Test Bank for Legal Environment of Business By: William Kresse Legal Environment of Business Ninth Edition
Henry R. Cheeseman
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 1 Legal Heritage and the Digital Age 1) 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 like knowledge and language C) a legal system that builds and organizes knowledge in the form of testable explanations and predictions D) a group of legal hypotheses employed to explain a legal phenomenon Answer: A Diff: 1 Skill: Legal Concepts LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 2) 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 for the right to peaceful protest D) laws preventing the overthrow of a government Answer: B Diff: 2 Skill: Legal Concepts LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 3) 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 Skill: Legal Concepts LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept
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4) Halfren, a county in the state of Halizona, is earthquake-prone. The governor of Halizona sets up a committee to explore 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. The state government then passed a law making it mandatory to use the new technique 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: 3 Skill: Factual Application LO: 1.1 Define law. AACSB: Application of knowledge Classification: Application 5) 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 Skill: Legal Concepts LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 6) 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 Skill: Legal Concepts LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept
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7) 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 Skill: Factual Application LO: 1.1 Define law. AACSB: Application of knowledge Classification: Application 8) What function of the law is being served when a state legislature enacts a statute making murder a crime? A) keeping the peace B) providing a basis for compromise C) maintaining the status quo D) promoting social justice Answer: A Diff: 2 Skill: Legal Concepts LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 9) The City of Hilbert is considering rezoning a part of its downtown so Flatlands University can build a satellite campus there. In accordance with local ordinance, the City Council will first conduct public hearings, then debate the proposed rezoning ordinance during one its regular meetings, and finally vote on the proposed rezoning ordinance at its regular meetings. This would be an example of which function of the law? A) keeping the peace B) providing a basis for compromise C) maintaining the status quo D) facilitating orderly change Answer: D Diff: 2 Skill: Legal Concepts LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept
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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 Skill: Legal Concepts LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 11) When deciding in which state to start their new business, the founders of Telstar Autos decided to set up shop in the State of Indillowa due to its well-designed commercial laws that allow businesses to plan their activities, allocate their productive resources, and assess the risks they take. This would be an example of the facilitating planning function of the law. Answer: TRUE Diff: 2 Skill: Legal Concepts LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 12) Maintaining the status quo is a key function of the law, which includes laws that prevent the violent overthrow of governments. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.1 Define law. AACSB: Analytical thinking Classification: Concept 13) 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 scope of flexibility of the law C) the state's supremacy over federal rulings D) the importance of following precedence Answer: B Diff: 2 Skill: Legal Concepts LO: 1.2 Describe the flexibility of the law. AACSB: Analytical thinking Classification: Concept
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14) In the United States, law evolves and changes along with several other factors. Which one of the following is NOT generally considered one of these factors? A) the norms of society B) technology C) total take-home pay D) the growth and expansion of commerce in the United States and the world Answer: D Diff: 2 Skill: Legal Concepts LO: 1.2 Describe the flexibility of the law. AACSB: Analytical thinking Classification: Concept 15) The Analytical School of jurisprudence maintains that the law should be ________. A) shaped by logic B) based on social behavior C) set by the ruling class D) based on morality Answer: A Diff: 1 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 16) 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 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept
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17) 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 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 18) Proponents 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 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 19) 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 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept
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20) 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 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 21) 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 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 22) 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 jurisprudence B) the Natural Law School of jurisprudence C) the Sociological School of jurisprudence D) the Command School of jurisprudence Answer: D Diff: 2 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept
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23) The ________ School of jurisprudence states that promoting market efficiency should be the central goal of legal decision making. A) Historical B) Natural Law C) Sociological D) Law and Economics Answer: D Diff: 1 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 24) The Law and Economics School of jurisprudential thought believes that promoting market efficiency should be the central concern of legal decision making. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 25) 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 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 26) The Critical Legal Studies School of jurisprudential thought seeks to restrict the subjective decision-making powers of judges. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept
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27) 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 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 28) The Natural Law School of jurisprudence emphasizes shaping laws based on morals and ethics. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 29) The Historical School of jurisprudence believes that changes in the norms of society will gradually be reflected in the law. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 30) The Analytical School of jurisprudence emphasizes shaping laws on the basis of morality and ethics. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 31) The Natural Law School of jurisprudence maintains that the law is shaped by logic. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept
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32) 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. Historical legal scholars look to past legal decisions (precedent) to solve contemporary problems. 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 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 33) Compare the basic tenets of the Law and Economics School of jurisprudential thought with the basic tenets of the Critical Legal Studies School of jurisprudential thought. Answer: The Law and Economics School of jurisprudential thought, sometimes called the "Chicago School" as it was first developed at the University of Chicago, believes that promoting market efficiency should be the central goal of legal decision making. On the other hand, the Critical Legal Studies School of jurisprudential thought, because it maintains that legal rules are obstacles used by the powerful to maintain the status quo, believes that legal disputes should be solved by applying arbitrary rules that are based on broad notions of what is "fair" in each circumstance. Diff: 2 Skill: Legal Concepts LO: 1.3 List and describe the schools of judicial thought. AACSB: Analytical thinking Classification: Concept 34) What was the key factor in 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 precedence 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 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept
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35) What was the key 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 lawmaking D) to facilitate legal disputes for the wealthy and influential Answer: A Diff: 2 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 36) 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 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 37) ________ courts were allowed to give equitable remedies under the English common law. A) Merchant B) Law C) Chancery D) Appellate Answer: C Diff: 1 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept
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38) 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 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 39) In countries that follow a civil law system, the adjudication of a case is done simply by applying ________ or parliamentary statutes to the particular set of facts of that case. A) judicial decisions issued by the state courts B) common law C) codes D) precedent Answer: C Diff: 1 Skill: Legal Concepts LO: 1.4 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 Skill: Legal Concepts LO: 1.4 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 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept
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42) English common law was law developed by judges who issued their opinions when deciding cases. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 43) The law courts of the English common law could only provide monetary awards for damages. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 44) In early English common law, equitable remedies were provided by the law courts. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 45) Owing to some unfair results and limited remedies available in the law courts, chancery/equity courts were established. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 46) The adoption of the English common law led to precedence being an important feature of the American legal system. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept
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47) 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 Skill: Legal Concepts LO: 1.4 Learn the history and development of American law. AACSB: Analytical thinking Classification: Concept 48) 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 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 49) 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 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept
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50) 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 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 51) The ________ branch of the federal government has the power to enact laws. A) legislative B) judiciary C) consulate D) executive Answer: A Diff: 1 Skill: Legal Concepts LO: 1.5 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 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept
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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 Skill: Legal Concepts LO: 1.5 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 Skill: Legal Concepts LO: 1.5 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 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept
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56) ________ are established by the legislative and executive branches of the federal government 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 Skill: Legal Concepts LO: 1.5 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 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 58) 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 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept
17 C..
59) The ________ branch of the government has the power to enact laws. A) legislative B) executive C) judicial D) administrative Answer: A Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 60) The ________ branch of the government has the power to interpret and determine the validity of the law. A) legislative B) executive C) judicial D) administrative Answer: C Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 61) A(n) ________ is a compact made between two or more nations and becomes part of the supreme law of the land. A) statute B) ordinance C) tariff D) treaty Answer: C Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept
18 C..
62) The ________ is the legislative branch of the U.S. government and has the power to enact the law. A) Congress B) General Assembly C) Duma D) Security Council Answer: A Diff: 1 Skill: Legal Concepts LO: 1.5 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 Skill: Legal Concepts LO: 1.5 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 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 65) Administrative agencies are created by the judicial branch of government. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 66) A treaty does not require Senate approval before being passed. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept
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67) Federal statutes take precedence over treaties. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 68) Treaties are considered to be part of the supreme law of the United States of America. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 69) Statutes are written laws that establish certain courses of conduct that covered parties must adhere to. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 70) Federal statutes are organized by topic into code books. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 71) The authority to enact ordinances lies solely with the state legislatures. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept
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72) Executive orders are an example of codified law. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 73) Ordinances are not codified into code books. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 74) Federal statutes that are organized by topic into code books are referred to as codified law. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 75) The legislative and executive branches of federal and state governments are empowered to establish administrative agencies. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept 76) Explain the priority of law in the United States. Answer: In the United States, 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 Skill: Legal Concepts LO: 1.5 List and describe the sources of law in the United States. AACSB: Analytical thinking Classification: Concept
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77) 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 Skill: Legal Concepts LO: 1.6 Describe the doctrine of stare decisis. AACSB: Analytical thinking Classification: Concept 78) 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 precedence of courts of another state. Answer: C Diff: 2 Skill: Legal Concepts LO: 1.6 Describe the doctrine of stare decisis. AACSB: Analytical thinking Classification: Concept 79) 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 precedence in deciding future cases D) by allowing the use of writs Answer: C Diff: 2 Skill: Legal Concepts LO: 1.6 Describe the doctrine of stare decisis. AACSB: Analytical thinking Classification: Concept
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80) Must all federal and state courts in the United States follow the precedents established by U.S. Supreme Court decisions? A) federal courts must, but state courts do not have to B) state courts must, but federal courts do not have to C) yes, both do D) no, neither do Answer: C Diff: 1 Skill: Legal Concepts LO: 1.6 Describe the doctrine of stare decisis. AACSB: Analytical thinking Classification: Concept 81) Which of these is NOT a consequence of the doctrine of stare decisis? A) uniformity of law within a jurisdiction is promoted B) court systems become less efficient C) the law becomes more predictable for individuals D) the law becomes more predictable for businesses Answer: B Diff: 1 Skill: Legal Concepts LO: 1.6 Describe the doctrine of stare decisis. AACSB: Analytical thinking Classification: Concept 82) According to the doctrine of stare decisis, past court decisions become ________ for deciding future cases. A) code law B) precedent C) regulations D) statutory law Answer: B Diff: 1 Skill: Legal Concepts LO: 1.6 Describe the doctrine of stare decisis. AACSB: Analytical thinking Classification: Concept 83) State courts of one state are not required to follow the legal precedent established by the courts of another state. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.6 Describe the doctrine of stare decisis. AACSB: Analytical thinking Classification: Concept 23 C..
84) The doctrine of stare decisis provides that each court decision is independent and should stand on its own. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.6 Describe the doctrine of stare decisis. AACSB: Analytical thinking Classification: Concept 85) Lower courts must follow the precedent established by higher courts. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.6 Describe the doctrine of stare decisis. AACSB: Analytical thinking Classification: Concept 86) Due to the doctrine of stare decisis, a court may never overrule precedent. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.6 Describe the doctrine of stare decisis. AACSB: Analytical thinking Classification: Concept 87) 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 Skill: Legal Concepts LO: 1.6 Describe the doctrine of stare decisis. AACSB: Analytical thinking Classification: Concept
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88) How have courts responded to the fact that the information age arrived before new laws unique and specific to this environment were written? A) by enacting new statutes that address this new environment B) by applying existing laws to the new digital and technological environment through interpretation and application C) by refusing to accept cases involving computers and other electronic devices D) by creating administrative agencies to adopt rules and regulations for the new digital and technological environment Answer: B Diff: 2 Skill: Legal Concepts LO: 1.7 Describe how existing laws are being applied to the digital environment and how new laws are being enacted that specifically address issues of the information age. AACSB: Analytical thinking Classification: Concept 89) How has the U.S. Congress responded to the arrival of the information age? A) by referring such matters to the courts, asking them to address this new environment B) by applying existing laws to the new digital and technological environment through interpretation and application C) by leading the way, enacting many new federal statutes to regulate the new digital and technological environment D) by leaving it to local governments to enact ordinances addressing computers and electronic devices Answer: B Diff: 2 Skill: Legal Concepts LO: 1.7 Describe how existing laws are being applied to the digital environment and how new laws are being enacted that specifically address issues of the information age. AACSB: Analytical thinking Classification: Concept 90) Give an account of how the digital age has affected lawmaking in the United States. Answer: In a span of about three decades since their use became worldwide, 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 Skill: Legal Concepts LO: 1.7 Describe how existing laws are being applied to the digital environment and how new laws are being enacted that specifically address issues of the information age. AACSB: Analytical thinking Classification: Concept 25 C..
91) Critical legal thinking consists of performing certain activities with information in order to solve legal issues or cases. Which of these is NOT one of those activities? A) investigating B) analyzing C) manipulating D) evaluating Answer: C Diff: 2 Skill: Legal Concepts LO: 1.8 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 92) Which of these is NOT a component of the intellectually disciplined thinking required of critical legal thinking? A) recognizing and identifying problems B) engaging in logical inquiry and reasoning C) ignoring alternative perspectives D) evaluating information and appraising evidence Answer: C Diff: 1 Skill: Legal Concepts LO: 1.8 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 93) Which of these is NOT a component of the intellectually disciplined thinking required of critical legal thinking? A) considering alternative perspectives B) adopting popular assumptions C) identifying unjustified inferences and irrelevant information D) assessing one's own thinking and conclusions Answer: B Diff: 1 Skill: Legal Concepts LO: 1.8 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept
26 C..
94) Professor Kinsgford uses the Socratic method when discussing a case in his law classes. This means that Professor Kingsford does what with his students? A) gives them weekly writing assignments on all cases he has discussed in class B) conducts lectures utilizing the Socrates software system for audio-visual presentations C) has the students perform mock trials of the cases in the classroom D) asks students questions about a case or legal issue to stimulate critical thinking by the students Answer: D Diff: 1 Skill: Legal Concepts LO: 1.8 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 95) Once the facts, law, and legal issue of a case have been stated, critical thinking must be used in applying the law to the facts of the case. This requires the decision maker to analyze, examine, evaluate, interpret, and apply the law to the facts of the case. At this point, the decision maker must do what? A) reach a conclusion and state his or her judgment B) refer the case to a higher authority C) consider additional matters so as to lead to a more popular conclusion D) consider irrelevant laws that might lead to an opposite conclusion Answer: A Diff: 1 Skill: Legal Concepts LO: 1.8 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 96) The acronym "IRAC" stands for ________. A) independence, reporting, analysis, and capture B) initial, repetition, answering, and cooperation C) issue, rule, application, and conclusion D) inquiry, recognition, ambiguity, and captioning Answer: C Diff: 1 Skill: Legal Concepts LO: 1.8 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept
27 C..
97) Why is it that the nine justices of the U.S. Supreme Court often issue non-unanimous decisions? Answer: Each justice of the U.S. Supreme Court has analyzed the facts of a case and the legal issue presented, applying critical legal thinking to reason through the case, and developing his or her own conclusion. The key is that each justice applied critical thinking in reaching his or her conclusion. Diff: 2 Skill: Legal Concepts LO: 1.8 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 98) Why is applying critical legal thinking significant in law courses? Answer: Critical legal thinking is of significance in law courses because in the law there is not always a bright-line answer; in fact, there seldom is. This is where the famous "gray area" of the law appears. Thus, the need for critical thinking becomes especially important in solving legal disputes. Diff: 2 Skill: Legal Concepts LO: 1.8 Learn what critical legal thinking is and how to apply it to analyzing legal cases. AACSB: Analytical thinking Classification: Concept 99) A Legal Environment of Business course is only relevant to a student's future career if the student is planning on pursuing a profession in law. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 1.9 Learn how the materials, cases, and lessons of this book will apply to your future career. AACSB: Analytical thinking Classification: Concept 100) Communication, critical thinking, collaboration, knowledge application and analysis, business ethics and social responsibility, and information technology application are key to a successful career today. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 1.9 Learn how the materials, cases, and lessons of this book will apply to your future career. AACSB: Analytical thinking Classification: Concept
28 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 2 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 Skill: Legal Concepts LO: 2.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 2) Which of the following cases is an example of agreement of ethics and laws? A) a company outsourcing its work to a foreign country to take advantage of cheap labor B) a person being penalized for bribing a judge to rule a case in the person's favor C) a company not spending more to keep its emission rates below the legal standard D) a person hiring an illegal alien worker whose family is destitute Answer: B Diff: 2 Skill: Legal Concepts LO: 2.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 3) Law and ethics ________. A) are the same thing B) have nothing to do with each other C) while different, are intertwined D) can both be ignored by business professionals Answer: C Diff: 2 Skill: Legal Concepts LO: 2.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept
1 C..
4) Businesses ________. A) are subject to the laws of the countries in which they operate, but do not owe a social responsibility not to harm society B) are subject to the laws of the countries in which they operate and owe a social responsibility not to harm society C) organized in the United States are subject only to its laws, and can ignore the laws of other countries in which they operate D) organized in the United States can ignore the law as long as they act ethically in the conduct of their affairs and try not to harm society Answer: B Diff: 2 Skill: Legal Concepts LO: 2.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 5) All laws are framed to meet the highest ethical standards. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 2.1 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 Skill: Legal Concepts LO: 2.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 7) 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. In some situations, the law may permit an act that is ethically wrong. In some others, the law demands certain conduct, but a person's ethical standards are contrary. Diff: 1 Skill: Legal Concepts LO: 2.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept
2 C..
8) Compare and contrast "business law" and "business ethics." Answer: While most laws are based on ethical standards, not all ethical standards have been enacted as law. While the law establishes a minimum degree of conduct expected by persons and businesses in society, ethics demands more. Ethics and the law are intertwined. Sometimes the rule of law and the rule of ethics demand the same response by a person confronted with a problem. However, sometimes the law demands certain conduct, but a person's ethical standards are to the contrary. Moreover, in some situations, the law may permit an act that is ethically wrong. Diff: 1 Skill: Legal Concepts LO: 2.1 Describe how law and ethics intertwine. AACSB: Analytical thinking Classification: Concept 9) ________ is an ethical theory according to which a person adheres to rules or commands that are from an outside source, such as a book or a central figure. A) Ethical fundamentalism B) Utilitarianism C) Ethical relativism theory D) Rawls's social justice theory Answer: A Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 10) A government or political party that strictly derives its ethics and laws from a specific religious book is an example of ________. A) utilitarianism B) ethical fundamentalism C) ethical relativism D) Kantian ethics Answer: B Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
3 C..
11) Which of the following statements best 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 perform actions that are in accordance with a specific moral rule or principle from a religious text. C) People must choose to follow the actions of a virtuous person. D) People must perform actions that are based on moral duties imparted by one's community. Answer: A Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 12) 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 overemphasizes one book or theory. D) It treats morality as if it were an impersonal mathematical calculation. Answer: D Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 13) Which of the following theories of ethics is also referred to as duty ethics? A) Rawls's social justice theory B) utilitarianism C) Kantian ethics D) ethical fundamentalism Answer: C Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
4 C..
14) 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) ethical fundamentalism C) utilitarianism D) Rawls's social justice theory Answer: A Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 15) ________ is a moral theory according to which people owe moral duties that are based on universal rules. A) Rawls's social justice theory B) Kantian ethics C) Utilitarianism D) Ethical fundamentalism Answer: B Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 16) Reversibility is a principle of Kantian ethics according to which ________. A) a person must be allowed to reverse his moral judgment to better suit his 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 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
5 C..
17) 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 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 18) 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 based on universal rules that have no common consensus. D) It differentiates between the morality one uses to judge others and the morality one uses on oneself. Answer: C Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 19) Portman, who runs a computer hardware store, had signed a contract with Stewie Inc. to deliver 125 computer monitors. He was to deliver them by the 5th of August, but by the 3rd of August, Portman could not arrange for the monitors, as his regular supplier was not available. He then decided to go to another supplier, who had a higher selling price for monitors, rather than cancelling 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) ethical fundamentalism Answer: A Diff: 2 Skill: Factual Application LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Ethical understanding and reasoning Classification: Application
6 C..
20) 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 an alternative that is best for the society as a whole Answer: A Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 21) ________ theory is a moral theory that asserts that fairness is the essence of justice. A) Kantian ethics B) Ethical fundamentalism C) Utilitarianism D) Rawls's social justice Answer: D Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 22) From which of the following theories of morality is Rawls's social justice theory fundamentally derived? A) the utilitarianism theory B) the ethical fundamentalism theory C) the social contract theory D) the moral relativism theory Answer: C Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
7 C..
23) Which of the following is a perceived disadvantage of Rawls's social justice theory? A) It allows those in advantageous positions to suppress people in least advantageous positions in a society. B) It does not consider the fact that people would not want to maximize benefits to the least advantaged persons in a society. C) It only allows people in advantageous positions in a society to form rules on morality. D) It postulates that there are no universal ethical rules to guide a person's conduct. Answer: B Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 24) Which of the following moral theories represents the dictum, "I will keep the rules if everyone else does"? A) perspectivism B) social contract C) ethical fundamentalism D) utilitarianism Answer: B Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 25) How are ethical rules established in Rawls's social justice theory? A) by establishing a set of universal rules based on consistency and reversibility B) by establishing 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 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
8 C..
26) ________ is a moral theory that 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 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 27) Which of the following moral theories will help an anthropologist study ancient societies with an impartial and unprejudiced mindset? A) Rawls's social justice theory B) utilitarianism C) Kantian ethics D) ethical relativism Answer: D Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 28) According to ethical relativism, ________. A) ethics rely on duties based on universal rules that 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 moral 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 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
9 C..
29) Steve Templeton, the CEO of Rolland Motor Company, is contemplating the shutdown of a plant in Kantron. The plant has been unprofitable for some time now, and there is an increasing pressure from shareholders to shut it down so as to balance the loss being incurred by the shareholders. Closing the plant would result in the employees losing their jobs and the local suppliers losing a major buyer. It will also have an adverse effect on the community of Kantron as the plant is one of the main sources of employment for the locals. Steve considers all these factors before deciding the fate of the plant. After considering all the factors, if Steve finds that the loss to the employees and the community is far greater than that incurred by the shareholders and decides to keep the plant open, which of the following moral theories matches Steve Templeton's approach to the situation? A) Kantian ethics B) Rawls's social justice theory C) ethical fundamentalism D) utilitarianism Answer: D Diff: 3 Skill: Factual Application LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Application of knowledge Classification: Application 30) Which of these is NOT a major theory of ethics? A) ethical fundamentalism B) utilitarianism C) Kantian ethics D) quantum mechanics Answer: D Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 31) Which of the following is a major theory of ethics? A) conformal field theory B) general theory of relativity C) ethical relativism D) perturbation theory Answer: C Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
10 C..
32) One criticism of ethical fundamentalism is that ________. A) it is far too permissive B) it does not permit people to determine right and wrong for themselves C) it treats morality as a mathematical calculation D) it provides no universal ethical rules to guide a person's conduct Answer: B Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 33) Utilitarianism ________. A) dictates that people choose the action or follow the rule that provides the greatest good to society B) dictates that people choose the action or follow the rule that provides the greatest good for the greatest number of people C) dictates that people choose the action or follow the rule that provides the individual actor with the greatest level of pleasure D) dictates that people must choose the action or follow the rule that provides the maximum profit Answer: A Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 34) Billionaire Jonathon Apple convinced the Goudaville Town Council that they should condemn the Old McDonald Dairy so he can build an electronics plant on the land, arguing that the benefits to the community in the form of new jobs and extra tax revenues to be generated by the plant will far outweigh the detriment to the McDonald family from shuttering their business. Jonathon's argument is an example of ________. A) ethical fundamentalism B) Kantian ethics C) ethical relativism D) utilitarianism Answer: D Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Ethical understanding and reasoning Classification: Concept
11 C..
35) In Kantian ethics, the mandate, "Do unto others as you would have them do unto you" is referred to as ________. A) the proletariat manifesto B) the categorical imperative C) the golden ratio D) the manifest destiny Answer: A Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 36) Under the social contract theory of morality, it is presumed that each person in a society has entered into a social contract with all others in the society to ________. A) maximize profit B) obey the mandates of religious institutions C) do that which provides the greatest good to society D) obey moral rules that are necessary for people to live in peace and harmony Answer: D Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 37) The "veil of ignorance" is a term most associated with ________. A) Rawls's social justice theory B) Kantian ethics C) ethical relativism D) utilitarianism Answer: A Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
12 C..
38) The proposition that the least advantaged in a society must receive special assistance to realize their potential is most closely associated with ________. A) Kantian ethics B) ethical relativism C) Rawls's theory of social justice D) ethical fundamentalism Answer: C Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 39) Fred routinely cheats on his taxes. Fred has decided that based on his personal feelings cheating on his taxes is the right thing to do, and that no one else can criticize him for this stance. What moral theory does Fred apparently follow? A) Kantian ethics B) ethical relativism C) Rawls's theory of social justice D) ethical fundamentalism Answer: B Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 40) Under the moral theory of ________, a person looks to an outside source for ethical rules or commands. A) ethical fundamentalism B) utilitarianism C) ethical relativism D) Rawlsian ethics Answer: A Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
13 C..
41) ________ is a moral theory with origins in the works of Jeremy Bentham and John Stuart. A) Perspectivism B) Social contract C) Ethical fundamentalism D) Utilitarianism Answer: D Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 42) The moral theory that dictates that people should choose the action or follow the rule that provides the greatest good to society is referred to as ________. A) perspectivism B) social contract C) utilitarianism D) ethical fundamentalism Answer: C Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 43) ________ is one of the two principles of Kantian ethics according to which the actor must abide by the rule he or she uses to judge the morality of someone else's conduct. A) Consistency B) Reversibility C) Irreversibility D) Inconsistency Answer: B Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
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44) Kantian ethics is also referred to as ________ ethics. A) duty B) moral C) permissive D) relative Answer: A Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 45) According to Rawls's social justice theory, ________ is considered the essence of justice. A) duty B) legality C) profitability D) fairness Answer: D Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 46) Rawls's social justice theory is based on the ________ theory of morality proposed by John Locke and Jean-Jacques Rousseau. A) religious B) utilitarian C) social contract D) duty Answer: C Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
15 C..
47) Under the moral theory of ________, if a person meets his or her own moral standard in making a decision, no one can criticize him or her for it. A) utilitarianism B) ethical fundamentalism C) social contract D) ethical relativism Answer: D Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 48) Under ethical fundamentalism, a person looks to an outside source for ethical rules or commands. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 49) The main criticism about ethical fundamentalism is that it does not allow people to decide for themselves what is right and what is wrong. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 50) Utilitarianism postulates doing the greatest good for the greatest number of people. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 51) Kantian ethics is also known as duty ethics. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 16 C..
52) Kant believed that people owe moral duties that are based on universal rules. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 53) Kantian ethics is based on the premise that people can use reasoning to reach ethical decisions. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 54) The principle of inconsistency of Kantian ethics postulates treating all ethical cases differently. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 55) 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 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 56) Kantian ethics distinguishes between the morality one uses to judge others and the morality one uses on oneself. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
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57) The social contract theory is derived from Rawls's social justice theory. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 58) According to Rawls's social justice theory, a person who is in his or her "veil of ignorance" is best fit to select the fairest possible ethical principles. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 59) According to Rawls's social justice theory, moral duties are based on an implied social contract. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 60) Ethical relativism holds that moral standards ought to be based on an individual's feelings of what is right and what is wrong. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 61) 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 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
18 C..
62) Explain the two principles on which the universal rules of Kantian ethics are based. 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 one makes an exception for oneself, that exception becomes a universal rule that applies to all others. Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 63) 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 ethical. Few philosophers advocate ethical relativism as an acceptable moral theory. Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 64) Describe the major tenets of Rawls's Social Justice Theory and identify two criticisms of this theory. Answer: Developed by Harvard University philosopher John Rawls, Rawls's social justice theory considers fairness as the essence of justice. Further, this theory holds that the principles of justice should be chosen by persons who do not yet know their station in society–thus, their "veil of ignorance" would permit the fairest possible principles to be selected. Rawls also proposed that the least advantaged in society must receive special assistance to realize their potential. Rawls's theory of social justice is criticized for two reasons. First, establishing the blind "original position" for choosing moral principles is impossible in the real world. Second, many persons in society would choose not to maximize the benefit to the least advantaged persons in society. Diff: 2 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept
19 C..
65) What is the social contract theory of morality? Answer: Proposed by John Locke and Jean-Jacques Rousseau, the social contract theory of morality posits that each person is presumed to have entered into a social contract with all others in society to obey moral rules that are necessary for people to live in peace and harmony. This implied contract states, "I will keep the rules if everyone else does." These moral rules are then used to solve conflicting interests in society. Diff: 1 Skill: Legal Concepts LO: 2.2 Describe and apply the moral theories of business ethics. AACSB: Analytical thinking Classification: Concept 66) What does "maximizing profits" as a social responsibility theory in business imply? A) A corporation must consider the effects of its actions on persons other than its shareholders. B) A corporation's duty is to make a profit while avoiding causing harm to others. C) A corporation owes a duty to take actions that increase profits for its shareholders. D) A corporation has the prime responsibility of increasing its profits in order to benefit the society at large. Answer: C Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 67) A social responsibility theory of business according to which 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 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept
20 C..
68) Steve Templeton, the CEO of Rolland Motor Company, is contemplating the shutdown of a plant in Kantron. The plant has been unprofitable for some time now, and there is increasing pressure from shareholders to shut it down so as to balance the loss being incurred by the shareholders. But closing the plant would be a blow to the employees as they will lose their jobs, and the local suppliers will lose a major buyer. There is also fear that the sudden closing of the plant will have an adverse effect on the community of Kantron, as the plant is one of the main sources of employment for the locals. Steve Templeton considered all these factors before making a decision on the fate of the plant. If Steve Templeton decides not to close the plant in Kantron, what business social responsibility will Steve Templeton be achieving? A) moral minimum B) corporate citizenship C) maximizing profits D) stakeholder interest Answer: D Diff: 3 Skill: Factual Application LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Application of knowledge Classification: Application 69) Steve Templeton, the CEO of Rolland Motor Company, is contemplating the shutdown of a plant in Kantron. The plant has been unprofitable for some time now, and there is increasing pressure from shareholders to shut it down so as to balance the loss being incurred by the shareholders. But closing the plant would be a blow to the employees as they will lose their jobs, and the local suppliers will lose a major buyer. There is also fear that the sudden closing of the plant will have an adverse effect on the community of Kantron, as the plant is one of the main sources of employment for the locals. Steve Templeton considered all these factors before making a decision on the fate of the plant. If Steve Templeton decides to close the plant in Kantron, what important business social responsibility will Steve Templeton accomplish? A) moral minimum B) corporate citizenship C) maximizing profits D) stakeholder interest Answer: C Diff: 3 Skill: Factual Application LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Application of knowledge Classification: Application
21 C..
70) Sinbad Cola, a soft drink manufacturer, opened a plant in Buron. The waste from the plant was released into the Buron Sea, which was situated a mile away from the plant. Releasing the wastes into the sea resulted in water pollution and groundwater contamination. The water pollution in turn negatively affected Buron's fishing business. Sinbad Cola compensated for this by bringing the contamination levels down with additional filters and paying for the damages to the local fisheries. Which theory of business social responsibility did Sinbad Cola comply with when it compensated for its harmful waste disposal methods? A) moral minimum B) stakeholder interest C) corporate citizenship D) maximizing profits Answer: A Diff: 3 Skill: Factual Application LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Application of knowledge Classification: Application 71) ULab Inc., a biotechnology firm, lost one of its offices in a fire. The employees did not have a fire drill, and the 10-story building had no fire escape. This resulted in many employees being hospitalized for physical injuries, burns, and toxic smoke inhalation. What important social responsibility theory did ULab neglect by not having a fire drill for its employees and not installing a fire exit? A) corporate citizenship B) moral minimum C) stakeholder interest D) maximizing profits Answer: B Diff: 3 Skill: Factual Application LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Application of knowledge Classification: Application 72) ________ is a social responsibility theory of business according to which a corporation must consider the effects that 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 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 22 C..
