 List and describe the duties of an agent. AACSB: Application of knowledge Classification: Application 61) The ________ includes keeping records of all property and money received and expended during the course of an agency. A) duty of accountability B) duty of termination C) duty to reimburse D) duty to notify Answer: A Diff: 1 LO: 29.6 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 62) What is an agent's duty to account? Answer: Unless otherwise agreed, an agent owes a duty to maintain an accurate accounting of all transactions undertaken on the principal's behalf. This duty to account includes keeping records of all property and money received and expended during the course of the agency. A principal has a right to demand an accounting from the agent at any time, and the agent owes a legal duty to make the accounting. This duty also requires the agent to maintain a separate account for the principal, and use the principal's property in an authorized manner. Any property, money, or other benefit received by the agent in the course of an agency belongs to the principal. If an agent breaches the agency contract, the principal can sue the agent to recover damages caused by the breach. Diff: 2 LO: 29.4 Define apparent agency. AACSB: Analytical thinking Classification: Concept

63) Matthew employs a real estate agent to sell his house for $10 million. The agent later learns that the house is rumored to be haunted and that brings down the value of the house to about $5 million. The agency terminates because of ________. A) an unusual change in circumstances B) impossibility of performance C) operation of law D) act of the parties Answer: A Diff: 2 LO: 29.7 Describe how an agency is terminated. AACSB: Application of knowledge Classification: Application 64) A principal is not bound to contracts made by an apparent agency. Answer: FALSE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 65) The mutual assent of parties can terminate an agency. Answer: TRUE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 66) agency change in law can terminate an agency due to the impossibility of performance. Answer: TRUE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 67) The termination of an agency does not necessarily extinguish the power of the agent to act on behalf of the principal. Answer: FALSE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept

68) A principal owes a duty to indemnify an agent for any losses the agent suffers because of the principal's conduct. Answer: TRUE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 69) An agent who has negligently or intentionally failed to perform his express duties is liable under tort law. Answer: TRUE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 70) Wrongful termination refers to the termination of an agency contract in violation of the terms of the agency contract. Answer: TRUE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 71) An agency contract is terminated with the death of either the principal or the agent. Answer: TRUE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 72) The insanity of either a principal or an agent cannot terminate an agency. Answer: FALSE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 73) A direct notice of termination goes to any third party who has knowledge of an agency but with whom the agent has not dealt. Answer: FALSE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept

74) Which of the following is true of a direct notice of termination? A) It is only applicable in employer-employee relationships. B) It is given to all persons with whom an agent dealt. C) It can only be given orally. D) It is only executed after the death of either the agent or the principal. Answer: B Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 75) Which of the following qualifies as the termination of an agency by impossibility of performance? A) the loss of a required qualification B) the bankruptcy of the principal C) the insanity of either the principal or the agent D) the conviction of either the principal or the agent Answer: A Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 76) Which of the following would lead to the termination of an agency by operation of law? A) the loss or destruction of the subject matter of the agency B) the death of either the principal or agent C) the loss of a required qualification D) a change in the law Answer: B Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 77) The termination of an agency contract in violation of the terms of the agency contract is referred to as ________. A) termination by an unusual change in circumstances B) termination by impossibility of performance C) terminated by operation of law D) wrongful termination Answer: D Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept

78) Parties with whom an agent has direct dealings must be given direct notice of the termination of an agency. Answer: TRUE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 79) Constructive notice is not valid against strangers who assert claims of apparent agency. Answer: FALSE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 80) An agency contract is similar to other contracts in that it can be terminated by an act of the parties. Answer: TRUE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 81) If a stated time has lapsed, an agency will terminate because of an unusual change in circumstances. Answer: FALSE Diff: 2 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 82) The outbreak of a war between the principal's country and the agent's country may be grounds for terminating an agency. Answer: TRUE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 83) The bankruptcy of a principal is not a valid reason to terminate an agency. Answer: FALSE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept

84) If an agency terminates by operation of law, there is no duty to notify third parties about the termination. Answer: TRUE Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 85) How can a principal extinguish an agent's apparent authority? Answer: If a principal fails to give the proper notice of termination to a third party, the agent still has apparent authority to bind the principal to contracts with these third parties. To avoid this liability, the principal needs to provide the following notices: 1. Direct notice of termination to all persons with whom the agent dealt. The notice may be oral or written unless required to be in writing. 2. Constructive notice of termination to any third party who has knowledge of the agency but with whom the agent has not dealt. Diff: 2 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 86) List the circumstances that can lead to termination by impossibility of performance. Answer: An agency relationship terminates if a situation arises that makes its fulfillment impossible. The following circumstances can lead to termination by impossibility of performance. 1. The loss or destruction of the subject matter of the agency. 2. The loss of a required qualification. 3. A change in the law. Diff: 1 LO: 29.7 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 30 Liability of Principals, Agents, and Independent Contractors 1) Which of the following is a fiduciary duty owed by an agent not to act adversely to the interests of the principal? A) duty of loyalty B) duty of undertaking C) duty of discharge D) duty of resolution Answer: A Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of an agent's undisclosed self-dealing? A) It does not violate the duty of loyalty. B) The principal cannot rescind purchases made. C) The principal can ratify the purchase. D) The principal must accept liability. Answer: C Diff: 2 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 3) Which of the following statements is true of an agent taking an opportunity? A) An agent can legally take an opportunity that is entitled to the principal. B) A third-party offer to an agent need not be conveyed to the principal. C) An agent cannot appropriate an offer for him- or herself once the principal rejects it. D) A principal is permitted to recover an opportunity usurped by an agent. Answer: D Diff: 2 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept

4) Harrison hires an agent to look for a three-bedroom house in Atlanta. Elaine, the agent, finds a three-bedroom house in Harrison's budget but buys it herself without informing Harrison. This is an instance of an agent ________. A) self-dealing B) misusing information C) competing with the principal D) usurping an opportunity Answer: D Diff: 2 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Application of knowledge Classification: Application 5) Which of the following is a course of action for a principal if an agent is found competing with him or her? A) The principal can recover damages from the agent if the competition continues after the agency has ended. B) The principal can recover profits made by the agent. C) The principal is given an option of buying the agent's competing venture. D) The principal is not allowed to recover for lost sales due to the agent's competing venture. Answer: B Diff: 2 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 6) Which of the following is an instance of misuse of confidential information? A) An agent gives the seller the principal's name and phone number in a fully disclosed transaction. B) A principal gives the contact details of an agent to a third-party without the agent's knowledge. C) An agent withholds critical information from the principal about the agency. D) An agent divulges private details of his past employer to his principal. Answer: D Diff: 2 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Application of knowledge Classification: Application

7) If a casting agent works for two Hollywood actors, the agent is liable for ________. A) dual agency B) competing with the principal C) usurping an opportunity D) self-dealing Answer: A Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 8) Which of the following is true of dual agency? A) An undisclosed dual agent is allowed to retain compensation of the transaction provided he or she discontinues the dual agency. B) Examples of dual agents are finders and middlemen. C) Dual agency is permitted if all parties in the transaction agree to it. D) Dual agency is permitted as long as the interests of both principals are similar. Answer: C Diff: 2 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 9) An agent owes a fiduciary duty not to act adversely to the interests of the principal. Answer: TRUE Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 10) Undisclosed self-dealing by an agent is not regarded as violation of the duty of loyalty. Answer: FALSE Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 11) A third-party offer to an agent must be conveyed to the principal. Answer: TRUE Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept

12) If an agent competes with the principal without the principal's permission, the principal may recover profits made by the agent. Answer: TRUE Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 13) Agents can compete with the principal during the course of the agency if the principal agrees. Answer: TRUE Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 14) A principal has no course of action if an agent discloses his or her confidential information to a third party. Answer: FALSE Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 15) If an agent reveals confidential information of a principal to a third party, one of principal's courses of action may be to obtain an injunction against the third party. Answer: TRUE Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 16) An agent does not violate his or her duty of loyalty by serving two parties with the same interest. Answer: FALSE Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 17) Middlemen and finders are not considered dual agents. Answer: TRUE Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

18) Dual agency occurs when an agent acts for two or more different principals in the same transaction. Answer: TRUE Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 19) Dual agency is permitted if all parties to a transaction agree to it. Answer: TRUE Diff: 1 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 20) Why can an agent generally not take an opportunity meant for the principal? Is an agent ever permitted to take such an opportunity? Give an example of an agent's violation of the duty of loyalty. Answer: An agent cannot personally usurp an opportunity that belongs to the principal. A thirdparty offer to an agent must be conveyed to the principal. The agent cannot appropriate the opportunity for herself unless the principal rejects it after due consideration. If the agent does so, the principal can recover the opportunity from the agent. But the agent can take the opportunity with the consent of the principal. For instance, consider an agent who works for a principal that is in the business of real estate development. The principal is looking for vacant land to purchase to develop. A third party who owns and wants to sell his vacant land tells an agent of the principal of the availability of the land. The agent, without informing the principal, purchases the land for his own use. This is a violation of the agent's duty of loyalty. Diff: 2 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept 21) Does an agent competing with the principal breach his or her duty of loyalty? What is the proper course of action for the principal in such a case? Answer: Agents are prohibited from competing with the principal during the course of an agency unless the principal agrees. The reason for this rule is that an agent cannot meet his or her duty of loyalty when his or her personal interests conflict with the principal's interests. The principal may recover the profits made by the agent as well as damages caused by the agent's conduct, such as lost sales. An agent is free to compete with the principal when the agency has ended unless the parties have entered into an enforceable covenant-not-to-compete. Diff: 2 LO: 30.1 Describe the duty of loyalty owed by an agent to a principal. AACSB: Analytical thinking Classification: Concept

22) Which of the following is true of tort liability for principals and agents? A) A principal is responsible for the tortious conduct of an agent irrespective of the scope of his or her authority. B) An agent is fully liable for his or her tortious conduct while on duty for the principal. C) An agent is liable for the principal's tortious conduct if he or she participates in it. D) An agent and a principal cannot be held responsible for the same tort. Answer: C Diff: 2 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 23) ________ is a rule that says an employer is liable for the tortious conduct of its employees or agents while they are acting within the scope of the employer's authority. A) Ad infinitum B) Respondeat superior C) Vicarious liability D) Fiduciary duty Answer: B Diff: 1 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 24) What is vicarious liability? A) nonliability B) liability for multiple torts C) liability without knowledge D) liability without fault Answer: D Diff: 1 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept

25) Minksine Corporation employs Sandy as its marketing manager. Sandy is driving her sedan to attend a meeting with a client on behalf of her employer. On her way to the meeting, Sandy is involved in an automobile accident that is caused by her negligence. Several people are seriously injured in the accident. Which of the following is true of this case? A) Sandy is solely liable for damages caused by the accident. B) The injured people cannot recover damages from Sandy. C) Minksine Corporation is liable for the injuries caused by Sandy. D) The injured people can only claim medical reimbursement from Minksine Corporation. Answer: C Diff: 2 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Application of knowledge Classification: Application 26) ________ occurs where a principal is liable for an agent's tortious conduct because of the employment contract between the principal and agent, not because the principal was personally at fault. A) Vicarious liability B) Negligence C) Liability with fault D) Misrepresentation Answer: A Diff: 1 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 27) Gem's principal asked her to pick up his dry-cleaning on her way to work. After she had picked up the dry-cleaning and was driving to work, Gem knocked over an old man crossing the street because she did not apply the brakes in time. Under the theory of ________, Gem's principal is liable to the injured man. A) intentional tort B) negligence C) liability with fault D) vicarious liability Answer: D Diff: 2 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Application of knowledge Classification: Application

28) ________ is a situation in which an agent does something during the course of his or her employment to further his or her own interests rather than the principal's. A) Coming and going B) Frolic and detour C) Self-dealing D) Dual-purpose mission Answer: B Diff: 1 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 29) Dan asks his agent Jude to drop off some medicines at his mother's house. On his way back, Jude decides to have lunch at a diner two blocks from his workplace. While walking back to work, he jaywalks at a green signal on the road causing a motorcyclist to hit the curb and injure himself while attempting to avoid hitting Jude. Under the concept of ________, Dan is liable for the injuries caused to the motorcyclist. A) coming and going B) intentional tort C) frolic and detour D) dual-purpose mission Answer: C Diff: 2 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Application of knowledge Classification: Application 30) According to the coming and going rule, what is the liability of the principal for injuries caused by its agents and employees while they are on their way to or from work? A) complete liability B) vicarious liability C) limited liability D) no liability Answer: D Diff: 1 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept

31) Fiona works for Open Heart Hospital and lives 10 miles away from her place of work. The hospital has provided her with a car to commute and also pays for its upkeep. If she accidentally injures a person while driving to work in the morning, which of the following would be true? A) Open Heart Hospital is completely liable for the injury caused. B) The injured person can sue Open Heart Hospital but can only recover reimbursement for his or her medical expenses due to the injury. C) Both Fiona and Open Heart Hospital are liable to the injured person. D) Only Fiona is liable for her negligence. Answer: D Diff: 2 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Application of knowledge Classification: Application 32) A dual-purpose mission is a situation that occurs when ________. A) an agent works for two or more principals with conflicting interests B) a principal requests an agent to run an errand when the agent is on his or her own personal business C) an agent works for more than two principals and has similar agency relationships with both D) an agent competes with the principal in a business with interests similar to the principal's business, after their agency has ended Answer: B Diff: 2 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 33) An actor asks an agent to place an order for a couch on the agent's way back to work. This is an instance of ________. A) a dual-purpose mission B) frolic and detour C) coming and going D) self-dealing Answer: A Diff: 1 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Application of knowledge Classification: Application

34) Most jurisdictions hold the ________ liable for injuries caused on a dual-purpose mission. A) principal B) agent C) principal and the agent D) injured party Answer: C Diff: 1 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 35) Which of the following is intentional misrepresentation? A) negligence B) innocent misrepresentation C) fraud D) dual-purpose mission Answer: C Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 36) In which of the following cases is a motivation test used to establish the employee's motive? A) An employee commits a tort to promote the principal's business outside work premises. B) An employee commits an intentional tort against another employee at work premises. C) An employee commits an unintentional tort that helps promote the principal's business. D) An employee assaults another employee due to personal reasons. Answer: A Diff: 2 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 37) Under the ________ test, if the agent committed an intentional tort to promote the principal's business, the principal is liable for any injury caused by the tort. A) work-related B) motivation C) promotional D) dual agency Answer: B Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept

38) Under the ________ test, the principal is liable for any intentional torts committed by an agent during working hours on the principal's premises. A) work-related B) motivation C) promotional D) self-dealing Answer: A Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 39) An employee finds out that one of his colleagues dated his girlfriend. The employee acts on this information by assaulting his colleague at work during work hours. Based on the ________ test, the principal is liable. A) motivational B) premise-based C) work-related D) promotional Answer: C Diff: 2 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 40) A ________ occurs when an agent makes an untrue statement that he or she knows is not true. A) partially disclosed agency B) misrepresentation C) respondeat superior D) dual-purpose mission Answer: B Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept

41) Which of the following is true of misrepresentation? A) An intentional misrepresentation by an agent is not considered fraud or deceit. B) The principal is not liable for an agent's intentional misrepresentation. C) A third party cannot recover damages from the principal due to an agent's intentional misrepresentation. D) The principal is liable for an agent's innocent misrepresentation. Answer: D Diff: 2 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 42) Which of the following torts committed by an agent is the liability of the principal? A) substantial frolic and detour B) accidents caused by an agent on the way to work C) accidents caused by an agent on the way from work D) negligence Answer: D Diff: 2 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 43) Lucas, a car salesperson, has to sell John's car. John informs Lucas that the car was repaired after it was involved in a major accident. If Lucas intentionally tells the buyer of the car that the car was never involved in an accident, he has committed the tort of ________. A) substantial frolic and detour B) intentional misrepresentation C) self-dealing D) competing with the principal Answer: B Diff: 2 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Application of knowledge Classification: Application 44) The principal is liable for the tortious conduct of an agent who is acting within the scope of his or her authority. Answer: TRUE Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept

45) Battery committed by an agent in the principal's premises and during the scope of employment is considered an unintentional tort. Answer: FALSE Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 46) An agent is liable for the tortious conduct of the principal if he or she has knowledge of the principal's conduct. Answer: FALSE Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 47) Based on the doctrine of respondeat superior, principals are liable for the negligent conduct of agents acting within the scope of their employment. Answer: TRUE Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 48) Vicarious liability is liability with fault. Answer: FALSE Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 49) Principals are liable for negligence caused by an agent during a substantial frolic and detour. Answer: FALSE Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 50) The coming and going rule says that a principal is generally not liable for injuries caused by its agents and employees while they are on their way to or from work. Answer: TRUE Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept

51) The principal is not liable for an agent's negligence if the agent is on a dual-purpose mission. Answer: FALSE Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 52) The agent is liable for any intentional or innocent misrepresentation made by the principal in a transaction. Answer: FALSE Diff: 1 LO: 30.2 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 53) The principal is liable for an innocent misrepresentation made by an agent acting within the scope of employment. Answer: TRUE Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 54) The work-related test puts liability on the employee if the intentional tort is committed within work-related time and space. Answer: FALSE Diff: 1 LO: 30.3 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 55) In a fully disclosed agency, the contract is between ________. A) a principal and an agent B) a principal and a third party C) an agent and a third party D) a principal, an agent, and a third party Answer: B Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept

56) Which of the following is true of a fully disclosed agency? A) The third party does not know the identity of the principal. B) The third party knows the name of the principal, but all transactions are done with the agent. C) The contract is between the principal, agent, and the third party. D) The principal is liable on the contract with a third party. Answer: D Diff: 2 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 57) Which of the following best describes a partially disclosed agency? A) an agent with multiple principals who do not know each other's identities B) a transaction in which the third party does not know the identity of the agent C) a transaction in which the third party knows the agent, but not the principal D) an agent who discloses only the name of his or her principal in a transaction Answer: C Diff: 2 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 58) Which of the following is true of an undisclosed agency? A) The third party has no knowledge of the agency. B) The third party knows the agent, but not the principal. C) All transactions with the third party are made by the principal without involving the agent. D) Transactions under such an agency are considered unlawful. Answer: A Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 59) A fully disclosed agency results if a third party entering into a contract knows the actual identity of the principal. Answer: TRUE Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 60) The agent is not liable on the contract in a fully disclosed agency. Answer: TRUE Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 15 Copyright © 2019 Pearson Education, Inc.

61) In a fully disclosed agency, an agent is not liable on the contract if he or she guarantees that the principal will perform the contract. Answer: FALSE Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 62) In a partially disclosed agency, the contracting third party transacts directly with the principal and does not know the identity of the agent. Answer: FALSE Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 63) A partially disclosed agency can be created by mistake. Answer: TRUE Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 64) Undisclosed agencies are not lawful in the United States. Answer: FALSE Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 65) In an undisclosed agency, the principal is solely liable on the contract with the third party. Answer: FALSE Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 66) If an agent exceeds his or her scope of authority, a principal is bound on the contract only if he or she ratifies the contract. Answer: TRUE Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept

67) Ratification of a contract is a situation in which a principal accepts an agent's unauthorized contract. Answer: TRUE Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 68) Describe the operation of a fully disclosed agency. Answer: A fully disclosed agency results if a third party entering into a contract knows (1) that the agent is acting as an agent for a principal, and (2) the actual identity of the principal. The third party has the requisite knowledge if the principal's identity is disclosed to the third party by either the agent or some other source. In a fully disclosed agency, the contract is between the principal and the third party. Thus, the principal, who is called a fully disclosed principal, is liable on the contract. The agent, however, is not liable on the contract because the third party relied on the principal's credit and reputation when the contract was made. An agent is liable on the contract if he or she guarantees that the principal will perform the contract. Diff: 1 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 69) Briefly explain an undisclosed agency. What are the liabilities involved in such an agency? Answer: An undisclosed agency occurs when a third party is unaware of the existence of an agency. The principal is called an undisclosed principal. Undisclosed agencies are lawful. They are often used when the principal feels that the terms of the contract would be changed if his or her identity were known. For example, a wealthy party may use an undisclosed agency to purchase property if she thinks that the seller would raise the price of the property if her identity were revealed. In an undisclosed agency, both the principal and the agent are liable on the contract with the third party. This is because the agent, by not divulging that he or she is acting as an agent, becomes a principal to the contract. The third party relies on the reputation and credit of the agent in entering into the contract. If the principal fails to perform the contract, the third party can recover against the principal or the agent. If the agent is made to pay the contract, he or she can recover indemnification from the principal. Diff: 2 LO: 30.4 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept

70) Jamie is a lawyer who runs her own law firm practicing in the area of real estate law. Raymond, a real estate developer, hires Jamie to represent him in the purchase of land. Jamie is a(n) ________. A) principal B) agent C) third-party D) independent contractor Answer: D Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Application of knowledge Classification: Application 71) The crucial factor in determining whether someone is an independent contractor or an employee is the ________. A) number of people with whom that party is willing to work with at a time B) degree of control that the principal has over that party C) nationality of that party D) measure of the party's extraversion Answer: B Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 72) Which of the following is a true statement about independent contractors? A) The principal asserts substantial control over the independent contractor. B) The principal-independent contractor relationship doesn't involve exchange of money. C) The principal asserts little control over the independent contractor. D) The principal is liable for the torts of his or her independent contractors. Answer: C Diff: 2 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 73) The party that employs an independent contractor is called an agent. Answer: FALSE Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept

74) Independent contractors usually work for a number of clients, have their own offices, hire employees, and control the performance of their work. Answer: TRUE Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 75) Labeling someone an independent contractor is only one factor in determining whether independent contractor status exists. Answer: TRUE Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 76) The amount of time that an agent works for a principal is not one of the factors in determining independent contractor status. Answer: FALSE Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 77) On the advice of her colleague, Stacey hires Harold, a lawyer and an independent contractor, to represent her in a court case. While driving to the courthouse to represent Stacey at trial, Harold negligently causes an automobile accident in which Mildred, a bystander, is severely injured. Who is liable to Mildred? A) Stacey B) Harold C) Stacey's colleague D) the firm that represents Harold Answer: B Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Application of knowledge Classification: Application

78) Which of the following is true of an independent contractor's liability? A) The agent is liable for torts committed by an independent contractor. B) The contractor is personally liable for all his or her torts. C) The principal is liable for the independent contractor's torts. D) Both the principal and the independent contractor are liable for the contractor's torts. Answer: B Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 79) Gerard wants to get some land cleared in Texas. With the help of a consulting agency, he hires Carlos, an independent contractor. Carlos procures dynamite from a legitimate dealer to be used in clearing the land. However, the explosion of dynamite causes cracks to appear in the outer walls of a nearby house. Who is liable to the owner of the damaged house? A) Gerard B) Carlos C) both Gerard and Carlos D) the consulting agency Answer: A Diff: 2 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Application of knowledge Classification: Application 80) Susanna hires Shane, a lawyer, as an independent contractor to represent her in a civil lawsuit against a defendant to recover monetary damages. If Susanna authorizes Shane to settle the case within a certain dollar amount and Shane does so, which of the following would be true? A) The agreement is invalid after Shane's contract with Susanna terminates. B) The agreement is void because independent contractors cannot enter into contracts. C) The agreement is binding only when there is no financial settlement involved. D) The settlement agreement is binding for Susanna. Answer: D Diff: 2 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Application of knowledge Classification: Application

81) If an independent contractor enters into a contract with a third party on behalf of the principal without express or implied authority from the principal to do so, who among the following is liable on the contract? A) the principal B) the independent contractor C) the third party D) both the principal and independent contractor Answer: B Diff: 2 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 82) The principal is liable for all torts of independent contractors. Answer: FALSE Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 83) Principals do not control the means by which independent contractors achieve results. Answer: TRUE Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 84) An independent contractor cannot represent more than one principal at a time. Answer: FALSE Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 85) Briefly explain the liability for an independent contractor's torts. Answer: Generally, a principal is not liable for the torts of its independent contractors. Independent contractors are personally liable for their own torts. The rationale behind this rule is that principals do not control the means by which the results are accomplished. However, principals cannot avoid liability for inherently dangerous activities that they assign to independent contractors. For example, the use of explosives, clearing of land by fire, crop dusting, and other inherently dangerous activities involve special risks. In these cases, a principal is liable for the negligence of the independent contractor the principal hired to perform the dangerous task. Diff: 1 LO: 30.5 Describe independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 21 Copyright © 2019 Pearson Education, Inc.

Business Law, 10e (Cheeseman) Chapter 31 Employment, Worker Protection, and Immigration Law 1) ________ is when an employer and employee enter into a contract for a specified period of time. A) At-will employment B) Compensation C) Vesting D) Term employment Answer: D Diff: 1 LO: 31.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 2) Which of the following is FALSE about wrongful discharge for term employment? A) An employer who terminates a term employee without cause is liable for wrongful discharge. B) An employer who terminates a term employee without cause will owe damages to the employee. C) Most employees are term employees. D) A term employee can be terminated for cause without being liable for damages. Answer: D Diff: 1 LO: 31.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 3) A(n) ________ has no claim for damages for termination without cause. A) term employee B) union employee C) at-will employee D) manager Answer: C Diff: 1 LO: 31.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept

4) Which of the following is NOT an exception category for employees that cannot be legally terminated? A) Statutory exception B) Labor union exception C) Minimum wage exception D) Public policy exception Answer: C Diff: 2 LO: 31.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 5) An at-will employee may be terminated for cause, but if the employer cannot show cause, the termination is illegal. Answer: FALSE Diff: 1 LO: 31.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 6) In regard to the statutory exception to at-will termination, employees cannot be discharged because of their race, gender, or age. Answer: TRUE Diff: 1 LO: 31.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 7) Which of the following was a disadvantage of suing employers for negligence under common law? A) Employees never won such cases. B) It was a time-consuming process that strained the employment relationship. C) Employees always won such cases as the common law was biased against employers. D) Heirs of deceased workers could not sue the employers. Answer: B Diff: 2 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept

8) Which of the following is true of workers' compensation? A) Families of workers cannot claim workers' compensation despite the death of the worker. B) Workers' compensation is only awarded for injuries resulting from the job. C) The claim for workers' compensation must be filed with the employer. D) Workers' compensation is a fixed amount throughout the country. Answer: B Diff: 2 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 9) ________ is an insurance that employers obtain and purchase from private insurance companies or from government-sponsored programs. A) Employee insurance B) Relief fund insurance C) Provident fund insurance D) Workers' compensation insurance Answer: D Diff: 1 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 10) Which of the following has to be proved by a claimant pursuing compensation for an injury under workers' compensation? A) The claimant was harmed intentionally by the employer. B) The claimant was harmed when he or she was employed by the employer. C) The claimant was harmed by an employment-related injury. D) The claimant was harmed unintentionally by the employer. Answer: C Diff: 1 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept

11) Which of the following is true about workers' compensation insurance? A) If an employee is injured in an automobile accident while she is driving to an off-premises restaurant during her personal lunch hour, the injury is covered by workers' compensation insurance. B) If an employee is injured in an automobile accident while she is driving to an off-premises restaurant during her personal lunch hour, the injury is not covered by workers' compensation insurance. C) The federal government usually requires employers to purchase workers' compensation insurance. D) All states permit employers to self-insure if they demonstrate that they have the ability to pay workers' compensation claims. Answer: B Diff: 3 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 12) Workers' compensation is a(n) ________ remedy as between the employee and the employer. A) exclusive B) cumulative C) provisional D) equitable Answer: A Diff: 1 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 13) A worker who receives workers' compensation ________. A) must sign a document stating that his employer was not responsible for his injury B) cannot work for his employer again C) cannot sue his employer for the same injury D) can sue his employer for punitive damages Answer: C Diff: 2 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept

14) What is the employer's advantage in offering workers' compensation? A) The employer need not pay for workers' compensation insurance. B) The employer is exempt from having to offer paid medical leave. C) The employer can avoid a lawsuit by an injured worker. D) The employer can offer lower basic pay to workers. Answer: C Diff: 2 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 15) Jorge, a forklift operator for the retail chain Hansridges, was injured when the fork-lift he was operating toppled over. The forklift was manufactured and maintained by Ionic Machines Inc. As he was covered by workers' compensation insurance, he could recover workers' compensation benefits. However, it was later found that the forklift was not designed to be used to lift as much weight as Ionic Machines claimed it could. Which of the following is Jorge entitled to? A) sue Hansridges for injuries suffered during employment B) sue Hansridges for a hazardous work environment C) sue Ionic Machines for damages D) not sue anyone as he has already received workers' compensation Answer: C Diff: 2 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Application of knowledge Classification: Application 16) In which of these situations can an employee sue an employer to recover employment-related injuries? A) The employer is self-insured. B) The employer unintentionally injures a worker covered under workers' compensation. C) The employee suffers an injury at work that is not related to work. D) The employer intentionally injures a worker covered under workers' compensation. Answer: D Diff: 2 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Reflective thinking Classification: Concept 17) Workers' compensation benefits are usually paid according to preset limits established by statute or regulation. Answer: TRUE Diff: 1 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

18) Under common law, employees who were injured on the job could not sue their employers for negligence. Answer: FALSE Diff: 1 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 19) Employees are required to purchase workers' compensation insurance from private insurance companies or state funds. Answer: FALSE Diff: 1 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 20) For an injury to be compensable under workers' compensation, the claimant must prove that he or she was harmed by an employment-related injury. Answer: TRUE Diff: 1 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 21) Workers' compensation insurance does not cover stress and mental illness that are employment related. Answer: FALSE Diff: 1 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 22) Workers cannot both receive workers' compensation and sue their employers in court for damages. Answer: TRUE Diff: 1 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 23) Workers' compensation acts bar injured workers from suing responsible third parties to recover damages. Answer: FALSE Diff: 1 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

24) If an employer intentionally injures a worker, the worker cannot collect workers' compensation benefits. Answer: FALSE Diff: 1 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 25) "Workers' compensation is an exclusive remedy." Elaborate on this statement with the help of an example. Answer: Workers' compensation is an exclusive remedy. Thus, workers cannot both receive workers' compensation and sue their employers in court for damages. Workers' compensation laws make a trade-off: an injured worker qualifies for workers' compensation benefits and does not have to spend time and money to sue his employer, with a possible risk of not winning. The employer has to pay for workers' compensation insurance but does not have to incur the expense and risk of a lawsuit. Example: A professor is covered by her university's workers' compensation insurance. While teaching her class, the professor is injured when she trips over a power cord that was lying on the floor in the classroom. In this case, the professor's sole remedy is to recover workers' compensation. The worker cannot sue the university to recover damages. Diff: 2 LO: 31.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 26) The ________ is a federal law enacted in 1970 to promote safety in the workplace. A) Occupational Safety and Health Act B) Fair Labor Standards Act C) Family and Medical Leave Act D) Employee Retirement Income Security Act Answer: A Diff: 1 LO: 31.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept

27) The OSHA guidelines that set safety rules for specific equipment, procedures, types of work, unique work conditions, and the like are known as ________. A) standard of wellness B) specific duty standards C) code of direction D) general standard of work Answer: B Diff: 1 LO: 31.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 28) The ________ is an OSHA standard that requires an employer to provide a work environment free from recognized hazards that are causing or are likely to cause death or serious physical harm to employees. A) general duty standard B) specific duty standard C) code of wellness D) provision of nonhazardous work environment Answer: A Diff: 1 LO: 31.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 29) Which of the following is true of the Occupational Safety and Health Administration's (OSHA's) general duty standard? A) The standard needs to be established with each safety regulation. B) It requires an employer to provide a working environment that does not result in mental stress of the employee. C) An employer is obliged to provide a work environment that is free from recognized hazards. D) OSHA has no say in safety violations of an employer as it is just a model act. Answer: C Diff: 2 LO: 31.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept

30) The Occupational Safety and Health Administration (OSHA) is a federal administrative agency within the Department of Labor that is empowered to enforce the Occupational Safety and Health Act. Answer: TRUE Diff: 1 LO: 31.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 31) The general duty standard of the Occupational Safety and Health Act requires an employer to provide a work environment that does not result in its employees' mental stress. Answer: FALSE Diff: 1 LO: 31.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 32) The Occupational Safety and Health Act serves only as a model act and employers who violate its rules are not liable for penalties. Answer: FALSE Diff: 1 LO: 31.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 33) Only governmental bodies, and not private employers, come under the purview of the Fair Labor Standards Act. Answer: FALSE Diff: 1 LO: 31.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept

34) The Fair Labor Standards Act applies to ________. A) employees in government organizations B) employees earning less than minimum wages C) employees engaged in the production of goods for interstate commerce D) self-employed US citizens E) A, B and C Answer: E Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 35) The ________ forbids the use of oppressive child labor and makes it unlawful to ship goods produced by such labor. A) Occupational Safety and Health Act B) Fair Labor Standards Act C) Family and Medical Leave Act D) Employee Retirement Income Security Act Answer: B Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 36) According to the U.S. Department of Labor, children under the age of 14 can only be employed as ________. A) stocking staff at stores B) newspaper deliverers C) waiters D) store assistants Answer: B Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 37) Which of the following is true of the child labor regulations adopted by the U.S. Department of Labor? A) Children between the ages of 14 and 15 may work unlimited hours in nonhazardous jobs. B) Children between the ages of 16 and 17 may work limited hours in hazardous jobs. C) Children in middle school may work limited hours in nonhazardous jobs. D) Children employed in agriculture have no time or work restriction. Answer: D Diff: 2 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

38) Who among the following are exempt from child labor restrictions in the United States? A) children who work as newspaper deliverers B) children who work at restaurants or fast-food stalls C) children employed as actors and performers D) children employed in gasoline stations Answer: C Diff: 2 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 39) Which of the following is true of the federal minimum wage? A) An employer may not reduce minimum wage although he or she provides other benefits like food to the employees. B) Managerial, administrative, and professional employees are exempt from wage and hour provisions. C) Apprentices cannot be paid less than minimum wages. D) Employees who earn tips, such as waiters and valets, are not entitled to minimum wage. Answer: B Diff: 2 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 40) Which of the following acts establishes minimum wage and overtime pay requirements for workers in the United States of America? A) Occupational Safety and Health Act B) Fair Labor Standards Act C) Family and Medical Leave Act D) Consolidated Omnibus Budget Reconciliation Act of 1985 Answer: B Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 41) Which of the following is true of minimum wages in the United States of America? A) States can enact laws that set minimum wages higher than the federal minimum wage. B) Cities are not allowed to have minimum wages different from what is set by the state or federal government. C) Living wage laws set lower minimum wages than the federal level. D) An employee who earns in tips must be paid minimum wage by the employer. Answer: A Diff: 2 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

42) Overtime pay is generally ________ times that of the regular pay of an employee. A) two B) three C) two and a half D) one and a half Answer: D Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 43) Overtime pay is paid for each hour worked in excess of ________ hours that work week. A) 35 B) 40 C) 45 D) 50 Answer: B Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 44) Jerry is employed by U.S.-based Iconic Systems. His work hours each week for January were 40 hours the first week, 30 hours the second week, 50 hours the third week, and 45 hours the fourth week. According to the Fair Labor Standards Act, how many hours of overtime pay is Jerry entitled to at the end of January? A) 5 B) 10 C) 15 D) 40 Answer: C Diff: 2 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Application of knowledge Classification: Application 45) Who among the following is exempt from federal minimum wage requirement? A) Kelly, an inside sales rep at a pharmacy B) John, a waiter by day and a guitar teacher by night C) Tsun, a software applications developer D) Orlando, a telemarketer Answer: C Diff: 2 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Application of knowledge Classification: Application 12 Copyright © 2019 Pearson Education, Inc.

46) Which of the following statements is true of exemptions to minimum wage and overtime pay requirements? A) Apprentices must be paid minimum wage. B) Learned professionals generally need not be paid minimum wage. C) Workers involved in hazardous activities need not be paid minimum wage. D) Employees in law enforcement and medical sectors need not be paid minimum wage. Answer: B Diff: 2 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 47) Helga works as a nurse in a government-run hospital. She has to work 40 hours a week, from 10 pm to 6 am every day. Which of the following is true of this scenario? A) Helga is not entitled to receive overtime pay as medical staff does not qualify for it. B) Helga can receive minimum wages and overtime pay only if she works more than 60 hours per week, as she is a government employee. C) Helga cannot receive overtime pay as government employees are exempt from it. D) Helga can receive overtime pay if she works more than 40 hours a week. Answer: D Diff: 2 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Application of knowledge Classification: Application 48) The Fair Labor Standards Act makes it unlawful to ship goods produced by businesses that use oppressive child labor. Answer: TRUE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 49) According to the Fair Labor Standards Act, children under the age of 14 are forbidden from working, including as newspaper deliverers. Answer: FALSE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 50) Private civil actions are permitted under the Fair Labor Standards Act. Answer: TRUE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 13 Copyright © 2019 Pearson Education, Inc.

51) Child actors and performers are exempt from the child labor restrictions of the Fair Labor Standards Act. Answer: TRUE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 52) The Department of Labor permits employers to pay less than the minimum wage to students and apprentices. Answer: TRUE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 53) An employee who earns tips must be paid minimum wage, excluding the income from tips. Answer: FALSE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 54) States are allowed to enact minimum wage laws that set minimum wages higher than the federal level. Answer: TRUE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 55) Minimum wage laws cannot be enacted by individual cities in the United States. Answer: FALSE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 56) Overtime pay must always be set at twice the regular pay of an employee. Answer: FALSE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept

57) Overtime pay is given to nonexempt employees who work more than 40 hours in a work week. Answer: TRUE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 58) Executives who are compensated on a salary basis and engage in management duties are generally exempted from overtime pay. Answer: TRUE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 59) Administrators who do not do manual work are exempted from the federal minimum wage requirements. Answer: TRUE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 60) Senior professors and physicists in research laboratories are automatically entitled to federal overtime pay. Answer: FALSE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Application of knowledge Classification: Application 61) Software developers and other computer professionals generally cannot claim overtime pay under federal law. Answer: TRUE Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Application of knowledge Classification: Application

62) Describe the measures taken by the U.S. Department of Labor against oppressive child labor. Answer: The Fair Labor Standards Act forbids the use of oppressive child labor and makes it unlawful to ship goods produced by businesses that use oppressive child labor. The Department of Labor has adopted the following regulations that define lawful child labor: (1) Children under the age of 14 cannot work except as newspaper deliverers; (2) children ages 14 and 15 may work limited hours in nonhazardous jobs approved by the Department of Labor (e.g., restaurants, gasoline stations); and (3) children ages 16 and 17 may work unlimited hours in nonhazardous jobs. The Department of Labor determines which occupations are hazardous (e.g., mining, roofing, working with explosives). Children who work in agricultural employment and child actors and performers are exempt from these restrictions. Diff: 1 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 63) Outline the minimum wage requirement established by the Fair Labor Standards Act. How are wages calculated for a tipped employee? Answer: The Fair Labor Standards Act establishes minimum wage and overtime pay requirements for workers. Workers whose daily job duties are managerial, administrative, or professional are exempt from the act's wage and hour provisions. FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked. The federal minimum wage is set by Congress and can be changed. The Department of Labor permits employers to pay less than the minimum wage to students and apprentices. An employer may reduce the minimum wage by an amount equal to the reasonable cost of food and lodging provided to employees. There is a special minimum wage rule for tipped employees. An employee who earns tips can be paid $2.13 an hour by an employer if that amount plus the tips received equals at least the minimum wage. If an employee's tips and direct employer payment does not equal the minimum wage, the employer must make up the difference. Diff: 2 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept

64) How is Social Security awarded in the United States? Answer: The federal Social Security system provides limited retirement and death benefits to certain employees and their dependents. The Social Security system is administered by the Social Security Administration. Social Security benefits include: (1) retirement benefits, (2) survivors' benefits to family members of deceased workers, (3) disability benefits, and (4) medical and hospitalization benefits. Under the Federal Insurance Contributions Act (FICA), employees must make contributions (i.e., pay taxes) into the Social Security fund. An employee's employer must pay a matching amount. Social Security does not operate like a savings account. Instead, current contributions are used to fund current claims. The employer is responsible for deducting employees' portions from their wages and remitting the entire payment to the Internal Revenue Service (IRS). Under the Self-Employment Contributions Act, self-employed individuals must pay Social Security contributions, too. The amount of tax self-employed individuals must pay is equal to the combined employer-employee amount. Diff: 2 LO: 31.4 Describe the minimum wage and overtime pay rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 65) The ________ guarantees workers unpaid time off from work for family and medical emergencies and other specified situations. A) Fair Labor Standards Act B) Occupational Safety and Health Act C) Family and Medical Leave Act D) Employee Retirement Income Security Act Answer: C Diff: 1 LO: 31.5 Describe the protections afforded by the Family and Medical Leave Act. AACSB: Analytical thinking Classification: Concept 66) To be covered by the Family and Medical Leave Act, an employee must ________. A) have worked for the employer for at least six months B) have performed more than 1,250 hours of service during the previous 12-month period C) not have claimed maternity leave in the past D) be suffering from a serious injury or ailment Answer: B Diff: 1 LO: 31.5 Describe the protections afforded by the Family and Medical Leave Act. AACSB: Analytical thinking Classification: Concept

67) The Fair Labor Standards Act guarantees workers unpaid time off from work for family and medical emergencies and other specified situations. Answer: FALSE Diff: 1 LO: 31.5 Describe the protections afforded by the Family and Medical Leave Act. AACSB: Analytical thinking Classification: Concept 68) The ________ is a federal law that permits employees and their beneficiaries to continue their group health insurance after an employee's employment has ended. A) Fair Labor Standards Act B) Family and Medical Leave Act C) Employee Retirement Income Security Act D) Consolidated Omnibus Budget Reconciliation Act of 1985 Answer: D Diff: 1 LO: 31.6 Describe the protections afforded by the Consolidated Omnibus Budget Reconciliation Act. AACSB: Analytical thinking Classification: Concept 69) The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is designed to prevent fraud and other abuses associated with private pension funds. Answer: FALSE Diff: 1 LO: 31.6 Describe the protections afforded by the Consolidated Omnibus Budget Reconciliation Act. AACSB: Analytical thinking Classification: Concept 70) The ________ is a federal act designed to prevent fraud and other abuses associated with private pension funds. A) Employee Retirement Income Security Act B) Consolidated Omnibus Budget Reconciliation Act C) Fair Labor Standards Act D) Family and Medical Leave Act Answer: A Diff: 1 LO: 31.7 Describe the protections afforded by the Employee Retirement Income Security Act. AACSB: Analytical thinking Classification: Concept

71) ________ occurs when an employee has a non-forfeitable right to receive pension benefits. A) Vesting B) Easement C) Anti-lapse D) Reconciliation Answer: A Diff: 1 LO: 31.7 Describe the protections afforded by the Employee Retirement Income Security Act. AACSB: Analytical thinking Classification: Concept 72) Vesting occurs when an employee has a non-forfeitable right to receive pension benefits. Answer: TRUE Diff: 1 LO: 31.7 Describe the protections afforded by the Employee Retirement Income Security Act. AACSB: Analytical thinking Classification: Concept 73) Under the ________ and state laws enacted to implement the unemployment compensation program, employers are required to pay unemployment contributions. A) Fair Labor Standards Act B) Family and Medical Leave Act C) Federal Unemployment Tax Act D) Federal Insurance Contributions Act Answer: C Diff: 1 LO: 31.8 Describe unemployment compensation and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 74) Under the Federal Unemployment Tax Act, employers are exempted from paying unemployment taxes. Answer: FALSE Diff: 1 LO: 31.8 Describe unemployment compensation and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 75) Workers who quit work without just cause can claim unemployment benefits. Answer: FALSE Diff: 1 LO: 31.8 Describe unemployment compensation and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept

76) Which of the following benefits is a component of Social Security benefits? A) workers' compensation B) legal assistance C) unemployment compensation D) disability benefits Answer: D Diff: 1 LO: 31.9 Describe Social Security and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 77) Which of the following is true of Social Security? A) Social Security operates like a savings account. B) Under the FICA, an employee's employer pays 100% of the Social Security fund contributions. C) Under the FICA, employees must make contributions into the Social Security fund. D) Self-employed individuals are exempt from Social Security payments. Answer: C Diff: 2 LO: 31.9 Describe Social Security and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 78) The immigration laws of the United States are administered by the ________. A) Social Security Administration B) U.S. Citizenship and Immigration Services C) Internal Revenue Service D) Occupational Safety and Health Administration Answer: B Diff: 1 LO: 31.10 Describe immigration laws and foreign guest worker visas. AACSB: Analytical thinking Classification: Concept 79) A(n) ________ visa allows U.S. employers to employ in the United States foreign nationals who are skilled in specialty occupations. A) H1 B) H4 C) H-1C D) H-1B Answer: D Diff: 1 LO: 31.10 Describe immigration laws and foreign guest worker visas. AACSB: Analytical thinking Classification: Concept

80) Cliff Thomas, a cardiologist, emigrates from Great Britain to the United States. Under which of the following visa categories can his wife live in the United States as Mr. Thomas' dependent? A) H1 B) H4 C) H-1C D) H-1B Answer: B Diff: 2 LO: 31.10 Describe immigration laws and foreign guest worker visas. AACSB: Application of knowledge Classification: Application 81) Which of the following is true of U.S. immigration law? A) An H1-B visa is granted only to foreign nationals skilled in specialty occupations. B) Individual applicants, and not employers, apply for H1-B visas. C) H1-B visa holders cannot bring their family as dependents to the United States. D) H4 visa holders are allowed to work for minimum wages or more in the United States. Answer: A Diff: 2 LO: 31.10 Describe immigration laws and foreign guest worker visas. AACSB: Analytical thinking Classification: Concept 82) The immigration laws of the United States are administered by the U.S. Citizenship and Immigration Services. Answer: TRUE Diff: 1 LO: 31.10 Describe immigration laws and foreign guest worker visas. AACSB: Analytical thinking Classification: Concept 83) H-1B visa holders are allowed to bring their immediate family to the United States under the H4 visa category. Answer: TRUE Diff: 1 LO: 31.10 Describe immigration laws and foreign guest worker visas. AACSB: Analytical thinking Classification: Concept 84) The number of H-1B visas is unlimited. Answer: FALSE Diff: 1 LO: 31.10 Describe immigration laws and foreign guest worker visas. AACSB: Analytical thinking Classification: Concept

85) The EB-1 visa is a visa that allows U.S. employers to employ in the United States foreign nationals who possess exceptional qualifications for certain types of employment. Answer: TRUE Diff: 1 LO: 31.10 Describe immigration laws and foreign guest worker visas. AACSB: Analytical thinking Classification: Concept 86) What is an EB-1 visa? Who qualifies for it? Answer: An EB-1 visa is a visa that allows U.S. employers to employ in the United States foreign nationals who possess extraordinary ability for certain types of employment. The three categories of workers who can qualify for an EB-1 visa are: (1) persons who can demonstrate extraordinary ability in the sciences, arts, education, business, or athletics through sustained national or international acclaim; (2) outstanding professors and researchers who can demonstrate international recognition for outstanding achievements in a particular academic field; and (3) multinational managers or executives employed by a firm outside the United States who seek to continue to work for that firm in the United States. Diff: 1 LO: 31.10 Describe immigration laws and foreign guest worker visas. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 32 Labor Law 1) The ________ was a labor union formed in 1886 that only allowed craft workers such as silversmiths and artisans to be its members. A) Congress of Industrial Organizations B) American Federation of Labor C) National Labor Relations Board D) International Labor Organization Answer: B Diff: 1 LO: 32.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 2) Only ________ were allowed to belong to the American Federation of Labor. A) skilled craft workers B) unskilled workers C) literate workers D) illiterate workers Answer: A Diff: 1 LO: 32.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 3) In 1935, John L. Lewis formed the ________, which permitted semiskilled and unskilled workers to be its members. A) International Labor Organization B) Congress of Industrial Organizations C) National Labor Relations Board D) American Federation of Labor Answer: B Diff: 1 LO: 32.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept

4) Enacted in 1932, the ________ is a federal statute which stipulates that it is legal for employees to organize. A) National Labor Relations Act B) Labor Management Relations Act C) Taft-Hartley Act D) Norris-LaGuardia Act Answer: D Diff: 1 LO: 32.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 5) Which of the following is provided by the National Labor Relations Act of 1935? A) right to regulate internal affairs of each union B) right to represent employees according to their sectors of employment C) right to bargain collectively with employers D) right to equally represent every union member Answer: C Diff: 1 LO: 32.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 6) The Labor Management Relations Act of 1947 is also known as the ________ Act. A) Landrum-Griffin B) Gompers-Lewis C) Taft-Hartley D) Wagner Answer: C Diff: 1 LO: 32.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 7) Which of the following is true of the Taft-Hartley Act? A) It establishes the right of employees to bargain collectively with employers. B) It gives employers the right to engage in free-speech efforts against unions. C) It provides for the equal representation of skilled and unskilled workforce. D) It gives the president of the United States the right to seek an injunction against a strike. Answer: B Diff: 1 LO: 32.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept

8) Which of the following acts regulates internal union affairs and establishes the rights of union members? A) Landrum-Griffin Act B) Gompers-Lewis Act C) Taft-Hartley Act D) Wagner Act Answer: A Diff: 1 LO: 32.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 9) Which of the following federal statutes that regulate labor-management relationships cover airline carriers? A) Norris-LaGuardia Act B) National Labor Relations Act C) Railway Labor Act D) Landrum-Griffin Act Answer: C Diff: 1 LO: 32.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 10) The ________ oversees union elections, prevents employers and unions from engaging in illegal and unfair labor practices, and enforces and interprets certain federal labor laws. A) National Labor Relations Act B) National Labor Relations Board C) American Federation of Labor D) Congress of Industrial Organizations Answer: B Diff: 1 LO: 32.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 11) A group of employees that a union is seeking to represent is known as a ________. A) conciliation unit B) mediation unit C) negotiation unit D) bargaining unit Answer: D Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

12) Which of the following gives employees the right to join together to form a union? A) Section 1 of the Wagner Act B) Section 3 of the Landrum-Griffin Act C) Section 7 of the National Labor Relations Act D) Section 1 of the Taft-Hartley Act Answer: C Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 13) Most union elections are contested by the employer. The ________ is required to supervise all contested elections where a simple majority vote wins the election. A) Congress of Industrial Organizations B) American Federation of Labor C) National Labor Relations Board D) Election Assistance Commission Answer: C Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 14) A(n) ________ election can be held without National Labor Relations Board supervision. A) employer-contested B) consent C) decertification D) management-contested Answer: B Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 15) If employees no longer want to be represented by a union, a(n) ________ election is held. A) employer-contested B) consent C) decertification D) management-contested Answer: C Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept

16) A certain organization's employees want a union to represent them, a request that has been approved by the employer. All the employees live in the employees' quarters in the building adjacent to the place of work. In order for a union to be established, solicitation must be carried out by these employees. Which of the following is true of this situation? A) Union solicitation must be carried out only during work hours. B) Union solicitation must be carried out only at work premises, under the employer's supervision. C) Union solicitation cannot be carried out by the managerial department of the corporation. D) Union solicitation activities are prohibited during employees' personal time. Answer: C Diff: 2 LO: 32.2 Describe how a union is organized. AACSB: Application of knowledge Classification: Application 17) Labor unions have the right to engage in picketing in support of their positions. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 18) Labor unions use the approach of individual bargains with employers to obtain better working conditions. Answer: FALSE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 19) The National Labor Relations Board is an administrative body that prevents union members from engaging in illegal labor practices. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 20) Only skilled craft workers such as silversmiths and artisans were allowed to belong to the American Federation of Labor. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept

21) Unskilled and semi-skilled workers did not qualify as members of the Congress of Industrial Organizations. Answer: FALSE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 22) Individual unions are not allowed to join the AFL-CIO (American Federation of LaborCongress of Industrial Organizations); the members need to be individual employees. Answer: FALSE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 23) The Norris-LaGuardia Act is a federal statute which stipulates that it is legal for employees to organize. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 24) The National Labor Relations Act establishes the right of employers to terminate the employment of members of unions whose continued picketing hinders the progress of the business. Answer: FALSE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 25) The Taft-Hartley Act gives the president of the United States the right to seek an injunction against a strike that would create a national emergency. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept

26) The Labor Management Reporting and Disclosure Act, enacted in 1950, gives employers the right to engage in free-speech efforts against unions prior to a union election. Answer: FALSE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 27) The National Labor Relations Board oversees union elections. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 28) Section 7 of the National Labor Relations Act is a federal law that gives employers the right to terminate union practices detrimental to the employers' organizations. Answer: FALSE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 29) A group of employees that a union is seeking to represent is known as a bargaining unit. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 30) A bargaining unit must consist of employees from a single company. Answer: FALSE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 31) Managers and professional employees cannot belong to unions formed by employees whom they manage. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept

32) Most union elections are contested by the employer. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 33) The National Labor Relations Board is required to supervise all consent elections. Answer: FALSE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 34) A decertification election is held when an employer does not want the presence of multiple unions in the organization. Answer: FALSE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 35) An employer is permitted to bar off-duty employees from union solicitation on company premises. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 36) The inaccessibility exception is a rule that permits employees and union officials to engage in union solicitation on company property if the employees are beyond reach of reasonable union efforts to communicate with them. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept

37) List the major federal statutes that regulate the labor-management relationship, and briefly summarize their provisions. Answer: The following are the major federal statutes that regulate labor-management relationships: 1. Norris-LaGuardia Act – makes it legal for employees to organize. 2. National Labor Relations Act – establishes the right of employees to form and join labor organizations, to bargain collectively with employers, and to engage in concerted activity to promote these rights. 3. Labor Management Relations Act – (1) expands the activities that labor unions can engage in; (2) gives employers the right to engage in free-speech efforts against unions prior to a union election; (3) gives the president of the United States the right to seek an injunction (for up to 80 days) against a strike that would create a national emergency. 4. Labor Management Reporting and Disclosure Act – regulates internal union affairs and establishes the rights of union members. 5. Railway Labor Act – covers employees of railroad and airline carriers. Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 38) Which of the following is a provision of Section 8(a) of the National Labor Relations Act? A) prohibits unions from engaging in unfair labor practices that interfere with a union election B) makes it an unfair labor practice for an employer to restrain employees from forming and joining unions C) enables employees to opt out of unions by organizing a decertification election D) permits employees and union officials to engage in union solicitation on company property Answer: B Diff: 2 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 39) ________ prohibits unions from engaging in unfair labor practices that interfere with a union election. A) Section 2 of the Wagner Act B) Section 7 of the National Labor Relations Act C) Section 8(a) of the National Labor Relations Act D) Section 8(b) of the National Labor Relations Act Answer: D Diff: 2 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept

40) Section 8(a) of the National Labor Relations Act makes it an unfair labor practice for an employer to interfere with, coerce, or restrain employees from exercising their statutory right to form and join unions. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 41) Coercion is considered an unfair labor practice in relation to Section 8(b) of the NLRA. Answer: TRUE Diff: 1 LO: 32.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 42) The act of negotiating contract terms between an employer and the members of a union is known as ________. A) mediation B) arbitration C) collective bargaining D) enterprise bargaining Answer: C Diff: 1 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 43) Which of the following is a compulsory subject during collective bargaining? A) health benefits B) discrimination C) corporate reorganization D) location of workplace Answer: A Diff: 1 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept

44) Subjects that are not compulsory or illegal are known as ________ subjects of collective bargaining, which may be bargained for if the company and union agree to do so. A) secondary B) alternative C) permissive D) conditional Answer: C Diff: 1 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 45) Under a(n) ________ agreement, an employer agrees to hire only employees who are already members of a union. A) union shop B) agency shop C) confirmed shop D) closed shop Answer: D Diff: 1 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 46) Which of the following is true of a union shop agreement while hiring an employee? A) The employee must join the union within a certain time after employment. B) The employee does not join the union but pays an agency fee. C) The employee must be a skilled worker represented by more than one union. D) The employee must be represented by more than one union. Answer: A Diff: 1 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 47) Which of the following is true of union security agreements? A) Under a closed shop agreement, an employer hires workers who are not part of any union. B) Under an agency shop agreement, an employer only hires workers who agree to not join any union. C) An employee hired under a union shop agreement is represented by more than one union. D) Dues checkoff refers to the deduction of union dues and agency fees from employees' wages. Answer: D Diff: 2 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

48) The act of negotiating contract terms between an employer and the members of a union is known as compulsory bargaining. Answer: FALSE Diff: 1 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 49) Wages, hours, and other terms and conditions of employment are permissive subjects of collective bargaining. Answer: FALSE Diff: 1 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 50) Under a closed shop agreement, an employer agrees to hire only employees who are already members of a union. Answer: TRUE Diff: 1 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 51) Closed shop agreements are illegal in the United States. Answer: TRUE Diff: 1 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 52) Under an agency shop agreement, an employer may hire anyone whether she belongs to a union or not. Answer: TRUE Diff: 1 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept

53) Briefly outline and explain the process of collective bargaining. Answer: Once a union has been elected, the employer and the union discuss the terms of employment of union members and try to negotiate a contract that embodies these terms. The act of negotiating is called collective bargaining, and the resulting contract is called a collective bargaining agreement. The employer and the union must negotiate with each other in good faith. Among other things, this prohibits making take-it-or-leave-it proposals. The subjects of collective bargaining are classified as follows: 1. Compulsory subjects: Wages, hours, and other terms and conditions of employment are compulsory subjects of collective bargaining. 2. Permissive subjects: Subjects that are not compulsory or illegal are permissive subjects of collective bargaining. These subjects may be bargained for if the company and union agree to do so. 3. Illegal subjects: Certain topics are illegal subjects of collective bargaining and therefore cannot be subjects of negotiation or agreement. Diff: 1 LO: 32.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 54) A ________ is a cessation of work by union members in order to obtain economic benefits or correct an unfair labor practice. A) collective bargain B) strike C) crossover D) persuasion Answer: B Diff: 1 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 55) Which of the following is an illegal strike? A) sit-down strike at the employer's premises B) absence from work C) cessation of work D) employer lockout Answer: A Diff: 1 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept

56) Which of the following best describes a wildcat strike? A) Union members occupy the employer's premises while striking. B) Union members strike part of the day or workweek and work the other part. C) Individual union members go on strike without proper union authorization. D) The union declares indefinite cessation of work. Answer: C Diff: 2 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 57) Employees who choose not to strike or return to work after joining the strikers for a period of time are known as ________ workers. A) locked-out B) wildcat C) borderline D) crossover Answer: D Diff: 1 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 58) If an employer reasonably anticipates a strike by some of its employees, it may legally arrange a(n) ________ to prevent these employees from entering the work premise. A) strike B) picketing C) employer lockout D) employee lockout Answer: C Diff: 1 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept

59) The laborers at Lillon Fabrics are paid on a daily-wage basis. When the employee union announces a strike that involves cessation of work, one of the employees, Lina, is hesitant to participate, as it would mean her employer withholding her pay. Which of the following is true of this case? A) Lina must participate in the strike as participation in all union activities is mandatory for the employees. B) Lina need not participate in the strike. C) Lina's employer is obligated to pay her even if she ceases to work and join the strike. D) Lina must find a replacement employee before joining the strike. Answer: B Diff: 2 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Application of knowledge Classification: Application 60) Once a strike begins, the employer may continue operations by ________ to take the place of the striking employees. A) hiring replacement workers B) temporarily demoting supervisors C) acquiring crossover workers D) acquiring wildcat strikers Answer: A Diff: 1 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 61) What legal course of action is available to a corporation if its employees go on strike without 60-day notice? A) warn the employees about closing the plant if they strike B) dissolve the union in the company C) dismiss the striking employees D) solicit on behalf of a second union in the company Answer: C Diff: 2 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 62) It is legal for a union to begin a strike 30 days after it has informed the employer about the strike. Answer: FALSE Diff: 1 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 15 Copyright © 2019 Pearson Education, Inc.

63) Sit-down strikes in which employees occupy their employer's premises are illegal. Answer: TRUE Diff: 1 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 64) An act of an employer to prevent employees from entering the work premises when the employer reasonably anticipates a strike is known as an employee lockout. Answer: FALSE Diff: 1 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 65) Employees who choose not to return to work after joining the strikers for a period of time are known as crossover workers. Answer: FALSE Diff: 1 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 66) List and explain the strikes that are illegal under federal law. Answer: The following types of strikes are considered unlawful under federal labor law: 1. Violent strikes. In violent strikes, striking employees cause substantial damage to property of the employer or a third party. Courts usually tolerate a certain amount of isolated violence before finding that an entire strike is illegal. 2. Sit-down strikes. In sit-down strikes, striking employees continue to occupy the employer's premises. Such strikes are illegal because they deny the employer's statutory right to continue its operations during the strike. 3. Partial or intermittent strikes. In partial strikes, or intermittent strikes, employees strike part of the day or workweek and work the other part. This type of strike is illegal because it interferes with the employer's right to operate its facilities at full operation. 4. Wildcat strikes. In wildcat strikes, individual union members go on strike without proper authorization from the union. The courts have recognized that a wildcat strike becomes lawful if it is quickly ratified by the union. Diff: 1 LO: 32.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept

67) The right to picket is implied from the ________. A) National Labor Relations Act B) Norris-LaGuardia Act C) Labor Management Relations Act D) Labor Management Reporting and Disclosure Act Answer: A Diff: 1 LO: 32.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 68) The action of strikers walking in front of an employer's premises, carrying signs announcing their strike is known as ________. A) occupying B) picketing C) employee lockout D) outcry Answer: B Diff: 1 LO: 32.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 69) In which of the following circumstances is picketing unlawful? A) when picketing obstructs customers from entering the employer's place of business B) when picketing is carried out against the struck employer's product C) when picketing is carried out against the neutral employer D) when the employer carries out a "lockout" against the picketers at work premises Answer: A Diff: 2 LO: 32.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 70) If union members picketing a restaurant block deliveries from the restaurant, this is ________ picketing. A) lawful B) illegal C) conditional D) absolute Answer: B Diff: 2 LO: 32.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept

71) ________ picketing is a type of picketing in which a union tries to bring pressure against an employer by picketing the employer's suppliers or customers. A) Primary boycott B) Secondary boycott C) Consumer boycott D) Group boycott Answer: B Diff: 1 LO: 32.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 72) Secondary boycott picketing is lawful only if it is directed at ________. A) the primary employer's product B) the neutral employer C) customers who purchase the product D) employees not part of the union Answer: A Diff: 1 LO: 32.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 73) Secondary boycott picketing is legal if it is product picketing. Answer: TRUE Diff: 1 LO: 32.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 74) Picketing that prevents customers from entering an employer's place of business is illegal. Answer: TRUE Diff: 1 LO: 32.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept

75) Distinguish between strikes and picketing. When is picketing lawful? Answer: A strike is a cessation of work by union members in order to obtain economic benefits or correct an unfair labor practice. Picketing is the action of strikers walking in front of an employer's premises, carrying signs announcing their strike. Picketing is lawful unless it (1) is accompanied by violence, (2) obstructs customers from entering the employer's place of business, (3) prevents nonstriking employees from entering the employer's premises, or (4) prevents pickups and deliveries at the employer's place of business. Diff: 2 LO: 32.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 76) The ________ is a federal act that requires employers with 100 or more employees to give their employees 60 days' notice before engaging in certain plant closings or layoffs. A) Norris-LaGuardia Act B) Labor Management Relations Act C) Worker Adjustment and Retraining Notification Act D) Labor Management Reporting and Disclosure Act Answer: C Diff: 1 LO: 32.6 Explain how labor's bill of rights affects internal union affairs. AACSB: Analytical thinking Classification: Concept 77) A mass layoff is defined as a reduction of 50 percent of a firm's employees or at least 100 employees during any 30-day period. Answer: FALSE Diff: 1 LO: 32.6 Explain how labor's bill of rights affects internal union affairs. AACSB: Analytical thinking Classification: Concept 78) A union is allowed to discipline members for working for wages below union scale. Answer: TRUE Diff: 1 LO: 32.6 Explain how labor's bill of rights affects internal union affairs. AACSB: Analytical thinking Classification: Concept

79) How does the Landrum-Griffin Act regulate the internal affairs of unions? Can unions discipline their members? Elaborate. Answer: Title I of the Landrum-Griffin Act gives each union member equal rights and privileges to nominate candidates for union office, vote in elections, and participate in membership meetings. It further guarantees union members the rights of free speech and assembly, provides for due process (notice and hearing), and permits union members to initiate judicial or administrative action. A union may discipline members for participating in certain activities, including (1) walking off the job in a nonsanctioned strike, (2) working for wages below union scale, (3) spying for an employer, and (4) any other unauthorized activity that has an adverse economic impact on the union. A union may not punish a union member for participating in a civic duty, such as testifying in court against the union. Diff: 2 LO: 32.6 Explain how labor's bill of rights affects internal union affairs. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 33 Equal Opportunity in Employment 1) The ________ is the federal agency responsible for enforcing most federal antidiscrimination laws. A) Equal Employment Opportunity Commission (EEOC) B) Fair Employment Practices Agency (FEPA) C) Age Discrimination in Employment Agency (ADEA) D) Bona fide occupational qualification Agency (BFOQA) Answer: A Diff: 1 LO: 33.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of the Equal Employment Opportunity Commission (EEOC)? A) It can seek injunctive relief. B) Its members are elected from state legislatures. C) Its jurisdiction is limited to charges of racial discrimination. D) It can register a complaint from a person who has filed a discriminatory lawsuit against the employer. Answer: A Diff: 2 LO: 33.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 3) A complainant may file his or her employment discrimination claim with ________ instead of the Equal Employment Opportunity Commission (EEOC). A) Americans with Disabilities Agency (ADA) B) Age Discrimination in Employment Agency (AEDA) C) a state Fair Employment Practices Agency (FEPA) D) Bona fide occupational qualification Agency (BFOQA) Answer: C Diff: 1 LO: 33.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept

4) If the Equal Employment Opportunity Commission (EEOC) chooses not to bring suit, it issues a(n) ________ to the complainant. A) affirmative defense B) right to sue letter C) filing date D) document of claim Answer: B Diff: 1 LO: 33.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 5) Which of the following is true of the right to sue letter issued by the Equal Employment Opportunity Commission (EEOC)? A) It is issued when the Equal Employment Opportunity Commission (EEOC) chooses to bring suit. B) It is issued when the Equal Employment Opportunity Commission (EEOC) does not find a violation. C) It is issued when the complainant is found guilty. D) It is issued only when the discrimination is racial in nature. Answer: B Diff: 2 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 6) The ________ is a federal statute that permits a complainant to file an employment discrimination claim against an employer within 180 days of the most recent paycheck violation. A) Civil Rights Act of 1968 B) Title II of Genetic Information Nondiscrimination Act C) Civil Rights Act of 1866 D) Lilly Ledbetter Fair Pay Act Answer: D Diff: 1 LO: 33.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept

7) Gloria's employer deducted 20 percent of her pay in the month of January due to personal problems he had with her. Under the Lilly Ledbetter Fair Pay Act, what period of time does Gloria have to file an employment discrimination claim? A) within the month of February the same year B) by the end of the same year C) within 180 days of the act that caused the discrimination D) she cannot file such a claim, as she was not discriminated against. Answer: C Diff: 2 LO: 33.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Application of knowledge Classification: Application 8) The ________ was intended to eliminate job discrimination based on race, color, national origin, sex, and religion. A) Lilly Ledbetter Fair Pay Act B) Fair Employment Practices Act C) Title II of Genetic Information Nondiscrimination Act D) Title VII of the Civil Rights Act of 1964 Answer: D Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 9) Which of the following best describes the scope of Title VII of the Civil Rights Act of 1964? A) It applies to all employers irrespective of the number of employees. B) It does not apply to labor unions. C) It does not cover state and local governments. D) It does not apply to Native American tribes. Answer: D Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 10) ________ discrimination occurs when an employer treats a specific individual less favorably than others because of that person's race, color, national origin, sex, or religion. A) Disparate-treatment B) Disparate-impact C) Favored-treatment D) Unfair-impact Answer: A Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

11) To bring a claim for disparate-treatment discrimination, the complainant must prove that ________. A) he or she is disabled B) he or she was rejected due to over-qualification C) he or she belongs to a Title VII protected class D) he or she is covered by Title I of the Americans with Disabilities Act (ADA) Answer: C Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 12) A member of a minority race applies for a promotion to a position advertised as available at his company. The minority applicant, who is qualified for the position, is rejected by the company, which then hires a nonminority applicant for the position. The minority applicant can bring a claim under ________. A) Title I of Americans with Disabilities Act B) Title II of Genetic Information Nondiscrimination Act C) Title VII of the Civil Rights Act D) Lilly Ledbetter Fair Pay Act Answer: C Diff: 2 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Application of knowledge Classification: Application 13) ________ discrimination occurs when an employer discriminates against an entire protected class through the effects of a seemingly neutral policy. A) Disparate-treatment B) Disparate-impact C) Favored-treatment D) Unfair-impact Answer: B Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept

14) Which of the following is true of employment discrimination as defined under Title VII of the Civil Rights Act of 1964? A) Disparate-treatment discrimination can be proven through statistical data about an employer's employment practices. B) Disparate-impact discrimination occurs when an employer adopts a work rule that is neutral on its face but is shown to cause an adverse impact on a protected class. C) Disparate-treatment discrimination occurs when an employer discriminates against an individual of a protected class. D) Sexual harassment and refusal to hire physically challenged employees are illustrations of disparate-impact discrimination. Answer: B Diff: 2 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 15) Which of the following is an instance of disparate-treatment discrimination? A) An employer does not promote Kelly because she is about to take maternity leave. B) Ghalib, who is fluent in English, is not hired as a writer due to his Iraqi heritage. C) An employer refuses to install a wooden ramp to accommodate Lin who is restricted to a wheelchair. D) A factory hires 22-year old Jerry over 46-year old Barry, citing age as the reason. E) All of the above Answer: E Diff: 2 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Application of knowledge Classification: Application 16) A success plaintiff in a Title VII court action can recover back pay from an employer but is not allowed to recover attorney's fees. Answer: FALSE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 17) The jurisdiction of the Equal Employment Opportunity Commission (EEOC) is restricted to investigating charges of discrimination based on sex. Answer: FALSE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept

18) If a person believes that he or she has been discriminated against in the workplace, he or she cannot immediately file a lawsuit against the employer. Answer: TRUE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 19) The Equal Employment Opportunity Commission (EEOC) and a complainant can jointly sue an employer who discriminated against the complainant. Answer: FALSE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 20) The Equal Employment Opportunity Commission (EEOC) will issue a right to sue letter to the complainant if it finds a violation upon investigation of the charge. Answer: TRUE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 21) A complainant can file his or her claim of discrimination with a state fair employment practices agency instead of the Equal Employment Opportunity Commission (EEOC). Answer: TRUE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 22) A plaintiff must file a claim against an employer within 180 days of the most recent paycheck violation. Answer: TRUE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 23) Title VII of the Civil Rights Act was intended to eliminate job discrimination based on race, color, national origin, sex, and religion. Answer: TRUE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

24) Title VII of the Civil Rights Act of 1964 applies to employers with any number of employees. Answer: FALSE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 25) Native American tribes and tax-exempt private clubs are excluded from Title VII of the Civil Rights Act of 1964. Answer: TRUE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 26) U.S. citizens employed by U.S. companies located in foreign countries are not covered by Title VII of the Civil Rights Act of 1964. Answer: FALSE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 27) Disparate-treatment discrimination occurs when an employer treats a specific individual less favorably than others because of that person's race, color, national origin, sex, or religion. Answer: TRUE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 28) Disparate-treatment discrimination occurs when an employer adopts a work rule that is neutral on its face but is shown to cause an adverse impact on a protected class. Answer: FALSE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 29) If an employer refuses to promote all persons of the Asian race, the company has engaged in disparate-impact discrimination. Answer: TRUE Diff: 2 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

30) Labor unions with 15 or more members are covered under Title VII of the Civil Rights Act. Answer: TRUE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 31) Punitive damages against an employer in a case involving an employer's malice and reckless indifference to federally protected rights can be awarded through the court system. Answer: TRUE Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 32) An employee feels discriminated against by his employer, based on his religion. Who must he approach before filing a lawsuit against the employer? Describe the process. Answer: If a person believes that he or she has been discriminated against in the workplace, he or she cannot immediately file a lawsuit against the employer. The complainant must first file a complaint with the Equal Employment Opportunity Commission (EEOC). The EEOC often requests that the parties try to resolve their dispute through mediation. If mediation does not work, the EEOC will investigate the charge. If the EEOC finds a violation, it will decide whether to sue the employer. If the EEOC sues the employer, the complainant cannot sue the employer. In this case, the EEOC represents the complainant. If the EEOC finds a violation and chooses not to bring suit, or does not find a violation, the EEOC will issue a right to sue letter to the complainant. This gives the complainant the right to sue his or her employer. If a state has a Fair Employment Practices Agency (FEPA), the complainant may file his or her claim with the FEPA instead of the EEOC. Often a complainant will file a complaint with a FEPA if state law provides protection from discrimination not covered by federal laws or if the FEPA's procedure permits a filing date that is longer than that of the EEOC. The FEPA complaint process is similar to that of the EEOC. Diff: 2 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept

33) Explain the scope and provisions of Title VII of the Civil Rights Act. Answer: Title VII of the Civil Rights Act of 1964 applies to (1) employers with 15 or more employees, (2) all employment agencies, (3) labor unions with 15 or more members, (4) state and local governments and their agencies, and (5) most federal government employment. Native American tribes and tax-exempt private clubs are expressly excluded from coverage. Other portions of the Civil Rights Act of 1964 prohibit discrimination in housing, education, and other facets of life. Title VII prohibits discrimination based on race, color, national origin, sex, or religion, whether in hiring, decisions regarding promotion or demotion, payment of compensation and fringe benefits, availability of job training and apprenticeship opportunities, referral systems for employment, decisions regarding dismissal, work rules, and any other "term, condition, or privilege" of employment. Any employee of a covered employer, including undocumented aliens, may bring actions for employment discrimination under Title VII. U.S. citizens employed by U.S.-controlled companies in foreign countries are covered by Title VII. Foreign nationals employed in foreign countries by U.S. controlled companies are not covered by Title VII. Diff: 1 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 34) Distinguish between disparate-treatment discrimination and disparate-impact discrimination. Answer: Disparate-treatment discrimination occurs when an employer treats a specific individual less favorably than others because of that person's race, color, national origin, sex, or religion. In such situations, the complainant must prove that (1) he or she belongs to a Title VII protected class; (2) he or she applied for and was qualified for the employment position, (3) he or she was rejected despite this, and (4) the employer kept the position open and sought applications from persons with the complainant's qualifications. Disparate-impact discrimination occurs when an employer discriminates against an entire protected class. Often, this type of discrimination is proven through statistical data about an employer's employment practices. The plaintiff must demonstrate a causal link between the challenged practice and the statistical imbalance. Showing a statistical disparity between the percentages of protected class employees and the percentage of the population that the protected class makes within the surrounding community is not enough, by itself, to prove discrimination. Disparate-impact discrimination can occur when an employer adopts a work rule that is neutral on its face but is shown to cause an adverse impact on a protected class. Diff: 2 LO: 33.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept

35) QuickMoney LLC is looking to fill its chief executive officer position, as the current CEO is retiring soon. QuickMoney receives applications for this position from many persons, including Joe Thomas, an African-American. Mr. Thomas is the best-qualified applicant for the job. If QuickMoney does not hire Mr. Thomas because he is African-American, the company has engaged in ________ discrimination. A) genetic information B) race C) color D) national origin Answer: B Diff: 1 LO: 33.3 Identify race and color discrimination that violate Title VII. AACSB: Application of knowledge Classification: Application 36) If an employer refuses to hire individuals belonging to a particular community, that would violate ________. A) Title I of the Americans with Disabilities Act B) Title II of the Genetic Information Nondiscrimination Act C) Title VII of the Civil Rights Act of 1964 D) Title IV of the Genetic Information Nondiscrimination Act Answer: C Diff: 1 LO: 33.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept 37) A person having origins in any of the original peoples of the Middle East belongs to the Caucasian racial group. Answer: TRUE Diff: 1 LO: 33.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept 38) If a light-skinned member of a race refuses to hire a dark-skinned member of the same race, it constitutes racial discrimination. Answer: FALSE Diff: 2 LO: 33.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept

39) A private plaintiff can bring an action of employment discrimination under Section 1981 of the Civil Rights Act of 1866 without going through the procedural requirements of Title VII. Answer: TRUE Diff: 1 LO: 33.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept 40) There is no cap on the recovery of compensatory or punitive damages under Section 1981 of the Civil Rights Act of 1866. Answer: TRUE Diff: 1 LO: 33.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept 41) Color discrimination cases are brought more often than are cases involving other forms of discrimination. Answer: FALSE Diff: 1 LO: 33.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept 42) Which type of discrimination is based on a person's heritage or cultural characteristics? A) race discrimination B) color discrimination C) national origin discrimination D) genetic information discrimination Answer: C Diff: 1 LO: 33.4 Identify national origin discrimination that violates Title VII. AACSB: Analytical thinking Classification: Concept 43) If a company does not hire certain employees because of their accents, it has committed ________ discrimination. A) genetic information B) sex C) color D) national origin Answer: D Diff: 2 LO: 33.4 Identify national origin discrimination that violates Title VII. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

44) Which of the following is true of sex discrimination? A) It is not the same as gender discrimination. B) Prohibition against sex discrimination applies only to women, not men. C) Employment discrimination because of pregnancy is sex discrimination. D) Sex discrimination is covered by Title II of Genetic Information Nondiscrimination Act. Answer: C Diff: 2 LO: 33.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 45) Which of the following best describes quid pro quo sexual harassment? A) harassment discrimination because of pregnancy, childbirth or related medical conditions B) harassment where sexual favors are requested in order to obtain a job or be promoted C) harassment in hiring or promotion based on the sex of the employee under consideration D) selective or partial treatment offered to an employee or a group of employees based on their sex Answer: B Diff: 2 LO: 33.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 46) In 1978, the ________ which prohibits employment discrimination because of pregnancy, childbirth, or related medical conditions was enacted as an amendment to Title VII of the Civil Rights Act. A) Pregnancy Discrimination Act B) Sex Discrimination Act C) Gender Discrimination Act D) Sexual Harassment Act Answer: A Diff: 1 LO: 33.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept

47) Lila Miller who works for a large software firm is four months pregnant and is due for a promotion. However, her employer offers the promotion to Harry Oswald, a less-experienced candidate, as Lila would go on maternity leave soon and would be unable to perform her duties. Which of the following is true of this scenario? A) Lila's employer is not liable for disparate-treatment discrimination. B) Lila's employer is liable for disparate-impact discrimination. C) The employer was justified in denying Lila the promotion. D) Lila's employer may have violated Title VII of the Civil Rights Act of 1964. Answer: D Diff: 2 LO: 33.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Application of knowledge Classification: Application 48) Using a sexually explicit picture or screen saver to mock an employee constitutes ________. A) sex discrimination B) quid pro quo sex discrimination C) sexual harassment D) emotional abuse Answer: C Diff: 2 LO: 33.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 49) If an employer refuses to promote a qualified female to a management position because of her sex, this would be in violation of Title VII. Answer: TRUE Diff: 1 LO: 33.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 50) Discrimination because of pregnancy, childbirth, or related medical conditions violates the Civil Rights Act of 1866. Answer: FALSE Diff: 1 LO: 33.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept

51) Denying employment to a woman because she is pregnant is a form of quid pro quo sex discrimination. Answer: FALSE Diff: 1 LO: 33.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 52) If an employer denies a salary hike to an employee because she is a woman, the employer is liable for sexual harassment. Answer: FALSE Diff: 1 LO: 33.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 53) To whom a person is romantically, sexually or emotionally attracted to is referred to as ________. A) sexual orientation B) gender identity C) transgender D) LGBTQ Answer: A Diff: 1 LO: 33.6 Define sexual orientation and gender identity discrimination. AACSB: Analytical thinking Classification: Concept 54) Employment discrimination based on a person's sexual orientation is called gender identity discrimination. Answer: FALSE Diff: 1 LO: 33.6 Define sexual orientation and gender identity discrimination. AACSB: Analytical thinking Classification: Concept 55) The EEOC interprets the prohibition in Title VII against sex discrimination to include employment discrimination based on sexual orientation or gender identity. Answer: TRUE Diff: 1 LO: 33.6 Define sexual orientation and gender identity discrimination. AACSB: Analytical thinking Classification: Concept

56) Only federal laws can be written that prohibit employers from discriminating against employees and job applicants based on their sexual orientation or gender identity; state laws and city and county ordinances do not apply to sexual orientation or gender identity discrimination. Answer: FALSE Diff: 1 LO: 33.6 Define sexual orientation and gender identity discrimination. AACSB: Analytical thinking Classification: Concept 57) The U.S. Supreme Court has held that sexual harassment that creates a hostile work environment violates ________. A) Title VII of the Civil Rights Act B) Fair Employment Practices Act C) Title II of Genetic Information Nondiscrimination Act D) Title I of the Americans with Disabilities Act Answer: A Diff: 1 LO: 33.7 Describe racial and sexual harassment. AACSB: Analytical thinking Classification: Concept 58) Which of the following elements constitutes an affirmative defense by an employer to a claim of sexual harassment at the work place? A) The employee was harassed by other employees who are no longer employed by the employer. B) The employer had no knowledge about the sexual harassment faced by the plaintiff-employee until a court notice was served on the employer. C) The employee failed to take advantage of any preventive or corrective opportunities provided by the employer. D) The employee misinterpreted words or actions by the employer or his employees which were not intended to be sexual harassment. Answer: C Diff: 2 LO: 33.7 Describe racial and sexual harassment. AACSB: Analytical thinking Classification: Concept

59) ________ prohibits any form of sex discrimination where sexual favors are requested in order to obtain a job or be promoted. A) Title VII of the Civil Rights Act B) Fair Employment Practices Act C) Title II of Genetic Information Nondiscrimination Act D) Title I of the Americans with Disabilities Act Answer: A Diff: 1 LO: 33.7 Describe racial and sexual harassment. AACSB: Analytical thinking Classification: Concept 60) Which of the following is true of sexual harassment? A) Same-sex harassment is not covered under Title VII. B) An employee being harassed at the workplace is not obligated to report it to the employer. C) Sending offensive e-mail may be considered sexual harassment. D) The absence of a complaint policy may make an employer liable for disparate-impact discrimination. Answer: C Diff: 2 LO: 33.7 Describe racial and sexual harassment. AACSB: Analytical thinking Classification: Concept 61) Employers are never strictly liable to any of their employees who might have suffered sexual harassment at the workplace. Answer: FALSE Diff: 1 LO: 33.7 Describe racial and sexual harassment. AACSB: Analytical thinking Classification: Concept 62) Jason Smith is a Hispanic scriptwriter from Brazil, located in Brazil, who works for a television show on an American cable network. He was fired after the producer came to know that Smith was a scientologist by faith. The producer's official reason for this termination was that as Smith was based in Brazil, communication was a problem. This is an example of ________ discrimination that violates Title VII of the Civil Rights Act. A) racial B) religious C) national origin D) disparate-impact Answer: B Diff: 2 LO: 33.8 Describe an employer's duty to make reasonable accommodation for employees' religions. AACSB: Application of knowledge Classification: Application 16 Copyright © 2019 Pearson Education, Inc.

63) Which of the following is true of religious discrimination? A) Only monotheistic religions are covered under Title VII. B) An employer must reasonably accommodate religious observances or practices of its employees at the workplace. C) An employee who claims religious discrimination cannot sue the employer for any other violation of Title VII. D) Religious organizations can give preference in employment to individuals of a particular religion. Answer: B Diff: 2 LO: 33.8 Describe an employer's duty to make reasonable accommodation for employees' religions. AACSB: Analytical thinking Classification: Concept 64) Title VII prohibits workplace or job segregation based on religion. Answer: TRUE Diff: 1 LO: 33.8 Describe an employer's duty to make reasonable accommodation for employees' religions. AACSB: Analytical thinking Classification: Concept 65) Why is proving a bona fide occupational qualification essential? A) for discrimination to be legal B) to establish the employer's violation of Title VII C) to establish the employee's claim is fraudulent D) for an employee to claim being discriminated against by the employer Answer: A Diff: 2 LO: 33.9 List and describe defenses that may be raised by an employer against a charge of violating Title VII. AACSB: Analytical thinking Classification: Concept

66) When is an employer required to prove a bona fide occupational qualification? Explain with an example. Answer: Discrimination based on protected classes other than race or color is permitted if it is shown to be a bona fide occupational qualification (BFOQ). Thus, an employer can justify discrimination based on sex in some circumstances. To be legal, a BFOQ must be both job related and a business necessity. Example: Allowing only women to be locker room attendants in a women's gym is a valid BFOQ. Prohibiting males from being managers or instructors at the same gym would not be a BFOQ. Diff: 2 LO: 33.9 List and describe defenses that may be raised by an employer against a charge of violating Title VII. AACSB: Analytical thinking Classification: Concept 67) The ________ protects both sexes from pay discrimination based on sex. A) Lilly Ledbetter Fair Pay Act B) Fair Employment Practices Act C) Title VII of Civil Rights Act D) Equal Pay Act Answer: D Diff: 1 LO: 33.10 Describe the scope of coverage of the Equal Pay Act. AACSB: Analytical thinking Classification: Concept 68) Which of the following is true of the Equal Pay Act? A) It protects both sexes from pay discrimination based on sex. B) Federal workers are covered under the Equal Pay Act. C) Employees cannot bring a private cause of action against an employer for violating the Equal Pay Act. D) An employer who has violated the Equal Pay Act must lower the wages of employees whose wages had been increased. Answer: A Diff: 2 LO: 33.10 Describe the scope of coverage of the Equal Pay Act. AACSB: Analytical thinking Classification: Concept

69) An employer pays higher wages to Shelly–who has worked with the company for six years– than Samuel, who holds a similar position to Shelly and performs the same functions as her and has worked with the company for only five and a half years. Which of the following is true of this case? A) The employer has violated the Fair Employment Practices Act. B) The employer is liable for disparaged-treatment discrimination. C) The employer is liable for disparaged-impact discrimination. D) The employer may not have violated the Equal Pay Act. Answer: D Diff: 2 LO: 33.10 Describe the scope of coverage of the Equal Pay Act. AACSB: Application of knowledge Classification: Application 70) The ________ is a federal statute that prohibits discriminating against employees who are 40 years old and older. A) Fair Employment Practices Agency (FEPA) B) Older Workers Benefit Protection Act (OWBPA) C) Age Discrimination in Employment Act (ADEA) D) Equal Employment Opportunity Commission (EEOC) Answer: C Diff: 1 LO: 33.11 Describe the scope of coverage of the Age Discrimination in Employment Act. AACSB: Analytical thinking Classification: Concept 71) The ________ is a federal statute that prohibits age discrimination regarding employee benefits. A) Fair Employment Practices Agency (FEPA) B) Older Workers Benefit Protection Act (OWBPA) C) Age Discrimination in Employment Act (AEDA) D) Equal Employment Opportunity Commission (EEOC) Answer: B Diff: 1 LO: 33.11 Describe the scope of coverage of the Age Discrimination in Employment Act. AACSB: Analytical thinking Classification: Concept 72) The Age Discrimination in Employment Act (AEDA) is a federal statute that prohibits age discrimination practices against employees who are 40 years old and older. Answer: TRUE Diff: 1 LO: 33.11 Describe the scope of coverage of the Age Discrimination in Employment Act. AACSB: Analytical thinking Classification: Concept

73) The ________ imposes obligations on employers and providers of public transportation, telecommunications, and public accommodations to accommodate disabled individuals. A) Age Discrimination in Employment Act (AEDA) B) Older Workers Benefit Protection Act (OWBPA) C) Americans with Disabilities Act (ADA) D) Fair Employment Practices Agency (FEPA) Answer: C Diff: 1 LO: 33.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 74) Which of the following is considered a major physiological impairment by the Americans with Disabilities Act Amendments Act (ADAAA)? A) undergoing mental stress B) a history of surgery C) nursing a temporary but contagious ailment D) having cancer Answer: D Diff: 1 LO: 33.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 75) Employers are obligated to provide reasonable accommodations to employees with disabilities if the accommodations do not cause significant difficulty or expense for the employers. Answer: TRUE Diff: 1 LO: 33.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 76) Employees stricken with cancer, diabetes, or epilepsy are considered individuals with a disability under Americans with Disabilities Act (ADA) provisions. Answer: TRUE Diff: 1 LO: 33.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept

77) The Americans with Disabilities Act Amendments Act (ADAAA) is a federal statute that makes it illegal for an employer to discriminate against job applicants and employees based on genetic information. Answer: FALSE Diff: 1 LO: 33.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 78) Explain the concept of reasonable accommodation of disabled employees. When is an employer not obligated to provide such accommodation? Answer: Under Title I of Americans with Disabilities Act (ADA), an employer is under the obligation to make a reasonable accommodation to accommodate an individual's disability as long as such accommodation does not cause an undue hardship on the employer. If an employer makes a reasonable accommodation to accommodate an individual's disability, there is no violation of the ADA. However, if an employer does not make a reasonable accommodation that could be made without causing an undue hardship on the employer, the employer has violated the ADA. Employers are not obligated to provide accommodations that would impose an undue hardship—that is, actions that would require significant difficulty or expense. Diff: 2 LO: 33.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 79) The ________ is a federal statute that makes it illegal for an employer to discriminate against job applicants and employees based on genetic information. A) Americans with Disabilities Act (ADA) B) Genetic Information Nondiscrimination Act (GINA) C) Americans with Disabilities Act (ADAAA) D) Older Workers Benefit Protection Act (OWBPA) Answer: B Diff: 1 LO: 33.13 Define genetic information discrimination. AACSB: Analytical thinking Classification: Concept 80) Inadvertent discovery of genetic information and voluntary submission of genetic information to an employer violates Title II of GINA. Answer: FALSE Diff: 2 LO: 33.13 Define genetic information discrimination. AACSB: Analytical thinking Classification: Concept

81) A(n) ________ provides that certain job preferences will be given to members of minority racial and ethnic groups, females, and other protected-class applicants when making employment decisions. A) retaliation B) affirmative defense C) affirmative action plan D) reasonable accommodation plan Answer: C Diff: 1 LO: 33.14 Explain the protections afforded employees from employer retaliation. AACSB: Analytical thinking Classification: Concept 82) Federal antidiscrimination laws prohibit employers from engaging in retaliation against an employee for filing a charge of discrimination. Answer: TRUE Diff: 1 LO: 33.14 Explain the protections afforded employees from employer retaliation. AACSB: Analytical thinking Classification: Concept 83) Which of the following is FALSE about the Uniformed Services Employment and Reemployment Rights Act of 1994? A) The law applies to all civilian and government employers in the United States. B) The law protects employment benefits to persons who service in the U.S. military services. C) The law requires that a person must serve fewer than two years in uniform service to qualify for reemployment at his or her previous company. D) The law requires employers to rehire persons with service-connected disabilities if the disability can be reasonably accommodated. Answer: C Diff: 3 LO: 33.15 Define affirmative action in employment. AACSB: Analytical thinking Classification: Concept 84) An affirmative action plan provides that certain job preferences will be given to members of minority racial and ethnic groups, females, and other protected-class applicants when making employment decisions. Answer: TRUE Diff: 1 LO: 33.15 Define affirmative action in employment. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 34 Small Business, Entrepreneurship, and General Partnerships 1) Which of the following best describes an entrepreneur? A) a person who forms and operates a business B) a person who invests in an existing business C) a person who lends capital to a new business D) a person who derives a profit from a new or an existing business Answer: A Diff: 1 LO: 34.1 Define entrepreneurship and describe the types of organizations that an entrepreneur can use to operate a business. AACSB: Analytical thinking Classification: Concept 2) Which of the following is a major form of conducting a business? A) institution B) charity C) corporation D) trust Answer: C Diff: 1 LO: 34.1 Define entrepreneurship and describe the types of organizations that an entrepreneur can use to operate a business. AACSB: Analytical thinking Classification: Concept 3) An entrepreneur is a person who forms and operates a business. Answer: TRUE Diff: 1 LO: 34.1 Define entrepreneurship and describe the types of organizations that an entrepreneur can use to operate a business. AACSB: Analytical thinking Classification: Concept 4) ________ are the most common form of business organization in the United States. A) General partnerships B) Sole proprietorships C) Limited liability companies D) Limited partnerships Answer: B Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept

5) Which of the following is true of a sole proprietorship? A) A business operated under sole proprietorship cannot be transferred. B) Large businesses cannot be operated under sole proprietorship. C) A business operated under sole proprietorship should be owned by one or more people of the same family. D) Creditors can recover claims against the business from the sole proprietor's personal assets. Answer: D Diff: 2 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 6) The designation of ________ is used for businesses that are operating under a trade name. A) w.e.f. B) p.f.a. C) d.b.a. D) l.o.p. Answer: C Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 7) Which of the following is true of a business operating as a sole proprietorship? A) It is not considered a separate legal entity from the owner. B) It cannot be sold when the owner decides to do so. C) It requires governmental approval when being transferred. D) It has access to unrestricted capital by means of investments. Answer: A Diff: 2 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 8) Which of the following is true of creating a sole proprietorship? A) No government approval is required. B) Federal taxation is levied upon sole proprietorship. C) No licenses are required to do business within a city or state. D) Special permission must be obtained to receive a sole proprietorship status. Answer: A Diff: 2 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept

9) Jonathan Lopez wants to be his own boss and ventures into retailing fruit in the neighborhood after borrowing some money from his mother. While obtaining a license to carry out business in his city, Jonathan mentions the money he borrowed but forgets to specify what type of business undertaking his store will be. Under which of the following major forms of business is Jonathan's store listed by default? A) a general partnership B) a sole proprietorship C) a limited partnership D) a limited liability corporation Answer: B Diff: 2 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Application of knowledge Classification: Application 10) A ________ is a document that is filed with the state that designates a trade name of a business. A) proprietorship statement B) partnership agreement C) fictitious business name statement D) nomenclature affidavit Answer: C Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 11) The sole proprietor has ________ liability. A) zero personal B) limited organizational C) complete organizational D) unlimited personal Answer: D Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept

12) Orlando opened a hot dog stand in Brooklyn which unfortunately did not earn him a profit. He had borrowed $5,000 from the bank to set it up, which had to be repaid to the bank in two days. However, Orlando's friend Bob agreed to partner with him starting the subsequent month. From which of the following sources can the bank recover its $5,000 with interest? A) Orlando's secondary financer B) Orlando's bank accounts C) Orlando's family D) Bob, Orlando's prospective business partner Answer: B Diff: 2 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Application of knowledge Classification: Application 13) Why does a sole proprietorship not pay taxes at the business level? A) It is not a separate legal entity from the owner. B) It is a small business that is exempted from taxation. C) It is a not-for-profit organization. D) It is generally an institution with no business dealings. Answer: A Diff: 2 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 14) The earnings and losses from a sole proprietorship are reported on ________. A) the federal income tax filing document B) the business license that is renewed each year C) the proprietor's personal income tax filing D) the state income tax filing document Answer: C Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 15) The income or loss from a sole proprietorship is reported on ________ which must be attached to the owner's Form 1040. A) Schedule B B) Schedule C C) Form 14 D) Form 8 Answer: B Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

16) A sole proprietorship cannot be easily transferred when the owner desires to do so. Answer: FALSE Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 17) A sole proprietor is legally responsible for the business's contracts. Answer: TRUE Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 18) The designation of d.b.a. (doing business as) refers to the description for a business that is operating under a trade name. Answer: TRUE Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 19) A trade name statement refers to a document that is filed with the state that designates a trade name of a business, the name and address of the applicant, and the address of the business. Answer: FALSE Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 20) In a sole proprietorship, the business is considered a separate legal entity from the owner. Answer: FALSE Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 21) No federal or state government approval is required for creating a sole proprietorship. Answer: TRUE Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept

22) If no other form of business organization is chosen in a business operated by only one person, the business is by default a sole proprietorship. Answer: TRUE Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 23) A sole proprietor has limited personal liability. Answer: FALSE Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 24) A sole proprietorship does not pay taxes at the business level. Answer: TRUE Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 25) List and briefly explain the advantages and disadvantages of a sole proprietorship. Answer: There are several major advantages to operating a business as a sole proprietorship. They include the following: a. Forming a sole proprietorship is easy and does not cost a lot. b. The owner has the right to make all management decisions concerning the business, including those involving hiring and firing employees. c. The sole proprietor owns all of the business and has the right to receive all of the business's profits. d. A sole proprietorship can be easily transferred or sold if and when the owner desires to do so; no other approval is necessary. There are important disadvantages to this business form, too. For example, a sole proprietor's access to the capital is limited to personal funds plus any loans he or she can obtain, and a sole proprietor is legally responsible for the business's contracts and the torts he or she or any of his or her employees commit in the course of employment. Diff: 1 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept

26) Explain how a sole proprietorship is taxed. Answer: A sole proprietorship is not a separate legal entity, so it does not pay taxes at the business level. Instead, the earnings and losses from a sole proprietorship are reported on each sole proprietor's personal income tax filing. A sole proprietorship business earns income and pays expenses during the course of operating the business. A sole proprietor has to file tax returns and pay taxes to state and federal governments. For federal income tax purposes, a sole proprietor must prepare a personal income tax Form 1040 U.S. Individual Income Tax Return and report the income or loss from the sole proprietorship on his or her personal income tax form. The income or loss from the sole proprietorship is reported on Schedule C (Profit or Loss from Business), which must be attached to the taxpayer's Form 1040. Diff: 2 LO: 34.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 27) An association of two or more persons to carry on as co-owners of a business for profit is known as a(n) ________. A) limited partnership B) sole proprietorship C) corporation D) general partnership Answer: D Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 28) An ordinary partnership is also known as a ________. A) sole proprietorship B) general partnership C) limited partnership D) limited liability company Answer: B Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept

29) The ________ is a model act that codifies general partnership law. A) Uniform Partnership Act (UPA) B) Fair Employment Partnership Act (FEPA) C) Americans with Disabilities Act (ADA) D) Age Discrimination in Employment Act (AEDA) Answer: A Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 30) Which of the following serves as a motive for an organization or venture to qualify as a partnership? A) The organization seeks to increase its stake in the percentage of profits made by the business. B) The organization seeks to avoid personal liability. C) The organization wants to make a profit. D) The organization wants to reduce the number of approvals it seeks before taking decisions. Answer: C Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 31) Which of the following is true of general partnership? A) A business should make a profit in order to qualify as a general partnership. B) The general partners need not be the co-owners of the business. C) General partnerships can be oral or implied from the conduct of the parties. D) Charity organizations and schools are mostly formed from general partnerships. Answer: C Diff: 2 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept

32) Inference of the existence of a general partnership can be drawn if profits are received and ________. A) shared among the involved parties B) payment of wages is distributed C) held by only one party D) debts are incurred Answer: A Diff: 2 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 33) Which of the following is true in the creation of a general partnership? A) The business name has to have the names of all the partners. B) The business name cannot be a fictitious name. C) The business name selected by the partnership cannot indicate that it is a corporation. D) The business cannot operate under a trade name. Answer: C Diff: 2 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 34) Which of the following must be in writing even if it is below the time stipulation of the Statute of Frauds? A) businesses that have more than one commercial venture B) partnerships authorized to deal real estate C) businesses that are authorized to lend money D) enterprises which deal with health and medicine Answer: B Diff: 2 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept

35) General partnerships that exist for more than ________ must have their general partnership agreement in writing under the Statute of Frauds in order to deal in real estate. A) six months B) 180 days C) five years D) one year Answer: D Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 36) A general partnership is an association of two or more persons to carry on as co-owners of a business for profit. Answer: TRUE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 37) The General Partnership Act (GPA) is a model act that codifies sole proprietorship law. Answer: FALSE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 38) The Revised Uniform Partnership Act is a federal statute that holds in all states. Answer: FALSE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 39) A general partnership is valid only if it is carried out for profit. Answer: TRUE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept

40) The Uniform Partnership Act's definition of a general partner includes other limited partnerships. Answer: TRUE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 41) Receipt of a share of business profits is prima facie evidence of a general partnership. Answer: TRUE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 42) An inference of the existence of a general partnership is drawn in cases where profits are received in payment of wages owed to an employee. Answer: FALSE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 43) A general partnership cannot operate under the name of any one of the partners; the name has to represent all the partners if a fictitious name is not being adopted. Answer: FALSE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 44) The name selected by a general partnership cannot indicate that it is a corporation. Answer: TRUE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept

45) A general partnership agreement must always be in writing to be considered legal. Answer: FALSE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 46) General partnerships do not pay federal income taxes. Answer: TRUE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 47) Flow-through taxation is the federal income tax imposed on general partnerships. Answer: FALSE Diff: 1 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 48) Briefly explain the formation of a general partnership. Answer: A business must meet four criteria to qualify as a general partnership under the Uniform Partnership Act (UPA). It must be (1) an association of two or more persons, (2) carrying on a business, (3) as co-owners, (4) for profit. A general partnership is a voluntary association of two or more persons. All partners must agree to the participation of each copartner. A business–a trade, an occupation, or a profession–must be carried on. The organization or venture must have a profit motive in order to qualify as a partnership, even though the business does not actually have to make a profit. Receipt of a share of business profits is prima facie evidence of a general partnership because nonpartners usually are not given the right to share in a business's profits. Diff: 2 LO: 34.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept

49) Which of the following is true of the management of a general partnership? A) The number of votes a general partner has depends on the proportion of his or her capital investment. B) Partnership matters are decided by unanimous agreement only. C) Only general partners in the board of directors have the authority to participate in the management. D) If the vote is tied, the action being voted on is considered to be defeated. Answer: D Diff: 2 LO: 34.4 List and describe the rights of general partners. AACSB: Analytical thinking Classification: Concept 50) Which of the following is true of profits and losses in a general partnership? A) The proportion of profit shared is equal to the general partner's initial investment. B) Losses are shared equally by all general partners. C) The general partner who proposed the idea of the business gets most profit. D) The proportion of investment governs only the proportion of loss shared and not profit obtained. Answer: B Diff: 2 LO: 34.4 List and describe the rights of general partners. AACSB: Analytical thinking Classification: Concept 51) ________ refers to the right of a partner to be reimbursed for expenditures incurred on behalf of the partnership. A) Indemnification B) Proliferation C) Lucubration D) Fenestration Answer: A Diff: 1 LO: 34.4 List and describe the rights of general partners. AACSB: Analytical thinking Classification: Concept

52) Which of the following is a right to which every general partner is entitled under the Uniform Partnership Act? A) right to remuneration B) right to free and open speech C) right to return of capital D) right to legal action Answer: C Diff: 1 LO: 34.4 List and describe the rights of general partners. AACSB: Analytical thinking Classification: Concept 53) All general partners have an equal right to participate in the management of the general partnership business unless otherwise specified in the general partnership agreement. Answer: TRUE Diff: 1 LO: 34.4 List and describe the rights of general partners. AACSB: Analytical thinking Classification: Concept 54) The right to share in the profits of the partnership is the right to share in the earnings from the investment of capital. Answer: TRUE Diff: 1 LO: 34.4 List and describe the rights of general partners. AACSB: Analytical thinking Classification: Concept 55) The Uniform Partnership Act (UPA) provides that all general partners are entitled to remuneration for their performance in the partnership's business. Answer: FALSE Diff: 1 LO: 34.4 List and describe the rights of general partners. AACSB: Analytical thinking Classification: Concept 56) The term indemnification refers to the right of a partner to be reimbursed for expenditures incurred on behalf of the partnership. Answer: TRUE Diff: 1 LO: 34.4 List and describe the rights of general partners. AACSB: Analytical thinking Classification: Concept

57) A ________ is the obligation partners owe to use the same level of care and skill that a reasonable person in the same position would use in the same circumstances. A) duty to perform B) duty of care C) duty to inform D) duty of obedience Answer: B Diff: 1 LO: 34.5 List and describe the duties of general partners. AACSB: Analytical thinking Classification: Concept 58) The ________ requires general partners to adhere to the provisions of the partnership agreement and the decisions of the partnership. A) duty to inform B) duty of loyalty C) duty of care D) duty of obedience Answer: D Diff: 1 LO: 34.5 List and describe the duties of general partners. AACSB: Analytical thinking Classification: Concept 59) Instead of suing the partnerships or other partners at law, general partners are given the right to bring a(n) ________ against other partners. A) claim for damages B) tort action C) call for action D) action for an accounting Answer: D Diff: 1 LO: 34.5 List and describe the duties of general partners. AACSB: Analytical thinking Classification: Concept 60) Competing with the partnership without the permission of other partners violates a general partner's ________. A) duty to inform B) duty of loyalty C) duty of care D) duty of obedience Answer: B Diff: 1 LO: 34.5 List and describe the duties of general partners. AACSB: Analytical thinking Classification: Concept 15 Copyright © 2019 Pearson Education, Inc.

61) Self-dealing—although fully disclosed—is not permitted in a general partnership. Answer: FALSE Diff: 1 LO: 34.5 List and describe the duties of general partners. AACSB: Analytical thinking Classification: Concept 62) A breach of the duty of care by a partner does not constitute negligence. Answer: FALSE Diff: 1 LO: 34.5 List and describe the duties of general partners. AACSB: Analytical thinking Classification: Concept 63) General partners owe a duty to inform their partners of all information they possess that is relevant to the affairs of the partnership. Answer: TRUE Diff: 1 LO: 34.5 List and describe the duties of general partners. AACSB: Analytical thinking Classification: Concept 64) No monetary damages can be claimed between partners for breach of duty of obedience in a general partnership. Answer: FALSE Diff: 1 LO: 34.5 List and describe the duties of general partners. AACSB: Analytical thinking Classification: Concept 65) General partners are permitted to sue other partners for an accounting of the partnership. Answer: TRUE Diff: 1 LO: 34.5 List and describe the duties of general partners. AACSB: Analytical thinking Classification: Concept

66) Explain, with an example, the duty of care owed by a general partner. Answer: A general partner must use reasonable care and skill in transacting partnership business. The duty of care calls for the partners to use the same level of care and skill that a reasonable business manager in the same position would use in the same circumstances. Breach of the duty of care is negligence. A general partner is liable to the partnership for any damages caused by his or her negligence. The partners are not liable for honest errors in judgment. Example: Tina, Eric, and Brian form a general partnership to sell automobiles. Tina, who is in charge of inventory management, orders large and expensive sport-utility vehicles that consume large amounts of gasoline. A war breaks out in the Middle East that interrupts the supply of oil to the United States. The demand for large SUVs drops substantially, and the partnership cannot sell its inventory. Tina is not liable because the duty of care was not breached. Diff: 2 LO: 34.5 List and describe the duties of general partners. AACSB: Analytical thinking Classification: Concept 67) General partners have ________ for the debts and obligations of the partnership. A) limited exemption B) conditional exemption C) limited organizational liability D) unlimited personal liability Answer: D Diff: 1 LO: 34.6 Explain the tort and contract liability of general partners. AACSB: Analytical thinking Classification: Concept 68) Which of the following is true of tort liability of a general partnership? A) Only the partner who committed the tort is liable. B) Partners who have not committed the tort but had to pay liability cannot indemnify from the partner that committed the tort. C) A partner can be sued even if he or she did not participate in the commission of the tort. D) If one of the partners in the partnership is released, the other partners are discharged of liability. Answer: C Diff: 2 LO: 34.6 Explain the tort and contract liability of general partners. AACSB: Analytical thinking Classification: Concept

69) A plaintiff must name the partnership and all of the partners as defendants in a lawsuit in order to pursue a claim for ________. A) multiple liability B) joint liability C) limited liability D) unlimited personal liability Answer: B Diff: 1 LO: 34.6 Explain the tort and contract liability of general partners. AACSB: Analytical thinking Classification: Concept 70) Which of the following is true of the liability of an incoming partner? A) An incoming partner is liable for the previous debts of the partnership. B) An incoming partner is equally liable for all existing debts of the partnership. C) An incoming partner is liable for the debts of the partnership only to the extent of his or her capital contribution. D) An incoming partner is not liable for the future debts of the partnership. Answer: C Diff: 2 LO: 34.6 Explain the tort and contract liability of general partners. AACSB: Analytical thinking Classification: Concept 71) General partners have unlimited personal liability for the debts and obligations of the partnership. Answer: TRUE Diff: 1 LO: 34.6 Explain the tort and contract liability of general partners. AACSB: Analytical thinking Classification: Concept 72) A third party who sues to recover on a partnership contract need not name all the general partners in the lawsuit. Answer: FALSE Diff: 1 LO: 34.6 Explain the tort and contract liability of general partners. AACSB: Analytical thinking Classification: Concept 73) The dissolution of a general partnership discharges the liability of an outgoing partner for existing partnership debts and obligations. Answer: FALSE Diff: 1 LO: 34.6 Explain the tort and contract liability of general partners. AACSB: Analytical thinking Classification: Concept 18 Copyright © 2019 Pearson Education, Inc.

74) A(n) ________ is a partnership created for a fixed duration. A) partnership for a term B) partnership at will C) ordinary partnership D) limited partnership Answer: A Diff: 1 LO: 34.7 Describe how a general partnership is dissolved and terminated. AACSB: Analytical thinking Classification: Concept 75) A(n) ________ is a partnership created with no fixed duration. A) partnership for a term B) partnership at will C) ordinary partnership D) limited partnership Answer: B Diff: 1 LO: 34.7 Describe how a general partnership is dissolved and terminated. AACSB: Analytical thinking Classification: Concept 76) The change in the relationship of partners in a partnership caused by any partner ceasing to be associated in the carrying on of the business is known as ________. A) action for an accounting B) indemnification C) winding up D) dissolution Answer: D Diff: 1 LO: 34.7 Describe how a general partnership is dissolved and terminated. AACSB: Analytical thinking Classification: Concept 77) ________ is a situation in which a partner withdraws from a partnership without having the right to do so at that time. A) Winding up B) Indemnification C) Wrongful dissolution D) Proliferation Answer: C Diff: 1 LO: 34.7 Describe how a general partnership is dissolved and terminated. AACSB: Analytical thinking Classification: Concept

78) The process of liquidating a partnership's assets and distributing the proceeds to satisfy claims against the partnership is known as winding up. Answer: TRUE Diff: 1 LO: 34.7 Describe how a general partnership is dissolved and terminated. AACSB: Analytical thinking Classification: Concept 79) How are assets distributed after the dissolution of a general partnership? Answer: After partnership assets have been liquidated and reduced to cash, the proceeds are distributed to satisfy claims against the partnership. The debts are satisfied in the following order: a. Creditors (except partners who are creditors) b. Creditor-partners c. Capital contributions d. Profits The partners can agree to change the priority of distributions among themselves. If the partnership cannot satisfy its creditors' claims, the partners are personally liable for the partnership's debts and obligations. After the proceeds are distributed, the partnership automatically terminates. Termination ends the legal existence of the partnership. Diff: 2 LO: 34.7 Describe how a general partnership is dissolved and terminated. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 35 Limited Partnerships and Special Partnerships 1) A ________ is someone who invests capital but does not participate in management. A) domestic limited partner B) master partner C) general partner D) limited partner Answer: D Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 2) A limited partnership has two types of partners, ________. A) unique partners and limited partners B) general partners and limited partners C) ordinary partners and limited partners D) special partners and limited partners Answer: B Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 3) Which of the following partners in a limited partnership invest capital, manage the business, and are personally liable for partnership debts? A) specific partners B) limited partners C) general partners D) sole proprietors Answer: C Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept

4) Which of the following partners of a limited partnership invest capital but do not participate in management? A) specific partners B) limited partners C) general partners D) sole proprietors Answer: B Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 5) Which of the following is true of general and limited partners in a limited partnership? A) Limited partners are exempt from annual capital investment and need only participate in management functions. B) General partners are not personally liable for partnership debts. C) General partners are required to invest capital and refrain from managerial activities. D) Limited partners are not personally liable for partnership debts beyond their capital contributions. Answer: D Diff: 2 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 6) Justin and Michael form a limited partnership and start a car dealership. Justin is the general partner and Michael is the limited partner. Seven months after the commencement of the business, Pedro makes an investment and wishes to become a general partner. A week later, Michael's mother wishes to join the partnership as a limited partner. Which of the following is true in this scenario? A) Pedro cannot become a general partner to the partnership after the business has commenced. B) Pedro cannot become a general partner to the partnership as a limited partnership can only have one general partner. C) Michael's mother cannot become a limited partner to the partnership as a limited partnership can only have one limited partner. D) Both Pedro and Michael's mother can choose to become either general or limited partners to the partnership. Answer: D Diff: 2 LO: 35.1 Define limited partnership. AACSB: Application of knowledge Classification: Application

7) Which of the following is true of a limited partnership? A) Other limited partnerships cannot become limited partners in an existing limited partnership. B) A limited partner is personally liable for the debts of the partnership. C) Corporations are allowed to become partners in a limited partnership. D) A limited partnership can have only one general partner but multiple limited partners. Answer: C Diff: 2 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 8) Under partnership law, ________ have the right to manage the affairs of the limited partnership. A) angel investors B) sole proprietors C) limited partners D) general partners Answer: D Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 9) Which of the following activities is permissible for limited partners? A) self-dealing B) usurping an opportunity C) being a contractor of the partnership D) competing with the partnership Answer: C Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept

10) Laura is an investor and a limited partner in a limited partnership. Two years after she becomes a limited partner, Laura thinks that the general partners are not doing a very good job managing the affairs of the limited partnership and participates in the management of the limited partnership. While she is participating in management, a bank loans $1 million to the limited partnership, believing that Laura is a general partner. If the limited partnership defaults on the $1 million loan, which of the following holds well? A) Laura is not personally liable as she is a limited partner on paper. B) Laura is personally liable if the bank, in good faith, thought she was a general partner. C) Laura has unlimited personal liability as a limited partner. D) Laura's liability is restricted to the value of her capital investment in the partnership. Answer: B Diff: 3 LO: 35.1 Define limited partnership. AACSB: Application of knowledge Classification: Application 11) A(n) ________ is a document that two or more persons must execute and sign that makes a limited partnership legal and binding. A) limited partnership agreement B) certificate of limited partnership C) article of limited partnership D) limited trade affidavit Answer: B Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 12) In most states, the formation, operation, and termination of limited partnerships are regulated by the ________. A) RULPA B) ADA C) ADEA D) EEOC Answer: A Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept

13) Which of the following information should a certificate of limited partnership contain? A) the latest date of dissolution of the partnership B) the clause that does not accept new general partners C) the name of the party who becomes a general partner in the event of transfer D) the scope of potential business opportunities and related investment Answer: A Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 14) A limited partnership is formed when the ________ is filed. A) certificate of cancellation B) articles of limited partnership C) limited trade affidavit D) certificate of limited partnership Answer: D Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 15) Which of the following governs a limited partnership, its internal affairs, and the liability of its limited partners? A) the federal government B) all states in which the business operates C) the articles of limited partnership D) the law of the state in which it is organized Answer: D Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 16) A limited partnership is a ________ in the state in which it is organized. A) sole proprietorship B) limited liability corporation C) domestic limited partnership D) general partnership Answer: C Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept

17) A limited partnership that was organized in Alabama and operating in Texas with no operations outside the United States is considered a ________ in Texas. A) foreign limited partnership B) limited liability corporation C) domestic limited partnership D) general partnership Answer: A Diff: 2 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 18) Which of the following documents does a domestic limited partnership require to be allowed to operate in another state? A) trade name certificate B) certificate of registration C) limited trade affidavit D) notice of electronic filing Answer: B Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 19) In which of the following cases can the name of a limited partnership include the surname of a limited partner? A) the limited partner has stayed longer than all other partners B) the name is also the surname of a general partner C) the limited partner has invested more than the general partner D) the name is unanimously voted for by other limited partners Answer: B Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 20) ________ is said to have occurred if a certificate of limited partnership was not properly filed. A) Defective formation B) Illegitimate partnership C) Void partnership D) Voidable association Answer: A Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

21) Which of the following is mandatory for the addition of a new limited partner to an existing limited partnership? A) death or retirement of a limited partner B) majority vote in a formal election constituting all partners C) written consent of all partners D) merger with another limited partnership Answer: C Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 22) A(n) ________ is a document that sets forth the rights and duties of general and limited partners. A) limited trade affidavit B) limited partnership agreement C) certificate of registration D) certificate of limited partnership Answer: B Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 23) Which of the following is true of a limited partnership agreement? A) It provides that all transactions must be approved by all partners. B) It does not contain information about dissolution of the partnership as it is an agreement of formation. C) It provides that general and limited partners have equal voting rights. D) It sets forth the terms and conditions regarding the termination of the partnership. Answer: D Diff: 2 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept

24) How are profits and losses shared in the absence of a limited partnership agreement? A) Profits and losses are shared equally among all partners. B) Profits and losses are shared equally among general partners and unequally among limited partners. C) Profits are shared equally among all partners, losses are shared based on the value of each partner's capital contribution. D) Both profits and losses are shared on the basis of the value of each partner's capital contribution. Answer: D Diff: 2 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 25) New general partners can be admitted only with the ________. A) approval of at least two-thirds of the partners B) specific consent of each partner C) merger with another limited partnership D) death of or transfer by a general partner Answer: B Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 26) Which of the following is true of the admission of a new general partner to an existing limited partnership? A) Only limited partners can be admitted to an existing partnership. B) A limited partnership agreement cannot waive the right of partners to approve the admission of new general partners. C) The oral consent of all partners is enough for admission of a general partner. D) Consent of all general partners is sufficient for the admission of a new limited partner. Answer: B Diff: 2 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept

27) A ________ is a limited partnership with liquid investment, and whose limited partnership interests are traded on organized securities exchanges such as the New York Stock Exchange. A) limited liability limited partnership B) sole proprietorship C) foreign limited partnership D) master limited partnership Answer: D Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 28) In most states, the formation, operation, and termination of limited partnerships are regulated by the Revised Uniform Limited Partnership Act. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 29) A limited partnership cannot have general partners. Answer: FALSE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 30) Master limited partnerships are traded publicly. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 31) A limited liability limited partnership limits the liability of general partners. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept

32) Partners in a limited partnership who invest capital and manage the business are called general partners. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 33) In the context of limited partnership, general partners are not personally liable for partnership debts beyond their capital contributions. Answer: FALSE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 34) Limited partners do not participate in the management of the partnership. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 35) It is not necessary for a limited partnership to have general partners if the limited partners share management responsibility among themselves. Answer: FALSE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 36) Corporations are permitted to become general partners to a limited partnership. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 37) The ULPA contains provisions for the formation, operation, and dissolution of limited partnerships. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept

38) The ULPA supersedes the RULPA in the states that have adopted it. Answer: FALSE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 39) The creation of a limited partnership is formal and requires public disclosure. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 40) A limited partnership is a foreign limited partnership outside the state in which it is organized. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 41) The name of a limited partnership can include any or all of the limited partners' surnames, in any circumstances. Answer: FALSE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 42) The words limited partnership can be abbreviated to Ltd. in the title of a limited partnership. Answer: FALSE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 43) Defective formation of a limited partnership occurs when a certificate of limited partnership is not properly filed. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept

44) In the absence of a partnership agreement, profits and losses from a limited partnership are shared on the basis of the value of each partner's capital contribution. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 45) New partners cannot be added to a limited partnership once it is formed. Answer: FALSE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 46) A master limited partnership is a type of limited partnership that is listed on a stock exchange and is publicly traded to provide liquidity to investors. Answer: TRUE Diff: 1 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 47) Explain the types of partners in a limited partnership. What are their liabilities? Who is permitted to join as a partner to such a partnership? Answer: A limited partnership has two types of partners: (1) general partners, who invest capital, manage the business, and are personally liable for partnership debts, and (2) limited partners, who invest capital but do not participate in management and are not personally liable for partnership debts beyond their capital contributions. A limited partnership must have one or more general partners and one or more limited partners. There are no upper limits on the number of general or limited partners allowed in a limited partnership. Any person–including natural persons, partnerships, limited partnerships, trusts, estates, associations, and corporations–may be a general or limited partner. A person may be both a general partner and a limited partner in the same limited partnership. Diff: 2 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept

48) What are the constraints on the name of a limited partnership? How do they influence a limited partner? Answer: The name of a limited partnership may not include the surname of a limited partner unless (1) it is also the surname of a general partner or (2) the business was carried on under that name before the admission of the limited partner. A limited partner who knowingly permits his or her name to be used in violation of this provision becomes liable as a general partner to any creditors who extend credit to the partnership without actual knowledge of his or her true status. Other restrictions on the name of a limited partnership are that (1) the name cannot be the same as or deceptively similar to the names of corporations or other limited partnerships, (2) states can designate words that cannot be used in limited partnership names, and (3) the name must contain, without abbreviation, the words limited partnership. Diff: 2 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept 49) Explain, with an example, the sharing of profits and losses in a limited partnership. Answer: A limited partnership agreement may specify how profits and losses from the limited partnership are to be allocated among the general and limited partners. If there is no such agreement, the RULPA provides that profits and losses from a limited partnership are shared on the basis of the value of each partner's capital contribution. Example: There are four general partners, each of whom contributes $50,000 in capital to the limited partnership, and four limited partners, each of whom contributes $200,000 capital. The total amount of contributed capital is $1 million. The limited partnership agreement does not stipulate how profits and losses are to be allocated. Assume that the limited partnership makes $3 million in profits. Under the RULPA, each general partner would receive $150,000 in profit, and each limited partner would receive $600,000 in profit. Diff: 2 LO: 35.1 Define limited partnership. AACSB: Analytical thinking Classification: Concept

50) Sam Mueller and Geoffrey Robinson enter into a limited partnership in which Sam is the general partner and Geoffrey is the limited partner. They borrow $50,000 to start a business. Keeping all rules of naming their businesses in mind, they start a law firm named RobinsonMueller Legal Associates. Martin Humphrey joins them after eleven months as a general partner but does not include his surname in the name of the business. If the business fails, which of the following is true? A) Only Sam, being the sole general partner is liable to the creditor. B) Martin has unlimited personal liability for not including his surname in the name of the business. C) Geoffrey is liable as a general partner as he included his surname in the business with full knowledge. D) All three partners are equally liable to the creditor, irrespective of including their surname in the title of the business. Answer: C Diff: 2 LO: 35.2 Identify and describe the liability of general and limited partners of a limited partnership. AACSB: Application of knowledge Classification: Application 51) Partners who erroneously, but in good faith, believe they have become limited partners can escape liability as general partners by ________. A) adding their surname to the name of the business establishment B) filing for a refund of his or her initial investment with interest C) bringing a lawsuit against all general and limited partners D) withdrawing from any future equity participation in the enterprise Answer: D Diff: 2 LO: 35.2 Identify and describe the liability of general and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 52) Which of the following types of liability do general partners of a limited partnership have for the debts and obligations of the limited partnership? A) unlimited personal liability B) limited capital liability C) liability of termination as partner D) limited personal liability Answer: A Diff: 1 LO: 35.2 Identify and describe the liability of general and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept

53) Which of the following types of liability do limited partners of a limited partnership have for the debts and obligations of the limited partnerships? A) unlimited personal liability B) liability restricted to debts up to their capital contributions C) liability of termination as partner D) unlimited organizational capital liability Answer: B Diff: 1 LO: 35.2 Identify and describe the liability of general and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 54) According to the RULPA, what liability does a corporation have if it is a general partner to a limited partnership? A) unlimited personal liability B) liability restricted to debts up to its capital contributions C) liability of termination as partner D) unlimited organizational capital liability Answer: B Diff: 1 LO: 35.2 Identify and describe the liability of general and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 55) Limited partners have unlimited personal liability for the debts and obligations of the limited partnership. Answer: FALSE Diff: 1 LO: 35.2 Identify and describe the liability of general and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 56) Acting as a surety for the limited partnership makes a limited partner lose his or her limited liability. Answer: FALSE Diff: 1 LO: 35.2 Identify and describe the liability of general and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept

57) A limited partner may engage in voting on the dissolution of the limited partnership without losing his or her limited liability. Answer: TRUE Diff: 1 LO: 35.2 Identify and describe the liability of general and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 58) Limited partners are not liable for the debts and obligations of the partnership if they participate in the management of the limited partnership, without being employed as a manager or an executive. Answer: FALSE Diff: 1 LO: 35.2 Identify and describe the liability of general and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 59) Briefly explain the liabilities of general and limited partners in a limited partnership. Answer: The general partners of a limited partnership have unlimited liability for the debts and obligations of the limited partnerships. Thus, general partners have unlimited personal liability for the debts and obligations of the limited partnership. This liability extends to debts that cannot be satisfied with the existing capital of the limited partnership. Generally, limited partners have limited liability for the debts and obligations of the limited partnership. Limited partners are liable only for the debts and obligations of the limited partnership up to their capital contributions, and they are not personally liable for the debts and obligations of the limited partnership. Diff: 1 LO: 35.2 Identify and describe the liability of general and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 60) In which of the following forms of business partnerships are both general and limited partners not personally liable for debts? A) sole proprietorship B) general partnership C) master limited partnership D) limited liability limited partnership Answer: D Diff: 1 LO: 35.4 Define a limited liability limited partnership. AACSB: Analytical thinking Classification: Concept

61) A ________ is a special type of limited partnership that has both general partners and limited partners, where both the general and limited partners have limited liability and are not personally liable for its debts. A) limited liability limited partnership B) master limited partnership C) sole proprietorship D) foreign limited partnership Answer: A Diff: 1 LO: 35.4 Define a limited liability limited partnership. AACSB: Analytical thinking Classification: Concept 62) If a firm is designated as an LLLP, it refers to a ________. A) limited liability legal partnership B) legally limited liability partnership C) limited liability limited partnership D) limited and lessened liability partnership Answer: C Diff: 2 LO: 35.4 Define a limited liability limited partnership. AACSB: Analytical thinking Classification: Concept 63) An existing limited partnership cannot be converted to a limited liability limited partnership. Answer: FALSE Diff: 1 LO: 35.4 Define a limited liability limited partnership. AACSB: Analytical thinking Classification: Concept 64) Neither the general partners nor the limited partners have personal liability for the debts and obligations of the LLLP. Answer: TRUE Diff: 1 LO: 35.4 Define a limited liability limited partnership. AACSB: Analytical thinking Classification: Concept 65) Limited partners of a limited liability limited partnership (LLLP) are involved in the management functions of the partnership. Answer: TRUE Diff: 1 LO: 35.4 Define a limited liability limited partnership. AACSB: Analytical thinking Classification: Concept 17 Copyright © 2019 Pearson Education, Inc.

66) An LLLP is a foreign limited liability limited partnership in the state in which it is formed. Answer: FALSE Diff: 1 LO: 35.4 Define a limited liability limited partnership. AACSB: Analytical thinking Classification: Concept 67) A ________ is a document that is filed with the secretary of state upon the dissolution of a limited partnership. A) certificate of cancellation B) termination affidavit C) statement of dissolution D) certificate of agreement Answer: A Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 68) Which of the following is a cause for the dissolution of a partnership? A) written consent of the general partners B) withdrawal of a general partner C) withdrawal of all limited partners D) acquisition of business by another partnership Answer: B Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 69) In which of the following circumstances is a decree of judicial dissolution granted to a partner? A) A partner is rendered incapacitated to perform his or her duties. B) The partners do not have sufficient funds to repay debts. C) It is not reasonably practical to carry on the business in conformity with the limited partnership agreement. D) All limited partners have withdrawn but the general partners want to continue with the partnership. Answer: C Diff: 2 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept

70) If a corporation is a general partner to a limited partnership, which of the following would result from the dissolution of the corporation? A) dissolution of the limited partnership B) creation of a general partnership C) reformation of the limited partnership D) transfer of the partnership to other parties Answer: A Diff: 2 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 71) Which of the following happens when a general partner withdraws from a limited partnership? A) The partnership must be sold. B) The partnership is transferred. C) The partnership is dissolved. D) The partnership operates normally. Answer: C Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 72) If Gerard Koontz retires from being a general partner in a limited partnership, which of the following is true? A) A member from Mr. Koontz's immediate family is allowed to take his partnership interest. B) Only the person Mr. Koontz nominates can take his partnership interest. C) The partnership is dissolved according to RULPA norms. D) The partnership operates normally without a general partner. Answer: C Diff: 2 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Application of knowledge Classification: Application 73) Who among the following get first priority in the distribution of assets upon the dissolution of a partnership? A) investors B) limited partners C) general partners D) creditors Answer: D Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 19 Copyright © 2019 Pearson Education, Inc.

74) A certificate of cancellation is a document that is filed with the secretary of state upon the dissolution of a limited partnership. Answer: TRUE Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 75) The end of the life of the limited partnership, as specified in the certificate of limited partnership, causes the dissolution of a limited partnership. Answer: TRUE Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 76) The retirement of a general partner does not dissolve a limited partnership. Answer: FALSE Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 77) A decree of judicial dissolution is granted to a partner whenever it is not reasonably practical to carry on the business in conformity with the limited partnership agreement. Answer: TRUE Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 78) Upon dissolution, a limited partnership's affairs must be wound up by partners who have acted wrongfully in actions that resulted in the dissolution. Answer: FALSE Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 79) Any partner may petition the court to wind up the affairs of a limited partnership. Answer: TRUE Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept

80) A partner who winds up the affairs of a limited partnership has the same rights, powers, and duties as a partner winding up a general partnership. Answer: TRUE Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 81) Briefly explain the events that cause the dissolution of a limited partnership under RULPA. Answer: a. The end of the life of the limited partnership, as specified in the certificate of limited partnership. b. The written consent of all general and limited partners. c. The withdrawal of a general partner. Withdrawal includes the retirement, death, bankruptcy, adjudged insanity, or removal of a general partner or the assignment by a general partner of his or her partnership interest. If a corporation or partnership is a general partner, the dissolution of the corporation or partnership is considered withdrawal. d. The entry of a decree of judicial dissolution, which may be granted to a partner whenever it is not reasonably practical to carry on the business in conformity with the limited partnership. Diff: 1 LO: 35.5 Describe the process of dissolution and winding up of a limited partnership. AACSB: Analytical thinking Classification: Concept 82) ________ involves the liability of a limited partner as a general partner. A limited partner is liable as a general partner if the partner's participation in the control of the business is primarily the same as the general partner, but liable only to persons who reasonably believed the limited partner to be a general partner. A) RULPA Section 203 B) The decree of judicial dissolution C) The control rule D) RULPA Section 801 Answer: C Diff: 1 LO: 35.3 Describe how a limited partnership is managed. AACSB: Analytical thinking Classification: Concept 83) Limited partners are liable for company obligations only up to the amount of their capital contribution. Answer: TRUE Diff: 1 LO: 35.3 Describe how a limited partnership is managed. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 36 Corporate Formation and Financing 1) Owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation are known as ________. A) spectators B) shareholders C) electors D) associates Answer: B Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 2) A(n) ________ is a fictitious legal entity that is created according to statutory requirements. A) corporation B) cartel C) outfit D) conference Answer: A Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 3) A panel of persons who are elected by the shareholders that make policy decisions concerning the operation of a corporation is known as the ________. A) legal aides B) cartel C) consortium D) board of directors Answer: D Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept

4) Which of the following can end the existence of a corporation? A) voluntary termination by shareholder B) death of a shareholder C) bankruptcy of a shareholder D) voluntary termination by the corporation's creditors Answer: A Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 5) Which of the following elects members of the board of directors for a corporation? A) the CEO B) corporate officers C) shareholders D) employees Answer: C Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 6) ________ is a general rule of corporate law that provides that generally shareholders are liable only to the extent of their capital contributions for the debts and obligations of their corporation and are not personally liable for the debts and obligations of the corporation. A) Limited-purpose clause B) Limited liability of shareholders C) Preferred shareholder rule D) Nonparticipating shareholder rule Answer: B Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 7) A corporation in the state in which it was formed is referred to as a(n) ________. A) foreign corporation B) domestic corporation C) alien corporation D) overseas corporation Answer: B Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept

8) Corporation codes regulate the formation, operation, and dissolution of corporations. Answer: TRUE Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 9) Corporations are not allowed to enter into contracts in their own name. Answer: FALSE Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 10) The board of directors makes policy decisions concerning the operation of a corporation. Answer: TRUE Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 11) Shareholders of a closely held corporation play a minor role in its management. Answer: FALSE Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 12) Shareholders are liable for the debt and obligations of a corporation. Answer: FALSE Diff: 1 LO: 36.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 13) A person or corporation that is empowered to accept service of process on behalf of a corporation is referred to as a(n) ________. A) promoter B) authorized shareholder C) registered agent D) incorporator Answer: C Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

14) A corporation that is incorporated in another country is known as a(n) ________. A) alien corporation B) public corporation C) domestic corporation D) municipal corporation Answer: A Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 15) ________ are corporations that have many shareholders and whose securities are often traded on national stock exchanges. A) Closely held corporations B) Non-profit corporations C) Publicly held corporations D) Shore-up corporations Answer: C Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 16) Which of the following is a definition of a foreign corporation? A) A corporation with incorporations in multiple states. B) A corporation in the state in which it is incorporated. C) A corporation in states other than the one in which it is incorporated. D) A corporation in the United States which has been incorporated in another country. Answer: C Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 17) A corporation is a(n) ________ corporation in the state in which it is incorporated. A) offshore B) domestic C) alien D) foreign Answer: B Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept

18) A corporation in the United States that has been incorporated in another country is referred to as a(n) ________ corporation. A) foreign B) domestic C) onshore D) alien Answer: D Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 19) Which of the following is true of an S corporation? A) The corporation can have no more than 100 shareholders. B) Only foreign corporations with more than 10 shareholders can be an S corporation. C) They are taxed at the corporate level. D) The corporation must be a member of an affiliated group of corporations. Answer: A Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 20) Which of the following criteria must be met for a company to be an S corporation? A) Shareholders must be other corporations or partnerships. B) Nonresident aliens cannot be shareholders. C) The corporation must have more than 100 shareholders. D) The corporation must have more than one class of stock. Answer: B Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 21) Publicly held corporations are corporations run by the government. Answer: FALSE Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 22) The earnings of a not-for-profit corporation are distributed among its members. Answer: FALSE Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

23) A foreign corporation can conduct commerce in a state if it obtains a certificate of authority from the state. Answer: TRUE Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 24) A corporation is a foreign corporation in states other than the one in which it is incorporated. Answer: TRUE Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 25) An S corporation must pay federal income tax at the corporate level. Answer: FALSE Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 26) Foreign corporations can elect to be taxed as an S corporation. Answer: FALSE Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 27) An S corporation can have nonresident aliens as shareholders. Answer: FALSE Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 28) An S corporation cannot have more than 100 shareholders. Answer: TRUE Diff: 1 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept

29) Compare and contrast publicly held and closely held corporations. Answer: Publicly held corporations have many shareholders. Often, they are large corporations with hundreds or thousands of shareholders, and their shares are traded on organized securities markets. The shareholders rarely participate in the management of such corporations. A closely held corporation, on the other hand, is one whose shares are owned by a few shareholders who are often family members, relatives, or friends. Frequently, the shareholders are involved in the management of the corporation. The shareholders sometimes enter into buyand-sell agreements that prevent outsiders from becoming shareholders. Diff: 2 LO: 36.2 List and describe the classifications of corporations. AACSB: Analytical thinking Classification: Concept 30) Which of the following must be true for a corporation to elect statutory close corporation status? A) The corporation must have 100 or more shareholders. B) The corporation must have 50 or fewer shareholders. C) The corporation must contain a board of directors. D) The corporation must have a set of bylaws. Answer: B Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 31) Which of the following is true for a corporation's incorporation in a state? A) A corporation can incorporate in only one state. B) A corporation can incorporate in all states where it conducts business. C) Alien corporations can only incorporate in one state. D) Foreign corporations can incorporate in more than one state. Answer: A Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 32) The person responsible for incorporation of a corporation is known as a(n) ________. A) promoter B) shareholder C) incorporator D) director Answer: C Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

33) A(n) ________ is a person who organizes and starts a corporation, negotiates and enters into contracts in advance of its formation, finds the initial investors to finance the corporation, and so forth. A) incorporator B) promoter C) articles drafter D) negotiator Answer: B Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 34) Which of the following is true for a corporation's liability on the promoters' contracts if the corporation is never formed? A) The corporation assumes liability of the promoters' contract automatically upon its creation. B) The promoter's liabilities are transferred to the board of directors of the corporation upon its formation. C) The promoter, the corporation, and the third-party enter into a novation whereby liability is solely transferred to the corporation. D) The promoters have joint personal liability on the contract unless the third party specifically exempts them from such liability. Answer: D Diff: 2 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 35) The ________ is the basic governing document of a corporation which must be filed with the secretary of state of the state of incorporation. A) debt security B) redeemable stock C) certificate of authority D) articles of incorporation Answer: D Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept

36) Which of the following must be included in the articles of incorporation? A) The minutes of the first organizational meeting of the board of directors. B) The number of shares the corporation is authorized to issue. C) The dissolution terms of the incorporation. D) The corporate seal must be used in the articles of incorporation. Answer: B Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 37) Which of the following is true of an amendment of the articles of incorporation that does not affect the rights attached to shares? A) The shareholders need to propose a resolution of recommending such an amendment. B) The shareholders need to provide vote of approval for the amendment. C) The board of directors can approve the amendment without shareholder approval. D) The amendment need not be filed with the secretary of state of the state of incorporation. Answer: C Diff: 2 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 38) Which of the following acts is seen as conclusive proof for the existence of a corporation? A) creation of the promoter's contracts B) filing the articles of incorporation C) acquiring a domain name for the corporation D) selecting a state for incorporation Answer: B Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 39) A(n) ________ is a clause that can be included in the articles of incorporation that permits the corporation to engage in any activity permitted by law. A) general purpose clause B) limited purpose clause C) dissolution clause D) ultra vires clause Answer: A Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept

40) A(n) ________ is a clause that can be included in the articles of incorporation that stipulates the activities that the corporation can engage in. The corporation can engage in no other purposes or activities. A) ultra vires clause B) dissolution clause C) general purpose clause D) limited purpose clause Answer: D Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 41) A detailed set of rules adopted by the board of directors after a corporation is incorporated that contains provisions for managing a corporation are referred to as ________. A) ultra vires rules B) articles of incorporation C) bylaws D) corporation codes Answer: C Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 42) Which of the following is true of corporate bylaws? A) They only contain rules on how the corporation can deal with the government. B) They are only adopted by the shareholders of the corporation. C) They are not binding on the directors, or shareholders of the corporation. D) They do not have to be filed with any government official. Answer: D Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 43) Which of the following is true of a C Corporation? A) It cannot have more than 50 shareholders. B) Shareholders of such a corporation don't pay tax on their dividends. C) It must have more than 100 shareholders. D) Nonresident aliens cannot be shareholders. Answer: C Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

44) A corporation can be incorporated in several states. Answer: FALSE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 45) Incorporators cannot become shareholders of the corporation they are associated with. Answer: FALSE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 46) The articles of incorporation must contain the name and address of every incorporator. Answer: TRUE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 47) Amendments to the articles of incorporation must be filed with the secretary of state of the state of incorporation. Answer: TRUE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 48) The Revised Model Business Corporation ACT (RMBCA) provides that corporate existence begins when the articles of incorporation are filed. Answer: TRUE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 49) The registered office in the articles of incorporation must be the same as the corporation's place of business. Answer: FALSE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept

50) According to the RMBCA, only corporations with 50 or fewer shareholders may elect statutory close corporation status. Answer: TRUE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 51) Bylaws of a corporation must be filed with a government official. Answer: FALSE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 52) The shareholders of the corporation have the absolute right to amend bylaws. Answer: TRUE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 53) Any corporation with more than 100 shareholders is automatically considered a C corporation for federal income tax purposes. Answer: TRUE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 54) A C corporation pays taxes at the corporate level and the shareholder's level. Answer: TRUE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 55) A corporate name cannot include the word corporation, company, incorporated, or limited or an abbreviation of any of these. Answer: FALSE Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept

56) Explain how articles of incorporations may be amended. Answer: A corporation's articles of incorporation can be amended to contain any provision that could have been lawfully included in the original document. Such an amendment must show that the board of directors adopted a resolution recommending the amendment, and the shareholders voted to approve the amendment. The board of directors of a corporation may approve an amendment to the articles of incorporation without shareholder approval if the amendment does not affect rights attached to shares. After the shareholders approve an amendment, the corporation must file articles of amendment with the secretary of state of the state of incorporation. Diff: 1 LO: 36.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 57) ________ are powers beyond express powers that allow a corporation to accomplish its corporate purpose. A) Cumulative powers B) Corporation codes C) Ultra vires acts D) Implied powers Answer: D Diff: 1 LO: 36.4 Describe the powers that a corporation possesses. AACSB: Analytical thinking Classification: Concept 58) Which of the following would generally be considered an express power of a corporation? A) opening a bank account B) issuing notes and bonds C) purchasing advertisement D) purchasing insurance Answer: B Diff: 1 LO: 36.4 Describe the powers that a corporation possesses. AACSB: Analytical thinking Classification: Concept 59) An act by a corporation that is beyond its express or implied powers is called a(n) ________. A) Subchapter Revision S Act B) novation act C) cooperate code act D) ultra vires act Answer: D Diff: 1 LO: 36.4 Describe the powers that a corporation possesses. AACSB: Analytical thinking Classification: Concept 13 Copyright © 2019 Pearson Education, Inc.