73) What does "corporate citizenship" as a social responsibility theory in business imply? A) Businesses are responsible for helping to solve social problems that they did little, if anything, to cause. B) Businesses owe a duty to take actions that increase profits for shareholders. C) Businesses have a responsibility solely to their stakeholders and strive to maximize their wellbeing. D) Businesses are obliged to consider the effects of their actions on persons other than their shareholders. Answer: A Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 74) Conch Corporation, a global oil and gas company, plans to open a subsidized postsecondary vocational school in the town of Cristen, where one of its offices is situated. The plan is put to vote and then approved despite some objection from shareholders. The school is being opened in collaboration with the local government. Its objective is to help the youth of the neighborhood, especially dropouts, learn a vocational skill. What social responsibility theory describes Conch Corporation's move to open the school? A) moral minimum B) maximizing profits C) corporate citizenship D) stakeholder interest Answer: C Diff: 3 Skill: Factual Application LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Application of knowledge Classification: Application 75) In the past, many business decisions were based solely on a cost—benefit analysis and how they affected the bottom line. However, the realization that such decisions made by businesses have far-reaching effects on society has led to the development of ________. A) the theories of the social responsibility of business B) the Securities and Exchange Commission C) the Uniform Sentencing Guidelines D) Kantian ethics Answer: A Diff: 2 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept
23 C..
76) Which of these is NOT a theory of the social responsibility of business? A) maximize profits B) moral minimum C) stakeholder interest D) collective bargaining Answer: A Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 77) Under the maximize profits theory of the social responsibility of business, businesses should be primarily concerned with the interests of ________. A) its workers B) the members of the communities in which the business operates C) its shareholders D) taxpayers Answer: C Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 78) The theory of corporate social responsibility that would hold that so long as a business avoids or corrects the social injury it causes, it has met its duty of social responsibility is the ________. A) mini-max theory B) moral minimum theory C) super-max theory D) maximize profits theory Answer: B Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept
24 C..
79) The corporate social responsibility theory that argues that businesses have a responsibility to not just "do well," but also "do good" is the ________. A) corporate citizenship theory B) moral minimum theory C) stakeholder interest theory D) maximize profits theory Answer: A Diff: 2 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 80) The ________ theory of social responsibility compels a corporation to correct the social injury it causes. A) moral minimum B) maximizing profits C) corporate citizenship D) stakeholder interest Answer: A Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 81) The legislative and judicial branches of government have established laws that enforce the ________ of social responsibility for corporations. A) stakeholder interest B) maximizing profits C) corporate citizenship D) moral minimum Answer: D Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept
25 C..
82) The ________ theory of social responsibility states that a corporation must consider the effects its actions have on persons other than its shareholders. A) moral minimum B) maximizing profits C) corporate citizenship D) stakeholder interest Answer: D Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 83) The ________ theory of social responsibility requires corporations to solve social problems, including ones it did little, if anything, to cause. A) corporate citizenship B) maximizing profits C) moral minimum D) stakeholder interest Answer: A Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 84) 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 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept
26 C..
85) Section 406 of the ________ Act requires a public company to disclose whether it has adopted a code of ethics for senior financial officers. A) Smoot-Hawley B) Taft-Hartley C) Wright-Patterson D) Sarbanes-Oxley Answer: D Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 86) The traditional view of social responsibility of business emphasized maximizing profits for employees rather than shareholders. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 87) The moral minimum theory emphasizes correcting social injuries caused by a business. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 88) The moral minimum theory emphasizes making a profit even while causing harm to others. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 89) There are no specific governmental laws endorsing the moral minimum of social responsibility for corporations. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 27 C..
90) The stakeholder interest theory compels a corporation to consider the effects of its actions specifically on shareholders. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 91) The corporate citizenship theory contends that corporations have to promote the same social goals as individual members of the society. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 92) 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 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 93) Give an account of the social responsibility of businesses. 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. The four theories of the social responsibility of business are maximize profits, moral minimum, stakeholder interest, and corporate citizenship. Diff: 2 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept
28 C..
94) What is the moral minimum theory in the social responsibility of 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 a 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 for corporations. Diff: 1 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 95) Describe the maximize profits theory of the social responsibility of business and identify the Nobel Prize-winning economist from the University of Chicago who advocated this theory. Answer: The maximize profits theory is the traditional view of the social responsibility of business. This theory calls on businesses to maximize profits for its shareholders. This view, which dominated business and the law during the 19th century, holds that the interests of other constituencies (e.g., employees, suppliers, residents of the communities in which businesses are located) are not important in and of themselves. Milton Friedman, who won the Nobel Prize in economics when he taught at the University of Chicago, advocated the theory of maximizing profits for shareholders. Friedman asserted that in a free society, "there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception and fraud." Diff: 2 Skill: Legal Concepts LO: 2.3 Describe and apply the theories of the social responsibility of business. AACSB: Analytical thinking Classification: Concept 96) Which of the following is a characteristic of a public benefit corporation? A) It is a not-for-profit corporation. B) Its mission is purely to maximize profit. C) One of its purposes is to generate benefits for society. D) It is owned by the Federal government. Answer: C Diff: 1 Skill: Legal Concepts LO: 2.4 Define public benefit corporation and describe the social purposes served by these corporations. AACSB: Analytical thinking Classification: Concept
29 C..
97) Which of the following is NOT another term for a public benefit corporation? A) benefit corporation B) B corp. C) PB&J corp. D) social purpose corporation Answer: C Diff: 1 Skill: Legal Concepts LO: 2.4 Define public benefit corporation and describe the social purposes served by these corporations. AACSB: Analytical thinking Classification: Concept 98) Which of these statements is true with regards to public benefit corporations? A) Most states have enacted legislation that permits public benefit corporations. B) To date, only one state has enacted legislation allowing for public benefit corporations. C) Public benefits corporations are only chartered by the Federal government. D) Most states have not enacted legislation that permits public benefit corporations. Answer: A Diff: 1 Skill: Legal Concepts LO: 2.4 Define public benefit corporation and describe the social purposes served by these corporations. AACSB: Analytical thinking Classification: Concept 99) Which of these would NOT be considered a typical specific public benefit purpose of a public benefit corporation? A) reducing the company's carbon footprint B) engaging in sustainability efforts C) maximizing shareholder value D) giving 25 percent of its profits to charity Answer: C Diff: 2 Skill: Legal Concepts LO: 2.4 Define public benefit corporation and describe the social purposes served by these corporations. AACSB: Analytical thinking Classification: Concept
30 C..
100) Which of these entities has chosen to conduct its business as a public benefit corporation? A) Salvation Army B) United States Postal Service C) Federal Reserve Bank D) Ben and Jerry's Answer: C Diff: 2 Skill: Legal Concepts LO: 2.4 Define public benefit corporation and describe the social purposes served by these corporations. AACSB: Analytical thinking Classification: Concept 101) By law, the directors and officers of a public benefit corporation may act differently than directors and officers of a traditional corporation. Describe this difference. Answer: When making corporate decisions, the officers and directors of a traditional corporation are primarily concerned with the interests of the corporation's shareholders. By contrast, the officers and directors of a public benefit corporation may consider stakeholders other than shareholders when making corporate decisions. These other stakeholders may include employees, customers, suppliers, and the community. Diff: 2 Skill: Legal Concepts LO: 2.4 Define public benefit corporation and describe the social purposes served by these corporations. AACSB: Analytical thinking Classification: Concept
31 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 3 Courts, Jurisdiction, and Administrative Agencies 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 Skill: Legal Concepts LO: 3.1 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 Skill: Legal Concepts LO: 3.1 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 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept
1 C..
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 Skill: Legal Concepts LO: 3.1 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 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 6) Which of the following statements is true of 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 only 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 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept
2 C..
7) ________ are courts that hear appeals from trial courts, but are not a state's highest court. A) Intermediate appellate courts B) Courts of last resort C) Municipal courts D) Courts martial Answer: A Diff: 1 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 8) A decision of a limited-jurisdiction trial court can be appealed at a general jurisdiction court or an appellate court. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 9) In small claims courts, it is necessary that the parties are represented by a lawyer at all times. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 10) General jurisdiction trial courts can be found in every state. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 11) In general jurisdiction trial courts, the testimony and evidence at trial are recorded and stored for future reference. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept
3 C..
12) 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 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 13) Appellate court decisions are final and cannot be appealed to any higher courts. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 3.1 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 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 15) Describe the role of intermediate appellate courts in a state court system. Answer: Intermediate appellate courts hear appeals from trial courts. They review the trial court record to determine whether there have been any errors at trial that would require reversal or modification of the trial court's decision. Thus, an appellate court reviews either pertinent parts or the whole trial court record from the lower court. No new evidence or testimony is permitted. Diff: 2 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 16) Describe the evidence or testimony that is considered in the highest court in a state court system. Answer: No new evidence or testimony is heard by the highest court in a state court system. Rather, the parties usually submit pertinent parts of or the entire lower court record for review. The parties also submit legal briefs to the court and are usually granted a brief oral hearing. Diff: 1 Skill: Legal Concepts LO: 3.1 Describe state court systems. AACSB: Analytical thinking Classification: Concept 4 C..
17) Describe the function of the highest state court in a state court system. Answer: The function of a state's highest court is to hear appeals from intermediate appellate state courts and certain trial courts. Decisions of highest state courts are final unless a question of law is involved that is appealable to the U.S. Supreme Court. Diff: 1 Skill: Legal Concepts LO: 3.1 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 Skill: Legal Concepts LO: 3.2 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) U.S. district courts B) U.S. Tax Courts C) U.S. courts of appeals D) U.S. courts of federal claims Answer: A Diff: 2 Skill: Legal Concepts LO: 3.2 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 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 5 C..
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) Court of Appeals for the Federal Circuit C) First Circuit Court D) District of Columbia Circuit Answer: B Diff: 1 Skill: Legal Concepts LO: 3.2 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 Skill: Legal Concepts LO: 3.2 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) U.S. Courts of Appeals for Veterans Claims B) U.S. courts of appeals C) U.S. district courts D) U.S. courts of federal claims Answer: B Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept
6 C..
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 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 25) The geographical area served by each U.S. court of appeals is referred to as a ________. A) district B) circuit C) region D) bureau Answer: B Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 26) The ________ is a special federal court that hears cases that involve federal tax laws. A) U.S. Supreme Court B) U.S. Tax Court C) U.S. Court of Federal Claims D) U.S. District Court Answer: B Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept
7 C..
27) A special federal court that hears civil cases arising out of customs and international trade laws of the United States is the ________. A) U.S. Supreme Court B) U.S. Court of International Trade C) U.S. Court of Federal Claims D) U.S. District Court Answer: B Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 28) Bagg-O Corp. imports sandwich bags manufactured in Thailand which it then sells to consumers in the United States. The United States Customs and Border Protection Service inspected a shipment of these plastic bags and imposed a customs duty on them. Bagg-O contends that sandwich bags fall into a category of products which, under federal law, can enter into the United States duty-free. If Bagg-O decides to sue the federal government over these duties, the appropriate court to file the lawsuit would be the________. A) U.S. Supreme Court B) U.S. Court of International Trade C) U.S. Tax Court D) U.S. Circuit Court of Appeals Answer: B Diff: 2 Skill: Factual Application LO: 3.2 Describe the federal court system. AACSB: Application of knowledge Classification: Application 29) Which court would most likely hear an appeal from a verdict by a U.S. Army Court Martial? A) U.S. Court of Appeals for the Armed Forces B) U.S. Court of International Trade C) U.S. Court of Federal Claims D) U.S. District Court Answer: A Diff: 2 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept
8 C..
30) Peter is being harassed by bill collectors. His friend Francis tells him that he might want to consider the protections afforded by the federal bankruptcy laws. As such, Peter may be filing a case in which court? A) U.S. Court of Appeals for the Armed Forces B) U.S. Court of International Trade C) U.S. Court of Federal Claims D) U.S. Bankruptcy Court Answer: D Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 31) Bob is a software engineer in California. The FBI considers Bob to be a threat to national security and wishes to conduct covert electronic surveillance on Bob. Before conducting this surveillance, the FBI would probably file a request for a warrant with which court? A) U.S. Court of Federal Claims B) U.S. Court of International Trade C) U.S. Foreign Intelligence Surveillance Court D) U.S. Court of Appeals for the Armed Forces Answer: C Diff: 2 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 32) Mary is an attorney in New York City. Because the FBI considers Mary to be a threat to national security, the FBI applied to a special federal court for a warrant to conduct a physical search of her law office when no one would be around. The application for the warrant was denied. The FBI may appeal the decision to the ________. A) U.S. Court of Federal Claims B) U.S. Foreign Intelligence Surveillance Court of Review C) U.S. Foreign Intelligence Surveillance Court D) U.S. Court of Appeals for the Armed Forces Answer: B Diff: 2 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept
9 C..
33) The U.S. Foreign Intelligence Surveillance Court is considered to be a "secret court" because ________. A) the city where it is located is unknown B) no one knows who appoints the judges on the court C) the number of judges on the court is top secret D) its hearings are not open to the public and its decisions are classified Answer: D Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 34) After learning that the FBI had sought a warrant to conduct electronic surveillance on him, Bob petitioned the U.S. Foreign Intelligence Surveillance Court for a copy of the court file on him. Bob eventually received a copy of his file but found that much of the information in it was either removed or obscured with heavy black ink. This process of removing or obscuring information before releasing it is called ________. A) redacting B) contracting C) protracting D) subtracting Answer: D Diff: 2 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 35) Federal judges of the U.S. district courts are appointed for 14-year terms. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 36) Pursuant to the power given to it by Article III of the U.S. Constitution, Congress has established the U.S. District Courts. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept
10 C..
37) In the United States, each state has only one district court. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 38) The federal district courts are empowered to impanel juries, receive evidence, hear testimony, and decide cases. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 39) The first 12 circuits of the U.S. courts of appeals are geographical. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 40) Appeals from the Court of International Trade are heard by the Court of Appeals for the Federal Circuit. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 41) Briefly contrast the procedure that occurs with a case in a U.S. district court with what occurs with a case in a U.S. court of appeals. Answer: In a U.S. district court, trials are conducted, including impaneling juries, receiving evidence, hearing testimony, and rendering a judgment. In a U.S. court of appeals, the parties file legal briefs with the court and are given a short oral hearing on the case, usually before a threejudge panel. Later, the court of appeals will issue its decision. Diff: 2 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept
11 C..
42) Describe what is meant by an en banc review in the U.S. Circuit Courts of Appeals and describe the procedure needed to have one. Answer: The number of judges on each of the various circuits of U.S. courts of appeals range from approximately 6 to 30. Typically, appeals before a U.S. court of appeals are heard by a panel of three judges. However, after a decision is rendered by the three-judge panel, a petitioner can request an en banc review, in which case the matter is reheard by the full appeals court. Diff: 2 Skill: Legal Concepts LO: 3.2 Describe the federal court system. AACSB: Analytical thinking Classification: Concept 43) The U.S. Supreme Court is composed of ________ justices. A) nine B) six C) ten D) three Answer: A Diff: 1 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 44) Which of the following courts was created by Article III of the U.S. Constitution? A) U.S. Supreme Court B) U.S. Tax Court C) U.S. Court of Appeals D) U.S. Court of Federal Claims Answer: A Diff: 2 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 45) How are the justices of the U.S. Supreme Court appointed? A) They are nominated by the President and confirmed by the Senate. B) They are appointed by the President of the United States. C) They are nominated and confirmed by the chief justice of the Supreme Court. D) They are nominated by the associate justices and confirmed by the chief justice. Answer: A Diff: 1 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 12 C..
46) 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 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 47) ________ 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 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 48) 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 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept
13 C..
49) 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 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 50) Mary won a case at the U.S. Court of Appeals. When the case was reviewed by the Supreme Court, only eight judges were present. Four of the judges voted for Mary while the other four voted against her. Which of the following would 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 Skill: Factual Application LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Application of knowledge Classification: Application 51) Which of the following is true of a plurality decision of the Supreme Court? A) It settles the case but does not set the precedent for later cases. B) It affirms the decision of the lower court. C) It settles the case and sets the precedent for later cases. D) It causes the case to be reviewed again at a later date. Answer: A Diff: 2 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept
14 C..
52) Which of the following is true of a majority decision made 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 justices vote for and against the petitioner, and the case remains undecided. Answer: C Diff: 1 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 53) Which of the following similarities is observed between tie and plurality decisions made 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 are heard before making decisions. Answer: B Diff: 2 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 54) The highest court in the land is the Supreme Court of the United States, which is located in Washington, DC. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 55) The decisions of the U.S. Supreme Court can be appealed to higher courts. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept
15 C..
56) A petitioner must file a petition for certiorari, asking the Supreme Court to hear the case. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 57) A tie decision by the U.S. Supreme Court sets a precedent for later cases. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 58) 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 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 59) The Chief Justice of the Supreme Court is elected by the associate justices of the U.S. Supreme Court. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 60) The U.S. Supreme Court hears new evidence and testimony that was not permitted in the U.S. district court. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept
16 C..
61) Describe the process by which an appellate case gets heard before the U.S. Supreme Court. Answer: The U.S. Constitution gives Congress the authority to establish rules for the appellate review of cases by the Supreme Court, except in the rare case in which mandatory review is required. Congress has given the Supreme Court discretion to decide what cases it will hear. A petitioner must file a petition for certiorari, asking the Supreme Court to hear the case. If the Court decides to review a case, it issues a writ of certiorari. Because the Court issues only about 100 opinions each year, writs are usually granted only in cases involving constitutional and other important issues. Diff: 2 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 62) What is the jurisdiction of the U.S. Supreme Court? Answer: The U.S. 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 U.S. Supreme Court's decision is final. Diff: 2 Skill: Legal Concepts LO: 3.3 Describe the U.S. Supreme Court and the types of cases it decides. AACSB: Analytical thinking Classification: Concept 63) Sue, a resident of the state of New York, was visiting her aunt in Iowa. While there, her car was hit by a drunken driver named Jerry, a resident of Iowa. Sue was injured in that accident. Which of the following actions can Sue take in this scenario? 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 Skill: Factual Application LO: 3.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Application of knowledge Classification: Application
17 C..
64) ________ refer to cases arising under the U.S. Constitution, treaties, or 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 Skill: Legal Concepts LO: 3.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept 65) 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) patent cases Answer: B Diff: 1 Skill: Legal Concepts LO: 3.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept 66) Federal courts have ________ jurisdiction. A) plenary B) unlimited C) limited D) unrestricted Answer: C Diff: 1 Skill: Legal Concepts LO: 3.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept
18 C..
67) Which of these is a basis by which a federal court may have jurisdiction to hear a case? A) Federal question B) State question C) Homogenous citizenship D) Police powers Answer: A Diff: 1 Skill: Legal Concepts LO: 3.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept 68) A federal court may have jurisdiction to hear a case because of which basis? A) Home-rule question B) State question C) Diversity of citizenship D) Police powers Answer: C Diff: 1 Skill: Legal Concepts LO: 3.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept 69) 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 Skill: Legal Concepts LO: 3.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Analytical thinking Classification: Concept
19 C..
70) Altonvista Inc., a company based in California, is sued by a plaintiff from the state of Texas. Which of the following statements is true in this scenario? 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 Skill: Factual Application LO: 3.4 Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. AACSB: Application of knowledge Classification: Application 71) 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 can Emily do in this scenario? 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 Skill: Factual Application LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Application of knowledge Classification: Application 72) ________ 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 Answer: C Diff: 1 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept
20 C..
73) ________ 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 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 74) ________ 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 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 75) 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 the state Answer: B Diff: 1 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept
21 C..
76) Bill is trying to sell his house in Oklahoma City, Oklahoma to George, who lives in Little Rock, 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 scenario? A) The Arkansas state court must 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 Skill: Factual Application LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Application of knowledge Classification: Application 77) Jill wins a lawsuit against Terry in Wyoming state court. The court passes a judgment requiring Terry to pay $20,000 to Jill. Soon 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 Skill: Factual Application LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Application of knowledge Classification: Application 78) ________ requires lawsuits to be heard by the court with jurisdiction that is nearest to the location where the incident occurred or where the parties reside. A) Jurisdiction B) Venue C) Circuit D) Doctrine of stare decisis Answer: B Diff: 1 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept
22 C..
79) Donald, a resident of Louisiana, is robbed in Oklahoma County, Oklahoma. The robber, 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 Skill: Factual Application LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Application of knowledge Classification: Application 80) ________ 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 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 81) ________ 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 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept
23 C..
82) ________ refers to a concept that requires lawsuits to be heard by the court with jurisdiction that is nearest to the location where the incident occurred or where the parties reside. A) Personal jurisdiction B) Quasi in rem C) Venue D) Service of process Answer: C Diff: 1 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 83) ________ refers to a court's jurisdiction over the parties to a lawsuit. Answer: In personam jurisdiction Diff: 1 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 84) Discuss the need for and significance of a 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 were 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: 2 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept
24 C..
85) Compare 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: 2 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 86) 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: 2 Skill: Legal Concepts LO: 3.5 Define standing to sue, jurisdiction, and venue. AACSB: Analytical thinking Classification: Concept 87) New questions as to a court's jurisdiction have arisen due to the advent of ________. A) the advent of E-commerce and the use of the internet for the conduct of business B) the growth of the housing market C) the reduced use of microfilm technology D) the demise of certain retail chains Answer: A Diff: 1 Skill: Legal Concepts LO: 3.6 Explain how jurisdiction is applied to digital commerce. AACSB: Analytical thinking Classification: Concept
25 C..
88) John, who lives in Chicago, used the website of internet retailer Wikresco, located in Alabama, to purchase some camping supplies. When the goods arrived, John found them defective. What law would John most likely cite if he wanted to sue Wikresco in state court in Chicago? A) The Smoot-Hawley Tariff Act B) The Administrative Procedures Act C) The Alabama long-arm statute D) The Illinois long-arm statute Answer: D Diff: 1 Skill: Legal Concepts LO: 3.6 Explain how jurisdiction is applied to digital commerce. AACSB: Application of knowledge Classification: Concept 89) Which of the following powers of administrative agencies facilitates the investigation and prosecution of possible violations of statutes and rules? A) rulemaking power B) executive power C) judicial authority D) licensing Answer: B Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept 90) ________ are created by the government to enforce regulatory statutes. A) Municipalities B) Non-profit organizations C) Congressional oversight committees D) Administrative agencies Answer: D Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept
26 C..
91) ________ refer(s) to the law that governments enact to regulate industries, businesses, and professionals. A) Municipal codes B) Stare decisis C) Codified statutes D) Administrative law Answer: D Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept 92) ________ refer(s) to the federal statute enacted by Congress, or the state statute enacted by a state legislature, that is enforced by the administrative agency. A) Substantive administrative law B) Majority report C) Procedural administrative law D) Findings and recommendations Answer: A Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept 93) Administrative law is a combination of substantive administrative law and ________. A) precedent B) executive orders C) procedural administrative law D) stare decisis Answer: C Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept
27 C..
94) The Department of Homeland Security, the federal Food and Drug Administration (FDA), the National Labor Relations Board (NLRB), and the Equal Employment Opportunity Commission (EEOC) are all examples of ________. A) state law enforcement agencies B) federal administrative agencies C) Congressional oversight committees D) municipal service bureaus Answer: B Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept 95) ________ are created by legislative branches of states to administer state regulatory laws. A) State administrative agencies B) Federal bureaus C) Municipal extension agencies D) Court administrative offices Answer: A Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept 96) ________ are created by cities, municipalities, and counties to administer local regulatory law. A) Federal administrative agencies B) Congressional oversight committees C) State administrative agencies D) Local administrative agencies Answer: D Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept
28 C..
97) ________ 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) Executive order B) Stare decisis C) Substantive rule D) Administrative Procedures Act Answer: C Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept 98) The ________ refer(s) to a federal statute that establishes procedures for federal administrative agencies to follow while conducting their affairs. A) Administrative Procedure Act B) Federal Sentencing Guidelines C) Sarbanes-Oxley Act D) Executive Orders Answer: A Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept 99) An administrative law judge's decision is issued in the form of a(n) ________. A) majority report B) substantive rule C) administrative order D) writ of habeas corpus Answer: C Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept 100) Decisions of administrative law judges are subject to ________. Answer: judicial review Diff: 1 Skill: Legal Concepts LO: 3.7 Describe administrative agencies and the main features of administrative law. AACSB: Analytical thinking Classification: Concept
29 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 4 Alternative, Judicial, and E-Dispute Resolution 1) Mary hired the attorneys at the law firm of Sunny & Warm to represent her in a civil lawsuit. Erin Sunny, a partner, explained to Mary that she will need to pay to the firm a sum of money up-front that will be placed in a trust account before the firm proceeds. Periodically the lawyer's fees will be taken from the trust account as services are provided. What is this payment advance called? A) a mortgage B) a lien C) a retainer D) a security deposit Answer: C Diff: 1 Skill: Legal Concepts LO: 4.1 Describe how attorneys are compensated. AACSB: Analytical thinking Classification: Concept 2) Barry Stir, Esq. is an attorney with a small solo practice. Most of the matters that Barry handles are straightforward and well defined, such as drafting simple wills and trusts, forming small corporations and limited liability companies, filing simple bankruptcy proceedings, and settling uncontested divorces. For these matters, the fee arrangement is usually ________. A) a contingency-fee B) a flat fee C) a mortgaged fee D) an hourly fee Answer: B Diff: 1 Skill: Legal Concepts LO: 4.1 Describe how attorneys are compensated. AACSB: Analytical thinking Classification: Concept 3) A defendant in a criminal case can hire his or her own attorney, but if the defendant cannot afford an attorney, ________ A) the defendant must defend himself at trial. B) the case will be dismissed. C) the trial judge will assign a bailiff to assist the defendant. D) the government will provide an attorney to represent the defendant free of charge. Answer: D Diff: 1 Skill: Legal Concepts LO: 4.1 Describe how attorneys are compensated. AACSB: Analytical thinking Classification: Concept 1 C..
4) Explain what is meant by a contingency-fee arrangement with a lawyer. Answer: In certain types of cases, attorneys work on a contingency-fee basis. Under a contingency-fee arrangement, the lawyer receives a percentage of the amount recovered by winning or settling a case. Contingency fees normally range from 20 to 50 percent of the award or settlement, with the average being about 35 to 40 percent. Expenses for expert witnesses and the like are deducted from the gross amount recovered. The client receives the remainder after attorney fees and expenses have been deducted. If the lawyer does not win or settle the case in the client's favor, the lawyer receives nothing. Contingency-fee arrangements are often used in automobile accident lawsuits, medical malpractice claims, product liability lawsuits, and other personal injury lawsuits. Diff: 2 Skill: Legal Concepts LO: 4.1 Describe how attorneys are compensated. AACSB: Analytical thinking Classification: Concept 5) The process of bringing, maintaining, and defending a lawsuit is called ________. A) mediation B) remediation C) litigation D) legislation Answer: C Diff: 1 Skill: Legal Concepts LO: 4.2 Describe the pretrial litigation process. AACSB: Analytical thinking Classification: Concept 6) 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 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept
2 C..
7) 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 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 8) 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 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 9) 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 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept
3 C..
10) 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 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 11) 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 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 12) Which of the following can be filed by the defendant in a lawsuit? A) complaint B) answer C) reply D) injunction Answer: B Diff: 1 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept
4 C..
13) 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 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 14) The statute of limitations establishes the period within which a ________. A) plaintiff must bring a lawsuit against a defendant B) defendant must file a written answer against a plaintiff's complaint C) defendant can file a cross-complaint against the plaintiff D) motion for judgment on the pleadings can be made by either party Answer: A Diff: 1 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 15) 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, 2013. If Graham wants to bring a lawsuit against Alice on January 15, 2015, 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: 1 Skill: Factual Application LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Application of knowledge Classification: Application
5 C..
16) The ________ is the party who files a complaint. A) plaintiff B) defendant C) intervenor D) arbitrator Answer: A Diff: 1 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 17) A defendant who believes that he or she has been injured by the plaintiff can file a(n) ________ against the plaintiff. A) writ of habeas corpus B) interpleader C) cross-complaint D) writ of certiorari Answer: C Diff: 1 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 18) The act of others joining as parties to an existing lawsuit is called ________. A) convocation B) intervention C) interpleader D) class action Answer: B Diff: 1 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept
6 C..
19) The act of a court combining two or more separate lawsuits into one lawsuit is called ________. A) combination B) intervention C) certiorari D) consolidation Answer: D Diff: 1 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 20) A ________ establishes the period during which a plaintiff must bring a lawsuit against a defendant. A) statute of limitations B) statute of frauds C) writ of habeas corpus D) remittitur Answer: A Diff: 1 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 21) 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 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 22) 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 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept
7 C..
23) If the defendant does not answer the complaint, a default judgment is entered against him or her. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 24) Once a default judgment is established, the plaintiff only has to prove damages. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 25) A defendant can answer a complaint and file a cross-complaint at the same time. Answer: TRUE Diff: 2 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 26) The act of people interested in the lawsuit joining as parties to an existing lawsuit is called arbitration. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 27) 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: 2 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept
8 C..
28) Briefly describe what a "statute of limitations" does. Answer: 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, the plaintiff loses the right to sue. A statute of limitations begins to "run" at the time the plaintiff first has the right to sue the defendant (e.g., when the accident happens, the breach of contract occurs, the crime is committed). Diff: 2 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 29) 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 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 30) In a civil lawsuit, when will a court issue a default judgment against a defendant, and what does that mean to the plaintiff? Answer: If the defendant does not answer the complaint, the court will enter a default judgment against him or her. A default judgment establishes the defendant's liability. The plaintiff then has only to prove damages. Diff: 2 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept
9 C..
31) What is meant by the term "the pleadings"? Answer: The pleadings is the first of the major phases of pretrial litigation. The paperwork that is filed with the court to initiate and respond to a lawsuit, as well as the process itself, is referred to as the pleadings. The major pleadings are the complaint, the answer, the cross-complaint, and the reply. Diff: 2 Skill: Legal Concepts LO: 4.3 Describe complaint, summons, and answer and describe the pleading process. AACSB: Analytical thinking Classification: Concept 32) 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 brings a lawsuit against a defendant. D) The plaintiff does not reply to the defender's cross-complaint. Answer: C Diff: 2 Skill: Legal Concepts LO: 4.4 Define class action and describe the requirements for bringing a class action lawsuit. AACSB: Analytical thinking Classification: Concept 33) A lawsuit where a group of plaintiffs with common claims collectively brings a lawsuit against a defendant is known as a(n) ________. A) mass action B) class action C) consolidation D) arbitration Answer: B Diff: 1 Skill: Legal Concepts LO: 4.4 Define class action and describe the requirements for bringing a class action lawsuit. AACSB: Analytical thinking Classification: Concept
10 C..
34) To maintain a class action lawsuit, a class must be ________ by the appropriate federal or state court. A) sealed B) patented C) certified D) sequestered Answer: C Diff: 1 Skill: Legal Concepts LO: 4.4 Define class action and describe the requirements for bringing a class action lawsuit. AACSB: Analytical thinking Classification: Concept 35) Which of these is NOT a factor weighed by a court in determining whether a class can be certified in a class action? A) if the legal and factual claims of all the parties are common B) if it is impracticable for individual claimants to bring multiple lawsuits against the defendant C) if the claims and defenses are typical for the plaintiffs and the defendant D) if the representative parties will not adequately protect the interests of the class Answer: D Diff: 2 Skill: Legal Concepts LO: 4.4 Define class action and describe the requirements for bringing a class action lawsuit. AACSB: Analytical thinking Classification: Concept 36) When a group of plaintiffs with common claims collectively bring a lawsuit against a defendant, it is known as consolidation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 4.4 Define class action and describe the requirements for bringing a class action lawsuit. AACSB: Analytical thinking Classification: Concept 37) A class action lawsuit is certified only if there is commonality among the plaintiffs' claims. Answer: TRUE Diff: 2 Skill: Legal Concepts LO: 4.4 Define class action and describe the requirements for bringing a class action lawsuit. AACSB: Analytical thinking Classification: Concept
11 C..
38) 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 Skill: Legal Concepts LO: 4.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 39) Which of the following statements is true of a deposition? A) A deposition has to be a written statement. B) A witness's deposition is voluntary and not required pursuant to a court order. C) A deposition is given post-trial. D) A deponent is allowed to correct his or her answers before signing the deposition. Answer: D Diff: 2 Skill: Legal Concepts LO: 4.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 40) ________ 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 Skill: Legal Concepts LO: 4.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 41) A(n) ________ is oral testimony given by a party or witness prior to trial. A) consolidation B) interlocutory C) interrogatory D) deposition Answer: D Diff: 1 Skill: Legal Concepts LO: 4.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 12 C..