60) A corporation reimbursing its employees for expenses would fall under its implied powers. Answer: TRUE Diff: 1 LO: 36.4 Describe the powers that a corporation possesses. AACSB: Analytical thinking Classification: Concept 61) Shareholders cannot seek an injunction against an ultra vires act by a corporation. Answer: FALSE Diff: 1 LO: 36.4 Describe the powers that a corporation possesses. AACSB: Analytical thinking Classification: Concept 62) What are the express powers of a corporation? Answer: Generally, a corporation has the power to purchase, own, lease, sell, mortgage, or otherwise deal in real and personal property; make contracts; lend money; borrow money; incur liabilities; issue notes and bonds and other obligations; invest and reinvest funds; sue and be sued in its corporate name; make donations for the public welfare or for charitable, scientific, or educational purposes; and the like. These powers are called express powers. Corporations formed under general incorporation laws cannot engage in certain businesses, such as banking, insurance, or operation of public utilities. Diff: 1 LO: 36.4 Describe the powers that a corporation possesses. AACSB: Analytical thinking Classification: Concept 63) Issued shares that have been repurchased by the corporation are referred to as ________. A) outstanding shares B) liquidated shares C) unissued shares D) treasury shares Answer: D Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept

64) Which of the following is true of treasury shares? A) They cannot be issued by the corporation. B) They cannot be voted by the corporation. C) They are owned by shareholders. D) They are only issued by governments. Answer: B Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 65) Authorized shares that have not been sold by the corporation are known as ________. A) issued shares B) unissued shares C) outstanding shares D) liquidated shares Answer: B Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 66) ________ is a type of equity security that represents the value of a corporation. A) Common stock B) Preferred stock C) Cumulative preferred stock D) Participating preferred stock Answer: A Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept

67) ________ is a preferred stockholder right to be paid a stated dollar amount if a corporation is dissolved and its assets redistributed. A) Noncumulative preference B) Cumulative dividend preference C) Dividend preference D) Liquidation preference Answer: D Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 68) Stocks for which any missed dividend payments must be paid in the future to the preferred shareholders before the common shareholders can receive any dividends are known as ________. A) cumulative preferred stocks B) noncumulative preferred stocks C) common stocks D) participating preferred stocks Answer: A Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 69) Stock that permits a corporation to buy back the preferred stock at some future date is known as ________. A) cumulative preferred stock B) participating preferred stock C) convertible preferred stock D) redeemable preferred stock Answer: D Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept

70) Which of the following shares have the right to vote? A) unissued shares B) treasury shares C) outstanding shares D) liquidated shares Answer: C Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 71) The WaterGlove Corporation issues ________ preferred stock that requires payment of a quarterly dividend of $5.00 per share. The WaterGlove Corporation falls behind with four quarterly payments, i.e., $20.00 per share of preferred stock. The next quarter, the corporation makes a profit of $25.00 per share. The corporation must pay $20.00 per share of arrearages to the preferred shareholders plus this quarter's payment of $5.00 per share. A) convertible B) redeemable C) cumulative D) participating Answer: C Diff: 2 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Application of knowledge Classification: Application 72) According to priority, which of the following claimants is the last to be paid after assets have been liquidated of a corporation? A) creditors B) common stockholders C) preferred shareholders D) bond holders Answer: B Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept

73) Common stockholders receive dividends declared by the board of directors. Answer: TRUE Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 74) Preferred stockholders are given the right to vote for the board of directors of the corporation. Answer: FALSE Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 75) In case a corporation's assets are liquidated, the preferred stockholders are paid before common stockholders. Answer: TRUE Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 76) Convertible preferred stock permits the preferred stockholders to convert their shares into common stock. Answer: TRUE Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 77) Authorized shares that have been sold by the corporation are called issued shares. Answer: TRUE Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept

78) Shares that are repurchased by a corporation are called unissued shares. Answer: FALSE Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 79) Treasury shares cannot be issued by the corporation. Answer: FALSE Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 80) Only outstanding shares have the right to vote. Answer: TRUE Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept 81) What is the conversion right for preferred stocks? Answer: Convertible preferred stock permits the preferred stockholders to convert their shares into common stock. The terms and exchange rate of the conversion are established when the shares are issued. The holders of convertible preferred stock usually exercise this option if the corporation's common stock significantly increases in value. Preferred stock that does not have a conversion feature is called nonconvertible preferred stock. Nonconvertible stock is more common than convertible stock. Diff: 1 LO: 36.5 Describe how a corporation is financed by equity securities and define common stock and preferred stock. AACSB: Analytical thinking Classification: Concept

82) Guarantees that establish a debtor-creditor relationship in which the corporation borrows money from the investor to whom a debt security is issued are known as ________. A) authorized shares B) preferred stocks C) common stocks D) fixed income securities Answer: D Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 83) A ________ is a long-term unsecured debt instrument that is based on a corporation's general credit standing. A) debenture B) bond C) note D) treasury share Answer: A Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 84) A long-term debt security that is secured by some form of collateral is referred to as a ________. A) treasury share B) bond C) note D) debenture Answer: B Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 85) A(n) ________ is a debt security with a maturity of five years or less. A) bond B) debenture C) indenture D) note Answer: D Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 20 Copyright © 2019 Pearson Education, Inc.

86) A contract between a corporation and a holder that contains the terms of a debt security is known as a(n) ________. A) bond B) indenture C) debenture D) liquidation Answer: B Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 87) Which of the following is a long-term debt security? A) a bond B) stocks C) preferred stock D) a note Answer: A Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 88) Which of the following is true of the Delaware General Corporation Law? A) It makes it easier for other companies to take over a Delaware corporation. B) The legislature seldom amends the corporation code to meet the demands of big businesses. C) The statute is particularly written to be of benefit to individual businesses and consumers. D) It is the most advanced corporation law in the country. Answer: D Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 89) Which of the following is the special court that hears and decides business cases in Delaware? A) court of chancery B) Delaware supreme court C) superior court of Delaware D) court of common pleas Answer: A Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept

90) Only 20 percent of the Fortune 500 companies are incorporated in Delaware. Answer: FALSE Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 91) Even if a corporation does no business in Delaware, it can obtain the benefits of Delaware corporation law by incorporating in Delaware. Answer: TRUE Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 92) In debt securities, the corporation is the debtor and the holder is the creditor. Answer: TRUE Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 93) Secured bondholders can foreclose on collateral in the event of nonpayment of interest. Answer: TRUE Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 94) The debt security of notes does not have a maturity period. Answer: FALSE Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept

95) What is an indenture agreement? Answer: The terms of a debt security are commonly contained in a contract between the corporation and the holder; this contract is known as an indenture agreement. The indenture generally contains the maturity date of the debt security, the required interest payment, the collateral, rights to conversion into common or preferred stock, call provisions, any restrictions on the corporation's right to incur other indebtedness, the rights of holders upon default, and such. It also establishes the rights and duties of the indenture trustee. Generally, a trustee is appointed to represent the interest of the debt security holders. Bank trust departments often serve in this capacity. Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 96) Describe how the judiciary in Delaware is favorable to large corporations? Answer: Delaware has a special court–the court of chancery–that hears and decides business cases. This court has been around for more than 200 years. In that time, it has interpreted Delaware corporation law favorably to large corporations in such matters as electing corporate boards of directors, eliminating negligence liability of outside directors, upholding the antitakeover provisions of the Delaware corporation code, and such. In addition, there are no emotional juries to worry about. The decisions of the chancery court are made by judges who are experts at deciding corporate law disputes. The court is known for issuing decisions favorable to large corporations as the court applies Delaware corporation law to decide disputes. Appeals from the court of chancery are brought directly to the supreme court of Delaware. Thus, Delaware courts have created a body of precedent of legal decisions that provides more assurance to Delaware corporations in trying to decide whether they will be sued and what the outcome will be if they do get sued. Diff: 1 LO: 36.6 Describe how a corporation is financed by debt securities. AACSB: Analytical thinking Classification: Concept 97) Dissolution of a corporation that has begun business or issued shares upon recommendation of the board of directors and a majority vote of the shares entitled to vote is known as ________. A) liquidation B) judicial dissolution C) administrative dissolution D) voluntary dissolution Answer: D Diff: 1 LO: 36.7 Describe how a corporation is dissolved and terminated. AACSB: Analytical thinking Classification: Concept

98) Involuntary dissolution of a corporation that is ordered by the secretary of state if a corporation has failed to comply with certain procedures required by law is known as ________. A) judicial dissolution B) administrative dissolution C) cumulative dissolution D) liquidation Answer: B Diff: 1 LO: 36.7 Describe how a corporation is dissolved and terminated. AACSB: Analytical thinking Classification: Concept 99) Judicial dissolution of a corporation can be instituted by the attorney general of the state of incorporation if the corporation ________. A) procured its articles of incorporation through fraud B) did not pay its franchise fee C) failed to file an annual report D) failed for 60 days to maintain a registered agent in the state Answer: A Diff: 1 LO: 36.7 Describe how a corporation is dissolved and terminated. AACSB: Analytical thinking Classification: Concept 100) A corporation is dissolved upon the effective date of the articles of dissolution. Answer: TRUE Diff: 1 LO: 36.7 Describe how a corporation is dissolved and terminated. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 37 Corporate Governance and the Sarbanes-Oxley Act 1) Owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation are known as ________. A) corporate officers B) shareholders C) registered agents D) managing directors Answer: B Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of shareholders? A) They cannot enter into contracts that bind the corporation. B) They cannot vote to elect the board of directors. C) They cannot take active charge in deciding fundamental changes in the corporation. D) They are considered agents of the corporation. Answer: A Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 3) When is the annual shareholder's meeting held? A) on the dates fixed in the bylaws B) at the whim of the board of directors C) only if and when there is a crisis D) only at the time of electing a new board of members Answer: A Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept

4) A shareholder's authorization of another person to vote the shareholder's shares at the shareholders' meetings in the event of the shareholder's absence is called ________. A) straight voting B) an accommodation C) voting by proxy D) an insider director Answer: C Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 5) The written document submitted by a person who has been authorized by a shareholder to vote the shareholder's shares at the shareholders' meetings in the event of the shareholder's absence is known as the ________. A) record date B) notice of the shareholder's meeting C) certificate of authority D) proxy Answer: D Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 6) A ________ is a date specified in corporate bylaws that determines whether a shareholder may vote at a shareholders' meeting. A) ballot date B) reinvestment date C) record date D) dividend date Answer: C Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept

7) Inkilwas Corporation has 30,000 outstanding shares. A shareholders' meeting is duly called to amend the articles of incorporation, and 17,501 shares are represented at the meeting. According to the Revised Model Business Corporations Act (RMBCA), what is the minimum number of outstanding shares that must be represented in this case to have a quorum? A) 12,001 B) 18,501 C) 15,001 D) 17,501 Answer: C Diff: 2 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application 8) Inkilwas Corporation has 30,000 outstanding shares. A shareholders' meeting is duly called to amend the articles of incorporation, and 17,501 shares are represented at the meeting. If an Inkilwas Corporation amendment for its articles of incorporation is put to vote at this meeting, which of the following statements is true with respect to the passing of the amendment? A) The amendment would not be passed as all 30,000 votes have to be represented. B) The amendment would be passed only if all 17,501 votes approve. C) The amendment would be passed if 4,376 votes approve. D) The amendment would be passed if 8,751 votes approve. Answer: D Diff: 2 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application 9) Bilkis Brands has 20,000 outstanding shares with four shareholders. Ester owns 9,000 shares, Mendez owns 4,000 shares, Judy owns 4,000 shares, and Aaron owns 3,000 shares. Assume that two directors of the corporation are to be elected from a potential pool of five candidates. Ester is in favor of Candidates 1 and 5, Mendez is in favor of Candidates 2 and 4, Judy is in favor of Candidates 4 and 3, and Aaron is in favor of Candidates 2 and 3. If the voting is done by straight voting, which two candidates are likely to win? A) Candidate 1 and Candidate 5 B) Candidate 1 and Candidate 4 C) Candidate 2 and Candidate 3 D) Candidate 2 and Candidate 4 Answer: B Diff: 2 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application

10) Derrick has 2,000 shares of Unistone Corporation, which is planning to vote for two new directors. Through a special voting provision in the corporation's articles of incorporation, Derrick was able to vote for both his preferred candidates with 2,000 shares, which gave him a virtual voting count of 4,000 shares. What voting rule in the articles of incorporation allows Derrick to achieve this? A) supramajority voting B) noncumulative voting C) cumulative voting D) preemptive voting Answer: C Diff: 2 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application 11) Merrick and Stanley Corporation has 28,000 outstanding shares. During a proposal for a merger, the shareholders decide to increase the quorum of the vote of shareholders to 75 percent using the supramajority voting rule. How many minimum affirmative votes are needed to pass the supramajority voting requirement? A) 14,001 B) 21,280 C) 21,000 D) 28,000 Answer: C Diff: 2 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application 12) Kinderfelt Corporation has 15,000 outstanding shares of which Gordon owns 2,000. Kinderfelt plans to raise more capital by issuing another 10,000 shares of stock. With preemptive rights, how many of the new shares does Gordon have the right to buy before they are sold to the public? A) 10,000 B) 3,000 C) 5,000 D) 2,000 Answer: D Diff: 2 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application

13) According to the Revised Model Business Corporations Act (RMBCA), what establishes a quorum to hold a meeting of the shareholders? A) a majority of outstanding shares B) a majority of unissued shares C) a majority of treasury shares D) a majority of liquidated shares Answer: A Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 14) ________ is a system in which each shareholder votes the number of shares he or she owns on candidates for each of the positions open. A) Cumulative voting B) Straight voting C) Supramajority voting D) Trust voting Answer: B Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 15) A system in which a shareholder can accumulate all of his or her votes and vote them all for one candidate or split them among several candidates is known as ________. A) trust voting B) noncumulative voting C) cumulative voting D) supramajority voting Answer: C Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 16) ________ is a requirement that a greater than majority of shares constitutes a quorum of the vote of the shareholders. A) Supramajority voting B) Shareholder majority voting C) Quorum share voting D) Cumulative voting Answer: A Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

17) An arrangement in which the shareholders transfer their stock certificates to a trustee who is empowered to vote the shares is known as ________. A) supramajority voting B) voting trust C) cumulative voting D) noncumulative voting Answer: B Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 18) Which of the following is true of a shareholder voting agreement? A) It is an agreement between the board of directors and a shareholder. B) It has a limited duration of 10 months. C) It does not have to be filed with the corporation. D) It is always revocable. Answer: C Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 19) A ________ is an agreement that requires a selling shareholder to offer his or her shares for sale to the other parties to the agreement before selling them to anyone else. A) shareholder voting agreement B) preemptive sale C) buy-and-sell agreement D) right of first refusal Answer: D Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 20) An agreement that requires selling shareholders to sell their shares to the other shareholders or to the corporation at the price specified in the agreement is referred to as a ________. A) preemptive sale B) right of first refusal C) buy-and-sell agreement D) shareholder voting agreement Answer: C Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

21) ________ are rights that give existing shareholders the option of subscribing to new shares being issued in proportion to their current ownership interests. A) Rights to first refusal B) Preemptive rights C) transfer rights D) Rights to company ownership Answer: B Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 22) Which of the following is true about dividends? A) Dividends are paid at the discretion of the shareholders. B) Dividends cannot be used for corporate purposes. C) Dividends are paid to shareholders who have sold their shares prior to the record date. D) Dividends once declared, cannot be revoked. Answer: D Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 23) Samson owns 1,500 shares out of the 10,000 outstanding shares of Comakote Corporation. If Comakote declares a stock dividend of 30 percent, what will be the total stock Samson has upon receiving his stock dividend? A) 2,250 B) 4,500 C) 1,950 D) 5,400 Answer: C Diff: 2 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application 24) Which of the following is true of stock dividends? A) They are the redistribution of corporate assets as shares. B) They increase an existing shareholder's proportionate ownership interest. C) They are additional stocks distributed as dividends. D) They are distributed according to the existing ownership interest of the board of directors. Answer: C Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

25) A lawsuit a shareholder brings against an offending party on behalf of a corporation when the corporation itself fails to bring the lawsuit is known as a ________. A) notice of the shareholder B) derivative action C) class action suit D) contract action Answer: B Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 26) ________ is a doctrine that says if a shareholder dominates a corporation and uses it for improper purposes, a court can disregard the corporate entity and hold the shareholder personally liable for the corporation's debts and obligations. A) Piercing the corporate veil B) Fruit of the poisonous tree C) Right of first refusal D) Self-dealing Answer: A Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 27) In which of the following cases can the alter ego doctrine be invoked? A) when shareholders bring a lawsuit on behalf of the corporation after the corporation failed to do it itself B) when unpaid creditors are trying to collect from shareholders who owe a debt to the corporation C) when there is a mismanagement of stocks by the board of directors D) when shareholders are trying to collect for fraud committed by a third party Answer: B Diff: 2 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept

28) Which of the following are considered owners of a corporation? A) shareholders B) board of directors C) chief executive officer D) corporate officers Answer: A Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 29) Courts may pierce the corporate veil if ________. A) the corporation has been formed without sufficient capital B) the corporation has not revoked the dividends paid to shareholders C) separateness has been maintained between the corporation and its shareholders D) personal and corporate assets of shareholders have not been mingled Answer: A Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 30) The piercing the corporate veil doctrine is also called the alter ego doctrine because it may be used when the corporation becomes the alter ego of the shareholder. Answer: TRUE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 31) Courts will pierce the corporate veil if the corporation has been formed with sufficient capital. Answer: FALSE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 32) One of the powers of a shareholder is his or her right to elect the board of directors. Answer: TRUE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept

33) Shareholders of a corporation act as agents of the corporation. Answer: FALSE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 34) An annual shareholders' meeting is held to elect new shareholders. Answer: FALSE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 35) Shareholders do not have to attend a shareholders' meeting to vote. Answer: TRUE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 36) The record date for the declaration of dividends is set forth in the articles of incorporation. Answer: FALSE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 37) A system in which each shareholder votes the number of shares he or she owns on candidates for each of the positions open is known as cumulative voting. Answer: FALSE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 38) In a voting trust, the legal titles to the shares given to the trustee are held in the name of the shareholders. Answer: FALSE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept

39) Shareholder voting agreements have to be filed with the corporation. Answer: FALSE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 40) According to the right of first refusal, a selling shareholder must offer to sell his or her shares to the other parties to the agreement before selling them to anyone else. Answer: TRUE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 41) A buy-and-sell agreement allows shareholders to sell their shares to people other than fellow shareholders or the corporation. Answer: FALSE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 42) If a shareholder does not exercise his or her preemptive rights within the stated time, shares can then be sold to anyone. Answer: TRUE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 43) Dividends are a distribution of corporate profits to shareholders. Answer: TRUE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 44) Shareholders are responsible for determining how much will be paid in dividends. Answer: FALSE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept

45) Persons who are shareholders on the record date are entitled to receive the dividend, even if they sell their shares before the payment date. Answer: TRUE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 46) Once declared, a cash or property dividend cannot be revoked. Answer: TRUE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 47) A derivative lawsuit is brought by the board of directors on behalf of the corporation. Answer: FALSE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 48) Proxy solicitation for shareholder votes cannot be made by electronic transmission. Answer: FALSE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 49) What is the supramajority voting requirement for shareholders? Answer: The articles of incorporation or the bylaws of a corporation can require a greater than majority of the shares to constitute a quorum of the vote of the shareholders. This is called a supramajority voting requirement, or supermajority voting requirement. Such votes are often required to approve mergers, consolidation, the sale of substantially all the assets of a corporation, and such. To add a supramajority voting requirement, the amendment must be adopted by the number of shares of the proposed increase. For example, increasing a majority voting requirement to an 80 percent supramajority voting requirement would require an 80 percent affirmative vote. Diff: 2 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept

50) Describe the doctrine of piercing the corporate veil. Answer: Shareholders of a corporation generally have limited liability, that is, they are liable for the debts and obligations of the corporation only to the extent of their capital contribution, and they are not personally liable for the debts and obligations of the corporation. However, if a shareholder or shareholders dominate a corporation and misuse it for improper purposes, a court of equity can disregard the corporate entity and hold the shareholders of the corporation personally liable for the corporation's debts and obligations. This doctrine is commonly referred to as piercing the corporate veil. It is often resorted to by unpaid creditors who are trying to collect from shareholders a debt owed by the corporation. The piercing the corporate veil doctrine is also called the alter ego doctrine because the corporation becomes the alter ego of the shareholder or shareholders. Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 51) Shareholders elect a panel of decision makers known as the ________. A) registered agents B) corporate officers C) stakeholders D) board of directors Answer: D Diff: 1 LO: 37.2 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept 52) Which of the following is considered an absolute power of corporate directors? A) the adoption of resolutions B) the approval of transactions C) the inspection of the corporation's books and records D) the declaration of share stocks Answer: C Diff: 1 LO: 37.2 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept

53) A member of the board of directors who is also an officer of the corporation is known as a(n) ________. A) inside director B) ombudsman C) registered agent D) shareholder Answer: A Diff: 1 LO: 37.2 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept 54) A(n) ________ is a member of a board of directors who is not an officer of the corporation. A) corporate officer B) chief executive officer C) ombudsman D) outside director Answer: D Diff: 1 LO: 37.2 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept 55) Which of the following is true of the board of directors of a corporation? A) The directors of the board can act individually on the corporation's behalf. B) Each director has the power of two votes. C) Directors cannot vote by proxy. D) Meetings of the board of directors cannot be held without shareholder representation. Answer: C Diff: 1 LO: 37.2 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept 56) The election of directors of the corporation can be held by electronic method. Answer: TRUE Diff: 1 LO: 37.2 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept

57) The board of director's right to inspection can be limited by bylaws. Answer: FALSE Diff: 1 LO: 37.2 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept 58) Once the number of board of directors is fixed by the articles of incorporation, the number cannot be amended. Answer: FALSE Diff: 1 LO: 37.2 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept 59) Regular meetings of a board of directors are held at the times and in the locations established by the company's bylaws. Answer: TRUE Diff: 1 LO: 37.1 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 60) Explain the term of office for members of a corporate board of directors. Answer: The term of a director's office expires at the next annual shareholders' meeting following his or her election, unless terms are staggered. The Revised Model Business Corporations Act (RMBCA) allows boards of directors that consist of nine or more members to be divided into two or three classes that are elected to serve staggered terms of two or three years. The specifics of such an arrangement must be outlined in the articles of incorporation. Vacancies on a board of directors can occur because of death, illness, the resignation of a director before the expiration of his or her term, or an increase in the number of positions on the board. Such vacancies can be filled by the shareholders or the remaining directors. Diff: 2 LO: 37.2 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept

61) ________ are employees of a corporation who are appointed by the board of directors to manage the day-to-day operations of the corporation. A) Corporate officers B) Shareholders C) Registered agents D) Ombudsmen Answer: A Diff: 1 LO: 37.3 Define corporate officer and describe the duties and scope of authority of corporate officers. AACSB: Analytical thinking Classification: Concept 62) Which of the following policies prevents a corporate officer from being sued for honest mistakes made on behalf of a corporation? A) duty of loyalty B) duty of obedience C) business judgment rule D) self-dealing Answer: C Diff: 1 LO: 37.3 Define corporate officer and describe the duties and scope of authority of corporate officers. AACSB: Analytical thinking Classification: Concept 63) The president of a corporation is an example of a corporate officer. Answer: TRUE Diff: 1 LO: 37.3 Define corporate officer and describe the duties and scope of authority of corporate officers. AACSB: Analytical thinking Classification: Concept 64) A corporation cannot ratify an unauthorized act committed by its corporate officer. Answer: FALSE Diff: 1 LO: 37.3 Define corporate officer and describe the duties and scope of authority of corporate officers. AACSB: Analytical thinking Classification: Concept

65) If a fraud is committed by a member of the board of directors of a corporation, a written notice to the corporation from individual shareholders is not required to bring a derivative lawsuit. Answer: TRUE Diff: 2 LO: 37.3 Define corporate officer and describe the duties and scope of authority of corporate officers. AACSB: Analytical thinking Classification: Concept 66) Give an account of the directors' and corporate officers' duty of care toward the corporation. Answer: The directors and officers of a corporation owe certain fiduciary duties when making decisions and taking action on behalf of the corporation. One such duty is the duty of care. The duty of care requires corporate directors and officers to use care and diligence when acting on behalf of the corporation. To meet this duty of care, the directors and officers must discharge their duties (1) in good faith, (2) with the care that an ordinary prudent person in a like position would use under similar circumstances, and (3) in a manner they reasonably believe to be in the best interests of the corporation. A director or an officer who breaches the duty of care is personally liable to the corporation and its shareholders for any damages caused by the breach. Diff: 2 LO: 37.3 Define corporate officer and describe the duties and scope of authority of corporate officers. AACSB: Analytical thinking Classification: Concept 67) A duty that directors and officers have not to act adversely to the interests of the corporation and to subordinate their personal interests to those of the corporation and its shareholders is known as ________. A) duty of care B) duty of loyalty C) duty of obedience D) self-dealing Answer: B Diff: 1 LO: 37.4 Describe the duty of obedience of corporate directors and officers. AACSB: Analytical thinking Classification: Concept

68) Which of the following would be seen as a breach of the duty of loyalty by a corporate officer? A) straight voting B) cumulative voting C) piercing the corporate veil D) self-dealing Answer: D Diff: 1 LO: 37.4 Describe the duty of obedience of corporate directors and officers. AACSB: Analytical thinking Classification: Concept 69) A director or corporate officer who does not attend board meetings regularly would be in violation of ________. A) self-dealing B) duty of care C) duty of loyalty D) duty of obedience Answer: B Diff: 1 LO: 37.5 Describe directors' and officers' duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 70) The business judgment rule protects shareholders for honest mistakes of judgment. Answer: FALSE Diff: 1 LO: 37.5 Describe directors' and officers' duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 71) The determination of whether a corporate director or officer has met his or her duty of care is measured in hindsight. Answer: FALSE Diff: 1 LO: 37.5 Describe directors' and officers' duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 72) A director's failure to properly supervise a subordinate who causes a loss to the corporation would be considered a breach of the duty of care. Answer: TRUE Diff: 1 LO: 37.5 Describe directors' and officers' duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 18 Copyright © 2019 Pearson Education, Inc.

73) Helen works as the vice president of Gotspeed Corporation, a company that manufactures and markets sports shoes. Nestor, a private cobbler, designs a new model of shoes that help a user's feet grip the shoe better, and he calls it the Anklator. Nestor's friend fixes an appointment for him with Helen to present his shoe model for possible adoption by Gotspeed. Instead of bringing the opportunity to Gotspeed's board of directors and the corporation, Helen pays Nestor's asking price and purchases the Anklator model herself. Helen leaves Gotspeed Corporation and forms her own company that manufactures and markets the Anklator shoe models. Which of the following is the duty of loyalty breached by Helen? Answer: B Diff: 2 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Application of knowledge Classification: Application 74) A director or corporate officer who usurps a corporate opportunity would be in violation of the director's fiduciary duty called ________. A) duty of obedience B) duty of loyalty C) duty of care D) self-dealing Answer: B Diff: 1 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Analytical thinking Classification: Concept 75) Jameson works for Fishy-Mart Corporation, a chain of superstores that sell large quantities of seafood. His job is to locate future sites for Fishy-Mart stores. Jameson finds a piece of land near a coastline that would make a great site for a Fishy-Mart store. Jameson makes his friend purchase the property from its current owner. After that, they sell the property to Fishy-Mart and share the profits. Jameson does not disclose his interest in the property while recommending the site to Fishy-Mart. Which of the following duties of loyalty has Jameson breached in this scenario? A) usurping a corporate opportunity B) self-dealing C) competing with the corporation D) proxy Answer: B Diff: 2 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Application of knowledge Classification: Application

76) Marshall is the purchasing agent for DigitoolArt Corporation. His job requires him to negotiate and execute contracts for purchasing office supplies and equipment for the corporation. Assume that Bronson, a computer salesperson, pays Marshall a $20,000 kickback to purchase from him computers needed by DigitoolArt Corporation. Which of the following duties of loyalty has Marshall breached in this scenario? A) competing with the corporation B) making a secret profit C) self-dealing D) usurping a corporate opportunity Answer: B Diff: 2 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Application of knowledge Classification: Application 77) The duty of loyalty requires directors and officers to subordinate their personal interests to those of the corporation and its shareholders. Answer: TRUE Diff: 1 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Analytical thinking Classification: Concept 78) The secret profits obtained by a director or officer cannot be recovered by a corporation. Answer: FALSE Diff: 1 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Analytical thinking Classification: Concept 79) Usurping a corporate opportunity is a breach that can only be committed by a shareholder. Answer: FALSE Diff: 1 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Analytical thinking Classification: Concept 80) To prove usurping by a director or an officer, a corporation must have the financial ability to take advantage of the usurped opportunity. Answer: TRUE Diff: 1 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Analytical thinking Classification: Concept

81) Self-dealing is when shareholders use their position to deprive the board of directors of personal monetary gain. Answer: FALSE Diff: 1 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Analytical thinking Classification: Concept 82) The corporation can recover any profits made by unapproved competition by a director. Answer: TRUE Diff: 1 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Analytical thinking Classification: Concept 83) A director who personally competes with the corporation he or she is employed in is said to have breached the duty of obedience. Answer: FALSE Diff: 1 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Analytical thinking Classification: Concept 84) What is self-dealing? Answer: Under the Revised Model Business Corporations Act (RMBCA), a contract or transaction with a corporate director or officer is voidable by the corporation if it is unfair to the corporation. Contracts of a corporation to purchase property from, sell property to, or make loans to corporate directors or officers where the directors or officers have not disclosed their interest in the transaction are often voided under this standard. In the alternative, the corporation can affirm the contract and recover any profits from the self-dealing employee. Contracts or transactions with corporate directors or officers are enforceable if their interest in the transaction has been disclosed to the corporation, and the disinterested directors or the shareholders have approved the transaction. Diff: 2 LO: 37.6 Describe directors' and officers' duty of loyalty and how this duty is breached. AACSB: Analytical thinking Classification: Concept

85) The ________ Act is a federal statute enacted by Congress to improve corporate governance. A) Brown-Kaufmann B) Lanham C) Glass-Steagall D) Sarbanes-Oxley Answer: D Diff: 1 LO: 37.7 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 86) Which of the following is a federal statute that deals with corporate bribery between U.S. companies and officials of other countries? A) Sarbanes-Oxley Act B) Glass-Steagall Act C) Deregulation and Monetary Control Act D) Foreign Corrupt Practices Act Answer: D Diff: 1 LO: 37.7 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 87) The ________ Act prohibits public companies from making personal loans to their directors or executive officers. A) Foreign Corrupt Practices B) Deregulation and Monetary Control C) Sarbanes-Oxley D) Commodity Futures Modernization Answer: C Diff: 1 LO: 37.7 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 88) According to the Sarbanes-Oxley Act, the ________, a federal government agency, may issue an order prohibiting any person who has committed securities fraud from acting as an officer or a director of a public company. A) United States International Trade Commission B) Federal Reserve System C) Federal Communications Commission D) Securities and Exchange Commission Answer: D Diff: 1 LO: 37.7 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 22 Copyright © 2019 Pearson Education, Inc.

89) According to the Sarbanes-Oxley Act, members of the audit committee must be members of the board of directors. Answer: TRUE Diff: 1 LO: 37.7 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 90) The Sarbanes-Oxley Act contains provisions for prosecuting U.S. firms that bribe foreign officials. Answer: FALSE Diff: 1 LO: 37.7 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 91) The Sarbanes-Oxley Act requires the chief executive officer (CEO) and chief financial officer (CFO) to certify annual and quarterly reports. Answer: TRUE Diff: 1 LO: 37.7 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 92) The Sarbanes-Oxley Act applies only to public companies. Answer: TRUE Diff: 1 LO: 37.7 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 93) What is the CEO and CFO provision laid out by the Sarbanes-Oxley Act of 2002? Answer: The chief executive officer (CEO) and chief financial officer (CFO) of a public company must file a statement accompanying each annual and quarterly report, thereby certifying that the signing officer has reviewed the report; that, based on the officer's knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact that would make the statement misleading; and that the financial statement and disclosures fairly present, in all material aspects, the operation and financial condition of the company. A knowing and willful violation is punishable by up to 20 years in prison and a monetary fine. Diff: 2 LO: 37.7 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 38 Corporate Acquisitions and Multinational Corporations 1) A(n) ________ refers to a written document signed by a shareholder that authorizes another person to vote the shareholder's shares. A) deputation B) proxy C) easement D) title Answer: B Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of proxies? A) Proxies are not permitted to be submitted electronically. B) Proxies are signed by a corporation and sent to shareholders. C) Directors or officers of a corporation cannot hold proxies. D) Corporations are permitted to solicit proxies from shareholders. Answer: D Diff: 2 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 3) Section 14(a) of the Securities Exchange Act gives the Securities and Exchange Commission (SEC) the authority to regulate ________. A) the formation of the board of directors of a corporation B) mergers between two or more corporations C) issues of shares by a corporation D) the solicitation of proxies by a corporation Answer: D Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept

4) The federal proxy rules promote ________ during proxy solicitation. A) full disclosure of the proxy B) forfeiture of shares C) meeting of all shareholders D) direct representation of shareholders Answer: A Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 5) In the context of proxy solicitation information, which of the following is prohibited by Section 14(a) of the Securities Exchange Act? A) solicitation of proxies by a corporation B) transfer of proxies from one shareholder to another C) omission of material facts in the proxy material D) proxy contests between shareholders and directors Answer: C Diff: 2 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 6) Section 14(a) of the Securities Exchange Act of 1934 is a(n) ________. A) investment provision B) antifraud provision C) share exchange provision D) antitakeover statute Answer: B Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept

7) ________ shareholders are shareholders who propose a slate of directors to replace the incumbent directors. A) Exultant B) Internal C) Insurgent D) External Answer: C Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 8) Which of the following defines a proxy contest? A) an instance of proxies awarded to the shareholder with the highest bid B) an event in which insurgent shareholders and incumbent directors solicit proxies from other shareholders C) an event in which proxies are chosen by voting between different factions of shareholders D) an event in which a corporation seeks affirmative majority from its shareholders in the event of a hostile tender Answer: B Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 9) Mr. Davidson, who owns 17 percent of his company's shares, is displeased with the six incumbent directors of the corporation. He proposes a slate of directors consisting of five other persons and himself to become members of the board of directors of the corporation and replace the incumbent directors. In the proxy contest, Mr. Davidson manages to acquire proxies from shareholders who control only 35 percent of the company's shares. Which of the following is true in this context? A) The shareholders who voted for Mr. Davidson's slate of directors will constitute 35 percent of the new board of directors. B) The incumbent directors will continue to form the board of directors. C) The proxy contest did not establish a clear majority, so another proxy contest must be held. D) The slate of directors proposed by Mr. Davidson will form the new board of directors. Answer: D Diff: 2 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Application of knowledge Classification: Application

10) Shareholder approval is not required to make any changes in a corporation. Answer: FALSE Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 11) A friendly merger of two corporations is not considered an acquisition. Answer: FALSE Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 12) A proxy card authorizes another person to vote the shareholder's shares. Answer: TRUE Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 13) Section 14(a) of the Securities Exchange Act prohibits the solicitation of proxies. Answer: FALSE Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 14) A proxy statement only requires the name of the proxy holder and the proxy. Answer: FALSE Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept

15) Section 14(a) of the Securities Exchange Act prohibits omissions of material facts in proxy materials. Answer: TRUE Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 16) Courts are permitted to order a new election in case of fraudulent proxy solicitation. Answer: TRUE Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 17) Incumbent directors are the former directors of a corporation. Answer: FALSE Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 18) Insurgent shareholders are shareholders who propose a slate of directors to replace the incumbent directors. Answer: TRUE Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 19) A proxy contest is one in which incumbent directors are impeached. Answer: FALSE Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept

20) In a proxy contest, only the incumbent directors are permitted to solicit proxies from shareholders. Answer: FALSE Diff: 1 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 21) What is a proxy? State the federal rules that govern a proxy statement. Answer: A proxy is a written document that is completed and signed by a shareholder and sent to the corporation. The proxy authorizes another person–the proxy holder–to vote the shares at the shareholders' meeting as directed by the shareholder. The federal proxy rules promote full disclosure. The management or any other party soliciting proxies from shareholders must prepare a proxy statement that fully describes: a. the matter for which the proxy is being solicited b. who is soliciting the proxy, and c. any other pertinent information. A copy of the proxy, the proxy statement, and all other solicitation material must be filed with the Securities and Exchange Commission at least 10 days before the materials are sent to the shareholders. Diff: 2 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept 22) Explain the factors that lead to a proxy contest. What is its outcome? Answer: One or more shareholders may oppose the actions taken by the incumbent directors and want to have some or all of these directors removed and replaced. The insurgent shareholders offer their own slate of proposed directors to replace the current directors. The insurgent shareholders can challenge the incumbent directors in a proxy contest, in which both sides solicit proxies from the other shareholders. The vote will be taken at the annual meeting of the shareholders or at a special meeting of the shareholders if one has been called. The side that receives the greatest number of votes wins the proxy contest, and its slate of directors becomes the directors of the corporation. Diff: 2 LO: 38.1 Describe the process of soliciting proxies from shareholders and engaging in a proxy contest. AACSB: Analytical thinking Classification: Concept

23) Which of the following best defines a shareholder resolution? A) a document submitted by insurgent shareholders formally announcing forfeiture of shares B) an issue submitted by the board of directors requiring the reorganization of shares held by shareholders C) an issue submitted by a shareholder for a vote of other shareholders D) a document that authorizes another person to vote the shareholder's shares Answer: C Diff: 1 LO: 38.2 Define shareholder resolution and identify when a shareholder can include a resolution in proxy materials. AACSB: Analytical thinking Classification: Concept 24) A shareholder is permitted to submit a resolution to be considered by other shareholders only if he or she ________. A) owns at least 1 percent of all shares of the company B) owns at least $1,000 worth of shares of the company's stock C) has served as a former member of the company's board of directors D) has owned shares of the company of any amount for longer than five years Answer: A Diff: 2 LO: 38.2 Define shareholder resolution and identify when a shareholder can include a resolution in proxy materials. AACSB: Analytical thinking Classification: Concept 25) A shareholder has a right to have the shareholder resolution included in the corporation's proxy materials if it ________. A) does not relate to the corporation's business B) does not concern the payment of dividends C) concerns the day-to-day operations of the corporation D) does not concern a policy issue Answer: B Diff: 1 LO: 38.2 Define shareholder resolution and identify when a shareholder can include a resolution in proxy materials. AACSB: Analytical thinking Classification: Concept 26) Shareholders are permitted to submit issues for a vote to other shareholders. Answer: TRUE Diff: 1 LO: 38.2 Define shareholder resolution and identify when a shareholder can include a resolution in proxy materials. AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

27) A shareholder can only submit a resolution to be considered by other shareholders if he or she has 1 percent or more of the total shares of the company. Answer: TRUE Diff: 1 LO: 38.2 Define shareholder resolution and identify when a shareholder can include a resolution in proxy materials. AACSB: Analytical thinking Classification: Concept 28) Shareholder resolutions cannot be made when a corporation is soliciting proxies from its shareholders. Answer: FALSE Diff: 1 LO: 38.2 Define shareholder resolution and identify when a shareholder can include a resolution in proxy materials. AACSB: Analytical thinking Classification: Concept 29) A shareholder resolution must be dropped if it is not favored by the management. Answer: FALSE Diff: 1 LO: 38.2 Define shareholder resolution and identify when a shareholder can include a resolution in proxy materials. AACSB: Analytical thinking Classification: Concept 30) A(n) ________ is a situation in which one corporation is absorbed into another corporation and ceases to exist. A) alliance B) merger C) share exchange D) coalition Answer: B Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept

31) Which of the following best defines a surviving corporation? A) a corporation that continues its operations after filing for bankruptcy B) a corporation that has been in existence for at least 50 years C) a proprietorship or partnership that evolved into a corporation D) a corporation that continues to exist after a merger Answer: D Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 32) Karlovsky and Sons Inc., a retail corporation, reports financial losses for three years in a row. Two larger corporations, Gatsby Retail Inc. and Chelsea Sales Corp. compete to acquire Karlovsky and Sons. Initially, Chelsea places a higher bid than Gatsby Retail but eventually backs out of the merger. In the end, a Boston-based multinational company (MNC) named J.Y. Corp. acquires Karlovsky and Sons and permits the latter to expand as a wholesaler. Which of the following is the surviving corporation in this scenario? A) Gatsby Retail Inc. B) Chelsea Corp. C) J.Y. Corp. D) Karlovsky and Sons Answer: D Diff: 2 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Application of knowledge Classification: Application 33) Which of the following best defines a merged corporation? A) a corporation that is absorbed in the merger and ceases to exist after the merger B) a corporation that is absorbed in the merger and continues to exist after the merger C) a corporation that is not absorbed in the merger but acquired stake in the surviving corporation D) a corporation that is not absorbed in the merger but is owned by a parent company Answer: A Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept

34) A ________ is a situation in which one corporation acquires all the shares of another corporation, and both corporations retain their separate legal existence. A) reverse takeover B) merger C) share exchange D) spin-off Answer: C Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 35) The corporation that owns the shares of the subsidiary corporation in a share exchange is known as the ________. A) surviving corporation B) parent corporation C) sole proprietor D) primary partner Answer: B Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 36) Which of the following best defines a subsidiary corporation? A) a corporation that is absorbed into a merger B) a corporation that continues to exist after a merger C) a corporation that has bought all the shares of another corporation D) a corporation that is owned by the parent corporation in a share exchange Answer: D Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 37) Which of the following is true of a share exchange? A) The subsidiary corporation ceases to exist after the share exchange. B) The legal existence of both corporations is retained after the exchange. C) The shares of both parent and subsidiary corporations are divided equally between themselves. D) The subsidiary corporation can have a maximum of three shareholders in the exchange. Answer: B Diff: 2 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

38) An ordinary merger increases the number of voting shares of the surviving corporation by 23 percent. Which of the following is required in this context? A) a unanimous vote by the incumbent directors B) a majority vote of the board of directors C) a majority vote of the shareholders D) an affirmative vote by at least 30 percent of the shareholders Answer: C Diff: 2 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 39) A ________ is a merger between a parent corporation and a subsidiary corporation that does not require the approval of the board of directors of the subsidiary corporation. A) share exchange B) short-form merger C) short-term merger D) reverse takeover Answer: B Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 40) Which of the following is required for a short-form merger? A) approval of shareholders of the parent corporation alone B) approval of shareholders of the subsidiary corporation alone C) approval of the board of directors of the parent corporation alone D) approval of the board of directors of the subsidiary corporation alone Answer: C Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 41) ________ are the rights of shareholders who object to a proposed merger to have their shares valued by the court and receive cash payment of this value from the corporation. A) Appraisal rights B) Liquidation rights C) Anti-acquisition rights D) Anti-merger rights Answer: A Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

42) The ________ is a federal law that mandates the president of the United States to suspend, prohibit, or dismantle the acquisition of U.S. businesses by foreign investors if there is credible evidence that the foreign investor might take action that threatens to impair the "national security." A) Williams Act B) Securities Exchange Act of 1934 C) Investment Company Act of 1940 D) Exon-Florio Foreign Investment Provision Answer: D Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 43) A merger occurs when one corporation enters into a permanent business partnership with another corporation. Answer: FALSE Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 44) A merged corporation ceases to exist after the merger. Answer: TRUE Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 45) After a share exchange, one corporation owns all the shares of the other corporation. Answer: TRUE Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 46) A subsidiary corporation ceases to exist after a share exchange. Answer: FALSE Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept

47) The corporation that is owned by the parent corporation in a share exchange is known as the surviving corporation. Answer: FALSE Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 48) An ordinary merger or share exchange requires the recommendation of the board of directors of each corporation. Answer: TRUE Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 49) The approval of the surviving corporation's shareholders is not required if the merger or share exchange increases the number of voting shares of the surviving corporation by 20 percent or less. Answer: TRUE Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 50) A short-form merger does not require the approval of the board of directors of the subsidiary corporation. Answer: TRUE Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 51) Appraisal rights require shareholders who object to the sale of the property of a company to forfeit their shares. Answer: FALSE Diff: 1 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept

52) Distinguish between a merger and a share exchange. Answer: A merger occurs when one corporation is absorbed into another corporation and one corporation survives and the other corporation ceases to exist. The surviving corporation gains all the rights, privileges, powers, duties, obligations, and liabilities of the merged corporation. Title to property owned by the merged corporation transfers to the surviving corporation, without formality or deeds. The shareholders of the merged corporation receive stock or securities of the surviving corporation or other consideration, as provided in the plan of merger. A share exchange is a situation in which one corporation acquires all the shares of another corporation, and both corporations retain their separate legal existence. The parent corporation becomes the sole shareholder of the subsidiary corporation. Diff: 2 LO: 38.3 Describe the process for approving a merger or share exchange. AACSB: Analytical thinking Classification: Concept 53) ________ are made without the permission of the target company's management. A) Merger offers B) Hostile tender offers C) Share exchange offers D) Share acquisition offers Answer: B Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 54) Instaworks Inc. wants to acquire IOK Corp. Instaworks makes a tender offer to the shareholders of IOK to acquire their shares of IOK without the permission of the latter corporation's board of directors. This is a ________ tender offer. A) cogent B) single-point C) persuasive D) hostile Answer: D Diff: 2 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Application of knowledge Classification: Application

55) The ________ is an amendment to the Securities Exchange Act of 1934 that specifically regulates tender offers. A) Gramm-Leach-Bliley Act B) Financial Services Modernization Act C) Williams Act D) Exon-Florio Foreign Investment Provision Act Answer: C Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 56) The ________ states that any increase in price paid for shares tendered must be offered to all shareholders, even those who have previously tendered their shares. A) pro rate rule B) fair price rule C) Williams Act D) antifraud provision of the Securities and Exchange Commission Answer: B Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 57) Section 14(e) of the Williams Act is a(n) ________ regarding tender offers. A) antifraud provision B) shareholders rights provision C) merger provision D) acquisition provision Answer: A Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept

58) Which of the following is a valid tender offer rule? A) The offer cannot be closed after 20 business days after the commencement of the tender offer. B) The offer cannot be extended if the tender offeror increases the number of shares it will take or the price it will pay for the shares. C) Any increase in price paid for shares tendered must be offered to all shareholders, including those who have previously tendered their shares. D) A shareholder who tenders his or her shares loses the right to withdraw them prior to the closing of the tender offer. Answer: C Diff: 2 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 59) A ________ is a defensive strategy built into the target corporation's articles of incorporation, corporate bylaws, or contracts and leases that can be adopted to defeat a tender offer. A) greenmail agreement B) reverse tender offer C) white knight merger D) poison pill Answer: D Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 60) Which of the following is true of defensive measures against a tender offer? A) A company is not permitted to use media campaigns to convince shareholders against the tender offer. B) A company can file a lawsuit alleging violation of security laws, antitrust laws, or other laws. C) A reverse tender offer cannot be made as long as a tender offer is active. D) A company can adopt only a flip-over and not a flip-in rights plan against the tender offer. Answer: B Diff: 2 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept

61) ________ refers to the purchase by a target corporation of its stock from an actual or perceived tender offeror at a premium. A) White knight merger B) Appraisal C) Share exchange D) Greenmail Answer: D Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 62) The ________ protects the decisions of a board of directors that acts on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the corporation and its shareholders. A) Williams Act B) antifraud provision of the Securities and Exchange Commission C) pro rata rule D) business judgment rule Answer: D Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 63) Section 14(a) of the Securities Exchange Act of 1934 requires the disclosure of the identities of the parties involved in a tender offer. Answer: TRUE Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 64) A tender offer targets the board of directors of the target corporation. Answer: FALSE Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 65) Hostile tender offers are tender offers made without the permission of the target company's management. Answer: TRUE Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 17 Copyright © 2019 Pearson Education, Inc.

66) The Williams Act is an amendment to the Securities Exchange Act that specifically regulates tender offers. Answer: TRUE Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 67) The pro rata rule states that any increase in price paid for shares tendered must be offered to all shareholders, even those who have previously tendered their shares. Answer: FALSE Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 68) Section 14(e) protects shareholders from fraud committed in connection with a tender offer. Answer: TRUE Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 69) The incumbent management cannot issue additional shares in the market to defeat a hostile tender offer. Answer: FALSE Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept 70) Greenmail refers to a target corporation's purchase of its stock from an actual or perceived tender offeror at a premium. Answer: TRUE Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Analytical thinking Classification: Concept

71) List out the strategies that a company can use in defending against hostile tender offers. Answer: a. Persuasion of shareholders b. Delaying lawsuits c. Selling a crown jewel d. Adopting a poison pill e. White knight merger f. Reverse tender offer g. Issuing additional stock h. Creating an employee stock ownership plan (ESOP) i. Flip-over and flip-in rights plans j. Greenmail and standstill agreements Diff: 1 LO: 38.4 Define tender offer and describe defensive maneuvers to prevent hostile takeovers. AACSB: Application of knowledge Classification: Application 72) State antitakeover statutes apply to ________. A) corporations that are incorporated in the state B) foreign corporations that operate in the state C) U.S. corporations incorporated in other states operating in the state D) corporations that export to the state Answer: A Diff: 1 LO: 38.5 Describe state antitakeover statutes. AACSB: Analytical thinking Classification: Concept 73) Which of the following is provided by the Delaware antitakeover statute? A) An acquirer of a Delaware corporation cannot complete a merger with the acquired corporation unless it receives an affirmative vote from at least 35 percent shareholders of the acquired corporation. B) An acquirer of a Delaware corporation located outside Delaware cannot complete a merger with the acquired corporation until it has operated in Delaware for three years. C) An acquirer of a Delaware corporation must be incorporated in the state of Delaware or have its principal office in the state of Delaware. D) An acquirer of a Delaware corporation cannot complete a merger with the acquired corporation for three years after purchasing 15 percent or more of the Delaware corporation's shares. Answer: D Diff: 1 LO: 38.5 Describe state antitakeover statutes. AACSB: Analytical thinking Classification: Concept

74) Antitakeover statutes are model acts and do not become laws until a state legislature adopts them. Answer: FALSE Diff: 1 LO: 38.5 Describe state antitakeover statutes. AACSB: Analytical thinking Classification: Concept 75) The Delaware antitakeover statute provides that an acquirer of a Delaware corporation cannot complete a merger with the acquired corporation for three years after purchasing 15 percent or more of the Delaware corporation's shares. Answer: TRUE Diff: 1 LO: 38.5 Describe state antitakeover statutes. AACSB: Analytical thinking Classification: Concept 76) What does the Delaware antitakeover statute provide? How can an acquirer evade the restrictions imposed by this statute? Answer: The Delaware antitakeover statute provides that an acquirer of a Delaware corporation cannot complete a merger with the acquired corporation for three years after purchasing 15 percent or more of the Delaware corporation's shares. This restriction can be avoided if (1) the board of directors of the Delaware target company approves the takeover in advance, (2) the acquirer purchases 85 percent of the shares of the target corporation, or (3) the acquirer gains the vote of two-thirds of the disinterested shares of the target corporation after purchasing 15 percent or more of the target corporation's shares. Diff: 2 LO: 38.5 Describe state antitakeover statutes. AACSB: Application of knowledge Classification: Application 77) Which of the following is true of a branch office of a multinational corporation? A) Branch offices cannot be setup in foreign countries. B) Branch offices are considered separate legal entities. C) There is no liability shield between the corporation and the branch office. D) The corporation is not liable for the torts committed by personnel of the branch office. Answer: C Diff: 1 LO: 38.6 Examine the use of multinational corporations in conducting international business. AACSB: Analytical thinking Classification: Concept

78) Which of the following is true of a subsidiary of a multinational corporation present in a foreign country? A) The subsidiary corporation is organized under the laws of the foreign country. B) There is no liability shield between the parent company and the subsidiary. C) The parent company is wholly responsible for torts committed by the subsidiary. D) The subsidiary corporation is not considered a separate legal entity. Answer: A Diff: 1 LO: 38.6 Examine the use of multinational corporations in conducting international business. AACSB: Analytical thinking Classification: Concept 79) What is a similarity between a branch office and a subsidiary of a multinational corporation? A) Both are considered separate legal entities. B) Both have limited liability shields with the parent company. C) Both can be setup in a foreign land to run the parent company's business. D) Both are wholly liable for their torts. Answer: C Diff: 2 LO: 38.6 Examine the use of multinational corporations in conducting international business. AACSB: Analytical thinking Classification: Concept 80) A corporation that uses subsidiary corporations to operate in more than one country cannot be termed as a multinational corporation. Answer: FALSE Diff: 1 LO: 38.6 Examine the use of multinational corporations in conducting international business. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 39 Limited Liability Companies and Limited Liability Partnerships 1) An LLC (limited liability company) is a(n) ________. A) unincorporated business entity B) incorporated business entity C) cooperative entity D) proprietorship Answer: A Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of an LLC (limited liability company)? A) An LLC is a creature of federal law. B) An LLC is regarded a separate legal entity. C) An LLC cannot hold title to property. D) The owners of an LLC are called general partners or specific partners. Answer: B Diff: 2 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 3) Which of the following is true of LLC (limited liability company) taxation? A) An LLC is taxed as a corporation in all general cases. B) Income or losses of an LLC do not flow through to the members' individual income tax returns. C) Members of an LLC are subject to double taxation. D) An LLC is not taxed at the entity level. Answer: D Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept

4) A(n) ________ is a special form of partnership in which all partners are limited partners, and there are no general partners. A) domestic LLC B) proprietorship C) LLC (limited liability company) D) LLP (limited liability partnership) Answer: D Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 5) ________ refer to the formal documents that must be filed at the secretary of state's office of the state of organization of a limited liability partnership to form the LLP. A) Articles of LLP B) Agreements of conversion C) Articles of organization of LLP D) Articles of amendment of LLC (limited liability company) Answer: A Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 6) A limited liability company is an incorporated business entity. Answer: FALSE Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 7) Limited liability companies are created by federal law. Answer: FALSE Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 8) Limited liability companies are treated as artificial persons who can sue or be sued and enter into and enforce contracts. Answer: TRUE Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept

9) A member or a shareholder is the owner of a limited liability company. Answer: TRUE Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 10) The Uniform Limited Liability Company Act is a model act that provides comprehensive and uniform laws for the formation, operation, and dissolution of limited liability companies. Answer: TRUE Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 11) The Uniform Limited Liability Company Act (ULLCA) is a federal law and is valid across the United States. Answer: FALSE Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 12) A limited liability company is taxed at the entity level. Answer: FALSE Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 13) The income or losses of a limited liability company flow through to the members' individual income tax returns, which avoids double taxation. Answer: TRUE Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 14) A limited liability partnership has no general partner. Answer: TRUE Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept

15) Explain the process that exempts members of an LLC from double taxation. Answer: Under the Internal Revenue Code and regulations adopted by the Internal Revenue Service (IRS) for federal income tax purposes, an LLC is taxed as a partnership unless it elects to be taxed as a corporation. Thus, an LLC is not taxed at the entity level, but its income or losses flow through to the members' individual income tax returns. This avoids double taxation. Diff: 1 LO: 39.1 Define limited liability company (LLC). AACSB: Analytical thinking Classification: Concept 16) Which of the following is true of a limited liability company formation? A) Doctors and lawyers cannot operate practices as LLCs. B) An LLC has to be organized in every state that it operates. C) "LC" cannot be used to denote an LLC. D) An LLC is a creation of federal law. Answer: A Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 17) In states where an LLC may be organized by only one member, ________ can obtain the benefit of the limited liability shield of an LLC. A) corporations B) sole proprietors C) LLPs (limited liability partnerships) D) general partnerships Answer: B Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 18) ________ refer to the formal documents that must be filed at the secretary of state's office of the state of organization of an limited liability company to form the LLC. A) Operating agreements B) Certificates of interest C) Articles of organization D) Articles of amendment Answer: C Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept

19) An LLC is a ________ in the state in which it is organized. A) sole proprietorship B) domestic LLC C) term LLC D) general partnership Answer: B Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 20) An limited liability company that is organized in Alabama and is operating in Texas with no operations outside the United States is considered a ________ in Texas. A) foreign limited liability company B) limited liability partnership C) domestic limited liability company D) general partnership Answer: A Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 21) A(n) ________ LLC has no specified term of duration. A) short-form B) general C) term D) at-will Answer: D Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 22) A(n) ________ LLC has a specified term of duration. A) short-form B) general C) term D) at-will Answer: C Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept

23) Sam Muller and Toby Richardson organize an LLC in the state of Delaware. In the articles of organization, they specify the duration of the LLC as 25 years from the date of filing the articles of organization. Which of the following is true in this context? A) The LLC is invalid as it does not specify a date of termination. B) The LLC may be dissolved at will any time after 25 years from the date of filing the articles of organization. C) Muller and Richardson have organized a valid term LLC. D) Muller and Richardson have organized an at-will LLC. Answer: C Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Reflective thinking Classification: Application 24) Which of the following is true of capital contribution to an LLC (limited liability company)? A) Capital contribution can only be in the form of money or tangible property. B) Promissory notes are not considered capital contribution. C) A member's obligation to contribute capital is excused by the member's disability or other inability to perform. D) A member's obligation to contribute capital is not excused by the member's death. Answer: D Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 25) A(n) ________ refers to a document that demonstrates evidences of a member's ownership interest in an LLC (limited liability company). A) certificate of interest B) article of organization C) operating agreement D) agreement of conversion Answer: A Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept

26) The certificate of interest acts the same as a(n) ________ issued by a corporation. A) promissory note B) stock certificate C) deposit note D) initial public offer Answer: B Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 27) A(n) ________ refers to an agreement entered into among members that governs the affairs and business of the LLC and the relations among members, managers, and the LLC. A) certificate of interest B) article of organization C) operating agreement D) agreement of conversion Answer: C Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 28) Peter, Preston, and Penny organize an LLC in the month of January. While composing the operating agreement, they forget to include the amendment clause. Six months later, the situation demands an amendment to the operating agreement. Which of the following would best apply in this scenario? A) The operating agreement can be amended if all three members approve. B) The operating agreement cannot be amended as it contains no amendment provision. C) The operating agreement can be amended with the affirmative majority of all shareholders. D) The operating agreement can be amended only 60 days after a new amendment provision is included. Answer: A Diff: 2 LO: 39.2 Describe the process of organizing an LLC. AACSB: Reflective thinking Classification: Application

29) In which of the following cases does the conversion of an existing business to an LLC take effect? A) when the articles of organization are filed with the secretary of state B) when the members enter into an agreement of conversion C) when an operating agreement is finalized by the members D) when the first certificate of interest is issued Answer: A Diff: 2 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 30) A(n) ________ refers to a document that states the terms for converting an existing business to a limited liability company. A) articles of termination B) operating agreement C) articles of organization D) agreement of conversion Answer: D Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 31) Philip and Deborah form an LLC . Philip contributes $50,000 capital, and Deborah contributes $75,000 capital. They do not have an agreement as to how profits are to be shared. If the LLC makes a $100,000 profit in its first year, how will the profit be divided among the members? A) Philip gets $30,000, and Deborah gets $70,000. B) Philip gets $50,000, and Deborah gets $50,000. C) Philip gets $25,000, and Deborah gets $75,000. D) Philip gets $35,000, and Deborah gets $65,000. Answer: B Diff: 2 LO: 39.2 Describe the process of organizing an LLC. AACSB: Reflective thinking Classification: Application

32) Gerard and Tony organize an LLC by investing $55,000 and $45,000 respectively. The operating agreement states that profits are to be shared in the ratio of 55:45 between Gerard and Tony and makes no mention of sharing losses. The LLC incurs a loss of $100,000 in its first year. How is this loss shared? A) Both Gerard and Tony have to pay $50,000 each. B) Gerard pays $55,000, while Tony pays $45,000. C) Gerard pays $45,000, while Tony pays $55,000. D) Gerard and Tony are not liable for the losses of the LLC. Answer: A Diff: 2 LO: 39.2 Describe the process of organizing an LLC. AACSB: Reflective thinking Classification: Application 33) Which of the following is true of profits and losses of an LLC whose operating agreement does not contain profit or loss sharing clauses? A) A member who invests 10 percent capital must bear 10 percent of the losses. B) A member who invests 30 percent of the capital receives 30 percent of the profit. C) A member who invests 40 percent of the capital receives 20 percent of the profit. D) All members receive equal shares in profits regardless of the capital contributed. Answer: D Diff: 2 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 34) Which of the following best defines the term distributional interest? A) the ratio in which profit is distributed among members of an LLC (limited liability company) B) the process of distributing profits or losses according to the capital investment of the member with the interest C) the constitution of management of an LLC based on the extent of each member's financial investment D) a member's ownership interest in an LLC that entitles the member to receive distributions of money and property from the LLC Answer: D Diff: 2 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept

35) A member's ownership interest in an LLC is called a ________. A) certificate of interest B) distributional interest C) collateral interest D) creditor's interest Answer: B Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 36) A member's distributional interest in an LLC is ________ and may be transferred in whole or in part. A) a vote B) a proxy C) personal property D) an authority in management Answer: C Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 37) John, Nathan, and Julio form JNJ, LLC with an equal capital investment by each. On his way to a business meeting with the clients of JNJ, Nathan accidentally injures a woman named Jessica in a car accident. Which of the following is true in this scenario? A) Jessica can claim damages from JNJ, LLC as she was injured in the ordinary course of business. B) Jessica can only claim damages from Nathan and not from JNJ, LLC. C) Jessica can choose to claim damages from any one of the three. D) John, Nathan, and Julio have equal personal liability to Jessica's injuries. Answer: A Diff: 2 LO: 39.2 Describe the process of organizing an LLC. AACSB: Reflective thinking Classification: Application 38) A Limited liability company (LLC) can be organized in only one state. Answer: TRUE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept

39) A limited liability company cannot be abbreviated as LC. Answer: FALSE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 40) The existence of a Limited liability company (LLC) begins when the articles of organization are filed. Answer: TRUE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 41) A Limited liability company (LLC) cannot amend its articles of organization. Answer: FALSE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 42) A Limited liability company (LLC) organized in the United States is considered a domestic LLC throughout the United States. Answer: FALSE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 43) An at-will Limited liability company (LLC) refers to an LLC that has no specified term of duration. Answer: TRUE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 44) A member's obligation to contribute capital is excused by the member's death. Answer: FALSE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept

45) Articles of organization are documents that are an evidence of a member's ownership interest in a limited liability company. Answer: FALSE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 46) An operating agreement is a document that states the terms for converting an existing business to a limited liability company. Answer: FALSE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 47) An operating agreement can be amended orally. Answer: TRUE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 48) Profits and losses from a Limited liability company (LLC) do not have to be distributed in the same proportion. Answer: TRUE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 49) Distributional interest refers to a member's ownership interest in an LLC (limited liability company). Answer: TRUE Diff: 1 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept

50) How does an LLC acquire capital? What are the obligations involved in a member's contribution of capital? Answer: A member's capital contribution to an LLC may be in the form of money, personal property, real property, other tangible property, intangible property, services performed, contracts for services to be performed, promissory notes, or other agreements to contribute cash or property. A member's obligation to contribute capital is not excused by the member's death, disability, or other inability to perform. If a member cannot make the required contribution of property or services, he or she is obligated to contribute money equal to the value of the promised contribution. The LLC or any creditor who extended credit to the LLC in reliance on the promised contribution may enforce the promised obligation. Diff: 2 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 51) What is a distributional interest? Explain the terms of its transfer. Answer: A member's ownership interest in an LLC is called a distributional interest. A member's distributional interest in an LLC is personal property and may be transferred in whole or in part. Unless otherwise provided in the operating agreement, a transfer of an interest in an LLC does not entitle the transferee to become a member of the LLC or to exercise any right of a member. A transfer entitles the transferee to receive only distributions from the LLC to which the transferor would have been entitled. A transferee of a distributional interest becomes a member of the LLC if it is so provided in the operating agreement or if all the other members of the LLC consent. Diff: 2 LO: 39.2 Describe the process of organizing an LLC. AACSB: Analytical thinking Classification: Concept 52) The ________ is a model act that provides comprehensive and uniform laws for the formation, operation, and dissolution of LLCs (limited liability companies). A) Williams Act B) Securities Exchange Act C) Uniform Limited Liability Company Act D) Uniform Limited Partnership Act Answer: C Diff: 1 LO: 39.3 Describe the limited liability shield provided by LLCs and LLPs. AACSB: Analytical thinking Classification: Concept

53) Members of an LLC have ________ liability. A) limited B) unlimited personal C) unlimited capital D) strict Answer: A Diff: 1 LO: 39.3 Describe the limited liability shield provided by LLCs and LLPs. AACSB: Analytical thinking Classification: Concept 54) Which of the following is true of the liabilities of LLCs (limited liability companies)? A) Members of LLCs are liable to the extent of their capital contribution. B) Managers of LLCs are personally liable for the debts, obligations, and liabilities of the LLCs. C) LLCs are not liable for any loss or injury caused by their employees. D) LLCs are not liable for losses caused due to negligence of their managers during the ordinary course of business. Answer: A Diff: 1 LO: 39.3 Describe the limited liability shield provided by LLCs and LLPs. AACSB: Analytical thinking Classification: Concept 55) A ________ is a person who intentionally or unintentionally causes injury or death to another person. A) protagonist B) supplanter C) reversionist D) tortfeasor Answer: D Diff: 1 LO: 39.3 Describe the limited liability shield provided by LLCs and LLPs. AACSB: Analytical thinking Classification: Concept 56) Which of the following is true of the management of an LLC (limited liability company)? A) Members cannot become managers of an LLC. B) A manager-managed LLC shares management powers between members and managers. C) A nonmember can become a manager of an LLC. D) An LLC can be both member-managed and manager-managed simultaneously. Answer: C Diff: 2 LO: 39.3 Describe the limited liability shield provided by LLCs and LLPs. AACSB: Analytical thinking Classification: Concept

57) Agents of an LLC are not permitted to enter into contracts on behalf of the LLC. Answer: FALSE Diff: 1 LO: 39.3 Describe the limited liability shield provided by LLCs and LLPs. AACSB: Analytical thinking Classification: Concept 58) An LLC is not liable for injury caused by an LLC member while acting within the ordinary course of business of the LLC. Answer: FALSE Diff: 1 LO: 39.3 Describe the limited liability shield provided by LLCs and LLPs. AACSB: Analytical thinking Classification: Concept 59) Members of LLCs (limited liability companies) are not personally liable for the LLCs' debts, obligations, and liabilities. Answer: FALSE Diff: 1 LO: 39.3 Describe the limited liability shield provided by LLCs and LLPs. AACSB: Analytical thinking Classification: Concept 60) Managers of LLCs (limited liability companies) are not personally liable for the debts, obligations, and liabilities of the LLC they manage. Answer: TRUE Diff: 1 LO: 39.3 Describe the limited liability shield provided by LLCs and LLPs. AACSB: Analytical thinking Classification: Concept 61) If a member or manager of an LLC is found to be a tortfeasor, he or she is not personally liable for the injury or death. Answer: FALSE Diff: 1 LO: 39.3 Describe the limited liability shield provided by LLCs and LLPs. AACSB: Analytical thinking Classification: Concept 62) A tortfeasor can be a member or a manager of an LLC. Answer: TRUE Diff: 1 LO: 39.3 Describe the limited liability shield provided by LLCs and LLPs. AACSB: Analytical thinking Classification: Concept

63) Which of the following is true of a manager-managed LLC? A) Each member has equal rights in the management of the LLC. B) Members designate a manager or managers to manage the LLC. C) A designated manager or managers have little authority to manage the LLC. D) Members have the right to manager the LLC. Answer: B Diff: 2 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 64) The Uniform Limited Liability Company Act offers which of the following types of LLC organizations? A) LLCs and LLPs B) member-managed and manager-managed C) member-managed and member-only D) limited liability partners and limited liability members Answer: B Diff: 1 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 65) Which of the following is true of a member-managed LLC? A) Each member has equal rights in the management of the business of the LLC. B) The member with the highest capital contribution becomes the de facto manager of the LLC. C) Any matter relating to the business of the LLC is decided by a unanimous vote of the members. D) Shareholders are not allowed to decide matters relating to the business of the LLC. Answer: A Diff: 2 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept

66) Mary, Harold, Harvey, and William form an LLC by contributing $20,000, $50,000, $55,000, and $150,000, respectively. The LLC is designated to be member-managed. When a decision is put to vote, Mary, Harvey, and Harold vote "yes," whereas William votes "no." Which of the following is true in this context? A) William's decision prevails as he has invested the maximum capital. B) No conclusion can be derived as the vote is not unanimous. C) Mary, Harvey, and Harold's decision prevails due to simple majority. D) The decision is put to vote among the employees of the company. Answer: C Diff: 2 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Reflective thinking Classification: Application 67) Which of the following methods are used to appoint a manager of a manager-managed LLC? A) appointed by the secretary of state B) vote of majority of the members C) unanimous vote of members D) unanimous vote of shareholders Answer: B Diff: 1 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 68) Which of the following actions requires voting by all members in a manager-managed LLC? A) issuing a certificate of interest B) admitting new members C) converting an existing business into an LLC D) expanding operations in another country Answer: B Diff: 1 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 69) Which of the following is true of compensation offered by an LLC? A) Managers of an LLC are entitled to compensation and not benefits. B) Members are not entitled to compensation for their services toward the LLC. C) Members are not indemnified for liabilities in the ordinary course of business. D) A nonmember manager of an LLC is not entitled to compensation. Answer: D Diff: 2 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 17 Copyright © 2019 Pearson Education, Inc.

70) The United States does not permit an LLC to be member-managed. Answer: FALSE Diff: 1 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 71) In a manager-managed LLC, it is necessary that the manager is a member of that LLC. Answer: TRUE Diff: 1 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 72) In a manager-managed LLC, amending the articles of organization cannot be delegated to the managers. Answer: TRUE Diff: 1 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 73) A nonmanager member of an LLC is not entitled to remuneration for services performed for the LLC at any time. Answer: TRUE Diff: 1 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept

74) Distinguish between a member-managed LLC and a manager-managed LLC. Mention the exceptional actions that cannot be delegated to managers. Answer: In a member-managed LLC, each member has equal rights in the management of the business of the LLC, regardless of the size of his or her capital contribution. Any matter relating to the business of the LLC is decided by a majority vote of the members. In a manager-managed LLC, the members and nonmembers who are designated managers control the management of the LLC. The members who are not managers have no rights to manage the LLC unless otherwise provided in the operating agreement. In a manager-managed LLC, each manager has equal rights in the management and conduct of the company's business. Any matter related to the business of the LLC may be exclusively decided by the managers by a majority vote of the managers. Certain actions cannot be delegated to managers but must be voted on by all members of the LLC. These include (a) amending the articles of organization, (b) amending the operating agreement, (c) admitting new members, (d) consenting to dissolve the LLC, (e) consenting to merge the LLC with another entity, and (f) selling, leasing, or disposing of all or substantially all of the LLC's property. Diff: 2 LO: 39.4 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 75) ________ is a duty owed by a member of a limited liability company to not act adversely to the interests of the LLC. A) Duty of discharge B) Duty of restitution C) Duty of loyalty D) Duty of resolution Answer: C Diff: 1 LO: 39.5 Determine when members and managers owe fiduciary duties of loyalty and care to an LLC. AACSB: Analytical thinking Classification: Concept 76) Which of the following best defines the duty of care to which a member of a membermanaged LLC must adhere? A) the duty of not engaging in a known violation of law B) the duty of not usurping an opportunity of the LLC C) the duty of not competing with the LLC's business D) the duty of not engaging in undisclosed self-dealing Answer: A Diff: 2 LO: 39.5 Determine when members and managers owe fiduciary duties of loyalty and care to an LLC. AACSB: Analytical thinking Classification: Concept

77) The manager does not owe a duty of loyalty to the limited liability company as he or she is not a member of the LLC. Answer: FALSE Diff: 1 LO: 39.5 Determine when members and managers owe fiduciary duties of loyalty and care to an LLC. AACSB: Analytical thinking Classification: Concept 78) The duty of care for managers and members includes the duty not to usurp the LLC's (limited liability company's) opportunities. Answer: FALSE Diff: 1 LO: 39.5 Determine when members and managers owe fiduciary duties of loyalty and care to an LLC. AACSB: Analytical thinking Classification: Concept 79) A member of a manager-managed LLC who is not a manager owes no fiduciary duty of loyalty or care to the LLC or its other members. Answer: TRUE Diff: 1 LO: 39.5 Determine when members and managers owe fiduciary duties of loyalty and care to an LLC. AACSB: Analytical thinking Classification: Concept 80) Which of the following is true of the Uniform Limited Liability Company Act? A) It provides comprehensive laws for the formation of corporations. B) It provides uniform laws for the dissolution of limited liability companies. C) It is a state law that is uniform across the United States. D) It governs the operation of sole proprietorships. Answer: B Diff: 1 LO: 39.6 Describe the process of dissolving an LLC. AACSB: Analytical thinking Classification: Concept 81) The disassociation of a member from a term LLC before the expiration of the specified term is wrongful. Answer: TRUE Diff: 1 LO: 39.6 Describe the process of dissolving an LLC. AACSB: Analytical thinking Classification: Concept

82) Distinguish between rightful and wrongful disassociation from an LLC. What are the consequences of disassociation? Answer: Unless an LLC's operating agreement provides otherwise, a member has the power to withdraw from the LLC, whether it is an at-will LLC or a term LLC. The disassociation of a member from an at-will LLC is not wrongful unless the power to withdraw is eliminated in the operating agreement. Wrongful disassociation occurs when a member withdraws from (a) a term LLC prior to the expiration of the term or (b) an at-will LLC when the operating agreement eliminates a member's power to withdraw. A member who wrongfully disassociates himself or herself from an LLC is liable to the LLC and to the other members for any damages caused by his or her wrongful disassociation. A member's disassociation from an LLC terminates that member's right to participate in the management of the LLC, act as an agent of the LLC, or conduct the LLC's business. Disassociation also terminates the disassociating member's duties of loyalty and care to the LLC. Diff: 2 LO: 39.6 Describe the process of dissolving an LLC. AACSB: Analytical thinking Classification: Concept 83) An LLP is a domestic LLP ________. A) in the state in which the LLP is organized B) in every state in the United States C) in the state in which it does the majority of its business D) in all states in which it does business Answer: A Diff: 2 LO: 39.7 Define a limited liability partnership and describe the limited liability of partners. AACSB: Analytical thinking Classification: Concept 84) An LLP that wants to do business in states in other states must register as a(n) ________. A) at-will LLC B) foreign LLC C) LLC D) foreign LLP Answer: D Diff: 2 LO: 39.7 Define a limited liability partnership and describe the limited liability of partners. AACSB: Analytical thinking Classification: Concept 85) Partners of LLPs are personally liable for the LLPs' debts, obligations, and liabilities. Answer: FALSE Diff: 1 LO: 39.7 Define a limited liability partnership and describe the limited liability of partners. AACSB: Analytical thinking Classification: Concept 21 Copyright © 2019 Pearson Education, Inc.

86) LLPs enjoy the flow-through tax benefit of other types of partnerships. Answer: TRUE Diff: 1 LO: 39.7 Define a limited liability partnership and describe the limited liability of partners. AACSB: Analytical thinking Classification: Concept 87) Limited liability partners in an LLP can lose only their capital contribution if the partnership fails. Answer: TRUE Diff: 1 LO: 39.7 Define a limited liability partnership and describe the limited liability of partners. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 40 Franchise and Special Forms of Business 1) A(n) ________ is established when one party licenses another party to use the first party's trade name, trademarks, commercial symbols, patents, copyrights, and other property in the distribution and selling of goods and services. A) proprietorship B) franchise C) implicit contract D) general partnership Answer: B Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of a franchise? A) The franchisor and franchisee are established as separate legal entities. B) A franchisee does not need a license to use the franchisor's trademark. C) The franchisee does not have access to the franchisor's knowledge. D) A franchise is considered a joint venture. Answer: A Diff: 2 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 3) In a(n) ________ franchise, the franchisor manufactures a product and licenses a retail dealer to sell the product to the public. A) processing plant B) area C) distributorship D) chain-style Answer: C Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept

4) In which of the following types of franchise does a franchisor provide a secret formula or process to the franchisee? A) chain-style franchise B) area franchise C) distributorship franchise D) processing plant franchise Answer: D Diff: 2 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 5) Limonelle Corporation owns the secret formula for a popular beverage brand Limonelle. The corporation operates through franchises in over 50 countries. It uses a secret formula to prepare the drink concentrate which is dispatched to the franchises world over. These franchises then prepare and bottle the beverage for distribution. Which of these types of franchises has Limonelle adopted? A) chain-style franchise B) processing plant franchise C) distributorship franchise D) area franchise Answer: B Diff: 2 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Application of knowledge Classification: Application 6) In a(n) ________ franchise, the franchisor licenses the franchisee to make and sell its products or services to the public from a retail outlet serving an exclusive geographical territory. A) chain-style B) area C) distributorship D) processing plant Answer: A Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept

7) Rio-Werner Corporation owns Rio's Sandwiches, a fast-food restaurant in New Jersey. It wants to operate in five cities on the west coast by means of franchisees which make and sell all menu items from Rio's Sandwiches. Which of the following would best suit Rio-Werner Corporation's franchise plan? A) processing plant B) area C) distributorship D) chain-style Answer: D Diff: 2 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Application of knowledge Classification: Application 8) In a(n) ________ franchise, the franchisor authorizes the franchisee to negotiate and sell franchises on behalf of the franchisor. A) chain-style B) area C) distributorship D) processing plant Answer: B Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 9) The area franchisee is also called a ________. A) joint venturer B) limited partner C) subfranchisor D) strategic partner Answer: C Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept

10) Which of the following is an instance of an area franchise? A) McDonald's franchises an independently owned restaurant to make and sell its products in Pennsylvania. B) PepsiCo Inc. ships Pepsi in the form of a drink concentrate which is prepared and bottled locally in Canada. C) Nokia licenses a retail dealer to retail its products in Jacksonville. D) Burger King wants to start operating in Mexico and hires a Mexican subfranchisor to sell the franchise on behalf of Burger King. Answer: D Diff: 3 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Reflective thinking Classification: Application 11) A franchise is established when parties of a general partnership conduct business outside the state of their incorporation. Answer: FALSE Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 12) In a processing plant franchise, the franchisor licenses the franchisee to make and sell its products or services to the public from a retail outlet serving an exclusive geographical territory. Answer: FALSE Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 13) In an area franchise, the franchisor authorizes the franchisee to negotiate and sell franchises on behalf of the franchisor. Answer: TRUE Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 14) A distributorship franchisee is called a subfranchisor. Answer: FALSE Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept

15) Explain the four basic types of franchises in brief. Answer: a. Distributorship franchise. In a distributorship franchise, the franchisor manufactures a product and licenses a retail dealer to distribute a product to the public. b. Processing plant franchise. In a processing plant franchise, the franchisor provides a secret formula or the like to the franchisee. The franchisee then manufactures the product at its own location and distributes it to retail dealers. c. Chain-style franchise. In a chain-style franchise, the franchisor licenses the franchisee to make and sell its products or services to the public from a retail outlet serving an exclusive geographical territory. The product is made or the service provided by the franchise. Most fastfood franchises use this form. d. Area franchise. In an area franchise, the franchisor authorizes the franchisee to negotiate and sell franchises on behalf of the franchisor. The area franchisee is called a subfranchisor. An area franchise is granted for a certain designated geographical area, such as a state, a region, or another agreed-upon area. Diff: 2 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 16) Which of the following federal agencies is empowered to enforce federal franchising rules? A) the Federal Trade Commission (FTC) B) the Securities and Exchange Commission (SEC) C) the Federal Communications Commission (FCC) D) the Commodity Futures Trading Commission (CFTC) Answer: A Diff: 1 LO: 40.2 Describe federal and state franchise disclosure laws. AACSB: Analytical thinking Classification: Concept 17) Which of the following does the Federal Trade Commission (FTC) franchise rule require from franchisors? A) registration of the disclosure document with the FTC before it is used B) full presale disclosures to prospective franchisees nationwide C) statement to fully finance the infrastructure necessary to bring the franchisee to the franchisor's standard D) disclosure of license agreement made with franchisee that lets the franchisee use the franchisor's service mark Answer: B Diff: 2 LO: 40.2 Describe federal and state franchise disclosure laws. AACSB: Analytical thinking Classification: Concept

18) Which of the following data must a franchisor disclose if the franchisor makes sales or earnings projections for a potential franchise location that are based on the actual sales, income, or profit figures of an existing franchise? A) contract details of the franchisor and the existing franchises B) management methods that have been adopted by the existing franchises C) the number and percentage of its actual franchises that have obtained such results D) any sales or marketing strategy employed by the franchisor in acquiring such results Answer: C Diff: 2 LO: 40.2 Describe federal and state franchise disclosure laws. AACSB: Analytical thinking Classification: Concept 19) If a franchisor makes sales or earnings projections based on hypothetical examples, the franchisor must ________. A) display a cautionary statement that warns against misuse of the franchisor's intellectual properties B) disclose the assumptions underlying the estimates C) register the disclosure document with the FTC prior to its use D) state that all data disclosed is only hypothetical and that actual data will be made available at the earliest Answer: B Diff: 2 LO: 40.2 Describe federal and state franchise disclosure laws. AACSB: Analytical thinking Classification: Concept 20) A franchisor discloses a cautionary statement that reads, "Caution: These figures are only estimates of what we think you may earn. There is no assurance you'll do as well. If you rely upon our figures, you must accept the risk of not doing so well." This is an instance of ________. A) disclosure of earning projections based on actual data B) disclosure of earning projections based on hypothetical data C) nondisclosure of sales or earnings projections D) fraudulent disclosure by the franchisor Answer: B Diff: 1 LO: 40.2 Describe federal and state franchise disclosure laws. AACSB: Analytical thinking Classification: Concept

21) A franchisor discloses a cautionary statement that reads, "Caution: Some outlets have sold this amount. There is no assurance you'll do as well. If you rely upon our figures, you must accept the risk of not doing so well." This is an instance of ________. A) disclosure of earning projections based on actual data B) disclosure of sales projections based on hypothetical data C) nondisclosure of sales or earnings projections D) fraudulent disclosure by the franchisor Answer: A Diff: 1 LO: 40.2 Describe federal and state franchise disclosure laws. AACSB: Analytical thinking Classification: Concept 22) Where should the Federal Trade Commission (FTC) franchise notice appear? A) in the licensing agreement between the franchisor and franchisee B) as a separate clause in the franchise agreement C) on the cover of a franchisor's required disclosure statement D) on the cover of a franchisee's required disclosure statement Answer: C Diff: 1 LO: 40.2 Describe federal and state franchise disclosure laws. AACSB: Analytical thinking Classification: Concept 23) Which of the following is imposed upon a franchisor that violates the Federal Trade Commission (FTC) franchise disclosure rule? A) FTC criminal action on behalf of the franchisee B) loss of intellectual property to the franchisee C) suspension of all business operations in the area D) an injunction against further franchise sales Answer: D Diff: 2 LO: 40.2 Describe federal and state franchise disclosure laws. AACSB: Analytical thinking Classification: Concept 24) The ________ is a uniform disclosure document that requires a franchisor to make specific presale disclosures to prospective franchisees. A) UFOC B) UCC C) UCITA D) SEA Answer: A Diff: 1 LO: 40.2 Describe federal and state franchise disclosure laws. AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

25) The Federal Trade Commission (FTC) franchise rule is a rule that requires franchisors to make full presale disclosures to prospective franchisees. Answer: TRUE Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 26) The Federal Trade Commission (FTC) does not require the registration of the disclosure document with the FTC prior to its use. Answer: TRUE Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 27) A franchisor that makes sales or earnings projections based on hypothetical examples need not disclose the assumptions underlying the estimates. Answer: FALSE Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 28) If the product or service offered by a franchisor has not been tested, it should appear on the Federal Trade Commission (FTC) franchise notice. Answer: TRUE Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 29) The Uniform Franchise Offering Circular (UFOC) refers to a uniform disclosure document that requires a franchisor to make specific presale disclosures to prospective franchisees. Answer: TRUE Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept

30) The Uniform Franchise Offering Circular (UFOC) satisfies only the Federal Trade Commission (FTC) and a separate disclosure document should be prepared by the franchisor in accordance with state regulations. Answer: FALSE Diff: 1 LO: 40.1 Define franchise and describe the various forms of franchises. AACSB: Analytical thinking Classification: Concept 31) Which of the following documents sets forth the terms and conditions of a franchise? A) the FTC disclosure document B) the franchise agreement C) the articles of incorporation D) the articles of organization Answer: B Diff: 1 LO: 40.3 Describe a franchise agreement and the terms of a franchise agreement. AACSB: Analytical thinking Classification: Concept 32) Which of the following is true of intellectual property of a franchisor? A) Trademarks do not qualify for patents. B) A word or motto that identifies a franchisor does not qualify for trademark protection. C) A service mark is exclusive to the franchisor and cannot be licensed to franchisees. D) Trade secrets of a franchisor do not qualify for patent protection. Answer: D Diff: 2 LO: 40.3 Describe a franchise agreement and the terms of a franchise agreement. AACSB: Analytical thinking Classification: Concept 33) Trade secrets do not qualify for copyright protection. Answer: TRUE Diff: 1 LO: 40.3 Describe a franchise agreement and the terms of a franchise agreement. AACSB: Analytical thinking Classification: Concept 34) Franchisors are not permitted to disclose trade secrets and product formulas to franchisees. Answer: FALSE Diff: 1 LO: 40.3 Describe a franchise agreement and the terms of a franchise agreement. AACSB: Analytical thinking Classification: Concept

35) A royalty fee is an amount paid by the franchisor to the franchisee for the continuous use of its trademarks and maintenance of quality. Answer: FALSE Diff: 1 LO: 40.3 Describe a franchise agreement and the terms of a franchise agreement. AACSB: Analytical thinking Classification: Concept 36) In a franchise agreement, by default, the franchisor and franchisee are separate legal entities. Answer: TRUE Diff: 1 LO: 40.3 Describe a franchise agreement and the terms of a franchise agreement. AACSB: Analytical thinking Classification: Concept 37) A franchisor deals with the franchisee as an independent contractor. Answer: TRUE Diff: 1 LO: 40.3 Describe a franchise agreement and the terms of a franchise agreement. AACSB: Analytical thinking Classification: Concept 38) What are the steps a prospective franchisee must take in order to acquire a franchise? What properties are generally licensed by franchisors? Answer: A prospective franchisee must apply to the franchisor for a franchise. The franchise application often includes detailed information about the applicant's previous employment, financial and educational history, credit status, and so on. If an applicant is approved, the parties enter into a franchise agreement that sets forth the terms and conditions of the franchise. Franchise agreements do not usually have much room for negotiation. A franchisor's ability to maintain the public's perception of the quality of the goods and services associated with its trade name, trademarks, and service marks is the essence of its success. Most franchisors license the use of their trade names, trademarks, and service marks to their franchisees. Franchisors are often owners of trade secrets, including product formulas, business plans and models, and other ideas. Franchisors license and disclose many of their trade secrets to franchisees. Diff: 2 LO: 40.3 Describe a franchise agreement and the terms of a franchise agreement. AACSB: Analytical thinking Classification: Concept

39) Which of the following is true of the liabilities of a franchisor and a franchisee? A) The franchisor is not liable for any tort arising out of the franchise. B) Both franchisee and franchisor are jointly liable for torts committed by either. C) Franchisees are only liable on their own contracts. D) Franchisors are always liable for the torts of the franchisees. Answer: C Diff: 2 LO: 40.4 Identify the tort and contract liability of franchisors and franchisees. AACSB: Analytical thinking Classification: Concept 40) Ubiquitous Enterprises is a franchisee of HotPan chain of restaurants. One afternoon, Linda, an employee of a HotPan restaurant owned by the franchisee, is mopping the floor. Gary, a customer who enters the restaurant is talking on his cell phone and does not notice Linda mopping the floor. He slips on the wet floor while walking to the counter and is injured. Who among the following is liable for Gary's injuries? A) HotPan, for not providing a "Caution: Wet Floor!" sign B) Ubiquitous Enterprises, for not having its own "Caution" sign C) Linda, for not alerting Gary D) Gary, for not noticing that the floor was wet Answer: B Diff: 2 LO: 40.4 Identify the tort and contract liability of franchisors and franchisees. AACSB: Reflective thinking Classification: Application 41) Unless otherwise stated, the franchisor is liable for the torts of its franchisee. Answer: FALSE Diff: 1 LO: 40.4 Identify the tort and contract liability of franchisors and franchisees. AACSB: Analytical thinking Classification: Concept 42) The franchisor is liable for the contracts entered into and torts committed by the franchisee while the franchisee is acting within the scope of the apparent agency. Answer: TRUE Diff: 1 LO: 40.4 Identify the tort and contract liability of franchisors and franchisees. AACSB: Analytical thinking Classification: Concept

43) Explain the extent of liability of a franchisor and a franchisee with an example. Answer: If a franchise is properly organized and operated, the franchisor and franchisee are separate legal entities. Therefore, the franchisor deals with the franchisee as an independent contractor. Franchisees are liable on their own contracts and are liable for their own torts (e.g., negligence). Franchisors are liable for their own contracts and torts. Generally, neither party is liable for the contracts or torts of the other. Example—Suppose that McDonald's Corporation, a fast-food restaurant franchisor, grants a restaurant franchise to Tina Corporation. Tina Corporation opens the franchise restaurant. One day, a customer at the franchise spills a chocolate shake on the floor. The employees at the franchise fail to clean up the spilled shake, and one hour later, another customer slips on the spilled shake and suffers severe injuries. The injured customer can recover damages from the franchisee, Tina Corporation, because it was negligent. It cannot recover damages from the franchisor, McDonald's Corporation. Diff: 2 LO: 40.4 Identify the tort and contract liability of franchisors and franchisees. AACSB: Analytical thinking Classification: Concept 44) An ________ refers to an agency that arises when a franchisor creates the image that a franchisee is its agent when in fact an actual agency does not exist. A) apparent agency B) implicit agency C) agency by ratification D) implied agency Answer: A Diff: 1 LO: 40.5 Define apparent agency and explain how it applies in certain situations. AACSB: Analytical thinking Classification: Concept 45) Apparent agency arises when a franchisee creates the appearance of being a franchisor's agent when in fact an actual agency does not exist. Answer: FALSE Diff: 1 LO: 40.5 Define apparent agency and explain how it applies in certain situations. AACSB: Analytical thinking Classification: Concept 46) An apparent agency is created when a franchisor and franchisee use the same trade name and trademarks but make no effort to inform the public of their separate legal status. Answer: TRUE Diff: 1 LO: 40.5 Define apparent agency and explain how it applies in certain situations. AACSB: Analytical thinking Classification: Concept

47) Most franchise agreements permit a franchisor to terminate the franchise ________. A) at will B) after five years of franchising C) for cause D) without just cause Answer: C Diff: 1 LO: 40.6 Describe how franchising agreements can be terminated. AACSB: Analytical thinking Classification: Concept 48) My-Wear Inc. is an apparel retailer based in San Francisco. It operates through a franchise named KL Apparels in Santa Clara. After about six years of operation, My-Wear Inc. cancelled the franchise with KL Apparels without any notification. The franchise period specified in the contract had not expired and the franchisee had met all standards stated by the franchisor. This constitutes a ________. A) termination at will B) termination for cause C) contractual termination D) suspension by franchisor Answer: A Diff: 2 LO: 40.6 Describe how franchising agreements can be terminated. AACSB: Reflective thinking Classification: Application 49) Which of the following is true of a franchise that was terminated-at-will by a franchisor? A) The franchisee can only recover damages. B) The franchisor cannot be held liable for a termination-at-will. C) The franchisee cannot apply for a franchisee again in the same field of business. D) The franchisee can sue to recover damages and the franchise. Answer: D Diff: 2 LO: 40.6 Describe how franchising agreements can be terminated. AACSB: Analytical thinking Classification: Concept 50) A franchisor is not permitted to terminate a franchise for any reason. Answer: FALSE Diff: 1 LO: 40.6 Describe how franchising agreements can be terminated. AACSB: Analytical thinking Classification: Concept

51) A single failure by a franchisee to meet a quality-control standard is sufficient cause for termination. Answer: FALSE Diff: 1 LO: 40.6 Describe how franchising agreements can be terminated. AACSB: Analytical thinking Classification: Concept 52) Termination-at-will clauses in franchise agreements are generally held to be void. Answer: TRUE Diff: 1 LO: 40.6 Describe how franchising agreements can be terminated. AACSB: Analytical thinking Classification: Concept 53) The termination-at-will clause allows franchisees to sue a franchisor in case of an unjust termination of franchise. Answer: FALSE Diff: 1 LO: 40.6 Describe how franchising agreements can be terminated. AACSB: Analytical thinking Classification: Concept 54) A franchisee subject to wrongful termination can only recover damages, and not the franchise. Answer: FALSE Diff: 1 LO: 40.6 Describe how franchising agreements can be terminated. AACSB: Analytical thinking Classification: Concept 55) When is a franchisor allowed to terminate a franchise? Why are termination-at-will clauses generally held to be void? Answer: Most franchise agreements permit a franchisor to terminate the franchise for cause. For example, the continued failure of a franchisee to pay franchise fees or meet legitimate qualitycontrol standards would be deemed just cause. However, unreasonably strict application of a just cause termination clause constitutes wrongful termination. A single failure to meet a qualitycontrol standard, for example, is not cause for termination. Termination-at-will clauses in franchise agreements are generally held to be void on the grounds that they are unconscionable. The rationale for this position is that the franchisee has spent time, money, and effort developing the franchise. If a franchise is terminated without just cause, the franchisee can sue the franchisor for wrongful termination. The franchisee can recover damages caused by the unlawful termination and recover the franchise. Diff: 2 LO: 40.6 Describe how franchising agreements can be terminated. AACSB: Analytical thinking Classification: Concept 14 Copyright © 2019 Pearson Education, Inc.

56) Which of the following is true of a franchise agreement? A) A franchise application is not necessary to qualify for entering into a franchise agreement. B) The Uniform Franchise Offering Circular (UFOC) sets forth the terms and conditions of the franchise agreement. C) The terms and conditions of the franchise agreement must always be first drawn by the franchisee. D) A franchisee can only obtain a license to use the franchisor's intellectual property after entering into a franchise agreement. Answer: D Diff: 2 LO: 40.7 Define licensing and describe how trademarks and intellectual property are licensed. AACSB: Analytical thinking Classification: Concept 57) A(n) ________ is an amount paid by the franchisee to the franchisor for the continued use of the franchisor's trade name, property, and assistance that is often computed as a percentage of the franchisee's gross sales. A) royalty fee B) assessment fee C) lease fee D) contingency fee Answer: A Diff: 1 LO: 40.7 Define licensing and describe how trademarks and intellectual property are licensed. AACSB: Analytical thinking Classification: Concept 58) Which of the following types of clauses, in a franchise agreement, provides that any claim or controversy arising from the franchise agreement or an alleged breach thereof will be settled outside the courts? A) reserve clause B) arbitration clause C) integration clause D) covenant not to compete Answer: B Diff: 1 LO: 40.7 Define licensing and describe how trademarks and intellectual property are licensed. AACSB: Analytical thinking Classification: Concept

59) ________ is a business arrangement that occurs when the owner of intellectual property contracts to permit another party to use the intellectual property. A) General partnership B) Leasing C) Licensing D) Joint venturing Answer: C Diff: 1 LO: 40.7 Define licensing and describe how trademarks and intellectual property are licensed. AACSB: Analytical thinking Classification: Concept 60) The party who grants a license is known as the ________. A) licensee B) licensor C) grantee D) grantor Answer: B Diff: 1 LO: 40.7 Define licensing and describe how trademarks and intellectual property are licensed. AACSB: Analytical thinking Classification: Concept 61) Which of the following mandatorily requires a license to be operational and legal? A) a general partnership B) a conglomerate C) a joint venture D) a franchise Answer: D Diff: 1 LO: 40.7 Define licensing and describe how trademarks and intellectual property are licensed. AACSB: Analytical thinking Classification: Concept 62) The party to whom a license is granted is known as the ________. A) licensee B) licensor C) grantee D) grantor Answer: A Diff: 1 LO: 40.7 Define licensing and describe how trademarks and intellectual property are licensed. AACSB: Analytical thinking Classification: Concept

63) YouKnow Inc. is a corporation that creates educational resources. It grants Middlewest Public School the right to exclusively use its online encyclopedias for three years, for a fee. In this arrangement, YouKnow Inc. is the ________. A) donor B) trustee C) grantor D) licensor Answer: D Diff: 2 LO: 40.7 Define licensing and describe how trademarks and intellectual property are licensed. AACSB: Application of knowledge Classification: Application 64) Intrepid Creations is a product design institute which provides educational courses in package design. It manages to acquire the right to use simulation software from Marco Software for a payment of $2,000 a year. There is no clause of expiration on this arrangement and the right to access the software is renewed annually. Which of the following kinds of business arrangements does the aforementioned scenario indicate? A) a licensing arrangement B) a general partnership C) a limited partnership D) a franchise Answer: A Diff: 2 LO: 40.7 Define licensing and describe how trademarks and intellectual property are licensed. AACSB: Reflective thinking Classification: Application 65) Licensing refers to a business arrangement that occurs when the owner of intellectual property contracts to permit another party to use the intellectual property. Answer: TRUE Diff: 1 LO: 40.7 Define licensing and describe how trademarks and intellectual property are licensed. AACSB: Analytical thinking Classification: Concept 66) A franchise is an example of a license. Answer: TRUE Diff: 1 LO: 40.7 Define licensing and describe how trademarks and intellectual property are licensed. AACSB: Analytical thinking Classification: Concept

67) A ________ is an arrangement in which two or more business entities combine their resources to pursue a single project or transaction. A) limited partnership B) license agreement C) joint venture D) franchise Answer: C Diff: 1 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 68) Which of the following resembles a joint venture? A) a conglomerate B) a merged company C) a franchise D) a partnership Answer: D Diff: 1 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 69) Which of the following is true of a joint venture? A) The parties to a joint venture are considered limited partners. B) Both parties to a joint venture have equal rights to manage the venture. C) A joint venture is a partnership that lasts for multiple projects. D) Parties to a joint venture are exempt from fiduciary duties to each other. Answer: B Diff: 2 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 70) Concreate Development requires architects to design its latest venture–a 64-story skyscraper. It makes a business arrangement with Excellent Architecture and acquires four architects on contract for the ongoing project. This is an instance of a ________. A) licensing arrangement B) franchise C) limited partnership D) joint venture Answer: D Diff: 2 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Application of knowledge Classification: Application 18 Copyright © 2019 Pearson Education, Inc.

71) Which of the following is true of a joint venture corporation? A) The joint venturers are personally liable for debts of the joint venture corporation. B) Joint venturers do not owe each other fiduciary duties as a venture is a single business transaction. C) The management rights of joint venturers in a joint venture are divided in ratio of their capital investment. D) Each joint venture is liable for the debts and obligations of the joint venture. Answer: D Diff: 2 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 72) A joint venture is an arrangement in which two or more business entities combine their resources to pursue an ongoing business operation. Answer: FALSE Diff: 1 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 73) A joint venture resembles a conglomeration, with a parent company and subsidiaries. Answer: FALSE Diff: 1 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 74) Joint venturers generally have equal rights to manage a joint venture. Answer: TRUE Diff: 1 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 75) Joint venturers do not owe each other fiduciary duties of loyalty and care as they are not bound by a contract. Answer: FALSE Diff: 1 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept

76) A joint venturer is not personally liable for the debts and obligations of the joint venture partnership. Answer: FALSE Diff: 1 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 77) A joint venture is generally an implied contract that lasts until a party disassociates at will. Answer: FALSE Diff: 1 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 78) Joint venturers are permitted to create a corporation that operates the joint venture. Answer: TRUE Diff: 1 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 79) Explain the concept of joint venture as a business arrangement in brief. Answer: A joint venture is an arrangement in which two or more business entities combine their resources to pursue a single project or transaction. The parties to a joint venture are called joint venturers. Joint ventures resemble partnerships, except that partnerships are usually formed to pursue ongoing business operations rather than to focus on a single project or transaction. Unless otherwise agreed, joint venturers have equal rights to manage a joint venture. Joint venturers owe each other the fiduciary duties of loyalty and care. If a joint venturer violates these duties, it is liable for the damages the breach causes. Diff: 2 LO: 40.8 Define joint ventures and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 80) A ________ refers to an arrangement between two or more companies whereby they agree to ally themselves and work together to accomplish a designated objective. A) limited partnership B) strategic alliance C) joint venture D) franchise Answer: B Diff: 1 LO: 40.9 Define strategic alliances and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 20 Copyright © 2019 Pearson Education, Inc.

81) JK Developers and KL Designs, who are experts in architectural engineering, form a business agreement whereby they agree to work together for two years in order to complete the design of a planetarium. This is an example of a ________. A) franchise B) licensing agreement C) strategic alliance D) limited partnership Answer: C Diff: 2 LO: 40.9 Define strategic alliances and describe how they are used in business. AACSB: Application of knowledge Classification: Application 82) Which of the following is true of a strategic alliance? A) Strategic alliances cannot have more than two entities. B) Strategic alliances cannot be formed between fellow competitors. C) Strategic alliances are usually formed to accomplish multiple business ventures. D) Strategic alliances do not provide the same protection and stability as mergers. Answer: D Diff: 1 LO: 40.9 Define strategic alliances and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 83) A strategic alliance is an arrangement between two or more companies whereby they agree to ally themselves and work together to accomplish a designated objective. Answer: TRUE Diff: 1 LO: 40.9 Define strategic alliances and describe how they are used in business. AACSB: Analytical thinking Classification: Concept 84) Partners to a strategic alliance can be potential competitors to each other. Answer: TRUE Diff: 1 LO: 40.9 Define strategic alliances and describe how they are used in business. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 41 Investor Protection and E-Securities Transactions 1) The ________ is a federal statute that primarily regulates the issuance of securities by companies and other businesses. A) Securities Act of 1933 B) Securities Exchange Act of 1934 C) Sarbanes-Oxley Act of 2002 D) Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Answer: A Diff: 1 LO: 41.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 2) The ________ is a federal statute primarily designed to prevent fraud in the trading of securities after they are issued. A) Securities Act of 1933 B) Securities Exchange Act of 1934 C) Sarbanes-Oxley Act of 2002 D) Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Answer: B Diff: 1 LO: 41.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 3) Which of the following is regulated by the Securities Act of 1933? A) fraud in the purchase and sale of securities B) hedge funds and derivatives C) reporting to the investors D) the issuance of securities online Answer: D Diff: 2 LO: 41.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 4) Continuous reporting to investors and the SEC is a requirement imposed by the Securities Act of 1933. Answer: FALSE Diff: 1 LO: 41.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept

5) The Securities Act of 1933 regulates the purchase and sale of securities online. Answer: FALSE Diff: 1 LO: 41.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 6) The Jumpstart our Business Startups Act (JOBS Act) was enacted in 2012 ________. A) as a section of the Securities Act of 1933 B) as a section of the Securities Exchange Act of 1934 C) by Congress D) by the Dodd-Frank Wall Street Reform and Consumer Protection Act Answer: C Diff: 2 LO: 41.2 Describe the Jumpstart Our Business Startups Act (JOBS Act) and its effect on raising capital. AACSB: Analytical thinking Classification: Concept 7) The purpose of the JOBS Act is to make it more challenging (and thus, more highly regulated) for start-up companies to raise capital through IPOs. Answer: FALSE Diff: 1 LO: 41.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 8) A "whistleblower bounty program" allows a person who provides information that leads to a successful SEC action to recover 10 percent to 30 percent of the monetary sanctions over $1 million recovered by the SEC. Answer: TRUE Diff: 1 LO: 41.3 Describe the Securities and Exchange Commission and its authority over securities markets. AACSB: Analytical thinking Classification: Concept 9) The SEC is concerned with regulating issues and trading of securities alone and cannot regulate the activities of securities brokers and advisors. Answer: FALSE Diff: 1 LO: 41.3 Describe the Securities and Exchange Commission and its authority over securities markets. AACSB: Analytical thinking Classification: Concept

10) Which of the following has the largest trading volume of any securities exchange in the world? A) NYSE B) Euronext C) NASDAQ D) London Stock Exchange Answer: C Diff: 1 LO: 41.4 Describe e-securities transactions. AACSB: Analytical thinking Classification: Concept 11) The electronic data and record system of the Securities and Exchange Commission is known as ________. A) EDGAR B) NASDAQ C) MICEX D) SPSE Answer: A Diff: 1 LO: 41.4 Describe e-securities transactions. AACSB: Analytical thinking Classification: Concept 12) Which of the following is classified under "common securities"? A) real estate B) bullion C) debenture D) bank deposit Answer: C Diff: 1 LO: 41.5 Define security. AACSB: Analytical thinking Classification: Concept 13) Interests or instruments that are expressly mentioned in securities acts are known as ________. A) common securities B) implicit securities C) investment contracts D) statutorily defined securities Answer: D Diff: 1 LO: 41.5 Define security. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

14) Interests in oil, gas, and mineral rights are classified as ________. A) statutorily defined securities B) implicit securities C) investment contracts D) common securities Answer: A Diff: 1 LO: 41.5 Define security. AACSB: Analytical thinking Classification: Concept 15) A(n) ________ is a flexible standard for defining a security. A) red herring prospectus B) investment contract C) certificate of interest D) debenture Answer: B Diff: 1 LO: 41.5 Define security. AACSB: Analytical thinking Classification: Concept 16) The courts apply the ________ in determining whether an arrangement is an investment contract. A) Howey test B) misappropriation theory C) strict scrutiny test D) intermediate test Answer: A Diff: 1 LO: 41.5 Define security. AACSB: Analytical thinking Classification: Concept 17) An investment contract is a flexible standard for defining a security. Answer: TRUE Diff: 1 LO: 41.5 Define security. AACSB: Analytical thinking Classification: Concept 18) The Howey test is used to determine if an arrangement is an investment contract. Answer: TRUE Diff: 1 LO: 41.5 Define security. AACSB: Analytical thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

19) Interests in oil, gas, and mineral rights are considered statutorily defined securities. Answer: TRUE Diff: 1 LO: 41.5 Define security. AACSB: Analytical thinking Classification: Concept 20) A(n) ________ refers to a document that an issuer of securities files with the SEC that contains required information about the issuer, the securities to be issued, and other relevant information. A) article of organization B) operating statement C) registration statement D) certificate of interest Answer: C Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 21) ________ requires securities offered to the public through the use of the mails or any facility of interstate commerce to be registered with the SEC by means of a registration statement and an accompanying prospectus. A) Section 24 of the Securities Act of 1933 B) Section 12 of the Securities Act of 1933 C) Section 5 of the Securities Act of 1933 D) SEC Rule 506 Answer: C Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 22) Which of the following best defines an initial public offering? A) the issuance of an offering statement to the public prior to purchase B) the filing of a registration statement by an issuer C) the disclosure document released for public scrutiny D) the sale of securities by an issuer to the public Answer: D Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

23) Which of the following must be included in the registration statement? A) judgments passed by the SEC on the merits of the securities offered B) how proceeds from the offering will be used C) date of termination of the initial public offering D) maximum number of times a share can be sold post issue Answer: B Diff: 2 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 24) Utilities Inc. decided to go public with an initial public offering. It sold securities, some of which were bought by James Jefferson. Six months later, James sold the shares he had purchased to Martha Graham and Mark Franco. Two years later, James bought back these shares from Martha and Mark and made a profit out of both transactions. Who is the issuer in this scenario? A) Utilities Inc. B) James Jefferson C) Martha Graham D) Mark Franco Answer: A Diff: 2 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Application of knowledge Classification: Application 25) Which of the following is true of registration statements? A) They must be accompanied by financial statements certified by certified public accountants. B) Once submitted, they cannot be amended. C) The SEC judges the merits of the securities based on the registration statement. D) They need not reveal how a company plans on using the proceeds from the offering. Answer: A Diff: 2 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept

26) A(n) ________ is submitted along with the registration statement to the SEC and also used as a selling tool to help prospective investors evaluate the financial risk of an investment. A) organization document B) certificate of interest C) prospectus D) operation agreement Answer: C Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 27) The Securities Act of 1933 is a federal statute that primarily regulates the issue of securities by companies and other businesses. Answer: TRUE Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 28) Section 5 of the Securities Act of 1933 requires an issuer to register its securities with the SEC prior to selling them to the public. Answer: TRUE Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 29) The sale of securities by an issuer to the public is known as an initial public offering. Answer: TRUE Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 30) Only an established company is permitted to sell new securities to the public. Answer: FALSE Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

31) A registration statement need not contain details on how the proceeds from the offering will be used. Answer: FALSE Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 32) During the review of a registration statement, the SEC does not pass judgment on the merits of the securities offered. Answer: TRUE Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 33) A prospectus is a written disclosure provided with the registration statement that helps the SEC to evaluate the financial risk of an investment. Answer: FALSE Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 34) Investors who purchased unregistered securities can rescind their purchase but not recover damages. Answer: FALSE Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 35) A registration form, Form S-1 is normally prepared by a company's founder. Answer: FALSE Diff: 1 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept

36) How does a company sell its shares to the public for the first time? Explain the contents of a registration statement. Answer: The issuance of securities by an issuer is called an initial public offering (IPO). A business or party selling securities to the public is called an issuer. An issuer may be a new company that is selling securities to the public for the first time. This is referred to as "going public." Or the issuer may be an established company that sells a new security to the public. Many issuers of securities employ investment bankers, which are independent securities companies, to sell their securities to the public. A registration statement must contain descriptions of (a) the securities being offered for sale; (b) the registrant's business; (c) the management of the registrant, including compensation, stock options and benefits, and material transactions with the registrant; (d) pending litigation; (e) how the proceeds from the offering will be used; (f) government regulation; (g) the degree of competition in the industry; and (h) any special risk factors. Diff: 2 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 37) Scissorwire Inc. sells shares of its stock to the public, with each share valued at $16. After a year, the company incurs a loss and the price of each share drops to $5. The company reveals that it had deliberately not registered with the SEC before going public and that it has no money to pay the investors. Which of the following holds well in this context? A) Scissorwire Inc. can register with the SEC at any point after the dip in shares. B) The U.S. government can file a criminal lawsuit against Scissorwire Inc. to seek criminal penalties. C) The investors have been negligent in not verifying registration before purchase of shares and cannot rescind their purchase. D) Scissorwire Inc. is liable for the violation of the Securities Exchange Act of 1934. Answer: B Diff: 2 LO: 41.6 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Reflective thinking Classification: Synthesis

38) ________ created a new category of issuer under federal securities laws called the emerging growth company. A) SEC Rule 506 B) NASDA C) Section 5 of the Securities Act of 1934 D) The JOBS Act Answer: D Diff: 2 LO: 41.7 Define an emerging growth company and describe the requirements for issuing securities as such. AACSB: Analytical thinking Classification: Concept 39) A confidential draft registration statement is a public filing to initiate an IPO. Answer: FALSE Diff: 1 LO: 41.7 Define an emerging growth company and describe the requirements for issuing securities as such. AACSB: Analytical thinking Classification: Concept 40) ________ permits issuers to sell up to $5 million of securities to the public during a 12month period, pursuant to a simplified registration with the SEC. A) SEC Rule 506 B) Section 12 of the Securities Act of 1933 C) Section 5 of the Securities Act of 1934 D) Regulation A+ Answer: D Diff: 1 LO: 41.8 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept 41) Which of the following is true of a Regulation A+ offering? A) It imposes resale restrictions on the securities it offers. B) It necessitates the issuers to prepare a registration statement for offers exceeding $100,000. C) It requires the maximum disclosure of information to investors at the time of the issuance of the securities. D) It mandates that an offering circular be provided to the investors prior to the purchase of securities. Answer: D Diff: 2 LO: 41.8 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept

42) According to Regulation A+, securities of up to $5 million can only be sold to accredited investors. Answer: FALSE Diff: 1 LO: 41.8 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept 43) Regulation A+ offerings can be sold without registration with the SEC only if an offering statement is provided prior to the purchase of the securities. Answer: FALSE Diff: 1 LO: 41.8 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept 44) An offering circular requires less disclosure compared to a registration statement. Answer: TRUE Diff: 1 LO: 41.8 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept 45) An offering circular must be provided to the investors immediately after the purchase of a Regulation A+ offering. Answer: FALSE Diff: 1 LO: 41.8 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept 46) Tier 1 of Regulation A+ permits an issuer to raise up to $10 in a 6-month period. Answer: FALSE Diff: 1 LO: 41.8 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept

47) Small businesses can file ________ with the SEC if they plan on raising $1 million or less from the public issue of securities. A) Form U-7 B) a registration statement C) an operation agreement D) a certificate of interest Answer: A Diff: 1 LO: 41.9 Describe the requirements that must be met to issue securities using a small company offering registration. AACSB: Analytical thinking Classification: Concept 48) Which of the following is true of Small Company Offering Registration (SCOR) forms? A) SCOR forms can only be used for raising more than $1 million through sale of securities. B) SCOR forms are available to both domestic and foreign companies. C) SCOR forms that have been completed act as the offering circular for potential investors. D) SCOR forms have to be completed by the issuee before purchasing securities. Answer: C Diff: 1 LO: 41.9 Describe the requirements that must be met to issue securities using a small company offering registration. AACSB: Analytical thinking Classification: Concept 49) An issuer who plans on raising $1 million or less from the public must answer the questions on Form U-7, which then becomes the offering circular that must be given to prospective investors. Answer: TRUE Diff: 1 LO: 41.9 Describe the requirements that must be met to issue securities using a small company offering registration. AACSB: Analytical thinking Classification: Concept 50) A WKSI is an SEC category of issuer. Answer: TRUE Diff: 1 LO: 41.10 Define a well-known seasoned investor and describe how securities can be issued pursuant to a shelf registration. AACSB: Analytical thinking Classification: Concept

51) Which of the following is true about crowdfunding? A) Non-U.S. companies can use crowdfunding. B) It can be used by companies that do not want to meet the requirements of issuing securities required by U.S. law. C) The SEC created the crowdfunding platform. D) Congress, in 2012, created crowdfunding regulations. Answer: B Diff: 2 LO: 41.11 Define crowdfunding and describe how capital is raised using crowdfunding. AACSB: Analytical thinking Classification: Concept 52) Kickstarter and EquityNet are crowdfunding sites. Answer: TRUE Diff: 1 LO: 41.11 Define crowdfunding and describe how capital is raised using crowdfunding. AACSB: Analytical thinking Classification: Concept 53) ________ is a provision of the Securities Act of 1933 that imposes civil liability on persons who intentionally defraud investors by making misrepresentations or omissions of material facts in the registration statement. A) Section 24 of the Securities Act of 1933 B) Section 12 of the Securities Act of 1933 C) Section 11 of the Securities Act of 1933 D) SEC Rule 506 Answer: C Diff: 1 LO: 41.12 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept 54) Which of the following is true of Section 11 of the Securities Act of 1933? A) It permits injured private parties to bring criminal action against fraudulent registration statements filed by issuers. B) It imposes liability on those who are negligent in not discovering the fraud. C) It allows an issuer to assert a due diligence defense against the imposition of Section 11 liability. D) It cannot be imposed on cases involving negligent omission of a material fact in a registration statement. Answer: B Diff: 2 LO: 41.12 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept

55) Which of the following is true of Section 24 of the Securities Act of 1933? A) It imposes civil liability on any person who violates the provisions of Section 5 of the act. B) It imposes criminal liability on any person who willfully violates the 1933 act or the rules or regulations adopted. C) It imposes civil liability on persons who intentionally defraud investors by making misrepresentations of material facts in the registration statement. D) It exclusively regulates the sale of securities online. Answer: B Diff: 1 LO: 41.12 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept 56) Civil liability under Section 11 is imposed on issuers who are negligent in not discovering the fraud in their security offerings. Answer: TRUE Diff: 1 LO: 41.12 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept 57) An issuer is permitted to assert a due diligence defense against the imposition of Section 11 liability. Answer: FALSE Diff: 1 LO: 41.12 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept 58) Defendants cannot assert a due diligence defense against liabilities arising from the violation of Section 11 of the Securities Act of 1933. Answer: FALSE Diff: 1 LO: 41.12 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept 59) Section 12 of the Securities Act of 1933 provides purchasers who have been injured by securities pursuant to an unwarranted exemption to rescind the securities purchase. Answer: TRUE Diff: 1 LO: 41.12 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept

60) Which of the following is true of exempt securities? A) Only the federal government can issue exempt securities. B) Once a security is exempt, it is exempt forever. C) An exemption notice must be filed with SEC every time the exempt security is transferred. D) Exempt securities cannot be traded publicly. Answer: B Diff: 2 LO: 41.13 List and describe the securities that are exempt from registration. AACSB: Analytical thinking Classification: Concept 61) Which of the following is an example of exempt securities? A) stock dividends and stock splits B) IPOs made by multinational corporations C) securities that have been held by a single investor for longer than a year D) securities worth $1 million or more Answer: A Diff: 1 LO: 41.13 List and describe the securities that are exempt from registration. AACSB: Analytical thinking Classification: Concept 62) Drafts that have a maturity date of six months are exempt from registration with the SEC. Answer: TRUE Diff: 1 LO: 41.13 List and describe the securities that are exempt from registration. AACSB: Analytical thinking Classification: Concept 63) List the securities exempt from registration with the SEC. Answer: Certain securities are exempt from registration with the SEC. They include: a. Securities issued by any government in the United States. b. Short-term notes and drafts that have a maturity date that does not exceed nine months. c. Securities issued by nonprofit issuers, such as religious institutions, charitable institutions, and colleges and universities. d. Securities of financial institutions that are regulated by the appropriate banking authorities. e. Insurance and annuity contracts issued by insurance companies. f. Stock dividends and stock splits. g. Securities issued in a corporate reorganization in which one security is exchanged for another security. Diff: 2 LO: 41.13 List and describe the securities that are exempt from registration. AACSB: Analytical thinking Classification: Concept

64) A(n) ________ is an exemption from registration which states that securities transactions not made by an issuer, an underwriter, or a dealer do not have to be registered with the SEC. A) intrastate offering exemption B) private placement exemption C) regulation A+ offering D) nonissuer exemption Answer: D Diff: 1 LO: 41.14 List and describe offerings exempt from registration such as the private placement, intrastate, and small offering transactions. AACSB: Analytical thinking Classification: Concept 65) A(n) ________ is an exemption from registration that permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the SEC. A) intrastate offering exemption B) regulation A+ offering C) private placement exemption D) nonissuer exemption Answer: A Diff: 1 LO: 41.14 List and describe offerings exempt from registration such as the private placement, intrastate, and small offering transactions. AACSB: Analytical thinking Classification: Concept 66) SEC Rule 506 is known as the ________. A) nonissuer exemption B) intrastate offering exemption C) private placement exemption D) interstate offering exemption Answer: C Diff: 1 LO: 41.14 List and describe offerings exempt from registration such as the private placement, intrastate, and small offering transactions. AACSB: Analytical thinking Classification: Concept

67) Which of the following is true of the small offering exemption? A) Securities coming under this exemption cannot be advertised to the public. B) Securities coming under this exemption can only be sold to accredited investors. C) Securities coming under this exemption can only be bought by nonaccredited investors. D) Securities coming under this exemption have no resale restrictions imposed on them. Answer: A Diff: 1 LO: 41.14 List and describe offerings exempt from registration such as the private placement, intrastate, and small offering transactions. AACSB: Analytical thinking Classification: Concept 68) The nonissuer exemption permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the SEC. Answer: FALSE Diff: 1 LO: 41.14 List and describe offerings exempt from registration such as the private placement, intrastate, and small offering transactions. AACSB: Analytical thinking Classification: Concept 69) An accredited investor is defined as a person who does not understand the risks involved in securities investment and will suffer considerable financial damage if the investment fails. Answer: FALSE Diff: 1 LO: 41.14 List and describe offerings exempt from registration such as the private placement, intrastate, and small offering transactions. AACSB: Analytical thinking Classification: Concept 70) Distinguish between nonissuer exemption, intrastate offering exemption, and private placement exemption. Answer: Nonissuer exemption refers to an exemption from registration which states that securities transactions not made by an issuer, an underwriter, or a dealer do not have to be registered with the SEC. Intrastate offering exemption is an exemption from registration that permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the SEC. Private placement exemption is an exemption from registration that permits issuers to raise capital from an unlimited number of accredited investors and no more than thirty-five nonaccredited investors without having to register the offering with the SEC. Diff: 2 LO: 41.14 List and describe offerings exempt from registration such as the private placement, intrastate, and small offering transactions. AACSB: Analytical thinking Classification: Concept

71) Which of the following is enough to prove a violation of Section 10(b) and Rule 10b-5? A) nonexemption status B) scienter C) aiding and abetting D) negligent conduct Answer: B Diff: 1 LO: 41.15 Describe how trading in securities is regulated by federal securities laws. AACSB: Analytical thinking Classification: Concept 72) The ________ is a federal statute that permits the SEC to obtain a civil penalty of up to three times the illegal benefits received from insider trading. A) Securities Act B) Securities Exchange Act C) Insider Trading Sanctions Act D) SEC Rule 506 Answer: C Diff: 1 LO: 41.15 Describe how trading in securities is regulated by federal securities laws. AACSB: Analytical thinking Classification: Concept 73) Section 10(b) of the Securities Exchange Act prohibits the use of manipulative and deceptive devices in contravention of the rules and regulations prescribed by the SEC. Answer: TRUE Diff: 1 LO: 41.15 Describe how trading in securities is regulated by federal securities laws. AACSB: Analytical thinking Classification: Concept 74) In order to be found guilty for violation of Rule 10b-5, intentional conduct (scienter) must be proven. Answer: TRUE Diff: 1 LO: 41.15 Describe how trading in securities is regulated by federal securities laws. AACSB: Analytical thinking Classification: Concept

75) Which of the following constitutes insider trading? A) an employee makes a profit by personally purchasing shares of the corporation prior to public release of favorable information B) a manager purchases all shares of a corporation available to the public C) a director purchases enough shares of a public company to gain a majority stake in its management D) an employee sells his shares of the company to another employee without notice to the company Answer: A Diff: 2 LO: 41.16 Define insider trading and describe when this trading violates federal securities laws. AACSB: Analytical thinking Classification: Concept 76) It is legal for a company employee to make a profit by personally purchasing shares of the corporation prior to public release of favorable information. Answer: FALSE Diff: 1 LO: 41.16 Define insider trading and describe when this trading violates federal securities laws. AACSB: Analytical thinking Classification: Concept 77) What is insider trading? How is it regulated in the United States? Answer: Insider trading occurs when a company employee or company advisor uses material nonpublic information to make a profit by trading in the securities of the company. This practice is considered illegal because it allows insiders to take advantage of the investing public. In 1984, Congress enacted the Insider Trading Sanctions Act which permits the SEC to obtain a civil penalty of up to three times the illegal profits gained or losses avoided on insider trading. The fine is payable to the U.S. Treasury. Under the Sarbanes-Oxley Act, the SEC may issue an order prohibiting any person who has committed securities fraud from acting as an officer or a director of a public company. Diff: 2 LO: 41.16 Define insider trading and describe when this trading violates federal securities laws. AACSB: Analytical thinking Classification: Concept 78) A(n) ________ is a person who discloses material nonpublic information to another person. A) issuer B) tippee C) grantor D) tipper Answer: D Diff: 1 LO: 41.17 Define tipper-tippee trading and describe when this trading violates securities laws. AACSB: Analytical thinking Classification: Concept 19 Copyright © 2019 Pearson Education, Inc.

79) The ________ imposes liability under Section 10(b) and Rule 10b-5 on an outsider who misappropriates information about a company, in violation of his or her fiduciary duty, and then trades in the securities of that company. A) Insider Trading Sanctions Act B) Sarbanes-Oxley Act C) tort of appropriation D) misappropriation theory Answer: D Diff: 1 LO: 41.17 Define tipper-tippee trading and describe when this trading violates securities laws. AACSB: Analytical thinking Classification: Concept 80) A tipper cannot be held liable for the profits made by the tippee. Answer: FALSE Diff: 1 LO: 41.17 Define tipper-tippee trading and describe when this trading violates securities laws. AACSB: Analytical thinking Classification: Concept 81) Which of the following best defines short-swing profits? A) profits that are made by an insider by selling shares of the corporation prior to the public disclosure of unfavorable information B) profits that are made by an insider by personally purchasing shares of the corporation prior to public release of favorable information C) profits that are made by a statutory insider on trades involving equity securities of their corporation that occur within six months of each other D) profits that are made by a tippee by personally purchasing shares of the corporation prior to or post public release of favorable information Answer: C Diff: 2 LO: 41.18 Describe short-swing profit transactions that violate securities laws. AACSB: Analytical thinking Classification: Concept 82) Who among the following is considered a statutory insider? A) Sharon Muller, an editor who was tipped by her friend to buy shares of KYU Corp. B) Robert Morgan, a government employee who owns 10 percent of all equity security of KYU Corp. C) Jim Downey, a graphics engineer who quit KYU Corp. after five years of service D) Kate Harris, a legal consultant to KYU Corp. Answer: B Diff: 2 LO: 41.18 Describe short-swing profit transactions that violate securities laws. AACSB: Application of knowledge Classification: Application 20 Copyright © 2019 Pearson Education, Inc.

83) ________ requires that any profits made by a statutory insider on transactions involving short-swing profits belong to the corporation. A) Section 5 of the Securities Act of 1933 B) Section 12 of the Securities Act of 1933 C) Section 16(b) of the Securities Exchange Act of 1934 D) SEC Rule 10b-5 Answer: C Diff: 1 LO: 41.18 Describe short-swing profit transactions that violate securities laws. AACSB: Analytical thinking Classification: Concept 84) A 10 percent shareholder of an equity security of a reporting company is considered a statutory insider. Answer: TRUE Diff: 1 LO: 41.18 Describe short-swing profit transactions that violate securities laws. AACSB: Analytical thinking Classification: Concept 85) How does Section 16(b) of the Securities Exchange Act of 1934 protect the interests of a corporation? Explain with an example. Answer: Section 16(b) of the Securities Exchange Act of 1934 requires that any profits made by a statutory insider on transactions involving short-swing profits–that is, trades involving equity securities occurring within six months of each other–belong to the corporation. The corporation may bring a legal action to recover these profits. Involuntary transactions, such as forced redemption of securities by the corporation or an exchange of securities in a bankruptcy proceeding, are exempt. Section 16(b) is a strict liability provision. Generally, no defenses are recognized. Neither intent nor the possession of inside information need be shown. Example—Rosanne is the president of a corporation and a statutory insider who does not possess any inside information. On February 1, she purchases one thousand shares of her employer's stock at $10 per share. On June 1, she sells the stock for $14 per share. The corporation can recover the $4,000 profit because the trades occurred within six months of each other. Diff: 3 LO: 41.18 Describe short-swing profit transactions that violate securities laws. AACSB: Analytical thinking Classification: Concept

86) State securities laws are often referred to as ________. A) Howey laws B) blue-sky laws C) short-swing laws D) tipper laws Answer: B Diff: 1 LO: 41.19 Describe how state laws regulate securities transactions. AACSB: Analytical thinking Classification: Concept 87) The ________ coordinates state securities laws with federal securities laws. A) Insider Trading Sanctions Act B) Securities Act of 1934 C) Securities Act of 1933 D) Uniform Securities Act Answer: D Diff: 1 LO: 41.19 Describe how state laws regulate securities transactions. AACSB: Analytical thinking Classification: Concept 88) "Blue-sky" laws are state laws that regulate the issuance and trading of securities. Answer: TRUE Diff: 1 LO: 41.19 Describe how state laws regulate securities transactions. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 42 Ethics and Social Responsibility of Business 1) ________ is a set of moral principles or values that governs the conduct of an individual or a group. A) Rationality B) Evolution C) Ethics D) Reason Answer: C Diff: 1 LO: 42.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 2) Which of the following cases describes an agreement of ethics and laws? A) a company outsourcing its jobs to a foreign country B) a person being penalized for bribing a judge to give the verdict in the person's favor C) a company not spending more money to keep its emission rates below the legal standard D) a person hiring an illegal alien worker belonging to a destitute family Answer: B Diff: 2 LO: 42.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 3) ________ Act is a federal statute that permits private parties to sue companies for fraud on behalf of the government and share in any monetary recovery. A) Business Norms B) Sarbanes-Oxley C) Glass-Steagall D) False Claims Answer: D Diff: 1 LO: 42.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 4) All laws are framed to meet the highest ethical standards. Answer: FALSE Diff: 1 LO: 42.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept

5) Ethics refers to a set of principles laid down by the society which an individual is expected to follow. Answer: FALSE Diff: 1 LO: 42.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 6) An ethically wrong state or condition can still be legal. Answer: TRUE Diff: 1 LO: 42.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 7) In some situations, the law may permit an act that is ethically wrong. Answer: TRUE Diff: 1 LO: 42.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 8) It is never the case that a law may say "no" about a situation, but ethics may say "yes." Answer: FALSE Diff: 1 LO: 42.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 9) Give an account of the relationship between ethics and law. Answer: Ethics and the law are intertwined. Although much of the law is based on ethical standards, not all ethical standards have been enacted as law. The law establishes a minimum degree of conduct expected by persons and businesses in society. Ethics demands more. Sometimes the rule of law and the rule of ethics demand the same response by a person confronted with a problem. However, in some situations, the law may permit an act that is ethically wrong. Another situation occurs where the law demands certain conduct but a person's ethical standards are contrary. Diff: 1 LO: 42.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept

10) The Whistle-blower Statute is also known as the ________. A) Sarbanes-Oxley Act B) Business Norms Act C) False Claims Act D) Glass-Steagall Act Answer: C Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 11) ________ is an ethical theory where a person adheres to rules or commands that are from an outside source, like a book or a central figure. A) Ethical fundamentalism B) Utilitarianism C) Ethical relativism D) Rawls's social justice theory Answer: A Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 12) Charlotte works as a teacher in Africa. Every Sunday, she visits nearby villages and convinces families to send their children to school. She arranges accommodation for these children and helps them with their education. In a recent interview, Charlotte mentioned that she looks up to Mother Teresa not only for inspiration but also to resolve ethical dilemmas. Which of the following theories would support Charlotte's approach to ethics? A) ethical fundamentalism B) utilitarianism C) Kantian ethics D) ethical relativism Answer: A Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Application of knowledge Classification: Application

13) Jules Renton, a financial accountant at Valkyrie Aviations, deals with the accounts Valkyrie has with the government. Valkyrie Aviations is in contract with the government to deliver a new bomber plane called Spearhead. While reviewing the Spearhead account, Renton noticed that Valkyrie has been falsely billing the government for Spearhead's production. If Renton chooses to be a whistleblower and expose the scam to the government, what statute enacted by the Congress must he invoke? A) Business Norms Act B) False Claims Act C) Sarbanes-Oxley Act D) Glass-Steagall Act Answer: B Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Application of knowledge Classification: Application 14) A government or political party that strictly derives its ethics and laws based on a specific religious book is an example of ________. A) utilitarianism B) ethical fundamentalism C) ethical relativism D) Kantian ethics Answer: B Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 15) Which of the following statements describes the moral theory of utilitarianism? A) People must choose the action or follow the rule that provides the greatest good to society. B) People must follow actions that are in accordance with a specific ethical rule or principle from a religious text. C) People must choose to follow actions of a virtuous person. D) People must follow actions based on moral duties imparted by one's community. Answer: A Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept

16) Which of the following is an apparent disadvantage of utilitarianism? A) It does not allow people to have subjective notions of right and wrong. B) It is based on moral duties derived from universal rules. C) It puts too much emphasis on one book or theory. D) It treats morality as if it were an impersonal mathematical calculation. Answer: D Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 17) Which of the following moral theories lays emphasis on morality based on one's moral duties? A) moral relativism B) utilitarianism C) Kantian ethics D) ethical fundamentalism Answer: C Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 18) Which of the following moral theories would closely follow the categorical imperative "Do unto others as you would have them do unto you"? A) Kantian ethics B) moral relativism C) utilitarianism D) Rawls's social justice theory Answer: A Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 19) ________ is a moral theory which states that people owe moral duties that are based on universal rules. A) Rawls's social justice theory B) Kantian ethics C) Utilitarianism D) Moral relativism Answer: B Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

20) Reversibility is a principle of Kantian ethics which says that ________. A) a person must be allowed to reverse his or her moral judgment to better suit his or her needs B) a person must treat all moral circumstances as one C) a person must be allowed to selectively choose moral judgments based on the circumstances D) a person must abide by the rule he or she uses to judge the morality of someone else's conduct Answer: D Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 21) Consistency is one of the two important principles of ________ upon which its universal laws are based. A) utilitarianism B) Kantian ethics C) Rawls's social justice theory D) moral relativism Answer: B Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 22) Which of the following is a perceived disadvantage of Kantian ethics? A) It treats morality as if it were an impersonal mathematical calculation. B) It does not allow people to have subjective notions of right and wrong. C) It is difficult to reach consensus on universal rules. D) It distinguishes between the morality one uses to judge others and the morality one uses on oneself. Answer: C Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept

23) Portman, who runs a computer hardware store, had signed a contract with Stewie Inc. to deliver 125 computer monitors. He was to deliver it by the 5th of August, but by the 3rd of August, Portman could not arrange for the monitors, as his usual supplier was not available. Portman then decided to go to another supplier who had a higher selling price rather than cancel the contract with Stewie Inc., as he believed it was his duty to do so. Which of the following moral theories matches Portman's behavior? A) Kantian ethics B) utilitarianism C) Rawls's social justice theory D) moral relativism Answer: A Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Application of knowledge Classification: Application 24) How are ethical rules established in Kantian ethics? A) by a set of universal rules that are based on consistency and reversibility B) by following principles that have been derived from holy books C) by an individual's feelings on what is right and wrong D) by choosing the alternative that is best for society as a whole Answer: A Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 25) ________ is a moral theory which asserts that fairness is the essence of justice. A) Kantian ethics B) Moral relativism C) Utilitarianism D) Rawls's social justice theory Answer: D Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept

26) According to ________, keeping a promise to abide by a contract is a moral duty even if that contract turns out to be detrimental to the obligated party. A) utilitarianism B) Kantian ethics C) Rawls's social justice theory D) moral relativism Answer: B Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 27) Kantian ethics is also referred to as ________ ethics. A) relativistic B) utilitarian C) duty D) nihilistic Answer: C Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 28) Consistency and ________ are the two principles of Kantian ethics that state that a person must abide by the rule he or she uses to judge the morality of someone else's conduct. A) reversibility B) relativity C) perspectivism D) utilitarianism Answer: A Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 29) From which of the following theories of morality is Rawls's social justice theory fundamentally derived? A) the theory of utilitarianism B) the theory of ethical fundamentalism C) the social contract theory D) the theory of moral relativism Answer: C Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 8 Copyright © 2019 Pearson Education, Inc.