42) The deposition of a party or a witness can be given voluntarily or pursuant to a(n) ________. A) writ of attachment B) electronic surveillance C) court order D) writ of certiorari Answer: C Diff: 1 Skill: Legal Concepts LO: 4.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 43) Which of the following is NOT considered to be discoverable ESI under Rule 34 of the Federal Rules of Civil Procedure? A) text messages B) canceled business checks C) emails D) social media posts Answer: B Diff: 1 Skill: Legal Concepts LO: 4.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 44) Hill Company maintains most of their business records as electronically stored information (ESI). Recently the company's president, Clint Hill, was informed that the firm can reasonably anticipate being named as a defendant in a federal lawsuit. Accordingly, Clint should see to it that the company ________. A) preserves all relevant ESI that may be useful to an adversary B) immediately deletes all relevant ESI before the company is named in a federal lawsuit C) deletes all relevant ESI before the company receives any discovery requests D) transfers all relevant ESI to a cloud server maintained by another company outside of the United States Answer: A Diff: 2 Skill: Legal Concepts LO: 4.5 Describe the discovery process and the various methods of discovery. AACSB: Application of knowledge Classification: Concept
13 C..
45) A deposition is oral testimony given by a party or witness during the trial. Answer: FALSE Diff: 2 Skill: Legal Concepts LO: 4.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 46) Interventions are written questions submitted by one party to a lawsuit to the other party. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 4.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 47) What occurs during discovery and what are some of the purposes for it? Answer: During discovery each party engages in various activities to discover facts of the case from the other party and from witnesses prior to trial. Discovery serves several functions, including preventing surprises, allowing parties to prepare thoroughly for trial, preserving evidence, saving court time, and promoting the settlement of cases. Diff: 2 Skill: Legal Concepts LO: 4.5 Describe the discovery process and the various methods of discovery. AACSB: Analytical thinking Classification: Concept 48) Which of the following motions asserts that based on supporting evidence outside the pleadings, there are no factual disputes to be decided by the jury, and 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 Skill: Legal Concepts LO: 4.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept
14 C..
49) 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 Skill: Legal Concepts LO: 4.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept 50) A ________ 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. A) motion for judgment on the pleadings B) motion for summary judgment C) motion for judgment notwithstanding the verdict D) motion for peremptory strikes Answer: A Diff: 1 Skill: Legal Concepts LO: 4.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept 51) A ________ asserts that based on supporting evidence outside the pleadings, there are no factual disputes to be decided by the jury, and the judge should apply the relevant law to the undisputed facts and decide the case. A) motion for judgment on the pleadings B) motion for remittitur C) motion for judgment notwithstanding the verdict D) motion for summary judgment Answer: D Diff: 1 Skill: Legal Concepts LO: 4.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept
15 C..
52) A pretrial motion is made to try and dispose of all or part of a lawsuit prior to trial. Answer: TRUE Diff: 2 Skill: Legal Concepts LO: 4.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept 53) Motions for summary judgment are supported by evidence outside of the pleadings. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 4.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept 54) In deciding the motion for judgment on the pleadings, the judge also considers facts outside the pleadings. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 4.6 Contrast the different types of pretrial motions. AACSB: Analytical thinking Classification: Concept 55) Pretrial conferences are often held ________. A) formally in a large public forum B) formally in a lawyer's offices C) informally in the judge's chambers D) informally in a restaurant or private club Answer: C Diff: 2 Skill: Legal Concepts LO: 4.7 Describe the goals and procedures of a settlement conference. AACSB: Analytical thinking Classification: Concept
16 C..
56) More than 95 percent of all cases ________. A) are tried before a jury B) are settled before they go to trial C) are appealed to a higher court D) are filed in a federal court Answer: B Diff: 2 Skill: Legal Concepts LO: 4.7 Describe the goals and procedures of a settlement conference. AACSB: Analytical thinking Classification: Concept 57) 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 Skill: Legal Concepts LO: 4.7 Describe the goals and procedures of a settlement conference. AACSB: Analytical thinking Classification: Concept 58) A(n) ________ is a hearing before a trial in order to facilitate the settlement of a case. A) en banc hearing B) arbitration C) settlement conference or pretrial hearing D) remittitur Answer: C Diff: 1 Skill: Legal Concepts LO: 4.7 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 Skill: Legal Concepts LO: 4.7 Describe the goals and procedures of a settlement conference. AACSB: Analytical thinking Classification: Concept
17 C..
60) 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: 1 Skill: Legal Concepts LO: 4.7 Describe the goals and procedures of a settlement conference. AACSB: Analytical thinking Classification: Concept 61) Which of the following statements is true of a court trial? A) All civil cases are tried with a jury. B) The judge is the trier of fact in a jury trial. C) A jury is not required in a trial unless both parties request one. D) Prospective jurors are questioned by lawyers for each party. Answer: D Diff: 2 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 62) ________ 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 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept
18 C..
63) 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 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 64) 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 judge D) witnesses being questioned by the defendant's attorney Answer: D Diff: 1 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 65) 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: 1 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept
19 C..
66) 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 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 67) 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 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 68) 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 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept
20 C..
69) Which of the following terms refers 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 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 70) In the civil case Jane Doe v. John Deer, the judge learns that the jury was swayed by the fact that Jane Doe was a woman. The jury entered its 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: 2 Skill: Factual Application LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 71) The process whereby the judge and attorneys ask prospective jurors questions to determine whether they would be biased in their decisions is called ________. A) interrogatory B) deposition C) peremptory D) voir dire Answer: D Diff: 1 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept
21 C..
72) Which of these is NOT considered to be a part of the permanent record of a trial court proceeding? A) the trial court's written memorandum setting forth the reasons for the judgment entered B) the trial transcript C) the names and addresses of all jurors D) the evidence introduced at trial Answer: C Diff: 1 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 73) Which of the following statements is NOT true regarding what an attorney will do during the closing argument to the jury? A) The attorney will try to convince the jury to render a verdict in his or her client's favor. B) The attorney will point out the strengths in his or her client's case. C) The attorney will point out weaknesses in the other side's case. D) The attorney will enter additional evidence into the record. Answer: D Diff: 1 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 74) Following closing arguments, the judge will read jury instructions to the jury. Which of these would NOT be considered a proper jury instruction? A) the judge's suggestions on what verdict should be returned B) instructions as to what law to apply when they decide the case C) the statutory definition of the crime charged in a criminal case D) the legal definition of negligence in a civil negligence case Answer: A Diff: 1 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 75) 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: 2 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 22 C..
76) After a witness is sworn in, he or she is immediately cross-examined by the plaintiff's attorney. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 4.8 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 plaintiff's rebuttal. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 78) Briefly describe the jury selection process. Answer: Individuals, usually selected from voter or automobile registration lists, are summoned to court to be in the pool of potential jurors. Individuals from the jury pool are selected to hear specific cases through a process called voir dire. During voir dire, lawyers for each party and the judge can ask prospective jurors questions to determine whether they would be biased in their decisions. Individuals who are determined to be biased are prohibited from serving as a juror. Most states and federal courts permit each party a specified number of peremptory challenges, also called peremptory strikes, which are used by a party to remove a potential juror without showing that the juror is biased. Peremptory challenges allow each side to contribute to the configuration of the jury. These strikes cannot be used to remove jurors based on race, ethnicity, or gender. Federal courts and most state courts require a 12-person jury in criminal cases. Juries in civil cases are usually 6 to 12 jurors, depending on the jurisdiction. Several alternative jurors are also usually selected to replace jurors who cannot complete the trial because of death, illness, later discovered bias, or other reason. Once the appropriate number of jurors is selected they are impaneled to hear the case and are sworn in. Diff: 2 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept
23 C..
79) 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: 1 Skill: Legal Concepts LO: 4.8 Describe the trial process. AACSB: Analytical thinking Classification: Concept 80) In order to reduce the avalanche of paper that has traditionally been part of litigation, and utilizing the advances in technology, some courts have ordered ________. A) that lawyers only file documents on "legal size" paper B) that electronic filing of pleadings and other documents is mandatory C) that all pleadings be printed on both sides of a sheet of paper D) that smaller fonts and margins be used for all pleadings Answer: B Diff: 1 Skill: Legal Concepts LO: 4.9 Explain how electronic technology is being used in courts and legal proceedings. AACSB: Analytical thinking Classification: Concept 81) The appealing party in an appeal is called a(n) ________. A) appellate B) appellee C) respondent D) petitioner Answer: D Diff: 1 Skill: Legal Concepts LO: 4.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept
24 C..
82) The responding party to an appeal is called a respondent or a(n) ________. A) appellate B) appellee C) correspondent D) petitioner Answer: B Diff: 1 Skill: Legal Concepts LO: 4.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept 83) 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) Appellate courts cannot reverse decisions of lower courts. Answer: C Diff: 2 Skill: Legal Concepts LO: 4.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept 84) A party in a civil case may commence an appeal from a state trial court's decision by filing a notice of appeal ________. A) once a final judgment is entered by the trial court B) to any higher court in the state C) to any higher federal court in the state D) within seven years from when judgment was entered Answer: A Diff: 2 Skill: Legal Concepts LO: 4.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept
25 C..
85) Only the ________ can appeal in a criminal case. A) prosecution B) defendant C) plaintiff D) jurors Answer: B Diff: 1 Skill: Legal Concepts LO: 4.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept 86) Which of the following documents would NOT be filed with an appellate court? A) the trial judge's confidential correspondence with the appellate court suggesting how it should rule B) all or relevant portions of the trial record C) the appellant's opening brief D) the appellee's responding brief Answer: A Diff: 1 Skill: Legal Concepts LO: 4.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept 87) Only the defendant can appeal in a civil case. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 4.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept 88) 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 Skill: Legal Concepts LO: 4.10 Describe the appellate process and the possible results of an appeal. AACSB: Analytical thinking Classification: Concept
26 C..
89) Which of the following is a form of alternative dispute resolution? A) pretrial hearing B) settlement conference C) appeal D) mediation Answer: D Diff: 1 Skill: Legal Concepts LO: 4.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept 90) Rita Fuller and Robert Morgan are contending parties to a lawsuit involving the division of the inheritance from their grandmother. They wish to settle their case out of court. Rita and Robert engage in discussions and bargaining in the presence of their attorneys and finally conclude that Robert keeps 60 percent of the inheritance and 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: 2 Skill: Factual Application LO: 4.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept 91) 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 Skill: Legal Concepts LO: 4.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept
27 C..
92) 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: 1 Skill: Legal Concepts LO: 4.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept 93) In which of the following methods of alternative dispute resolution must parties to a case employ a neutral third party to settle their dispute? A) negotiation B) mini-trial C) e-court D) mediation Answer: D Diff: 1 Skill: Legal Concepts LO: 4.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept 94) ________ is a form of negotiation in which a neutral third party assists the disputing parties in reaching a settlement of their dispute. A) Judgment n.o.v. B) Arbitration C) Voir dire D) Mediation Answer: D Diff: 1 Skill: Legal Concepts LO: 4.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept
28 C..
95) In a mediation, the neutral third party is called a(n) ________. A) moderator B) mediator C) ombudsman D) arbitrator Answer: B Diff: 1 Skill: Legal Concepts LO: 4.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept 96) Negotiation is a procedure whereby the parties choose an impartial third party to hear and decide the dispute. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 4.11 Explain the use of arbitration and other methods of alternative dispute resolution. AACSB: Analytical thinking Classification: Concept 97) Which of the following is true of electronic mediation or e-mediation? A) The parties and the mediator communicate through email. B) Private conversations between the mediator and the parties are not possible. C) A chat room is assigned for conversations between both parties and the mediator. D) Settlement cannot be reached without paying substantial lawyers' fees and court costs. Answer: C Diff: 1 Skill: Legal Concepts LO: 4.12 Describe forms of e-dispute resolution. AACSB: Analytical thinking Classification: Concept 98) Which of these is NOT an advantage of online arbitration and/or online mediation? A) reasonable fees B) Settlements are reached rather quickly. C) Parties act through a more objective online process. D) Parties are able to confront each other and argue face-to-face. Answer: D Diff: 1 Skill: Legal Concepts LO: 4.12 Describe forms of e-dispute resolution. AACSB: Analytical thinking Classification: Concept
29 C..
99) Most online arbitration requires one party to submit an amount that the party is willing to accept or willing to pay to the other party. After receiving this initial offer, which of these is NOT one of the usual options that the other party is permitted to do? A) accept the offer B) respond with a counteroffer C) report the other party to the Federal Trade Commission D) remove themselves from the online ADR process Answer: C Diff: 1 Skill: Legal Concepts LO: 4.12 Describe forms of e-dispute resolution. AACSB: Analytical thinking Classification: Concept 100) Electronic technologies have made it possible to settle disputes online. However, arbitration is not possible in electronic dispute resolution. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 4.12 Describe forms of e-dispute resolution. AACSB: Analytical thinking Classification: Concept
30 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 5 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 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 2) Reserved powers remain with the ________. A) federal government B) judiciary C) state governments D) U.S. Congress Answer: C Diff: 1 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 3) Jintopia is a country in which the federal government and the twelve state governments share powers. The form of government in Jintopia is ________. A) anarchism B) federalism C) unitarianism D) confederalism Answer: B Diff: 2 Skill: Factual Application LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Application of knowledge Classification: Application
1 C..
4) The legislative branch of the U.S. federal government is ________. A) monocameral B) bicameral C) tricameral D) polycameral Answer: B Diff: 2 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 5) The ________ branch of the U.S. government is responsible for making federal law. A) executive B) judicial C) legislative D) fourth Answer: C Diff: 1 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 6) 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 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept
2 C..
7) The United States' form of government is referred to as ________, in which the federal government and the fifty states share powers. A) statism B) socialism C) federalism D) mercantilism Answer: C Diff: 1 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 8) ________ are powers delegated to the federal government by the states. A) Enumerated powers B) Plenary powers C) Reserved powers D) Affirmative powers Answer: A Diff: 1 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 9) The ________ is responsible for making federal law. A) executive branch/President B) judicial branch C) U.S. Conference of Governors D) legislative branch/U.S. Congress Answer: D Diff: 1 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept
3 C..
10) Each state has ________ senator(s) in the U.S. Senate. A) a variable number of B) two C) one D) five Answer: B Diff: 1 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 11) The president is selected by the ________. A) popular vote of the American people B) state legislatures C) Electoral College D) College of Cardinals Answer: C Diff: 1 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 12) The primary purpose of the Constitutional Convention of 1787 was to limit the power of the federal government and restrict it from levying or collecting taxes. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 13) When the states ratified the Constitution, they delegated certain powers–called enumerated powers–to the federal government. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept
4 C..
14) Reserved powers are delegated to the judiciary by the President of the United States. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 15) Briefly explain what is meant by "federalism." Answer: The United States' form of government is referred to as federalism. This means that the federal government and the 50 state governments share powers. When the states ratified the U.S. Constitution, they delegated certain powers–called enumerated powers–to the federal government. 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. Diff: 2 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 16) Briefly describe the process by which a President can be impeached. Answer: The U.S. House of Representatives has the power to impeach the president for certain activities, such as treason, bribery, and other crimes. The Senate has the power to try the impeachment case. A two-thirds vote of the Senate is required to impeach the President and remove him or her from office. Diff: 2 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept
5 C..
17) What are the three branches of the federal government and what are the prime responsibilities of each? Answer: The federal government is divided into three branches: 1) The legislative branch: The legislative branch consists of the U.S. Senate and the U.S. House of Representatives. Collectively, they are referred to as the U.S. Congress. The legislative branch is responsible for making federal law. 2) The executive branch: The executive branch consists of the president and vice president. It is the part of the U.S. government responsible for enforcing federal law. 3) The judicial branch: The judicial branch consists of the United States Supreme Court and other federal courts. The judicial branch is responsible for interpreting the law. Diff: 2 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 18) Why are checks and balances necessary? Explain with examples. Answer: 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 our system of government are as follows: • The judicial branch has 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 president can veto a bill passed by Congress, but Congress can override a veto with a two-thirds vote in the Senate and in the House of Representatives. • The president nominates individuals to be federal judges, but a majority vote of the U.S. Senate is required to confirm the nominee. Diff: 2 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept
6 C..
19) How is power divided between the federal government and the state governments? Answer: The federal government and the 50 state governments share powers. 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 Skill: Legal Concepts LO: 5.1 Describe the U.S. Constitution and the concepts of federalism and separation of powers. AACSB: Analytical thinking Classification: Concept 20) The ________ provides that federal law takes precedence over state or local law. A) preemption doctrine B) Bill of Rights C) Due Process Clause D) Free Exercise Clause Answer: A Diff: 1 Skill: Legal Concepts LO: 5.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 21) 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 Skill: Legal Concepts LO: 5.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept
7 C..
22) Which of the following statements is true of 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 if held in harmony with the cultural diversity in the state. Answer: B Diff: 2 Skill: Legal Concepts LO: 5.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 23) The ________ provides that federal law takes precedence over state or local law. A) preemption doctrine/Supremacy Clause B) Bill of Rights C) Monroe Doctrine D) Declaration of Independence Answer: A Diff: 1 Skill: Legal Concepts LO: 5.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 24) The concept of federal law taking precedence over state or local law is called the preemption doctrine. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 5.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 25) The Supremacy Clause establishes that the fundamental legal and political authority is vested in the citizens of the United States of America. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 5.2 Define and apply the Supremacy Clause of the U.S. Constitution. AACSB: Analytical thinking Classification: Concept
8 C..
26) Santo belongs to the Eliok tribe in an Indian reservation in southern Nevada. He wants to open a casino on 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 Skill: Factual Application LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce and foreign commerce. AACSB: Application of knowledge Classification: Application 27) Which of the following statements is true of the United States' Foreign Commerce Clause? A) Regulation of foreign commerce by state governments is unconstitutional. 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 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce 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 automobiles from its parent company in Germany and assembles them. Which of the following measures is in accordance with the United States' Foreign Commerce Clause? A) The government of North Carolina imposes an additional ten 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 hundred percent tax only on Fierra cars being sold in North Carolina. Answer: D Diff: 2 Skill: Factual Application LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce and foreign commerce. AACSB: Application of knowledge Classification: Application 9 C..
29) Which of the following statements is true of states' police power? A) Police power restricts states from regulating interstate 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 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce 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) international trade laws D) equal opportunity laws Answer: A Diff: 2 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce 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, last month, Kingsland violated a trading norm which was not condoned by Georgia. Which of the following measures should be taken to regulate apple imports from Kingsland? A) Georgia should stop trading with Kingsland after serving a notice. B) Georgia should stop trading with Kingsland without serving a notice. C) Georgia should appeal to the federal authority which can stop imports from Kingsland. D) Georgia should make Kingsland export its apples to North Carolina. Answer: C Diff: 3 Skill: Factual Application LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce and foreign commerce. AACSB: Application of knowledge Classification: Application
10 C..
32) The ________ Act sets the terms of casino gambling and other gaming activities on tribal land. A) Volsted B) Harrahs-Tunica C) Wynn-Macau D) Indian Gaming Regulatory Answer: D Diff: 1 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce and foreign commerce. AACSB: Analytical thinking Classification: Concept 33) ________ is a power that permits states and local governments to enact laws to protect or promote the public health, safety, morals, and general welfare. A) Police power B) Kinetic power C) Dynamic power D) Referent power Answer: A Diff: 1 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce 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 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce and foreign commerce. AACSB: Analytical thinking Classification: Concept 35) State governments do not have the power to regulate commerce with foreign nations. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce and foreign commerce. AACSB: Analytical thinking Classification: Concept 11 C..
36) 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 the Dormant Commerce Clause. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce and foreign commerce. AACSB: Analytical thinking Classification: Concept 37) The power to regulate interstate commerce lies exclusively with the federal government. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce and foreign commerce. AACSB: Analytical thinking Classification: Concept 38) 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 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce and foreign commerce. AACSB: Analytical thinking Classification: Concept
12 C..
39) 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 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce and foreign commerce. AACSB: Analytical thinking Classification: Concept 40) Why is it unconstitutional for a state government to ban products imported from a foreign country, even if the country engages in activities that are not condoned 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 Skill: Legal Concepts LO: 5.3 Explain the Commerce Clause and the federal government's authority to regulate interstate commerce and foreign commerce. AACSB: Analytical thinking Classification: Concept
13 C..
41) The term e-commerce is usually in reference to ________. A) the trading of stock in power utilities B) conducting business electronically on the internet C) construction of refineries in the energy sector D) a nation's overall economic activity Answer: B Diff: 1 Skill: Legal Concepts LO: 5.4 Describe how the Commerce Clause is applied to e-commerce. AACSB: Analytical thinking Classification: Concept 42) E-commerce ________. A) is subject only to state laws B) is subject only to the United Nations Treaty on Internet Commerce C) is subject to the Commerce Clause of the U.S. Constitution D) is exempt from state, federal and international law Answer: C Diff: 1 Skill: Legal Concepts LO: 5.4 Describe how the Commerce Clause is applied to e-commerce. AACSB: Analytical thinking Classification: Concept 43) The first ten amendments to the U.S. Constitution are commonly known as the ________. A) Declaration of Rights B) Universal Declaration of Human Rights C) Magna Carta D) Bill of Rights Answer: D Diff: 1 Skill: Legal Concepts LO: 5.5 Describe the Bill of Rights and the process for amending the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 44) Which of these is NOT true regarding the Bill of Rights? A) It consists of the first ten amendments to the U.S. Constitution. B) It was ratified in 1791. C) It guarantees certain fundamental rights. D) It allows for government intrusion into fundamental rights. Answer: D Diff: 1 Skill: Legal Concepts LO: 5.5 Describe the Bill of Rights and the process for amending the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 14 C..
45) Most of the Bill of Rights' guarantees of certain fundamental rights and the protection of these rights from intrusive government action have been applicable to federal, state and local government action ________. A) since 1791 B) since 1786 C) until the Fourteenth Amendment was ratified in 1868 and the Supreme Court applied its Due Process Clause to state and local governments via the incorporation doctrine D) since the Ford Administration Answer: C Diff: 1 Skill: Legal Concepts LO: 5.5 Describe the Bill of Rights and the process for amending the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 46) The U.S. Constitution ________. A) cannot be amended B) has only been amended by the Bill of Rights C) provides that it may be amended and was last amended with the Fourteenth Amendment D) allows for amendments, and currently there are twenty-seven amendments Answer: D Diff: 1 Skill: Legal Concepts LO: 5.5 Describe the Bill of Rights and the process for amending the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 47) Which of these issues has NOT been addressed in an amendment to the U.S. Constitution? A) universal health care B) slavery C) the federal income tax D) giving women the right to vote Answer: A Diff: 1 Skill: Legal Concepts LO: 5.5 Describe the Bill of Rights and the process for amending the U.S. Constitution. AACSB: Analytical thinking Classification: Concept
15 C..
48) Checks and balances built into the Constitution ensure that amendments to the Constitution do not contradict existing laws. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 5.5 Describe the Bill of Rights and the process for amending the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 49) 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 Skill: Legal Concepts LO: 5.5 Describe the Bill of Rights and the process for amending the U.S. Constitution. AACSB: Analytical thinking Classification: Concept 50) 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 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 51) Jerome wears a t-shirt that bears a picture of the current U.S. president. Under this picture, there are words which imply that the President is doing a bad job of running the country. In accordance with the Freedom of Speech Clause, which of the following is an accurate statement? 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 example of limited protected speech. D) Wearing the t-shirt makes Jerome liable for prosecution on the basis of defamation. Answer: A Diff: 3 Skill: Factual Application LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Application of knowledge Classification: Application
16 C..
52) Speech that incites the violent or revolutionary overthrow of the government is an example of ________ speech. A) limited protected B) prohibited C) unprotected D) fully protected Answer: C Diff: 2 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 53) 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 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 54) 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 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept
17 C..
55) Advertising is categorized as ________ speech. A) fully protected B) limited protected C) uncensored D) unprotected Answer: B Diff: 2 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 56) ________ is speech that the government cannot prohibit or regulate. A) Slander B) Fully protected speech C) Defamation D) Obscenity Answer: B Diff: 1 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 57) Offensive speech is a form of ________ speech according to the First Amendment. A) limited protected B) fully protected speech C) commercial D) political Answer: A Diff: 2 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept
18 C..
58) The U.S. Supreme Court has held that certain types of speech are not protected by the First Amendment. Of the following, which is NOT considered unprotected speech? A) dangerous speech B) fighting words that are likely to provoke a hostile response from an abnormally violent person C) speech that incites the violent or revolutionary overthrow of the government D) child pornography Answer: B Diff: 2 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 59) The Freedom of Speech Clause included in the First Amendment protects both speech and conduct. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 60) Lila, a newspaper columnist in Chicago, is unhappy with the rising prices of fuel in the United States. She publishes an article criticizing the government's refusal to offer gasoline at subsidized rates. This is an example of fully protected speech. Answer: TRUE Diff: 2 Skill: Factual Application LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Application of knowledge Classification: Application 61) Advertising is categorized as limited protected speech. Answer: TRUE Diff: 2 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept
19 C..
62) 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 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 63) Explain what is meant by "fully protected speech" and give an example. Answer: In addressing the First Amendment's Freedom of Speech Clause, the U.S. Supreme Court places speech into three categories: (1) fully protected, (2) limited protected, and (3) unprotected speech. Fully protected speech is speech whose content the government cannot prohibit or regulate. Political speech is an example of fully protected speech. Thus, the government could not enact a law that forbids citizens from criticizing the current president. Diff: 2 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept 64) Distinguish between limited protected speech and unprotected speech, as defined 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 Skill: Legal Concepts LO: 5.6 Explain how freedom of speech is protected by the First Amendment. AACSB: Analytical thinking Classification: Concept
20 C..
65) The ________ Clause of the U.S. Constitution prohibits the government from promoting one religion over another. A) Due Process B) Privileges and Immunities C) Establishment D) Free Exercise Answer: C Diff: 1 Skill: Legal Concepts LO: 5.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Analytical thinking Classification: Concept 66) The ________ Clause of the U.S. Constitution 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 and Immunities C) Establishment D) Free Exercise Answer: D Diff: 1 Skill: Legal Concepts LO: 5.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Analytical thinking Classification: Concept 67) The ________ Clause prevents the government from promoting one religion over the other. A) Free Exercise B) Due Process C) Immunities D) Establishment Answer: D Diff: 1 Skill: Legal Concepts LO: 5.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Analytical thinking Classification: Concept
21 C..
68) The ________ Clause prevents the government from enacting laws that either prohibit or inhibit individuals from participating in or practicing their chosen religions. A) Free Exercise B) Due Process C) Immunities D) Establishment Answer: A Diff: 1 Skill: Legal Concepts LO: 5.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Analytical thinking Classification: Concept 69) The Town Council of the Town of Nelson passed an ordinance requiring that at the Town of Nelson Public School each school day must begin with all of the student reciting together a particular prayer. If challenged in court, this rule would probably be ________. A) upheld as it is protected by the Free Exercise Clause B) struck down for violating the Establishment Clause C) upheld because the prayer does not promote one religion over another D) upheld because the courts do not have jurisdiction over public schools Answer: B Diff: 2 Skill: Legal Concepts LO: 5.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Application of knowledge Classification: Concept 70) The Establishment Clause guarantees that there will be no state-sponsored religion. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 5.7 Explain how freedom of religion is protected and how the government may not promote religion. AACSB: Analytical thinking Classification: Concept
22 C..
71) 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 Skill: Legal Concepts LO: 5.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 72) A(n) ________ test is applied to classifications of people based on a suspect class. A) strict scrutiny B) intermediate scrutiny C) rational basis D) cogent basis Answer: A Diff: 1 Skill: Legal Concepts LO: 5.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 73) Vanessa was born to American parents from a minority group in Miami. She applies to a public university which 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 Skill: Factual Application LO: 5.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Application of knowledge Classification: Application
23 C..
74) 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 a(n) ________ test. A) strict scrutiny B) intermediate scrutiny C) rational basis D) cogent basis Answer: B Diff: 1 Skill: Legal Concepts LO: 5.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 75) 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 Skill: Factual Application LO: 5.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Application of knowledge Classification: Application 76) The lawfulness of all government classifications that do not involve suspect or protected classes is examined using a(n) ________ test. A) strict scrutiny B) intermediate basis C) due process D) rational basis Answer: D Diff: 1 Skill: Legal Concepts LO: 5.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept
24 C..
77) 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) strict scrutiny D) due process Answer: A Diff: 2 Skill: Legal Concepts LO: 5.8 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 is an instance of a decision involving the Equal Protection Clause being made on the basis of the 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 on Native American reservations. D) The government provides subsidies to farmers, but not to carpenters or lumberjacks. Answer: D Diff: 2 Skill: Factual Application LO: 5.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Application of knowledge Classification: Application 79) The ________ is a test that is applied to classifications based on a suspect class or involves fundamental rights. A) rational basis test B) strict scrutiny test C) intermediate scrutiny test D) substantive due process test Answer: B Diff: 1 Skill: Legal Concepts LO: 5.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept
25 C..
80) The Equal Protection Clause makes the classification of individuals based on their race unlawful. Answer: FALSE Diff: 2 Skill: Legal Concepts LO: 5.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 81) Under the intermediate scrutiny test, a court must determine whether the government classification is reasonably related to a legitimate government purpose. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 5.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept 82) What are the three standards of review that the U.S. Supreme Court has adopted for deciding whether the government's actions violate the Equal Protection Clause? Answer: The three standards of review are: 1) The strict scrutiny test: if the government classifies persons based on a suspect class, the government must have an exceptionally important reason for treating persons differently. 2) The intermediate scrutiny test: if the government classifies persons other than a suspect class, or with regards to a fundamental right, the government must have an important reason for treating persons differently. 3) The rational basis test: all government classifications that do not involve suspect or protected classes is examined using a rational basis test. Under this test, a court will uphold a government classification as long as there is a justifiable reason for the law. Diff: 1 Skill: Legal Concepts LO: 5.8 Explain the equal protection doctrine and how it protects persons from unequal treatment by the government. AACSB: Analytical thinking Classification: Concept
26 C..
83) Which of the following provisions is made by the Due Process Clauses? 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 parliament. D) Violation of freedom of speech makes the violator liable for immediate prosecution with due process of the law. Answer: A Diff: 2 Skill: Legal Concepts LO: 5.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept 84) Which of the following 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 basis test Answer: B Diff: 1 Skill: Legal Concepts LO: 5.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept 85) 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 Skill: Factual Application LO: 5.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Application of knowledge Classification: Application
27 C..
86) The Due Process Clause of the ________ Amendment applies to federal government action. A) First B) Second C) Fifth D) Nineteenth Answer: C Diff: 1 Skill: Legal Concepts LO: 5.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept 87) The U.S. Supreme Court held that same-sex partners have the right to marry based on ________. A) the Free Exercise Clause of the First Amendment B) the Establishment Clause of the First Amendment C) the Due Process Clause and the Equal Protection Clause of the Fourteenth Amendment D) the Commerce Clause Answer: C Diff: 1 Skill: Legal Concepts LO: 5.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept 88) The test for whether a law should be declared void for vagueness is whether a ________ could understand the law to be able to comply with it. A) police officer B) young child C) lawyer D) reasonable person Answer: D Diff: 1 Skill: Legal Concepts LO: 5.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept
28 C..
89) At its core, procedural due process requires that before the government can deprive someone of life, liberty, or property, the government must give that person two things: ________. A) free legal counsel and 14 days wages B) bail and a medical examination C) proper notice and hearing of legal action D) a jury trial and a 90 days advance notice Answer: C Diff: 1 Skill: Legal Concepts LO: 5.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept 90) Which of the following statements is correct? A) The Due Process Clauses of the Fifth and Fourteenth Amendments prohibit all levels of government from ever taking a person's life, liberty, or property. B) The Due Process Clause of the Fifth Amendment prohibits state and local governments from taking a person's life, liberty, or property without due process of the law. C) The Due Process Clause of the Fourteenth Amendment prohibits the federal government from taking a person's life, liberty, or property without due process of the law. D) The Due Process Clause of the Fifth Amendment prohibits the federal government taking a person's life, liberty, or property without due process of the law. Answer: D Diff: 1 Skill: Legal Concepts LO: 5.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept 91) 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 Skill: Legal Concepts LO: 5.9 Describe the Due Process Clause and substantive and procedural due process. AACSB: Analytical thinking Classification: Concept
29 C..
92) The U.S. Constitution provides government with the power to take private property if it is needed for public use. This power is contained in ________. A) the Takings Clause of the Fifth Amendment B) the Due Process Clause of the Fourteenth Amendment C) the Establishment Clause of the First Amendment D) the Commerce Clause Answer: A Diff: 1 Skill: Legal Concepts LO: 5.10 Explain how the government can take private property but must pay just compensation for the taking. AACSB: Analytical thinking Classification: Concept 93) If the government takes private property, the Fifth Amendment to the U.S. Constitution requires ________. A) that the property owner be thanked for his or her generosity, but not paid B) that the property owner be compensated for the property taken C) that the property seized be immediately destroyed D) that the property owner not be notified of the seizure Answer: B Diff: 1 Skill: Legal Concepts LO: 5.10 Explain how the government can take private property but must pay just compensation for the taking. AACSB: Analytical thinking Classification: Concept 94) The Takings Clause of the Fifth Amendment gives government the power to take private property ________. A) for any reason or for no reason at all B) but only for public use C) from political opponents D) but only for building postal roads Answer: B Diff: 1 Skill: Legal Concepts LO: 5.10 Explain how the government can take private property but must pay just compensation for the taking. AACSB: Analytical thinking Classification: Concept
30 C..
95) The U.S. Constitution provision that requires the government to compensate property owners when it takes private property is called ________. A) the Due Process Clause of the Fourteenth Amendment B) the Establishment Clause of the First Amendment C) the Commerce Clause D) Just Compensation Clause Answer: D Diff: 1 Skill: Legal Concepts LO: 5.10 Explain how the government can take private property but must pay just compensation for the taking. AACSB: Analytical thinking Classification: Concept 96) The ________ Clause prohibits states from enacting laws that unduly discriminate in favor of their residents. A) Privileges and Immunities B) Due Process C) Establishment D) Free Exercise Answer: A Diff: 1 Skill: Legal Concepts LO: 5.11 Explain how the privileges and immunities doctrine protects citizens from unfavorable treatment by the government. AACSB: Analytical thinking Classification: Concept 97) The Privileges and Immunities Clause of the U.S. Constitution prohibits states from ________. A) enacting laws that unduly discriminate in favor of their residents B) giving free vaccines to their citizens C) granting immunities from prosecution to foreign criminals D) operating a private club Answer: A Diff: 1 Skill: Legal Concepts LO: 5.11 Explain how the privileges and immunities doctrine protects citizens from unfavorable treatment by the government. AACSB: Analytical thinking Classification: Concept
31 C..
98) While the privileges and immunities doctrine generally prohibits states from enacting laws that unduly discriminate in favor of their citizens, there are some situations where courts have held that certain types of discrimination that favor the citizens of one state over the citizens of another are lawful, including ________. A) state laws preventing citizens of other states from owning property in that state B) state laws preventing citizens of other states from owning businesses in that state C) state laws preventing citizens of other states from traveling to that state D) state laws mandating that a state university charge higher tuition to out-of-state citizens Answer: D Diff: 1 Skill: Legal Concepts LO: 5.11 Explain how the privileges and immunities doctrine protects citizens from unfavorable treatment by the government. AACSB: Analytical thinking Classification: Concept 99) Due to the Privileges and Immunities Clause, a citizen of one state has the right to travel ________. A) free of charge to any other state B) freely to any other state C) freely to any other nation D) freely to any state contiguous with the citizen's home state Answer: B Diff: 1 Skill: Legal Concepts LO: 5.11 Explain how the privileges and immunities doctrine protects citizens from unfavorable treatment by the government. AACSB: Analytical thinking Classification: Concept 100) The terms "privileges" and "immunities" can be found at two places in the U.S. Constitution, specifically ________. A) the Privileges and Immunities Clause of Article IV of the Constitution, and the Privileges or Immunities Clause of the Fourteenth Amendment B) the Privileges or Immunities Clause of Article IV of the Constitution, and the Privileges or Immunities Clause of the Fourteenth Amendment C) the Privileges and Immunities Clause of Article IV of the Constitution, and the Privileges and Immunities Clause of the Fourteenth Amendment D) the Privileges or Immunities Clause of Article IV of the Constitution, and the Privileges and Immunities Clause of the Fourteenth Amendment Answer: A Diff: 2 Skill: Legal Concepts LO: 5.11 Explain how the privileges and immunities doctrine protects citizens from unfavorable treatment by the government. AACSB: Analytical thinking Classification: Concept 32 C..