30) Which of the following is a perceived disadvantage of Rawls's social justice theory? A) It allows for those in advantageous positions to suppress people in least advantageous positions. B) It doesn't consider the fact that people would not want to maximize benefits for the least advantaged persons. C) It only allocates people in advantageous positions to set up rules on morality. D) It postulates that there are no universal ethical rules to guide a person's conduct. Answer: B Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 31) Which of the following moral theories matches the dictum "I will keep the rules if everyone else does?" A) perspectivism B) social contract C) moral relativism D) utilitarianism Answer: B Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 32) Which of the following is a way of establishing ethical rules in Rawls's social justice theory? A) by a set of universal rules based on consistency and reversibility B) from an original position of a veil of ignorance C) by the ruling class or people in advantageous positions D) by following what's best for the society as a whole Answer: B Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 33) ________ is a moral theory which holds that individuals must decide what is ethical based on their own feelings about what is right and wrong. A) Ethical relativism B) Kantian ethics C) Utilitarianism D) Rawls's social justice theory Answer: A Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 9 Copyright © 2019 Pearson Education, Inc.

34) Which of the following moral theories will help an anthropologist study ancient societies with an impartial and unprejudiced mindset, especially when it relates to comparing ethics and customs followed by ancient societies to those being followed by present societies? A) Rawls's social justice theory B) utilitarianism C) Kantian ethics D) ethical relativism Answer: D Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 35) According to ethical relativism, ________. A) ethics rely on duties based on universal rules one is morally bound to follow B) each person is presumed to have entered into a social contract with all others in society to obey ethical rules C) there are no universal ethical rules to guide a person's conduct D) people must choose an action or follow a rule that provides the greatest good to society Answer: C Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 36) If someone looks to the Bible or the Koran, for instance, he or she may most likely adhere to the theory of ________. A) utilitarianism B) ethical relativism C) ethical fundamentalism D) Kantian ethics Answer: C Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 37) Which of the following is a theory that chooses the greatest good to society? A) Kantian ethics B) Rawls's social justice theory C) ethical fundamentalism D) utilitarianism Answer: D Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Application of knowledge Classification: Application 10 Copyright © 2019 Pearson Education, Inc.

38) Under ethical fundamentalism, a person looks to an outside source for ethical rules or commands. Answer: TRUE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 39) Gregory, who looks up to the principles of Dr. Martin Luther King Jr. for ethical rules, is an ethical fundamentalist. Answer: TRUE Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 40) The main criticism for ethical fundamentalism is that it does not allow people to decide what is right or wrong for themselves. Answer: TRUE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 41) Utilitarianism postulates doing the greatest good for the greatest number of people. Answer: FALSE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 42) Utilitarianism directs an individual to choose the action that provides the greatest good for the greatest number of people. Answer: FALSE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 43) If an action would increase the good of twenty-five people by one unit each and an alternative action would increase the good of one person by twenty-six units, then, according to utilitarianism, the latter action should be taken. Answer: TRUE Diff: 2 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

44) One of the advantages of utilitarianism is that it is easy to apply in most real-life situations. Answer: FALSE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 45) Kantian ethics is also known as duty ethics. Answer: TRUE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 46) Kant believed that people owe moral duties that are based on universal rules. Answer: TRUE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 47) Kantian ethics is based on the premise that people can use reasoning to reach ethical decisions. Answer: TRUE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 48) In Kantian ethics, the principle of inconsistency postulates treating all ethical cases differently. Answer: FALSE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 49) According to Kantian ethics, one would be obligated to abide by a contract even if that contract turns out to be detrimental to the obligated party. Answer: TRUE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept

50) Kantian ethics distinguishes between the morality one uses to judge others and the morality one uses on oneself. Answer: FALSE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 51) The categorical imperative "Do unto others as you would have them do unto you" is an illustration of Kantian ethics. Answer: TRUE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 52) Relativism is one of the principles of Kantian ethics that states that the actor must abide by the rule he or she uses to judge the morality of someone else's conduct. Answer: FALSE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 53) The social contract theory is derived from Rawls's social justice theory. Answer: FALSE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 54) According to Rawls's social justice theory, a person who is in a state of "veil of ignorance" is best fit to select the fairest possible ethical principles. Answer: TRUE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 55) According to Rawls's social justice theory, moral duties are based on an implied social contract. Answer: TRUE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 13 Copyright © 2019 Pearson Education, Inc.

56) Under the theory of ethical relativism, fairness is considered the essence of justice. Answer: FALSE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 57) Ethical relativism holds that moral standards ought to be based on an individual's feelings of what is right or wrong. Answer: TRUE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 58) According to ethical relativism, an action that is usually thought to be unethical would not be considered unethical if the perpetrator thought it was ethical. Answer: TRUE Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 59) Explain the two principles used to derive the universal rules of Kantian ethics? Answer: The universal rules of Kantian ethics are based on two important principles: 1. Consistency—that is, all cases are treated alike, with no exceptions—and 2. Reversibility—that is, the actor must abide by the rule he or she uses to judge the morality of someone else's conduct. Thus, if you are going to make an exception for yourself, that exception becomes a universal rule that applies to all others. Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 60) What is ethical relativism? Answer: Ethical relativism holds that individuals must decide what is ethical based on their own feelings about what is right and wrong. Under this moral theory, if a person meets his or her own moral standard in making a decision, no one can criticize him or her for it. Thus, there are no universal ethical rules to guide a person's conduct. This theory has been criticized because action that is usually thought to be unethical would not be unethical if the perpetrator thought it was in fact ethical. Few philosophers advocate ethical relativism as an acceptable moral theory. Diff: 1 LO: 42.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept

61) A social responsibility theory of business which says that a corporation's duty is to make a profit while avoiding causing harm to others is referred to as ________. A) stakeholder interest B) corporate citizenship C) maximizing profits D) moral minimum Answer: D Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 62) According to the theory of ________, if a business corrects the social injury it causes, it has met its duty of social responsibility. A) moral minimum B) maximizing profits C) corporate citizenship D) stakeholder interest Answer: A Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 63) Sinbad Cola, a soft drink manufacturer, recently opened a plant in Buron. The wastages from the plant were dumped in the Buron Sea, situated a mile away from the plant. Dumping of wastes in the sea resulted in water pollution, which negatively affected the Buron fishing business, and also resulted in groundwater contamination. Sinbad Cola compensated by bringing contamination levels down with additional filters and paying damages to the local fishermen. Which theory of business social responsibility did Sinbad Cola meet when they compensated for their harmful wastage disposal methods? A) moral minimum B) stakeholder interest C) corporate citizenship D) maximizing profits Answer: A Diff: 2 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Application of knowledge Classification: Application

64) ULab Inc., a biotechnology firm, recently had a fire in one of its offices, which resulted in the office building being fire gutted. The employees were not trained through fire drills, and the 10-story building had no fire escape route. Consequently, many employees were hospitalized for physical injuries, burns, and toxic smoke inhalation. What important social responsibility theory was ULab negligent of by not training its employees through fire drills and not installing a fire exit? A) corporate citizenship B) moral minimum C) stakeholder interest D) maximizing profits Answer: B Diff: 2 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Application of knowledge Classification: Application 65) ________ is a social responsibility theory of business which says that a corporation must consider the effects its actions have on persons other than its shareholders. A) Corporate citizenship B) Maximizing profits C) Moral minimum D) Stakeholder interest Answer: D Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 66) If Steve Templeton decides to not close a plant in Portland, Oregon, what business social responsibility will he be achieving? A) moral minimum B) corporate citizenship C) maximizing profits D) stakeholder interest Answer: D Diff: 2 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Application of knowledge Classification: Application

67) If Steve Templeton decides to close the plant in Portland, Oregon, what important business social responsibility will he accomplish? A) moral minimum B) corporate citizenship C) maximizing profits D) stakeholder interest Answer: C Diff: 2 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Application of knowledge Classification: Application 68) The traditional view of social responsibility of business emphasized maximizing profits for employees rather than for shareholders. Answer: FALSE Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 69) If a business plan aims at increasing national employment but results in smaller profits for the corporation, it is in accordance with the traditional view of social responsibility. Answer: FALSE Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 70) The theory of maximizing profits holds that the interests of constituencies other than the business itself are not important in and of themselves. Answer: TRUE Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 71) The theory of moral minimum emphasizes social responsibility. Answer: TRUE Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept

72) The theory of moral minimum advocates making profit even while causing harm to others. Answer: FALSE Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 73) A corporation that pollutes a body of water has not met its moral minimum duty of social responsibility even if the business later compensates those whom the pollution has injured. Answer: FALSE Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 74) There are no specific governmental laws endorsing a moral minimum of social responsibility on corporations. Answer: FALSE Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 75) Give an account of the social responsibility of businesses and list its four main theories. Answer: Businesses do not operate in a vacuum. Decisions made by businesses have farreaching effects on society. In the past, many business decisions were based solely on a costbenefit analysis and how they affected the bottom line. Such decisions, however, may cause negative externalities for others. Social responsibility requires corporations and businesses to act with awareness of the consequences and impact that their decisions will have on others. Thus, corporations and businesses are considered to owe some degree of responsibility for their actions. Four theories of the social responsibility of business are: maximize profits, moral minimum, stakeholder interest, and corporate citizenship. Diff: 2 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept

76) What is theory of moral minimum in social responsibility for businesses? Answer: Some proponents of corporate social responsibility argue that a corporation's duty is to make a profit while avoiding causing harm to others. This theory of social responsibility is called the moral minimum. Under this theory, as long as business avoids or corrects the social injury it causes, it has met its duty of social responsibility. The legislative and judicial branches of government have established laws that enforce the moral minimum of social responsibility on corporations. Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 77) The ________ Act, enacted by Congress in 2002, requires public companies to adopt codes of ethics and establishes criminal penalties for companies that partake in violations. A) Glass-Steagall B) Sarbanes-Oxley C) False Claims D) Business Norms Answer: B Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 78) Section 406 of the Sarbanes-Oxley Act requires a public company to disclose whether it has adopted a code of ethics for senior financial officers. Answer: TRUE Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 79) The theory of stakeholder interest compels a corporation to consider the effects of its actions specifically on shareholders. Answer: FALSE Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 80) In accordance to the stakeholder interest theory, a corporation must view employees solely as a means of maximizing shareholder wealth. Answer: FALSE Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 19 Copyright © 2019 Pearson Education, Inc.

81) Which of the following is a "corporate citizenship" as a social responsibility theory in business? A) Businesses are responsible to even helping solve social problems that they did not cause. B) Businesses owe a duty to take actions that increase profits for shareholders. C) Businesses have a responsibility solely to their stakeholders and should strive to maximize their well-being. D) Businesses are obliged to consider the effects their actions have on persons other than their shareholders. Answer: A Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 82) Conch Corporation, a global oil and gas company, has plans to build a subsidized postsecondary vocational school in the town of Cristen, where one of its offices is situated. The plan was put to vote and approved despite some objections from shareholders. The school is being built in collaboration with the local government. The objective is to help the youth of the neighborhood, especially school dropouts, learn vocational skills. What social responsibility theory describes Conch Corporation's initiative to build the school? A) moral minimum B) maximizing profits C) corporate citizenship D) stakeholder interest Answer: C Diff: 2 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Application of knowledge Classification: Application 83) The theory of corporate citizenship contends that corporations owe a duty to promote the same social goals as individual members of society. Answer: TRUE Diff: 1 LO: 42.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 43 Administrative Law and Regulatory Agencies 1) Which of the following is true of administrative agencies? A) All administrative agencies directly answer to the president. B) Administrative agencies can be created by federal, state, and local governments. C) An existing administrative agency cannot administer a new law. D) A separate administrative agency must be created to enforce each law. Answer: B Diff: 2 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 2) When Congress enacted the Securities Act of 1933, it created the Securities and Exchange Commission, a(n) ________, to administer and enforce those statutes. A) law enforcement authority B) short-term commission C) federal administrative agency D) intelligence agency Answer: C Diff: 1 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 3) General government regulation consists of laws that regulate ________. A) the legislative branch of the federal government B) government-aided organizations C) the executive branch of the federal government D) businesses and industries Answer: D Diff: 1 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept

4) The National Labor Relations Board is empowered to regulate the formation and operation of labor unions in most industries and businesses in the United States. Such a regulation is an example of a ________. A) general government regulation B) specific government regulation C) cabinet-level regulation D) zoning regulation Answer: A Diff: 2 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 5) ________ consists of laws that regulate particular industries. A) An independent federal administration B) General government regulation C) Specific government regulation D) A statement of policy Answer: C Diff: 1 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 6) The Federal Communications Commission issues licenses and regulates the operation of television and radio stations. This is an example of a(n) ________. A) general government regulation B) specific government regulation C) cabinet-level federal department D) independent federal administrative agency Answer: B Diff: 2 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 7) Administrative laws are also referred to as ________. A) ordinances B) regulatory statutes C) default judgments D) statements of policy Answer: B Diff: 1 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 2 Copyright © 2019 Pearson Education, Inc.

8) Administrative laws are laws enacted by governments to regulate the operation of only government employees and government-run organizations. Answer: FALSE Diff: 1 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 9) Regulatory statutes can be known as administrative laws. Answer: TRUE Diff: 1 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 10) The legislative branch is permitted to authorize existing administrative agencies to enforce new statutes. Answer: TRUE Diff: 1 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 11) General government regulation consists of laws that regulate the operation of the three branches of the federal government. Answer: FALSE Diff: 1 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 12) General government regulation establishes an individual code or laws to every type of business and industry. Answer: FALSE Diff: 1 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 13) The U.S. Equal Employment Opportunity Commission enforcing equal opportunity in employment laws is an instance of general government regulation. Answer: TRUE Diff: 1 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

14) Operational regulation of commercial airlines by the Federal Aviation Administration is an instance of general government regulation. Answer: FALSE Diff: 1 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 15) Distinguish between general government regulation and specific government regulation. Answer: General government regulation consists of laws that regulate businesses and industries collectively. Most of the industries and businesses in the United States are subject to these laws. These laws do not regulate a specific industry but apply to all industries and businesses except those that are specifically exempt from certain regulations. On the contrary, specific government regulation consists of laws that regulate specific industries. That is, an industry is subject to administrative laws that are specifically adopted to regulate that industry. Administrative agencies, which are industry specific, are created to administer those specific laws. Diff: 2 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 16) Explain, in brief, the types of federal administrative agencies with examples. Answer: The types of federal administrative agencies are: a. Cabinet-level federal departments: They answer directly to the president. The president appoints cabinet members subject to confirmation by a majority vote of the U.S. Senate. Cabinetlevel departments advise the president and are responsible for enforcing specific laws enacted by Congress. Example–the Department of Homeland Security. b. Independent federal administrative agencies: They are federal agencies that have broad regulatory powers over key areas of the national economy. Example–the Securities and Exchange Commission. Diff: 2 LO: 43.1 Define administrative law. AACSB: Analytical thinking Classification: Concept 17) The Department of Homeland Security advises the U.S. President on matters related to internal security, external threats to the United States, and potential terrorist attacks. This department is an example of a(n) ________. A) independent federal administrative agency B) cabinet-level federal department C) law enforcement agency D) state administrative agency Answer: B Diff: 2 LO: 43.2 Describe cabinet-level departments of the federal government. AACSB: Analytical thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

18) Which of the following U.S. federal agencies was created in response to the terrorist attacks on September 11, 2001? A) the Federal Bureau of Investigation B) the Central Intelligence Agency C) the National Security Agency D) the U.S. Department of Homeland Security Answer: D Diff: 2 LO: 43.2 Describe cabinet-level departments of the federal government. AACSB: Analytical thinking Classification: Concept 19) Which of the following is the Department of Homeland Security's foremost responsibility? A) to enforce laws to prevent and control civil unrest in the country B) to enforce laws to prevent the possibility of the United States going to war C) to enforce laws to prevent domestic terrorist attacks and related criminal activities D) to enforce laws to prevent and control economic recession in the country Answer: C Diff: 1 LO: 43.2 Describe cabinet-level departments of the federal government. AACSB: Analytical thinking Classification: Concept 20) Which of the following is true of the Department of Homeland Security? A) It was constituted immediately after the attack on Pearl Harbor. B) It provides services in information analysis and infrastructure protection. C) It protects persons from harassment by federal administrative agencies. D) It gives the public access to documents in the possession of federal administrative agencies. Answer: B Diff: 2 LO: 43.2 Describe cabinet-level departments of the federal government. AACSB: Analytical thinking Classification: Concept 21) Cabinet-level federal departments answer directly to the Congress of the United States. Answer: FALSE Diff: 1 LO: 43.2 Describe cabinet-level departments of the federal government. AACSB: Analytical thinking Classification: Concept 22) Cabinet members of cabinet-level federal departments are chosen directly by the president. Answer: FALSE Diff: 1 LO: 43.2 Describe cabinet-level departments of the federal government. AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

23) Independent federal administrative agencies are federal agencies responsible for enforcing specific administrative statutes enacted by Congress. Answer: FALSE Diff: 1 LO: 43.2 Describe cabinet-level departments of the federal government. AACSB: Analytical thinking Classification: Concept 24) The Department of Homeland Security is an example of a federal administrative agency. Answer: TRUE Diff: 1 LO: 43.2 Describe cabinet-level departments of the federal government. AACSB: Analytical thinking Classification: Concept 25) The Homeland Security Act was passed following the terrorist attacks of September 11, 2001 on the World Trade Center. Answer: TRUE Diff: 1 LO: 43.2 Describe cabinet-level departments of the federal government. AACSB: Analytical thinking Classification: Concept 26) One of the services provided by the Department of Homeland Security is emergency preparedness and response to terrorist incidents. Answer: TRUE Diff: 1 LO: 43.2 Describe cabinet-level departments of the federal government. AACSB: Analytical thinking Classification: Concept 27) Federal administrative agencies are created by ________. A) the U.S. President B) the U.S. Congress C) the U.S. people D) the U.S. judiciary Answer: B Diff: 1 LO: 43.3 Describe federal administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept

28) ________ advise the president. A) Independent federal administrative agencies B) State administrative agencies C) Cabinet-level federal departments D) Law enforcement agencies Answer: C Diff: 1 LO: 43.3 Describe federal administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept 29) Which of the following are responsible for enforcing specific administrative statutes enacted by Congress? A) independent federal administrative agencies B) state administrative agencies C) law enforcement agencies D) cabinet-level federal departments Answer: D Diff: 1 LO: 43.3 Describe federal administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept 30) ________ are federal agencies that have broad regulatory powers over key areas of the national economy. A) Federal administrative agencies B) State administrative agencies C) Law enforcement agencies D) Cabinet-level federal departments Answer: A Diff: 1 LO: 43.3 Describe federal administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept 31) The Federal Trade Commission which enforces federal antitrust and consumer protection laws is an example of a(n) ________. A) independent federal administrative agency B) government-aided organization C) law enforcement agency D) cabinet-level federal department Answer: A Diff: 2 LO: 43.3 Describe federal administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

32) The Securities and Exchange Commission (SEC), which regulates the issuance and trading of securities, is an example of a federal independent agency. Answer: TRUE Diff: 1 LO: 43.3 Describe federal administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept 33) State administrative agencies are created by ________. A) legislative branches of states B) legislative branches of the federal government C) the U.S. President D) the U.S. Congress Answer: A Diff: 1 LO: 43.4 Describe state and local administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept 34) Which of the following is true of state administrative agencies? A) They are created by federal administrative agencies. B) They act as advisory boards for the president. C) Their decisions can be appealed to a state court. D) They are not empowered to enforce statutes. Answer: C Diff: 2 LO: 43.4 Describe state and local administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept 35) All state regulatory laws are drafted by the federal government and then adopted by the state. Answer: FALSE Diff: 1 LO: 43.4 Describe state and local administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept 36) State administrative agencies are created by the legislative branch of the federal government. Answer: FALSE Diff: 1 LO: 43.4 Describe state and local administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept

37) Local administrative agencies are agencies created by cities, municipalities, and counties to administer local regulatory law. Answer: TRUE Diff: 1 LO: 43.4 Describe state and local administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept 38) Substantive administrative laws enforced by administrative agencies are akin to statutes in their legality. Answer: TRUE Diff: 1 LO: 43.4 Describe state and local administrative agencies and explain their functions. AACSB: Analytical thinking Classification: Concept 39) ________ is law that an administrative agency enforces, such as federal statutes enacted by Congress, or state statutes enacted by state legislatures. A) Formal ruling B) Substantive administrative law C) Procedural administrative law D) Informal ruling Answer: B Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept 40) ________ establishes the protocol that must be followed by an administrative agency while enforcing substantive laws. A) Formal ruling B) Substantive administrative law C) Procedural administrative law D) Informal ruling Answer: C Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept

41) Which of the following acts establishes procedures that federal administrative agencies must follow in conducting their affairs? A) APA B) SEA C) UCITA D) HSA Answer: A Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept 42) Which of the following is true of the Administrative Procedure Act? A) It was enacted following the September 11, 2001 terrorist attacks. B) It establishes how rules and regulations can be adopted by federal administrative agencies. C) It provides for a uniform legal and justice system across the United States. D) It divides administrative power between the federal legislative branch and state legislatures. Answer: B Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept 43) Which of the following is true of an administrative law judge (ALJ)? A) An ALJ's decision is issued in the form of state statutes. B) An ALJ's decision is final with no appeal. C) An ALJ presides over administrative proceedings. D) An ALJ is not considered an employee of an administrative agency. Answer: C Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept

44) Which of the following is a provision in the Administrative Procedure Act (APA)? A) It provides a procedure for receiving evidence and hearing requests for the granting of federal licenses. B) It allows public access to most documents in the possession of federal administrative agencies. C) It protects persons from harassment by administrative agencies. D) It admits public access to administrative meetings concerning issuance of subpoenas. Answer: A Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept 45) An administrative law judge's decision is issued in the form of a(n) ________. A) jury instruction B) petition C) administrative procedure D) administrative order Answer: D Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept 46) Procedural administrative law establishes the procedure that must be followed by the federal or state legislatures in creating an administrative agency. Answer: FALSE Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept 47) The Administrative Procedure Act establishes procedures that industries and businesses must follow when conducting their affairs. Answer: FALSE Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept

48) All administrative proceedings are presided by a select jury of common citizens, who then question the functionality of the new, proposed law. Answer: FALSE Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept 49) The decisions issued by an administrative law judge are in the form of administrative orders. Answer: TRUE Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept 50) Decisions reached by an administrative law judge are final and cannot be appealed. Answer: FALSE Diff: 1 LO: 43.5 Describe administrative procedure and provisions of the Administrative Procedure Act. AACSB: Analytical thinking Classification: Concept 51) The ________ says that when an administrative agency is created, it is given certain powers; the agency can use only the legislative, judicial, and executive powers that are allotted to it. A) doctrine of Equity B) delegation doctrine C) doctrine of Promissory Estoppel D) doctrine of privity Answer: B Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 52) Which of the following powers allows administrative agencies to issue substantive rules? A) rule-making B) executive power C) judicial authority D) licensing Answer: A Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 12 Copyright © 2019 Pearson Education, Inc.

53) ________ refers to a rule issued by an administrative agency that has the force of law and to which covered persons and businesses must adhere. A) Interpretive rule B) Rule of Law C) Substantive rule D) Operational code Answer: C Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 54) Which of the following is true of a substantive rule? A) It interprets existing statutory language. B) It does not have the force of law and is only issued as a guideline. C) Substantive rules are exempt from judicial review. D) Violators can be held criminally liable. Answer: D Diff: 2 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 55) A(n) ________ refers to a rule issued by an administrative agency that defines existing statutory language. A) interpretive rule B) operational code C) substantive rule D) statement of policy Answer: A Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 56) A(n) ________ announces a proposed course of action that an agency intends to follow in the future. A) interpretive rule B) operational code C) substantive rule D) statement of policy Answer: D Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 13 Copyright © 2019 Pearson Education, Inc.

57) A(n) ________ refers to permission that an administrative agency grants to persons or businesses to conduct certain types of commerce or professions. A) easement B) license C) letter of credit D) arraignment Answer: B Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 58) A(n) ________ requires the respondent to be given proper and timely notice of the allegations or charges against him or her and an opportunity to present evidence on the matter. A) interpretive rule B) substantive due process C) procedural due process D) code of operation Answer: C Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 59) ________ refers to the power that administrative agencies are granted, such as to investigate and prosecute possible violations of statutes, administrative rules, and administrative orders. A) Judicial authority B) Legislative power C) Executive power D) Administrative subpoena Answer: C Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 60) A(n) ________ refers to an order that directs the subject who has been summoned to disclose the requested information. A) administrative subpoena B) substantive due process C) procedural due process D) statement of policy Answer: A Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 14 Copyright © 2019 Pearson Education, Inc.

61) Tuff-Steele Constructions, Inc. has not been adhering to appropriate worker safety rules. As a result, there have been an increased number of on-site accidents, and several construction workers have sustained serious injuries. Which of the following powers will allow an administrative agency to bring agency proceedings against Tuff-Steele Constructions? A) licensing B) executive power C) judicial authority D) rule making Answer: C Diff: 2 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Application of knowledge Classification: Application 62) Most inspections by administrative agencies are subject to the ________ Amendment to the U.S. Constitution. A) Eleventh B) Second C) Fifth D) Fourth Answer: D Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 63) The Congressional passing of the Due Process Clause of the 14th Amendment to the U.S. Constitution led to the creation of the U.S. Department of Homeland Security. Answer: FALSE Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 64) The delegation doctrine only allows executive and legislative powers to an administrative agency, and not judicial powers. Answer: FALSE Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept

65) It is legal for an administrative agency to act outside the scope of its delegated powers, provided that it has the written consent of an administrative law judge. Answer: FALSE Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 66) All substantive rules are subject to judicial review. Answer: TRUE Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 67) A federal administrative agency that proposes to adopt a substantive rule must give interested persons an opportunity to participate in the rule-making process. Answer: TRUE Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 68) A federal administrative agency that proposes to adopt a substantive rule can legally resort to informal rule-making. Answer: TRUE Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 69) Administrative agencies do not have to comply with the Due Process Clause of the U.S. Constitution when adjudicating cases of violation. Answer: FALSE Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 70) The power to investigate and prosecute possible violations of statutes, administrative rules, and administrative orders is the judicial power granted to administrative agencies. Answer: FALSE Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 16 Copyright © 2019 Pearson Education, Inc.

71) Administrative subpoena refers to an order that directs the subject of the subpoena to disclose the requested information. Answer: TRUE Diff: 1 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 72) Distinguish between substantive rules and interpretive rules. What is a statement of policy? Answer: A substantive rule is much like a statute that has the force of law, and covered persons and businesses must adhere to it. Violators may be held civilly or criminally liable, depending on the rule. All substantive rules are subject to judicial review. An interpretive rule interprets existing statutory language. Such rules do not establish new laws. Neither public notice nor public participation is required. A statement of policy announces a proposed course of action that an agency intends to follow in the future. Statements of policy do not have the force of law. Public notice and participation are not required. Diff: 2 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept 73) The party who appeals a decision of an administrative agency is called a petitioner. Answer: FALSE Diff: 1 LO: 43.7 Explain the procedure for judicial review of administrative agency decisions. AACSB: Analytical thinking Classification: Concept 74) When are searches by administrative agencies considered reasonable? Answer: Searches by administrative agencies are generally considered to be reasonable within the meaning of the Fourth Amendment if: a. the party voluntarily agrees to the search. b. the search is conducted pursuant to a validly issued search warrant. c. a warrantless search is conducted in an emergency situation. d. the business is part of a special industry where warrantless searches are automatically considered valid. e. the business is part of a hazardous industry and a statute expressly provides for nonarbitrary warrantless searches. Diff: 2 LO: 43.6 List and describe the powers of administrative agencies. AACSB: Analytical thinking Classification: Concept

75) Which of the following is a provision of the Freedom of Information Act? A) It allows public admission to the day-to-day workings of an administrative agency. B) It protects persons from harassment by federal administrative agencies. C) It opens most federal administrative agency meetings to the public. D) It gives the public access to documents in the possession of federal administrative agencies. Answer: D Diff: 1 LO: 43.8 List and describe the statutes that require disclosure of administrative agency actions and protections of individual rights. AACSB: Analytical thinking Classification: Concept 76) Which of the following acts protects persons from harassment by federal administrative agencies? A) the Freedom of Information Act B) the Government in the Sunshine Act C) the Equal Access to Justice Act D) the Privacy Act Answer: C Diff: 1 LO: 43.8 List and describe the statutes that require disclosure of administrative agency actions and protections of individual rights. AACSB: Analytical thinking Classification: Concept 77) The ________ is a federal act which states that federal administrative agencies can maintain only information about an individual that is relevant and necessary to accomplish a legitimate agency purpose. A) Freedom of Information Act B) Privacy Act C) Government in the Sunshine Act D) Equal Access to Justice Act Answer: B Diff: 1 LO: 43.8 List and describe the statutes that require disclosure of administrative agency actions and protections of individual rights. AACSB: Analytical thinking Classification: Concept

78) The ________ was enacted to open most federal administrative agency meetings to the public. A) Freedom of Information Act B) Privacy Act C) Government in the Sunshine Act D) Equal Access to Justice Act Answer: C Diff: 1 LO: 43.8 List and describe the statutes that require disclosure of administrative agency actions and protections of individual rights. AACSB: Analytical thinking Classification: Concept 79) Documents classified by the president to be in the interests of national security cannot be accessed under the Freedom of Information Act. Answer: TRUE Diff: 1 LO: 43.8 List and describe the statutes that require disclosure of administrative agency actions and protections of individual rights. AACSB: Analytical thinking Classification: Concept 80) The Government in the Sunshine Act is a federal act that opens most federal administrative agency meetings to the public. Answer: TRUE Diff: 1 LO: 43.8 List and describe the statutes that require disclosure of administrative agency actions and protections of individual rights. AACSB: Analytical thinking Classification: Concept 81) The Privacy Act provides that documents in the possession of federal administrative agencies are confidential to the respective agencies and cannot be accessed by the public. Answer: FALSE Diff: 1 LO: 43.8 List and describe the statutes that require disclosure of administrative agency actions and protections of individual rights. AACSB: Analytical thinking Classification: Concept

82) How is the general public protected from harassment by administrative agencies? Answer: Congress enacted the Equal Access to Justice Act to protect persons from harassment by federal administrative agencies. Under this act, a private party who is the subject of an unjustified federal administrative agency action can sue to recover attorneys' fees and other costs. The courts have generally held that the agency's conduct must be extremely outrageous before an award will be made under the act. A number of states have similar statutes. Diff: 2 LO: 43.8 List and describe the statutes that require disclosure of administrative agency actions and protections of individual rights. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 44 Consumer Protection and Product Safety 1) ________ laws are federal and state statutes and regulations that promote product safety and prohibit abusive, unfair, and deceptive business practices. A) FDCA B) Canon C) Consumer protection D) Caveat emptor Answer: C Diff: 1 LO: 44.1 Describe government regulation of food and food additives. AACSB: Analytical thinking Classification: Concept 2) The ________ is a federal administrative agency that is primarily responsible for regulating the safety of meat, poultry, and other food products. A) U.S. Department of Agriculture B) Consumer Product Safety Commission C) Food and Drug Administration D) Federal Trade Commission Answer: A Diff: 1 LO: 44.1 Describe government regulation of food and food additives. AACSB: Analytical thinking Classification: Concept 3) Jones & Hilton Co. owned a large cold storage warehouse where they stored and processed meat and meat products. An insider revealed to the media that the cold storage failed to meet numerous safety standards, encountered repeated rodent attacks, and sold potentially harmful and infected meat in the market without notifying authorities. The ________ has the authority to conduct inspections of the cold storage warehouse and initiate legal proceedings against the owners for endangering the health of consumers. A) Food and Drug Administration B) Consumer Product Safety Commission C) Federal Healthcare Commission D) U.S. Department of Agriculture Answer: D Diff: 2 LO: 44.1 Describe government regulation of food and food additives. AACSB: Application of knowledge Classification: Application

4) In which of the following cases of consumer safety violations will the U.S. Department of Agriculture be required to take action? A) A new drug was released into the market without adequate testing and this lead to adverse side effects among users. B) A brand of soft toys for infants was produced with low-grade foam and fabrics that are harmful for children when ingested. C) A batch of sausages and cold cuts from a particular vendor was found to have high levels of salmonella and other pathogenic organisms. D) A fleet of cars released into the market by a famous company was found to have a defective braking system which could prove fatal for owners. Answer: C Diff: 2 LO: 44.1 Describe government regulation of food and food additives. AACSB: Application of knowledge Classification: Application 5) The U.S. Food and Drug Administration promotes the principle of caveat emptor in sale transactions involving food and drugs. Answer: FALSE Diff: 1 LO: 44.1 Describe government regulation of food and food additives. AACSB: Analytical thinking Classification: Concept 6) Federal and state government statutes that regulate the safety of food, drugs, cosmetics, toys, vehicles, and other products are collectively referred to as consumer protection laws. Answer: TRUE Diff: 1 LO: 44.1 Describe government regulation of food and food additives. AACSB: Analytical thinking Classification: Concept 7) The U.S. Department of Agriculture is the federal administrative agency that is primarily responsible for regulating meat, poultry, and other food products. Answer: TRUE Diff: 1 LO: 44.1 Describe government regulation of food and food additives. AACSB: Analytical thinking Classification: Concept

8) The Food, Drug, and Cosmetic Act is a federal statute that ________. A) covers all food products including poultry and processed meat B) grants approval for food additives, drugs, cosmetics, and medicinal devices C) implements the Federal Meat Inspection Act enacted in 1906 D) protects the public by providing greater medical coverage from food-related illnesses Answer: B Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 9) Aniorta Inc., a pharmaceutical company, has designed a new medicine for morning sickness among pregnant women. Testing at their R&D center showed the drug to be highly reliable. Aniorta Inc. has to approach a U.S. federal administrative agency called ________ for the drug to be deemed legal for sale to the public. A) Medicines and Healthcare Products Regulatory Agency B) Consumer Product Safety Commission C) Federal Trade Commission D) Food and Drug Administration Answer: D Diff: 2 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Application of knowledge Classification: Application 10) The Food and Drug Administration is empowered to ________. A) recall unsafe toys, appliances, and other consumer products which are harmful to users B) regulate the safety of meat, poultry, and other food products C) prosecute violators directly by imposing fines and pronouncing sentences D) obtain orders for the seizure, recall, and condemnation of harmful products Answer: D Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept

11) The ________ is a federal statute passed in 1990 that requires food manufacturers and processors to provide nutrition information on many foods and prohibits them from making scientifically unsubstantiated health claims. A) Food, Drug, and Cosmetic Act B) Drug Amendment to the FDCA C) Nutrition Labeling and Education Act D) Patient Protection and Affordable Care Act Answer: C Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 12) The NLEA applies to packaged foods and other foods regulated by the ________. A) U.S. Department of Agriculture B) Consumer Product Safety Commission C) Patient Protection and Affordable Care Act D) Food and Drug Administration Answer: D Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 13) Which of the following is true of the Nutrition Labeling and Education Act? A) The NLEA is a state law, and its implementation is not federally regulated. B) The NLEA applies to packaged foods and other foods regulated by the Food and Drug Administration. C) The NLEA mandates compulsory labeling for all kinds of raw and processed food without any exceptions. D) The NLEA specifically eliminates the practice of providing point-of-purchase nutrition information by sellers. Answer: B Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept

14) Rapid Rise is a health drink for teenagers, and the advertisement claims that the continuous consumption of the drink over a two-month period would lead to a four-inch increase in height. This claim was not proved by laboratory research or seen in most of its users. This act of making scientifically unsubstantiated health claims about this product is likely to be a violation of the ________. A) FTC Act B) Nutrition Labeling and Education Act C) Consumer Product Safety Act D) Patient Protection and Affordable Care Act Answer: B Diff: 2 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Application of knowledge Classification: Application 15) At the food processing company where Mika works, his primary job responsibility is to review the quality of preservatives that are used in the food products being made. A new and highly recommended preservative that has the potential to preserve food longer without refrigeration is approved by Mika. However, Mika fails to identify that the substance used to make the preservative is banned. If the food product is released with this new preservative, which of the following provisions of the NLEA would help consumers identify the banned preservative prior to consumption? A) condemnation of unfit food products B) disclosure of information on food labels C) inspection of the storage facilities D) initiating legal proceedings against violators Answer: B Diff: 2 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Application of knowledge Classification: Application 16) A cosmetics company violates regulations by not adequately labelling its products. Which of the following agencies has the power to enact the statutes that govern such a violation? A) the Medicines and Healthcare Products Regulatory Agency B) the U.S. Department of Agriculture C) the Federal Trade Commission D) the Food and Drug Administration Answer: D Diff: 2 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept

17) The U.S. Department of Agriculture places mandatory and consistent labeling requirements on ________. A) ready-to-eat meals B) raw fruits and vegetables C) raw seafood D) meat and poultry products Answer: D Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 18) The ________ requires food manufacturers and processors to disclose uniform information about serving sizes and nutrients, and establishes standard definitions for the various terms like "low fat," "lean" or "organic" which are indiscriminately used by food processors. A) Consumer Product Safety Act B) Nutrition Labeling and Education Act C) Patient Protection and Affordable Care Act D) Drug Amendment to the FDCA Answer: B Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 19) Section 4205 of the Patient Protection and Affordable Health Care Act requires restaurants and retail food establishments with 20 or more locations to disclose calorie counts of their food items and supply information on how many calories a healthy person should eat in a day. The provisions of this legislation are enforced by the ________. A) Federal Food and Drug Administration B) United Nations C) Federal Trade Commission D) Consumer Product Safety Commission Answer: A Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept

20) The ________ is a federal law that gives the FDA broad powers to license new drugs in the United States. A) Drug Amendment of the FDCA B) Food Labeling and Education Act C) FTC Act D) Patient Protection and Affordable Health Care Act Answer: A Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 21) ________ gives the Federal Drug Administration the authority to regulate the sale of drugs in the United States. A) Section 4205 of the Patient Protection and Affordable Care Act B) The USDA C) The FDCA D) The FTC Answer: C Diff: 2 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 22) The new line of sunscreen products marketed by Radiance has allegedly been developed after using large-scale animal testing procedures. Insiders revealed that the high levels of lead present in the products have proven to be fatal for many of the animals used in the laboratories. Radiance is likely to be inspected for suspected criminal violations of the ________. A) Food, Drug, and Cosmetic Act B) Consumer Product Safety Act C) Patient Protection and Affordable Care Act D) Federal Trade Commission Act Answer: A Diff: 2 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Application of knowledge Classification: Application

23) In which of the following ways does the FDA regulate cosmetics? A) by adding warnings for potential carcinogens B) by regulating the sale of cosmetics through exclusive FDA-approved stores C) by placing a complete ban on animal testing in the cosmetic industry D) by autonomously undertaking criminal proceedings against nonconforming cosmetic companies Answer: A Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 24) Which of the following statements is true of the FDA? A) It places a complete ban on animal testing. B) It allows animal testing for only certain kinds of cosmetics like household soaps. C) It excuses companies to skip ingredients for products on labels if they are carcinogenic. D) It can withdraw approval of any previously licensed drug. Answer: D Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 25) Which of the following is true of FDA regulations for cosmetics? A) It prohibits the manufacture, distribution, or sale of adulterated or misbranded cosmetics. B) All substances and preparations for cosmetic use are chemically proven to be free from carcinogens before sale by the FDA. C) Ordinary household soap is also evaluated in terms of its quality and safety as a cosmetic good under the FDA. D) New cosmetics are released in the market only if they have the "CRUELTY-FREE" label on their package. Answer: A Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept

26) Which of the following would come under the purview of the Medicinal Device Amendment to the FDCA? A) a new oral medication for depression B) a new range of cosmetics to reduce signs of aging C) a new and compact heart pacemaker D) a revolutionary drug therapy for cancer Answer: C Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 27) Which of the following is empowered to remove "quack" devices from the market in the United States? A) The USDA B) The FDA C) The FTC D) The CPSA Answer: B Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 28) Biosafety Protocol is a United Nations-sponsored protocol that requires signatory countries to place the label ________ on all genetically engineered foods. A) "Warning–unnatural food particles" B) "May contain living modified organisms" C) "FDA tested and approved food" D) "WHO tested and approved food" Answer: B Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 29) What is the importance of the Biosafety Protocol prescribed by the United Nations? A) It dictates the terms and conditions for production of genetically modified food. B) It prevents people from differentiating between normal and organic food. C) It notifies people of the presence of genetically modified food in the market. D) It assures people of the quality of the food by providing details of its testing process. Answer: C Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 9 Copyright © 2019 Pearson Education, Inc.

30) The Consumer Product Safety Commission is the federal administrative agency empowered to enforce the Food, Drug, and Cosmetic Act (FDCA). Answer: FALSE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 31) FDA approval is not mandatory for medical devices to be legally sold in the United States. Answer: FALSE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 32) A manufacturer can be held liable for deceptive labeling or packaging under Section 4205 of the Patient Protection and Affordable Care Act. Answer: FALSE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 33) The Nutrition Labeling and Education Act (NLEA) applies to packaged foods and other foods regulated by the Food and Drug Administration. Answer: TRUE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 34) Sellers of raw fruits and vegetables can adopt a voluntary approach when it comes to labeling requirements. Answer: TRUE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 35) Section 4205 of the Patient Protection and Affordable Health Care Act of 2010 requires restaurants and retail food establishments with 20 or more locations to disclose calorie counts of their food items. Answer: TRUE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

36) The Drug Amendment to the FDCA gives the FDA broad powers to license new drugs in the United States. Answer: TRUE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 37) The FDA cannot withdraw approval of any previously licensed drug. Answer: FALSE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 38) The FDA labels ordinary household soap as a cosmetic product. Answer: FALSE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 39) The FDA cannot recall any cosmetics that contain unsubstantiated claims of preserving youth or increasing virility from the market. Answer: FALSE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 40) Eye shadow and other facial makeup products are examples of cosmetics that are beyond the scope of FDA regulation. Answer: FALSE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 41) The FDA's definition of cosmetics excludes substances and preparations for cleansing. Answer: FALSE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept

42) The mislabeling of medicinal devices is prohibited under the Nutrition Labeling and Education Act. Answer: FALSE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 43) Kidney dialysis machines are scrutinized for attainment of quality standards under the Drug Amendment to the FDCA. Answer: FALSE Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 44) The Biosafety Protocol label is used to identify certain food products that have been genetically modified. Answer: TRUE Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 45) What is the United Nation's Biosafety Protocol for genetically altered food? Answer: In many countries, the food is not genetically altered. However, many food processors in the United States and elsewhere around the world genetically modify some foods by adding genes from other organisms to help crops grow faster or ward off pests. Although the companies insist that genetically altered foods are safe, consumers and many countries began to demand that such foods be clearly labeled so that buyers could decide for themselves. In 2000, more than 150 countries, including the United States, agreed to the United Nations-sponsored Biosafety Protocol for genetically altered foods. The countries agreed that all genetically engineered foods would be clearly labeled with the phrase "May contain living modified organisms." This allows consumers to decide on their own whether to purchase such altered food products. Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept

46) Describe the Food, Drug, and Cosmetic Act. Answer: The Food, Drug, and Cosmetic Act (FDCA or FDC Act) was enacted in 1938. This federal statute, as amended, regulates the testing, manufacture, distribution, and sale of foods, drugs, cosmetics, and medicinal devices in the United States. The Food and Drug Administration (FDA) is the federal administrative agency empowered to enforce the FDCA. Before certain food additives, drugs, cosmetics, and medicinal devices can be sold to the public, they must receive FDA approval. An applicant must submit to the FDA an application that contains relevant information about the safety and uses of the product. The FDA, after considering the evidence, will either approve or deny the application. The FDA can seek search warrants and conduct inspections; obtain orders for the seizure, recall, and condemnation of products; seek injunctions; and turn over suspected criminal violations to the U.S. Department of Justice for prosecution. Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 47) Give an account of the regulation of medicinal devices in the United States. Answer: In 1976, Congress enacted the Medicinal Device Amendment to the FDCA. This amendment gives the FDA authority to regulate medicinal devices, such as heart pacemakers, kidney dialysis machines, defibrillators, surgical equipment, and other diagnostic, therapeutic, and health devices. The mislabeling of such devices is prohibited. The FDA is empowered to remove "quack" devices from the market. Diff: 1 LO: 44.2 Describe government regulation of drugs, cosmetics, and medicinal devices. AACSB: Analytical thinking Classification: Concept 48) Which of the following consumer products comes under the purview of the CPSC? A) aircrafts B) motor vehicles C) firearms D) children's toys Answer: D Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept

49) The Consumer Product Safety Commission is ________. A) a communion of two state-funded regulatory bodies working together to ensure consumer safety B) a federal body created to ensure the safety of a few consumer products like motor vehicles, boats, aircraft, and firearms C) an independent federal administrative agency that regulates potentially dangerous consumer products D) a federal agency working to ensure product safety standards for food, poultry, medicines, and medical devices Answer: C Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept 50) Which of the following is true of seeking injunctions on consumer products under the CPSC? A) The CPSC can only seek an injunction once a private party has lodged a complaint with it. B) Only the CPSC can sue for an injunction when CPSC rules are violated. C) A private party can sue for an injunction to prevent violations of the act or of CPSC rules and regulations. D) Injunctions cannot be pursued on products that have not yet been sold or marketed. Answer: C Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept 51) Which of the following is a function that the Consumer Product Safety Commission is empowered to execute? A) collecting data regarding injuries caused by consumer products B) regulating the distribution of genetically modified food products C) recalling drugs that have been found to be harmful from the market D) accepting petitions from consumers on wrongly labeled food products Answer: A Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept

52) Which of the following is FALSE about the CPSC? A) It is a federal administrative agency. B) It was created through an act of Congress in 1972. C) It is a state agency tasked with regulating consumer safety. D) It collects data regarding injuries caused by consumer products. Answer: C Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept 53) The Consumer Product Safety Commission (CPSC) is an independent federal administrative agency empowered to regulate potentially dangerous consumer products and issue product safety standards. Answer: TRUE Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept 54) Under the Consumer Product Safety Act, a private party can sue for an injunction to prevent violations of the act or of CPSC rules and regulations. Answer: TRUE Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept 55) If a model of a car has faulty airbag deployment, the Consumer Product Safety Commission has the power to recall that model on receiving complaints. Answer: FALSE Diff: 2 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept 56) Firearms represent an example of consumer products which do not come under the CPSC rules. Answer: TRUE Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept

57) Motor vehicles is a consumer product that is NOT regulated by the Consumer Product Safety Commission. Answer: TRUE Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept 58) "Imminently hazardous" in relation to a consumer product regulated by the CPSC can be defined as causing an unreasonable risk of death or serious injury or illness. Answer: TRUE Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept 59) The CPSC is a state agency created by Congress in 1972. Answer: FALSE Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept 60) What are the powers of the Consumer Product Safety Commission? Name some consumer products excluded from the purview of the CPSC. Answer: The CPSC is an independent federal administrative agency empowered to (1) adopt rules and regulations to interpret and enforce the CPSA, (2) conduct research on the safety of consumer products, and (3) collect data regarding injuries caused by consumer products. Certain consumer products, including motor vehicles, boats, aircraft, and firearms, are regulated by other government agencies and not by the CPSC. Diff: 1 LO: 44.3 Describe federal laws that regulate product and automobile safety. AACSB: Analytical thinking Classification: Concept 61) Which of the following is true of the Federal Trade Commission (FTC)? A) The FTC can only sue in state courts. B) The FTC's decision can be appealed in a state court. C) The FTC can sue to obtain compensation on behalf of the consumer. D) The FTC is not allowed to directly disclose its findings to the public. Answer: C Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept

62) Which of the following would constitute a false advertising according to the Federal Trade Commission? A) sales talk B) unsubstantiated claims C) minimal commercial speech D) statements of opinion Answer: B Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 63) Which of the following statements is true of the Federal Trade Commission Act (FTC Act)? A) It can sue only in state courts to obtain compensation on behalf of consumers. B) It usually cannot enforce a cease-and-desist order in any case of violation. C) Section 5 of the FTC Act excludes monitoring of firms indulging in any consumer malpractice. D) It has been used extensively to regulate business conduct. Answer: D Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 64) The Do-Not-Call Registry was provided by the ________ to protect consumers from unsolicited commercial telephone calls. A) Federal Trade Commission B) Food and Drug Administration C) Consumer Product Safety Commission D) Federal Communications Commission Answer: A Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 65) Which of the following is true of the Do-Not-Call Registry for consumers? A) The registration is valid for the lifetime of the customer who opted for it. B) Telemarketers have three days to remove the customer's name upon registry. C) Charitable and political organizations are exempted from the registry. D) Customers cannot choose the companies that they do not wish to receive calls from. Answer: C Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 17 Copyright © 2019 Pearson Education, Inc.

66) The Federal Trade Commission (FTC) can sue in either the state or federal courts to obtain compensation on behalf of consumers. Answer: TRUE Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 67) Proof of actual deception is required for an advertising to be considered false under Section 5 of the Federal Trade Commission (FTC). Answer: FALSE Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 68) Statements of opinion and sales talk do not constitute false and deceptive advertising. Answer: TRUE Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 69) Section 5 of the Federal Trade Commission (FTC) Act can be used to prohibit unfair and deceptive business practices. Answer: TRUE Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 70) If, after a public administrative hearing, the Federal Trade Commission (FTC) finds a violation of Section 5, it may issue a cease-and-desist order. Answer: TRUE Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 71) Section 5 of the Federal Trade Commission (FTC) Act gives FTC the authority to bring an administrative proceeding to attack a deceptive or unfair practice. Answer: TRUE Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 18 Copyright © 2019 Pearson Education, Inc.

72) The Do-Not-Call Registry allows consumers to designate specific companies not to call them. Answer: TRUE Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 73) The U.S. Supreme Court has deemed the Do-Not-Call Registry service as an unconstitutional violation of commercial speech. Answer: FALSE Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 74) Charitable organizations are exempt from the Do-Not-Call registry. Answer: TRUE Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 75) Political organizations are exempt from the Do-Not-Call registry. Answer: TRUE Diff: 1 LO: 44.4 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 45 Environmental Protection 1) The ________ is a federal administrative agency created by Congress to coordinate the implementation and enforcement of the federal environmental protection laws. A) Ministry of Environmental Protection B) Environmental Investigation Agency C) Environmental Protection Agency D) Global Environment Facility Answer: C Diff: 1 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept 2) The National Environmental Policy Act is a federal statute which mandates that the federal government must ________. A) consider focusing on air and water pollution to the exclusion of other sources of pollution as these two modes of pollution have the greatest impact on human lives B) execute a complete ban on the commercial usage of the two hundred toxic substances identified as being harmful and polluting C) implement a zero-tolerance policy for all business activities that discharge waste products into water bodies D) consider the adverse impact a federal government action would have on the environment before the action is implemented Answer: D Diff: 1 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept 3) The ________ administers the National Environmental Policy Act (NEPA) and has the authority to adopt regulations for the enforcement of the act. A) Environmental Protection Agency B) Environmental Investigation Agency C) Ministry of Environmental Protection D) Association of Environmental Professionals Answer: A Diff: 1 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept

4) Which of the following is a document required by the National Environmental Policy Act (NEPA) that must be prepared for any proposed legislation or major federal action that significantly affects the quality of the human environment? A) environmental impact abstract B) environmental impact statement C) environmental impact design D) strategic environmental assessment Answer: B Diff: 1 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept 5) Which of the following steps immediately follows the publication of the environmental impact statement (EIS) for a proposed project? A) the Congress has to pass a bill adopting the EIS B) the nonprofit environmentalists are allowed access to the EIS C) the government issues an order to proceed with a federal action on the project D) the interested parties submit comments to the Environmental Protection Agency (EPA) Answer: D Diff: 2 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept 6) Which of the following is true of an environmental impact statement (EIS)? A) It is not required by state or local laws, only federal law. B) It can be challenged in court by environmentalists or other interested parties. C) It can only be accepted after Congress passes a bill adopting the EIS. D) It is not required for projects undertaken by private parties. Answer: B Diff: 1 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept 7) The Environmental Protection Agency lacks adjudicative powers to hold hearings and order remedies for violation of environmental laws. Answer: FALSE Diff: 1 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept

8) The EPA (Environmental Protection Agency) administers the NEPA (National Environmental Policy Act) and has the authority to adopt regulations for the enforcement of the act. Answer: TRUE Diff: 1 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept 9) The National Environmental Policy Act (NEPA) and Environmental Protection Agency (EPA) regulations require that an environmental impact statement (EIS) be prepared by the state government. Answer: FALSE Diff: 1 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept 10) An environmental impact statement (EIS) must contain a cost-benefit analysis of the proposed action and alternative actions. Answer: TRUE Diff: 1 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept 11) An environmental impact statement (EIS) can be challenged in court by environmentalists and other interested parties. Answer: TRUE Diff: 1 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept 12) Describe the purpose and requirements of an environmental impact statement (EIS). Answer: The purpose of an EIS is to provide enough information about the environment to enable the federal government to determine the feasibility of the project. An EIS must (1) describe the affected environment, (2) describe the impact of the proposed federal action on the environment, (3) identify and discuss alternatives to the proposed action, (4) list the resources that will be committed to the action, and (5) contain a cost-benefit analysis of the proposed action and alternative actions. Diff: 1 LO: 45.1 Describe an environmental impact statement and identify when one is needed. AACSB: Analytical thinking Classification: Concept

13) Which of the following would be considered a stationary source of air pollution? A) aircrafts B) oil rigs C) cargo ships D) automobiles Answer: B Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 14) Which of the following is true of the Clean Air Act? A) It is the only major state law regulating air pollution in the United States. B) It fails to include the air pollution caused by fuel and fuel additives in its purview. C) It is only concerned with stationary sources of air pollution. D) It requires air pollution controls to be installed on motor vehicles. Answer: D Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 15) The primary level of the national ambient air quality standards (NAAQS) protects ________. A) flora B) human beings C) water bodies D) climate Answer: B Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 16) The national ambient air quality standards (NAAQS) ________. A) divide pollutants into five groups based on the risks they pose to humans B) represent a set of standards for certain pollutants that have two levels C) apply to all sources of pollution D) are administered exclusively by the federal government Answer: B Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept

17) Each state is required to prepare a(n) ________ that sets out how the state plans to meet the federal standards set by the national ambient air quality standards (NAAQS). A) strategic environmental assessment B) environmental impact statement plan C) state assessment plan D) state implementation plan Answer: D Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 18) Which of the following is true of the national ambient air quality standards (NAAQS)? A) The federal government has the right to enforce the air pollution standards if the states fail to do so. B) The state governments are responsible for setting air quality standards in their respective states. C) Human beings are protected under the secondary level of the NAAQS. D) Only standards for oxides of elements and articulate matter are evaluated under the NAAQS. Answer: A Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 19) A geographical area that does not meet established air quality standards is designated as a(n) ________. A) limited pollution area B) nonattainment area C) zoned ordinance area D) federal regulation area Answer: B Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept

20) In a survey of the nonattainment areas in the state, the agency found Helmont to be the district that exceeded the ozone standard by the largest margin. Helmont is most likely to be categorized as a(n) ________ nonattainment area. A) severe B) extreme C) marginal D) serious Answer: B Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Application of knowledge Classification: Application 21) Which of the following is otherwise known as indoor air pollution? A) anosmia B) somatization disorder C) culture bound syndrome D) sick building syndrome Answer: D Diff: 2 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 22) Which of the following is a primary cause of sick building syndrome in the United States? A) large number of outside ducts B) unsealed windows C) thinly insulated buildings D) hazardous construction materials Answer: D Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 23) Which of the following is a sanction imposed on states that don't implement approved plans for the reduction in air pollution? A) increase in tax for personal property B) reduction in public school funding C) loss of federal highway funds D) implementation of monthly fines based on pollution levels Answer: C Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

24) Oil refineries are an example of stationary sources of air pollution. Answer: TRUE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 25) The Clean Air Act does not apply to stationary sources of pollution. Answer: FALSE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 26) The Clean Air Act authorizes the Environmental Protection Agency (EPA) to regulate air pollution caused by fuel and fuel additives. Answer: TRUE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 27) The pollutant standards under the national ambient air quality standards (NAAQS) are set in two levels. Answer: TRUE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 28) The primary level of the national ambient air quality standards (NAAQS) protects vegetation. Answer: FALSE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 29) Human beings are protected in the secondary level of the national ambient air quality standards (NAAQS). Answer: FALSE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept

30) The right to enforce air pollution standards is an exclusive prerogative of the federal government. Answer: FALSE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 31) Each state is required to prepare a state implementation plan (SIP) that sets out how the state plans to meet the federal pollutant standards. Answer: TRUE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 32) Regions that do not meet air quality standards are designated as air quality control regions. Answer: FALSE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 33) The third category of the nonattainment areas is labeled "serious." Answer: TRUE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 34) The Environmental Protection Agency (EPA) can prohibit the construction of a new pollution-causing industrial plant in a state that is a nonattainment area. Answer: TRUE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 35) According to officials at the Environmental Protection Agency (EPA), the air inside buildings is typically the safest as it is free from pollution. Answer: FALSE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept

36) Indoor air pollution is primarily caused by toxic fumes from industrial plants located in cities. Answer: FALSE Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 37) Explain the nature and enforcement of the national ambient air quality standards (NAAQS). Answer: The Clean Air Act directs the Environmental Protection Agency (EPA) to establish national ambient air quality standards (NAAQS) for certain pollutants. These standards are set at two different levels: primary, which is to protect human beings, and secondary, which is to protect vegetation, matter, climate, visibility, and economic values. Specific standards have been established for carbon monoxide, nitrogen oxide, sulfur oxide, ozone, lead, and particulate matter. Although the Environmental Protection Agency (EPA) establishes air quality standards, the states are responsible for their enforcement. The federal government has the right to enforce these air pollution standards if the states fail to do so. Each state is required to prepare a state implementation plan (SIP) that specifies the state plans to meet the federal standards. The EPA has divided each state into air quality control regions (AQCRs). Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 38) What are the measures taken to protect wetlands in the United States? Answer: Wetlands are defined as areas that are inundated or saturated by surface water or ground water that support vegetation typically adapted for life in saturated soil conditions. Wetlands include swamps, marshes, bogs, and similar areas that support birds, animals, and vegetative life. The federal Clean Water Act regulates the discharge of dredged or fill material into navigable water and wetlands that have a significant nexus to navigable waters. The U.S. Army Corps of Engineers (USACE) is authorized to enforce this statute and to issue permits for discharge of dredged or fill material into navigable waters and qualified wetlands in the United States. The Clean Water Act forbids the filling or dredging of navigable waters and qualified wetlands unless a permit has been obtained from the Army Corps of Engineers. Diff: 1 LO: 45.2 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept

39) Which of the following federal administrative agencies enacts the Clean Water Act? A) the Environmental Investigation Agency B) the Environmental Protection Agency C) the Ministry of Environmental Protection D) the Association of Environmental Professionals Answer: B Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 40) Which of the following is primarily responsible for enforcing the provisions of the Clean Water Act? A) the federal government B) independent agencies C) the state government D) nonprofit organizations Answer: C Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 41) AMS is a factory situated on the coast that uses chemicals like lead and arsenic in its daily production processes. It discharges the waste products of the manufacturing process into the sea nearby. From the information provided in the scenario, we can infer that ________. A) AMS is a heavy electrical goods company B) AMS is using radioactive minerals C) AMS is likely to face corrective action by the U.S. Army Corps of Engineers D) AMS is a source of pollution that is fixed and stationary Answer: D Diff: 2 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Application of knowledge Classification: Application 42) The process by which heated water or material is discharged into waterways upsetting the ecological balance and decreasing the oxygen content is defined as ________. A) land pollution B) radioactive pollution C) air pollution D) thermal pollution Answer: D Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

43) Areas that are inundated or saturated by surface water or ground water that support vegetation typically adapted for life in such conditions are called ________. A) marine reefs B) gullies C) wetlands D) reservoirs Answer: C Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 44) The Clean Water Act forbids the filling or dredging of navigable waters and qualified wetlands unless a permit has been obtained from the ________. A) Ministry of Environmental Protection B) U.S. Army Corps of Engineers C) Environmental Protection Agency D) Nuclear Regulatory Commission Answer: B Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 45) Which of the following actions is prohibited under the Clean Water Act? A) inhabitation on inland areas in the vicinity of wetlands and marshes B) chemical treatment of wastes to reduce toxicity before discharge into wetlands C) construction of residences by filling qualified wetlands D) creation of artificial lakes and waterways for recreation Answer: C Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 46) The ________ is a federal statute that authorizes the Environmental Protection Agency (EPA) to establish national primary potable water standards. A) Comprehensive Environmental Response, Compensation, and Liability Act B) Federal Water Pollution Control Act C) Clean Water Act D) Safe Drinking Water Act Answer: D Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

47) Which of the following is a federal statute that extends limited environmental protection to the oceans? A) the Safe Drinking Water Act B) the Marine Protection, Research, and Sanctuaries Act C) the Federal Water Pollution Control Act D) the Comprehensive Environmental Response, Compensation, and Liability Act Answer: B Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 48) The ________ authorizes the U.S. government to clean up oil spills and spills of other hazardous substances in ocean waters within 12 miles of the shore and on the continental shelf and to recover the cleanup costs from responsible parties. A) Clean Water Act B) Comprehensive Environmental Response, Compensation, and Liability Act C) Federal Water Pollution Control Act D) Marine Protection, Research, and Sanctuaries Act Answer: A Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 49) The U.S. Coast Guard administers the Oil Pollution Act which requires the oil industry to ________. A) obtain a permit for dumping wastes and other foreign materials into ocean waters B) implement measures to avoid dumping of wastes into wells used for drinking water C) adopt procedures and contingency plans to readily respond to and clean up oil spills D) establish marine sanctuaries in ocean waters as far seaward as the edge of the continental shelf Answer: C Diff: 2 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept

50) One of the features of the Marine Protection, Research, and Sanctuaries Act is that it ________. A) requires the oil industry to adopt procedures and contingency plans to readily respond to and clean up oil spills B) requires a permit for dumping wastes and other foreign materials into ocean waters C) requires the tanker owner-operator to prove that it is fully insured to cover any liability that may occur from an oil spill D) issues permits for discharge of dredged or fill material into navigable waters and qualified wetlands Answer: B Diff: 2 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 51) The Federal Water Pollution Control Act enacted by the Congress in 1948 continues to be applied across the United States in its original form without amendments. Answer: TRUE Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 52) The federal government is primarily responsible for the implementation of the Clear Water Act in all states. Answer: FALSE Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 53) The Clear Water Act extends its protection to the oceans. Answer: FALSE Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 54) Point sources are sources of pollution that are fixed and stationary. Answer: TRUE Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept

55) Sources of thermal pollution are subject to the provisions of the Clean Water Act and the regulations adopted by the Environmental Protection Agency (EPA). Answer: TRUE Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 56) The filling or dredging of navigable waters and qualified wetlands are prohibited unless a permit has been obtained from the Army Corps of Engineers. Answer: TRUE Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 57) The Clear Water Act authorizes the Environmental Protection Agency (EPA) to establish national primary drinking water standards. Answer: FALSE Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 58) The Marine Protection, Research, and Sanctuaries Act, enacted in 1972, extends environmental protection to the oceans. Answer: TRUE Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 59) As a part of the Marine Protection, Research, and Sanctuaries Act, dumping wastes and other foreign materials into ocean waters are statutorily prohibited with no alternatives like permits, licenses, and mandatory checks. Answer: FALSE Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept

60) The Oil Pollution Act authorizes the U.S. government to clean up oil spills and spills of other hazardous substances in ocean waters within 12 miles of the shore. Answer: FALSE Diff: 1 LO: 45.3 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 61) Which of the following is true of the Environmental Protection Agency (EPA) standards set for toxic substances? A) They require special labeling of toxic substances. B) They are set based on the recommendation of business owners affected by the pollution. C) They require the EPA to identify all chemicals based on the national ambient air quality standards (NAAQS). D) They require a complete ban on all toxic substances. Answer: A Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 62) Which of the following is true of the Insecticide, Fungicide, and Rodenticide Act? A) It only allows government-manufactured pesticides to be sold. B) It requires all pesticides to be registered with the EPA. C) It cannot suspend the registration of an already registered pesticide. D) It allows non-registered pesticides to be sold only under supervision by the Environmental Protection Agency (EPA). Answer: B Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 63) The ________ is a federal statute that authorizes the Environmental Protection Agency (EPA) to regulate facilities that generate, treat, store, transport, and dispose of hazardous wastes. A) Resource Conservation and Recovery Act B) Clean Water Act C) Toxic Substances Control Act D) Comprehensive Environmental Response, Compensation, and Liability Act Answer: A Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 15 Copyright © 2019 Pearson Education, Inc.

64) The remains of the process by which nuclear power is generated in a reactor are most likely to be classified as ________. A) oil-spilled pollutants B) inert elements C) pesticides D) hazardous wastes Answer: D Diff: 2 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 65) The ________ Act provides for the creation of a government fund to finance the cleanup of hazardous waste sites. A) Resource Conservation and Recovery B) Toxic Substances Control C) Comprehensive Environmental Response, Compensation, and Liability D) National Environmental Policy Answer: C Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 66) The Superfund Act, administered by the Environmental Protection Agency (EPA), gives the federal government a mandate to ________. A) establish marine sanctuaries in ocean waters as far seaward as the edge of the continental shelf B) impose fines on buildings and offices that cause harm to their occupants due to indoor air pollution C) cleanup hazardous wastes that have been spilled, stored, or abandoned D) set standards on the toxic substances that can be used or sold Answer: C Diff: 2 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept

67) Which of the following is a true of the Superfund? A) It mandates the state government to deal with hazardous wastes that have been spilled, stored, or abandoned. B) It identifies sites in the United States where hazardous wastes have been disposed of, stored, abandoned, or spilled. C) It levies extra tax on the people of the state where hazardous wastes have been improperly disposed of. D) It does not permit states and private parties who clean up hazardous waste sites to seek reimbursement from the fund. Answer: B Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 68) Armex, a large power plant, has been in the news for a potential defect in the construction of its inner chambers that caused radioactive fumes to escape from the plant to the surrounding areas. This has endangered the lives of the employees at the plant as well as those staying in the nearby areas. This safety violation is likely to be taken up by the ________ for corrective action like closure of the plant. A) Federal Nuclear Agency B) U.S. Army Corps of Engineers C) Nuclear Waste Policy Commission D) Nuclear Regulatory Commission Answer: D Diff: 2 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Application of knowledge Classification: Application 69) Which of the following is a mandate of the Nuclear Waste Policy Act to the government? A) to set standards for radioactivity in the environment B) to select a permanent site for the disposal of nuclear wastes C) to regulate thermal pollution from nuclear power plants D) to use wetlands as a source of nuclear wastage disposal Answer: B Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept

70) The Toxic Substances Control Act is administered by the U.S. Army Corps of Engineers. Answer: FALSE Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 71) The Environmental Protection Agency (EPA) requires special labeling of toxic substances. Answer: TRUE Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 72) The Clean Air Act requires the Environmental Protection Agency (EPA) to identify toxic air pollutants that present a substantial risk of injury to human health or the environment. Answer: FALSE Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 73) Under the Resource Conservation and Recovery Act, the Environmental Protection Agency (EPA) is authorized to regulate underground storage facilities. Answer: TRUE Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 74) The Superfund is financed through taxes on products that contain hazardous substances. Answer: TRUE Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept

75) The Comprehensive Environmental Response, Compensation, and Liability Act is commonly called the Superfund. Answer: TRUE Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 76) Describe any two legislations that have been implemented to minimize the damage caused by oil spills. Answer: There have been several major oil spills from oil tankers and oil drilling facilities in ocean waters off the coast of the United States. These oil spills have caused significant damage to plant, animal, and human life, as well as to their habitats. Two legislations that have been implemented to minimize the damage caused by oil spills are described below. The Clean Water Act authorizes the U.S. government to clean up oil spills and spills of other hazardous substances in ocean waters within 12 miles of the shore and on the continental shelf and to recover the cleanup costs from responsible parties. The federal Oil Pollution Act is administered by the U.S. Coast Guard. This act requires the oil industry to adopt procedures and contingency plans to readily respond to and clean up oil spills. A tanker owner-operator must prove that it is fully insured to cover any liability that may occur from an oil spill. The act also requires oil tankers to have double hulls by 2015. Diff: 1 LO: 45.4 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 77) Which of the following is true of the Endangered Species Act? A) It is the only federal law that protects wildlife at present. B) It empowers the secretary of the interior to declare a form of wildlife as endangered. C) It does not include marine species and amphibian life forms. D) It applies only to situations where governments are responsible for endangering animals. Answer: B Diff: 1 LO: 45.5 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept

78) Taking is defined as an act intended to "harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect" an endangered animal. Answer: TRUE Diff: 1 LO: 45.5 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept 79) The Endangered Species Act applies only to private parties. Answer: FALSE Diff: 1 LO: 45.5 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept 80) How are endangered species protected in the United States? Name three laws that protect wildlife species. Answer: In the United States, endangered species are protected under the Endangered Species Act that was enacted in 1973. The secretary of the interior is empowered to declare a form of wildlife as endangered or threatened. The act requires the Environmental Protection Agency (EPA) and the Department of Commerce to designate critical habitats for each endangered and threatened species. Real estate and other development in these areas is prohibited or severely limited. The secretary of commerce is empowered to enforce the provisions of the act as to marine species. In addition, the Endangered Species Act, which applies to both government and private persons, prohibits the taking of any endangered species. Taking is defined as an act intended to "harass, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect" an endangered animal. The Migratory Bird Treaty Act, the Bald Eagle Protection Act, and the Wild Free-Roaming Horses and Burros Act are three of the many laws that protect wildlife species in the United States. Diff: 1 LO: 45.5 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept

81) Give an account of the state environmental protection laws. Answer: Many state and local governments have enacted statutes and ordinances to protect the environment. Most states require that an environmental impact statement (EIS) or a report be prepared for any proposed state action. In addition, under their police power to protect the "health, safety, and welfare" of their residents, many states require private industry to prepare EISs for proposed developments. Some states have enacted special environmental statutes to protect unique areas within their boundaries. Diff: 1 LO: 45.5 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 46 Antitrust Law and Unfair Trade Practices 1) ________ are a series of laws enacted to specifically limit anticompetitive behavior and monopolistic practices in almost all industries, businesses, and professions operating in the United States. A) Contract laws B) Antitrust laws C) Laissez-faire laws D) Canon laws Answer: B Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of antitrust laws? A) Antitrust laws are fixed and unchangeable. B) Antitrust laws were enacted by Congress as early as the late 1800s. C) Federal antitrust laws provide for government lawsuits and exclude private lawsuits from their purview. D) Treble damages cannot be sought in antitrust lawsuits. Answer: B Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 3) The ________ is a federal statute, enacted in 1914, that regulates mergers and prohibits certain exclusive dealing arrangements. A) Sherman Act B) Celler-Kefauver Act C) Robinson-Patman Act D) Clayton Antitrust Act Answer: D Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept

4) The ________ is a federal statute, enacted in 1930, that prohibits price discrimination. A) Sherman Act B) Clayton Act C) Robinson-Patman Act D) Federal Trade Commission Act Answer: C Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 5) The ________ is a federal statute, enacted in 1890, that makes certain restraints of trade and monopolistic acts illegal. A) Federal Trade Commission Act B) Robinson-Patman Act C) Clayton Act D) Sherman Antitrust Act Answer: D Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 6) Which of the following is the only act that includes criminal sanctions for the usage of unfair trade practices? A) the Clayton Act B) the Sherman Act C) the Robinson-Patman Act D) the Federal Trade Commission Act Answer: B Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept

7) Government enforcement of antitrust laws is divided between the ________ and the ________. A) the Sherman Antitrust Act; Clayton Antitrust Act B) Antitrust Division of the Department of Justice; Clayton Antitrust Act C) Antitrust Division of the Department of Justice; Bureau of Competition of the Federal Trade Commission D) Sherman Antitrust Act; Bureau of Competition of the Federal Trade Commission Answer: C Diff: 2 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 8) ________ damages are the only damages that may be recovered for violations of the FTC Act. A) Treble B) Double C) Potential D) Actual Answer: D Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 9) A private plaintiff has ________ years from the date on which an antitrust injury occurred to bring a private civil treble-damages action because only damages incurred during this period are recoverable. A) three B) two C) five D) four Answer: D Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept

10) A(n) ________ is a type of plea where the defendant pays a penalty without admission of guilt. A) nolo contendere B) arraignment C) indictment D) plea bargain Answer: A Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 11) The antitrust laws were enacted to promote anticompetitive behavior in commerce and industry. Answer: FALSE Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 12) Federal antitrust laws provide only for government lawsuits. Answer: FALSE Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 13) Antitrust laws are constant across changes in governmental administration. Answer: FALSE Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 14) The Clayton Act, enacted in 1914, regulates mergers and prohibits certain exclusive dealing arrangements. Answer: TRUE Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

15) The Robinson-Patman Act is a federal statute that makes it mandatory to provide a notification prior to a merger. Answer: FALSE Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 16) The Sherman Act is the only major antitrust act that includes criminal sanctions. Answer: TRUE Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 17) Treble damages cannot be sought by the government for the violation of antitrust laws. Answer: FALSE Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 18) Private parties cannot intervene in public antitrust actions brought by the government. Answer: TRUE Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 19) The FTC Act can be used to recover treble damages. Answer: FALSE Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept

20) Antitrust defendants often opt to settle government-brought antitrust actions by entering a plea of nolo contendere. Answer: TRUE Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 21) Give an account of state antitrust laws. Answer: Most states have enacted antitrust statutes. These statutes are usually patterned after federal antitrust statutes. They often contain the same language as well. State antitrust laws are used to attack anticompetitive activity that occurs in intrastate commerce. When federal antitrust laws are laxly applied, plaintiffs often bring lawsuits under state antitrust laws. Diff: 1 LO: 46.1 List and describe the major federal antitrust statues and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 22) The two tests the U.S. Supreme Court has developed for determining the lawfulness of a restraint are the rule of reason and the ________. A) Noerr doctrine B) per se rule C) nolo contendere rule D) Colgate doctrine Answer: B Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 23) Under the ________, the court must examine the pro- and anticompetitive effects of a challenged restraint. A) Noerr doctrine B) rule of reason C) per se rule D) consent decree Answer: B Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept

24) The ________ is a rule that is applicable to restraints of trade considered inherently anticompetitive. A) consent decree B) Noerr doctrine C) per se rule D) rule of reason Answer: C Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 25) Which of the following is true of the per se rule in restraint of trade? A) fails to permit any defenses and justifications to save the restraint of trade B) applies only to restraints that are found to be unreasonable with certain evidentiary standards being met C) applies to restraints that are based primarily on the firm's market share and power D) requires a balancing of the positive and negative effects of the challenged restraint Answer: A Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 26) The rule of reason is characterized by ________. A) an automatic violation of Section 1 of the Sherman Act B) an inherently anticompetitive nature C) a lack of need for any evidence to deem the restraint unreasonable D) an evaluation of the company's market share, power, and other facets Answer: D Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 27) Price fixing is a ________ violation of Section 1 of the Sherman Act. A) reasonable B) per se C) justifiable D) permissible Answer: B Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept

28) Three of the largest petroleum refineries in the country have come to an agreement about what price they would pay to purchase crude oil from sellers. This is an example of ________. A) sellers' illegal per se price fixing B) sellers' illegal group boycott C) buyers' illegal per se price fixing D) buyers' illegal market sharing Answer: C Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Application of knowledge Classification: Application 29) Which of the following is true with regard to price fixing? A) Price fixing is a reasonable violation of Section 1 of the Sherman Act. B) Price fixing is a process seen exclusively among sellers of goods and services. C) Price fixing is permissible as it helps consumers or protects competitors from ruinous competition. D) Price fixing also involves fixing the quantity of a product or service to be produced or provided. Answer: D Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 30) ________ is a restraint of trade in which competitors agree that each will serve only a designated portion of the market. A) Resale market price maintenance B) Profit-sharing C) Market sharing D) Gainsharing Answer: C Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 31) Which of the following horizontal restraints of trade has the element of monopoly in it? A) conscious parallelism B) market sharing C) group boycott D) exchange of nonprice information Answer: B Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 8 Copyright © 2019 Pearson Education, Inc.

32) A restraint of trade in which two or more competitors at one level of distribution agree not to deal with others at another level of distribution is known as ________. A) group boycott B) resale price maintenance C) price fixing D) market sharing Answer: A Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 33) ________ is when two or more competitors at the same level of distribution enter into a contract, combination, or conspiracy to restrain trade A) Horizontal price fixing B) Horizontal restraint of trade C) Unilateral refusal to deal D) Conscious parallelism Answer: B Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 34) Which of the following is an example of a vertical restraint of trade? A) group boycott B) price fixing C) resale price maintenance D) division of markets Answer: C Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 35) A per se violation of Section 1 of the Sherman Act that occurs when a party at one level of distribution enters into an agreement with a party at another level to adhere to a price schedule that either sets or stabilizes prices is referred to as ________. A) group boycotts B) horizontal price fixing C) resale price maintenance D) nonprice vertical restraints Answer: C Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 9 Copyright © 2019 Pearson Education, Inc.

36) Restraints of trade that are unlawful under Section 1 of the Sherman Act if their anticompetitive effects outweigh their procompetitive effects are known as ________. A) nonprice vertical restraints B) group boycotts C) division of markets D) resale price maintenance measures Answer: A Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 37) The legality of nonprice vertical restraints of trade under Section 1 of the Sherman Act is examined by applying the ________. A) Colgate doctrine B) Noerr doctrine C) per se rule D) rule of reason Answer: D Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 38) ________ is seen when an independent choice is made by one party not to deal with another party. A) Nonprice vertical restraint B) Monopoly to deal C) Unilateral refusal to deal D) Conscious parallelism Answer: C Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 39) Which of the following is true of the Colgate doctrine? A) It is not a violation of Section 1 of the Sherman Act. B) It is an example of a horizontal restraint of trade. C) It is a per se violation of Section 1 of the Sherman Act. D) It is a rule of reason violation of Section 1 of the Sherman Act. Answer: A Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

40) Conscious parallelism is seen when ________. A) parties at different levels enter into an agreement to adhere to a price schedule that stabilizes prices B) one party makes an independent choice not to deal with another C) two or more firms act the same but no concerted action is shown D) a party's anticompetitive effects outweigh their procompetitive effects Answer: C Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 41) ________ is an antitrust principle which says that two or more persons can petition the executive, legislative, or judicial branch of the government or administrative agencies to enact laws or take other action without violating antitrust laws. A) Noerr doctrine B) Colgate doctrine C) Nolo contendere D) Small company doctrine Answer: A Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 42) The per se rule is applicable to restraints of trade that are considered inherently anticompetitive. Answer: TRUE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 43) Restraints that are not characterized as per se violations are not further examined using the rule of reason. Answer: FALSE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 44) Price fixing is a rule of reason violation of Section 1 of the Sherman Act. Answer: FALSE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

45) Only price-fixing conducted by sellers is considered a violation of Section 1 of the Sherman Act. Answer: FALSE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 46) The fact that price fixing helps consumers or protects competitors from ruinous competition can be used as a valid defense against the charge of price discrimination. Answer: FALSE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 47) Competitors who agree that each will serve only a designated portion of the market are deemed to be engaging in a group boycott. Answer: FALSE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 48) Group boycotts can be either a per se violation or rule of reason violation. Answer: TRUE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 49) Division of markets is considered to be a type of horizontal restraint of trade. Answer: TRUE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 50) Setting of minimum resale prices is a rule of reason violation of Section 1 of the Sherman Act. Answer: FALSE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept

51) The legality of nonprice vertical restraints of trade under Section 1 of the Sherman Act is examined by using the rule of reason. Answer: TRUE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 52) A unilateral refusal to deal is a violation of Section 1 of the Sherman Act because there is a concerted action with others. Answer: FALSE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 53) For conscious parallelism to be proven, each manufacturer should be found to have acted on its own. Answer: TRUE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 54) Noerr doctrine is guaranteed by the Bill of Rights. Answer: TRUE Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 55) Give an account of the Noerr doctrine. Answer: The Noerr doctrine holds that two or more persons may petition the executive, legislative, or judicial branch of the government or administrative agencies to enact laws or to take other action without violating antitrust laws. The rationale behind this doctrine is that the right to petition the government has precedence because it is guaranteed by the Bill of Rights. There is an exception to this doctrine. Diff: 1 LO: 46.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept

56) A relevant market is characterized by the presence of ________. A) unique goods and services B) reasonably interchangeable goods and services C) highly differentiated goods and services D) pure monopoly of the defendant's goods and products Answer: B Diff: 2 LO: 46.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 57) A monopoly power is characterized by ________. A) a market share of below 20 percent B) an inability to control prices in the market C) an ability to exclude all competition from other sellers D) a presence of multiple substitute goods at competing prices Answer: C Diff: 1 LO: 46.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 58) Which of the following is a defense to a charge of monopoly? A) the Noerr doctrine B) natural monopoly C) conscious parallelism D) predatory pricing Answer: B Diff: 1 LO: 46.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 59) Section 2 of the Sherman Act prohibits the act of monopolization. Answer: TRUE Diff: 1 LO: 46.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 60) The relevant geographical market is always considered state-wide. Answer: FALSE Diff: 1 LO: 46.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 14 Copyright © 2019 Pearson Education, Inc.

61) Predatory pricing has been held to violate Section 2 of the Sherman Act. Answer: TRUE Diff: 1 LO: 46.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 62) Natural monopolies are found to violate Section 2 of the Sherman Act. Answer: FALSE Diff: 1 LO: 46.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 63) How is a relevant market identified by Section 2 of the Sherman Act? Answer: Identifying the relevant market for a Section 2 action requires defining the relevant product or service market and geographical market. The definition of the relevant market often determines whether the defendant has monopoly power. The relevant product or service market generally includes substitute products or services that are reasonably interchangeable with the defendant's products or services. The relevant geographical market is usually defined as the area in which the defendant and its competitors sell the product or service. This may be a national, regional, state, or local area, depending on the circumstances. Diff: 1 LO: 46.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 64) A merger between two or more companies that compete in the same business and geographical market is known as ________. A) horizontal merger B) vertical merger C) market extension merger D) conglomerate merger Answer: A Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept

65) What is a vertical merger? A) a merger between firms in totally unrelated businesses B) a merger that integrates the operations of a supplier and a customer C) a merger between two companies in similar fields whose sales do not overlap D) a merger between two or more companies that compete in the same business and geographical market Answer: B Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 66) What is a backward vertical merger? A) a vertical merger between two or more companies that compete in the same business and geographical market B) a vertical merger between two companies in similar fields whose sales do not overlap C) a vertical merger in which a supplier acquires a customer D) a vertical merger in which a customer acquires a supplier Answer: D Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 67) A merger between two regional fruit-sellers that do not sell fruit in the same geographical area is an example of a ________. A) market extension merger B) conglomerate merger C) horizontal merger D) vertical merger Answer: A Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept

68) ________ are mergers between firms in totally unrelated businesses. A) Market extension mergers B) Conglomerate mergers C) Horizontal mergers D) Forward vertical mergers Answer: B Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 69) Which of the following is considered to be a primary defense against Section 7 of the Clayton Act? A) Noerr doctrine B) Colgate doctrine C) the failing company doctrine D) conscious parallelism doctrine Answer: C Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 70) ________ is an act that requires certain firms to notify the Federal Trade Commission and the Justice Department in advance of a proposed merger and comply with a thirty-day waiting period before the merger is approved. A) Celler-Kefauver Act B) Hart-Scott-Rodino Antitrust Improvement Act C) Robinson-Patman Act D) Sherman Act Answer: B Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 71) The functional interchangeability test is used in defining the relevant product or service market. Answer: TRUE Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 17 Copyright © 2019 Pearson Education, Inc.

72) The merger of two grocery store chains that serve the same geographical market is an example of a horizontal merger. Answer: TRUE Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Application of knowledge Classification: Application 73) Vertical mergers create an increase in market share because the merging firms serve different markets. Answer: FALSE Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 74) The unfair advantage theory is intended to prevent wealthy companies from overwhelming the competition in a given market. Answer: TRUE Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 75) According to the failing company doctrine, two or more smaller companies are allowed to merge to compete with a larger company even if they are highly profitable as smaller companies. Answer: FALSE Diff: 1 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept

76) What is a premerger notification? Explain the process outlined by the Hart-Scott-Rodino Antitrust Improvement Act to execute a merger. Answer: The Hart-Scott-Rodino Antitrust Improvement Act requires certain larger firms to notify the Federal Trade Commission and the U.S. Department of Justice of any proposed merger and to provide information about the parties and the proposed transaction. Upon the filing, a thirty-day waiting period begins (fifteen days for all-cash tender offers), during which time the government agencies may investigate the transaction. If the government agencies believe that the acquisition would have anticompetitive effects, they may extend the waiting period and request additional information from the parties. If within the waiting period the government sues, the suit is entitled to expedited treatment in the courts. If the government does not challenge a proposed merger within thirty days, the merger may proceed. The parties may request that the waiting period be terminated early if the government agencies do not find anticompetitive effects. Diff: 2 LO: 46.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 77) ________ is a restraint of trade in which a seller refuses to sell one product to a customer unless the customer agrees to purchase a second product from the seller. A) Tying arrangement B) Predatory pricing C) Price fixing D) Group boycott Answer: A Diff: 1 LO: 46.5 Describe tying arrangements that violate Section 3 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 78) Section 1 of the Sherman Act allows for intangible properties to be sold in tying arrangements. Answer: FALSE Diff: 1 LO: 46.5 Describe tying arrangements that violate Section 3 of the Clayton Act. AACSB: Analytical thinking Classification: Concept

79) ________ is a defense to Section 2(a) liability, which provides that a seller's price discrimination is not unlawful if the price differential is due to "differences in the cost of manufacture, sale, or delivery" of the product. A) Natural monopoly defense B) Meeting the competition defense C) Changing conditions defense D) Cost justification defense Answer: D Diff: 1 LO: 46.6 List and describe the types of price discrimination that violate Section 2 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 80) It is necessary to prove actual injury in order for a plaintiff to recover damages in a price discrimination lawsuit. Answer: TRUE Diff: 1 LO: 46.6 List and describe the types of price discrimination that violate Section 2 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 81) What are the three statutory defenses under the Robinson-Patman Act for price discrimination? Answer: The Robinson-Patman Act establishes three statutory defenses to Section 2(a) liability and these are described below. Cost justification defense: Section 2(a) provides that a seller's price discrimination is not unlawful if the price differential is due to "differences in the cost of manufacture, sale, or delivery" of the product. Changing conditions defense: Price discrimination is not unlawful under Section 2(a) if it is in response to "changing conditions in the market for or the marketability of the goods." Meeting the competition defense: The meeting the competition defense to price discrimination is stipulated in Section 2(b) of the Robinson-Patman Act. This defense holds that a seller may lawfully engage in price discrimination to meet a competitor's price. Diff: 2 LO: 46.6 List and describe the types of price discrimination that violate Section 2 of the Clayton Act. AACSB: Analytical thinking Classification: Concept

82) Which of the following businesses and activities enjoys a statutory exemption from antitrust laws? A) airlines B) professional baseball C) agricultural cooperatives D) all professional sports and games Answer: C Diff: 1 LO: 46.7 Describe antitrust acts and unfair methods of competition that violate Section 5 of the Federal Trade Commission Act. AACSB: Analytical thinking Classification: Concept 83) The Federal Trade Commission and the Department of Justice share the power to enforce the FTC Act. Answer: FALSE Diff: 1 LO: 46.7 Describe antitrust acts and unfair methods of competition that violate Section 5 of the Federal Trade Commission Act. AACSB: Analytical thinking Classification: Concept 84) Treble damages are allowed in an FTC Act violation. Answer: FALSE Diff: 1 LO: 46.7 Describe antitrust acts and unfair methods of competition that violate Section 5 of the Federal Trade Commission Act. AACSB: Analytical thinking Classification: Concept 85) Which of the following businesses and activities enjoys an implied exemption from antitrust laws? A) railroads B) agricultural cooperatives C) airlines D) labor unions Answer: C Diff: 1 LO: 46.8 List and describe express and implied exemptions from antitrust laws. AACSB: Analytical thinking Classification: Concept

86) The insurance business enjoys a statutory exemption from antitrust laws. Answer: TRUE Diff: 1 LO: 46.8 List and describe express and implied exemptions from antitrust laws. AACSB: Analytical thinking Classification: Concept 87) Airlines enjoy a state action exemption from antitrust laws. Answer: FALSE Diff: 1 LO: 46.8 List and describe express and implied exemptions from antitrust laws. AACSB: Analytical thinking Classification: Concept 88) States lack the power to enact antitrust statutes autonomously. Answer: FALSE Diff: 1 LO: 46.8 List and describe express and implied exemptions from antitrust laws. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 47 Personal Property, Real Property, and Insurance 1) Tangible property, such as automobiles, furniture, and equipment, and intangible property, such as securities, patents, and copyrights, are collectively referred to as ________. A) real property B) immovable property C) personal property D) fixtures Answer: C Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 2) Which of the following is considered real property? A) a plantation B) a car C) a piece of furniture D) a copyrighted song Answer: A Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 3) A building attached to a piece of land would be considered a ________ property. A) personal B) movable C) chattel D) real Answer: D Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 4) Personal property that is permanently affixed to land or buildings is called a(n) ________. A) chattel B) fixture C) attachment D) lien Answer: B Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 1 Copyright © 2019 Pearson Education, Inc.

5) Which of the following is true about fixtures? A) They are categorized as real property. B) They are easily portable. C) They are typically removed prior to a sale. D) They can only have one owner at a time. Answer: A Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 6) ________ represent rights that cannot be reduced to physical form, such as stock certificates, certificates of deposit, bonds, and copyrights. A) Real properties B) Intangible properties C) Fixtures D) Immovable properties Answer: B Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 7) Which of the following is a similarity between real and personal property? A) Both properties can include intangible properties. B) Both properties are movable properties. C) Both properties can be owned concurrently by two or more persons. D) Both properties are removed by a seller prior to the sale of a property. Answer: C Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 8) Which of the following is true about real property? A) Real property refers to personal property permanently attached to a land. B) Real property can be either tangible or intangible property. C) Real property cannot become personal property under any circumstance. D) Real property includes land and property permanently attached to it. Answer: D Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept

9) Which of the following is an example of intangible property? A) copyrights B) fixtures C) minerals D) automobiles Answer: A Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 10) Real property can become personal property if it is ________. A) removed from the land it is situated in B) converted to an intangible property C) fixed permanently to a piece of land D) owned by more than one person at a time Answer: A Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 11) Personal property includes land and property that is permanently attached to it. Answer: FALSE Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 12) Personal property consists of everything that is not real property. Answer: TRUE Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 13) Personal property that is permanently affixed to land or buildings is referred to as chattel. Answer: FALSE Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept

14) Only intangible property qualifies as personal property. Answer: FALSE Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 15) Real property cannot be owned by more than one person. Answer: FALSE Diff: 1 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 16) Give an account of the different types of property that can be owned. Answer: There are two kinds of property: real property and personal property. Real property includes land, buildings, mineral rights, and permanent fixtures. Personal property consists of everything that is not real property. Real property can become personal property if it is removed from the land. For example, a tree that is part of a forest is real property; a tree that is cut down is personal property. Personal property that is permanently affixed to land or buildings is called a fixture. Such property, which includes things like heating systems and storm windows, is categorized as real property. Unless otherwise agreed, fixtures remain with a building when it is sold. Personal property (e.g., furniture, pictures, and other easily portable household items) may be removed by the seller prior to sale. Personal property can be either tangible or intangible. Tangible property includes physically defined property, such as goods, animals, and minerals. Intangible property represents rights that cannot be reduced to physical form, such as stock certificates, certificates of deposit, bonds, and copyrights. Diff: 2 LO: 47.1 Define personal property. AACSB: Analytical thinking Classification: Concept 17) Which of the following methods of acquiring ownership was more important when the United States was being developed than it is today? A) purchase B) capture C) gift D) production Answer: B Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept

18) Shelton Engines has built a new model of engines that can withstand more heat than the competing engines in its class. Lokin Inc., a sports car manufacturer, ________ the equipment from Shelton Engines for $1,000,000. Shelton Engines transfers title to the engine to Lokin. Lokin is now the owner of the equipment. A) captures B) leases C) purchases D) produces Answer: C Diff: 2 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Application of knowledge Classification: Application 19) ________ is a method of acquiring ownership, when a manufacturer purchases raw materials and then manufactures a finished good. A) Gifting B) Producing C) Capturing D) Purchasing Answer: B Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 20) The voluntary transfer of title to property without payment of consideration by the donee is known as a(n) ________. A) adverse possession B) future interest C) gift D) purchase Answer: C Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept

21) Which of the following is considered a constructive delivery of a gift? A) giving the key to a safe-deposit box where the gift is kept B) paying for the total value of the good being gifted in cash C) contracting a third party to deliver goods to the donee D) gifting someone in person to ensure acceptance of the gift Answer: A Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 22) What is a gift inter vivos? A) a gift that is made in contemplation of death B) a gift made during a person's lifetime that is an irrevocable present transfer of ownership C) a gift that is to be shared by the donor and donee with the payment of consideration by the donee D) a gift that requires a monetary payment at a set date in the future Answer: B Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 23) A gift that is made in contemplation of death is known as a(n) ________. A) inter vivos B) estate pour autre vie C) gift inter vicos D) gift causa mortis Answer: D Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 24) Which of the following is true of a gift causa mortis? A) It cannot be revoked before the death of the donor. B) It does not require the actual death of the donor. C) It represents an irrevocable present transfer of ownership. D) It takes precedence over a prior conflicting will. Answer: D Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept

25) What does the Uniform Transfers to Minors Act establish? A) rights for what a minor is allowed in case of inheritances without involving custodians B) rights for what a minor can accept from an adult C) procedures for adults to make irrevocable gifts of money and securities to minors D) procedures for minors making gifts of money and securities to minors Answer: C Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 26) A(n) ________ is an increase in the value of personal property because it is added to or improved by natural or manufactured means. A) arraignment B) accession C) lien D) bailment Answer: B Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept When John Lacey's car was stolen, he lodged a complaint with the police. The police were able to trace the car to a professional auto thief and returned it to John. When John got his car back, he realized that the thief had installed a new engine, changed the upholstery, and put a new stereo player in his car. 27) The value of John's car is said to have undergone a(n) ________. A) accession B) arraignment C) bailment D) lien Answer: A Diff: 2 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Application of knowledge Classification: Application

28) Which of the following is true with regard to the new engine, upholstery, and stereo player the thief installed in John's car? A) These improvements have to be returned to the thief. B) These improvements now rightfully belong to John. C) The improvements have to be paid for by John if he wants to retain them. D) The improvements will be confiscated by the police. Answer: B Diff: 2 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Application of knowledge Classification: Application 29) ________ occurs if two or more persons commingle fungible goods. A) Confusion B) Accession C) Bailment D) Easement Answer: A Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 30) Which of the following is true of ownership titles when confusion occurs? A) Title to the goods can never be shared between the owners involved. B) Title to goods commingled without permission goes to the innocent party. C) Title to goods cannot be acquired by confusion. D) Title to the goods can only be acquired if goods were commingled by accident. Answer: B Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 31) A person can acquire ownership of unowned personal property by taking possession of it. Answer: TRUE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 32) A gift is a voluntary transfer of property without payment of consideration by the donee. Answer: TRUE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 8 Copyright © 2019 Pearson Education, Inc.

33) For a gift to be considered valid, the donor must be shown to have a donative intent. Answer: TRUE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 34) For a tangible gift to be considered valid, the donor must make the delivery in person. Answer: FALSE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 35) A gift causa mortis is an irrevocable present transfer of ownership during the donor's lifetime. Answer: FALSE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 36) The Uniform Transfers to Minors Act establishes procedures for adults to make irrevocable gifts of money and securities to minors. Answer: TRUE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 37) Accession that naturally occurs to a property belongs to the owner. Answer: TRUE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 38) If an accession is mistakenly made by an improver and the improvement cannot be removed from the original article, the owner owns title to the improved property without any payment. Answer: TRUE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept

39) If an accession is made wrongfully, the improver acquires title to the improved property and does not have to pay the owner for the property. Answer: FALSE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 40) Confusion occurs if two or more persons commingle fungible goods. Answer: TRUE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 41) The owners share ownership in commingled goods in proportion to the amount of goods contributed by each owner. Answer: TRUE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 42) Title to goods cannot be acquired by confusion. Answer: FALSE Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept 43) Explain the title to goods when fungible goods are commingled. Answer: Confusion occurs if two or more persons commingle fungible goods (i.e., goods that are exactly alike, such as the same grade of oil, grain, or cattle). Title to goods can be acquired by confusion. The owners share ownership in the commingled goods in proportion to the amount of goods contributed by each owner. It does not matter whether the goods were commingled by agreement or by accident. If goods are wrongfully or intentionally commingled without permission, the innocent party acquires title to them. Diff: 1 LO: 47.2 Describe the methods for acquiring and transferring ownership in personal property. AACSB: Analytical thinking Classification: Concept

44) Property that an owner voluntarily places somewhere and then inadvertently forgets is known as ________ property. A) real B) abandoned C) mislaid D) lost Answer: C Diff: 1 LO: 47.3 Describe and apply rules regarding ownership rights in mislaid, lost, and abandoned property. AACSB: Analytical thinking Classification: Concept 45) Which of the following is true of mislaid property with regard to the person who finds it? A) The finder becomes the owner of the property. B) The finder has the right to share it with the original owner. C) The finder is not entitled to possess the property. D) The finder is absolved of any responsibility of the mislaid property. Answer: C Diff: 1 LO: 47.3 Describe and apply rules regarding ownership rights in mislaid, lost, and abandoned property. AACSB: Analytical thinking Classification: Concept 46) Property that the owner leaves somewhere due to negligence, carelessness, or inadvertence is referred to as ________ property. A) abandoned B) real C) lost D) mislaid Answer: C Diff: 1 LO: 47.3 Describe and apply rules regarding ownership rights in mislaid, lost, and abandoned property. AACSB: Analytical thinking Classification: Concept

47) A(n) ________ statute permits a finder of mislaid or lost property to clear title to the property if certain prescribed legal formalities are met. A) estate B) estray C) lading D) recording Answer: B Diff: 1 LO: 47.3 Describe and apply rules regarding ownership rights in mislaid, lost, and abandoned property. AACSB: Analytical thinking Classification: Concept 48) Property that an owner has discarded with the intent to relinquish his or her rights in it is known as ________. A) real B) lost C) mislaid D) abandoned Answer: D Diff: 1 LO: 47.3 Describe and apply rules regarding ownership rights in mislaid, lost, and abandoned property. AACSB: Analytical thinking Classification: Concept 49) Which of the following is true of ownership rights of an abandoned property? A) The finder and owner must share ownership of the property. B) The finder acquires title to the property, even against its original owner. C) The owner can reclaim his or her property completely from the finder. D) The owner of the premises where property is mislaid is entitled to possession but does not acquire title. Answer: B Diff: 1 LO: 47.3 Describe and apply rules regarding ownership rights in mislaid, lost, and abandoned property. AACSB: Analytical thinking Classification: Concept 50) The owner of the premises where a property is mislaid is entitled to take possession of the property against all except the rightful owner. Answer: TRUE Diff: 1 LO: 47.3 Describe and apply rules regarding ownership rights in mislaid, lost, and abandoned property. AACSB: Analytical thinking Classification: Concept 12 Copyright © 2019 Pearson Education, Inc.

51) A finder of a mislaid property can claim title to the property if it is found within the finder's premises. Answer: FALSE Diff: 1 LO: 47.3 Describe and apply rules regarding ownership rights in mislaid, lost, and abandoned property. AACSB: Analytical thinking Classification: Concept 52) A finder who refuses to return a lost property to the loser is liable for the tort of conversion. Answer: TRUE Diff: 1 LO: 47.3 Describe and apply rules regarding ownership rights in mislaid, lost, and abandoned property. AACSB: Analytical thinking Classification: Concept 53) If the finder of a lost property posts notices and publishes advertisements describing the lost property, he or she will be able to clear title to the property after certain requirements are met. Answer: TRUE Diff: 1 LO: 47.3 Describe and apply rules regarding ownership rights in mislaid, lost, and abandoned property. AACSB: Analytical thinking Classification: Concept 54) The finder of an abandoned property holds title against the whole world except the owner. Answer: FALSE Diff: 1 LO: 47.3 Describe and apply rules regarding ownership rights in mislaid, lost, and abandoned property. AACSB: Analytical thinking Classification: Concept 55) A transaction in which an owner transfers his or her personal property to another to be held, stored, or delivered or for some other purpose is known as a(n) ________. A) arraignment B) easement C) bailment D) accession Answer: C Diff: 1 LO: 47.4 Define bailment and list and describe the elements for creating a bailment. AACSB: Analytical thinking Classification: Concept

56) In which of the following processes is the title of goods not transferred? A) an adverse possession B) a bailment C) a sale D) an acquisition Answer: B Diff: 1 LO: 47.4 Define bailment and list and describe the elements for creating a bailment. AACSB: Analytical thinking Classification: Concept 57) Which of the following is true of a bailment? A) Only personal property can be used in a bailment. B) Intangible property cannot be used in a bailment. C) Only physical deliveries can become a bailment. D) All bailments must be expressed in writing to be effective. Answer: A Diff: 1 LO: 47.4 Define bailment and list and describe the elements for creating a bailment. AACSB: Analytical thinking Classification: Concept 58) In a bailment, the title to the goods passes to the bailee. Answer: FALSE Diff: 1 LO: 47.4 Define bailment and list and describe the elements for creating a bailment. AACSB: Analytical thinking Classification: Concept 59) Only personal property can be used in a bailment. Answer: TRUE Diff: 1 LO: 47.4 Define bailment and list and describe the elements for creating a bailment. AACSB: Analytical thinking Classification: Concept 60) Physical deliveries are made in most bailments. Answer: TRUE Diff: 1 LO: 47.4 Define bailment and list and describe the elements for creating a bailment. AACSB: Analytical thinking Classification: Concept

61) Under the Statute of Frauds, a bailment agreement must be in writing if it is for more than one year. Answer: TRUE Diff: 1 LO: 47.4 Define bailment and list and describe the elements for creating a bailment. AACSB: Analytical thinking Classification: Concept 62) What are the elements necessary to create a bailment? Answer: Three elements are necessary to create a bailment: 1. Bailment of personal property: Only personal property can be bailed. The property can be tangible (e.g., automobiles, jewelry, animals) or intangible (e.g., stocks, bonds, promissory notes). 2. Delivery of possession: Delivery of possession involves two elements: a. the bailee must have exclusive control over the personal property, and b. the bailee must knowingly accept the personal property. Most bailments are created by physical delivery. 3. Bailment agreement: The creation of a bailment does not require any formality. A bailment may be either express or implied. Most express bailments can be either written or oral. Under the Statute of Frauds, however, a bailment agreement must be in writing if it is for more than one year. An example of an implied bailment is the finding and safeguarding of lost property. Diff: 2 LO: 47.4 Define bailment and list and describe the elements for creating a bailment. AACSB: Analytical thinking Classification: Concept 63) A ________ is a gratuitous bailment that arises when the bailee is requested to care for the bailor's property as a favor. A) bailment at will B) mutual benefit bailment C) bailment for the sole benefit of the bailee D) bailment for the sole benefit of the bailor Answer: D Diff: 1 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Analytical thinking Classification: Concept

64) The Rosberg family asked their neighbors, the Lowells, to feed their cat while they are away on a vacation. The Lowells fed the cat as they had been asked to but the cat ran away and never returned. What kind of bailment agreement existed between the Rosbergs and the Lowells? A) bailment for the sole benefit of the bailee B) bailment for the sole benefit of the bailor C) mutual benefit bailment D) bailment at will Answer: B Diff: 2 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Application of knowledge Classification: Application Randy borrowed Carl's car as his car had broken down and he needed to go to the city urgently. In the city, he parked the car in a clearway zone, from where it was towed away by the authorities. 65) What kind of agreement existed between Randy and Carl over the car? A) bailment for the sole benefit of the bailor B) bailment for the sole benefit of the bailee C) mutual benefit bailment D) bailment at will Answer: B Diff: 2 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Application of knowledge Classification: Application 66) In the bailment agreement, which of the following types of duties did Randy neglect? A) duty of great care B) duty of slight care C) duty of reasonable care D) duty of ordinary care Answer: A Diff: 1 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Application of knowledge Classification: Application

67) Which of the following duties is owed by the parties in a mutual benefit bailment? A) duty of great care B) duty of slight care C) duty of ordinary care D) duty of utmost care Answer: C Diff: 1 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Analytical thinking Classification: Concept 68) A bailment without a fixed term is called a ________. A) bailment for the sole benefit of the bailee B) bailment for the sole benefit of the bailor C) bailment for a for mutual benefit D) bailment at will Answer: D Diff: 1 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Analytical thinking Classification: Concept 69) In a bailment for the sole benefit of the bailor, the bailee owes a duty of great care to protect the bailed property. Answer: FALSE Diff: 1 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Analytical thinking Classification: Concept 70) A bailment for the sole benefit of the bailee is an example of ordinary bailment. Answer: TRUE Diff: 1 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Analytical thinking Classification: Concept

71) In a mutual benefit bailment, the bailee owes a duty of reasonable care to protect the bailed goods. Answer: TRUE Diff: 1 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Analytical thinking Classification: Concept 72) A bailment at will can be terminated at any time by either party. Answer: TRUE Diff: 1 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Analytical thinking Classification: Concept 73) A bailment for a fixed term cannot be terminated before the end of the term by either party. Answer: FALSE Diff: 1 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Analytical thinking Classification: Concept 74) Give an account of the duration and termination of bailments. Answer: A bailment generally expires at a specified time or when a certain purpose is accomplished. A bailment for a fixed term terminates at the end of the term or sooner, by mutual consent of the parties. A party who terminates a bailment in breach of the bailment agreement is liable to the innocent party for damages resulting from the breach. A bailment without a fixed term is called a bailment at will. A bailment at will can be terminated at any time by either party. Gratuitous bailees can generally terminate a fixed-term bailment prior to expiration of the term. Upon termination of a bailment, the bailee is legally obligated to do as the bailor directs with the property. Diff: 1 LO: 47.5 Describe an ordinary bailment and explain the liability of bailees for lost, damaged, or destroyed goods. AACSB: Analytical thinking Classification: Concept

75) What is a warehouse receipt? A) a receipt received by a warehouse after the bailor has retrieved the bailed goods and payment has been made B) a document of title issued by a warehouse company stating that the bailor has title to the bailed goods C) a certificate of authenticity issued by a warehouse stating that it is certified to hold bailed goods D) an inventory list provided to the warehouse company by the bailor of the bailed goods Answer: B Diff: 2 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept 76) A(n) ________ is a document of title issued by a common carrier stating that the bailor has title to the bailed goods. A) bill of lading B) accession C) freight forwarder D) delivery order Answer: A Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept 77) Under the common law, innkeepers owe a duty of ________ regarding loss caused to the personal property of transient guests. A) negligible care B) slight care C) strict liability D) ordinary care Answer: C Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept 78) Ordinary bailments involve warehouse companies, common carriers, and innkeepers. Answer: FALSE Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept

79) Warehousers are subject to the rights, duties, and liability of an ordinary bailee. Answer: TRUE Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept 80) A warehouse company has a lien on the goods in its possession for necessary expenses incurred in storing and handling the goods. Answer: TRUE Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept 81) The delivery of goods to a common carrier creates a bailment for the sole benefit of the bailor. Answer: FALSE Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept 82) A consignee is a person to whom a common carrier makes a delivery. Answer: TRUE Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept 83) Common carriers are held to a duty of strict liability. Answer: TRUE Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept 84) Common carriers are not liable for the loss, damage, or destruction of goods caused by an act of God. Answer: TRUE Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept

85) The bill of lading is a document of title that is issued by a common carrier to the bailee when goods are received for transportation. Answer: FALSE Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept 86) Under the common law, innkeepers are not liable for lost or stolen guest property when compared to the innkeepers' statutes. Answer: FALSE Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept 87) Under the innkeepers' statutes, innkeepers owe a duty of strict liability regarding loss caused to the personal property of transient guests. Answer: FALSE Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept 88) What is a warehouse receipt? Answer: A warehouse receipt is a document of title issued by a company that is engaged in the business of storing goods for hire, such as a warehouse company or a storage company, that states that the bailor has title to the goods. A warehouse receipt that is issued to the bailor is often a preprinted form drafted by the warehouse company. A warehouse receipt includes the date of issue, a description of the goods or the packages containing the goods, the location of the warehouse where the goods are stored, and other terms related to the bailment. A warehouse company has a lien on the goods in its possession for necessary expenses incurred in storing and handling the goods. If the charges are not paid, the warehouse company may sell the goods at a public or private auction and apply the proceeds to pay the charges. Any excess proceeds must be held for the persons who had the right to demand delivery of the goods. Diff: 1 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept

89) What is the role of an innkeeper as a bailee? How does the innkeepers' statute help an innkeeper? Answer: An innkeeper is the owner of a facility that provides lodging to the public for compensation. Under the common law, innkeepers owe a duty of strict liability regarding loss caused to the personal property of transient guests. Under this rule, an innkeeper is liable for a guest's personal property that is lost or stolen from the innkeeper's premises even if the loss was not the innkeeper's fault. However, almost all states have enacted innkeepers' statutes that change the common law and limit the liability of innkeepers. These statutes allow innkeepers to avoid liability for loss caused to guests' property if a safe is provided in which the guests' valuable property may be kept and the guests are aware of the safe's availability. Most state laws also allow innkeepers to limit the dollar amount of their liability by notifying their guests of this limit. Diff: 2 LO: 47.6 List and describe special forms of bailment. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 48 Real Property 1) Land, as well as buildings, trees, soil, minerals, timber, plants, and other things permanently affixed to the land are known as ________. A) chattel B) intangible property C) personal property D) real property Answer: D Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 2) ________ are an example of real property. A) Buildings B) Patents C) Automobiles D) Works of art Answer: A Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 3) What are surface rights in real property? A) the right to possess the earth beneath the land B) the right to occupy the land C) the right to possess personal property D) the right to convert personal property to negotiable instruments Answer: B Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 4) The rights to the earth located beneath the surface of the land are defined as ________. A) chattel rights B) air rights C) mineral rights D) joint rights Answer: C Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 1 Copyright © 2019 Pearson Education, Inc.

5) Which of the following is true of subsurface rights in real property? A) Subsurface rights cannot be used to mine radioactive elements. B) Subsurface rights can be sold separately from surface rights. C) Minerals found beneath real property have to be given up to the government. D) Subsurface rights can only be invoked to dig oil wells. Answer: B Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 6) Plant life and vegetation growing on the surface of land are considered ________. A) intangible property B) real property C) personal property D) chattels Answer: B Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 7) Plant life that is severed from the land is considered ________. A) intangible property B) immovable property C) real property D) personal property Answer: D Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 8) What are fixtures? A) goods closely associated with a piece of real property B) intangible properties created inside the premises of a real property C) parts of a real property that are easily transferrable without substantial damage to the property D) goods that cannot be classified as personal property or real property Answer: A Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept

9) Air rights enable the owner of a property to ________. A) develop natural and cultivated plant life on the land B) drill into the earth to utilize ground water for personal use C) rent or sell the space above the property for commercial purposes D) create fixtures inside the real property that become a part of the sale agreement Answer: C Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 10) Buildings constructed on land are considered personal property. Answer: FALSE Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 11) A bridge would be an example of real property. Answer: TRUE Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 12) Subsurface rights cannot be sold separately from surface rights. Answer: FALSE Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 13) Plant life and vegetation growing on the surface of land are considered personal property. Answer: FALSE Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 14) Kitchen cabinets in an apartment are considered fixtures. Answer: TRUE Diff: 1 LO: 48.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept

15) The legal rights that an owner has to possess, use, and enjoy the property are known as ________. A) future interests B) estate in land C) easement rights D) estoppel by deed Answer: B Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 16) A(n) ________ is an estate in which the owner has a present possessory interest in the real property. A) estate pour autre vie B) freehold estate C) future interest D) easement Answer: B Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 17) ________ is a type of ownership of real property that grants the owner the fullest bundle of legal rights that a person can hold in real property. A) Fee simple absolute B) Life estate C) Servient estate D) Fee simple defeasible Answer: A Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 18) Which of the following is true of an ownership of real property that is fee simple absolute? A) It cannot be inherited. B) It terminates based on the occurrence or nonoccurrence of a specified event. C) It is infinite in duration. D) It cannot be transferred at will. Answer: C Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

19) The difference between a qualified fee ownership and a fee simple ownership is that a qualified fee ownership can be ________. A) transferred at will by the owner of the property B) terminated if a specified event occurs or fails to occur C) infinite in its duration D) inherited without limitations Answer: B Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 20) A(n) ________ grants the owner all the incidents of a fee simple absolute except that ownership may be taken away if a specified condition occurs or does not occur. A) future interest B) servient estate C) fee simple defeasible D) easement estate Answer: C Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 21) ________ is an interest in real property that lasts for a specified person's lifetime. A) Life estate B) Fee simple absolute C) Servient estate D) Fee simple defeasible Answer: A Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 22) Which of the following is true of a life tenant? A) A life tenant has the right to sell the life estate at will. B) A person who gives a life estate to another is called a life tenant. C) A life tenant can possess the life estate to the point of rendering it worthless by permanent damage. D) A life tenant is treated as the owner of the property for the duration of the life estate. Answer: D Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

23) A life estate that is measured by the life of a third party is referred to as ________. A) estate pour autre vie B) servient estate C) community property D) future interest Answer: A Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 24) Future interest in real property refers to an interest in ________. A) real property that involves actual and current possession B) real estate that represents the highest form of ownership C) real property that has been sold or permanently transferred to a third party D) real property that a grantor retains for himself or herself or a third party Answer: D Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 25) A fee simple owner has the right to exclusively possess and use his or her property to the extent that the owner has not transferred any interest in the property. Answer: TRUE Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 26) If a person owns real property in fee simple, his or her ownership is limited in duration. Answer: FALSE Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 27) If a person owns real property in fee simple, his or her ownership has no limitation on inheritability. Answer: TRUE Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept

28) The person who is given a life estate is called the life tenant. Answer: TRUE Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 29) A terminated life estate property reverts to the grantor or the grantor's estate or other designated person. Answer: TRUE Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 30) A life tenant is treated as the owner of the property even after the duration of the life estate. Answer: FALSE Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 31) The right of possession of remainder is an example of future interest. Answer: TRUE Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept 32) What is a life estate? Answer: A life estate is an interest in real property that lasts for the life of a specified person, usually the grantee. The person who is given a life estate is called the life tenant. A life estate may also be measured by the life of a third party, which is called estate pour autre vie, or it may be defeasible. Upon the death of the named person, the life estate terminates, and the property reverts to the grantor or the grantor's estate or other designated person. A life tenant is treated as the owner of the property during the duration of the life estate. He or she has the right to possess and use the property except to the extent that it would cause permanent waste of the property. Diff: 1 LO: 48.2 Describe the different types of freehold estates and life estates. AACSB: Analytical thinking Classification: Concept

33) ________ is a form of co-ownership that includes the right of survivorship as well the right of tenants to unilaterally transfer their interest without the consent of co-tenants. A) Tenancy in common B) Joint tenancy C) Cooperatives D) Tenancy by the entirety Answer: B Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 34) After the death of Horace, the remaining two joint tenants of the luxury restaurant Rendezvous became the owners of Horace's interest in the property automatically. This feature of their concurrent ownership is called ________. A) quiet title action B) adverse possession C) nonconforming use D) right of survivorship Answer: D Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application 35) When does a joint tenancy become a tenancy in common? A) when a joint tenant sells his or her property B) when a joint tenant dies C) when two joint tenants swap their share in the tenancy D) when two joint tenants are bound by a marital relationship Answer: A Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept

36) Karen, Kelsey, Rita, and Lizzi own a large commercial building as concurrent owners. They are tenants with the right to survivorship. Lizzi sells her one-quarter interest in the building to Stella. What kind of concurrent ownership now exists between Karen, Kelsey, Rita, and Stella? A) a tenancy in common B) a tenancy by entirety C) a joint tenancy D) a community property Answer: A Diff: 2 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application 37) Which of the following provisions protects the interest of a joint tenancy upon the death of a joint tenant? A) the quiet title action B) the estate in land C) the right of survivorship D) the quitclaim deed Answer: C Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 38) Carmen, Westbrook, and Ashton are concurrent owners of a large commercial building. Ashton executes a will that leaves all his property to his son in the event of his death. But after Ashton's death, his ownership interest in the building was acquired by the remaining two tenants of the building. Which of the following kinds of concurrent ownership would allow such a passage of title? A) a tenancy by entirety B) a community property C) a joint tenancy D) a tenancy in common Answer: C Diff: 2 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application

39) Karen, Kelsey, Rita, and Lizzi own a large commercial building as concurrent owners. They are tenants with the right to survivorship. Lizzi transfers her one-quarter interest in the building to a private charity organization owned by Stella. Which form of concurrent ownership would allow Karen, Kelsey, and Rita to become the owners of the property following Lizzi's death without the inclusion of the private charity organization run by Stella? A) a tenancy by entirety B) a community property C) a joint tenancy D) a tenancy in common Answer: C Diff: 2 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application 40) Which of the following is a form of co-ownership that disallows the right of survivorship and allows unilateral transfer of interest? A) tenancy in common B) joint tenancy C) cooperatives D) tenancy by the entirety Answer: A Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 41) Martin, who owned a piece of property along with two other tenants, executed a will in which he left all his property to his son. When Martin died, his son received his interest in the shared property and became a tenant with the other two owners. What kind of concurrent ownership would allow such a passage of title? A) a joint tenancy B) a tenancy in common C) a tenancy by entirety D) a community property Answer: B Diff: 2 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application

42) ________ is a form of co-ownership of real property that can be used only by married couples. A) Cooperative B) Tenancy in common C) Joint tenancy D) Tenancy by the entirety Answer: D Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 43) Which of the following is true of a tenancy by the entirety? A) It can only be formed between corporations. B) It does not contain the conditional right of survivorship upon the death of a tenant. C) It cannot be created by the usage of express words. D) It cannot be transferred by a tenant without the consent of the other tenant. Answer: D Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 44) Which of the following forms of co-ownership of real property applies only to married couples? A) joint tenancy B) community property C) tenancy in common D) condominiums Answer: B Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept

45) Jonas, a successful investment banker earning $400,000 per year, marries Penny, a nurse at a county hospital. While Jonas owns $1 million of real estate and $1.5 million in securities, Penny has no personal savings or property. After four years, they opt for a divorce. Over the four years of their marriage, Jonas has made $400,000 for the first two years and $500,000 for the remaining two. Penny has made $25,000 in the first three years, and $150,000 in the final year of their marriage. Their living expenses have been $130,000 per year, and they have $1,450,000 saved in a bank account. During the marriage, Jonas's real estate has increased in value to $1.5 million, and securities to $3 million. If they filed for divorce in a state that recognizes community property, what amount would each receive? A) $1,300,000 B) $2,297,500 C) $725,000 D) $1,050,000 Answer: C Diff: 2 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application 46) Jonas, a successful investment banker earning $400,000 per year, marries Penny, a nurse at a county hospital. While Jonas owns $1 million of real estate and $1.5 million in securities, Penny has no personal savings or property. After four years, they opt for a divorce. Over the four years of their marriage, Jonas has made $400,000 for the first two years and $500,000 for the remaining two. Penny has made $25,000 in the first three years, and $150,000 in the final year of their marriage. Their living expenses have been $130,000 per year, and they have $1,450,000 saved in a bank account. During the marriage, Jonas's real estate has increased in value to $1.5 million, and securities to $3 million. If they filed for divorce in a state that recognizes community property, what would be the separate property owned by Jonas at the end of their marriage? A) $1 million of real estate and $1.5 million in securities B) $500,000 of real estate and $2.5 million in securities C) $1.5 million of real estate and $3 million in securities D) $2.5 million of real estate and $2 million securities Answer: C Diff: 2 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application 47) A deceased joint tenant's will is effective over the right to survivorship. Answer: FALSE Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept

48) A joint tenant does not have the right to sell or transfer his or her interest in the property. Answer: FALSE Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 49) If a party to a tenancy in common sells his or her interest in the property, the tenancy in common becomes a tenancy by entirety. Answer: FALSE Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 50) A tenant in common can sell his or her interest in the property without the consent of the other co-owners. Answer: TRUE Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 51) A surviving spouse in a tenancy by the entirety has the right of survivorship. Answer: TRUE Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 52) Separate property is included in community property. Answer: FALSE Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept

53) Give an account of concurrent ownerships in a multiple-dwelling building. Answer: Condominiums and cooperatives are two types of concurrent ownerships in a multipledwelling building. Condominiums are a common form of ownership in multiple-dwelling buildings. Purchasers of a condominium (1) have title to their individual units and (2) own the common areas (e.g., hallways, elevators, parking areas, recreational facilities) as tenants in common with the other owners. Owners may sell or mortgage their units without the permission of the other owners. Owners are assessed monthly fees for the maintenance of common areas. In addition to being used for dwelling units, the condominium form of ownership is often used for office buildings, boat docks, and such. A cooperative is a form of co-ownership of a multiple-dwelling building in which a corporation owns the building, and the residents own shares in the corporation. Each cooperative owner leases a unit in the building from the corporation under a renewable, long-term, proprietary lease. Usually, cooperative owners may not sell their shares or sublease their units without the approval of the other owners. Diff: 1 LO: 48.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 54) A ________ is a right of possession that returns to the grantor after the expiration of a limited or contingent estate. A) reversion B) remainder C) quiet title action D) nonconforming use Answer: A Diff: 1 LO: 48.4 Identify and describe the different types of future interests in real property. AACSB: Analytical thinking Classification: Concept 55) Which of the following defines a remainder as a form of future interest? A) It is a right of possession that returns to the grantor after the expiration of a limited or contingent estate. B) It is a right of possession that returns to a third party upon the expiration of a limited or contingent estate. C) It is a form of concurrent possession of a multiple-dwelling building in which a corporation owns the building and the residents own shares in the corporation. D) It is a form of concurrent possession that includes the right of survivorship. Answer: B Diff: 1 LO: 48.4 Identify and describe the different types of future interests in real property. AACSB: Analytical thinking Classification: Concept

56) Reversion occurs when the rights of possession returns to a third party upon the expiration of a limited estate. Answer: FALSE Diff: 1 LO: 48.4 Identify and describe the different types of future interests in real property. AACSB: Analytical thinking Classification: Concept 57) The Statute of Frauds requires real estate sales contracts to be in writing. Answer: TRUE Diff: 1 LO: 48.4 Identify and describe the different types of future interests in real property. AACSB: Analytical thinking Classification: Concept 58) Which of the following is the implied default title conveyed in a sale of real estate? A) life estate B) servient estate C) fee simple absolute D) fee simple defeasible Answer: C Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 59) A(n) ________ is an instrument that describes a person's ownership interest in a piece of real property. A) title insurance B) deed C) license D) easement Answer: B Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept

60) Which of the following types of deeds only protects the buyer from defects in title caused by the seller? A) a general warranty deed B) a quitclaim deed C) a grand deed D) a special warranty deed Answer: D Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 61) A deed in which the grantor of real property transfers whatever interest he or she has in the property to the grantee is known as a ________. A) quitclaim deed B) general warranty deed C) grand deed D) special warranty deed Answer: A Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 62) What is a quiet title action? A) a lawsuit to determine the rightful owner of a disputed property B) a lawsuit to enforce the right to survivorship to the holder of the title deed C) a lawsuit asking for the release of the details of a separate property from a couple D) a lawsuit to obtain reimbursement for losses caused by undiscovered defects in title Answer: A Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 63) ________ is a title to real property that is free from any encumbrances or other defects that are not disclosed but would affect the value of the property. A) Remainder title B) Marketable title C) Reversion title D) Nonconforming title Answer: B Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 16 Copyright © 2019 Pearson Education, Inc.

64) A(n) ________ is issued by the courts to the rightful owner following the Torrens method of determining title to the real property. A) title insurance B) abstract of title C) certificate of title D) restraining order Answer: C Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 65) What is an abstract of title? A) a recordation of a deed that gives constructive notice to the world of the owner's interest in a property B) a judicial proceeding where a certificate of title is awarded to the real owner to property C) a form of insurance obtained for losses caused by undiscovered defects in title D) a chronological history of the chain of title and encumbrances affecting a property Answer: D Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 66) In the context of a tax sale, many states provide a period of ________ after a tax sale during which the taxpayer can reclaim the property by paying the unpaid taxes and penalties. A) stipulation B) consideration C) redemption D) exemption Answer: C Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 67) A deed can only be used to transfer a fee simple absolute interest in real property. Answer: FALSE Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept

68) A general warranty deed contains the greatest number of warranties and provides the highest level of protection to a grantee. Answer: TRUE Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 69) In a special warranty deed, the seller is liable for defects in title that existed before the seller obtained the property. Answer: FALSE Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 70) Recording a deed gives constructive notice to the world of the owner's interest in the property. Answer: TRUE Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 71) The attorney cannot be sued for any losses caused by his or her negligence in rendering an attorney's opinion. Answer: FALSE Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 72) If an owner of real property fails to pay property taxes, the government can obtain a lien on the property for the amount of the taxes. Answer: TRUE Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 73) Ownership of real property can be transferred by gift. Answer: TRUE Diff: 1 LO: 48.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 18 Copyright © 2019 Pearson Education, Inc.

74) A(n) ________ is a situation in which a person who wrongfully possesses someone else's real property obtains title to that property if certain statutory requirements are met. A) adverse possession B) reversion C) nonpossessory interest D) future interest Answer: A Diff: 1 LO: 48.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept 75) Which of the following statements is true of adverse possession? A) Adverse possession requires the delivery of a deed. B) Adverse possession is applicable on all property including those owned by federal and state governments. C) Adverse possession requires continuous and uninterrupted occupancy of the property for the required statutory period. D) Adverse possession covers only voluntary occupancy obtained with the express or implied permission of the owner. Answer: C Diff: 1 LO: 48.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept 76) A ________ is a situation in which a person holds an interest in another person's property without actually owning any part of the property. A) present possessory interest B) future interest C) reversion D) nonpossessory interest Answer: D Diff: 1 LO: 48.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept

77) A given or required right to make limited use of someone else's land without owning or leasing it is called a(n) ________. A) zoning ordinance B) title insurance C) easement D) abstract of title Answer: C Diff: 1 LO: 48.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept 78) Properties owned by state and federal governments are subject to the doctrine of adverse possession. Answer: FALSE Diff: 1 LO: 48.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept 79) The doctrine of adverse possession requires the delivery of deed for transfer of property to be valid. Answer: FALSE Diff: 1 LO: 48.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept 80) To obtain title under adverse possession, the adverse possessor must physically occupy the property. Answer: TRUE Diff: 1 LO: 48.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept 81) A situation created when the owner of one piece of land is given an easement over an adjacent piece of land is called a(n) ________. A) profit-à-prendre B) easement by license C) easements in gross D) easement appurtenant Answer: D Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 20 Copyright © 2019 Pearson Education, Inc.

82) What is a servient estate? A) a piece of land that is being examined for an abstract of title B) a piece of land over which an easement is granted C) a piece of land that has concurrent owners D) a piece of land that comes under a zoning ordinance Answer: B Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 83) Ms. Rogers owns a property adjoining the property owned by Mr. Cartworth. Since her house lies behind that of Mr. Cartworth's, Ms. Rogers' driveway passes through his property. Which of the following types of nonpossessory interest has been created in Mr. Cartworth's land? A) an easement appurtenant B) an easement in gross C) a license D) a profit Answer: A Diff: 2 LO: 48.7 List and describe the different types of easements. AACSB: Application of knowledge Classification: Application 84) Ms. Rogers owns a property adjoining the property owned by Mr. Cartworth. Since her house lies behind that of Mr. Cartworth's, Ms. Rogers' driveway passes through his property. Which of the following would be true if Mr. Cartworth were to sell his property? A) The new owner would not be obliged to let Ms. Rogers use her present driveway. B) The new owner would not be able to cancel Ms. Rogers's nonpossessory interest in the form of the driveway. C) Ms. Rogers would only be able to use the driveway if Mr. Cartworth expressly requests the new owner to allow it. D) Ms. Rogers would be required to procure a license to use the driveway. Answer: B Diff: 2 LO: 48.7 List and describe the different types of easements. AACSB: Application of knowledge Classification: Application

85) A(n) ________ authorizes a person who does not own adjacent land the right to use another person's land. A) profit B) license C) easement appurtenant D) easement in gross Answer: D Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 86) A(n) ________ is a document that grants a person the right to enter on another's property for a specified and usually short period of time. A) title insurance B) easement C) license D) deed Answer: C Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 87) What is a profit-à-prendre? A) a document that grants a person the right to remove something from another's real property B) a form of insurance obtained for losses caused by undiscovered defects in real property title C) a judicial proceeding where a certificate of title is awarded to the real owner to property D) a type of easement that grants a person the right to use another's land but disallows the usage of any personal property Answer: A Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 88) An easement is an example of nonpossessory interest in another's real property. Answer: TRUE Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept

89) The land over which the easement is granted is called the servient estate. Answer: TRUE Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 90) An easement appurtenant cannot be terminated upon change in ownership title of the dominant estate. Answer: TRUE Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 91) A new owner of a servient estate cannot inherit the appurtenant easement. Answer: FALSE Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 92) An easement in gross does not create a dominant estate. Answer: TRUE Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 93) A ticket to a movie theater or sporting event is an example of a license. Answer: TRUE Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept

94) What is a general warranty deed? Answer: A general warranty deed (or grant deed) contains the greatest number of warranties and provides the highest level of protection to a grantee. General warranty deeds are usually used as a deed from a seller to a buyer of real property. In a general warranty deed, the seller warrants that he or she owns the property; that he or she has the legal right to sell it; that the property is not subject to encumbrances (e.g., mortgages), leases, or easements other than those that are disclosed; that his or her title is superior to any other claim of title to the property; that he or she will defend the grantee's title against all other claims; and that he or she will compensate the grantee for any losses suffered if title proves faulty. The guarantee is not limited to the time that the grantor owned the property but extends back to the property's origins. Although the grantor is legally bound to compensate the grantee for losses caused by a breach of warranty, this guarantee is not helpful if the grantor is dead when the breach of warranty is discovered or if the grantor is financially unable to cover the losses. Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 95) Explain the role of recording statutes in real property contracts. Answer: Every state has a recording statute that provides that copies of deeds and other documents concerning interests in real property (e.g., mortgages, liens, easements) may be filed in a government office, where they become public records open to viewing by the public. Recording statutes are intended to prevent fraud and to establish certainty in the ownership and transfer of property. Instruments are usually filed in the county recorder's office of the county in which the property is located. A fee is charged to record an instrument. Persons interested in purchasing property or lending on property should check these records to determine whether the grantor or borrower actually owns the property in question and whether any other parties (e.g., lienholders, mortgagees, easement holders) have an interest in the property. The recordation of a deed is not required to pass title from the grantor to the grantee. Recording the deed gives constructive notice to the world of the owner's interest in the property. Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept

96) What is an easement and how is it created? Answer: An easement is an interest in land that gives the holder the right to make limited use of another's property without taking anything from it. Typical easements are common driveways, party walls, and rights-of-way. Easements can be expressly created by grant (where an owner expressly gives another party an easement across his or her property) or reservation (where an owner sells land that he or she owns but reserves an easement on the land). Easement can also be implied by implication (where an owner subdivides a piece of property with a well, path, road, or other beneficial appurtenant that serves the entire parcel) or by necessity (where "landlocked" property has an implied easement across surrounding property to enter and exit the landlocked property). Easements can also be created by prescription–that is, by adverse possession. Diff: 1 LO: 48.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 97) A ________ is an exception that permits a type of building or use in an area that would not otherwise be allowed by a zoning ordinance. A) variance B) fixture C) dominant estate D) servient estate Answer: A Diff: 1 LO: 48.8 Describe zoning laws and how they apply to real property. AACSB: Analytical thinking Classification: Concept 98) Give an account of zoning. What are nonconforming uses? Answer: Most counties and municipalities have enacted zoning ordinances to regulate land use. Zoning generally (1) establishes land use districts within the municipality (i.e., areas are generally designated residential, commercial, or industrial); (2) restricts the height, size, and location of buildings on a building site; and (3) establishes aesthetic requirements or limitations for the exterior of buildings. A zoning commission usually formulates zoning ordinances, conducts public hearings, and makes recommendations to the city council, which must vote to enact an ordinance. Once a zoning ordinance is enacted, the zoning ordinance commission enforces it. Zoning laws act prospectively; that is, uses and buildings that already exist in the zoned area are permitted to continue even though they do not fit within new zoning ordinances. Such uses are called nonconforming uses. Diff: 2 LO: 48.8 Describe zoning laws and how they apply to real property. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 49 Landlord-Tenant Law and Land Use Regulation 1) A landlord-tenant relationship is characterized by the ________. A) transfer of title to the tenant B) receipt of a nonfreehold estate by the tenant C) creation of a future interest for the tenant D) free simple absolute ownership of the tenant Answer: B Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 2) An estate where the tenant has a right to possess the real property but does not own title to the property is called ________. A) free simple absolute estate B) gifted estate C) nonfreehold estate D) easement estate Answer: C Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 3) A tenant's interest in real property is called a(n) ________. A) easement estate B) free simple absolute estate C) gifted estate D) leasehold estate Answer: D Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept

4) A transfer of the right to the possession and use of real property for a set term in return for certain consideration is known as a(n) ________. A) title transfer B) lease C) novation D) easement Answer: B Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 5) A tenancy created when a landlord and a tenant agree on a specific duration for the lease is known as a ________. A) tenancy for years B) periodic tenancy C) tenancy by the entirety D) tenancy at sufferance Answer: A Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 6) A tenancy created when a lease specifies intervals at which payments are due but does not specify how long the lease is for is called a ________. A) tenancy at sufferance B) tenancy for years C) periodic tenancy D) tenancy at will Answer: C Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 7) If a person rents a house on a monthly basis, which of the following types of tenancy would it represent? A) tenancy at will B) tenancy at sufferance C) tenancy for years D) periodic tenancy Answer: D Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 2 Copyright © 2019 Pearson Education, Inc.