101) The Privileges and Immunities Clause prohibits states from enacting laws that unduly discriminate in favor of their residents. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 5.11 Explain how the privileges and immunities doctrine protects citizens from unfavorable treatment by the government. AACSB: Analytical thinking Classification: Concept
33 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 6 Torts and Strict Liability 1) The threat of immediate harm or offensive contact is termed ________. A) battery B) assault C) disparagement D) libel Answer: B Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 2) Which of the following statements is true of the tort of assault? A) An assault is considered an unintentional tort. 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 3) John Harley was on his way home when an assailant stopped his car and threatened to physically harm him. John can sue the assailant to recover damages for ________. A) assault B) battery C) libel D) disparagement Answer: A Diff: 2 Skill: Factual Application LO: 6.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application
1 C..
4) Which of the following best describes the tort of 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 5) 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 6) 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 battery. D) Indirect physical contact between the victim and the perpetrator is not battery. Answer: B Diff: 2 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept
2 C..
7) Harvey was at his college reunion where he noticed 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 and broke his jaw. Harvey is liable for ________. A) breach of duty of care B) disparagement C) battery D) assault Answer: C Diff: 2 Skill: Factual Application LO: 6.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 8) Which of the following actions would make Sarah liable for battery? A) She publishes an article which calls for the current U.S. president to quit because she thinks he is not doing a good job. B) She extends the boundary of her plot of land encroaching two feet of her neighbor's plot. C) She smuggles marijuana into the country. D) She slaps her ex-husband because he denied her alimony. Answer: D Diff: 2 Skill: Factual Application LO: 6.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 9) 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 till 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 prosecution for an intentional tort. Answer: D Diff: 3 Skill: Factual Application LO: 6.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application
3 C..
10) ________ 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) The tort of appropriation C) Defamation of character D) Disparagement Answer: B Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 11) 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 12) Gary Govetty is a famous movie star. A tabloid published an interview with his ex-girlfriend in which she falsely claimed that Gary was completely bald and had been wearing a wig for several years. Gary 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 Skill: Factual Application LO: 6.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application
4 C..
13) 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 14) After the local newspaper accused Town Treasurer Smith, a little-known town administration official, of embezzlement, the Treasurer spoke to her attorney about suing the paper. The attorney informed the Treasurer that in order to succeed in court, she would have to prove that the newspaper acted with actual malice. This is because ________. A) the Treasurer is a public figure B) newspapers are exempt from lawsuits C) allegations of corruption are protected speech D) the Treasurer is a public official Answer: D Diff: 2 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Concept 15) If a plaintiff needs to prove actual malice in a defamation case, the plaintiff must show that the defendant ________. A) made a false statement, and that the defendant either knew that the statement was false or showed reckless disregard that the statement was false B) made a false statement, or that the defendant either knew that the statement was false or showed reckless disregard that the statement was false C) made a false statement, and that the defendant either knew that the statement was false or showed negligent disregard that the statement was false D) made a false statement, or that the defendant either knew that the statement was false or showed negligent disregard that the statement was false Answer: A Diff: 2 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept
5 C..
16) Unauthorized and harmful or offensive physical contact with another person is called ________. A) battery B) assault C) disparagement D) libel Answer: A Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 17) The intentional confinement or restraint of another person without authority or justification and without consent is called ________. A) extortion B) blackmail C) false imprisonment D) battery Answer: C Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 18) False statements that appear in a letter, newspaper, magazine, book, photograph, movie or video are ________. A) false imprisonment B) slander C) malicious prosecution D) libel Answer: B Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept
6 C..
19) Making false statements about a competitor's products, services, property, or business reputation could make a company liable for ________. A) intentional misrepresentation B) the tort of appropriation C) disparagement D) the misappropriation of the right to publicity Answer: C Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 20) Which of the following instances depict the tort of outrage? 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 Skill: Factual Application LO: 6.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 21) Sending an objectionable telegram to a third party and signing another's name constitutes the tort of ________. A) invasion of the right to privacy B) defamation of character C) battery D) intentional misrepresentation Answer: D Diff: 2 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept
7 C..
22) One student actor wins a part in a play over another student actor. To get back at the winning student, the rejected student files a lawsuit against the winning student 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) the tort of outrage B) malicious prosecution C) intentional misrepresentation D) misappropriation of the right to publicity Answer: B Diff: 2 Skill: Factual Application LO: 6.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 23) Which of the following is an intentional tort? A) breach of the duty of care B) defect in product manufacture C) disparagement D) negligence Answer: C Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 24) ________ is the making of false statements about a competitor's products, services, property, or business reputation. A) Malicious prosecution B) Strict liability C) Disparagement D) Slander Answer: C Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept
8 C..
25) A civil action lawsuit in which the original defendant sues the original plaintiff for damages is known as ________. A) malicious prosecution B) strict liability C) disparagement D) slander Answer: A Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 26) Actual physical contact is not necessary for a tort to be considered an assault. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 27) Direct physical contact, such as intentionally hitting someone with a fist, is considered battery. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 28) Assault and battery are mutually exclusive torts that do not occur together. Answer: FALSE Diff: 2 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 29) A threat of future harm or moral pressure is not considered false imprisonment. Answer: TRUE Diff: 2 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept
9 C..
30) 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 31) If a defendant makes an untrue statement of fact about the plaintiff and the statement was intentionally or accidentally published to a third party, the defendant is held liable for misappropriation of the right to publicity. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 32) 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 33) If a newspaper review calls a commercially successful actor talentless, it is liable for defamation of character. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 34) 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept
10 C..
35) Intentional misrepresentation occurs when a wrongdoer deceives another person out of money, property, or something else of value. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 36) If a person did not have knowledge that his representation of facts was false, he is still liable for fraud. Answer: FALSE Diff: 2 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 37) In a lawsuit for malicious prosecution, the original defendant sues the original plaintiff. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 38) Jessica files a frivolous lawsuit against Thomas claiming emotional distress because he plucked flowers from her garden without her permission. The judge exonerates Thomas. Thomas can now sue Jessica for malicious prosecution. Answer: TRUE Diff: 2 Skill: Factual Application LO: 6.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 39) Disparagement refers to the liability of a professional who breaches his or her duty of ordinary care. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept
11 C..
40) 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 41) 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 42) 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 43) 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 Megan Fox's 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 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 12 C..
44) 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 prosecution? Why? Answer: Monica is liable for prosecution 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 Skill: Factual Application LO: 6.1 List and describe intentional torts. AACSB: Application of knowledge Classification: Application 45) 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 or injury to his or her property. That is, the plaintiff must have suffered some injury before he or she can recover any damages. The damages recoverable depend on the effect of the injury on the plaintiff's life or profession. Diff: 2 Skill: Legal Concepts LO: 6.1 List and describe intentional torts. AACSB: Analytical thinking Classification: Concept 46) ________ is a doctrine that says a person is liable for harm that is the foreseeable consequence of his or her actions. A) The tort of outrage B) The tort of misappropriation C) Disparagement D) Unintentional tort Answer: D Diff: 1 Skill: Legal Concepts LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept
13 C..
47) The obligation people owe each other not to cause any unreasonable harm or risk of harm is termed ________. A) libel B) res ipsa loquitur C) Good Samaritan law D) the duty of care Answer: D Diff: 1 Skill: Legal Concepts LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 48) Throwing a lit match on the ground in the forest and causing a fire is a breach of ________. A) appropriation B) Good Samaritan law C) the duty of care D) res ipsa loquitur Answer: C Diff: 2 Skill: Factual Application LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Application of knowledge Classification: Application 49) Which of the following is true about the duty of care? A) Breach of the duty of care is not actionable unless the plaintiff suffers personal injury or injury to his or her property. B) The 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 Skill: Legal Concepts LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept
14 C..
50) George, Jerry, and Harry are passengers on a flight from Chicago to New York. They injure their legs when their seatbelts do not fasten 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) All the men recover the same amount of damages, irrespective of their income or profession. Answer: B Diff: 3 Skill: Factual Application LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Application of knowledge Classification: Application 51) 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 Skill: Factual Application LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Application of knowledge Classification: Application 52) ________ 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) The point of reason C) The point of appropriation D) Proximate cause Answer: D Diff: 1 Skill: Legal Concepts LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept
15 C..
53) ________ is a doctrine that says a person is liable for harm that is the foreseeable consequence of his or her actions. A) Unintentional tort B) Accident C) Malicious prosecution D) Res ipsa loquitur Answer: A Diff: 1 Skill: Legal Concepts LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 54) A failure to exercise care or to act as a reasonable person would act is a breach of the ________. A) res ipsa loquitur B) contract C) peace D) duty of care Answer: D Diff: 1 Skill: Legal Concepts LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 55) The reasonable person standard is a test used to determine whether a tort is intentional or unintentional. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 56) 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 Skill: Legal Concepts LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept
16 C..
57) Causation in fact refers to 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. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 58) If the defendant's act caused the plaintiff's injuries, there is causation in fact. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 59) Briefly discuss "actual cause" and "proximate cause," and explain the test for determining whether each of these necessary elements of negligence are present in a given case. Answer: A defendant's negligent act must be the actual cause of the plaintiff's injuries. The test for actual cause is the "but for" test, that is, the defendant's conduct is questioned as to whether "but for" the defendant's action would the incident in question have happened? In addition to actual cause, a defendant's negligent act must also be shown to have then the "proximate cause" of the plaintiff's injuries. The general test of proximate cause is the foreseeability test, that is, the defendant's conduct is questioned as to whether the damages resulting from the defendant's actions could have been foreseeable at the time. Diff: 2 Skill: Legal Concepts LO: 6.2 List and describe the elements necessary to prove negligence. AACSB: Analytical thinking Classification: Concept 60) Michael wanted to try out his new hand gun. He set up a target in his back yard for firing practice. Stella's house, which is located on the lot directly behind Michael's property, happened to be directly in the line of fire. Michael's first shot missed the target and the bullet crashed through Stella's kitchen window, striking and seriously injuring her. Which of the following legal theories would be best for Stella's attorney to use in a lawsuit against Michael? A) doctrine of unintentional tort B) doctrine of proximate cause C) res ipsa loquitur D) gross negligence Answer: D Diff: 2 Skill: Factual Application LO: 6.3 List and describe special negligence doctrines. AACSB: Application of knowledge Classification: Application 17 C..
61) 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 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 62) 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) the tort of outrage B) breach of the duty of care C) negligent infliction of emotional distress D) transfer of intent Answer: C Diff: 2 Skill: Factual Application LO: 6.3 List and describe special negligence doctrines. AACSB: Application of knowledge Classification: Application 63) ________ is the violation of a statute that proximately causes an injury. A) Disparagement B) Res ipsa loquitur C) Negligence per se D) Misappropriation Answer: C Diff: 1 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept
18 C..
64) 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/her character Answer: B Diff: 1 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 65) A pedestrian trips and falls on a poorly lit sidewalk in front of Kate Geller's house and is injured. If the pedestrian sues for damages, which of the following parties would most likely 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 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 66) ________ 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) The doctrine of proximate cause D) The doctrine of comparative negligence Answer: A Diff: 1 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept
19 C..
67) ________ is a statute that relieves medical professionals from liability for ordinary negligence when they stop and render aid to victims in emergency situations. A) A Good Samaritan law B) Assumption of the risk C) The duty of care D) Res ipsa loquitur Answer: A Diff: 1 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 68) A tort in which the violation of a statute or an ordinance constitutes the breach of the duty of care is ________. A) negligence per se B) res ipsa loquitur C) strict liability D) proximate cause Answer: A Diff: 1 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 69) ________ 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) Negligence per se B) Res ipsa loquitur C) Strict liability D) Proximate cause Answer: B Diff: 1 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept
20 C..
70) A(n) ________ is a statute that relieves medical professionals from liability for ordinary negligence when they stop and render aid to victims in emergency situations. A) proximate cause B) assumption of the risk C) res ipsa loquitur D) Good Samaritan law Answer: D Diff: 1 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 71) ________ is the liability of a professional who breaches his or her duty of ordinary care. A) Proximate cause B) Professional malpractice C) Res ipsa loquitur D) Strict liability Answer: B Diff: 1 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 72) John watches his brother being killed in a road accident. The perpetrator was driving under the influence of alcohol. John can recover damages for negligent infliction of emotional distress for the mental trauma he suffered from watching his brother die. Answer: TRUE Diff: 2 Skill: Factual Application LO: 6.3 List and describe special negligence doctrines. AACSB: Application of knowledge Classification: Concept 73) Res ipsa loquitur 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 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept
21 C..
74) 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 Skill: Factual Application LO: 6.3 List and describe special negligence doctrines. AACSB: Application of knowledge Classification: Application 75) 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: 2 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 76) 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 Skill: Factual Application LO: 6.3 List and describe special negligence doctrines. AACSB: Application of knowledge Classification: Application 77) The violation of a statute that proximately causes an injury is termed as negligence per se. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 78) 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 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept
22 C..
79) Statutes often establish duties owed by one person to another. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 80) Res ipsa loquitur switches the burden to the plaintiff to prove that the defendant was negligent. Answer: FALSE Diff: 2 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 81) 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 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 82) 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 Skill: Factual Application LO: 6.3 List and describe special negligence doctrines. AACSB: Application of knowledge Classification: Application 83) What is the attractive nuisance doctrine, and what is the rationale for having it? Answer: The attractive nuisance doctrine is a special tort rule that imposes liability on a landowner to children who have trespassed onto his or her property with the intent to play on an attractive nuisance and are subsequently killed or injured while doing so. The rationale for this doctrine is that children, due to their youth, do not understand the potential risk associated with the hazard. To find the landowner liable to the child, the attraction must pose an unreasonable risk of death or serious bodily harm. Diff: 2 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 23 C..
84) What is a Good Samaritan law, and what is the rationale for having such a law? Answer: A Good Samaritan law is a statute that relieve medical professionals from liability for injury caused by their ordinary negligence when providing aid in an emergency situation. The rationale for having such a law is that potential liability exposure might make many doctors, nurses, and other medical professionals reluctant to stop and render aid to victims in an emergency situation. A Good Samaritan law relieves medical professionals from such concern. Diff: 2 Skill: Legal Concepts LO: 6.3 List and describe special negligence doctrines. AACSB: Analytical thinking Classification: Concept 85) ________ is a defense a defendant can use against a plaintiff who knowingly and voluntarily enters into or participates in a risky activity that results in injury. A) Proximate cause B) Assumption of the risk C) Res ipsa loquitur D) Good Samaritan law Answer: B Diff: 1 Skill: Legal Concepts LO: 6.4 Describe the defense of assumption of the risk. AACSB: Analytical thinking Classification: Concept 86) One of the requirements for the assumption of the risk defense is that the plaintiff ________. A) had a general knowledge of the risk involved B) had knowledge of the specific risk C) had no knowledge of the risk involved D) had been defrauded with regards to the risk involved Answer: B Diff: 1 Skill: Legal Concepts LO: 6.4 Describe the defense of assumption of the risk. AACSB: Analytical thinking Classification: Concept
24 C..
87) At the Mi-T-Hi Skydiving School, before a new student takes their first jump, the student must meet alone with the instructor. During this meeting the instructor explains to the student that there is no penalty if they drop out. The instructor also wants to get assurance from the student that he or she was not being pressured into taking the class. Which requirement of the assumption of the risk defense might this procedure help prove if there was a trial? A) that the student had knowledge of the specific risk involved B) that the student understands the procedures for a tandem jump C) that the student had adequate life insurance D) that the student voluntarily assumed the risk involved Answer: D Diff: 2 Skill: Legal Concepts LO: 6.4 Describe the defense of assumption of the risk. AACSB: Application of knowledge Classification: Concept 88) Assumption of the 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 Skill: Legal Concepts LO: 6.4 Describe the defense of assumption of the risk. AACSB: Analytical thinking Classification: Concept 89) Explain the rationale for the assumption of the risk defense. Answer: The law recognizes that there are circumstances where a plaintiff assumes the risk of their behavior, that is, the plaintiff knows of the specific risk involved in a certain activity and voluntarily enters into or participates in such activity, incurring injuries as a result. In such circumstances the law recognizes that the defendant should not be held liable. Diff: 2 Skill: Legal Concepts LO: 6.4 Describe the defense of assumption of the risk. AACSB: Analytical thinking Classification: Concept
25 C..
90) ________ 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) Assumption of the risk B) Comparative fault C) Contributory negligence D) Comparative negligence Answer: C Diff: 1 Skill: Legal Concepts LO: 6.5 Describe the difference between contributory and comparative negligence. AACSB: Analytical thinking Classification: Concept 91) 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 was 80 percent responsible for the accident and the jaywalker was 20 percent responsible. 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) no damages from the driver B) $100,000 from the driver C) $20,000 from the driver D) $80,000 from the driver Answer: A Diff: 2 Skill: Factual Application LO: 6.5 Describe the difference between contributory and comparative negligence. AACSB: Application of knowledge Classification: Application 92) 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) comparative negligence B) contributory negligence C) assumption of the risk D) negligence per se Answer: B Diff: 1 Skill: Legal Concepts LO: 6.5 Describe the difference between contributory and comparative negligence. AACSB: Analytical thinking Classification: Concept
26 C..
93) Ruggers 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 cannot recover any damages from the motorcycle manufacturer. B) Tim can recover $25,000 worth of damages from the Ruggers and the rest from the dealership from which he purchased the motorcycle. C) Tim can recover $50,000 worth of damages plus any punitive damages that may be awarded by the jury. D) Tim can recover $50,000 worth of damages from the motorcycle manufacturer. Answer: A Diff: 2 Skill: Factual Application LO: 6.5 Describe the difference between contributory and comparative negligence. AACSB: Application of knowledge Classification: Application 94) A doctrine under which damages are apportioned according to fault is known as ________. A) proximate cause B) assumption of the risk C) contributory negligence D) comparative negligence Answer: D Diff: 1 Skill: Legal Concepts LO: 6.5 Describe the difference between contributory and comparative negligence. AACSB: Analytical thinking Classification: Concept
27 C..
95) Jim suffered an injury in an automobile accident in which he was partially at fault. Jim met with an attorney who explained to Jim how courts in their state view situations where the plaintiff was at least partially at fault. The attorney told Jim that in their state, plaintiffs suing for negligence have to be less than 50 percent responsible for causing his or her own injuries in order to recover any damages; otherwise the plaintiff receives nothing. The attorney explained that Jim's state has adopted the doctrine of ________. A) comparative negligence B) contributory negligence C) partial contributory negligence D) partial comparative negligence Answer: D Diff: 1 Skill: Legal Concepts LO: 6.5 Describe the difference between contributory and comparative negligence. AACSB: Analytical thinking Classification: Concept 96) 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 Skill: Legal Concepts LO: 6.5 Describe the difference between contributory and comparative negligence. AACSB: Analytical thinking Classification: Concept 97) What is meant by the doctrines of contributory negligence, comparative negligence and partial comparative negligence? Answer: Contributory negligence is the doctrine which holds that a plaintiff who is partially at fault for his or her own injury cannot recover against a negligent defendant. Comparative negligence is the doctrine by which damages are apportioned according to fault. Partial comparative negligence is a combination of the two doctrines above in so far as under this doctrine if a plaintiff is less than 50 percent responsible for causing his or her own injuries the plaintiff recover pursuant to the comparative negligence doctrine; however, if the plaintiff is 50 percent or more responsible, the contributory negligence doctrine applies and the plaintiff cannot recover. Diff: 2 Skill: Legal Concepts LO: 6.5 Describe the difference between contributory and comparative negligence. AACSB: Analytical thinking Classification: Concept
28 C..
98) ________ 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 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 99) 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 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 100) 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 due to the use of the faulty brake in his vehicle. Which of the following is true in 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 Skill: Factual Application LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Application of knowledge Classification: Application
29 C..
101) 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 defect in the vehicle's Supplemental Restraint System (SRS), 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 them. 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 Skill: Factual Application LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Application of knowledge Classification: Application 102) 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 was providing a service. B) Bertha can be held strictly liable for the death of her patient. C) Bertha and the medical staff assisting 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 Skill: Factual Application LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Application of knowledge Classification: Application 103) The ________ 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 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept
30 C..
104) 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 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 105) 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, Inc. for strict liability. C) Betty can only sue FlatPlanes, Inc. for strict liability as they manufactured the defective lawnmower. D) Betty can only sue Harvey's department store for strict liability as they sold her the defective lawnmower. Answer: B Diff: 2 Skill: Factual Application LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Application of knowledge Classification: Application 106) ________ is liability without fault. A) Res ipsa loquitur B) Negligence per se C) Proximate cause D) Strict liability Answer: D Diff: 1 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept
31 C..
107) 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 product's consumer. Answer: D Diff: 2 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 108) Mary was getting a ride home in John's new car. On the way, a malfunctioning brake caused an accident and both Mary and John were injured. Which of the following statements is true of this situation? A) Mary can recover in 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 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 109) ________ damages refer to monetary damages that are awarded to punish a defendant who either intentionally or recklessly injured the plaintiff. A) Reliance B) Consequential C) Punitive D) Nominal Answer: C Diff: 1 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept
32 C..
110) When the containers of a product are not tamperproof, this is a ________. A) defect in design B) defect in manufacture C) defect in packaging D) failure to warn Answer: C Diff: 1 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 111) A ________ 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) res ipsa loquitur B) negligence per se C) proximate cause D) supervening event Answer: D Diff: 1 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 112) Erin was shopping for an aluminum extension ladder. She was surprised by the number of safety labels on the ladders at her local hardware store. The store clerk explained that the manufacturers put these labels on the ladders in an attempt to avoid a lawsuit based on ________. A) defect in design B) defect in manufacture C) defect in packaging D) failure to warn Answer: D Diff: 1 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Application of knowledge Classification: Concept 113) Strict liability applies to services but not products. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 33 C..
114) Under the doctrine of strict liability, bystanders who are injured by a defective product are entitled to the same protection as the product's consumers. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 115) The doctrine of strict liability holds the manufacturers of a defective product solely liable for injuries caused by that product. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 116) A defendant who has not been negligent but who is made to pay a strict liability judgment can bring a separate action against the negligent party in the chain of distribution to recover its losses. Answer: TRUE Diff: 2 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 117) 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 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 118) Casual sales and transactions are not covered under the strict liability doctrine. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept
34 C..
119) The manufacturer or seller is not liable if a product is materially altered or modified after it leaves the seller's possession and the alteration or modification causes an injury. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept 120) 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 Skill: Legal Concepts LO: 6.6 Define the doctrine of strict liability and apply it to product defects. AACSB: Analytical thinking Classification: Concept
35 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 7 Cyber Law and Cyber Crimes 1) A collection of criminal statutes is referred to as a ________. A) bill B) constitution C) penal code D) charter Answer: C Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 2) Who is the plaintiff in a criminal lawsuit? A) the government B) the respondent C) a private party D) the victim Answer: A Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 3) In the United States, what recourse does an accused person have if he cannot afford a private defense attorney? A) He will have to spend his time in jail until he can collect enough money to afford one. B) A public defender will be appointed to the accused by the government for a nominal fee. C) He will have to defend himself when the trial starts. D) The government will provide an attorney for the accused free of charge. Answer: D Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept
1 C..
4) ________ are the most serious crimes, including crimes that are mala in se. A) Felonies B) Infractions C) Misdemeanors D) Summary offenses Answer: A Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 5) A(n) ________ is a less serious crime, is not inherently evil but nevertheless prohibited by society, and is punishable by fines or imprisonment for one year or less. A) misdemeanor B) indictable offence C) felony D) violation Answer: A Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 6) A person who jaywalks commits a ________. A) misdemeanor B) felony C) violation D) tort Answer: C Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept
2 C..
7) Tim Talon engaged in reckless driving and killed a pedestrian. His defense is that he was driving under the influence of alcohol and lost control of his automobile. How would a court classify Tim Talon's intent? A) general intent crime B) criminal intent crime C) specific intent crime D) nonintent crime Answer: D Diff: 2 Skill: Factual Application LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Application of knowledge Classification: Application 8) Which two elements are required to find a defendant guilty of an intent-based crime? A) a victim and criminal intent B) a motive and criminal intent C) a criminal act and criminal intent D) a criminal act and proof of gain Answer: C Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 9) ________ crimes require that the perpetrator either knew or should have known that his or her actions would lead to harmful results. A) Nonintent B) Specific intent C) General intent D) Explicit intent Answer: C Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept
3 C..
10) When is a criminal said to be judgment proof? A) when the criminal has not been read his Fifth Amendment rights prior to his arrest B) when the criminal does not have the money to pay a civil judgment C) when the criminal is found to be unfit to go to prison D) when the criminal has been deemed to be insane Answer: B Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 11) In a criminal case, the government is represented by the ________. A) prosecutor B) public defender C) judge D) persecutor Answer: A Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 12) The two elements that are required to be found guilty of an intent crime are ________ and ________. A) nolo contendere; res ipsa loquitur B) felony; misdemeanor C) criminal act/actus reus; criminal intent/mens rea D) felony; conspiracy Answer: C Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept
4 C..
13) In legal terminology, evil intent is also known as ________. A) nolo contendere B) actus reus C) mens rea D) res ipsa loquitur Answer: C Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 14) ________ crimes require that the perpetrator intended to achieve a specific result from his illegal act. A) General intent B) Nonintent C) Recklessness D) Specific intent Answer: D Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 15) A person charged with a crime in the United States is presumed guilty until proven innocent. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 16) A crime is the violation of a statute for which the government imposes a punishment. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept
5 C..
17) If the accused cannot afford a private defense lawyer, the government will provide one free of charge. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 18) In a criminal lawsuit, the government is represented by a lawyer called the defense attorney. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 19) Monetary damages and equitable remedies are provided in a civil lawsuit. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 20) In a criminal lawsuit, guilt has to be proven beyond a reasonable doubt. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 21) In a civil lawsuit, liability has to be proven beyond a reasonable doubt. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept
6 C..
22) 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 Skill: Legal Concepts LO: 7.1 Define crime and describe the essential elements of a crime. AACSB: Analytical thinking Classification: Concept 23) 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) arrest warrant B) possessory warrant C) no-knock warrant D) execution warrant Answer: A Diff: 1 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 24) ________ is defined as the substantial likelihood that a person either committed or is about to commit a crime. A) Preponderance of the evidence B) Reasonable doubt C) Probable cause D) Reasonable suspicion Answer: C Diff: 1 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept
7 C..
25) Which of the following is a difference between indictments and information statements? A) Indictments are issued before a trial, while an information statement is issued after a trial. B) Indictments are issued by a grand jury, while an information statement is issued by a magistrate. C) Information statements are issued to dismiss a case before it goes to trial, while an indictment is issued to bring a case to trial. D) Information statements are issued without determining guilt, while an indictment is issued where guilt is evident. Answer: B Diff: 2 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 26) A(n) ________ is a charge of having committed a crime, usually a felony, based on the judgment of a grand jury. A) arraignment B) information statement C) indictment D) plea Answer: C Diff: 1 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 27) At what stage of the criminal procedure is the accused asked to enter a plea? A) when the accused is taken to an arraignment B) while an indictment or information statement is being issued C) when the accused is being booked D) when the accused is being arrested Answer: A Diff: 1 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept
8 C..
28) 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 plea where the accused agrees to the imposition of a penalty but does not admit guilt C) a plea by which the defense attorney exhibits evidences that the defendant is not fit to stand for trial D) a guilty plea where the defendant does not agree to the imposition of a penalty and asserts innocence though there is sufficient evidence against the defendant Answer: B Diff: 2 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 29) Roland and Kelly were involved in a car accident in which Kelly was badly injured and had to be hospitalized. After the accident was investigated, it was determined that Roland's negligence was the cause of the accident. He was charged with reckless driving, a crime. In criminal proceedings, what course of action should Roland take to prevent Kelly from using evidence of his guilt against him in a subsequent civil trial seeking recovery for her injuries and hospital bills? A) plead not guilty and go to trial B) enter into a plea of nolo contendere C) plead guilty and serve the punishment established by the government D) enter into a plea bargain with the government, admitting guilt but receiving less punishment in return for the plea Answer: B Diff: 2 Skill: Factual Application LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Application of knowledge Classification: Application 30) If the grand jury determines that there is sufficient evidence to hold the accused for trial, it issues a(n) ________. A) indictment B) information C) arrest warrant D) guilty verdict Answer: A Diff: 2 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept
9 C..
31) ________ is defined as the substantial likelihood that a person either committed or is about to commit a crime. A) Indictment B) Probable cause C) Predication D) Reasonableness Answer: B Diff: 1 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 32) A party may enter a plea of ________, whereby the accused agrees to the imposition of a penalty but does not admit guilt. A) nolo contendere B) actus reus C) not guilty D) res ipsa loquitur Answer: A Diff: 1 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 33) 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) nolo contendere B) actus reus C) plea bargain D) settlement agreement Answer: C Diff: 1 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept
10 C..
34) A nolo contendere plea can be used as evidence of liability against the accused at a subsequent civil trial. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 35) The case against the accused is dismissed if neither an indictment nor information statement is issued. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 36) An indictment is a charge of guilt against the defendant. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept 37) 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 was found guilty, he would be subject to a greater penalty than the penalty imposed by the plea bargain he has agreed to with the government. Diff: 2 Skill: Legal Concepts LO: 7.2 Describe criminal procedure, including arrest, indictment, and arraignment. AACSB: Analytical thinking Classification: Concept
11 C..
38) A jury that cannot come to a unanimous decision about the defendant's guilt is called a(n) ________ jury. A) grand B) open C) struck D) hung Answer: D Diff: 1 Skill: Legal Concepts LO: 7.3 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 39) What is the necessary condition for an accused person to be found guilty by a jury? A) The jury's guilty verdict has to be approved by the presiding judge. B) At least half the jurors have to find the defendant guilty of the crime. C) More than 50 percent of the jurors have to find the defendant guilty of the crime. D) All the jurors have to unanimously agree that the defendant is guilty of the crime. Answer: D Diff: 2 Skill: Legal Concepts LO: 7.3 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 40) 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 Skill: Legal Concepts LO: 7.3 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
12 C..
41) What is meant by a "hung jury," and what options are available after there is one at a criminal trial? Answer: At a criminal trial, all jurors must unanimously agree before the accused is found guilty of the crime charged. If the jury cannot come to a unanimous decision about the defendant's guilt one way or the other, the jury is considered a hung jury. In this situation, the government gets to choose whether they wish to retry the case before a new judge and jury. Diff: 2 Skill: Legal Concepts LO: 7.3 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 42) In which of the following cases is the felony murder rule applied? A) when the felon in the case was killed while the crime transpired B) when the murder was committed without intent while committing another crime C) when the reason for the death is found to be involuntary manslaughter D) when the crime involves the intended murder of another person Answer: B Diff: 1 Skill: Legal Concepts LO: 7.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept 43) The wrongful or fraudulent taking of another's personal intangible properties like trade secrets, computer programs, and other business property is considered a(n) ________. A) robbery B) larceny C) aggravated robbery D) aggravated burglary Answer: B Diff: 1 Skill: Legal Concepts LO: 7.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept
13 C..
44) ________ is the taking of another's personal property other than from his or her person or building. A) Robbery B) Larceny C) Embezzlement D) Burglary Answer: B Diff: 1 Skill: Legal Concepts LO: 7.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept 45) ________ is defined as the taking of personal property from another person by the use of fear or force. A) Robbery B) Larceny C) Embezzlement D) Burglary Answer: A Diff: 1 Skill: Legal Concepts LO: 7.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept 46) The willful or malicious burning of a building is called ________. A) torchiere B) enflaming C) arson D) lumineer Answer: C Diff: 1 Skill: Legal Concepts LO: 7.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept
14 C..
47) The involuntary manslaughter is different from first-degree murder, second-degree murder, and voluntary manslaughter, because involuntary manslaughter ________. A) is exclusively a civil infraction. B) is not a criminal offense. C) is a nonintent crime. D) requires the use of a motor vehicle. Answer: C Diff: 2 Skill: Legal Concepts LO: 7.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept 48) In common law, burglary is defined as "breaking and entering a dwelling at night" with the intent to commit a misdemeanor. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept 49) Discuss "receiving stolen property" as a crime. Answer: It is the crime of receiving stolen property for a person to (1) knowingly receive stolen property and (2) intend 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, stock certificates, etc. Diff: 1 Skill: Legal Concepts LO: 7.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept
15 C..
50) Describe the different degrees of murder defined in the laws of most states. Answer: The different degrees of murder are usually defined as first-degree murder, seconddegree murder, voluntary manslaughter, and involuntary manslaughter. More specifically, first-degree murder is the intentional unlawful killing of a human being by another person with premeditation, malice aforethought, and willful act. Second-degree murder is the intentional unlawful killing of a human being by another person that is not premeditated or planned in advance. Voluntary manslaughter is the intentional unlawful killing of a human being by another person that is not premeditated or planned in advance and that is committed under circumstances that would cause a person to become emotionally upset. Some states refer to this crime as thirddegree murder. Involuntary manslaughter is the unintentional unlawful killing of a human being by another person that is caused from a reckless or negligent act. Some states refer to this crime as negligent homicide. Diff: 2 Skill: Legal Concepts LO: 7.4 Describe common crimes such as murder, robbery, and larceny. AACSB: Analytical thinking Classification: Concept 51) Which of the following crimes is an example of a white-collar crime? A) battery B) larceny C) arson D) forgery Answer: D Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 52) The fraudulent making or alteration of a written document that affects the legal liability of another person is called ________. A) larceny B) extortion C) forgery D) embezzlement Answer: C Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept
16 C..
53) ________ is the fraudulent conversion of property by a person to whom that property was entrusted. A) Embezzlement B) Bribery C) Forgery D) Extortion Answer: A Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 54) ________ is a crime in which one person gives another person money, property, favors, or anything else of value for a favor in return. A) Bribery B) Battery C) Embezzlement D) Larceny Answer: A Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 55) 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) embezzlement B) bribery C) money laundering D) extortion Answer: D Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept
17 C..
56) Which of the following does the Money Laundering Control Act prohibit? A) the use of mails or wires to defraud another person B) knowingly engaging in a financial transaction involving the proceeds of an unlawful activity C) obtaining property from another, with his or her consent, induced by wrongful use of actual or threatened force D) the fraudulent conversion of property by a person to whom that property was entrusted Answer: B Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 57) Richard Bell, an organized crime boss and casino owner, has made a lot of money with his illegal drug operations and illegal gambling. In order to make it look like he earned the drug money legitimately, Richard has hired crooks to take the illegal 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. What crime is Richard committing in converting his drug money to alleged legal money? A) money laundering B) misappropriation C) extortion D) embezzlement Answer: A Diff: 2 Skill: Factual Application LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Application 58) Richard Bell, an organized crime boss and casino owner, has made a lot of money with his illegal drug operations and illegal gambling. In order to make it look like he earned the drug money legitimately, Richard has hired crooks to take the illegal 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. If he were caught, under which federal law would Richard be tried for his mob activities? A) Counterfeit Access Device and Computer Fraud and Abuse Act B) Identity Theft and Assumption Deterrence Act C) Racketeer Influenced and Corrupt Organizations Act D) Information Infrastructure Protection Act Answer: C Diff: 2 Skill: Factual Application LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Application 18 C..