8) What is a tenancy at will? A) a tenancy created when a lease specifies intervals at which payments are due but does not specify how long the lease is for B) a tenancy created by a lease that may be terminated at any time by either party C) a tenancy created when a tenant retains possession of property after the expiration of another tenancy D) a tenancy created when a landlord and a tenant agree on a specific duration for a lease Answer: B Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 9) A ________ is a tenancy created when a tenant retains possession of property after the expiration of another tenancy or a life estate without the owner's consent. A) periodic tenancy B) tenancy at will C) tenancy at sufferance D) tenancy for years Answer: C Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 10) What is an unlawful detainer action? A) a legal process that a tenant must complete before he or she is allowed to sublet B) a legal lawsuit brought against a landlord for breach of the implied warranty of habitability C) a lawsuit brought by a tenant against the landlord for wrongful eviction D) a legal process that a landlord must complete to evict a holdover tenant Answer: D Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 11) Which of the following forms of tenancy involves the possession of property without right? A) tenancy at sufferance B) periodic tenancy C) tenancy for years D) tenancy at will Answer: A Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

12) Which of the following is true of tenancy at sufferance? A) It can be terminated only after an eviction proceeding. B) It cannot be terminated as the holdover tenant has the title of transfer. C) It has a specific period before expiration. D) It requires a notice period that equals the length of payment period. Answer: A Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 13) In a landlord-tenant relationship, the tenant receives a nonfreehold estate in real property. Answer: TRUE Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 14) A rental agreement between a landlord and a tenant is called a lease. Answer: TRUE Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 15) Most Statutes of Frauds permit lease contracts that last for less than five years to be orally contracted. Answer: FALSE Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 16) Any lease for a stated period, irrespective of its duration, is called periodic tenancy. Answer: FALSE Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 17) A tenancy for years terminates automatically, without notice, on the expiration of the stated term. Answer: TRUE Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 4 Copyright © 2019 Pearson Education, Inc.

18) Under a periodic tenancy system, the notice period is usually the same as the length of the payment period. Answer: TRUE Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 19) The death of one of the parties of a tenancy at will does not terminate the contract. Answer: FALSE Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 20) A tenant at sufferance is liable for the payment of rent during the period of sufferance. Answer: TRUE Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 21) What is a lease? Answer: A rental agreement between a landlord and a tenant is called a lease. Leases can generally be either oral or written, but most Statutes of Frauds require that leases for periods of time longer than one year be in writing. A lease must contain the essential terms of the parties' agreement. A lease is often a form contract that is prepared by the landlord and presented to the tenant. This practice is particularly true of residential leases. Other leases are negotiated between the parties. Diff: 1 LO: 49.1 Define a landlord-tenant relationship. AACSB: Analytical thinking Classification: Concept 22) When is a tenant wrongfully evicted? A) when the landlord breaches the tenant's right to quiet enjoyment B) when the landlord fails to maintain the leased premises properly C) when the tenant violates a building code statute D) when the tenant sublets the premise without permission of the landlord Answer: A Diff: 1 LO: 49.2 List and describe a landlord's duties to a tenant. AACSB: Analytical thinking Classification: Concept

23) Building codes specify the ________. A) policies on the implied warranty of habitability for residential leases B) rules on proper delivery of possession to the tenant C) standards for property owners to maintain and repair leased premises D) laws regulating the extent to which a landlord can interfere with a tenant's right to quiet enjoyment Answer: C Diff: 1 LO: 49.2 List and describe a landlord's duties to a tenant. AACSB: Analytical thinking Classification: Concept 24) A landlord owes a duty to deliver possession of the leased premises to the lessee. Answer: TRUE Diff: 1 LO: 49.2 List and describe a landlord's duties to a tenant. AACSB: Analytical thinking Classification: Concept 25) Unlawful eviction occurs when a tenant's right to quiet enjoyment is violated. Answer: TRUE Diff: 1 LO: 49.2 List and describe a landlord's duties to a tenant. AACSB: Analytical thinking Classification: Concept 26) If a landlord wrongfully locks his or her tenant out of the premises of the rented property, it is termed constructive eviction. Answer: FALSE Diff: 1 LO: 49.2 List and describe a landlord's duties to a tenant. AACSB: Analytical thinking Classification: Concept 27) In modern real estate law, the doctrine of "caveat lessee" is widely applied to leases. Answer: FALSE Diff: 1 LO: 49.2 List and describe a landlord's duties to a tenant. AACSB: Analytical thinking Classification: Concept

28) The ________ is an assurance that provides that leased premises must be fit, safe, and suitable for ordinary residential use. A) implied warranty to pay rent B) implied warranty of habitability C) duty to deliver possession D) duty not to use leased premises for illegal or nonstipulated purposes Answer: B Diff: 1 LO: 49.3 Define the legal doctrine implied warranty of habitability. AACSB: Analytical thinking Classification: Concept 29) Which of the following duties has a landlord breached if he leases a rodent-infested warehouse to a farmer? A) implied warranty of habitability B) duty not to commit waste C) implied warranty of possession D) duty not to interfere with a tenant's right to quiet enjoyment Answer: A Diff: 1 LO: 49.3 Define the legal doctrine implied warranty of habitability. AACSB: Analytical thinking Classification: Concept 30) A lease in which the tenant pays a lump sum to the landlord and the landlord is responsible for paying the property taxes and assessments on the property is known as a ________. A) gross lease B) net, net, net lease C) double net lease D) net lease Answer: A Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept 31) What are the only payments made by a tenant in a double net lease? A) property taxes and assessments on the property B) rent, property taxes, utilities, and insurance C) rent and property taxes D) rent, property taxes, and utilities Answer: D Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

32) In a ________ arrangement, the tenant is responsible for paying only rent and property taxes. A) double net lease B) net lease C) gross lease D) net, net, net lease Answer: B Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept 33) A ________ is a lease where the tenant is responsible for paying the rent, property taxes, utilities, and insurance. A) net lease B) gross lease C) net, net, net lease D) double net lease Answer: C Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept 34) Kurt, a computer sales representative, ran a small restaurant business from his home to supplement his income. He converted his large living room into an eatery with minimal seating. His mother and brother managed the kitchen, while he coordinated orders and waited upon customers. Upon realizing that Kurt was running a restaurant, the landlord evicted Kurt and his family. In the scenario, we can infer that ________. A) Kurt received the rented property in conditions that were uninhabitable B) Kurt was evicted for using the rented property for illegal or nonstipulated purposes C) Kurt failed to comply with the building codes of the area in which he lived D) Kurt failed to claim his freehold estate on the rented property within the stipulated period Answer: B Diff: 2 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Application of knowledge Classification: Application

35) Jack Mendez, owner of a car remodeling company, needed a temporary place to store some heavy machinery for a day. Finding no other option, he decided to store the machinery at his rented apartment. When Jack kept the machinery in the living room, the floor beneath the spot developed cracks. Which of the following duties of a tenant did Jack breach by bringing the machinery into his home? A) duty to deliver possession B) duty not to commit waste C) duty to pay rent D) duty not to use leased premises for illegal or nonstipulated purposes Answer: B Diff: 2 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Application of knowledge Classification: Application 36) The housing codes impose specific standards on tenants to repair leased premises. Answer: FALSE Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept 37) In a net, net, net lease arrangement, the tenant is responsible for paying only rent, property taxes, and utilities. Answer: FALSE Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept 38) In a net lease arrangement, the tenant is responsible for paying rent and property taxes. Answer: TRUE Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept 39) In a double net lease arrangement, property taxes are shared between the tenant and the landlord. Answer: FALSE Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept

40) In a gross lease, the landlord is responsible for paying the property taxes and assessments on the property. Answer: TRUE Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept 41) Not painting the house on time is a violation of a tenant's duty not to commit waste. Answer: FALSE Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept 42) How are tenants guaranteed a safe and secure leased premise? Answer: The courts of many jurisdictions hold that an implied warranty of habitability applies to residential leases for their duration. This warranty provides that the leased premises must be fit, safe, and suitable for ordinary residential use. State statutes and judicial decisions provide various remedies that can be used if a landlord's failure to maintain or repair leased premises affects the tenant's use or enjoyment of the premises. Generally, the tenant may (1) withhold from his or her rent the amount by which the defect reduced the value of the premises to him or her, (2) repair the defect and deduct the cost of repairs from the rent due for the leased premises, (3) cancel the lease if the failure to repair constitutes constructive eviction, or (4) sue for damages in the amount by which the landlord's failure to repair the defect reduced the value of the leasehold. Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept 43) What is meant by the tenant's duty not to use leased premises for illegal or nonstipulated purposes? Answer: A tenant may use leased property for any lawful purposes permitted by the lease. Leases often stipulate that the leased premises can be used only for specific purposes. The tenant owes a duty not to use leased premises for illegal or nonstipulated purposes. If the tenant uses the leased premises for unlawful purposes (e.g., operating an illegal gambling casino) or nonstipulated purposes (e.g., operating a restaurant in a residence), the landlord may terminate the lease, evict the tenant, and sue for damages. Diff: 1 LO: 49.4 List and describe a tenant's duties to a landlord. AACSB: Analytical thinking Classification: Concept

44) Which of the following is true of a transfer of leased property by landlords? A) A landlord cannot sell the rights to receive rent. B) A new owner-landlord can alter the terms of an existing lease during the term of the lease. C) If the complete title is transferred, the property is subject to the existing lease. D) If a valid lease contract expires, a landlord can sell his ownership interest in a property. Answer: C Diff: 1 LO: 49.5 Explain how a landlord may transfer leased property. AACSB: Analytical thinking Classification: Concept 45) The transfer by a tenant of all of his or her rights under a lease to another party is known as an ________. A) assignment B) easement C) accommodation D) arraignment Answer: A Diff: 1 LO: 49.5 Explain how a landlord may transfer leased property. AACSB: Analytical thinking Classification: Concept 46) A landlord's right to receive rent is not transferable. Answer: FALSE Diff: 1 LO: 49.5 Explain how a landlord may transfer leased property. AACSB: Analytical thinking Classification: Concept 47) A new owner-landlord can alter the terms of an existing lease during the term of the lease. Answer: FALSE Diff: 1 LO: 49.5 Explain how a landlord may transfer leased property. AACSB: Analytical thinking Classification: Concept

48) Explain a landlord's right to transfer leased property. Answer: A landlord can sell, gift, devise, or otherwise transfer his or her ownership interest in property he or she owns that is subject to leases. If the complete title is transferred, the property is subject to the existing lease. The new owner-landlord cannot alter the terms of the lease (e.g., raise the rent) during the term of the lease unless the lease so provides. A landlord can sell the right to receive rents. In such case, after proper notice, the tenants are to pay rent to the designated party. However, the landlord still owes normal duties to the tenants. Diff: 1 LO: 49.5 Explain how a landlord may transfer leased property. AACSB: Analytical thinking Classification: Concept 49) Who is an assignor of a lease? A) a tenant who partially transfers his or her rights under a lease B) a tenant who transfers all of his or her rights under a lease C) a landlord whose property has been assigned D) a landlord who sells property that has already been leased Answer: B Diff: 1 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Analytical thinking Classification: Concept 50) A party to whom a tenant transfers all his or her rights under a lease is known as a(n) ________. A) lessee B) assignee C) consignee D) licensee Answer: B Diff: 1 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Analytical thinking Classification: Concept 51) An arrangement in which a tenant transfers some of his or her rights under a lease to another party is known as a ________. A) gross lease B) net lease C) sublease D) triple lease Answer: C Diff: 1 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Analytical thinking Classification: Concept 12 Copyright © 2019 Pearson Education, Inc.

52) Which of the following is true of an assignment? A) The assignor is liable to the landlord for damages. B) The assignee and the landlord have no legal relationship. C) The assignor is no longer responsible for the obligations under the lease. D) The assignee acquires all the rights that the assignor had under the lease. Answer: D Diff: 1 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Analytical thinking Classification: Concept 53) Which of the following statements is true of a sublease? A) The sublessee acquires all rights under the original lease agreement. B) The landlord can sue the sublessee to recover rent payments. C) The landlord and the sublessee do not have a legal relationship. D) The sublessee has a duty to pay rent only to the landlord. Answer: C Diff: 1 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Analytical thinking Classification: Concept 54) Chris rented an apartment from Donald. Due to personal reasons, Chris decided to transfer all his rights under the lease to his friend Dave. Dave partially transferred his rights under the lease to his friend, Pam. While living in the apartment, Pam accidentally burned down a part of the kitchen. Donald paid for fixing the kitchen. By the time of this accident, Donald had also transferred his rights to receive rent for the lease to Chad. Which of the following kinds of lease agreements exists between Chris and Dave? A) an accommodation B) a gross lease C) an assignment D) an easement Answer: C Diff: 2 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Application of knowledge Classification: Application

55) Chris rented an apartment from Donald. Due to personal reasons, Chris decided to transfer all his rights under the lease to his friend Dave. Dave partially transferred his rights under the lease to his friend, Pam. While living in the apartment, Pam accidentally burned down a part of the kitchen. Donald paid for fixing the kitchen. By the time of this accident, Donald had also transferred his rights to receive rent for the lease to Chad. Which of the following kinds of lease agreements exists between Dave and Pam? A) an easement B) a sublease C) a cooperative D) a net lease Answer: B Diff: 2 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Application of knowledge Classification: Application 56) Chris rented an apartment from Donald. Due to personal reasons, Chris decided to transfer all his rights under the lease to his friend Dave. Dave partially transferred his rights under the lease to his friend, Pam. While living in the apartment, Pam accidentally burned down a part of the kitchen. Donald paid for fixing the kitchen. By the time of this accident, Donald had also transferred his rights to receive rent for the lease to Chad. Under this arrangement, Pam has to pay rent to ________. A) Donald B) Chris C) Dave D) Chad Answer: C Diff: 2 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Application of knowledge Classification: Application 57) Chris rented an apartment from Donald. Due to personal reasons, Chris decided to transfer all his rights under the lease to his friend Dave. Dave partially transferred his rights under the lease to his friend, Pam. While living in the apartment, Pam accidentally burned down a part of the kitchen. Donald paid for fixing the kitchen. By the time of this accident, Donald had also transferred his rights to receive rent for the lease to Chad. Under this arrangement, ________ is obligated to pay rent to Chad. A) Donald B) Dave C) Pam D) Chris Answer: B Diff: 2 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Application of knowledge Classification: Application 14 Copyright © 2019 Pearson Education, Inc.

58) Chris rented an apartment from Donald. Due to personal reasons, Chris decided to transfer all his rights under the lease to his friend Dave. Dave partially transferred his rights under the lease to his friend, Pam. While living in the apartment, Pam accidentally burned down a part of the kitchen. Donald paid for fixing the kitchen. By the time of this accident, Donald had also transferred his rights to receive rent for the lease to Chad. Under this arrangement, ________ is legally obliged to pay Donald for the damages caused to the kitchen. A) only Pam B) only Dave C) only Chris D) either Chris or Dave Answer: B Diff: 2 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Application of knowledge Classification: Application 59) An assignee is obligated to perform the duties that the assignor had under the lease. Answer: TRUE Diff: 1 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Analytical thinking Classification: Concept 60) If the landlord recovers from the assignor, the assignor has no course of action to recover from the assignee. Answer: FALSE Diff: 1 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Analytical thinking Classification: Concept 61) A partial transfer of a tenant's rights under a lease is known as an assignment. Answer: FALSE Diff: 1 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Analytical thinking Classification: Concept 62) In a sublease, no legal relationship is formed between the landlord and the sublessee. Answer: TRUE Diff: 1 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Analytical thinking Classification: Concept

63) The landlord can sue a sublessee to recover rent payments or enforce duties under the original lease. Answer: FALSE Diff: 1 LO: 49.6 Define assignment and sublease of a lease by a tenant. AACSB: Analytical thinking Classification: Concept 64) Which of the following is true of rent control? A) Rent-control ordinances are enacted and enforced by the federal government. B) Rent-control ordinances stipulate amounts for rent and annual increases. C) Rent control is deemed unconstitutional by the U.S. Supreme Court. D) Rent control is derived from zoning ordinances and building codes. Answer: B Diff: 1 LO: 49.7 Describe the government's power of eminent domain in taking private property. AACSB: Analytical thinking Classification: Concept 65) Rent-control ordinances fix the rent at a specific amount and provide for minor annual increases. Answer: TRUE Diff: 1 LO: 49.7 Describe the government's power of eminent domain in taking private property. AACSB: Analytical thinking Classification: Concept 66) Which of the following legislations prevents all protected classes from discrimination in accommodation? A) the Rent Stabilization Law of 1969 B) the Americans with Disabilities Act of 1990 C) the Fair Housing Act of 1968 D) the Civil Rights Act of 1866 Answer: C Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept

67) The ________ of the Fifth Amendment to the U.S. Constitution allows the government to take property for public use. A) Takings Clause B) Just Compensation Clause C) Double Jeopardy Clause D) Ratification Clause Answer: A Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 68) The process through which the government can take private property for public use, provided that just compensation is paid to the property holder, is known as ________. A) future interest B) constructive eviction C) adverse possession D) eminent domain Answer: D Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 69) Which of the following is true of the process of eminent domain? A) It does not allow the property owner to make a case for keeping the property. B) It requires payment of compensation by the government. C) It does not apply to state and local governments. D) It allows the government to set up zoning areas. Answer: B Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 70) A person who leases a single-family dwelling and does not own more than three singlefamily dwellings does not come under the purview of the Fair Housing Act of 1968. Answer: TRUE Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept

71) The Fair Housing Act specifically prohibits discrimination against disabled individuals in employment, public services, and public accommodations and services. Answer: FALSE Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 72) The Americans with Disabilities Act applies only to places of public accommodation operated by public entities. Answer: FALSE Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 73) Title III of the ADA requires construction of ramps to accommodate wheelchairs. Answer: TRUE Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 74) Monetary damages are not provided in cases involving violation of the ADA. Answer: FALSE Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 75) The attorney general may seek equitable relief and civil fines for any violation of the ADA. Answer: TRUE Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 76) Complaints regarding violations of the ADA are filed with the U.S. Department of Justice. Answer: TRUE Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept

77) How does the Americans with Disabilities Act influence housing and accommodation? Answer: The Americans with Disabilities Act (ADA) of 1990, as amended by the Americans with Disabilities Act Amendments Act (ADAAA) of 2008, is a federal statute that prohibits discrimination against disabled individuals in employment, public services, public accommodations and services, and telecommunications. Title III of the Americans with Disabilities Act includes constructing ramps to accommodate wheelchairs, installing railings next to steps, placing signs written in Braille in elevators and at elevator call buttons, and so on. New construction must be built in such a manner as to be readily accessible to and usable by disabled individuals. Any alterations made to existing buildings must be made so that the altered portions of the building are readily accessible to disabled individuals to the maximum extent feasible. The ADA provides for both private right of action and enforcement by the attorney general. Diff: 1 LO: 49.8 List and describe the antidiscrimination laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 78) The Due Process Clause of the Fifth Amendment to the U.S. Constitution requires the government to compensate a property owner when it exercises the power of eminent domain. Answer: FALSE Diff: 1 LO: 49.9 Describe the government's power of eminent domain in taking real property. AACSB: Analytical thinking Classification: Concept 79) The compensation provided by the government for obtaining a property through eminent domain is final and cannot be disputed further. Answer: FALSE Diff: 1 LO: 49.9 Describe the government's power of eminent domain in taking real property. AACSB: Analytical thinking Classification: Concept 80) Eminent domain allows the government to take private property for public use after paying consideration. Answer: TRUE Diff: 1 LO: 49.9 Describe the government's power of eminent domain in taking real property. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 50 Insurance 1) ________ is a means for persons and businesses to protect themselves against the risk of loss. A) Abatement B) Ademption C) Insurance D) Easement Answer: C Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 2) An insurance contract is called a ________. A) policy B) premium C) lien D) writ Answer: A Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 3) In the context of insurance, what does the term premium refer to? A) the money received from the defaulting party B) the money paid to the insurance company C) the money paid to insured after an accidental damage D) the money paid to insurance brokers as fee Answer: B Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept

4) What is the difference between an insurance broker and an insurance agent? A) An insurance agent works exclusively for one company, while an insurance broker works for a number of insurance companies. B) An agent requires a commission payment after a deal is made, while a broker requires a service charge to be paid before the deal is made. C) An agent represents the insured, while a broker represents the company. D) An agent is authorized to sell insurance directly, while a broker can only mediate an insurance contract. Answer: A Diff: 2 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 5) Who is an underwriter? A) a lawyer who represents an insurance company B) an agent who works for only one insurance company C) a broker who works on behalf of many insurance companies D) an insurance company that provides coverage to the insured Answer: D Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 6) ________ is a requirement that a person who purchases insurance has a personal stake in the insured item or person. A) Delivery of possession B) Endorsement C) Adverse possessory interest D) Insurable interest Answer: D Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 7) Which of the following statements is true of insurance? A) It has to be paid after the risk has been encountered. B) It can be obtained even if one has no insurable interest in the property being insured. C) It is a means of transferring and distributing the risk of loss. D) It cannot be modified once issued. Answer: C Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 2 Copyright © 2019 Pearson Education, Inc.

8) The ________ is a duty of the insurer to protect the insured against lawsuits or legal proceedings that involve a claim within the coverage of the insurance policy. A) duty of strict liability B) duty to pay C) duty of reasonable care D) duty to defend Answer: D Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 9) Which of the following is an insurer's duty? A) to pay back the insured's money on demand B) to pay back the premiums paid by the insured upon an endorsement of insurance C) to pay legitimate claims up to the insurance policy limits D) to pay interest for the premiums paid by insured on a monthly or yearly basis Answer: C Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 10) Insurance is a form of coverage for loss that is initiated after the loss has occurred. Answer: FALSE Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 11) An insurance contract is called a policy. Answer: TRUE Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 12) Premiums are based on an estimate of the number of parties within the pool who will suffer the risks insured against. Answer: TRUE Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept

13) An insurance broker is an agent of an insurer. Answer: FALSE Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 14) Insurance policies can only be sold by direct agents of an insurer. Answer: FALSE Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 15) If an insured does not have an insurable interest in the property being insured, the contract is treated as a wager. Answer: TRUE Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 16) An insurable interest is created when an insurer has ownership of the item being insured. Answer: TRUE Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 17) For a life insurance, insurable interest is necessary at the time of loss. Answer: FALSE Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 18) An insurance policy, once made, cannot be modified. Answer: FALSE Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept

19) Insurance coverage is typically suspended during grace periods for payments. Answer: FALSE Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 20) Shippers can purchase comprehensive insurance to cover the risk of loss to their goods during shipment. Answer: FALSE Diff: 1 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 21) What are the duties of an insured and insurer? Answer: The parties to an insurance contract are obligated to perform the duties imposed by the contract. The insured owes the following duties: (1) to pay the premiums stipulated by the policy, (2) to notify the insurer after the occurrence of an insured event within the time period stated in the policy or within a reasonable time, and (3) to cooperate with the insurer in investigating claims made against the insurer. The insurer owes two primary duties. First, the insurer owes a duty to defend the insured against any lawsuit or legal proceeding brought against the insured that involves a claim within the coverage of the insurance policy. Second, the insurer owes the duty to pay legitimate claims up to the policy limits. Insurers who wrongfully refuse to perform these duties are liable to the insured or a rightful beneficiary for damages. Diff: 2 LO: 50.1 Define insurable interest and describe an insurance policy. AACSB: Analytical thinking Classification: Concept 22) A(n) ________ is a clause in an insurance policy that provides that insurance proceeds are payable only after the insured has paid a specified amount toward the damage or loss. A) incontestability clause B) coinsurance clause C) exclusions from coverage clause D) deductible clause Answer: D Diff: 1 LO: 50.2 List and describe the common clauses that are used in insurance policies. AACSB: Analytical thinking Classification: Concept

23) Helen has a $40,000 automobile collision policy with a $750 deductible. If her car is involved in an accident costing her $15,000 to repair the damages, ________ is the amount she will have to pay to receive coverage for the damages from the insurer. A) $750 B) $39,250 C) $40,000 D) $14,250 Answer: A Diff: 2 LO: 50.2 List and describe the common clauses that are used in insurance policies. AACSB: Application of knowledge Classification: Application 24) Roger Ray runs a motel in a rented property and sublets a part of its garage to the owner of a nearby fuel station. Three months later, the motel catches fire from a fuel leak in the garage and Roger suffers severe damages. If Roger owns a standard fire insurance policy for years, the insurer can use the ________ to refuse covering the damage caused by the fire. A) deductible clause B) exclusions from coverage clause C) incontestability clause D) copay clause Answer: B Diff: 1 LO: 50.2 List and describe the common clauses that are used in insurance policies. AACSB: Application of knowledge Classification: Application 25) What is the copay clause in an insurance policy? A) a clause in a life insurance contract that provides no coverage if the insured commits suicide before a stipulated date B) a clause in an insurance policy that expressly stipulates the risks that are not covered by the insurance policy C) a clause that prevents insurers from contesting statements made by insureds in applications after the passage of a stipulated number of years D) a clause that requires the insured to pay a percentage of an insured loss along with the remainder being paid by the insurer Answer: D Diff: 1 LO: 50.2 List and describe the common clauses that are used in insurance policies. AACSB: Analytical thinking Classification: Concept

26) Which of the following clauses protects the insurers from intentional or unintentional material or informative misrepresentation from an insurance applicant? A) exclusions from coverage clause B) incontestability clause C) deductible clause D) coinsurance clause Answer: B Diff: 1 LO: 50.2 List and describe the common clauses that are used in insurance policies. AACSB: Analytical thinking Classification: Concept 27) Which of the following statements is true of a life insurance? A) The insurable interest need not exist at the time of insurance. B) The insurable interest need not exist at the time of death or loss. C) The beneficiary and the insured cannot be the same person. D) The beneficiary and the insured must be bound by a relationship of blood. Answer: B Diff: 1 LO: 50.3 Describe the parties to a life insurance policy and the various types of life insurance. AACSB: Analytical thinking Classification: Concept 28) A person who is to receive life insurance proceeds when the insured dies is known as a ________. A) donor B) bailee C) beneficiary D) notary Answer: C Diff: 1 LO: 50.3 Describe the parties to a life insurance policy and the various types of life insurance. AACSB: Analytical thinking Classification: Concept 29) A(n) ________ is a document that modifies an insurance policy and becomes part of the insurance policy. A) endorsement B) easement C) injunction D) convention Answer: A Diff: 1 LO: 50.3 Describe the parties to a life insurance policy and the various types of life insurance. AACSB: Analytical thinking Classification: Concept 7 Copyright © 2019 Pearson Education, Inc.

30) Hillary had purchased a term life insurance policy and had nominated her mother as the beneficiary, while William, her colleague, had a universal life insurance and had nominated himself as the beneficiary. Hillary and William recently got married and wish to nominate each other as beneficiaries in their individual life insurance policies. In the context of the given scenario, which of the following statements is true? A) Hillary and William will have to purchase two new policies to nominate each other as beneficiaries. B) Hillary and William will have to seek an endorsement to make the requisite changes in their current individual life insurance policies. C) Hillary will be able to nominate William as the beneficiary, but William cannot do so because he did not enlist a beneficiary earlier. D) William will have to nominate both Hillary and her mother as beneficiaries for his insurance policy because existing beneficiaries cannot be denied coverage. Answer: B Diff: 2 LO: 50.3 Describe the parties to a life insurance policy and the various types of life insurance. AACSB: Application of knowledge Classification: Application 31) What happens to the life insurance proceeds upon the death of an insured who has not named a beneficiary? A) The proceeds are given to the state. B) The proceeds remain with the insurer for the full-term of the insurance. C) The proceeds are given to charitable organizations. D) The proceeds go to the insured's estate. Answer: D Diff: 1 LO: 50.3 Describe the parties to a life insurance policy and the various types of life insurance. AACSB: Analytical thinking Classification: Concept 32) The owner of the policy in a life insurance without exception is the ________. A) insurance company that issues the policy B) person who pays the premiums C) next of kin of the insured person D) person who receives the insurance proceeds Answer: B Diff: 1 LO: 50.3 Describe the parties to a life insurance policy and the various types of life insurance. AACSB: Analytical thinking Classification: Concept

33) Which of the following statements is true of the suicide clause in a life insurance? A) The insurer is liable to pay in cases of legitimate suicides even if the life insurance policy had elapsed. B) The suicide clause has a specified date set. C) The insurer doesn't have to pay the beneficiary even if the suicide takes place after the specified date. D) The suicide has to occur within the specified date for payment. Answer: B Diff: 1 LO: 50.3 Describe the parties to a life insurance policy and the various types of life insurance. AACSB: Analytical thinking Classification: Concept 34) If no beneficiary is mentioned in a life insurance, then the proceeds of the insurance go to the insured's estate. Answer: TRUE Diff: 1 LO: 50.3 Describe the parties to a life insurance policy and the various types of life insurance. AACSB: Analytical thinking Classification: Concept 35) The suicide clause is a clause that states that insurance proceedings will not be paid in case of a suicide at any time during the policy's validity. Answer: FALSE Diff: 1 LO: 50.3 Describe the parties to a life insurance policy and the various types of life insurance. AACSB: Analytical thinking Classification: Concept 36) For a life insurance, the owner and beneficiary cannot be the same person. Answer: FALSE Diff: 1 LO: 50.3 Describe the parties to a life insurance policy and the various types of life insurance. AACSB: Analytical thinking Classification: Concept

37) Who are the different parties to a life insurance contract? How is a beneficiary determined for a life insurance? Answer: There are four parties to a life insurance contract: 1. The insurance company issues the policy. 2. The owner of the policy is the person who contracts with the insurance company and pays the premiums. 3. The insured is the person whose life is insured. 4. The beneficiary is the person who is to receive the insurance proceeds when the insured dies. The owner of the policy has the power to name the beneficiary of the insurance proceeds. Most life insurance contracts permit the owner to change beneficiaries. If no beneficiary is named, the proceeds go to the insured's estate. Often, the owner and the insured are the same person. For example, an owner can take out an insurance policy on his or her own life. The owner and beneficiary can also be the same person. Diff: 2 LO: 50.3 Describe the parties to a life insurance policy and the various types of life insurance. AACSB: Analytical thinking Classification: Concept 38) Henry works as an assembly line worker at MM Corporation. Two weeks back, he suffered multiple fractures while trying to repair a block in the machinery. The doctors have advised him to take two months of rest to recuperate from this accident. However, Henry is reassured that the ________ that he is eligible for will provide him with a monthly income until he is fit to return to work. A) life insurance B) disability insurance C) health insurance D) homeowner's policy Answer: B Diff: 2 LO: 50.4 List and describe the various forms of health and disability insurance. AACSB: Application of knowledge Classification: Application 39) An employee of a company that provides ________ insurance to its employees can receive payments, as provided by the policy, for injuries suffered by employees while working on the job. A) disability B) life C) homeowner's D) standard fire Answer: A Diff: 1 LO: 50.4 List and describe the various forms of health and disability insurance. AACSB: Analytical thinking Classification: Concept

40) Which of the following types of insurances provides replacement cost insurance? A) health insurance B) standard fire insurance C) disability insurance D) life insurance Answer: B Diff: 1 LO: 50.4 List and describe the various forms of health and disability insurance. AACSB: Analytical thinking Classification: Concept 41) A(n) ________ is a comprehensive insurance policy that includes coverage for the risks covered by a fire insurance policy as well as personal liability insurance. A) homeowners' policy B) life insurance policy C) umbrella insurance D) omnibus policy Answer: A Diff: 1 LO: 50.4 List and describe the various forms of health and disability insurance. AACSB: Analytical thinking Classification: Concept 42) Most employers pay for disability insurance for their employees in totality. Answer: FALSE Diff: 1 LO: 50.4 List and describe the various forms of health and disability insurance. AACSB: Analytical thinking Classification: Concept 43) Which of the following statements is true of a personal articles floater? A) The insured can insure specific body parts using this policy. B) The coverage includes insurance of intangible properties. C) The coverage does not include loss or damage caused during travel. D) The insurance company will charge an increased premium based on the articles insured. Answer: D Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept

44) Able Adams has a number of rare paintings at home that he inherited from his paternal family, many of whom were patrons and collectors of art. Able knows that the value of these paintings makes them likely targets of theft and he needs to insure these items specifically by using a ________. A) homeowner's policy B) standard fire insurance C) personal articles floater D) personal liability coverage Answer: C Diff: 2 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept 45) Which of the following types of insurances will help an owner of a real property establish clear ownership over that property? A) comprehensive insurance B) title insurance C) omnibus insurance D) renter's insurance Answer: B Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept 46) The coverage of a standard fire insurance policy cannot be enlarged by adding riders or endorsements to the policy. Answer: FALSE Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept 47) Personal injury is not covered under a standard fire insurance policy. Answer: TRUE Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept

48) Under the replacement cost insurance, an insurer has the right to either pay the insured for the loss or pay to have the property restored. Answer: TRUE Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept 49) A homeowner's policy does not cover theft that takes place at an insured's workplace even if the item is insured. Answer: FALSE Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept 50) A personal articles floater helps insure specific items of value. Answer: TRUE Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept 51) A personal articles floater provides coverage for loss or damage to the articles while traveling. Answer: TRUE Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept 52) Renter's insurance fails to cover an insured for personal liability. Answer: FALSE Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept

53) Lienholders cannot purchase title insurance on a property on which they have a lien. Answer: FALSE Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept 54) An owner of real property or a mortgagee pays only one premium for title insurance, usually at closing. Answer: TRUE Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept 55) What is the importance of title insurance in real property? Answer: Owners of real property can purchase title insurance to ensure that they have clear title to the property. Mortgagees and other lienholders can purchase title insurance on property on which they have a lien. Title insurance protects against defects in titles and liens or encumbrances that are not disclosed on the title insurance policy. An owner of real property or a mortgagee pays only one premium for title insurance, usually at closing. Each new owner or mortgagee who wants this coverage must purchase a new title insurance policy. Mortgagees sometimes require a debtor to purchase such a policy as a prerequisite for making a loan. Diff: 1 LO: 50.5 Identify the risks covered by a standard fire insurance policy and a homeowners' policy. AACSB: Analytical thinking Classification: Concept 56) Which of the following statements is true of the collision insurance? A) The coverage is in effect whether the insured's car is moving or standing still. B) The coverage is in effect even if another car was not involved in damaging the car belonging to the insured. C) The coverage also gives protection from car thefts, natural calamities, vandalism, and riots. D) The coverage gives insurance for damages caused by the insured on third parties. Answer: A Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept

57) ________ is a form of property insurance that insures an automobile from loss or damage due to causes other than collision. A) Omnibus insurance B) Comprehensive insurance C) Coinsurance clause D) No-fault automobile insurance Answer: B Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept 58) What is an automobile liability insurance? A) an insurance that covers an insured's automobile from theft B) an insurance that covers an insured's automobile from collision with another car C) an insurance that covers damages that an insured causes to third parties D) an insurance that covers an insured's automobile from natural disasters Answer: C Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept 59) If Matheson wishes to be covered for the possibility of the chauffeur getting into an accident, he would require a(n) ________. A) omnibus clause in his automobile insurance B) collision clause in his automobile insurance C) deductibility clause in his automobile insurance D) double indemnity clause in his automobile insurance Answer: A Diff: 2 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Application of knowledge Classification: Application 60) What kind of insurance can help restore Matheson's car after it has been damaged by the hurricane? A) collision insurance B) comprehensive insurance C) automobile liability insurance D) uninsured motorist coverage Answer: B Diff: 2 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Application of knowledge Classification: Application 15 Copyright © 2019 Pearson Education, Inc.

61) Norah is a single mother who has just taught Janet, her daughter, to drive. Once Janet has a driving permit, Norah intends to let Janet do most of the driving because driving for long stretches usually gives Norah severe pain in her upper back and shoulders. Norah's car is insured in her name. In this scenario, Norah could opt for a(n) ________ to protect the car from damages that could occur while Janet drives the car. A) collision insurance B) comprehensive insurance C) omnibus clause D) medical payment coverage Answer: C Diff: 2 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Application of knowledge Classification: Application 62) A(n) ________ is an automobile insurance system used by some states in which the driver's insurance company pays for any injuries or death the driver suffers in an accident irrespective of who caused the accident. A) no-fault insurance B) comprehensive insurance C) automobile liability insurance D) collision insurance Answer: A Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept 63) Collision insurance covers damages to a car in a natural disaster. Answer: FALSE Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept 64) An insured can cover his automobile under both collision insurance and comprehensive insurance simultaneously. Answer: TRUE Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept

65) Automobile liability insurance covers damages that an insured causes to third parties. Answer: TRUE Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept 66) A drive-other coverage protects an insured for damages to a rental car caused by the insured. Answer: TRUE Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept 67) The uninsured motorist coverage only covers when the accident is an insured's fault. Answer: FALSE Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept 68) A no-fault insurance assures an insured party that coverage is available if they are injured in an automobile accident. Answer: TRUE Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept 69) An automobile insurance with the omnibus clause is called an umbrella insurance policy. Answer: FALSE Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept

70) Give an account of the no-fault automobile liability insurance. Answer: Most automobile insurance coverage is based on the principle of "fault," whereby a party injured in an accident relied on the insurance of the at-fault party to pay for his or her injuries. This system leads to substantial litigation, and many accident victims are unable to recover because the at-fault party has either inadequate insurance or no insurance at all. To remedy this problem, more than half of the states have enacted legislation that mandates no-fault automobile insurance. Under this system, a driver's insurance company pays for any injuries or death he or she suffered in an accident, no matter who caused the accident. No-fault insurance assures the insureds that coverage is available if they are injured in an automobile accident. Nofault insurance policies provide coverage for medical expenses and lost wages. Pain and suffering are sometimes covered. No-fault insurance usually covers the insured, members of the insured's immediate family, authorized drivers of the automobile, and passengers. Diff: 1 LO: 50.6 Describe automobile insurance and explain no-fault insurance. AACSB: Analytical thinking Classification: Concept Lucy Ann's boutique was burned down in a fire caused by a short circuit in the building. The fire caused the death of the boutique's co-owner and injured two of its workers. The estimated time frame for rebuilding the boutique was five months, but Lucy Ann was insured by a policy that reimbursed the loss of money that these five months of lost business would cause. 71) What kind of insurance provides such coverage? A) product liability insurance B) key-person life insurance C) workers' compensation insurance D) business interruption insurance Answer: D Diff: 2 LO: 50.7 List and describe special forms of business insurance. AACSB: Analytical thinking Classification: Concept 72) What kind of insurance would protect Lucy from being sued by the injured employees for this damage? A) business interruption insurance B) directors' and officers' insurance C) workers' compensation insurance D) key-person life insurance Answer: C Diff: 2 LO: 50.7 List and describe special forms of business insurance. AACSB: Analytical thinking Classification: Concept

73) Which of the following insurances covers the death of the co-owner's loss to the business? A) directors' and officers' insurance B) key-person life insurance C) business interruption insurance D) workers' compensation insurance Answer: B Diff: 2 LO: 50.7 List and describe special forms of business insurance. AACSB: Analytical thinking Classification: Concept 74) Insureds who want to increase their liability coverage beyond the original coverage can purchase a(n) ________. A) umbrella insurance B) life insurance C) business insurance D) fire and homeowners' insurance Answer: A Diff: 1 LO: 50.7 List and describe special forms of business insurance. AACSB: Analytical thinking Classification: Concept 75) Which of the following statements is true of umbrella insurance? A) It cannot be used for liability coverage. B) It does not require the insured to have already purchased insurance policies. C) It cannot be used with other insurance policies. D) It is only paid if the limits on other insurance policies have been exceeded. Answer: D Diff: 1 LO: 50.7 List and describe special forms of business insurance. AACSB: Analytical thinking Classification: Concept 76) A workers' compensation insurance allows an employee to sue the employer along with claiming the insurance coverage. Answer: FALSE Diff: 1 LO: 50.7 List and describe special forms of business insurance. AACSB: Analytical thinking Classification: Concept

77) A buy-sell agreement made using proceeds from a key-life insurance is not considered valid. Answer: FALSE Diff: 1 LO: 50.7 List and describe special forms of business insurance. AACSB: Analytical thinking Classification: Concept 78) A directors' and officers' liability insurance helps an organization sue its directors and officers in case of personal negligence. Answer: FALSE Diff: 1 LO: 50.7 List and describe special forms of business insurance. AACSB: Analytical thinking Classification: Concept 79) A professional malpractice insurance protects professionals against liability caused by personal negligence. Answer: TRUE Diff: 1 LO: 50.7 List and describe special forms of business insurance. AACSB: Analytical thinking Classification: Concept 80) An insurer will issue an umbrella policy only if a stipulated minimum amount of basic coverage on other insurance policies has been purchased by the insured. Answer: TRUE Diff: 1 LO: 50.7 List and describe special forms of business insurance. AACSB: Analytical thinking Classification: Concept 81) What is a key-person life insurance? How does it influence a buy-sell agreement? Answer: In many small businesses, such as partnerships, limited liability companies, and close corporations, the death of one of the owners may cause a loss to the business. To compensate for such loss, the business often purchases key-person life insurance on owners and other important persons who work for the business. The business pays the premiums for the key-person life insurance policies. Upon the death of the insured person, the proceeds of the key-person life insurance are paid to the business. Sometimes key-person life insurance is used to fund buy-sell agreements among the owners of the business. Thus, if an insured owner dies, the insurance proceeds are paid to the deceased's beneficiaries, and the deceased's interest in the business then reverts to either the other owners or the business, according to the terms of the buy-sell agreement. Diff: 2 LO: 50.7 List and describe special forms of business insurance. AACSB: Analytical thinking Classification: Concept 20 Copyright © 2019 Pearson Education, Inc.

Business Law, 10e (Cheeseman) Chapter 51 Accountants' Duties and Liability 1) Which of the following statements is true of accountants? A) Accountants cannot be hired to perform nonaudit services. B) Accountants cannot be held liable by provisions of common law. C) Accountants can be held liable to clients but not to third parties. D) Accountants who lack certified public accountant (CPA) certification are called public accountants. Answer: D Diff: 2 LO: 51.1 Describe public accounting and define the term certified public accountant. AACSB: Analytical thinking Classification: Concept 2) Which of the following is the most common type of corporate structure that is used by accounting firms that operate in the United States? A) a limited liability partnership B) a corporation C) a cooperative D) a sole trader Answer: A Diff: 2 LO: 51.1 Describe public accounting and define the term certified public accountant. AACSB: Analytical thinking Classification: Concept 3) Standards for the preparation and presentation of financial statements are known as ________. A) engagements and agreements B) auditor's opinions C) generally accepted accounting principles D) generally accepted auditing standards Answer: C Diff: 1 LO: 51.1 Describe public accounting and define the term certified public accountant. AACSB: Analytical thinking Classification: Concept 4) A person who practices as an accountant, but is not certified, is referred to as a public accountant. Answer: TRUE Diff: 1 LO: 51.1 Describe public accounting and define the term certified public accountant. AACSB: Analytical thinking Classification: Concept

5) Most accounting firms in the United States operate as limited liability partnerships (LLPs). Answer: TRUE Diff: 1 LO: 51.1 Describe public accounting and define the term certified public accountant. AACSB: Analytical thinking Classification: Concept 6) Limited partners are personally liable for the debts and obligations of the limited liability partnerships (LLP). Answer: FALSE Diff: 1 LO: 51.1 Describe public accounting and define the term certified public accountant. AACSB: Analytical thinking Classification: Concept 7) A qualified opinion can be defined as a verification of a company's books and records by a certified accountant. Answer: FALSE Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 8) Which of the following statements is true of the generally accepted accounting principle (GAAP)? A) It is used by auditors as a guide for their nonaudit services only. B) It is the accepted form of accounting principles around the world. C) It cannot be modified once established by the American Institute of Certified Public Accountants. D) It sets rules for how corporations must set their accounts on their financial statements. Answer: D Diff: 2 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept

9) ________ specify the methods and procedures that are to be used by public accountants when conducting external audits of company financial statements A) Generally accepted accounting principles B) Generally accepted auditing standards C) Auditor's expert opinions D) General engagements and agreements Answer: B Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 10) Holly Lane is an accountant with Mildred & Lane Co. and she has recently been asked to visit Maine Manufacturers to survey their financial records, assess their compliance with federal and state laws, and provide an opinion reflecting the state of the company's financial records. Holly's assessment of the financial records of Maine Manufacturers is called a(n) ________. A) probate B) audit C) arraignment D) easement Answer: B Diff: 3 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 11) Which of the following is true of an auditor of a corporation? A) The auditor must be an independent certified public accountant. B) The auditor cannot use information about the corporation from third parties. C) The auditor cannot inspect the corporation's real property unless he is closely associated with the company. D) The auditor must provide a qualified opinion wherever possible since it helps the company in business. Answer: A Diff: 2 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept

12) An auditor's opinion that the company's financial statements fairly represent the company's financial position, the results of its operations, and the change in cash flows for the period under audit, in conformity with generally accepted accounting principles is referred to as a(n) ________. A) disclaimer of opinion B) adverse opinion C) qualified opinion D) unqualified opinion Answer: D Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 13) A(n) ________ is an auditor's opinion that states that the financial statements are fairly represented except for, or subject to, a departure from Generally Accepted Accounting Principles (GAAPs), a change in accounting principles, or a material uncertainty. A) unqualified opinion B) qualified opinion C) adverse opinion D) disclaimer of opinion Answer: B Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 14) Which one of the following is the most favorable opinion an auditor can give a company following an audit? A) an unqualified opinion B) a disclaimer of opinion C) an adverse opinion D) a qualified opinion Answer: A Diff: 2 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept

15) Which of the following opinions would an auditor make for a company that, he or she feels, has materially misstated certain items on its financial statements? A) an unqualified opinion B) an adverse opinion C) a qualified opinion D) a disclaimer of opinion Answer: B Diff: 2 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 16) If an auditor makes a disclaimer of opinion, this means that the auditor is ________. A) favorable to the company's financial statement matching its performance but notes a few departures from Generally Accepted Accounting Principles (GAAPs) B) unfavorable about the financial statement representing the company's position C) unable to draw a conclusion about the accuracy of the company's financial records owing to lack of information D) favorable of the company's financial statements representing its performance Answer: C Diff: 2 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 17) Which of the following opinions is necessary for a company to avoid unfavorable repercussions on the company? A) an adverse opinion B) a qualified opinion C) a disclaimer of opinion D) an unqualified opinion Answer: D Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept

18) Generally Accepted Accounting Principles (GAAPs) specify the methods and procedures that are to be used by public accountants when conducting external audits of company financial statements. Answer: FALSE Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 19) The Financial Accounting Standards Board (FASB) issues new Generally Accepted Accounting Principle (GAAP) rules and amends existing ones. Answer: TRUE Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 20) The Generally Accepted Auditing Standards (GAASs) are established by the American Institute of Certified Public Accountants. Answer: TRUE Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 21) An accountant's failure to follow the Generally Accepted Auditing Standards (GAASs) when conducting audits constitutes negligence. Answer: TRUE Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 22) A qualified opinion is the most favorable opinion that an accountant can render. Answer: FALSE Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept

23) An unqualified opinion would entail that the company's financial statements have some deviation from Generally Accepted Accounting Principles (GAAPs). Answer: FALSE Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 24) A disclaimer of opinion is a clause in auditing that a company can claim wherein the auditor is not allowed to access a high-priority portion of a company's financial records. Answer: FALSE Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 25) An adverse opinion is reflective of a material misstatement or discrepancy in a company's financial records. Answer: TRUE Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 26) When does an auditor submit a disclaimer of opinion? What is the significance of an auditor's opinion? Answer: A disclaimer of opinion expresses the auditor's inability to draw a conclusion about the accuracy of the company's financial records. This disclaimer is generally issued when the auditor lacks sufficient information about the financial records to issue an overall opinion. The issuance of other than an unqualified opinion can have substantial adverse effects on the company audited. A company that receives an opinion other than an unqualified opinion may not be able to sell its securities to the public, merge with another company, or obtain loans from banks. The Securities and Exchange Commission (SEC) has warned publicly held companies against "shopping" for accountants to obtain a favorable opinion. Diff: 1 LO: 51.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept

27) A formal entrance into a contract between a client and an accountant is known as an ________. A) abatement B) arraignment C) easement D) engagement Answer: D Diff: 1 LO: 51.3 Describe how accountants can be found liable to their clients AACSB: Analytical thinking Classification: Concept 28) A(n) ________ is defined as intentional misrepresentation or omission of a material fact that is relied on by the client and causes the client damage. A) unqualified opinion B) actual fraud C) disclaimer of opinion D) constructive fraud Answer: B Diff: 1 LO: 51.3 Describe how accountants can be found liable to their clients AACSB: Analytical thinking Classification: Concept 29) A formal entrance into a contract between a client and an accountant is called abatement. Answer: FALSE Diff: 1 LO: 51.3 Describe how accountants can be found liable to their clients AACSB: Analytical thinking Classification: Concept 30) Constructive fraud is defined as intentional misrepresentation or omission of a material fact that is relied on by a client and causes the client damage. Answer: FALSE Diff: 1 LO: 51.3 Describe how accountants can be found liable to their clients AACSB: Analytical thinking Classification: Concept 31) Violations of generally accepted accounting principles (GAAPs) or generally accepted auditing standards (GAASs), or International Financial Reporting Standards (IFRSs), if applicable, are prima facie evidence of negligence in any court action. Answer: TRUE Diff: 1 LO: 51.3 Describe how accountants can be found liable to their clients AACSB: Analytical thinking Classification: Concept 8 Copyright © 2019 Pearson Education, Inc.

32) Accountants can be held liable for negligence in preparing unaudited financial statements. Answer: TRUE Diff: 1 LO: 51.3 Describe how accountants can be found liable to their clients AACSB: Analytical thinking Classification: Concept 33) A rule that says that an accountant is liable for negligence to third parties who are projected users of the client's financial statements is known as ________. A) the foreseeability standard B) the Ultramares doctrine C) the due diligence defense D) the privity of contract Answer: A Diff: 1 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept 34) Which of the following provides the broadest standard for holding accountants liable to third parties for negligence? A) due diligence defense B) the foreseeability standard C) the Ultramares doctrine D) nolo contendere Answer: B Diff: 2 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept

35) When an accountant has behaved negligently causing damage to a third party, the third party ________. A) cannot sue the accountant under any circumstance B) cannot bring a tort action against the accountant to recover damages C) cannot sue the accountant for breach of contract D) cannot claim constructive but not actual fraud on part of the defendant Answer: C Diff: 1 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept 36) The ________ is a rule that says that an accountant is liable only for negligence to third parties who are in privity of contract or in a privity-like relationship with the accountant. A) foreseeability standard B) Ultramares doctrine C) due diligence defense D) disclaimer of opinion Answer: B Diff: 1 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept 37) The Ultramares doctrine provides the broadest standard for holding accountants liable to third parties for negligence. Answer: FALSE Diff: 1 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept 38) In the case of Ultramares Corporation vs. Touche, the defendant was found to be not guilty of negligence due to lack of privity of contract. Answer: TRUE Diff: 1 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

39) Which of the following rules provides that an accountant is liable only for negligence to third parties who are members of a limited class of intended users of the client's financial statements? A) Section 552 of the Restatement (Second) of Torts B) the foreseeability standard C) the Ultramares doctrine D) due diligence defense Answer: A Diff: 2 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept 40) Which of the following legislations can a state adopt in determining whether an accountant is liable in negligence to third parties? A) Section 2(b) of the Robinson-Patman Act B) Section 5 of the Federal Trade Commission C) Section 552 of the Restatement (Second) of Torts D) Section 16 of the Clayton Act Answer: C Diff: 1 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept 41) The legal theory that holds accountants liable to any member of a limited class of intended users for whose benefit the accountant has been employed is the Section 552 of the Restatement (Second) of Torts. Answer: TRUE Diff: 1 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept 42) A third party can bring a tort action against an accountant in case of constructive fraud. Answer: TRUE Diff: 1 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept 11 Copyright © 2019 Pearson Education, Inc.

43) Third parties cannot sue accountants for breach of contract. Answer: TRUE Diff: 1 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept 44) Explain Section 552 of the Restatement (Second) of Torts. Answer: Section 552 of the Restatement (Second) of Torts provides a broader standard for holding accountants liable to third parties for negligence than the Ultramares doctrine. Under this standard, an accountant is liable for his or her negligence to any member of a limited class of intended users for whose benefit the accountant has been employed to prepare the client's financial statements or to whom the accountant knows the client will supply copies of the financial statements. In other words, the accountant does not have to know the specific name of the third party. Many states have adopted this standard. Diff: 1 LO: 51.4 Describe how accountants can be found liable to third parties, including under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, and the foreseeability standard. AACSB: Analytical thinking Classification: Concept 45) Under the foreseeability standard, an accountant is liable even if he or she had no knowledge of the intended user of the audited financial statements. Answer: TRUE Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 46) Which of the following is true of Section 10A of the Securities Exchange Act of 1934? A) It prohibits any manipulative or deceptive practice in connection with the process of the probate. B) It serves as a defense an accountant can assert by claiming due diligence to avoid civil liability. C) It enforces a duty on auditors to detect and report illegal acts committed by their clients. D) It imposes a criminal liability on accountants for making misstatements or omissions in nonaudit services. Answer: C Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept

47) ________ imposes civil liability on accountants and others for making misstatements or omissions of material facts in a registration statement, or failing to find such misstatements or omissions. A) Section 11(a) of the Securities Act of 1933 B) Section 10A of the Securities Exchange Act of 1934 C) Section 101 of the Uniform Securities Act D) Section 18(a) of the Securities Exchange Act of 1934 Answer: A Diff: 2 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 48) Which of the following can be used by an accountant to counter liability imposed under Section 11(a) of the Securities Act of 1933? A) the nolo contendere rule B) the due diligence defense C) the Ultramares doctrine D) the foreseeability standard Answer: B Diff: 2 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 49) A verification of a company's books and records pursuant to federal securities laws, state laws, and stock exchange rules that must be performed by an independent certified public accountant (CPA) is known as a(n) ________. A) probate B) ademption C) audit D) deposition Answer: C Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept

50) ________ is a law that prohibits any manipulative or deceptive practice in connection with the purchase or sale of a security. A) Section 11(a) of the Securities Act of 1933 B) Section 32(a) of the Securities Exchange Act of 1934 C) Section 10(b) of the Securities Exchange Act of 1934 D) Section 101 of the Uniform Securities Act Answer: C Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 51) Which of the following is true of Rule 10b-5? A) Privity of contract is a necessity for bringing a lawsuit under this rule. B) Civil private lawsuits are not permitted under this rule. C) Only purchasers and sellers of securities can sue under this rule. D) Ordinary negligence is a violation of this rule. Answer: C Diff: 2 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 52) In which of the following ways can an accountant defeat the imposition of liability under Section 18(a)? A) if he or she can show that the misleading statement was made to protect the company from bankruptcy B) if he or she had acted out of recklessness C) if he or she was an employee to the plaintiff D) if he or she can show that the plaintiff had knowledge of the false statement Answer: D Diff: 2 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept

53) Why do accountants come under the purview of Section 18(a) of the Securities Exchange Act of 1934? A) because they often file reports and other documents with the Securities and Exchange Commission (SEC) on behalf of clients B) because certified public accountants (CPAs) are directly employed by the Securities and Exchange Commission (SEC) C) because all companies require an accountant's approval before buying securities from the Securities and Exchange Commission (SEC) D) because securities can only be bought through a certified public accountant (CPA) Answer: A Diff: 2 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 54) ________ is a rule that limits a defendant's accountability to his or her equivalent degree of fault. A) Privity of contract B) Due diligence defense C) Proportionate liability D) Ultramares doctrine Answer: C Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 55) Which of the following legislations makes it a criminal offense to willfully make any untrue statement of material fact in a registration statement filed with the SEC? A) Section 24 of the Securities Act of 1933 B) Tax Reform Act of 1976 C) Private Securities Litigation Reform Act of 1995 D) Section 10(b) of the Securities Exchange Act of 1934 Answer: A Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 56) Pursuant to federal securities laws, an audit must be performed by a certified public accountant (CPA) who works closely with the company in the capacity of a chief executive officer (CEO) or a chief financial officer (CFO). Answer: FALSE Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 15 Copyright © 2019 Pearson Education, Inc.

57) The Securities Act of 1933 requires that before a corporation or another business sells securities to the public, the issuer must file a registration statement with the Securities and Exchange Commission (SEC). Answer: TRUE Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 58) A due diligence defense cannot be asserted by an accountant against the civil liabilities of Section 11(a) of the Securities Act of 1933. Answer: FALSE Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 59) Only purchasers and sellers of securities can sue under Section 10(b) and Rule 10b-5. Answer: TRUE Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 60) Ordinary negligence by an accountant is not a violation of Section 10(b) and Rule 10b-5. Answer: TRUE Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 61) The Private Securities Litigation Reform Act of 1995 replaced proportionate liability of the defendant with joint and several liability. Answer: FALSE Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 62) Accountants cannot be held criminally liable for material irregularities in financial statements prepared for registration statements. Answer: FALSE Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 16 Copyright © 2019 Pearson Education, Inc.

63) Give an account of the Private Securities Litigation Reform Act of 1995. Answer: The Private Securities Litigation Reform Act of 1995, a federal statute, changed the liability of accountants and other securities professionals in the following ways: 1. The act imposes pleading and procedural requirements that make it more difficult for plaintiffs to bring class action securities lawsuits. 2. The act replaces joint and several liability of defendants (where one party of several at-fault parties could be made to pay all of a judgment) with proportionate liability. This new rule limits a defendant's liability to his or her proportionate degree of fault. Thus, the act relieves accountants from being the "deep pocket" defendant except up to their degree of fault. The only exception to this rule–where joint and several liability is still imposed–is if the defendant acted knowingly. Diff: 1 LO: 51.5 Describe accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 64) The ________ Act of 1976 specifically imposes penalties and fines for the willful understatement of a client's tax liability. A) Tax Reform B) Racketeer Influenced and Corrupt Organizations C) Private Taxation Litigation Reform D) Uniform Securities Answer: A Diff: 1 LO: 51.6 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept 65) Which of the following is a necessity to bring a private civil action against a violator of Racketeer Influenced and Corrupt Organizations Act (RICO) based on securities fraud? A) The accountant must not be a third-party independent contractor. B) The defendant has to be first criminally convicted in connection with the securities fraud. C) The plaintiff should file the case before the government brings a lawsuit. D) The defendant has to be tried by the application of the Section 32(a) of the Securities Exchange Act of 1934 first. Answer: B Diff: 1 LO: 51.6 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept

66) Which of the following legislations provides for both civil and criminal penalties, including up to recovering treble damages, for securities fraud by accountants? A) Private Securities Litigation Reform Act of 1995 B) Section 32(a) of the Securities Exchange Act of 1934 C) Tax Reform Act of 1976 D) Racketeer Influenced and Corrupt Organizations Act Answer: D Diff: 1 LO: 51.6 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept 67) The Securities and Exchange Commission (SEC) has the power to file criminal charges and award punishment for violations that come under Section 32(a) of the Securities Exchange Act of 1934. Answer: FALSE Diff: 1 LO: 51.6 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept 68) Accountants can be named as defendants in lawsuits that assert violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). Answer: TRUE Diff: 1 LO: 51.6 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept 69) A private civil Racketeer Influenced and Corrupt Organizations Act (RICO) based on securities fraud can only be brought once the defendant has been convicted for the crime. Answer: TRUE Diff: 1 LO: 51.6 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept 70) Federal law allows for discovery of an accountant's work papers in a federal case against the accountant's client. Answer: TRUE Diff: 1 LO: 51.6 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept

71) Which of the following is true of the Public Company Accounting Oversight Board? A) All members of the Public Company Accounting Oversight Board have to be certified public accountants (CPAs). B) The Public Company Accounting Oversight Board was created by the Tax Reform Act of 1976. C) The Securities and Exchange Commission (SEC) has oversight and enforcement authority over the board and its functioning. D) The Public Company Accounting Oversight Board lacks the power to initiate any disciplinary actions against defaulting accountants. Answer: C Diff: 1 LO: 51.7 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 72) Under the Sarbanes-Oxley Act, in order to audit a public company, ________. A) only public accountants must constitute the audit committee B) a public accounting firm must register with the Public Company Accounting Oversight Board (PCAOB) C) all public accounting firms must assign an accountant who works closely with one client over a long duration of time D) the law of accountant-client privilege must be accepted by the state legislative mechanism Answer: B Diff: 1 LO: 51.7 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 73) The Sarbanes-Oxley Act of 2002 prohibits the employment of an accountant by a previous audit client for five years after the first appointment. Answer: FALSE Diff: 1 LO: 51.7 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 74) The Tax Reform Act of 1976 created the Public Company Accounting Oversight Board (PCAOB). Answer: FALSE Diff: 1 LO: 51.7 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept

75) All members of the Public Company Accounting Oversight Board (PCAOB) have to be certified public accountants (CPAs). Answer: FALSE Diff: 1 LO: 51.7 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 76) The Securities Exchange Commission (SEC) has oversight and enforcement authority over the Public Company Accounting Oversight Board (PCAOB). Answer: TRUE Diff: 1 LO: 51.7 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 77) Registered accounting firms that audit more than 100 public companies annually are subject to inspection and review by the Public Company Accounting Oversight Board (PCAOB) once a year. Answer: TRUE Diff: 1 LO: 51.7 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 78) The Sarbanes-Oxley Act makes it lawful for an accounting firm to simultaneously provide audit and certain nonaudit services to a public company if the firm is registered. Answer: FALSE Diff: 1 LO: 51.7 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 79) What prohibition does the Sarbanes-Oxley Act impose on an accounting firm providing audit and nonaudit services to the same company? Answer: The act makes it unlawful for a registered public accounting firm to simultaneously provide audit and certain nonaudit services to a public company. If a public accounting firm audits a public company, the accounting firm may not provide the following nonaudit services to the client: (1) bookkeeping services; (2) financial information systems; (3) appraisal or valuation services; (4) internal audit services; (5) management functions; (6) human resources services; (7) broker, dealer, or investment services; (8) investment banking services; (9) legal services; or (10) any other services the board determines. A certified public accounting firm may provide tax services to audit clients if such tax services are preapproved by the audit committee of the client. Diff: 1 LO: 51.7 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 20 Copyright © 2019 Pearson Education, Inc.

80) The accountant-client privilege is a law that entails that ________. A) only an accountant can serve as a witness for the client in a court action B) only an accountant's paperwork be taken as prima facie evidence against a client in a court action C) an accountant cannot be called as a witness against a client in a court action D) an accountant does not enjoy work product immunity when a client is accused of gross negligence Answer: A Diff: 1 LO: 51.8 Explain under what circumstances an accountant-client privilege applies. AACSB: Analytical thinking Classification: Concept 81) ________ is a state law that provides that an accountant's work papers cannot be used against a client in a court action. A) Work product immunity B) Accountant-client privilege C) Foreseeability standard D) Noerr Doctrine Answer: A Diff: 1 LO: 51.8 Explain under what circumstances an accountant-client privilege applies. AACSB: Analytical thinking Classification: Concept 82) If a state has passed the accountant-client privilege law, it implies that only an accountant can serve as a witness in a case against the client. Answer: FALSE Diff: 1 LO: 51.8 Explain under what circumstances an accountant-client privilege applies. AACSB: Analytical thinking Classification: Concept 83) What is the accountant-client privilege? Answer: Sometimes clients of accountants are sued in court. About 20 states have enacted statutes that create an accountant-client privilege. In these states, an accountant cannot be called as a witness against a client in a court action. The majority of the states follow the common law, which provides that an accountant may be called at court to testify against his or her client. The U.S. Supreme Court has held that there is no accountant-client privilege under federal law. Thus, an accountant could be called as a witness in cases involving federal securities laws, federal mail or wire fraud, federal Racketeer Influenced and Corrupt Organizations Act (RICO), or other federal criminal statutes. Diff: 1 LO: 51.7 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 21 Copyright © 2019 Pearson Education, Inc.