59) Mark and Jack work as clerks at the New Bank of North America. They plan to rob the bank and manage to get its floor plans. They study the security arrangements and movements of the security personnel of the bank. They even get weapons in case force is required to rob the bank. The police, however, get information about the plan and arrest Mark and Jack before the robbery occurs. Mark and Jack have committed which of the following crimes? A) criminal conspiracy B) extortion C) money laundering D) larceny Answer: A Diff: 2 Skill: Factual Application LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Application 60) Frank Carpenter, who runs a charity organization, has been faking his father's signature on his father's personal checks and writing them in favor of the charity as donations. He gets hold of the checks from his father's personal assistant, Rhonda Mason, who is also Frank's friend and the charity's trustee. After faking the signature, Frank gives the checks to Rhonda to deposit in the bank. But unbeknownst to Frank, Rhonda routes some of the check money into her own savings account. Frank's father, Dawson, realizes that money is being withdrawn from his account without his consent. He suspects his estranged son, Frank, and in order to find out if Frank is involved, Dawson secretly offers money to the financial accountant of the charity to divulge the charity organization's financial dealings. The accountant accepts the money and gives access to the account books. After scrutinizing the financial records, Dawson realizes that Frank has been swindling him of his money, and the charity itself was being swindled by somebody from within. With this information, Dawson proceeds to file a suit against his son. In the above scenario, which of the following crimes has Rhonda Mason committed? A) forgery B) bribery C) embezzlement D) extortion Answer: C Diff: 2 Skill: Factual Application LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Application
19 C..
61) Frank Carpenter, who runs a charity organization, has been faking his father's signature on his father's personal checks and writing them in favor of the charity as donations. He gets hold of the checks from his father's personal assistant, Rhonda Mason, who is also Frank's friend and the charity's trustee. After faking the signature, Frank gives the checks to Rhonda to deposit in the bank. But unbeknownst to Frank, Rhonda routes some of the check money into her own savings account. Frank's father, Dawson, realizes that money is being withdrawn from his account without his consent. He suspects his estranged son, Frank, and in order to find out if Frank is involved, Dawson secretly offers money to the financial accountant of the charity to divulge the charity organization's financial dealings. The accountant accepts the money and gives access to the account books. After scrutinizing the financial records, Dawson realizes that Frank has been swindling him of his money, and the charity itself was being swindled by somebody from within. With this information, Dawson proceeds to file a suit against his son. In the above scenario, what illegal activity did the financial accountant of the charity partake in? A) larceny B) bribery C) extortion D) embezzlement Answer: B Diff: 2 Skill: Factual Application LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Application
20 C..
62) Frank Carpenter, who runs a charity organization, has been faking his father's signature on his father's personal checks and writing them in favor of the charity as donations. He gets hold of the checks from his father's personal assistant, Rhonda Mason, who is also Frank's friend and the charity's trustee. After faking the signature, Frank gives the checks to Rhonda to deposit in the bank. But unbeknownst to Frank, Rhonda routes some of the check money into her own savings account. Frank's father, Dawson, realizes that money is being withdrawn from his account without his consent. He suspects his estranged son, Frank, and in order to find out if Frank is involved, Dawson secretly offers money to the financial accountant of the charity to divulge the charity organization's financial dealings. The accountant accepts the money and gives access to the account books. After scrutinizing the financial records, Dawson realizes that Frank has been swindling him of his money, and the charity itself was being swindled by somebody from within. With this information, Dawson proceeds to file a suit against his son. In the above scenario, of which illegal activity are Rhonda and Frank guilty when it came to using Dawson's money for the charity? A) bribery B) criminal conspiracy C) extortion D) forgery Answer: B Diff: 2 Skill: Factual Application LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Application
21 C..
63) Frank Carpenter, who runs a charity organization, has been faking his father's signature on his father's personal checks and writing them in favor of the charity as donations. He gets hold of the checks from his father's personal assistant, Rhonda Mason, who is also Frank's friend and the charity's trustee. After faking the signature, Frank gives the checks to Rhonda to deposit in the bank. But unbeknownst to Frank, Rhonda routes some of the check money into her own savings account. Frank's father, Dawson, realizes that money is being withdrawn from his account without his consent. He suspects his estranged son, Frank, and in order to find out if Frank is involved, Dawson secretly offers money to the financial accountant of the charity to divulge the charity organization's financial dealings. The accountant accepts the money and gives access to the account books. After scrutinizing the financial records, Dawson realizes that Frank has been swindling him of his money, and the charity itself was being swindled by somebody from within. With this information, Dawson proceeds to file a suit against his son. In the above scenario, which criminal activity is Frank engaging in when faking his father's signature? A) embezzlement B) forgery C) bribery D) extortion Answer: B Diff: 2 Skill: Factual Application LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Application 64) ________ crimes are prone to being committed by businesspersons, and usually involve cunning and deceit rather than physical force. A) Political B) White-collar C) Blue-collar D) Psychological Answer: B Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept
22 C..
65) ________ is a federal act that provides for both criminal and civil penalties for racketeering. A) Sherman Antitrust Act B) Racketeer Influenced and Corrupt Organizations Act (RICO) C) Smoot-Hawley Tariff Act D) Money Laundering Control Act Answer: B Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 66) Rick is a sales manager for ABC Airplane Parts, and Tony is the head of purchasing for XYZ Regional Airlines. In order to secure purchase orders from XYZ, Rick meets Tony at a diner and gives Tony a briefcase containing $100,000 in cash. Tony takes the cash and soon after ABC is the biggest parts supplier to XYZ. With regards to the crime of bribery, ________. A) both Rick and Tony could be prosecuted B) only Rick, as the offeror, could be prosecuted C) only Tony, since he accepted the cash, could be prosecuted D) neither could be prosecuted since neither are government officials Answer: C Diff: 2 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Concept 67) Despite doing some things in college of which he's now not proud, Bill has gone on to become a billionaire celebrity. Recently Bill received a phone call from his old fraternity brother Pat. It seems that Pat was cleaning out his attic and found some old photos of Bill in embarrassing situations. Pat tells Bill that unless Bill pays him $100,000, he's going to the tabloids with the photos. Pat has just committed ________. A) no crime if the photographs are accurate B) extortion, but only if the photographs have been altered C) extortion, regardless of the truth or falsity of the photos D) bribery, but only if Bill pays the $100,000 cash Answer: C Diff: 2 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Concept
23 C..
68) Extortion of private persons is commonly referred to as ________. A) kick-backs B) obstruction of justice C) collusion D) blackmail Answer: D Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 69) Bernie was conducting a massive securities fraud scam utilizing emails and FedEx to perpetrate the fraud. If arrested, federal prosecutors are likely to charge Bernie with securities fraud and ________. A) wire fraud, but not mail fraud since Fed Ex is not the postal service B) mail fraud, but not wire fraud since emails are not covered under the wire fraud statute C) nothing else, since federal prosecutors are not allowed to file multiple charges against the same defendant D) both mail fraud and wire fraud Answer: D Diff: 2 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Application of knowledge Classification: Concept 70) Obtaining title to property through deception or trickery constitutes the crime of ________. A) criminal fraud B) embezzlement C) conspiracy D) racketeering Answer: A Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept
24 C..
71) Businesses that make excellent money laundries include ________. A) restaurants and motels B) bridal shops and tuxedo rental stores C) optometrist and podiatry practices D) internet service providers and electric utilities Answer: A Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 72) Crimes committed by businesspersons are referred to as blue-collar crimes. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 73) 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 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 74) Extortion of public officials is called extortion under color of official right. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 75) Violation of the Money Laundering Control Act subjects any property involved in or traceable to the offense to forfeiture to the government. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept
25 C..
76) The Racketeer Influenced and Corrupt Organizations Act (RICO) applies only to organized crime. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 77) Persons injured by a RICO violation can bring a private civil RICO action against the violator. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 78) A criminal conspiracy occurs when two or more persons enter into an agreement to commit a crime. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 79) Describe the Racketeer Influenced and Corrupt Organizations Act (RICO). 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 the RICO statute has been used against non-organized crime defendants as well. 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. In addition, RICO provides for the forfeiture of any property or business interests that were gained because of RICO 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 for injury to business or property. Diff: 3 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept
26 C..
80) Discuss mail fraud and wire fraud. Answer: Federal law prohibits the use of mail or wires, e.g., 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 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 Skill: Legal Concepts LO: 7.5 Identify and describe business and white-collar crimes. AACSB: Analytical thinking Classification: Concept 81) ________ include environmental laws, securities laws, and antitrust laws that provide for criminal violations and penalties. A) Constitutions B) Regulatory statutes C) Resolutions D) Charters Answer: B Diff: 1 Skill: Legal Concepts LO: 7.6 Describe regulatory crimes. AACSB: Analytical thinking Classification: Concept 82) Wayne is considering accessing his ex-wife's computer to read her emails. If he does, could Wayne be in violation of the federal Information Infrastructure Protection Act? A) Yes, assuming Wayne was not authorized. B) No, unless Wayne did so for commercial benefit. C) No, ex-spouses are subject to the jurisdiction of state divorce courts. D) No, because of spousal immunity. Answer: A Diff: 2 Skill: Legal Concepts LO: 7.7 List and describe cybercrimes. AACSB: Application of knowledge Classification: Concept
27 C..
83) Mona was curious as to whether her new boyfriend, Leonardo, was really as rich as he appeared. Mona was able to figure out the usernames and passwords Leonardo used at each of the financial institutions where Leonardo had accounts. Mona used this information to access all of Leonardo's financial records and was pleasantly surprised to find that Leonardo was wealthier than she had thought. Mona ________. A) could not be prosecuted because the financial records are not protected by federal law B) could not be prosecuted because the records she accessed did not constitute restricted federal government information C) could potentially be prosecuted for violation of the Information Infrastructure Protection Act D) could not be prosecuted as Mona and Leonardo were in a pre-existing relationship Answer: C Diff: 2 Skill: Legal Concepts LO: 7.7 List and describe cybercrimes. AACSB: Application of knowledge Classification: Concept 84) Briefly describe the purpose of the following federal laws to combat cybercrime: The Identity Theft and Assumption Deterrence Act, The Information Infrastructure Protection Act, The Counterfeit Access Device and Computer Fraud and Abuse Act, and The Electronic Communications Privacy Act. Answer: The Identity Theft and Assumption Deterrence Act 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. The Information Infrastructure Protection Act makes it a federal crime for anyone to access and acquire information intentionally from a protected computer without authorization. The Counterfeit Access Device and Computer Fraud and Abuse Act makes it a federal crime to access a computer knowingly to obtain restricted federal government information, financial records of financial institutions, or consumer reports of consumer reporting agencies. The Electronic Communications Privacy Act 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. Diff: 2 Skill: Legal Concepts LO: 7.7 List and describe cybercrimes. AACSB: Analytical thinking Classification: Concept
28 C..
85) Which one of the following types of protection does the Fourth Amendment provide to U.S. citizens? A) protection from cruel and unusual punishment for a criminal defendant B) protection from unreasonable search and seizure by the government C) protection against being tried for the same case twice D) protection against self-incrimination Answer: B Diff: 1 Skill: Legal Concepts LO: 7.8 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 86) Under which of the following circumstances is a warrantless search permitted? A) if there is no probable cause B) if the suspect has been previously convicted C) if evidence is not in plain view D) if evidence is likely to be destroyed Answer: D Diff: 2 Skill: Legal Concepts LO: 7.8 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 87) 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) Miranda rights B) exclusionary rule C) presumption of innocence doctrine D) double jeopardy rule Answer: B Diff: 1 Skill: Legal Concepts LO: 7.8 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 88) The Fifth Amendment to the U.S. Constitution protects people from unreasonable search and seizure by the government. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.8 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 29 C..
89) Warrantless searches are permitted when it is likely that evidence will be destroyed. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 7.8 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 90) The exclusionary rule allows for evidence obtained from an unreasonable search and seizure to be introduced at trial. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.8 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 91) What is meant by "fruit of a tainted tree"? Answer: The Fourth Amendment to the U.S. Constitution protects the rights of the people from unreasonable search and seizure by the government. Any evidence obtained from an unreasonable search and seizure is considered tainted evidence, i.e., "fruit of a tainted tree." Under the exclusionary rule, such evidence is generally 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 Skill: Legal Concepts LO: 7.8 Explain the Fourth Amendment protection from unreasonable search and seizure. AACSB: Analytical thinking Classification: Concept 92) To which Fifth Amendment provision in the U.S. Constitution do the Miranda rights refer? A) parole eligibility B) privilege against self-incrimination C) inordinate seizures D) double jeopardy Answer: B Diff: 1 Skill: Legal Concepts LO: 7.9 Explain the Fifth Amendment privilege against self-incrimination and other privileges recognized in criminal matters. AACSB: Analytical thinking Classification: Concept
30 C..
93) 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." This right is referred to as the ________. A) protection against double jeopardy B) right to due process C) right to a public jury trial D) privilege against self-incrimination Answer: D Diff: 1 Skill: Legal Concepts LO: 7.9 Explain the Fifth Amendment privilege against self-incrimination and other privileges recognized in criminal matters. AACSB: Analytical thinking Classification: Concept 94) The Miranda rights, to be read to a criminal suspect before he or she is interrogated by the police or other government officials, do NOT include: A) You have the right to remain silent. B) You have the right to make one telephone call to a relative. C) You have the right to consult a lawyer and to have a lawyer present with you during interrogation. D) If you cannot afford a lawyer, a lawyer will be appointed free of charge to represent you. Answer: B Diff: 1 Skill: Legal Concepts LO: 7.9 Explain the Fifth Amendment privilege against self-incrimination and other privileges recognized in criminal matters. AACSB: Analytical thinking Classification: Concept 95) The attorney-client privilege can be raised ________. A) only by the defendant B) only by the attorney C) by either the defendant or the attorney D) only jointly by both the defendant and the attorney Answer: C Diff: 1 Skill: Legal Concepts LO: 7.9 Explain the Fifth Amendment privilege against self-incrimination and other privileges recognized in criminal matters. AACSB: Analytical thinking Classification: Concept
31 C..
96) This privilege has been recognized under the Fifth Amendment by which an accused may keep the following individuals from being witnesses against him or her. A) The professor-student privilege. B) The bartender//barber/hair stylist-customer privilege. C) The priest/rabbi/minister/imam-penitent privilege. D) The fraternity brother/sorority sister -fraternity brother/sorority sister privilege. Answer: C Diff: 1 Skill: Legal Concepts LO: 7.9 Explain the Fifth Amendment privilege against self-incrimination and other privileges recognized in criminal matters. AACSB: Analytical thinking Classification: Concept 97) 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 Skill: Legal Concepts LO: 7.9 Explain the Fifth Amendment privilege against self-incrimination and other privileges recognized in criminal matters. AACSB: Analytical thinking Classification: Concept 98) Corporations can seek protection under the Fifth Amendment privilege against selfincrimination. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.9 Explain the Fifth Amendment privilege against self-incrimination and other privileges recognized in criminal matters. AACSB: Analytical thinking Classification: Concept 99) Obtaining nontestimonial evidence like fingerprints and body fluids violates the Fifth Amendment privilege against self-incrimination. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.9 Explain the Fifth Amendment privilege against self-incrimination and other privileges recognized in criminal matters. AACSB: Analytical thinking Classification: Concept
32 C..
100) Any statements or confessions obtained from a suspect before he or she has been read the Miranda rights can be excluded from evidence at trial. Answer: TRUE Diff: 2 Skill: Legal Concepts LO: 7.9 Explain the Fifth Amendment privilege against self-incrimination and other privileges recognized in criminal matters. AACSB: Analytical thinking Classification: Concept 101) The Miranda rights must be read to a suspect before he or she is detained by the police or other government officials. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.9 Explain the Fifth Amendment privilege against self-incrimination and other privileges recognized in criminal matters. AACSB: Analytical thinking Classification: Concept 102) The U.S. Supreme Court recognizes an accountant-client privilege under federal law. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.9 Explain the Fifth Amendment privilege against self-incrimination and other privileges recognized in criminal matters. AACSB: Analytical thinking Classification: Concept 103) The Double Jeopardy Clause of the Fifth Amendment protects persons from ________. A) evidence procured through unreasonable search and seizures B) being tried twice for the same crime C) confessions obtained through physical force during an interrogation D) being subjected to a heavier penalty or longer imprisonment Answer: B Diff: 1 Skill: Legal Concepts LO: 7.10 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
33 C..
104) Which of the following would violate the Double Jeopardy Clause? A) The government reopens a case after new incriminating evidence is found against an acquitted person. B) A person is tried for a case similar to a case from which he was acquitted earlier. C) A case reaches a hung jury in court and the government reopens the case with a new jury. D) The criminal act violates more than one jurisdiction and each jurisdiction tries the accused in turn. Answer: A Diff: 2 Skill: Legal Concepts LO: 7.10 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 105) Which of the following rights is set forth by the Sixth Amendment to the U.S. Constitution? A) protection against double jeopardy B) right to due process C) right to a public jury trial D) privilege against self-incrimination Answer: C Diff: 1 Skill: Legal Concepts LO: 7.10 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 106) Which of the following constitutional amendments protects criminal defendants from cruel and unusual punishment? A) Fifth Amendment B) Eighth Amendment C) Fourth Amendment D) Fourteenth Amendment Answer: B Diff: 1 Skill: Legal Concepts LO: 7.10 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
34 C..
107) The ________ Amendment to the U.S. Constitution guarantees that a criminal defendant has the right to a public jury trial. A) Fifth B) Eighth C) Fourth D) Sixth Answer: D Diff: 1 Skill: Legal Concepts LO: 7.10 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 108) The ________ Amendment to the U.S. Constitution protects criminal defendants from cruel and unusual punishment. A) Fifth B) Eighth C) Fourth D) Sixth Answer: B Diff: 1 Skill: Legal Concepts LO: 7.10 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 109) The Fourth Amendment to the U.S. Constitution protects people from being tried twice for the same crime. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.10 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 110) A defendant is protected by the Double Jeopardy Clause of the Fifth Amendment if his or her case results in a hung jury. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 7.10 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 35 C..
111) Explain what is meant by the Double Jeopardy Clause. If a defendant was conducting a criminal enterprise that violated both state and federal law, and the defendant was tried and found not guilty in a state court, can a federal government still prosecute this person? Explain. 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, such as a state and the federal government, each jurisdiction may try the accused. Thus, even though the defendant in this example was found not guilty in state court, because his actions allegedly also violate federal law, this person can be prosecuted by the federal government without violating the Double Jeopardy Clause. Diff: 2 Skill: Legal Concepts LO: 7.10 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: Application of knowledge Classification: Concept
36 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 8 Intellectual Property and Cyber Piracy 1) Which of the following is an example of intellectual property? A) a patent B) a vehicle C) a business contract D) a building Answer: A Diff: 1 Skill: Legal Concepts LO: 8.1 Define intellectual property and list the types of intellectual property. AACSB: Analytical thinking Classification: Concept 2) Intellectual property falls into a category of property known as a(n) ________. A) tangible property B) moveable property C) real property D) intangible property Answer: D Diff: 1 Skill: Legal Concepts LO: 8.1 Define intellectual property and list the types of intellectual property. AACSB: Analytical thinking Classification: Concept 3) A ________ is a product formula, pattern, design, compilation of data, customer list, or other covert business information. A) copyright B) trade secret C) trademark D) patent Answer: B Diff: 1 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept
1 C..
4) A closely guarded formula for a recipe protected by a soft drink manufacturer is a ________. A) trade secret B) copyright C) patent D) trademark Answer: A Diff: 1 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 5) If a competitor reverse-engineers a trade secret, then the competitor is ________. A) allowed co-ownership of the trade secret and its original trademark B) allowed to use the trade secret but not 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: B Diff: 2 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 6) A competitor can lawfully use a rival's trade secret if the competitor discovers the trade secret by means of ________. A) copyrighting B) cross-licensing C) patenting D) reverse engineering Answer: D Diff: 1 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept
2 C..
7) In addition to recovering profits made by the offender and damages, a successful plaintiff in a misappropriation of a trade secret case can also ________. A) obtain an injunction prohibiting the offender from divulging the trade secret B) ask for transfer of any of the offender's patents to the plaintiff C) obtain the offender's trademarks or brand name as payoff D) ask to acquire the offender's trade secrets as payoff Answer: A Diff: 2 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 8) What federal statute was enacted by the U.S. Congress to protect trade secrets? A) the Sarbanes-Oxley Act B) the Lanham Act C) the Telecommunication Act D) the Economic Espionage Act Answer: D Diff: 1 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 9) 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) it is a federal crime to steal another's trade secret C) the rights to a trade secret must be renewed after a specified period of time D) trade secrets can be shared for a limited amount of time Answer: B Diff: 1 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept
3 C..
10) Congress enacted the federal ________, which makes it a federal crime to steal another's trade secrets. A) the Sarbanes-Oxley Act B) the Lanham Act C) the Telecommunication Act D) the Economic Espionage Act Answer: D Diff: 1 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 11) Which of these is NOT true with regards to the duties of the owner of a trade secret? A) The owner is obliged to take all reasonable precautions to prevent the secret from being discovered by others. B) The owner will not be protected by state unfair competition laws if he or she fails to take all reasonable precautions to protect the secret. C) Reasonable precautions may include fencing in buildings, placing locks on doors, and hiring security guards. D) The owner of a trade secret has an absolute right to the secret and, as such, need not do anything to prevent the secret from being discovered by others. Answer: D Diff: 1 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 12) Which of these is NOT a common cybersecurity protocol that a company may use to prevent the electronic theft of trade secrets? A) monitoring employee email B) preventing the use of portable or mobile devices in the workplace C) electronic surveillance of employee homes D) installing enhanced encryption software to protect trade secrets. Answer: C Diff: 1 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept
4 C..
13) A competitor can lawfully discover a trade secret by performing reverse engineering. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 14) Give an account of the Economic Espionage Act (EEA) 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 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept 15) When do state laws allow the owner of a trade secret to bring a civil lawsuit for misappropriation? Also discuss reverse engineering. Answer: State laws allow the owner of a trade secret to bring a civil lawsuit for misappropriation against anyone who steals a trade secret. For the lawsuit to be actionable, the defendant must have obtained the trade secret through unlawful means, such as theft, bribery, or industrial espionage. No tort has occurred if there is no misappropriation. For example, a competitor can lawfully discover a trade secret by reverse engineering, i.e., taking apart and examining a rival's product or re-creating a secret recipe. A competitor or other party who has reverse engineered a trade secret is free to use the trade secret. Diff: 2 Skill: Legal Concepts LO: 8.2 Define trade secret and describe the misappropriation of a trade secret. AACSB: Analytical thinking Classification: Concept
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16) A ________ is a grant by the federal government to 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) trade secret C) patent D) trademark Answer: C Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 17) How do patent laws help an inventor? A) by helping the inventor guard his patented invention from the public B) by providing protection for patented inventions from infringement C) by helping the inventor meet potential buyers for his patented inventions D) by letting the inventor keep his patents indefinitely Answer: B Diff: 2 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 18) Which of the following is a key function of the U.S. Court of Appeals for the Federal Circuit regarding patents? A) It hears appeals rejected by the state courts regarding patent issues. B) It accepts applications for new patents. C) It helps promote uniformity in patent laws. D) It helps enact new patent laws. Answer: C Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept
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19) What is a patent number? A) a number assigned to a patent when it comes under investigation B) a number assigned to a patent when the patent is pending C) a number assigned to a patent during application D) a number assigned to a patent once the patent is granted Answer: D Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 20) A ________ patent protects the functionality of an invention. A) utility B) method C) design D) process Answer: A Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 21) Which of the following can be patented? A) laws of nature B) naturally occurring substances C) asexually reproduced plants D) mathematical formulas Answer: C Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept
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22) When does a patent enter the public domain? A) when the patent term expires B) when the patent has been challenged in court and found to be an infringement C) when the government deems that the practical purpose of the invention is universally applicable and cannot be controlled by one individual or a group of people D) when the invention is either obvious or not a novel one Answer: A Diff: 1 Skill: Legal Concepts LO: 8.3 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 the patent period in the United States? A) It follows the first-to-file rule. B) The patent term begins to run from the date the patent application is filed. C) The patent term begins to run from the date the patent is issued. D) The patent period for an invention is 17 years. Answer: B Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 24) Which of the following is true of a patent application? A) A patent application can be moved to the top of the list of other patents for review by the U.S. Patent and Trademark Office if the inventor pays $25,000. B) The U.S. Patent and Trademark Office must make a decision whether to grant a patent within a year from the date of filing a patent application. C) An inventor may file a provisional application with the U.S. Patent and Trademark Office and get a maximum of five days to prepare and file a final and complete patent application. D) The U.S. Patent and Trademark Office can grant priority to patent applications for products that are important to the national economy. Answer: D Diff: 2 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept
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25) Which of the following types of patents is valid for only 14 years? A) a design patent B) a utility patent C) a process patent D) a business method patent Answer: A Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 26) The U.S. Patent and Trademark Office (PTO) grants approximately how many patents each year? A) 300,000 B) 500,000 C) 675,000 D) 775,000 Answer: A Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 27) Applications for patents must be filed with the ________. A) U.S. Court of Appeals for the Federal Circuit B) U.S. Patent and Trademark Office (PTO) C) Library of Congress D) Federal Trade Commission Answer: B Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept
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28) The ________ is a special federal appeals court that hears appeals from the Board of Patent Appeals and Interferences of the U.S. Patent and Trademark Office and federal courts concerning patent issues. A) U.S. Court of Federal Claims B) U.S. District Court for the District of Columbia C) U.S. Court of International Trade D) U.S. Court of Appeals for the Federal Circuit Answer: D Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 29) A ________ is a patent that protects the functionality of an invention. A) machinery patent B) mechanical patent C) utility patent D) design patent Answer: C Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 30) Utility patents for inventions are valid for ________. A) the whole of the inventor's life plus 70 years B) 20 years C) 14 years D) 10 years and renewable indefinitely Answer: B Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept
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31) Under current law a patent's term begins to run from ________. A) the date the patent is issued B) the date the patent is invented C) the date the patent application is filed D) the inventor's date of birth Answer: C Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 32) A patent for the ornamental nonfunctional design of an item ________. A) is a utility patent B) is a design patent C) is an ornamental patent D) is not permitted Answer: B Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 33) A patent can only be claimed for a limited amount of time. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 34) Improvements to existing machines, processes, or compositions of matter cannot be patented. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 35) If an invention is obvious, then it does not qualify for a patent. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 11 C..
36) In the United States, the first person to invent an item or a process is given patent protection over a later inventor who was first to file a patent application. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 37) By permitting pre-issuance and post-grant challenges within the U.S. Patent and Trademark Office (PTO), the law attempts to have disputes resolved within the PTO before reaching the litigation stage. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 8.3 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 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 39) What are the requirements for obtaining a patent? Answer: To be patented, an invention must be (1) novel, (2) useful, and (3) nonobvious. An invention must meet all three of these requirements. If an invention is found not to meet any one of these requirements, it cannot be patented: 1. Novel: An invention is novel if it is new and has not been invented and used in the past. If an invention has been used in "prior art," it is not novel and cannot be patented. 2. Useful: An invention is useful if it has some practical purpose. If an invention has only theoretical benefit and no useful purpose, it cannot be patented. 3. Nonobvious: If an invention is nonobvious, it qualifies for a patent; if it is obvious, then it does not qualify for a patent. Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept
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40) What is a patent, and why is the federal government involved in issuing patents? Answer: A patent is a grant by the federal government to the inventor of an invention for the exclusive right to use, sell, or license the invention for a limited amount of time. Patent law is intended to provide an incentive for inventors to invent and make their inventions public and to protect patented inventions from infringement. The U.S. Constitution, at Article I, Section 8, grants express authority to Congress enacted laws to provide for obtaining and protecting patents. Federal patent law is exclusive; there are no state patent laws. Diff: 1 Skill: Legal Concepts LO: 8.3 Describe how an invention can be patented and the penalties for patent infringement. AACSB: Analytical thinking Classification: Concept 41) A ________ is a legal right that gives the author of qualifying subject matter the exclusive right to publish, produce, sell, license, and distribute the work. A) patent B) copyright C) trademark D) trade secret Answer: B Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 42) Which of the following is copyrightable? A) a building B) a business method C) a musical composition D) a product logo Answer: C Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept
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43) Which of the following is an accurate statement regarding the Berne Convention, an international copyright treaty? A) The treaty eliminates the need to place the copyright symbol or the word "copyright" on a copyrighted work. B) The treaty makes it mandatory to place the copyright symbol on all copyrighted works. C) The treaty stipulates the time period a copyright can be retained by the copyright holder before it enters the public domain. D) The treaty sets the rules for how copyright can be dealt with when sharing copyrighted work between governments. Answer: A Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 44) What is the period of copyright protection provided for individuals under the Copyright Term Extension Act of 1998? A) Individuals are granted 20 years of copyright protection, after which it has to be renewed for a fee. B) Individuals are granted copyright protection for their lifetime plus 70 years. C) Individuals are granted 95 years copyright protection from the year of first publication of the work. D) Individuals are granted 120 years copyright protection from the year of creation of the work. Answer: B Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 45) What happens to the ownership of a copyrighted work after the copyright period expires? A) A non-copyright holder can use the work, but he or she must first purchase the rights to the work. B) The work enters the public domain and can be used for free. 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 public access for a fee. Answer: B Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 14 C..