Business Law, 10e (Cheeseman) Chapter 52 Wills, Trusts, and Estates 1) Who is a beneficiary of a will? A) a person assigned in a will to create a trust B) a person allowed to transfer the testator's legal title to property to another person C) a person designated in the will to receive the testator's property D) a person nominated in a living will to make all health care decisions in accordance with the testator's wishes Answer: C Diff: 2 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 2) Which of the following statements is true of the requirements for making a will? A) A will need not be signed by the testator if it is created in the presence of witnesses. B) A will need not be written to be considered valid only if it is a dying declaration. C) A will cannot incorporate any other documents by reference. D) The legal age for executing a will is set at 25 years across all states. Answer: B Diff: 2 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 3) Which of the following statements is true of a testator's signature on a will? A) The testator's signature must be obtained in the presence of the sole beneficiary as the principal witness. B) The will need not be signed by the testator if it is already attested by witnesses. C) The use of nicknames and honorary titles while signing a will render it unenforceable and invalid. D) The testator's signature must appear at the end of the will to prevent chances of any fraud. Answer: D Diff: 2 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept

4) The action of a will being witnessed by two or three objective and competent people is known as ________. A) attestation B) abatement C) escheating D) ademption Answer: A Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 5) What is the attestation clause for a will? A) the condition that the witness must reside in the jurisdiction in which the testator is domiciled B) the stipulation that only the testator's attorney can be a witness to the will C) the requirement of signatures of witnesses on a will after that of the testator's D) the requirement of the beneficiary's presence when making the will Answer: C Diff: 2 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 6) What is a codicil? A) a type of will that cannot be amended once created B) a separate document that must be executed to amend a will C) a will that has been attested by the beneficiary of the will D) a duplicate of a will that is used in case the original is destroyed Answer: B Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 7) A codicil must be ________. A) executed before the will has been created B) read as a separate instrument from the will C) inclusive of a reference to the will it is amending D) amended in the presence of the same witnesses who signed the will Answer: C Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept

8) A will that is executed by two or more testators is known as a ________. A) joint will B) mutual will C) reciprocal will D) nuncupative will Answer: A Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 9) ________ arise where two or more testators execute separate wills that leave their property to each other on the condition that the survivor leave the remaining property on his or her death as agreed by the testators. A) Nuncupative wills B) Mutual wills C) Joint wills D) Living wills Answer: B Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 10) Which of the following statements is true of reciprocal wills? A) They can be held invalid as to one testator but not the other. B) They are to be executed as one will with mutual terms. C) Any will that is executed by two or more testators is a reciprocal will. D) They cannot be unilaterally revoked after one of the parties has died. Answer: D Diff: 2 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 11) What is a holographic will? A) a will that is revoked on behalf of the testator by a legal attorney B) a will that requires the beneficiary to be a witness of the will C) a will that is entirely handwritten and signed by the testator D) a will that is orally declared on the testator's deathbed Answer: C Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept

12) An oral will that is made before a witness during the testator's last illness is defined as a ________. A) holographic will B) nuncupative will C) living will D) joint will Answer: B Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 13) Which of the following wills is an exception to the writing rule of the Statute of Wills? A) a reciprocal will B) a holographic will C) a nuncupative will D) a codicil will Answer: C Diff: 2 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 14) A will can be created to come into effect during one's lifetime. Answer: FALSE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 15) A living will states a person's wishes regarding estate planning. Answer: FALSE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 16) A will is a testamentary deposition of property. Answer: TRUE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept

17) A Statute of Wills permits all oral wills to be legally binding in a state. Answer: FALSE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 18) Nicknames or titles cannot be used as a testator's signature in a will. Answer: FALSE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 19) A will has to be written on legal paper to be considered valid. Answer: FALSE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 20) A beneficiary under a will cannot be a witness of that will. Answer: TRUE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 21) A will cannot be amended by merely striking out existing provisions and adding new ones. Answer: TRUE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 22) A codicil is considered to be a separate instrument from the will it references. Answer: FALSE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept

23) A properly executed subsequent will revokes a prior will. Answer: TRUE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 24) If two or more testators execute the same instrument as their will, the document is called a reciprocal will. Answer: FALSE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 25) A mutual will cannot be unilaterally revoked after one of the parties has died. Answer: TRUE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 26) Nuncupative wills are legally binding oral wills that are made on a testator's deathbed in the absence of witnesses. Answer: FALSE Diff: 1 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 27) What are the requirements of the Statute of Wills? Answer: Every state has a Statute of Wills that establishes the requirements for making a valid will in that state. These requirements are the following: 1. Testamentary capacity: The testator must have been of legal age and sound mind when the will was made. The courts determine testamentary capacity on a case-by-case basis. The legal age for executing a will is set by state statute. 2. Writing: Wills must be in writing to be valid. The writing may be formal or informal. Although most wills are typewritten, they can be handwritten. The writing may be on legal paper, other paper, scratch paper, envelopes, napkins, or the like. A will may incorporate other documents by reference. 3. Testator's signature: Wills must be signed. Most jurisdictions require the testator's signature to appear at the end of the will. This step is to prevent fraud that could occur if someone added provisions to the will below the testator's signature. Diff: 2 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

28) The process of a deceased's property being collected, debts and taxes being paid, and the remainder of the estate being distributed is known as ________. A) probate B) abatement C) ademption D) adjournment Answer: A Diff: 1 LO: 52.2 Describe the process of probating a will. AACSB: Analytical thinking Classification: Concept 29) A ________ is a specialized state court that supervises the administration and settlement of estates. A) small claims court B) federal court C) tort court D) probate court Answer: D Diff: 1 LO: 52.2 Describe the process of probating a will. AACSB: Analytical thinking Classification: Concept 30) Who is an executor? A) a person appointed by the government to conduct the probate B) a person designated in the will to conduct the probate C) a person who is beneficiary of the probate D) a person who is usually appointed to help administer the estate and to complete the probate Answer: B Diff: 1 LO: 52.2 Describe the process of probating a will. AACSB: Analytical thinking Classification: Concept 31) A probate can only be conducted by a lineal descendant of the testator. Answer: FALSE Diff: 2 LO: 52.1 List and describe the requirements for making a valid will. AACSB: Analytical thinking Classification: Concept

32) A gift of real estate by will is called a(n) ________. A) bequest B) devise C) abatement D) general gift Answer: B Diff: 1 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept 33) Which of the following beneficiaries is considered a lineal descendant of the testator? A) a parent B) a child C) a spouse D) a sibling Answer: B Diff: 1 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept 34) A distribution of an estate in which grandchildren and great-grandchildren of the deceased inherit by representation of their parent is known as a(n) ________. A) abatement B) per stirpes distribution C) per capita distribution D) ademption Answer: B Diff: 1 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept 35) ________ is a principle that says if a testator leaves a specific devise of property to a beneficiary, but the property is no longer in the estate when the testator dies, the beneficiary receives nothing. A) Ademption B) Abatement C) Bailment D) Attestation Answer: A Diff: 1 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept 8 Copyright © 2019 Pearson Education, Inc.

36) The ________ doctrine says that if the property a testator leaves is insufficient to satisfy all the beneficiaries named in a will and there are both general and residuary bequests, the residuary bequest is paid last. A) ademption B) inter vivos C) abatement D) adjournment Answer: C Diff: 1 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept 37) Reductions under the doctrine of abatement are proportionate for all beneficiaries ________. A) when there are residuary gifts and special gifts B) when there are residuary and general gifts C) when there are only general gifts D) when there are only residuary gifts Answer: C Diff: 1 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept 38) A gift of $30,000 to a named beneficiary is an example of a ________ gift. A) special B) general C) legacy D) residuary Answer: B Diff: 1 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept 39) A gift of $100,000 to a named beneficiary is an example of a general gift. Answer: TRUE Diff: 1 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept

40) A person who inherits property under a will or an intestacy statute takes the property subject to all the outstanding claims against it. Answer: TRUE Diff: 2 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept 41) Pursuant to per capita distribution, all the lineal descendants equally share the property of the estate. Answer: TRUE Diff: 1 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept 42) According to the doctrine of ademption, the lineal descendants inherit by representation of their parent. Answer: FALSE Diff: 1 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept 43) In case of abatement, if a will provides for both general and residuary gifts, the residuary gifts are abated first. Answer: TRUE Diff: 1 LO: 52.3 Describe the different types of testamentary gifts. AACSB: Analytical thinking Classification: Concept 44) Bill and Deidre were married for 22 years. They died in a car accident without leaving behind a will. They had no surviving children, but they were close to many of their living relatives. According to the Uniform Simultaneous Death Act, how would the couple's properties be distributed following their death? A) It would be made into a charitable fund by a court-appointed trustee. B) It would escheat to the government. C) It would be distributed to their respective relatives. D) It would be sold by the government, and the proceedings from the sale would then go to their relatives. Answer: C Diff: 3 LO: 52.4 Identify how property is distributed under intestacy statutes if a person dies without a will. AACSB: Application of knowledge Classification: Application 10 Copyright © 2019 Pearson Education, Inc.

45) The ________ is an act in the United States that provides that if people who would inherit property from each other die such that it cannot be determined who died first, each person's property is distributed as though he or she had survived. A) Succession Act of 1995 B) Family Law Act of 1986 C) Uniform Determination of Death Act D) Uniform Simultaneous Death Act Answer: D Diff: 1 LO: 52.4 Identify how property is distributed under intestacy statutes if a person dies without a will. AACSB: Analytical thinking Classification: Concept 46) A(n) ________ is a distribution of an estate in which each grandchild and great-grandchild of the deceased inherits equally with the children of the deceased. A) abatement B) per stirpes distribution C) per capita distribution D) ademption Answer: C Diff: 1 LO: 52.4 Identify how property is distributed under intestacy statutes if a person dies without a will. AACSB: Analytical thinking Classification: Concept 47) The state of having died without leaving a will is known as ________. A) testate B) intestate C) bistate D) intrastate Answer: B Diff: 1 LO: 52.4 Identify how property is distributed under intestacy statutes if a person dies without a will. AACSB: Analytical thinking Classification: Concept

48) The receiver of property under intestacy statutes is known as a(n) ________. A) assignee B) trustee C) beneficiary D) heir Answer: D Diff: 1 LO: 52.4 Identify how property is distributed under intestacy statutes if a person dies without a will. AACSB: Analytical thinking Classification: Concept 49) When does the deceased's property, in intestacy, escheat to the government? A) when the deceased has no living relatives B) when the deceased leaves behind property that has an existing mortgage on it C) when the deceased has executed a living will prior to his or her illness or death D) when the deceased has no lineal descendants Answer: A Diff: 2 LO: 52.4 Identify how property is distributed under intestacy statutes if a person dies without a will. AACSB: Analytical thinking Classification: Concept 50) Relatives who receive property under intestacy statutes are called beneficiaries. Answer: FALSE Diff: 1 LO: 52.4 Identify how property is distributed under intestacy statutes if a person dies without a will. AACSB: Analytical thinking Classification: Concept 51) If the deceased has no surviving relatives, then the deceased's property escheats to the state. Answer: TRUE Diff: 2 LO: 52.4 Identify how property is distributed under intestacy statutes if a person dies without a will. AACSB: Analytical thinking Classification: Concept

52) According to the Uniform Simultaneous Death Act, each deceased's property goes to the government in case of simultaneous deaths. Answer: FALSE Diff: 1 LO: 52.4 Identify how property is distributed under intestacy statutes if a person dies without a will. AACSB: Analytical thinking Classification: Concept 53) What is intestate succession? Answer: If a person dies without a will or trust–that is, intestate–or if his or her will or trust fails for some legal reason, the property is distributed to his or her relatives pursuant to a state's intestacy statute. Relatives who receive property under intestacy statutes are called heirs. Although intestacy statutes differ from state to state, the general rule is that the deceased's real property is distributed according to the intestacy statute of the state where the real property is located, and the deceased's personal property is distributed according to the intestacy statute of the state where the deceased had his or her permanent residence. Intestacy statutes usually leave the deceased's property to his or her heirs in this order: spouse, children, lineal heirs, collateral heirs, and other next of kin. If the deceased has no surviving relatives, then the deceased's property escheats to the state. In-laws do not inherit under most intestacy statutes. Diff: 2 LO: 52.4 Identify how property is distributed under intestacy statutes if a person dies without a will. AACSB: Analytical thinking Classification: Concept 54) A(n) ________ is a legal arrangement established when one person transfers title to property to another person to be held and used for the benefit of a third person. A) will B) trust C) escheatment D) abatement Answer: B Diff: 1 LO: 52.5 Define irrevocable trust and describe how a trust works. AACSB: Analytical thinking Classification: Concept

55) What is a trust corpus? A) property and assets that are claimed in case of intestacy B) property and assets that the trustee has an equitable right to C) property and assets escheated to the government in the absence of a trustee D) property and assets held in trust to be used for the benefit of a third person Answer: D Diff: 1 LO: 52.5 Define irrevocable trust and describe how a trust works. AACSB: Analytical thinking Classification: Concept 56) Who receives the trust res on the termination of a trust? A) the heir B) the trustor C) the remainder beneficiary D) the income beneficiary Answer: C Diff: 1 LO: 52.5 Define irrevocable trust and describe how a trust works. AACSB: Analytical thinking Classification: Concept 57) Mr. Cartledge places his estate in a trust while he is alive, and he names a local bank as the trustee to administer the trust and invest its assets. The trust designates his wife as the income beneficiary of his estate and stipulates that their children Brendan and Margaret will receive the assets of the trust after his wife's death. Brendan and Margaret are the ________ in this scenario. A) collateral heirs B) income beneficiaries C) remainder beneficiaries D) settlors Answer: C Diff: 3 LO: 52.5 Define irrevocable trust and describe how a trust works. AACSB: Application of knowledge Classification: Application

58) Mr. Raynold writes a will placing his estate in a trust on his death. He names a local bank as the trustee to administer the trust and invest its assets. The trust provides that when his grandson reaches the age of 23, the trust will terminate, and he will be given legal title to the assets. Mr. Raynold dies when the grandson is 12 years old. At the age of 23, the grandson inherits the title to the assets. What kind of trust is created by Mr. Raynold in this scenario? A) an inter vivos trust B) a testamentary trust C) a constructive trust D) a resulting trust Answer: B Diff: 3 LO: 52.5 Define irrevocable trust and describe how a trust works. AACSB: Application of knowledge Classification: Application 59) An equitable trust that is implied by law to avoid fraud, unjust enrichment, and injustice is defined as a ________. A) constructive trust B) testamentary trust C) spendthrift trust D) token trust Answer: A Diff: 2 LO: 52.6 List and describe special forms of trusts. AACSB: Analytical thinking Classification: Concept 60) Wilma buys a painting that is to be sold at an auction next week, but she has an unforeseen engagement that requires her to go out of town on the day of the auction. She asks her sister, Sara, to attend the auction and bid for the painting. If the sale is successful, Sara is to claim legal title to the painting until Wilma returns. What kind of trust is created between Wilma and Sara? A) a charitable trust B) a testamentary trust C) a token trust D) a resulting trust Answer: D Diff: 3 LO: 52.6 List and describe special forms of trusts. AACSB: Application of knowledge Classification: Application

61) From which of the following parties can a creditor recover in a spendthrift trust? A) the reminder beneficiary B) the income beneficiary C) the trustee D) the successor trustee Answer: B Diff: 1 LO: 52.6 List and describe special forms of trusts. AACSB: Analytical thinking Classification: Concept 62) A ________ is created when a person deposits money in a bank account in his or her own name and holds it as a trustee for the benefit of another person. A) resulting trust B) Totten trust C) spendthrift trust D) testamentary trust Answer: B Diff: 1 LO: 52.6 List and describe special forms of trusts. AACSB: Analytical thinking Classification: Concept 63) Which of the following is a similarity between a living trust and an inter vivos trust? A) both of them are subject to probate B) both of them require the beneficiaries to be present during the time of creation of the trust C) both of them are created while the settlor is still alive D) both of them are free from changes resulting from operations of law like annulment Answer: C Diff: 1 LO: 52.6 List and describe special forms of trusts. AACSB: Analytical thinking Classification: Concept 64) Which of the following is a benefit of a living trust? A) It helps reduce estate taxes more than a will does. B) It helps avoid probate associated with the property. C) It is not subject to property division on divorce. D) It does not allow creditors to obtain liens against the property. Answer: B Diff: 2 LO: 52.7 Define a living trust and describe how a living trust works. AACSB: Analytical thinking Classification: Concept

65) Which of the following is true of a living trust? A) It comes in to effect after the death of the grantor. B) It helps reduce the grantor's income tax. C) It can be revoked during the grantor's lifetime. D) It is considered a public record subject to probate proceedings. Answer: C Diff: 1 LO: 52.7 Define a living trust and describe how a living trust works. AACSB: Analytical thinking Classification: Concept 66) Chen Stevenson died at the age of 85 leaving behind all his property to Phillip Miller, his butler. The news of the new will that Chen executed three months before his death naming Phillip as the sole beneficiary surprised everyone. By his prior will, he had bequeathed his estate to his two daughters and three grandchildren on a per capita basis. The court took up proceedings to determine the validity of his new will because Chen's rejection of his daughters and grandchildren in his will was uncharacteristic of him. The court most likely suspected this change to be a case of ________. A) constructive trust B) undue hardship C) undue influence D) spendthrift trust Answer: C Diff: 3 LO: 52.8 Describe how a will or trust may be found invalid under the doctrine of undue influence. AACSB: Application of knowledge Classification: Application 67) In a trust arrangement, the trustee has legal title to the trust corpus, and the beneficiary has equitable title. Answer: TRUE Diff: 2 LO: 52.5 Define irrevocable trust and describe how a trust works. AACSB: Analytical thinking Classification: Concept 68) All trusts are deemed irrevocable at the time of creation. Answer: FALSE Diff: 1 LO: 52.5 Define irrevocable trust and describe how a trust works. AACSB: Analytical thinking Classification: Concept

69) The person or entity to receive the trust corpus on the termination of the trust is called the remainder beneficiary. Answer: TRUE Diff: 1 LO: 52.5 Define irrevocable trust and describe how a trust works. AACSB: Analytical thinking Classification: Concept 70) Trusts are used to transfer property that is to be held and managed for the benefit of another person or persons. Answer: TRUE Diff: 1 LO: 52.5 Define irrevocable trust and describe how a trust works. AACSB: Analytical thinking Classification: Concept 71) In an inter vivos trust, the settlor transfers legal title of property to a named trustee to hold, administer, and manage for the benefit of named beneficiaries while he or she is alive. Answer: TRUE Diff: 2 LO: 52.5 Define irrevocable trust and describe how a trust works. AACSB: Analytical thinking Classification: Concept 72) A testamentary trust is created while the settlor is still alive. Answer: FALSE Diff: 1 LO: 52.5 Define irrevocable trust and describe how a trust works. AACSB: Analytical thinking Classification: Concept 73) In a spendthrift trust, all control over the trust is removed from the beneficiary. Answer: TRUE Diff: 1 LO: 52.6 List and describe special forms of trusts. AACSB: Analytical thinking Classification: Concept 74) A Totten trust is considered a tentative trust because a trustee can add or withdraw funds from the trustee's account. Answer: TRUE Diff: 1 LO: 52.6 List and describe special forms of trusts. AACSB: Analytical thinking Classification: Concept

75) The primary purpose of using a living trust is to avoid probate associated with using a will. Answer: TRUE Diff: 1 LO: 52.7 Define a living trust and describe how a living trust works. AACSB: Analytical thinking Classification: Concept 76) A living trust does not allow creditors to obtain a lien against property in the trust. Answer: FALSE Diff: 1 LO: 52.7 Define a living trust and describe how a living trust works. AACSB: Analytical thinking Classification: Concept 77) A living trust is subject to property division on divorce. Answer: TRUE Diff: 1 LO: 52.7 Define a living trust and describe how a living trust works. AACSB: Analytical thinking Classification: Concept 78) When there is an allegation of undue influence in making a will, the courts only consider direct evidence as proof. Answer: FALSE Diff: 1 LO: 52.8 Describe how a will or trust may be found invalid under the doctrine of undue influence. AACSB: Analytical thinking Classification: Concept 79) A living trust is a document that states which lifesaving measures the signor does and does not want. Answer: FALSE Diff: 1 LO: 52.8 Describe how a will or trust may be found invalid under the doctrine of undue influence. AACSB: Analytical thinking Classification: Concept

80) Who are the beneficiaries of a trust? Answer: Trusts often provide that any trust income is to be paid to a person or an entity called the income beneficiary. The person or entity to receive the trust corpus on the termination of the trust is called the remainder beneficiary. The income beneficiary and the remainder beneficiary can be the same person or different persons. The designated beneficiary can be any identifiable person, animal charitable organization, or other institution or cause that the settlor chooses. The trust agreement usually specifies how the receipts and expenses of the trust are to be divided between the income beneficiary and the remainder beneficiary. Diff: 2 LO: 52.7 Define a living trust and describe how a living trust works. AACSB: Analytical thinking Classification: Concept 81) Give an account of the funding and operation of a living trust. Answer: To fund a living trust, the grantor transfers title to his or her property to the trust. This property is called the trust corpus. Bank accounts, stock certificates, real estate, personal property, intangible property, and other property owned by the grantor must be retitled to the trust's name. For example, the grantor must execute deeds transferring title to real estate to the trust. Once property is transferred to the trust, the trust is considered funded. A living trust is revocable during the grantor's lifetime. Thus, a grantor can later change his or her mind and undo the trust and retake title of the property in his or her own name. A living trust names a trustee who is responsible for maintaining, investing, buying, or selling trust assets. The trustee is usually the grantor. Thus, the grantor who establishes the trust does not lose control of the property placed in the trust and may manage and invest trust assets during his or her lifetime. The trust should name a successor trustee to replace the grantor-trustee if the grantor becomes incapacitated or too ill to manage the trust. Diff: 2 LO: 52.7 Define a living trust and describe how a living trust works. AACSB: Analytical thinking Classification: Concept 82) What are the different elements a court considers to determine the presence of undue influence in making a will? Answer: The court considers elements such as the following to determine the presence of undue influence: a. The benefactor and beneficiary are involved in a relationship of confidence and trust. b. The will contains substantial benefit to the beneficiary. c. The beneficiary caused or assisted in effecting execution of the will. d. There was an opportunity to exert influence. e. The will contains an unnatural disposition of the testator's property. f. The bequests constitute a change from a former will. g. The testator was highly susceptible to undue influence. Diff: 2 LO: 52.8 Describe how a will or trust may be found invalid under the doctrine of undue influence. AACSB: Analytical thinking Classification: Concept 20 Copyright © 2019 Pearson Education, Inc.

83) A ________ is a document that states which lifesaving measures the signor does and does not want; can specify that he or she wants such treatments withdrawn if doctors determine that there is no hope of a meaningful recovery. A) living will B) health care directive C) health care proxy D) living trust Answer: A Diff: 1 LO: 52.9 Define a living will and describe why a person would execute a living will and health care directive. AACSB: Analytical thinking Classification: Concept 84) Which of the following statements is true of real property inherited under a will? A) The person is not allowed to renounce the will after the death of the testator. B) The person can only renounce the will before probate is conducted. C) The person is not allowed to renounce the will if all outstanding claims against it are not settled by him or her. D) All outstanding claims against the property like liens and mortgages are inherited by the beneficiary. Answer: D Diff: 1 LO: 52.9 Define a living will and describe why a person would execute a living will and health care directive. AACSB: Analytical thinking Classification: Concept 85) Which of the following does a health care directive outline? A) which lifesaving measures the signor does and does not want B) what treatments are to be withdrawn if doctors determine there is no hope of a meaningful recovery C) why the signor has decided to withdraw life-support systems D) who is to make all health care decisions in accordance with the living will on behalf of the signor Answer: D Diff: 1 LO: 52.9 Define a living will and describe why a person would execute a living will and health care directive. AACSB: Analytical thinking Classification: Concept

86) A(n) ________ is a declaration of how a person wants his or her property to be distributed on death. A) will B) tort C) audit D) writ Answer: A Diff: 1 LO: 52.9 Define a living will and describe why a person would execute a living will and health care directive. AACSB: Analytical thinking Classification: Concept 87) Euthanasia pursuant to a living will is considered legal. Answer: FALSE Diff: 1 LO: 52.9 Define a living will and describe why a person would execute a living will and health care directive. AACSB: Analytical thinking Classification: Concept 88) A health care directive names an individual or individuals who can make health care decisions if the maker of the directive is unable to do so. Answer: TRUE Diff: 1 LO: 52.9 Define a living will and describe why a person would execute a living will and health care directive. AACSB: Analytical thinking Classification: Concept

89) What is a person's right to die? What are the views regarding the legality of euthanasia in the United States? Answer: One legal issue that has been prominent in the news is whether an individual has the right to choose to die when he or she is terminally ill and has less than a certain time to live. This issue has been debated many times in the past. Today, many persons in the United States support this right to die, while others are against having such a law. The right to die is where a terminally ill person may make a decision to end his or her life. Assisted suicide is where a physician can provide a terminally ill person with the means to end his or her own life. State laws that permit assisted suicide require that physicians make a diagnosis that a person is terminally ill and that the decision to commit assisted suicide is made by a patient of sound mind. Several states, including Montana, Oregon, and Washington, permit assisted suicide. No state permits euthanasia, that is, where a physician or another party administers a lethal injection. Today, some persons support assisted suicide, while other persons do not. This issue will continue to be debated as states determine whether or not to enact right to die statutes. Diff: 2 LO: 52.9 Define a living will and describe why a person would execute a living will and health care directive. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 53 Family Law 1) Which of the following statements is true of a breach of a promise to marry in the United States? A) It is considered an unlawful and serious breach of contract. B) The person who initiates the breach is subjected to legal prosecution. C) Most courts do not recognize a breach of a promise-to-marry lawsuit. D) The person who backs out has to pay permanent alimony. Answer: C Diff: 1 LO: 53.1 Describe premarriage issues such as engagement. AACSB: Analytical thinking Classification: Concept 2) Stan met Stella a month after his break-up with his ex-girlfriend, Nora. Stan and Stella fell in love, promised to marry each other, and even signed a written contract stating their intentions to marry each other in six months. Two months before their wedding, Stan met Nora accidentally, and they resolved their differences over a long conversation. Stan then informed Stella that he had patched things up with Nora and broke his promise to marry her. Which of the following statements is true in this situation? A) Stan will have to pay temporary alimony to Stella for this breach. B) The contract remains valid as Stan could only break the contract three months prior to the marriage. C) Stella can legally enforce Stan's promise to marry her. D) Stan is free to leave Stella even though he has broken the contract. Answer: D Diff: 1 LO: 53.1 Describe premarriage issues such as engagement. AACSB: Application of knowledge Classification: Application 3) Stan and Stella had promised to marry each other and signed a written contract stating their intentions. They planned to marry a year from the date of signing the contract. After they signed the contract, Stan proposed to Stella and presented her with an engagement ring. However, two months before the marriage, Stan called off the engagement. Which of the following would be true if the state in which they reside follows the fault rule? A) The ring will remain with Stella. B) The ring will be returned to Stan. C) The ring will be auctioned and the proceeds will be shared between the couple. D) The ring will be owned by whoever marries first after the engagement. Answer: A Diff: 2 LO: 53.1 Describe premarriage issues such as engagement. AACSB: Application of knowledge Classification: Application 1 Copyright © 2019 Pearson Education, Inc.

4) The ________ is a rule which states that if an engagement is broken off, the person who was given the engagement ring must return the ring, regardless of which party broke off the engagement. A) fault rule B) objective rule C) pro se rule D) abatement rule Answer: B Diff: 1 LO: 53.1 Describe premarriage issues such as engagement. AACSB: Analytical thinking Classification: Concept 5) Which of the following statements is true of the fault rule when an engagement is broken? A) If the person who accepted the engagement ring breaks off the engagement, the ring will be owned by the person who marries first. B) If the person who accepted the engagement ring breaks off the engagement, he or she can retain the engagement ring. C) If the person who gave the engagement ring breaks off the engagement, the other side can rightfully keep the engagement ring. D) If the person who gave the engagement ring breaks off the engagement, the ring is sold at an auction and the proceeds are shared between both parties. Answer: C Diff: 1 LO: 53.1 Describe premarriage issues such as engagement. AACSB: Analytical thinking Classification: Concept 6) A person who breaches a promise to marry can be held liable for punitive damages under the law. Answer: FALSE Diff: 1 LO: 53.1 Describe premarriage issues such as engagement. AACSB: Analytical thinking Classification: Concept 7) According to the fault rule, if the person who gave the engagement ring breaks off the engagement, then the other party can rightfully keep the engagement ring. Answer: TRUE Diff: 1 LO: 53.1 Describe premarriage issues such as engagement. AACSB: Analytical thinking Classification: Concept

8) Under the objective rule, the person who was given the engagement ring must return the ring, regardless of which party broke off the engagement. Answer: TRUE Diff: 1 LO: 53.1 Describe premarriage issues such as engagement. AACSB: Analytical thinking Classification: Concept 9) A minor's act of legally separating from his or her parents and providing for himself or herself is known as ________. A) ademption B) revocation C) redemption D) emancipation Answer: D Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept 10) Which of the following is a legal requirement of marriage? A) Neither party can be currently married to someone else. B) Neither party can be eligible to marry if they are emancipated from their parents. C) Both parties have to be above 18 years to marry even if they are emancipated from their parents. D) The marrying couple must be closely related by blood. Answer: A Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept 11) Which of the following is a legal requirement of a marriage in all states? A) marriage license B) marriage ceremony C) prenuptial agreement D) parental consent Answer: A Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept

12) ________ is a type of marriage some states recognize in which a marriage license has not been issued but certain requirements are met. A) Emancipation B) Common law marriage C) Free union D) Cohabitation marriage Answer: B Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept 13) Which of the following is a requirement for a common law marriage to be valid? A) that a marriage license was obtained B) that there was a legal marriage ceremony C) that the parties live together D) that the parties have a valid prenuptial agreement Answer: C Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept 14) Which of the following is a misconception of a common law marriage? A) that the parties have to voluntarily intend to be husband and wife in order to establish a common law marriage B) that only the parties who have a marriage license can establish a common law marriage C) that living together is necessary to establish a common law marriage D) that cohabitation is sufficient in and of itself to establish a common law marriage Answer: D Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept

15) Which of the following is true of a common law marriage? A) Both parties enjoy relaxations in the eligibility criteria in terms of minimum age and emancipation when they marry. B) All the rights and duties of a normal licensed marriage apply to a common law marriage. C) A court decree of divorce is not required to end a common law marriage as there is no marriage license or ceremony. D) The parties involved need not provide proof of cohabitation to establish a common law marriage. Answer: B Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept 16) The length of time the parties live together is sufficient to establish a common law marriage. Answer: FALSE Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept 17) All states require a marriage ceremony to be held before the marriage license is issued. Answer: FALSE Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept 18) A common law marriage requires a marriage license to be considered valid. Answer: FALSE Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept 19) Cohabitation is not sufficient in and of itself to establish a common law marriage. Answer: TRUE Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept

20) A court decree of divorce need not be obtained to end a common law marriage. Answer: FALSE Diff: 1 LO: 53.2 Define marriage and enumerate the legal requirements of marriage. AACSB: Analytical thinking Classification: Concept 21) Massachusetts was the first state to grant equal rights to same-sex couples to get married. Answer: TRUE Diff: 1 LO: 53.3 Define same-sex marriage and describe the protections afforded. AACSB: Analytical thinking Classification: Concept 22) ________ occurs when a parent fails to provide a child with the necessities of life or other basic needs. A) Child custody B) Child neglect C) Emancipation of a child D) Annulment Answer: B Diff: 1 LO: 53.4 Explain parents' rights and duties for their children. AACSB: Analytical thinking Classification: Concept 23) States will permit younger persons to be married if they have the consent of their parents or if they are emancipated from their parents. Answer: TRUE Diff: 1 LO: 53.4 Explain parents' rights and duties for their children. AACSB: Analytical thinking Classification: Concept 24) All states provide that persons under a certain age, such as 14 or 15 years of age, cannot be married. Answer: TRUE Diff: 1 LO: 53.4 Explain parents' rights and duties for their children. AACSB: Analytical thinking Classification: Concept

25) A parent's refusal to obtain medical care for a child can be punished as a crime. Answer: TRUE Diff: 1 LO: 53.4 Explain parents' rights and duties for their children. AACSB: Analytical thinking Classification: Concept 26) What are the parent's rights and duties towards their children? What is child neglect? Answer: Parents have an obligation to provide food, shelter, clothing, medical care, and other necessities to their children until a child reaches age 18 or until emancipation. A child becomes emancipated if he or she leaves his or her parents and voluntarily lives on his or her own. The law imposes certain other duties on parents as well. Parents also have the right to control the behavior of their children. Parents have the right to select schools for their children and the religion they will practice. Child neglect occurs when a parent fails to provide a child with the necessities of life or other basic needs. The state may remove a child, either temporarily or permanently, from situations of child neglect. A parent's refusal to obtain medical care for a child can be punished as a crime. Diff: 2 LO: 53.4 Explain parents' rights and duties for their children. AACSB: Analytical thinking Classification: Concept 27) An order of the court which declares that a marriage did not exist is known as a(n) ________. A) divorce B) arraignment C) abatement D) annulment Answer: D Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 28) Which of the following can lead to an annulment? A) if one of the parties has breached the promise to marry B) if one or both parties were intoxicated at the time of the marriage C) if one of the parties has children from a prior marriage that was legally terminated D) if both parties failed to sign a prenuptial agreement in advance of their marriage Answer: B Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept

29) A divorce recognized by the law of a state whereby neither party is blamed for the divorce is known as a(n) ________. A) annulment B) pro se divorce C) no-fault divorce D) at-fault divorce Answer: C Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 30) No-fault divorces were beginning to be recognized in the ________. A) 1950s B) 1960s C) 1970s D) 1980s Answer: B Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 31) What is a decree of divorce? A) a petition filed by the spouse seeking divorce B) a court order that terminates a marriage C) a set of rules on how assets are to be divided after divorce D) a court order placing limitations on the ability of a dangerous partner to go near the other partner Answer: B Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 32) When is a restraining order issued in a divorce? A) when both partners have filed for divorce stating irreconcilable differences B) when one of the partners is financially dependent on the other C) when one of the partners is disabled and physically dependent on the other D) when one of the partners is potentially dangerous to the other Answer: D Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept

33) ________ is a divorce proceeding in which the parties represent themselves in the divorce action. A) Pro se divorce B) Settlement C) Emancipation D) Prenuptial divorce Answer: A Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 34) What kind of divorce would Sally seek to best represent her state? A) emancipation B) annulment C) at-fault divorce D) no-fault divorce Answer: C Diff: 2 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Application of knowledge Classification: Application 35) Which of the following can Sally obtain to protect herself from Colton after the divorce? A) an annulment order B) a restraining order C) a postnuptial agreement D) a divorce decree Answer: B Diff: 2 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Application of knowledge Classification: Application 36) Sally and Colton adopted a(n) ________ approach by choosing to represent themselves in court. A) settlement B) pro se divorce C) arraignment D) annulment Answer: B Diff: 2 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Application of knowledge Classification: Application

37) A ________ is a written document signed by divorcing parties that evidences their agreement in the division of property, rights and duties, and other issues of their divorce. A) settlement agreement B) prenuptial agreement C) decree of divorce D) pro se divorce Answer: A Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Application of knowledge Classification: Application 38) A divorce is the only method for legally terminating a marriage. Answer: FALSE Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 39) A decree of divorce is an order of the court declaring that a marriage did not exist. Answer: FALSE Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 40) One of the parties being intoxicated at the time of marriage is a ground for a legal annulment. Answer: TRUE Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 41) The law considers children born of a marriage that is annulled to be legitimate. Answer: TRUE Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 42) In an at-fault divorce, neither party is considered to be at fault. Answer: FALSE Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 10 Copyright © 2019 Pearson Education, Inc.

43) A spouse wishing to obtain a no-fault divorce merely has to assert irreconcilable differences with his or her spouse. Answer: TRUE Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 44) A decree of divorce is only granted after division of property and other settlements are finalized. Answer: FALSE Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 45) In a pro se divorce, the parties represent themselves in the divorce proceedings. Answer: TRUE Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 46) In mediation, the divorcing couple is asked to sort out their issues on their own without any outside interference. Answer: FALSE Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 47) A mediator is allowed to make decisions for a divorcing couple. Answer: FALSE Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 48) If a settlement is not reached after mediation, the divorce case goes to trial. Answer: TRUE Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept

49) What is an annulment? On what grounds are annulments provided? Answer: An annulment is an order of the court declaring that a marriage did not exist. The order invalidates the marriage. Annulments are rarely granted now that most states recognize no-fault divorces. Certain grounds must be asserted to obtain an annulment. Some of the grounds for annulment are that (1) one of the parties was a minor and had not obtained his or her parents' consent to marry, (2) one of the parties was mentally incapacitated at the time of marriage, (3) one of the parties was intoxicated at the time of the marriage, or (4) the marriage was never consummated. Marriage can also be annulled if the parties are too closely related to one another or if there was bigamy. A marriage can also be annulled if there was duress or fraud leading to the marriage. Diff: 1 LO: 53.5 Describe marriage termination by annulment and divorce. AACSB: Analytical thinking Classification: Concept 50) Which of these legally binding documents are created before a marriage? A) a community will B) a reciprocal will C) a settlement agreement D) a prenuptial agreement Answer: D Diff: 1 LO: 53.6 Describe a prenuptial agreement and what issues are usually addressed in a prenuptial agreement. AACSB: Application of knowledge Classification: Application 51) A prenuptial agreement is a legal document issued by a state which certifies that two people are married. Answer: FALSE Diff: 1 LO: 53.6 Describe a prenuptial agreement and what issues are usually addressed in a prenuptial agreement. AACSB: Analytical thinking Classification: Concept 52) To be enforced, a prenuptial agreement must be in writing. Answer: TRUE Diff: 1 LO: 53.6 Describe a prenuptial agreement and what issues are usually addressed in a prenuptial agreement. AACSB: Analytical thinking Classification: Concept

53) Separate property does not include property owned by a spouse prior to the marriage. Answer: FALSE Diff: 1 LO: 53.6 Describe a prenuptial agreement and what issues are usually addressed in a prenuptial agreement. AACSB: Analytical thinking Classification: Concept 54) Separate property owned by one individual can be converted to marital property after marriage by placing that individual's spouse's name on title to the property. Answer: TRUE Diff: 1 LO: 53.6 Describe a prenuptial agreement and what issues are usually addressed in a prenuptial agreement. AACSB: Analytical thinking Classification: Concept 55) Property owned by a spouse prior to marriage as well as inheritances and gifts received by a spouse during the marriage are referred to as ________. A) separate property B) marital property C) community property D) reciprocal property Answer: A Diff: 1 LO: 53.7 Describe how assets are divided upon divorce and annulment. AACSB: Analytical thinking Classification: Concept 56) Upon the termination of a marriage, the separate property owned by spouses is ________. A) equally divided between the spouses B) retained by the respective spouses who owned it C) shared using a fair distribution method for marital assets D) co-owned by both spouses Answer: B Diff: 1 LO: 53.7 Describe how assets are divided upon divorce and annulment. AACSB: Analytical thinking Classification: Concept

57) In which of the following cases is separate property considered marital property? A) if the separate property was owned by the spouse prior to the terminated marriage B) if the separate property was an inheritance C) if the owner transferred title to the separate property to the spouse's name D) if the separate property was a gift received during marriage Answer: C Diff: 1 LO: 53.7 Describe how assets are divided upon divorce and annulment. AACSB: Analytical thinking Classification: Concept 58) ________ is a law in which the court orders a fair sharing of marital property to the divorcing spouses and the fair share need not be an equal share. A) Community property distribution B) Equitable distribution C) Equal asset distribution D) Marital distribution Answer: B Diff: 1 LO: 53.7 Describe how assets are divided upon divorce and annulment. AACSB: Analytical thinking Classification: Concept 59) ________ is a law used by some states in which the court orders an equal division of marital property to the divorcing spouses. A) Equitable distribution B) Adjusted distribution C) Community property distribution D) Marital distribution Answer: C Diff: 1 LO: 53.7 Describe how assets are divided upon divorce and annulment. AACSB: Analytical thinking Classification: Concept 60) In the event of Jane and Will opting for a divorce, ________ would be considered separate property for Jane. A) the ancestral home B) the new car C) the stocks and bonds D) the farmhouse Answer: A Diff: 2 LO: 53.7 Describe how assets are divided upon divorce and annulment. AACSB: Application of knowledge Classification: Application 14 Copyright © 2019 Pearson Education, Inc.

61) In the event of Jane and Will opting for a divorce, Will's stocks and bonds would be considered to be a part of ________. A) Jane's separate property B) the couple's marital assets C) Will's separate property D) the couple's separate property Answer: B Diff: 2 LO: 53.7 Describe how assets are divided upon divorce and annulment. AACSB: Application of knowledge Classification: Application 62) Under the doctrine of community property, all property acquired during the marriage using income earned during the marriage is considered marital property. Answer: TRUE Diff: 1 LO: 53.7 Describe how assets are divided upon divorce and annulment. AACSB: Analytical thinking Classification: Concept 63) Joint marital debts are debts incurred by the spouses prior to the marriage. Answer: FALSE Diff: 1 LO: 53.7 Describe how assets are divided upon divorce and annulment. AACSB: Analytical thinking Classification: Concept 64) If a debt is not paid by the spouse to whom the court has distributed the debt, the third-party creditor may recover payment of the debt from the other spouse. Answer: TRUE Diff: 1 LO: 53.7 Describe how assets are divided upon divorce and annulment. AACSB: Analytical thinking Classification: Concept

65) How is the division of debts conducted after a divorce? Answer: Individuals often have debts that must be divided on termination of the marriage. In most states, each spouse is personally liable for his or her own premarital debts, and the other spouse is not liable for those debts. Debts that are incurred during the marriage for necessities and other joint needs, including but not limited to shelter, clothing, automobiles, medical expenses, and such, are joint marital debts and are the joint responsibility of the spouses. The court may distribute these debts on termination of the marriage. Spouses are jointly liable for taxes incurred during their marriage. If a debt is not paid by the spouse to whom the court has distributed the debt, the third-party creditor may recover payment of the debt from the other spouse, however. This individual's only recourse is to recover the amount paid from his or her prior spouse. Diff: 1 LO: 53.7 Describe how assets are divided upon divorce and annulment. AACSB: Analytical thinking Classification: Concept 66) What financial recourse can Sally, who is now self-sufficient after their divorce, claim from Colton? A) annulment B) child support C) permanent alimony D) rehabilitation alimony Answer: D Diff: 2 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Application of knowledge Classification: Application 67) Payments made by one divorced spouse to the other divorced spouse are collectively referred to as ________. A) debt money B) trust money C) estate D) alimony Answer: D Diff: 1 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Analytical thinking Classification: Concept

68) Alimony that is ordered by the court to be paid by one divorcing spouse to the other divorcing spouse for a limited period of time is known as ________. A) rehabilitation alimony B) lifetime alimony C) life estate D) intestacy allowance Answer: A Diff: 1 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Analytical thinking Classification: Concept 69) Na Li is a South Asian immigrant in New Jersey who was divorced by her husband after 34 years of marriage. She can proficiently converse only in her native language. She lacks any employable skills and was restricted from leaving her house throughout her marriage and childbearing years. She has two children who are employed in different cities. She also suffers from a mild but prolonged depressive disorder called dysphoria. Na Li is most likely to qualify for ________ considering her situation. A) support alimony B) temporary alimony C) rehabilitation alimony D) permanent alimony Answer: D Diff: 2 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Application of knowledge Classification: Application 70) The main objective of rehabilitation alimony is to provide ________. A) permanent financial compensation to an elderly divorced spouse B) temporary financial reprieve until the spouse can rejoin the workforce C) financial support for the spouse until he or she dies D) financial aid for spouses who have no chance of rejoining the workforce Answer: B Diff: 1 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Analytical thinking Classification: Concept 71) Alimony is the amount paid by both parties in a divorce to each other until the settlement agreement is finalized. Answer: FALSE Diff: 1 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Analytical thinking Classification: Concept 17 Copyright © 2019 Pearson Education, Inc.

72) Rehabilitation alimony is terminated if the receiving individual remarries. Answer: TRUE Diff: 1 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Analytical thinking Classification: Concept 73) In this situation, what kind of child custody claims, if any, would Colton have on the child? A) joint physical custody B) joint custody C) no custody; supervised visitation rights D) no custody; ordinary visitation rights Answer: C Diff: 2 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Application of knowledge Classification: Application 74) The courts ordered Colton to pay 25 percent of his gross monthly income as child support. Additionally, the court ordered Colton's employer to automatically withhold 25 percent of his wages and send a check in that amount to Sally. This mode of providing alimony to Sally is stipulated by the ________. A) Defense of Marriage Act B) Marriage Protection Act C) Equal Protection Clause D) Family Support Act Answer: D Diff: 2 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Application of knowledge Classification: Application 75) The ________ is a federal statute that provides for the automatic wage withholding of child support payments from a noncustodial parent's income. A) Marriage Protection Act B) Equal Protection Clause C) Family Support Act D) Defense of Marriage Act Answer: C Diff: 1 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Analytical thinking Classification: Concept

76) Which of the following legislations was designed primarily to prevent noncustodial parents from failing to pay required support payments? A) the Defense of Marriage Act B) the Family Support Act C) the Equal Protection Clause D) the Marriage Protection Act Answer: B Diff: 1 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Analytical thinking Classification: Concept 77) Which of the following is a provision of the Family Support Act? A) that same-sex marriages are permissible for people who are legally eligible to marry B) that specify how property will be distributed on termination of the marriage by divorce or annulment, or the death of a spouse C) that all original or modified child support orders require automatic wage withholding from a noncustodial parent's income D) that states cannot refuse to offer federal benefits like Social Security to same-sex married couples Answer: C Diff: 1 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Analytical thinking Classification: Concept 78) A custody arrangement whereby the child of divorcing parents spends a certain amount of time being raised by each parent is known as ________. A) marital custody B) joint physical custody C) arraignment D) accommodation Answer: B Diff: 1 LO: 53.9 Explain child custody and visitation rights of parents. AACSB: Analytical thinking Classification: Concept

79) Which of the following statements is true of the award of legal custody after a divorce? A) The awarding of legal custody to a custodial parent is permanent. B) The custodial parent only has physical custody because legal custody is always shared among divorced parents of the child. C) The wishes of the child in determining who receives legal custody is given more consideration for older children. D) The court cannot refuse to award custody to either parent under any extenuating circumstances. Answer: C Diff: 1 LO: 53.9 Explain child custody and visitation rights of parents. AACSB: Analytical thinking Classification: Concept 80) An award of child support to be paid to the custodial parent by a noncustodial parent is a fixed amount that cannot be modified with changing conditions. Answer: FALSE Diff: 2 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Analytical thinking Classification: Concept 81) The Family Support Act provides for the automatic wage withholding of child support payments from a noncustodial parent's income. Answer: TRUE Diff: 2 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Analytical thinking Classification: Concept 82) In all child custody cases, only the custodial parent has the right to make decisions on behalf of the child. Answer: FALSE Diff: 1 LO: 53.9 Explain child custody and visitation rights of parents. AACSB: Analytical thinking Classification: Concept 83) The nature and duration of visitation rights is determined by the parent who has legal custody without the involvement of the court. Answer: FALSE Diff: 1 LO: 53.9 Explain child custody and visitation rights of parents. AACSB: Analytical thinking Classification: Concept

84) What is child support? How is it awarded? Answer: The noncustodial parent is obligated to contribute to the financial support of his or her biological and adopted children. This includes a child's costs for food, shelter, clothing, medical expenses, and other necessities of life. This payment is called child support. The custodial and noncustodial parents may agree to the amount of child support. If they do not, the court determines the amount of child support to be paid. In awarding child support, the court may consider several factors, including the number of children, the needs of the children, the net income of the parents, standard of living of the children prior to termination of the marriage, special medical or other needs of the children, and other factors the court deems relevant. The duty to pay child support usually continues until a child reaches the age of majority, graduates from high school, or emancipates himself or herself by voluntarily choosing to live on his or her own. Diff: 2 LO: 53.8 Explain the responsibilities for the payment of spousal and child support. AACSB: Analytical thinking Classification: Concept 85) How is child custody after a divorce dealt in the United States? Answer: When a couple terminates their marriage by divorce or annulment and they have children, the issue of who is legally and physically responsible for raising the children must be decided, either by settlement or by the court. In child custody disputes where both parents want custody of a child, the courts determine what is in the best interests of the child in awarding custody. The custodial parent who is awarded custody has legal custody of the child. This usually includes physical custody of the child. The custodial parent has the right to make day-today decisions and major decisions concerning the child's education, religion, and other such matters. The awarding of custody to a custodial parent is not permanent. Custody may be altered by the court if circumstances change. The court does not award custody to a parent, and sometimes not to either parent, if it is in the child's best interest not to be with a parent, or if there has been child abuse, or if there are other extenuating circumstances. In such cases, the court may award custody to other relatives, such as grandparents, or place the child in a foster home. Diff: 2 LO: 53.9 Explain child custody and visitation rights of parents. AACSB: Analytical thinking Classification: Concept

Business Law, 10e (Cheeseman) Chapter 54 International and World Trade Law 1) Which of the following statements is true of international law? A) All legal matters of international importance are prosecuted by a single world court that is responsible for interpreting international law. B) The enforcement of international law is regulated by a unitary world executive branch. C) There is no single legislative source of international law. D) All countries have to follow the international law enacted by other countries. Answer: C Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 2) Which of the following pairs of constitutional provisions gives the federal government the authority to regulate foreign affairs? A) the Due Process Clause and Double Jeopardy Clause B) the Supremacy Clause and the Equal Protection Clause C) the Free Exercise Clause and the Establishment Clause D) the Foreign Commerce Clause and the Treaty Clause Answer: D Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 3) If a state enacts a law that increases its tax on imported automobiles but not on Americanmade automobiles, the tax violates the ________ of the U.S. Constitution. A) Equal Protection Clause B) Foreign Commerce Clause C) Supremacy Clause D) Due Process Clause Answer: B Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept

4) Which of the following statements is true of the Treaty Clause? A) It provides that the president can make treaties of his own accord, autonomously. B) It provides that the president can enter into treaties with the approval of the two-thirds of the senate. C) It provides that the states have exclusive power to regulate internal and foreign affairs. D) It provides that the federal government has supremacy over the state in matters of international trade. Answer: B Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 5) Under the Treaty Clause, ________ is seen as the agent of the United States in dealing with foreign countries. A) the Secretariat B) the president C) the United Nations D) the deputy secretary Answer: B Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 6) An agreement between two or more nations that is formally signed by an authorized representative of each nation and ratified by each nation is known as a(n) ________. A) statute B) charter C) treaty D) arraignment Answer: C Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept

7) Treaties sponsored by international organizations like the United Nations are known as ________. A) arraignments B) abjections C) amendments D) conventions Answer: D Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 8) The U.S. Constitution divides the power to regulate foreign affairs equally between the federal and state governments. Answer: FALSE Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 9) Any state or local law that unduly burdens foreign commerce is considered to be in violation of the Foreign Commerce Clause. Answer: TRUE Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 10) Under the Treaty Clause, both the federal government and state governments can enter into treaties with foreign nations. Answer: FALSE Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 11) The European Union was created by a multilateral treaty. Answer: TRUE Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 3 Copyright © 2019 Pearson Education, Inc.

12) The Treaty Clause of the U.S. Constitution designates the president of the United States as its agent to deal with foreign affairs. Answer: TRUE Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 13) Explain the Treaty Clause of the U.S. Constitution. Answer: A treaty is an agreement or a contract between two or more nations that is formally signed by an authorized representative and ratified by the supreme power of each nation. Article II, Section 2, Clause 2 of the U.S. Constitution–the Treaty Clause–states that the president "shall have power, by and with the advice and consent of the Senate, to make treaties, provided twothirds of the senators present concur." Under the Treaty Clause, only the federal government can enter into treaties with foreign nations. Under the Supremacy Clause of the Constitution, treaties become part of the "law of the land," and conflicting state or local law is void. The president is the agent of the United States in dealing with foreign countries. Diff: 1 LO: 54.1 Describe the U.S. government's power under the Foreign Commerce Clause and Treaty Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 14) The ________ is an international organization created by a multilateral treaty in 1945 to promote social and economic cooperation among nations and to protect human rights. A) United Nations B) League of Nations C) General Agreement on Tariffs and Trade D) World Trade Organization Answer: A Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept

15) The General Assembly of the United Nations (UN) is ________. A) a collection of autonomous agencies that deals with the socio-economic problems of the United States B) the legislative body of the United Nations that is composed of all UN member nations C) a group of 15 member nations that is primarily responsible for maintaining international peace and security D) the staff of persons that administers the day-to-day operations of the UN Answer: B Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 16) Which of the following branches of the United Nations is primarily responsible for maintaining international peace and has authority to use armed force for this purpose? A) the General Assembly B) the Secretariat C) the Security Council D) the International Court of Justice Answer: C Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 17) Which of the following is headed by the secretary-general of the United Nations (UN)? A) the International Court of Justice B) the Secretariat C) the Security Council D) the General Assembly Answer: B Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 18) The ________ is a staff of persons that administers the day-to-day operations of the United Nations (UN). A) Council of Ministers B) Security Council C) General Assembly D) Secretariat Answer: D Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 5 Copyright © 2019 Pearson Education, Inc.

19) Which of the following is an example of an autonomous agency of the United Nations? A) the North Atlantic Treaty Organization B) the Security Council C) the World Trade Organization D) the International Monetary Fund Answer: D Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 20) The ________ is a body that hears cases that nations refer to it as well as cases involving treaties and the United Nations (UN) Charter. A) Security Council B) General Assembly C) International Court of Justice D) International Monetary Fund Answer: C Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 21) Which of the following statements is true of the International Court of Justice? A) It is the executive branch of the United Nations (UN) that helps interpret international law. B) It only hears cases of nations, and not of individuals and businesses. C) It does not have the authority to hear cases involving treaties and the UN Charter. D) It is headed by the secretary-general of the United Nations. Answer: B Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 22) The World Bank is ________. A) an autonomous agency under the aegis of the European Union B) an agency that monitors the financial collaborations taking place in the eurozone C) primarily responsible for promoting sound monetary, fiscal, and macroeconomic policies worldwide D) primarily responsible for providing money to developing countries to fund projects for humanitarian purposes Answer: D Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 6 Copyright © 2019 Pearson Education, Inc.

23) Which of the following is true of the International Monetary Fund (IMF)? A) The IMF is a federal body that consists of representatives of all the states and federal experts of the United States. B) The IMF is funded from the Superfund created by the Comprehensive Environmental Response, Compensation, and Liability Act. C) The IMF is an autonomous agency of the United Nations which promotes sound monetary, fiscal, and macroeconomic policies worldwide. D) The IMF is responsible for providing one-time grants to needy countries with no terms and conditions attached to the assistance. Answer: C Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 24) The United Nations (UN) Security Council is composed of all UN member nations. Answer: FALSE Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 25) The United Nations (UN) does not allow permanent membership of the Security Council to any member nation. Answer: FALSE Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 26) The United Nations (UN) Secretariat is headed by the secretary-general of the UN. Answer: TRUE Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 27) The secretary-general of the United Nations (UN) is elected by the Security Council. Answer: FALSE Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept

28) The International Monetary Fund is an autonomous agency that is a part of the United Nations (UN). Answer: TRUE Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 29) The International Court of Justice is composed of 15 judges who serve nine-year terms. Answer: TRUE Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 30) The International Monetary Fund is an exclusive organization set up to primarily help the member nations of the Security Council. Answer: FALSE Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 31) A nation can seek redress on behalf of an individual or a business that has a claim against another country in the International Court of Justice. Answer: TRUE Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 32) Individuals and businesses can directly approach the International Court of Justice for cases involving international contracts. Answer: FALSE Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept

33) What is the World Bank? What is its function? Answer: The World Bank is a United Nations agency that comprises more than 180 member nations. The World Bank is financed by contributions from developed countries. The World Bank has employees located in its headquarters in Washington DC and in regional offices throughout the world. The World Bank provides money to developing countries to fund projects for humanitarian purposes and to relieve poverty. It provides funds to build roads, construct dams and other water projects, establish hospitals and provide medical assistance, develop agriculture, and provide humanitarian aid. The World Bank provides outright grants of funds to developing countries for such projects, and it makes long-term low-interest-rate loans to those countries. The bank routinely grants debt relief for these loans. Diff: 1 LO: 54.2 Describe the functions and governance of the United Nations. AACSB: Analytical thinking Classification: Concept 34) Which of the following statements is true of the European Union (EU)? A) All issues have to be passed unanimously by the EU members to be enforced. B) Every country in the European Union has adopted the euro as its monetary unit. C) Customs duties have been removed among member nations of the European Union. D) Custom tariffs have been removed for trade between the EU and the rest of the world. Answer: C Diff: 1 LO: 54.3 Describe the European Union and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 35) ________ is a regional international organization that comprises many countries of Western and Eastern Europe and was created to promote peace and security as well as economic, social, and cultural development. A) The European Economic Community B) The Common Market C) The North Atlantic Treaty Organization D) The European Union Answer: D Diff: 1 LO: 54.3 Describe the European Union and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 36) The United Nations is charged to take enforcement actions to ensure member compliance with the European Union. Answer: FALSE Diff: 1 LO: 54.3 Describe the European Union and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 9 Copyright © 2019 Pearson Education, Inc.

37) The European Union Commission has negligible authority to enact legislations and take enforcement actions compared to the European Union (EU). Answer: FALSE Diff: 1 LO: 54.3 Describe the European Union and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 38) Under the European Union, customs duties have been eliminated among member nations. Answer: TRUE Diff: 1 LO: 54.3 Describe the European Union and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 39) The euro can only be used in countries that are part of the eurozone. Answer: TRUE Diff: 1 LO: 54.3 Describe the European Union and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 40) The ________ is a treaty that has removed or reduced tariffs, duties, quotas, and other trade barriers among the United States, Canada, and Mexico. A) Free Trade Area of the Americas Treaty B) North American Free Trade Agreement C) Central America Free Trade Agreement D) General Agreement on Tariffs and Trade Answer: B Diff: 1 LO: 54.4 Describe the North American Free Trade Agreement (NAFTA) And list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept

41) Which of the following statements is true of the North American Free Trade Agreement (NAFTA)? A) It allows a member country to reimpose tariffs if imports are hurting that country's economy or its workers. B) It disallows any special protection being extended to specific industries. C) It disallows NAFTA members from trading with other countries unless a unanimous vote is obtained. D) It has been hailed by economists to be a perfect example of a free trade pact. Answer: A Diff: 1 LO: 54.4 Describe the North American Free Trade Agreement (NAFTA) And list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept 42) The North American Free Trade Agreement (NAFTA) is a bilateral treaty between the United States and Mexico. Answer: FALSE Diff: 1 LO: 54.4 Describe the North American Free Trade Agreement (NAFTA) And list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept 43) The North American Free Trade Agreement (NAFTA) includes special protection for favored industries that have a lot of lobby muscle. Answer: TRUE Diff: 1 LO: 54.4 Describe the North American Free Trade Agreement (NAFTA) And list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept

44) What are the implications of the North American Free Trade Agreement (NAFTA) treaty? Answer: The North American Free Trade Agreement (NAFTA) has eliminated or reduced most of the duties, tariffs, quotas, and other trade barriers among Mexico, the United States, and Canada. Agriculture, automobiles, computers, electronics, energy and petrochemicals, financial services, insurance, telecommunications, and many other industries are affected. The treaty allows a country to reimpose tariffs if an import surge from one of the other nations hurts its economy or workers. Like other regional trading agreements, NAFTA allows the bloc to discriminate against outsiders and to cut deals among its members. NAFTA also includes special protection for favored industries that have a lot of lobby muscle. Thus, many economists assert that NAFTA is not a "free trade" pact but a managed trade agreement. Critics contend that NAFTA shifted U.S. jobs, particularly blue-collar jobs, south of the border, where Mexican wage rates are about one-tenth of those in the United States. Environmentalists criticize the pact for not doing enough to prevent and clean up pollution in Mexico. Diff: 2 LO: 54.4 Describe the North American Free Trade Agreement (NAFTA) And list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept 45) Indonesia, Vietnam, Thailand, and the Philippines are members of the ________. A) Organization of the Petroleum Exporting Countries B) Association of Southeast Asian Nations C) Dominican Republic-Central America Free Trade Agreement D) North American Free Trade Agreement Answer: B Diff: 1 LO: 54.5 Describe the Association of Southeast Asian Nations (ASEAN). AACSB: Analytical thinking Classification: Concept 46) The Association of Southeast Asian Nations (ASEAN) was created as a treaty among the oilproducing countries of Asia. Answer: FALSE Diff: 1 LO: 54.5 Describe the Association of Southeast Asian Nations (ASEAN). AACSB: Analytical thinking Classification: Concept

47) Ecuador, Algeria, and the United Arab Emirates are members of the ________. A) North American Free Trade Agreement B) Dominican Republic-Central America Free Trade Agreement C) Association of Southeast Asian Nations D) Organization of the Petroleum Exporting Countries Answer: D Diff: 1 LO: 54.6 List and describe other regional economic organizations. AACSB: Analytical thinking Classification: Concept 48) The Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) forbids its member nations to enter into treaties with countries in Central America that are not part of the DR-CAFTA. Answer: FALSE Diff: 1 LO: 54.6 List and describe other regional economic organizations. AACSB: Analytical thinking Classification: Concept 49) The Organization of the Petroleum Exporting Countries (OPEC) sets quotas on the output of oil production by its individual member nations. Answer: TRUE Diff: 1 LO: 54.6 List and describe other regional economic organizations. AACSB: Analytical thinking Classification: Concept 50) The ________ has jurisdiction to enforce the most important and comprehensive trade agreements in the world among its 160 member nations and customs territories. A) World Trade Organization B) International Monetary Fund C) North American Free Trade Agreement D) General Agreement on Tariffs and Trade Answer: A Diff: 1 LO: 54.7 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept

51) Which of the following replaced the General Agreement on Tariffs and Trade (GATT)? A) the World Bank B) the World Trade Organization C) the International Monetary Fund D) the North American Free Trade Agreement Answer: B Diff: 1 LO: 54.7 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept 52) In case of a breach of trade agreements of the World Trade Organization (WTO), which of the following WTO bodies first hears the dispute? A) a WTO panel B) a WTO Appellate Body C) the WTO dispute settlement body D) the WTO General Council Answer: A Diff: 1 LO: 54.7 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept 53) What is the role of the WTO dispute settlement body? A) to hear appeals on decisions made on a dispute B) to create panel reports on the findings of the dispute C) to hear the dispute from the plaintiff D) to review panel reports and adopt them if necessary Answer: D Diff: 1 LO: 54.7 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept 54) The World Trade Organization (WTO) was created as a successor to the General Agreement on Tariffs and Trade (GATT). Answer: TRUE Diff: 1 LO: 54.7 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept

55) The World Trade Organization (WTO) dispute settlement body is the first body to hear a settlement dispute between member nations. Answer: FALSE Diff: 1 LO: 54.7 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept 56) The World Trade Organization (WTO) panel adopts a panel report and issues remedies if a violation is found. Answer: FALSE Diff: 1 LO: 54.7 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept 57) The World Trade Organization (WTO) appellate body hears appeals that are limited to issues of law, not fact. Answer: TRUE Diff: 1 LO: 54.7 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept 58) How are disputes settled in the World Trade Organization (WTO)? What are the different WTO bodies that handle disputes? Answer: A member nation that believes that another member nation has breached one of the trade agreements can initiate a proceeding to have the World Trade Organization (WTO) hear and decide the dispute. The dispute is first heard by a three-member WTO panel, which issues a panel report. The members of the panel are professional judges from member nations. The report, which is the decision of the panel, contains the panel's findings of fact and law, and it orders a remedy if a violation has been found. The report is then referred to the WTO dispute settlement body. This body is required to adopt the panel report unless the body, by consensus, agrees not to adopt it. There is a WTO appellate body to which a party can appeal a decision of the dispute-settlement body. This appeals court is composed of seven professional justices selected from member nations. Diff: 1 LO: 54.7 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept

59) ________ is a clause in an international contract that designates which nation's laws will be applied in deciding a dispute arising out of the contract. A) The Equal Protection Clause B) The Supremacy Clause C) A forum-selection clause D) A choice of law clause Answer: D Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept 60) ________ is a clause in an international contract that designates which nation's court has jurisdiction to hear a case arising out of the contract. A) A forum-selection clause B) The Treaty Clause C) The Foreign Commerce Clause D) A choice of law clause Answer: A Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept 61) ________ is a rule which states that judges of one country cannot question the validity of an act committed by another country within that other country's borders. A) The doctrine of sovereign immunity B) The act of state doctrine C) The Colgate doctrine D) The Noerr doctrine Answer: B Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept 62) Which of the following is a provision under the Foreign Sovereign Immunities Act? A) It stipulates the rules for conflict resolution between the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) members. B) It endows the president with powers to enter into treaties with foreign nations. C) It exclusively governs suits against foreign nations in the United States. D) It regulates commerce between the United States and foreign nations. Answer: C Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept 16 Copyright © 2019 Pearson Education, Inc.

63) Which of the following is codified in the Foreign Sovereign Immunities Act? A) the act of state doctrine B) the principle of restricted immunity C) the Supremacy Clause D) the choice of forum clause Answer: B Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept 64) Which of the following is an exception to the Foreign Sovereign Immunities Act? A) the sham exception B) the managed trade exception C) the diversity of citizenship exception D) the commercial activity exception Answer: D Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept 65) By default, a case involving an international dispute is prosecuted only in ________. A) the International Court of Justice B) a court in the defendant's country C) a court in the plaintiff's country D) the World Trade Organization dispute settlement body Answer: C Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept 66) A forum-selection clause designates which nation's court has jurisdiction to hear a case arising out of a contract. Answer: TRUE Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept

67) A choice of law clause is a mandatory clause that should be present in every international contract. Answer: FALSE Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept 68) The act of state doctrine allows the citizen of one country to bring a lawsuit in that country against a law prevalent in another. Answer: FALSE Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept 69) The United States follows the principle of restricted immunity for suits against foreign nations. Answer: TRUE Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept 70) The Foreign Sovereign Immunities Act (FSIA) strictly states that a foreign country is not immune to lawsuits in U.S. courts under any circumstances. Answer: FALSE Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept 71) What does the act of state doctrine assert? Answer: A general principle of international law is that a country has absolute authority over what transpires within its own territory. In furtherance of this principle, the act of state doctrine states that judges of one country cannot question the validity of an act committed by another country within that other country's own borders. This restraint on jurisdiction is justified under the doctrine of separation of powers and permits the executive branch of the federal government to arrange affairs with foreign governments. Diff: 1 LO: 54.8 Describe jurisdiction of a nation's courts over international disputes. AACSB: Analytical thinking Classification: Concept

72) The ________ prescribes comprehensive and integrated rules of religious, political, and legal life that together form Jewish thought. A) Shari'a B) Torah C) dharmasastra D) riba Answer: B Diff: 1 LO: 54.9 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 73) Throughout Christianity, divine and natural laws have been issued in the form of ________. A) edicts B) conventions C) adjurations D) canons Answer: D Diff: 1 LO: 54.9 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 74) Which of the following statements is true of the canons of Christian faith? A) The Code of Canon Law produced in 1917 is followed by all sects of Christianity today. B) The Code of Canon Law regulates the conduct of the Church but fails to govern the actions of individual Catholics. C) The Orthodox churches treat their canons more as guidelines than as laws. D) The canons remain silent on the legal measures guiding marriage or inheritance. Answer: C Diff: 1 LO: 54.9 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 75) Which of the following is true of the Islamic law of Shari'a? A) The Shari'a disallows making a reasonable profit from the sale of goods and services. B) All Islamic countries strictly follow the Shari'a to govern all aspects of life. C) The Shari'a encourages riba through the strict payment and collection of interest on loans within stipulated periods of time. D) The Shari'a is primarily used in the areas of marriage; divorce; inheritance; and, to a limited degree, criminal law. Answer: D Diff: 1 LO: 54.9 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 19 Copyright © 2019 Pearson Education, Inc.

76) The classical Hindu law was based on ________. A) civil codes B) court decisions C) the works of private scholars D) the canons called Torahs Answer: C Diff: 1 LO: 54.9 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 77) Rabbinic jurisprudence is administered by rabbi-judges sitting as the Beis Din. Answer: TRUE Diff: 1 LO: 54.9 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 78) The Islamic law (or Shari'a) encourages levying interest on loans. Answer: FALSE Diff: 1 LO: 54.9 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 79) The canons of Christian faiths provide rules for believers to follow in living their lives and professing their faith. Answer: TRUE Diff: 1 LO: 54.9 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 80) The Code of Canon Law of 1983 stipulates the code of conduct to be followed by all Christians around the world. Answer: FALSE Diff: 1 LO: 54.9 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 81) Classical Hindu law rests heavily on civil codes adopted during the reigns of different kings. Answer: FALSE Diff: 1 LO: 54.9 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 20 Copyright © 2019 Pearson Education, Inc.