46) Which of the following constitutes copyright infringement? A) the use of several clips from a copyrighted movie in a documentary B) the use of a brief quotation from a copyrighted work in a news report C) the use of copyrighted material in a spoof or satire D) reproduction by a teacher or student of a small part of a copyrighted work to illustrate a lesson Answer: A Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 47) In the context of copyrighted material, which of the following statements accurately describes the fair use doctrine? A) It stipulates the time period for which a copyright holder can retain his copyright. B) It guides the U.S. Copyright Office in determining what works are copyrightable. C) It permits the use of copyrighted material by someone other than the copyright holder for a statutorily-prescribed fee. D) It permits certain limited use of copyrighted material by someone other than the copyright holder without the permission of the copyright holder. Answer: D Diff: 2 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 48) In terms of copyright law, the use of copyrighted material in a satire or parody exemplifies ________. A) the piracy problem B) copyright sharing C) the fair use doctrine D) copyright infringement Answer: C Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept
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49) Uploading copyrighted material to an unauthorized website by a non-copyright holder would constitute copyright infringement under the ________. A) Digital Millennium Copyright Act B) Berne Convention C) No Electronic Theft Act D) Copyright Term Extension Act Answer: C Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 50) The ________ doctrine allows for certain limited unauthorized use of copyrighted materials. A) express use B) fair use C) limited use D) partial use Answer: B Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 51) In 1997, Congress enacted the ________ Act, a federal statute that criminalizes certain copyright infringement. A) Sarbanes-Oxley B) Lanham C) No Electronic Theft D) Economic Espionage Answer: C Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept
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52) How is a copyright different from a patent? A) Federal law applies to a copyright, while individual state law applies to a patent. B) A copyright, not a patent, must be novel and useful. C) A copyright protects an invention, while a patent protects a tangible writing. D) The period of protection for a copyright is longer than the period of protection for a patent. Answer: D Diff: 2 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 53) After the copyright period runs out, the work enters ________. A) the prohibited-use phase B) the National Archives C) the restricted-use phase D) the public domain Answer: D Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 54) This symbol, when placed on a work along with the year of publication and the author's name, notifies the world that the work is protected by a copyright. A) ® B) © C) TM D) SM Answer: B Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept
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55) Copyright registration permits a holder to obtain statutory damages for copyright infringement, which may be greater than actual damages, and attorney's fees. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 56) The fair use doctrine allows certain limited unauthorized use of copyrighted materials. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 57) In terms of the unauthorized use of copyrighted materials, the fair use doctrine does not allow reproduction of a work in a legislative or judicial proceeding. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 8.4 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 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept
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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 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept 60) What qualifies for copyright protection? Answer: While only "tangible writings" –writings that can be physically seen–are subject to copyright registration and protection, that term has been broadly defined, such that it includes, but is not limited to, the following: books, periodicals, and newspapers; lectures, sermons, addresses, and poems; musical compositions; plays, motion pictures, and radio and television productions; maps; works of art, including paintings, drawings, jewelry, glassware, tapestry, and lithographs; architectural drawings and models; photographs, including prints, slides, and filmstrips, greeting cards, and picture postcards; photoplays, including feature films, cartoons, newsreels, travelogues, and training films; video and electronic games; and sound recordings published in the form of CDs and digital files. Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Analytical thinking Classification: Concept
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61) Professor Erin wishes to use a 30 second clip from the motion picture Wall Street in her Management class but is not sure she can without infringing on the movie's copyright. Advise Professor Erin as to whether she can us the movie clip. Be sure to include an explanation of the fair use doctrine in your advice. Answer: Professor Erin should use the short movie clip in her class. While Wall Street is a copyrighted work, Professor Erin's use of it here falls within the fair use doctrine. The law permits certain limited unauthorized use of copyrighted materials under the fair use doctrine. The following uses are protected under this doctrine: (1) quotation of the copyrighted work for review or criticism or in a scholarly or technical work, (2) use in a parody or satire, (3) brief quotation in a news report, (4) reproduction by a teacher or student of a small part of the work to illustrate a lesson, (5) incidental reproduction of a work in a newsreel or broadcast of an event being reported, and (6) reproduction of a work in a legislative or judicial proceeding. Professor Erin's use here would fall within the "reproduction by a teacher or student of a small part of the work to illustrate a lesson" category. Diff: 1 Skill: Legal Concepts LO: 8.4 Describe the items that can be copyrighted and describe the penalties for copyright infringement. AACSB: Application of knowledge Classification: Concept 62) A ________ 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) patent C) trademark D) copyright Answer: C Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept
20 C..
63) Which of the following types of intellectual property is protected by the Lanham Act? A) a trade secret B) a trademark C) a copyright D) a patent Answer: B Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 64) John Crichton 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. After six months, he had not yet used the logo. Which of the following options does trademark law allow John Crichton so that he can retain his logo until he uses it in commerce? A) Pay a fine so that the trademark gets registered immediately. B) Change the logo slightly and reapply for the modified logo. C) Cancel the current application and re-apply for the same logo. D) Apply for a six-month extension to use the logo in commerce. Answer: D Diff: 1 Skill: Factual Application LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Application of knowledge Classification: Application 65) "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) trademark B) patent C) trade secret D) copyright Answer: A Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept
21 C..
66) When is a mark said to have acquired a secondary meaning? A) when a mark that resembles a mark already registered with the U.S. Patent and Trademark Office is used for a new product or service B) when ordinary words establish a new meaning due to its attachment to a product or service C) when a distinctive mark or design is created for a new product or service D) when descriptive words are used that have no direct relevance to a product or service Answer: B Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 67) A(n) ________ 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) private brand B) service mark C) obsequious work D) generic name Answer: D Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 68) In 1946, Congress enacted the ________ Act to provide federal protection to trademarks, service marks, and other marks. A) Sarbanes-Oxley B) Lanham C) No Electronic Theft D) Economic Espionage Answer: B Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept
22 C..
69) A ________ is a distinctive mark, symbol, name, word, motto, or device that identifies the goods of a particular business. A) trademark B) copyright C) patent D) trade secret Answer: A Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 70) Once a trademark becomes a(n) ________, the term loses its protection under federal trademark law. A) unique term B) ubiquitous name C) obsequious term D) generic name Answer: D Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 71) 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) service B) certification C) collective membership D) organic Answer: C Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept
23 C..
72) A(n) ________ mark 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) service B) certification C) collective membership D) organic Answer: B Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 73) This symbol, when used with a registered trademark or service mark, puts others on notice that the mark is registered and that federal lawsuits may be brought to protect the mark. A) ® B) © C) TM D) SM Answer: A Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 74) This mark may be used to designate an unregistered trademark, or one where registration is pending, so as to put others on notice of the owner's legal claims. A) ® B) © C) TM D) SM Answer: C Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept
24 C..
75) This mark may be used to designate an unregistered service mark, or one where registration is pending, so as to put others on notice of the owner's legal claims. A) ® B) © C) TM D) SM Answer: D Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 76) A party may file for the ________ of a previously registered mark if the party believes that the registrant did not meet the requirements for being issued the mark or if a mark has been abandoned. A) cancelation B) revocation C) novation D) rescission Answer: A Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 77) Which of these marks cannot be registered with the PTO? A) a manufacturing company's logo B) the name of a restaurant chain C) the flag of the State of Illinois D) the slogan of a shoe company Answer: C Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept
25 C..
78) The application for registering a trademark with the Patent and Trademark Office ________, A) must be made via a paper filing B) must be made electronically C) must be made via a presentation before a hearing board in Washington, DC D) can be made either by a paper filing or by an electronic filing Answer: D Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 79) Brian, the owner of "Brian's Cheese House" learned that his competitor, Bryan of "Bryan's House of Cheese," just filed an application to register a logo that looks remarkably similar to Brian's logo. In response, Brian can ________. A) do nothing B) submit to the PTO an opposition to the proposed registration of Bryan's mark C) file suit in the U.S. District Court for the District of Columbia D) file a complaint with the Federal Trade Commission Answer: B Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Application of knowledge Classification: Concept 80) Which of these is a trademark? A) Big Mac B) Weight Watchers C) Grown in Idaho D) Realtor Answer: A Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Application of knowledge Classification: Concept
26 C..
81) Which of these is a service mark? A) Big Mac B) Weight Watchers C) Grown in Idaho D) Realtor Answer: B Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Application of knowledge Classification: Concept 82) Which of these is a certification mark? A) Big Mac B) Weight Watchers C) Grown in Idaho D) Realtor Answer: C Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Application of knowledge Classification: Concept 83) Which of these is a collective membership mark? A) Big Mac B) Weight Watchers C) Grown in Idaho D) Realtor Answer: D Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Application of knowledge Classification: Concept 84) The trademark symbol TM is used to indicate a registered mark. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 27 C..
85) A company slogan is an example of a trademark. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 86) A trademark is issued if the registrant proves he has used the mark in commerce. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 87) The trademark symbol SM is used to indicate a mark associated with a product. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 88) A party that does not register its brand name has no legal right over it. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 89) The trademark symbols TM and SM can be used with marks that have not been registered. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept
28 C..
90) A service mark is used to distinguish the product of the holder from those of its competitors. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 91) A certification mark is usually owned by a for-profit corporation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 92) Ordinary words or symbols that have taken on a secondary meaning can qualify as marks. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 93) Distinctive marks are ordinary words or symbols that have an established meaning but have acquired a secondary meaning attached to a product or service. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 94) Trademarks that have become generic names are protected under federal trademark law. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept
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95) 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 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept 96) Describe the process to obtain federal registration of a trademark. Answer: Marks can be registered with the U.S. Patent and Trademark Office (PTO) in Washington DC. A registrant must file an application with the PTO wherein the registrant designates the name, symbol, slogan, or logo that he or she is requesting to be registered. Registrants must either prove that they have used the intended mark in commerce or state that they intend to use the mark in commerce within 6 months from the filing of the application. In the latter case, if the proposed mark is not used in commerce within this 6-month period, the applicant loses the right to register the mark. However, the applicant may file for a 6-month extension to use the mark in commerce, which is often granted by the PTO. A party other than the registrant can submit an opposition to a proposed registration of a mark. The PTO registers a mark if it determines that the mark does not infringe any existing marks, the applicant has paid the registration fee, and other requirements for registering the mark have been met. Once a mark is registered, it is given nationwide effect, serves as constructive notice that the mark is the registrant's personal property, and provides that federal lawsuits may be brought to protect the mark. The original registration of a mark is valid for 10 years, and it can be renewed for an unlimited number of 10-year periods. Diff: 2 Skill: Legal Concepts LO: 8.5 Define trademark and service mark and describe the penalties for trademark infringement. AACSB: Analytical thinking Classification: Concept
30 C..
97) ________ 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) Tarnishment B) Blurring C) Astroturfing D) Trolling Answer: A Diff: 1 Skill: Legal Concepts LO: 8.6 Define dilution and describe the forms of dilution of a trademark. AACSB: Analytical thinking Classification: Concept 98) ________ is a type of trademark dilution 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. A) Confusing B) Blurring C) Tarnishing D) Rusting Answer: B Diff: 1 Skill: Legal Concepts LO: 8.6 Define dilution and describe the forms of dilution of a trademark. AACSB: Analytical thinking Classification: Concept 99) Congress passed the ________ to address the problem of a party using a name similar to or close to, but not exactly identical to, a holder's trademark name and who either sells other goods or services than the trademark holder sells, or misuses the name. A) Federal Trademark Dilution Act B) Lanham Act C) Telecommunication Act D) Economic Espionage Act Answer: A Diff: 1 Skill: Legal Concepts LO: 8.6 Define dilution and describe the forms of dilution of a trademark. AACSB: Analytical thinking Classification: Concept
31 C..
100) In a federal trademark dilution lawsuit, which of these need the plaintiff NOT prove at trial? A) that the plaintiff's trademark is famous B) that the plaintiff suffered actual harm C) that the use by the other party was commercial D) that the use by the other party caused a likelihood of dilution of the distinctive quality of the trademark Answer: B Diff: 1 Skill: Legal Concepts LO: 8.6 Define dilution and describe the forms of dilution of a trademark. AACSB: Analytical thinking Classification: Concept 101) Which of these is NOT a treaty that protects intellectual property rights internationally? A) the Paris Convention B) the Madrid Agreement and Protocol C) the Warsaw Pact D) the Nice Agreement Answer: C Diff: 1 Skill: Legal Concepts LO: 8.6 Define dilution and describe the forms of dilution of a trademark. AACSB: Analytical thinking Classification: Concept 102) In a dilution lawsuit, the plaintiff must show proof of actual harm in order to win the lawsuit. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 8.6 Define dilution and describe the forms of dilution of a trademark. AACSB: Analytical thinking Classification: Concept
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103) 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 Skill: Legal Concepts LO: 8.6 Define dilution and describe the forms of dilution of a trademark. AACSB: Analytical thinking Classification: Concept
33 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 9 Formation and Requirements of Contracts 1) Which of the following is acceptable consideration for a contract? A) a penalty B) an arrest C) a sentence D) money Answer: D Diff: 1 Skill: Legal Concepts LO: 9.1 Define contract and list the elements necessary to form a valid contract. AACSB: Analytical thinking Classification: Concept 2) Provision of services qualifies as consideration for an enforceable contract. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 9.1 Define contract and list the elements necessary to form a valid contract. AACSB: Analytical thinking Classification: Concept 3) 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 the like, 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 Skill: Legal Concepts LO: 9.1 Define contract and list the elements necessary to form a valid contract. AACSB: Analytical thinking Classification: Concept
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4) 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, forcing him to sign a contract in favor of Sam. When Sam takes this contract to court, the contract will be declared ________. A) voidable B) void C) null D) unenforceable Answer: A Diff: 3 Skill: Factual Application LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Application of knowledge Classification: Application 5) A contract is a(n) ________ contract if the offeror's promise is answered with the offeree's promise of acceptance. A) voidable B) executed C) unilateral D) bilateral Answer: D Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 6) Windsor, the owner of Windsor's Sandwiches, contacts Gary, a new supplier. He promises 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) bilateral B) unilateral C) executed D) voidable Answer: A Diff: 2 Skill: Factual Application LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Application of knowledge Classification: Application
2 C..
7) A contract is ________ if the offeror's offer can be accepted only by the performance of an act by the offeree. A) executed B) executory C) unilateral D) bilateral Answer: C Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 8) Yvonne finds a carpenter to do some repairs for her house and tells him that if he finishes the job by Saturday, she will pay him $1,000. Yvonne's offer creates a(n) ________ contract. A) executed B) unilateral C) executory D) bilateral Answer: B Diff: 2 Skill: Factual Application LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Application of knowledge Classification: Application 9) 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 is accurate? A) Martha can sue the baker but cannot recover damages. B) Martha can sue the baker and recover $150 in damages. C) Martha cannot sue the baker. D) The baker must pay Martha $150 plus the cost of a replacement cake, as he entered into a verbal contract with her and did not perform his legal obligation. Answer: C Diff: 2 Skill: Factual Application LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Application of knowledge Classification: Application
3 C..
10) 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 an informal verbal agreement is not legally binding B) can revoke the contract, provided he does so before she completes the marathon C) can reduce the amount of money he offered her, provided he does so before she completes the marathon D) cannot revoke the contract Answer: D Diff: 2 Skill: Factual Application LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Application of knowledge Classification: Application 11) Which of the following is an example of an informal contract? A) a recognizance B) a lease C) a letter of credit D) a check Answer: B Diff: 2 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 12) What is a recognizance? A) a sealed document that contains a formal contract whose contents are known to both parties and the referee who supervised its signing B) a party's agreement to pay a sum of money if another person does not pay it C) a party's acknowledgement in court that he or she is not liable to pay money if a certain event occurs D) a sealed document that contains an informal contract whose contents are known only to the parties Answer: B Diff: 2 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept
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13) A(n) ________ contract is a contract entered into by way of an exchange of promises between the parties. A) bilateral B) unilateral C) express D) auction Answer: A Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 14) A(n) ________ contract is only valid once the offeree performs the requested act. A) bilateral B) unilateral C) express D) auction Answer: B Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 15) Which of the following is a necessary condition for a contract to be considered valid? A) It can be voided by both parties. B) It can be voided by one of the parties. C) It is enforceable by both parties. D) It is enforceable by at least one of the parties. Answer: D Diff: 2 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept
5 C..
16) While Harry was intoxicated, he sold his car to Ben for substantially less than its fair market value. This contract is considered ________. A) valid B) voidable C) void D) unenforceable Answer: B Diff: 2 Skill: Factual Application LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Application of knowledge Classification: Application 17) Noelle uses blackmail to force Jeff to sign a contract for the sale of his home. This contract is ________. A) unenforceable B) valid C) void D) voidable Answer: D Diff: 2 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 18) If a contract is required to be in writing under the Statute of Frauds but is not, the contract is ________. A) executed B) unilateral C) unenforceable D) formal Answer: C Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept
6 C..
19) A contract that has been fully performed by one party but not by the other party is a(n) ________ contract. A) void B) voidable C) executory D) executed Answer: C Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 20) Elizabeth signs a contract to purchase a new car from Quickcash Motors. She has not yet paid for the car, and Quickcash Motors has not yet delivered the car to Elizabeth. This is an example of a(n) ________ contract. A) unenforceable B) executory C) void D) executed Answer: B Diff: 2 Skill: Factual Application LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Application of knowledge Classification: Application 21) In terms of a contract's enforcement, which of the following is true? A) A contract is only considered valid if it is enforceable by both parties. B) Parties may voluntarily perform a contract that is unenforceable. C) An unenforceable contract allows at least one party the option to void his or her contract obligations. D) Void contracts are enforceable in cases involving mutual mistake. Answer: B Diff: 2 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept
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22) An oral agreement to purchase a neighbor's bicycle for $250 is a(n) ________ contract. A) void B) voidable C) implied D) express Answer: D Diff: 2 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 23) Which of the following elements must be established to create an implied-in-fact contract? A) The plaintiff provided property or services to the defendant gratuitously. B) The defendant accepted the plaintiff's property or services as payment for an illegal activity. C) The plaintiff made the defendant sign the contract and then changed its terms, identifying the new terms as "retroactively implied." D) The defendant was given an opportunity to reject the plaintiff's property or services but failed to do so. Answer: D Diff: 2 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 24) In terms of the doctrine of quasi-contract, which of the following statements is true? A) The agreement between the parties to a quasi-contract is inferred from their conduct. B) It is an equitable doctrine intended to prevent unjust enrichment. C) It only applies to situations involving an enforceable contract between the parties. D) It allows a court to award damages to the defendant even though no actual contract existed between the parties. Answer: B Diff: 2 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept
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25) Stella is injured in a car accident and is transported to the local hospital by emergency personnel. She subsequently passes into a coma. The doctors and other staff perform the necessary medical procedures to save her life. Stella recovers after two months and is discharged from the hospital. Under the doctrine of ________ contract, Stella must pay the hospital for its services. A) implied-in-fact B) express C) quasiD) formal Answer: C Diff: 2 Skill: Factual Application LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Application of knowledge Classification: Application 26) Kyle goes to a used automobile dealership to buy a truck. He signs an agreement with the dealership that includes a description of the truck, its price, and other details. This is an example of a(n) ________ contract. A) express B) unilateral C) implied-in-law D) implied-in-fact Answer: A Diff: 2 Skill: Factual Application LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Application of knowledge Classification: Application 27) Which of the following would likely give rise to a quasi-contract? A) an employee receiving his or her paycheck monthly B) two companies signing a business agreement of indefinite duration C) an unconscious man being treated in a hospital emergency room D) a woman hiring a caterer only after the caterer promises to deliver the food on time Answer: C Diff: 3 Skill: Factual Application LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Application of knowledge Classification: Application
9 C..
28) A contract in which an agreement between the parties is inferred from their conduct is known as a(n) ________ contract. A) bilateral B) unilateral C) express D) implied-in-fact Answer: D Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 29) A(n) ________ contract is a contract that has not been fully performed by either or both sides. A) formal B) executory C) auction D) implied-in-fact Answer: B Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 30) A contract is said to be ________ when one or both parties have the option to void the contractual obligations. A) voidable B) executory C) void D) implied-in-fact Answer: A Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept
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31) 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) voidable B) quasi-contract C) void D) implied-in-fact Answer: B Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 32) Tony and Max came to an agreement that if Tony fixed the bumper on Max's car by Friday, Max would pay Tony $500. This is an example of a(n) ________ contract. A) bilateral B) unilateral C) unconscionable D) illusory Answer: A Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 33) An act of performance is necessary to create a ________ contract. A) bilateral B) unilateral C) express D) implied-in-fact Answer: B Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept
11 C..
34) 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 ________. A) the offeror originally published the offer in a newspaper of general circulation B) the offeror has not been informed that anyone is interested C) the offeree has told others that he/she plans on accepting the offer D) the offeree has begun or has substantially completed performance Answer: D Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 35) A contract that has been fully performed by both sides is called a(n) ________ contract. A) executed B) executory C) unilateral D) bilateral Answer: A Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 36) An express contract ________. A) must be in writing B) can only be oral C) is stated in oral or written words D) is implied from the behavior of the parties Answer: C Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 37) A unilateral contract can be accepted without the performance of an act by the offeree. Answer: FALSE Diff: 2 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept
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38) An offer to create a unilateral contract cannot be accepted by a promise to perform. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 39) In a recognizance, a party agrees to pay a specified sum of money if another party does not pay it. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 40) A voidable contract is also termed as an unenforceable contract. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 41) To create an implied-in-fact contract, it must be established that the plaintiff provided the property or services gratuitously. Answer: FALSE Diff: 2 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 42) An implied-in-fact contract is a contract in which agreement between parties has been inferred from their conduct. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept
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43) 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 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 44) 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 (1) consists of an agreement between the parties, (2) is supported by legally sufficient consideration, (3) is between parties with contractual capacity, and (4) 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 then 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 in writing, the contract is unenforceable. Diff: 2 Skill: Legal Concepts LO: 9.2 Describe and distinguish among valid, void, voidable, and unenforceable contracts. AACSB: Analytical thinking Classification: Concept 45) The ________ states that the intent to contract is judged by the reasonable person standard and not by the subjective intent of the parties. A) objective theory of contracts B) common law of contracts C) Restatement of the Law of Contracts D) Restatement (Second) of Contracts Answer: A Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept
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46) According to the objective theory of contracts, the intent to enter into a contract is judged by the ________. A) doctrine of equity B) legality of the contract C) reasonable person standard D) common law of contracts Answer: C Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 47) Which of the following is true for an auction with reserve? A) The seller retains the right to refuse the highest bid and withdraw the goods from sale. B) An invitation to make an offer is not allowed. C) An auctioned item cannot be withdrawn from the auction after an offer has been made. D) A bid cannot be withdrawn and is legally binding from the moment it is made. Answer: A Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 48) 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 auctioned item cannot be withdrawn from sale. D) The auctioneer is not allowed to establish a minimum bid. Answer: C Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept
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49) Which of the following statements is true about a counteroffer? A) An offeree who makes a counteroffer is still considered the offeree. B) A counteroffer terminates the existing offer. C) A counteroffer can only be made by the original offeror. D) A counteroffer is effective even before it has been received by the original offeror. Answer: B Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 50) Which of the following is true of an option contract? A) If the offeree chooses not to buy the property, the consideration paid must be returned. B) The consideration paid for the option cannot be applied to the sale price. C) The death or incompetency of either party terminates an option contract. D) The offer cannot be revoked during the option period. Answer: D Diff: 2 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 51) The ________ rule states that acceptance is effective when it is dispatched, even if it is lost in transmission. A) silence-as-acceptance B) mirror image C) mailbox D) mutual assent Answer: C Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept
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52) An offeror can ________ an offer by withdrawing the offer prior to its acceptance. A) counteroffer B) disaffirm C) accept D) revoke Answer: D Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 53) A(n) ________ is a response by an offeree that contains terms and conditions different from or in addition to those of the offer. A) counteroffer B) disaffirmance C) acceptance D) revocation Answer: A Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 54) Under the mailbox rule, an acceptance is effective when ________. A) sealed in an envelope B) received by the offeror C) dispatched/mailed D) appropriate postage is applied to the envelope Answer: C Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept
17 C..
55) The ________ rule states that the offeree must accept the terms of an offer as stated in the offer. A) auction B) mailbox C) mirror-image D) counteroffer Answer: C Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 56) An ________ is a contract in which the original offeree pays consideration (usually money) in return for the original offeror giving consideration (time of the option period). A) option contract B) executory contract C) auction contract D) implied-in-fact contract Answer: A Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 57) A rejection of an offer is not effective until ________. A) it is actually received by the offeror B) it is mailed, postage paid, to the offeror C) the offeree informs his attorney to draw up the appropriate papers to reject D) the offeree files a petition of rejection with the state court Answer: A Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept
18 C..
58) A counteroffer is considered a(n) ________ of the original offer. A) disaffirmance B) rejection C) acceptance D) amendment Answer: B Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 59) To meet the mirror image rule, the offeree must accept the terms of the offer ________. A) using the same method of communication used to communicate the offer B) with only minor modification C) without modification D) in backward order Answer: C Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 60) Unless otherwise expressly stated, an auction is considered an auction without reserve. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 61) In auction without reserve, the seller is the offeree. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 62) An option contract is terminated upon the death of the offeror. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 19 C..
63) Under the mailbox rule, an acceptance is only effective when it is received. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 64) Give an account of termination of an offer due to a 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 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 65) Identify the three elements required for an offer to be effective and the four terms that an offer must generally contain. Answer: The three elements required for an offer to be effective are: (1) the offeror must objectively intend to be bound by the offer, (2) the terms of the offer must be definite or reasonably certain, and (3) the offer must be communicated to the offeree. Generally, an offer 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. Diff: 1 Skill: Legal Concepts LO: 9.3 Define agreement and describe offer and acceptance. AACSB: Analytical thinking Classification: Concept 66) 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 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept
20 C..
67) Which of the following is true of a gift promise? A) A gift promise can be enforced by a court of law. B) A completed gift promise cannot be cancelled for lack of consideration. C) A gift promise contains mutual consideration. D) The promisee can take legal action if the promisor does not fulfill the gift promise. Answer: B Diff: 1 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 68) 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 is already under an obligation to do C) because one or both of the 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 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 69) ________ is defined as something of legal value given in exchange for a promise. A) Option B) Consideration C) Offer D) Acceptance Answer: B Diff: 1 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept
21 C..
70) A contract into which parties enter but in which one or both of the parties can choose not to perform their contractual obligations is said to involve ________ promises. A) option B) executory C) illusory D) implied-in-fact Answer: C Diff: 1 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 71) Enforceable contracts ________ arise from a bargained-for exchange. A) rarely B) need not C) must D) cannot Answer: C Diff: 1 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 72) An illusory promise is a contract into which both parties enter but in which ________ parties can choose not to perform their contractual obligations. A) just one of the B) neither of C) one or both of the D) third Answer: C Diff: 1 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept
22 C..
73) A preexisting duty ________ consideration to support a new contract. A) is sufficient B) in government contracts can be sufficient C) between family members is sufficient D) is not sufficient Answer: D Diff: 1 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 74) A preexisting duty ________ consideration to support a new contract. A) is sufficient B) in government contracts can be sufficient C) between family members is sufficient D) is not sufficient Answer: D Diff: 1 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 75) Consideration is defined as something of legal value given in exchange for termination of an offer. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 76) Past consideration is sufficient consideration to support a new contract. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept
23 C..
77) Describe some of the different forms of consideration. Answer: The most common types of consideration 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 or billiards for money" for a specified time period). Diff: 2 Skill: Legal Concepts LO: 9.4 Define consideration and describe the requirements of consideration. AACSB: Analytical thinking Classification: Concept 78) In terms of contractual capacity, what is the most commonly-recognized age of majority? A) 15 B) 16 C) 18 D) 21 Answer: C Diff: 2 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept 79) In terms of the infancy doctrine, which of the following is true? A) A minor must honor a contract he or she entered into with an adult if the minor had sufficient mental capacity when the contract was formed. B) A minor can disaffirm a contract he or she entered into with an adult. C) A minor cannot enter into a legal contract with another minor. D) A minor cannot elect to enforce a contract he or she has entered into with an adult. Answer: B Diff: 2 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept
24 C..
80) 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 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept 81) Which of the following is true of a contract in which 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 of the insane person can modify the contract. D) The sane person must be placed in status quo if the insane person voids the contract. Answer: B Diff: 2 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept 82) The infancy doctrine allows minors to ________ most contracts they have entered into with adults. A) publish B) defer C) execute D) disaffirm/cancel Answer: D Diff: 1 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept
25 C..
83) The infancy doctrine ________. A) gives minors the right to disaffirm most contracts they have entered into with adults B) requires courts to enforce all contracts that minors have entered into with adults C) makes it a crime to get an infant to sign a contract D) allows adults to sue children with whom they have contracted Answer: A Diff: 1 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept 84) Any contract entered into by a person who has been adjudged insane is ________. A) voidable B) illusory C) enforceable D) void Answer: D Diff: 1 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept 85) A person who disaffirms a contract based on intoxication must ________. A) enter rehab for the disaffirmance to be enforceable B) be returned to the status quo C) petition the court in order for the disaffirmance to be valid D) be held to the terms of the contract Answer: B Diff: 1 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept 86) The infancy doctrine gives adults the right to disaffirm contracts they have entered into with minors. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept
26 C..
87) A person who has dealt with an insane person need not place that insane person in status quo if the contract is either void or voided by the insane person. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept 88) If an insane person who has not been adjudged insane enters into a contract, the contract is non-voidable by the insane person. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept 89) A person who disaffirms a contract based on intoxication is not legally obligated to return the consideration he or she received under the contract to the other party. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept
27 C..
90) Explain in brief the standards concerning contracts of mentally incompetent persons. 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. The law has developed two standards concerning contracts of mentally incompetent persons: (1) adjudged insane and (2) insane but not adjudged insane. In certain cases, a relative, a loved one, or another interested party may institute a legal action to have someone declared legally (i.e., adjudged) insane. If, after evidence is presented at a formal judicial or administrative hearing, the person is adjudged insane, the court will make that person a ward of the court and appoint a guardian to act on that person's behalf. Any contract entered into by a person who has been adjudged insane is void. That is, no contract exists. The courtappointed guardian is the only one who has the legal authority to enter into contracts on behalf of the person who has been adjudged insane. If no formal ruling has been made about a person's sanity but the person suffers from a mental impairment that makes him or her legally insane—that is, the person is insane but not adjudged insane—any contract entered into by this person is voidable by the insane person. Unless the other party does not have contractual capacity, he or she does not have the option to void the contract. A person who has dealt with an insane person must place that insane person in status quo if the contract is either void or voided by the insane person. Diff: 2 Skill: Legal Concepts LO: 9.5 Describe capacity to contract. AACSB: Analytical thinking Classification: Concept 91) 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 Skill: Legal Concepts LO: 9.6 Describe lawful contracts and identify illegal contracts. AACSB: Analytical thinking Classification: Concept 92) An exculpatory clause can relieve a party of liability for ordinary negligence. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 9.6 Describe lawful contracts and identify illegal contracts. AACSB: Analytical thinking Classification: Concept 28 C..
93) Bookie Bill runs an illegal sports gambling operation. Sam pays Bookie Bill $500 for bets on the weekend's college football games. All of Sam's selected teams win, and, under the terms of his agreement with Bookie Bill, should be paid $5,000 in winnings. When Bookie Bill refused to pay Sam the gambling winning, Sam sued. Will the court order Bookie Bill to pay Sam? Why or why not? Answer: A contract with an illegal object is void and therefore unenforceable. The illegal gambling contract here is thus void and unenforceable. Because this illegal contract is void, the court will not enforce the contract and will dismiss Sam's lawsuit. Diff: 1 Skill: Legal Concepts LO: 9.6 Describe lawful contracts and identify illegal contracts. AACSB: Application of knowledge Classification: Concept 94) 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 attrition C) contract in furtherance of trade D) quasi-contract Answer: A Diff: 1 Skill: Legal Concepts LO: 9.7 Define unconscionable contract and determine when such contracts are unenforceable. AACSB: Analytical thinking Classification: Concept 95) Which of the following elements must be established for a contract to be deemed unconscionable? A) The weaker party did not enter the contract under duress. B) The parties had equal bargaining power. C) The dominant party justly used its bargaining power. D) The adhering party had no reasonable alternative. Answer: D Diff: 2 Skill: Legal Concepts LO: 9.7 Define unconscionable contract and determine when such contracts are unenforceable. AACSB: Analytical thinking Classification: Concept
29 C..
96) Unconscionable contracts are sometimes found where there is a consumer contract that takes advantage of uneducated, poor, or elderly people who have been persuaded to enter into unfair contracts. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 9.7 Define unconscionable contract and determine when such contracts are unenforceable. AACSB: Analytical thinking Classification: Concept 97) Over the course of 15 years, Norma, a retiree on a fixed income, purchased seven different major household appliances on credit from "Easy Eddie's Appliance Store — The Home of Easy Credit." Norma was a day late in paying the final payment on a refrigerator, which was the seventh, and last, appliance she bought from Easy Eddie. Hidden in Easy Eddie's consumer credit contract is a clause that says that if a person is even one day late with any payment, Easy Eddie's has the right to repossess all appliances ever purchased from Easy Eddie's. Eddie filed a lawsuit to enforce this contract clause and sought a court order allowing it to go into Norma's house and confiscate all seven appliances that Norma had purchased from Easy Eddie's over the past 15 years. How do you think Easy Eddie's will fare in court? Explain. Answer: The general rule of freedom of contract holds that if the object of a contract is lawful and the other elements for the formation of a contract are met, the courts will enforce the contract according to its terms. However, when a contract is so oppressive or manifestly unfair as to be unjust, the law has developed the equity doctrine of unconscionability to prevent the enforcement of such contracts. Here, the court will probably find that the contract clause in question is unconscionable: (1) The parties possessed unequal bargaining power, (2) the dominant party unreasonably used its unequal bargaining power to obtain manifestly unfair contract terms, and (3) the adhering party had no reasonable alternative. As such, the court will probably refuse to enforce the unconscionable. Diff: 1 Skill: Legal Concepts LO: 9.7 Define unconscionable contract and determine when such contracts are unenforceable. AACSB: Analytical thinking Classification: Concept 98) The Uniform Computer Information Transactions Act (UCITA) ________. A) was enacted by Congress in 2016 B) is a model state statute that all states have adopted C) is a model state statute that most states have not adopted D) was enacted by the United Nations General Assembly in 2015 Answer: C Diff: 1 Skill: Legal Concepts LO: 9.8 Describe e-commerce and e-contracts. AACSB: Analytical thinking Classification: Concept 30 C..
99) The ________ establishes uniform legal rules for the formation and enforcement of electronic contracts and licenses. A) Uniform Computer Information Transactions Act (UCITA) B) Lanham Act C) Telecommunication Act D) Economic Espionage Act Answer: A Diff: 1 Skill: Legal Concepts LO: 9.8 Describe e-commerce and e-contracts. AACSB: Analytical thinking Classification: Concept 100) The Uniform Computer Information Transactions Act (UCITA) is a law applicable to all states and does not require a state legislature to adopt it as a statute for the state. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 9.8 Describe e-commerce and e-contracts. AACSB: Analytical thinking Classification: Concept 101) Explain in brief the Uniform Computer Information Transactions Act (UCITA). 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 UCITA is a model act that does not become law until a state legislature adopts it as a statute for the state. Although most states have not adopted the UCITA, the UCITA has served as a model for states that have enacted their own statutes that govern e-commerce. Because of the need for uniformity of ecommerce rules, states are attempting to adopt uniform laws to govern the creation and enforcement of cyberspace contracts and licenses. Diff: 2 Skill: Legal Concepts LO: 9.8 Describe e-commerce and e-contracts. AACSB: Analytical thinking Classification: Concept
31 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 10 Performance and Breach of Contracts 1) Which of the following is true of a unilateral mistake? A) Only one mistake or ambiguity is present in the subject matter of 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 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 2) Heather chooses to buy a scarf from Macy's and reads the price on the tag as $50. She uses her credit card to pay for the scarf, but only after the purchase does she notice 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 Skill: Factual Application LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Application of knowledge Classification: Application 3) A contract involving mutual mistake of value is ________. A) rescindable B) ambiguous C) enforceable D) void Answer: C Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept
1 C..
4) A(n) ________ 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 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 5) In order to prove fraud, which of these elements must be shown? A) The innocent party knew the wrongdoer. B) The innocent party detected the misrepresentation prior to the contract's formation. C) The wrongdoer assumed a false identity. D) The innocent party justifiably relied on the wrongdoer's misrepresentation. Answer: D Diff: 2 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 6) ________ 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 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept
2 C..
7) Which of the following scenarios makes Tim liable for undue influence? A) He uses a false identity, borrows $10,000 from Kelly, and disappears with the money. B) He threatens to kill Carlos if Carlos does not sign a contract that transfers all his property to Tim. C) He takes advantage of his grandmother's illness and persuades her to sign a will, leaving all of her property to him. D) He threatens to bring a lawsuit against Carlos if Carlos does not make him a partner in his firm. Answer: C Diff: 3 Skill: Factual Application LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Application of knowledge Classification: Application 8) In a(n) ________ mistake, only one party is mistaken about a material fact regarding the subject matter of the contract. A) bilateral B) mutual C) innocent D) unilateral Answer: D Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 9) A(n) ________ exists if both parties know the object of the contract but are mistaken as to its value. A) mutual mistake of a material fact B) mutual mistake of value C) innocent misrepresentation D) unilateral mistake Answer: B Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept
3 C..
10) Intentional misrepresentation is commonly referred to as ________. A) mutual mistake of a material fact B) mutual mistake of value C) fraud D) unilateral mistake Answer: C Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 11) ________ refers to the knowledge that a representation is false. A) Collusion B) Duress C) Ambiguity D) Scienter Answer: D Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 12) ________ refers to a situation in which a party threatens to do a wrongful act unless another party enters into a contract. A) Duress B) Scienter C) Undue influence D) Fraud Answer: A Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept
4 C..
13) John feels that Matt defrauded him in the sale of a used car and wants to sue him. For John to succeed in court he will have to prove that Matt ________. A) did not know John previously B) made a false representation of a material fact C) acted without scienter D) was secretly working for John's long-time rival Answer: B Diff: 2 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Application of knowledge Classification: Concept 14) The doctrine of undue influence, by which a court may permit the rescission of a contract, is a(n) ________ doctrine. A) law B) equitable C) statutory D) constitutional Answer: B Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 15) In a situation involving undue influence, the party who takes advantage of another person's mental, emotional, or physical weakness to unduly persuade that person to enter into a contract is called the ________. A) servient party B) correspondent C) dominant party D) fraudster Answer: C Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept
5 C..
16) In a situation involving undue influence, the party who is unduly persuaded to enter into a contract due to their mental, emotional, or physical weakness is called the ________. A) servient party B) correspondent C) dominant party D) fraudster Answer: A Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 17) A contract that is entered into because of undue influence is ________. A) void B) fully enforceable C) voidable by either party D) voidable by the innocent party Answer: D Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 18) A 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 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 19) 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 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept
6 C..
20) An ambiguity in a contract may constitute a mutual mistake of a material fact. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 21) A contract cannot be rescinded if there has been a mutual mistake. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 22) A unilateral mistake occurs if both parties know the object of the contract but are mistaken as to its value. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 23) Intentional misrepresentation is considered fraud. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 24) To be actionable as fraud, the misrepresentation must be the sole factor in inducing the innocent party to enter into the contract. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept
7 C..
25) The term scienter refers to the knowledge that a representation is false or that it was made without sufficient knowledge of the truth. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 26) A misrepresentation is considered fraud even if it is made without the intent to deceive another party. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 27) The measure of damages awarded to an 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 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 28) 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 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 29) Duress only occurs when a threat involves physical harm. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept
8 C..
30) Duress occurs when one person takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person to enter into a contract. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 31) What is intentional misrepresentation and what are the elements required to prove fraud? Answer: A misrepresentation occurs when an assertion is made that is not in accord with the facts. An intentional misrepresentation occurs when one person consciously decides to induce another person to rely and act on a misrepresentation. Intentional misrepresentation is commonly referred to as fraudulent misrepresentation, or fraud. 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. 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: 2 Skill: Legal Concepts LO: 10.1 Describe genuineness of assent and how it is affected by mistake, fraud, and duress. AACSB: Analytical thinking Classification: Concept 32) Which of the following is considered real property? A) a fixture permanently affixed to a building B) fifty-one percent partnership in a firm C) a car D) diamond jewelry Answer: A Diff: 2 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept
9 C..
33) 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 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 34) Which of the following contracts are required to be in writing in most states? A) contracts for the sale of goods priced at $100 B) contracts for the lease of goods with payments of $500 C) promises to transfer an ownership interest in real property D) handshake deals Answer: C Diff: 2 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 35) 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? 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 Skill: Factual Application LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Application of knowledge Classification: Application
10 C..
36) Which of the following does Section 2A-201(1) of the Uniform Commercial Code state? A) All lease contracts must be in writing. B) Lease contracts requiring payments of $1,000 or more must be in writing. C) All sales contracts must be in writing. D) Sales contracts requiring payments of $500 or more must be in writing. Answer: B Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 37) The ________ states 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) equal dignity rule Answer: C Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 38) The ________ is an equitable doctrine that 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) main purpose exception B) leading object exception C) doctrine of part performance D) equal dignity rule Answer: C Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept
11 C..
39) The ________ states that agents' contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable. A) main purpose exception B) leading object exception C) parol evidence rule D) equal dignity rule Answer: D Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 40) A ________ refers to a promise in which one person agrees to answer for the debts or duties of another person. A) covenant B) guaranty contract C) recision D) novation Answer: B Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 41) Section 2-201(1) of the ________ is the basic Statute of Frauds provision for sales contracts. A) Uniform Commercial Code (UCC) B) Sarbanes-Oxley Act C) Uniform Computer Information Transactions Act (UCITA) D) Lanham Act Answer: A Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept
12 C..
42) A ________ is a clause in a contract which stipulates that the contract is a complete integration and the exclusive expression of the parties' agreement. A) condition precedent B) condition subsequent C) merger clause/integration clause D) covenant Answer: C Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 43) The term ________ refers to any oral or written words outside the four corners of a written contract. A) concurrent condition B) parol evidence C) merger clause D) implied condition Answer: B Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 44) Trees, crops, minerals, and timber are not considered real property and are thus barred from being included in contracts involving interests in real property. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 45) 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 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept
13 C..
46) According to the equal dignity rule, agents' contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 47) The one-year rule states that 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 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 48) If the modification of a 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 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 49) In terms of compliance with the Statute of Frauds and the Uniform Commercial Code, the signature of the person who is enforcing the contract is required. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 50) The parol evidence rule stipulates that the contract is a complete integration and the exclusive expression of the parties' agreement. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept
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51) 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 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 52) Under the Statute of Frauds, any contract that transfers an ownership interest in real property must be in writing to be enforceable. Describe what is meant by "real property" for purposes of the Statute of Frauds. Answer: For purposes of the Statute of Frauds, "real property" includes land, as well as any buildings, trees, soil, minerals, timber, plants, crops, fixtures, and things permanently affixed to the land or buildings. Additionally, certain items of personal property that are permanently affixed to real property are fixtures that become part of the real property. Moreover, other contracts that transfer an ownership interest in land that must be in writing under the Statute of Frauds include mortgages, leases for a term over one year, and express easements. Diff: 2 Skill: Legal Concepts LO: 10.2 List and describe the contracts that must be in writing under the Statute of Frauds. AACSB: Analytical thinking Classification: Concept 53) 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 Skill: Legal Concepts LO: 10.3 Describe third-party rights in contracts. AACSB: Analytical thinking Classification: Concept
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54) Kimlon Informatics is owed $5,000 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) obligee C) subassignee D) assignee Answer: B Diff: 2 Skill: Factual Application LO: 10.3 Describe third-party rights in contracts. AACSB: Application of knowledge Classification: Application 55) A(n) ________ is 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) assignor C) sub-assignor D) intended third-party beneficiary Answer: D Diff: 1 Skill: Legal Concepts LO: 10.3 Describe third-party rights in contracts. AACSB: Analytical thinking Classification: Concept 56) An obligee who transfers a right is known as a(n) ________. A) third-party contractor B) subassignee C) incidental beneficiary D) assignor Answer: D Diff: 1 Skill: Legal Concepts LO: 10.3 Describe third-party rights in contracts. AACSB: Analytical thinking Classification: Concept
16 C..
57) A(n) ________ is a party who is unintentionally benefited by other people's contracts. A) incidental beneficiary B) intended third-party beneficiary C) sub-assignor D) obligee Answer: A Diff: 1 Skill: Legal Concepts LO: 10.3 Describe third-party rights in contracts. AACSB: Analytical thinking Classification: Concept 58) After signing his latest contract, professional basketball star Michael James contracted with MacMansion Construction to build a $1 million home for his mother. If MacMansion Construction fails to build the home, can Michael James' mother sue MacMansion? A) No, as she is not a party to the contract. B) Yes, because she is an incidental beneficiary. C) No, because she is an incidental beneficiary. D) Yes, because she is an intended third-party beneficiary. Answer: D Diff: 2 Skill: Legal Concepts LO: 10.3 Describe third-party rights in contracts. AACSB: Application of knowledge Classification: Concept 59) After signing his latest contract, professional basketball star Michael James contracted with MacMansion Construction to build a $1 million home for his mother. Home developer Eric Muldoon purchased all of the lots surrounding the lot where James' mother's home would be built, figuring that the James house would increase the value of all of the real estate in the neighborhood. If MacMansion Construction fails to build the home, can Eric Muldoon sue MacMansion? A) Yes, because he is an intended third-party beneficiary. B) Yes, because he is an incidental beneficiary. C) No, because he is an incidental beneficiary. D) No, because he is an intended third-party beneficiary. Answer: C Diff: 2 Skill: Legal Concepts LO: 10.3 Describe third-party rights in contracts. AACSB: Application of knowledge Classification: Concept
17 C..
60) In general, third parties do not acquire any rights under other people's contracts. Two exceptions include those for ________. A) obligees and incidental beneficiaries B) assignees and intended third-party beneficiaries C) assignees and incidental beneficiaries D) obligees and intended third-party beneficiaries Answer: B Diff: 1 Skill: Legal Concepts LO: 10.3 Describe third-party rights in contracts. AACSB: Analytical thinking Classification: Concept 61) Describe the differences between an intended third-party beneficiary and an incidental beneficiary. Answer: When parties enter into a contract, they can agree that the performance of one of the parties should be rendered to or directly benefit a third party. This third party is called an intended third-party beneficiary. An intended third-party beneficiary can enforce the contract against the party who promised to render performance. On the other hand, when parties to a contract unintentionally benefit a third party when a contract is performed this third party is referred to as an incidental beneficiary. An incidental beneficiary has no rights to enforce or sue under other people's contracts. Diff: 2 Skill: Legal Concepts LO: 10.3 Describe third-party rights in contracts. AACSB: Analytical thinking Classification: Concept 62) Which of the following phrases explains 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 Skill: Legal Concepts LO: 10.4 Describe and distinguish between covenants and conditions in contracts. AACSB: Analytical thinking Classification: Concept
18 C..
63) 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 that excuse performance. D) A party cannot sue the other party for breach of a covenant. Answer: B Diff: 2 Skill: Legal Concepts LO: 10.4 Describe and distinguish between covenants and conditions in contracts. AACSB: Analytical thinking Classification: Concept 64) ________ 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 Skill: Legal Concepts LO: 10.4 Describe and distinguish between covenants and conditions in contracts. AACSB: Analytical thinking Classification: Concept 65) KnockKnock, Inc. is a manufacturer of stainless steel locks which are well known for their durability. The company contacts a new supplier and forms a supply contract. The contract states that KnockKnock, Inc. will only purchase steel from the supplier if the material supplied is 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 Skill: Factual Application LO: 10.4 Describe and distinguish between covenants and conditions in contracts. AACSB: Application of knowledge Classification: Application
19 C..
66) ________ 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 Skill: Legal Concepts LO: 10.4 Describe and distinguish between covenants and conditions in contracts. AACSB: Analytical thinking Classification: Concept 67) 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(n) ________. A) condition precedent B) condition subsequent C) concurrent condition D) implied condition Answer: B Diff: 3 Skill: Factual Application LO: 10.4 Describe and distinguish between covenants and conditions in contracts. AACSB: Application of knowledge Classification: Application 68) A ________ is an unconditional promise to perform. A) parol evidence B) covenant C) condition subsequent D) rescission Answer: B Diff: 1 Skill: Legal Concepts LO: 10.4 Describe and distinguish between covenants and conditions in contracts. AACSB: Analytical thinking Classification: Concept
20 C..
69) Contract language such as if, on condition that, provided that, when, after, and as soon as indicate a(n) ________. A) condition B) covenant C) concurrence D) incidental Answer: A Diff: 1 Skill: Legal Concepts LO: 10.4 Describe and distinguish between covenants and conditions in contracts. AACSB: Analytical thinking Classification: Concept 70) A covenant is an unconditional promise to perform. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 10.4 Describe and distinguish between covenants and conditions in contracts. AACSB: Analytical thinking Classification: Concept 71) 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. The majority of provisions in contracts are 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. Generally, contract language such as if, on condition that, provided that, when after, and as soon as indicates a condition. A single contract may contain numerous conditions that trigger or excuse performance. Two types of conditions are: 1. Condition precedent. 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. The happening (or non-happening) of the event triggers the contract or duty of performance. If the event does not occur, no duty to perform the contract arises because there is a failure of condition. 2. Condition subsequent. 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. That is, failure to meet the condition subsequent relieves the other party from obligation under the contract. Diff: 2 Skill: Legal Concepts LO: 10.4 Describe and distinguish between covenants and conditions in contracts. AACSB: Analytical thinking Classification: Concept
21 C..
72) Which of the following is true of discharge 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 a breach of contract. Answer: B Diff: 2 Skill: Legal Concepts LO: 10.5 Identify when performance of a contract is discharged. AACSB: Analytical thinking Classification: Concept 73) 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 Skill: Legal Concepts LO: 10.5 Identify when performance of a contract is discharged. AACSB: Analytical thinking Classification: Concept 74) Lionel Richmond is a soccer player who has a six-year contract with the Christshire United soccer team. Two years into the contract, he is involved in 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 of performance Answer: D Diff: 2 Skill: Factual Application LO: 10.5 Identify when performance of a contract is discharged. AACSB: Application of knowledge Classification: Application
22 C..
75) A clause in a contract in which the parties specify certain events that will excuse nonperformance is known as a(n) ________. A) approval clause B) express condition C) force majeure clause D) implied-in-fact condition Answer: C Diff: 1 Skill: Legal Concepts LO: 10.5 Identify when performance of a contract is discharged. AACSB: Analytical thinking Classification: Concept 76) ________ is an action to undo a contract. A) Parol evidence B) Covenant C) Condition subsequent D) Rescission Answer: D Diff: 1 Skill: Legal Concepts LO: 10.5 Identify when performance of a contract is discharged. AACSB: Analytical thinking Classification: Concept 77) An agreement whereby the parties agree to settle a contract dispute by accepting something different than in the original contract, and the subsequent performance of this agreement, is called a(n) ________. A) accord and satisfaction B) novation and rescission C) agree to disagree D) plea bargain Answer: A Diff: 1 Skill: Legal Concepts LO: 10.5 Identify when performance of a contract is discharged. AACSB: Analytical thinking Classification: Concept
23 C..
78) An accord, by itself, does not discharge the original contract. The accord ________ the original contract until the accord is performed, i.e., satisfaction. A) rescinds B) novates C) suspends D) cancels Answer: C Diff: 1 Skill: Legal Concepts LO: 10.5 Identify when performance of a contract is discharged. AACSB: Analytical thinking Classification: Concept 79) Satisfaction of an accord discharges ________. A) only the accord B) only the original contract C) both the accord and the original contract D) neither the accord nor the original contract if it is without a novation Answer: C Diff: 1 Skill: Legal Concepts LO: 10.5 Identify when performance of a contract is discharged. AACSB: Analytical thinking Classification: Concept 80) If an accord is not satisfied when it is due, the aggrieved party may ________. A) enforce only the accord B) enforce either the accord or the original contract C) enforce only the original contract D) prosecute for fraud Answer: B Diff: 1 Skill: Legal Concepts LO: 10.5 Identify when performance of a contract is discharged. AACSB: Analytical thinking Classification: Concept 81) A force majeure clause usually excuses nonperformance caused by natural disasters such as floods, tornadoes, and earthquakes. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 10.5 Identify when performance of a contract is discharged. AACSB: Analytical thinking Classification: Concept
24 C..
82) An agreement whereby the parties agree to accept something different in satisfaction of the original contract is called a restitution. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 10.5 Identify when performance of a contract is discharged. AACSB: Analytical thinking Classification: Concept 83) Describe a force majeure clause in a contract, and give some examples. Answer: The parties to a contract may agree that certain events will excuse nonperformance of the contract. These clauses are called force majeure clauses. A force majeure clause usually excuses nonperformance caused by natural disasters such as floods, tornadoes, and earthquakes. Modern clauses also often excuse performance due to labor strikes, shortages of raw materials, and the like. Diff: 2 Skill: Legal Concepts LO: 10.5 Identify when performance of a contract is discharged. AACSB: Analytical thinking Classification: Concept 84) Which of the following statements is true of a breach of contract? A) Strict performance by a party discharges that party's obligations 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 Skill: Legal Concepts LO: 10.6 Describe the performance and breach of contractual duties. AACSB: Analytical thinking Classification: Concept 85) 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 Skill: Legal Concepts LO: 10.6 Describe the performance and breach of contractual duties. AACSB: Analytical thinking Classification: Concept
25 C..
86) 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 in two days after the contract was made. Poole Contractors pays the $50,000 promised in the contract. This is an instance of ________. A) substantial performance B) a material breach C) a minor breach D) strict performance Answer: D Diff: 2 Skill: Factual Application LO: 10.6 Describe the performance and breach of contractual duties. AACSB: Application of knowledge Classification: Application 87) A(n) ________ breach of a contract occurs when a party renders inferior performance of his or her contractual obligations. A) material B) minor C) anticipatory D) defensive Answer: A Diff: 1 Skill: Legal Concepts LO: 10.6 Describe the performance and breach of contractual duties. AACSB: Analytical thinking Classification: Concept 88) Which of these is NOT one of the three types of performance of a contract? A) complete performance B) substantial performance C) adaptive performance D) inferior performance Answer: C Diff: 1 Skill: Legal Concepts LO: 10.6 Describe the performance and breach of contractual duties. AACSB: Analytical thinking Classification: Concept
26 C..
89) Substantial performance is also called ________. A) minor breach B) material breach C) complete breach D) strict breach Answer: A Diff: 1 Skill: Legal Concepts LO: 10.6 Describe the performance and breach of contractual duties. AACSB: Analytical thinking Classification: Concept 90) Inferior performance is also called ________. A) minor breach B) material breach C) complete breach D) strict breach Answer: B Diff: 1 Skill: Legal Concepts LO: 10.6 Describe the performance and breach of contractual duties. AACSB: Analytical thinking Classification: Concept 91) Complete performance occurs when a party to a contract renders performance exactly as required by the contract. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 10.6 Describe the performance and breach of contractual duties. AACSB: Analytical thinking Classification: Concept 92) Substantial performance of a contract constitutes a material breach. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 10.6 Describe the performance and breach of contractual duties. AACSB: Analytical thinking Classification: Concept
27 C..
93) Distinguish between minor breach and 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 non-breaching party may rescind the contract and seek restitution of any compensation paid under the contract to the breaching party. The non-breaching party is discharged from any further performance under the contract. Alternatively, the non-breaching party may treat the contract as being in effect and sue the breaching party to recover damages. Diff: 2 Skill: Legal Concepts LO: 10.6 Describe the performance and breach of contractual duties. AACSB: Analytical thinking Classification: Concept 94) Which of the following is true of monetary damages? A) Monetary damages are available only for material breaches of contract. B) Dollar damages are not monetary damages. C) Compensatory damages are not monetary damages. D) Consequential damages are monetary damages. Answer: D Diff: 2 Skill: Legal Concepts LO: 10.7 List and describe the monetary damages that can be awarded when there is a breach of contract. AACSB: Analytical thinking Classification: Concept
28 C..
95) 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 morning while Mary is using the toaster, it emits sparks and damages the electrical wiring in the kitchen. The electrician tells Mary that the toaster malfunctioned and that the cost of repairs in her kitchen would amount to $2,000. What amount of monetary damages can Mary likely recover from the manufacturer of the toaster? A) $500 B) $2,500 C) $2,000 D) No monetary damages can be recovered. Answer: A Diff: 3 Skill: Factual Application LO: 10.7 List and describe the monetary damages that can be awarded when there is a breach of contract. AACSB: Application of knowledge Classification: Application 96) Compensatory damages are intended to place the nonbreaching party in the same position as if ________. A) the contract had never existed B) the contract had been drafted more favorably to the nonbreaching party C) the nonbreaching party had contracted with the next best offer D) the contract had been fully performed Answer: D Diff: 2 Skill: Legal Concepts LO: 10.7 List and describe the monetary damages that can be awarded when there is a breach of contract. AACSB: Analytical thinking Classification: Concept 97) Consequential damages are also called ________. A) special damages B) compensatory damages C) punitive damages D) liquidated damages Answer: A Diff: 1 Skill: Legal Concepts LO: 10.7 List and describe the monetary damages that can be awarded when there is a breach of contract. AACSB: Analytical thinking Classification: Concept
29 C..
98) When the parties to a contract agree in advance to the amount of damages payable upon a breach of contract, these damages are called ________. A) special damages B) compensatory damages C) punitive damages D) liquidated damages Answer: D Diff: 1 Skill: Legal Concepts LO: 10.7 List and describe the monetary damages that can be awarded when there is a breach of contract. AACSB: Analytical thinking Classification: Concept 99) As a part of a downsizing initiative, Richmond and Sons fired an employee before his employment contract lapsed. Is the employee responsible for mitigating 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. The courts consider such factors as compensation, rank, status, job description, and geographical location in determining the comparability of jobs. Diff: 2 Skill: Legal Concepts LO: 10.7 List and describe the monetary damages that can be awarded when there is a breach of contract. AACSB: Analytical thinking Classification: Concept 100) 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 Skill: Legal Concepts LO: 10.8 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept
30 C..
101) ________ 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 Skill: Legal Concepts LO: 10.8 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept 102) Kinetosphere Automation Inc. (K.A.) makes a mandatory employment contract with all its employees. The contract states that K.A.'s employees are not permitted to work for any other organization while they are employed by K.A. If K.A. finds an employee 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 Skill: Factual Application LO: 10.8 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Application of knowledge Classification: Application 103) Specific performance would NOT be available for a contract where the subject matter of the contract is ________. A) land B) a rare work of art C) ordinary personal property D) heirlooms Answer: C Diff: 2 Skill: Legal Concepts LO: 10.8 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Analytical thinking Classification: Concept
31 C..
104) Before she had her first gold record, singer Taylor Gaga signed a contract with Louis' Bowl 'N' Brew to perform in the bowling alley's lounge on Labor Day weekend. Louis has been promoting the concert because without this concert, Louis will have to shutter the Bowl 'N' Brew. Louis learns that Taylor Gaga has recently signed a contract to perform at the municipal arena on Labor Day weekend. In his lawsuit against Taylor Gaga, what would be the most appropriate equitable relief that Louis should request. Answer: In his lawsuit against Taylor Gaga, the most appropriate equitable relief that Louis should request is that the court issue an injunction. An injunction is a court order that prohibits a person from doing a certain act. To obtain an injunction, Louis would have to show that he will suffer irreparable injury if the injunction is not issued. Here, the injunction would prevent Taylor Gaga from performing at the municipal arena rather than at the Bowl 'N' Brew. Diff: 2 Skill: Legal Concepts LO: 10.8 Describe the equitable remedies of specific performance, reformation, and injunction. AACSB: Application of knowledge Classification: Concept 105) To promotes the arbitration of contract disputes, the U.S. Congress has enacted the ________. A) Federal Arbitration Act B) Uniform Commercial Code C) Securities Exchange Act D) Labor Relations Act Answer: A Diff: 2 Skill: Legal Concepts LO: 10.9 Identify when contract disputes are to be resolved using arbitration. AACSB: Application of knowledge Classification: Concept 106) Describe the arbitration process and how a contract dispute can go to arbitration. Answer: Arbitration is a nonjudicial, private resolution of a contract dispute. An arbitrator, not a judge or jury, renders a decision in the case. Most arbitration agreements stipulate to binding arbitration, that is, the arbitrator's decision cannot be appealed to the courts. Arbitration occurs if the parties have entered into an arbitration agreement, either as part of their contract or as a separate agreement. Many consumer and business contracts contain arbitration clauses. Diff: 2 Skill: Legal Concepts LO: 10.9 Identify when contract disputes are to be resolved using arbitration. AACSB: Application of knowledge Classification: Concept
32 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 11 Digital Law and E-Commerce 1) The computers that constitute the World Wide 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 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept 2) Which of the following best describes the World Wide Web? A) a connection of millions of computers that support a standard set of rules for the exchange of information B) a network of millions of smaller networks, each with an independent set of standards C) a connection of millions of computers across the world with no specific standards or time constraints for exchange of data D) a world-wide network of millions of smaller networks with a different standard of information exchange in each country Answer: A Diff: 2 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept 3) Which of the following is true of the World Wide 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) Web pages are stored on servers which are operated by internet service providers. Answer: D Diff: 2 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept
1 C..
4) The World Wide Web consists of ________ of computers that support a standard set of rules called Hypertext Transfer Protocol (HTTP)for the exchange of information. A) hundreds B) thousands C) millions D) billions Answer: C Diff: 1 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept 5) The World Wide Web is an electronic connection of millions of computers that support a(n) ________ set of rules for the exchange of information. A) standard B) ever-changing C) imprecise D) irregular Answer: A Diff: 1 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept 6) The evolution of the internet helped usher in ________. A) the cold war B) the information age C) the industrial revolution D) the space race Answer: B Diff: 1 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept
2 C..
7) Individuals and businesses can use the internet for communication of ________. A) information and data. B) information only C) data exclusively D) cat videos; that's all, just cat videos Answer: A Diff: 1 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept 8) Which of these companies does NOT have a major online retail presence? A) Amazon B) eBay C) Marlboro cigarettes D) Walmart Answer: C Diff: 1 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept 9) Which of these is NOT a "brick-and-mortar" company that sells its goods and/or services online as well? A) Wal-Mart B) Merrill Lynch C) Dell Computers D) eBay Answer: D Diff: 1 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept
3 C..
10) Websites and web pages are viewed by using web-browsing software such as ________. A) Microsoft Word B) Microsoft Internet Explorer C) Lotus 1-2-3 D) Google Docs Answer: B Diff: 1 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept 11) Websites and web pages are stored on servers throughout the world. In order to locate a particular website, each website has a unique ________. A) online address B) internet protocol C) username and password D) application functionality Answer: A Diff: 1 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept 12) The World Wide Web consists of computers that support a standard set of rules for the exchange of information called File Transfer Protocol (FTP). Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept 13) What is the difference between the internet and the World Wide Web? Answer: The internet is a collection of millions of computers that provide a network of electronic connections between them. Hundreds of millions of computers are connected to the internet. Individuals and businesses use the internet for communication of information and data. The World Wide Web, or just web, consists of millions of computers that support a standard set of rules for the exchange of information called Hypertext Transfer Protocol (HTTP). Web-based documents are formatted using common coding languages. Businesses and individuals can access the web by registering with a service provider. Diff: 2 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept 4 C..
14) What is a website? Answer: A website is composed of electronic documents known as web pages. Websites and web pages are stored on servers throughout the world, which are operated by internet service providers (ISPs). Individuals and businesses can have their own websites. Websites are viewed by using web-browsing software such as Microsoft Internet Explorer or Google Chrome. Each website has a unique online address. Diff: 2 Skill: Legal Concepts LO: 11.1 Describe the internet. AACSB: Analytical thinking Classification: Concept 15) A(n) ________ contract refers to a contract that is entered into by the parties by use of email. A) web B) online C) email D) ISP Answer: C Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 16) 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) Email contracts are enforceable even if they do not meet the requirements of a traditional contract. D) Several emails cannot be integrated to determine the parties' agreement. Answer: A Diff: 2 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept
5 C..
17) Which of the following is true of the CAN-SPAM Act? A) It regards spam email as a punishable offence. B) It prohibits spammers from sending sexually-explicit email. 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 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 18) Which of the following is true of the Communications Decency Act of 1996? A) Businesses can send spam emails, as long as they do not lie. B) ISPs are not liable for the content transmitted over their networks by email users and websites. C) Businesses are liable for invading the right to privacy if they send unsolicited emails. D) The number of servers an ISP can access in a geographical location is limited. Answer: B Diff: 2 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 19) 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 is true of 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 Skill: Factual Application LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Application of knowledge Classification: Application
6 C..
20) The ________ is a federal statute that places certain restrictions on persons and businesses that send unsolicited commercial advertising to email accounts, prohibits falsified headers, prohibits deceptive subject lines, and requires spammers to label sexually oriented email as such. A) Uniform Computer Information Transactions Act (UCITA) B) Electronic Communications Privacy Act (ECPA) C) Computer and Technological Video Information Domestic Electronic Ownership Act (CATVIDEO Act) D) Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act) Answer: D Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 21) The ________ provides that internet service providers are not liable for the content transmitted over their networks by email users and websites. A) Uniform Computer Information Transactions Act B) Electronic Communications Privacy Act C) Communications Decency Act D) Controlling the Assault of Non-Solicited Pornography and Marketing Act Answer: C Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 22) Using email, an individual can communicate around the world instantaneously. But in order to communicate via email, a person needs a unique ________. A) email address B) telephone number C) street address D) ISP Answer: A Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept
7 C..
23) Using text, an individual can communicate around the world instantaneously. Generally, a person's ________ is used to reach others by text. A) email address B) telephone number C) street address D) ISP Answer: B Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 24) The Federal Trade Commission (FTC) is empowered with enforcing the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act). Accordingly, the FTC has adopted a rule that spammers who send sexually oriented email are to ________. A) be banned from the World Wide Web. B) label such email on the subject line with the words "SEXUALLY EXPLICIT." C) register with the FTC. D) use the top level domain (TLD) extension ".porn". Answer: B Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 25) It is estimated that ________ of all business email traffic is unsolicited commercial advertising, i.e., spam. A) approximately three-quarters B) 95% C) exactly half D) about 25% Answer: A Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept
8 C..
26) ISP stands for ________. A) International Science Proposal B) Internal Systems Protocol C) International Society of Programmers D) Internet Service Provider Answer: D Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 27) Which of these services do ISPs traditionally NOT provide? A) providing consumers and businesses with access to the internet B) providing email accounts and storage on the internet to subscribers C) retail sales of major appliances D) web-hosting services Answer: C Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 28) Parties enter into an electronic mail contract by the use of email. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 29) Email contracts need not meet the Statute of Frauds requirements as long as they meet UCITA guidelines. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept
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30) 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 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 31) The CAN-SPAM Act does not regulate spam sent to Americans from other countries. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 32) ISPs provide email accounts, internet access, and storage on the internet to users. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 33) The term ISP refers to users who disguise computer viruses as executable programs and send them across the internet. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 34) ISPs are not liable for the content transmitted over their networks by email users and websites. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept
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35) The CAN-SPAM Act requires spammers to label sexually oriented emails as such. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 36) What measures has Congress taken to regulate spam email? 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 email messages, including the originating domain name and email 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 email to the recipient's address; and (4) requires spammers who send sexually oriented email 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 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept 37) What are email contracts and text contracts? Discuss their similarities with traditional contracts. Answer: Contracts completed by via email are referred to as electronic mail contracts or email contracts. Contracts formed using text messaging are referred to as text contracts. Email and text contracts are enforceable so long as they meet the requirements necessary to form a traditional contract, including agreement, consideration, capacity, and lawful object. Traditional challenges to the enforcement of a contract, such as fraud, duress, intoxication, insanity, and other defenses may be asserted against the enforcement of email and text contracts. Email and text contracts usually meet the requirements of the Statute of Frauds, which requires certain contracts to be in writing, such as contracts of the sale of real estate, contracts for the sale of goods that cost $500 or more, and other contracts listed in the relevant Statute of Frauds. Diff: 1 Skill: Legal Concepts LO: 11.2 Explain how email contracts and text contracts are formed. AACSB: Analytical thinking Classification: Concept
11 C..
38) 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) An email contract is not binding. D) Services can be listed for sale on websites. Answer: D Diff: 2 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept 39) 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, emails Barney and they finalize the deal over the internet. Barney pays Michael through an online transfer. This is an instance of ________. A) e-licensing B) e-commerce C) cybersquatting D) information licensing Answer: B Diff: 2 Skill: Factual Application LO: 11.3 Describe electronic commerce and web contracts. AACSB: Application of knowledge Classification: Application 40) Most Web pages use electronic ordering systems that do not have the ability to evaluate and accept ________. A) counteroffers B) e-licenses C) e-signatures D) biometric data Answer: A Diff: 2 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept
12 C..
41) A(n) ________ is any computer system that has been established by a seller to accept orders. A) ISP B) electronic agent C) WWW D) FTP Answer: B Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept 42) The ________ recognizes electronic contracts as meeting the writing requirement of the Statute of Frauds for most contracts. A) Uniform Contracts Code B) Uniform Computer Information Transactions Act C) E-SIGN Act D) Communications Decency Act Answer: C Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept 43) What does the E-SIGN Act provide? A) Contracts delivered electronically are denied effect. B) Electronic records can be sent to consumers who make a purchase, without their specific consent to receiving the record. C) An e-signature is treated the same as a pen-inscribed signature. D) Only smart card verification creates a legally binding signature in cyberspace. Answer: C Diff: 2 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept
13 C..
44) Jessica wants to buy a laptop from the website of CloudFive Computers. Before confirming the purchase, the website asks her to provide biometric identification using an electronic scanner. This is an example of a(n) ________. A) e-license B) e-signature C) exclusive license D) conditional license Answer: B Diff: 2 Skill: Factual Application LO: 11.3 Describe electronic commerce and web contracts. AACSB: Application of knowledge Classification: Application 45) The ________ gives an e-signature the same force and effect as a pen-inscribed signature on paper. A) Electronic Signatures in Global and National Commerce (E-SIGN) Act B) Electronic Communications Privacy Act C) Communications Decency Act D) Controlling the Assault of Non-Solicited Pornography and Marketing Act Answer: A Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept 46) ________ are state laws that require certain types of contracts to be in writing. A) Uniform Computer Information Transactions Act B) Electronic Communications Privacy Act C) Uniform Get It In Writing Statutes D) Statutes of Frauds Answer: D Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept
14 C..
47) One of the main features of the Electronic Signatures in Global and National Commerce Act (E-SIGN Act) is that it recognizes electronic contracts as meeting ________ of the Statute of Frauds for most contracts. A) jurisdictional status B) the writing requirement C) the arbitration option D) the mailbox rule Answer: B Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept 48) The Electronic Signatures in Global and National Commerce Act (E-SIGN Act) provides that electronically signed contracts ________ because they are in electronic form or delivered electronically. A) cannot be admitted as evidence in a civil case B) cannot be subpoenaed by the Internal Revenue Service C) cannot be admitted as evidence in a criminal case D) cannot be denied effect Answer: D Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept 49) The Electronic Signatures in Global and National Commerce Act (E-SIGN Act) provides that record retention requirements ________. A) are satisfied if records are stored electronically B) are not satisfied if records are stored electronically C) are satisfied if the records are stored electronically, as long as there is microfilm back-up D) are satisfied if the records are stored electronically, as long as there is a paper file back-up Answer: A Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept
15 C..
50) The Electronic Signatures in Global and National Commerce Act (E-SIGN Act) contains several provisions to protect consumers. Which of these is NOT one of those protections? A) Consumers must consent to receiving electronic records and contracts. B) To receive electronic records, consumers must be able to demonstrate that they have access to the electronic records. C) Copies of all electronic records sent to consumers must also be sent to the National Archives. D) Businesses must tell consumers that they have the right to receive hard copy documents of their transaction. Answer: C Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept 51) Because the Electronic Signatures in Global and National Commerce Act (E-SIGN Act) does not define or decide which technologies should be used to create a legally binding signature in cyberspace, the Act is said to be ________. A) technology neutral B) cyber-agnostic C) technologically illiterate D) cyber-laissez-faire Answer: A Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept 52) Which of these is NOT one of the ways that the Electronic Signatures in Global and National Commerce Act (E-SIGN Act) provides that a digital signature can be verified? A) by something the signatory knows B) by something the signatory has C) by the signatory's biometric data D) by an amount the signatory can pay Answer: D Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept
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53) The E-SIGN Act is a not a federal statute, and state legislatures are required to adopt it in order for it to become state law. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept 54) Counteroffers are not effective against electronic agents. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept 55) What is a digital signature and how did the Electronic Signatures in Global and National Commerce Act (E-SIGN Act) address one of the major challenges in using digital signatures? Answer: In general, a digital signature is some electronic method that identifies an individual. The challenge is to make sure that someone who uses a digital signature is the person he or she claims to be. The E-SIGN Act provides that a digital signature can basically be verified in one of three ways: 1. By something the signatory knows, such as a secret password or pet's name. 2. By something a person has, such as a smart card, which looks like a credit card and stores personal information. 3. By biometrics, which uses a device that digitally recognizes fingerprints or the retina or iris of the eye. Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept
17 C..
56) Explain why counteroffers are not effective against electronic agents. Answer: In today's e-commerce, many internet sellers have websites that use electronic agents to sell goods and services. An electronic agent is any computer system that has been established by a seller to accept orders. Web page order systems are examples of electronic agents. In the past, when humans dealt with each other face-to-face, by telephone, or in writing, their negotiations might have consisted of an exchange of several offers and counteroffers until agreed-on terms were reached and a contract was formed. Each new counteroffer extinguished the previous offer and became a new viable offer. However, most web pages use electronic ordering systems that do not have the ability to evaluate and accept counteroffers or to make counteroffers. Thus, counteroffers are not effective against these electronic agents. Diff: 1 Skill: Legal Concepts LO: 11.3 Describe electronic commerce and web contracts. AACSB: Analytical thinking Classification: Concept 57) A ________ refers to a contract that transfers limited rights in intellectual property and information rights. A) contract B) tender C) license D) domain name Answer: C Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 58) A ________ is an owner of intellectual property or information rights who transfers rights in the property or information to another party. A) lessor B) lessee C) licensee D) licensor Answer: D Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept
18 C..
59) A ________ refers to a party who is granted limited rights in or access to intellectual property or information rights owned by another party. A) lessor B) lessee C) licensee D) licensor Answer: C Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 60) Which of the following is true of a license? 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 that are necessary to exercise the expressly described rights. Answer: B Diff: 2 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 61) What is an exclusive license? 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 is granted to only one party for a specific period D) a license that grants access to exclusive intellectual property Answer: C Diff: 2 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept
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62) A(n) ________ 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 digital application for a limited period and under specified conditions. A) e-license B) Terms of Service document C) domain D) digital signature Answer: A Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 63) KCube Multimedia launches a new game. It permits Ken to download, install, and play the game for three months. This is an instance of a(n) ________. A) e-license B) lease C) domain name registration D) digital signature Answer: A Diff: 2 Skill: Factual Application LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Application of knowledge Classification: Application 64) 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 "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 Skill: Factual Application LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Application of knowledge Classification: Application
20 C..
65) The term licensor refers to a(n) ________ of intellectual property or informational rights who transfers rights in the property or information to another party. A) owner B) possessor C) creator D) thief Answer: A Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 66) The term licensee refers to a party who is granted ________ rights in or access to intellectual property or information rights owned by a licensor. A) unlimited B) limited C) plenary D) unconditional Answer: B Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 67) A(n) ________ grants the licensee exclusive rights to use information rights for a specified duration. A) service agreement B) ISP covenant C) digital application D) exclusive license Answer: D Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept
21 C..
68) A(n) ________ refers to 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 digital application for a limited period and under specified conditions. A) service agreement B) ISP covenant C) electronic license (e-license) D) exclusive license Answer: C Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 69) Valuable intellectual property and information rights do NOT include ________. A) patents B) trade secrets C) software programs D) computer servers Answer: D Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 70) A license grants the contractual rights ________. A) expressly described in the license along with the right to use information rights within the licensor's control that are necessary to perform the expressly described rights B) implied from the parties' behaviors C) generally recognized in the software industry D) as detailed in the bi-annual Uniform Grant of License Yearbook Answer: A Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept
22 C..
71) Licensing agreements tend to be very detailed and comprehensive contracts. This is primarily because of ________. A) the nature of the subject matter and the limited uses granted B) lack of supporting federal legislation C) the newness of the industry D) the requirements of international treaties Answer: A Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 72) The parties to a contract for the licensing of information owe a duty to ________. A) comply with international treaties and agreements B) act in accordance with high industry standards C) perform the obligations stated in the contract D) their shareholders Answer: C Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 73) If a party to a licensing agreement fails to perform as required, ________. A) federal criminal charges will be filed B) the Internet Corporation for Assigned Names and Numbers (ICANN) needs to be notified C) nothing generally occurs D) there is a breach of the contract Answer: D Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept
23 C..
74) Breach of contract by one party to a licensing agreement gives the nonbreaching party certain rights, including ________. A) the right to force the breaching party into bankruptcy B) the right to recover damages or other remedies C) the right to petition ICANN to delete the breaching party's websites D) the right to file charges against the breaching party with the particular state's attorney general Answer: B Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 75) A license is a contract that transfers complete rights in intellectual property and informational rights. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 76) Data and software do not constitute intellectual property or information rights. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 77) An exclusive license grants the licensee exclusive rights to use information rights for a specified duration. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 78) A licensee is a party who is granted limited rights in intellectual property or information rights owned by another person or company. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 24 C..
79) If Jim purchases an online license for a computer game, he is an e-licensor. Answer: FALSE Diff: 1 Skill: Factual Application LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Application of knowledge Classification: Application 80) Explain in brief 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. Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept 81) What is meant by the terms licensor, licensee and exclusive license? Answer: The parties to a license are the licensor and the licensee. The licensor is the party who owns the intellectual property or information rights and obligates him- or herself to transfer rights in the property or information to the licensee. The licensee is the party who is granted limited rights in or access to the intellectual property or information. A 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 perform the expressly described rights. A license can grant the licensee the exclusive rights to use the information. An exclusive license means that for the specified duration of the license, the licensor will not grant to any other person rights to the same information. Diff: 1 Skill: Legal Concepts LO: 11.4 Describe electronic licensing of software and informational rights. AACSB: Analytical thinking Classification: Concept
25 C..
82) A(n) ________ uniquely identifies an individual's or company's website. A) e-signature B) digital footprint C) email address D) domain name Answer: D Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 83) Which of the following is the first step in registering a domain name? A) determining whether any other party already owns the name B) determining if the name does justice to the image of the company or individual C) finding an extension that attracts maximum web traffic D) enrolling with a service provider to host the website Answer: A Diff: 2 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 84) Which of the following domain extensions signifies a resource website? A) .com B) .org C) .edu D) .info Answer: D Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 85) ________ is the most widely used domain extension in the world. A) .net B) .com C) .biz D) .org Answer: B Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 26 C..
86) Jonathan Smith, a neurosurgeon in Oregon, wants to start a website that makes it possible for neurosurgeons across the world to work collaboratively on medical cases. Which of the following domain name extensions is most appropriate for Smith's website? A) .com B) .org C) .edu D) .pro Answer: D Diff: 2 Skill: Factual Application LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Application of knowledge Classification: Application 87) The ________ issued new rules that permit a party to register a domain name with new TLD suffixes that are personalized. A) UCITA B) ACPA C) ICANN D) ECPA Answer: C Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 88) 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 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept
27 C..
89) The Anticybersquatting Consumer Protection Act (ACPA) permits ________ to recover domain names that use their names where the domain name has been registered by another person or business in bad faith. A) politicians B) trademark owners and famous persons C) new media outlets D) multinational corporations Answer: B Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 90) The number of domain names registered worldwide is ________. A) approximately 100,000 B) more than 400 million C) about 1 billion D) unknown Answer: B Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 91) A common term for a party who "kidnaps" an internet domain name is ________. A) cyberpirate B) webthief C) e-fraudster D) netdragon Answer: A Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept
28 C..
92) "Cybersquatting" describes the situation where ________. A) someone refuses to move out of an Airbnb rental at the end of the contracted period B) a person will not leave a cybercafe at closing time C) one participates in online physical exercises D) a party registers a domain name of another party's trademarked name or a famous person's name Answer: D Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 93) The first step in registering a domain name is to ________. A) trademark the name with the U.S. Patent and Trademark Office B) hire a marketing firm, a software engineer and an attorney C) determine whether any other party already owns the name D) purchase a high-capacity server Answer: C Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 94) An entity that maintains a database of all domain names that have been registered is ________. A) the United Nations High Commission on the Internet B) InterNIC C) the Federal Trade Commission D) any Secretary of State's office Answer: B Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept
29 C..
95) The purchase or sale of a domain name ________. A) can be for millions of dollars B) is prohibited by federal law C) cannot be for an amount greater than $25 D) can only be done at the International Domain Name Auction held twice a year in Vienna Answer: A Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 96) A network extension is a unique name that identifies an individual's or company's website. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 97) The .org domain name extension represents a resource website. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 98) The .biz extension is used for large-business and corporate websites. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 99) .bz is a restricted domain extension and can only be used by businesses or organizations in Brazil. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept
30 C..
100) Registering a domain name of another party's trademarked name or famous person's name is called cybersquatting. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 101) The Anticybersquatting Consumer Protection Act (ACPA) is a federal statute that makes the misrepresentation of another person, business or organization using inappropriate words, imagery or other media illegal. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 102) 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 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 103) Registering a domain name of another party's trademarked name or famous person's name in bad faith is called ________. Answer: cybersquatting Diff: 1 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept
31 C..
104) 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. Trademark law was of little help in this area. In 1999, the U.S. Congress enacted the Anticybersquatting Consumer Protection Act (ACPA). The act was specifically aimed at cybersquatters who register internet domain names of famous companies and people and hold them hostage by demanding ransom payments from the famous company or person. The Anticybersquatting Consumer Protection Act (ACPA) 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 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept 105) What is a domain name? How are domain names registered? What is meant by a top-level domain (TLD) extension? What is the most popular TLD extension? Answer: Most businesses conduct e-commerce by using websites on the internet. Each website is identified by a unique internet domain name. The Internet Corporation for Assigned Names and Numbers (ICANN) is a private nonprofit organization that oversees the registration and regulation of domain names. ICANN provides for the registration of more than 1,000 top-level domain (TLD) extensions. The stated purpose of having a great number of domain name extensions is to enhance competition and increase the choice of domain name space. There are more than 400 million domain names registered worldwide. The most widely used top-level domain extension is .com, with approximately 200 million domain names. Diff: 2 Skill: Legal Concepts LO: 11.5 Define domain name and describe how domain names are registered and protected. AACSB: Analytical thinking Classification: Concept
32 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 12 UCC Sales Contracts, Leases, and Warranties 1) The Uniform Commercial Code is a model act passed in ________ that includes comprehensive laws that cover most aspects of commercial transactions. A) 1969 B) 1989 C) 2009 D) 1949 Answer: D Diff: 1 Skill: Legal Concepts LO: 12.1 Describe the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 2) The ________ refers to a model act that includes comprehensive laws that cover most aspects of commercial transactions. A) Gramm-Leach Bliley Act B) Uniform Sales Act C) Model Statutory Code for Commerce (MSCC) D) Uniform Commercial Code (UCC) Answer: D Diff: 1 Skill: Legal Concepts LO: 12.1 Describe the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 3) What two groups drafted the UCC? A) The American Bar Association and the American Institute of Certified Public Accountants B) The American Law Institute and the National Conference of Commissioners on Uniform State Laws C) The U.S. House of Representatives and the U.S. Senate D) The Department of Commerce and the Interstate Commerce Commission Answer: B Diff: 1 Skill: Legal Concepts LO: 12.1 Describe the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept
1 C..
4) Which state has adopted only parts of the UCC? A) Louisiana B) Delaware C) Wisconsin D) Alaska Answer: A Diff: 1 Skill: Legal Concepts LO: 12.1 Describe the Uniform Commercial Code (UCC). AACSB: Analytical thinking Classification: Concept 5) 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 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 6) Under which of the following transactions does title to goods pass from the seller to the buyer? A) an option contract B) a rental agreement C) a lease agreement D) a contract for the sale of goods Answer: D Diff: 1 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept
2 C..
7) 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 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 8) Which of the following sales is covered by Article 2 of the UCC? 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 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 9) 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 price D) a sale that involves the provision of a service and a good in the same transaction Answer: D Diff: 1 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 10) Article 2 of the UCC governs ________. A) sales of goods B) sales of intangible assets C) sales of real property D) leases Answer: A Diff: 1 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 3 C..
11) The UCC defines "goods" as things that are both ________ and ________ at the time of their identification to a contract. A) merchantable; valuable B) visible; affixed C) real; monetarized D) tangible; movable Answer: D Diff: 1 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 12) Article 2 of the Uniform Commercial Code is also applied by federal courts to sales contracts governed by federal law. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 13) Article 2 of the UCC applies to sales contracts for the sale of intangible goods. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 14) If a person buys a computer, the sales contract for it would be subject to Article 2 of the UCC. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 15) Only movable goods come under the scope of Article 2 of the UCC. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 4 C..
16) Contracts for the provision of services are not covered by Article 2 of the UCC. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 17) 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 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 18) What are the provisions for contracts with services under Article 2 of the UCC? 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 Skill: Legal Concepts LO: 12.2 Define sales contracts governed by Article 2 of the UCC. AACSB: Analytical thinking Classification: Concept 19) 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 Skill: Legal Concepts LO: 12.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept
5 C..
20) 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 Skill: Legal Concepts LO: 12.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept 21) Which of the following does Article 2A of the Uniform Commercial Code govern? A) mixed sales B) deposits C) leases D) letters of credit Answer: C Diff: 1 Skill: Legal Concepts LO: 12.3 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 upgrade its taxi meters to digital ones. Whistle Cabs contemplates a sales contract with Running Electricals, a company that manufactures digital taxi meters. Due to short notice from the city and a lack of funding, however, Whistle Cabs instead approaches Goldmint Bank, which purchases the digital taxi meters from Running Electricals and delivers them to Whistle Cabs. The contract between Whistle Cabs and Goldmint Bank allows the taxi service company to use the taxi meters for a set period of time by providing monthly rentals. What is the nature of the contract made between Whistle Cabs and Goldmint Bank? A) a counteroffer B) a lease C) a sale of goods D) an option contract Answer: B Diff: 2 Skill: Factual Application LO: 12.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Application of knowledge Classification: Application
6 C..
23) Article ________ of the UCC governs leases of goods. A) 2 B) 2A C) 2B D) 4 Answer: B Diff: 1 Skill: Legal Concepts LO: 12.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept 24) A transfer of the right to the possession and use of named goods for a set term in return for certain consideration is known as ________. A) sale of goods B) lease C) title transfer D) repossession Answer: B Diff: 1 Skill: Legal Concepts LO: 12.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept 25) Article 2A of the UCC deals with lessors and lessees. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept 26) In a lease contract, the title of goods is passed from the lessor to the lessee. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 12.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept
7 C..
27) What is a lease? Briefly compare UCC Article 2A with UCC Article 2. Answer: A lease is a transfer of the right to the possession and use of named goods for a set term in return for certain consideration. Article 2A is similar to Article 2. In fact, many Article 2 provisions were simply adapted to reflect leasing terminology and practices that carried over to Article 2A. Diff: 1 Skill: Legal Concepts LO: 12.3 Define lease contracts governed by Article 2A of the UCC. AACSB: Analytical thinking Classification: Concept 28) Under the UCC, 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 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 29) The UCC rule that says 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 is referred to as the ________. A) gap-filling rule B) firm offer rule C) mirror-image rule D) open term rule Answer: B Diff: 1 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept
8 C..
30) 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 mails the acceptance D) a written acceptance has been passed between the offeror and the offeree Answer: C Diff: 1 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 31) According to the mirror image rule, which of the following is true of additional terms being added in an acceptance? A) They are considered to be counteroffers. B) They can be added when the sale is between a merchant and a non-merchant. C) They can be added to the contract without the consent of the offeror. D) They are considered to constitute acceptance. Answer: A Diff: 1 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 32) 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) open price term C) firm offer rule D) Statute of Frauds Answer: D Diff: 1 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept
9 C..
33) 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 immediately object to the contents of the confirmation. Two weeks after receiving the written confirmation, Jane receives delivery of the goods from Kimberley, and Jane then sends an objection to the written 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 Skill: Factual Application LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Application of knowledge Classification: Application 34) The ________ rule permits certain open terms to be "read into" a sales or lease contract. A) firm offer B) mirror-image C) parol evidence D) gap-filling Answer: D Diff: 1 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 35) 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 ________. A) the buyer's place of business B) the seller's place of business C) the buyer's home D) the buyer's delivery truck Answer: B Diff: 1 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept
10 C..
36) 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 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 37) The firm offer rule allows the offeror to revoke an offer at any point of time prior to the acceptance. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 38) A sales or lease contract is only created when the offeror receives the offeree's acceptance. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 39) According to the Statute of Frauds, all contracts for the sale of goods costing $500 or more must be in writing. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 40) 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. Answer: TRUE Diff: 2 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept
11 C..
41) 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. Under the UCC 2-401(1), 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 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 42) What is meant by "identification of goods," and how is this a factor in the sale or lease of goods? Answer: "Identification of goods" means distinguishing the goods named in a contract from the seller's or lessor's other goods. The seller or lessor retains the risk of loss of the goods until he or she identifies them to a sales or lease contract. Further, UCC 2-401(1) and 2-501 prevent title to goods from passing from the seller to the buyer unless the goods are identified to the sales contract. In a lease transaction, title to the leased goods remains with the lessor or a third party. It does not pass to the lessee. Diff: 2 Skill: Legal Concepts LO: 12.4 Describe the formation of sales and lease contracts. AACSB: Analytical thinking Classification: Concept 43) 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(n) ________. A) electronic agent B) electronic record C) firewall D) operating system Answer: A Diff: 1 Skill: Legal Concepts LO: 12.5 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept
12 C..
44) Electronic sales contracts (e-sales contracts) and electronic lease contracts (e-lease contracts) are recognized under the laws of ________. A) every state B) most states C) very few states D) no states to date Answer: B Diff: 1 Skill: Legal Concepts LO: 12.5 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept 45) A(n) ________ is the signature of a person that appears on an electronic record and is recognized as a lawful signature. A) facsimile signature B) forged signature C) electronic signature D) third-party signature Answer: C Diff: 1 Skill: Legal Concepts LO: 12.5 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept 46) The signature of a person's electronic agent can constitute a valid electronic signature. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.5 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept 47) An e-record is a record created, generated, sent, communicated, received, or stored by electronic means. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.5 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept 13 C..
48) An electronic agent allows for the contracting for the sale and lease of goods over the internet, using websites to order or lease goods. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.5 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept 49) An e-contract is made when the offeree sends an email or another electronic document to the offeror. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.5 Describe how Revised Article 2 (Sales) and Article 2A (Leases) permit electronic contracting. AACSB: Analytical thinking Classification: Concept 50) Which of the following is an accurate statement regarding the risk of loss in a shipment contract after the seller delivers conforming goods to the carrier? A) The seller bears the risk of loss during transportation. B) The buyer bears the risk of loss during transportation. C) The seller and the buyer equally bear the risk of loss during transportation. D) The seller bears one-third of the risk of loss and the buyer bears two-thirds of the risk of loss during transportation. Answer: B Diff: 1 Skill: Legal Concepts LO: 12.6 Identify the party who bears the risk of loss of goods that are damaged or lost. AACSB: Analytical thinking Classification: Concept 51) Which of the following is an accurate statement regarding the risk of loss in a destination contract after the seller delivers conforming goods to the carrier? A) The seller bears the risk of loss during transportation. B) The buyer bears the risk of loss during transportation. C) The seller and the buyer equally bear the risk of loss during transportation. D) The buyer bears one-third of the risk of loss and the seller bears two-thirds of the risk of loss during transportation. Answer: A Diff: 1 Skill: Legal Concepts LO: 12.6 Identify the party who bears the risk of loss of goods that are damaged or lost. AACSB: Analytical thinking Classification: Concept 14 C..
52) In which of the following contracts is the term "no-arrival, no-sale" found? A) a shipment contract B) a destination contract C) a contract to sell real estate D) a consignment contract Answer: B Diff: 1 Skill: Legal Concepts LO: 12.6 Identify the party who bears the risk of loss of goods that are damaged or lost. AACSB: Analytical thinking Classification: Concept 53) Larry, a merchant seller, had contracted with Simon to buy welding equipment. The contract stipulated that Larry would pick up the equipment from Simon's warehouse on the 14th day from the date of the contract. Larry could not make the pick-up on the stipulated date and before he could do so on the 15th day, the warehouse and its contents were destroyed by arsonists. In this situation, who bears the risk of loss for the goods that were to be received by Larry? A) The risk of loss lies with Larry for delaying the pick-up. B) The risk of loss lies with Simon for not protecting the goods from the arsonists. C) The risk of loss is equally shared by Larry and Simon. D) The risk of loss is shifted to the persons responsible for the fire. Answer: A Diff: 2 Skill: Factual Application LO: 12.6 Identify the party who bears the risk of loss of goods that are damaged or lost. AACSB: Application of knowledge Classification: Application 54) In a destination contract, the ________ bears the risk of loss of the goods during their transportation. A) buyer B) trucking company C) the owner of the ship D) seller Answer: D Diff: 1 Skill: Legal Concepts LO: 12.6 Identify the party who bears the risk of loss of goods that are damaged or lost. AACSB: Analytical thinking Classification: Concept
15 C..
55) In a shipment contract the risk of loss passes to the buyer when ________. A) the seller mails a copy of the bill of lading B) the goods are received and accepted by the buyer C) the seller delivers the conforming goods to the carrier D) the packing container is sealed Answer: C Diff: 1 Skill: Legal Concepts LO: 12.6 Identify the party who bears the risk of loss of goods that are damaged or lost. AACSB: Analytical thinking Classification: Concept 56) In a shipment contract the ________ bears the risk of loss of the goods during transportation. A) seller B) buyer C) trucking company D) postal service Answer: C Diff: 1 Skill: Legal Concepts LO: 12.6 Identify the party who bears the risk of loss of goods that are damaged or lost. AACSB: Analytical thinking Classification: Concept 57) In a destination contract, the seller is required to replace any goods lost in transit. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.6 Identify the party who bears the risk of loss of goods that are damaged or lost. AACSB: Analytical thinking Classification: Concept
16 C..
58) Explain these commonly used shipping terms: F.O.B., F.A.S., C.I.F., and C.&F. Answer: "F.O.B." means "free on board." If a shipment sent "F.O.B." followed by the point of shipment, the seller is required to arrange to ship the goods and put the goods in the carrier's possession. The buyer bears the shipping expense and risk of loss while the goods are in transit. "F.A.S." means "free alongside ship." If a shipment sent "F.A.S." followed by the port of shipment or "F.A.S." followed by the name of a vessel and the port of shipment, the seller is required to deliver and tender the goods alongside the named vessel or on the dock designated and provided by the buyer. The seller bears the expense and risk of loss until this is done. The buyer bears shipping costs and the risk of loss during transport. "C.I.F." means "cost, insurance, and freight." This is a pricing term that means that the price includes the cost of the goods plus the costs of insurance and freight. "C.&F." means "cost and freight." This is a pricing term that means that the price includes the cost of the goods and the cost of freight. For both C.I.F. and C.&F. the seller must, at his or her own expense and risk, put the goods into the possession of a carrier. The buyer bears the risk of loss during transportation. Diff: 2 Skill: Legal Concepts LO: 12.6 Identify the party who bears the risk of loss of goods that are damaged or lost. AACSB: Analytical thinking Classification: Concept 59) 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 Skill: Legal Concepts LO: 12.7 Identify the party who bears the risk of loss when goods are sold by nonowners to third parties. AACSB: Analytical thinking Classification: Concept
17 C..
60) Steve brings his watch to Knell Watches, a store that sells and repairs watches, to be repaired. The watch store repairs the watch and then sells it to Kevin, who buys the watch with a fraudulent check that bounces. Kevin then resells the watch to his friend Jonathan, who is unaware of the stolen status 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 Skill: Factual Application LO: 12.7 Identify the party who bears the risk of loss when goods are sold by nonowners to third parties. AACSB: Application of knowledge Classification: Application 61) Who among the following is a good faith purchaser? A) a person who buys goods from a person with a voidable 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 Skill: Legal Concepts LO: 12.7 Identify the party who bears the risk of loss when goods are sold by nonowners to third parties. AACSB: Analytical thinking Classification: Concept 62) The term ________ refers to a situation in which a thief acquires no title to goods he or she steals. A) void title B) voidable title C) hot title D) unperfected title Answer: A Diff: 1 Skill: Legal Concepts LO: 12.7 Identify the party who bears the risk of loss when goods are sold by nonowners to third parties. AACSB: Analytical thinking Classification: Concept
18 C..
63) A seller or lessor has ________ if he obtained the goods through fraud, if his check for the payment of the goods or lease is dishonored, or if he impersonated another person. A) void title/void leasehold interest to goods B) dishonorable title/dishonorable leasehold interest to goods C) voidable title/voidable leasehold interest to goods D) criminal title/criminal leasehold interest to goods Answer: C Diff: 1 Skill: Legal Concepts LO: 12.7 Identify the party who bears the risk of loss when goods are sold by nonowners to third parties. AACSB: Analytical thinking Classification: Concept 64) Anna dropped off her engagement ring with Byron McKenna at B+B McKenna Jewelers to have the ring polished for her upcoming wedding. While Byron was at lunch, Betty McKenna, not knowing that the ring was there for polishing, placed the ring in a display case. Shortly thereafter, Harold entered the store, saw the ring in the display case and bought the engagement ring. What type of title does Harold have to the ring? A) void title B) voidable title C) good title D) fraudulent title Answer: C Diff: 2 Skill: Legal Concepts LO: 12.7 Identify the party who bears the risk of loss when goods are sold by nonowners to third parties. AACSB: Application of knowledge Classification: Concept 65) In a case where the real owner of stolen goods locates the goods in the possession of a buyer who purchased the goods from the thief who stole them, the real owner ________. A) can reclaim the goods from the purchaser B) must relinquish the good to the purchaser C) can only sue the thief for money damages D) can only sue the thief for specific performance Answer: A Diff: 2 Skill: Legal Concepts LO: 12.7 Identify the party who bears the risk of loss when goods are sold by nonowners to third parties. AACSB: Application of knowledge Classification: Concept
19 C..
66) 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 Skill: Legal Concepts LO: 12.7 Identify the party who bears the risk of loss when goods are sold by nonowners to third parties. AACSB: Analytical thinking Classification: Concept 67) A person with voidable title to goods can transfer title to a good faith purchaser for value. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.7 Identify the party who bears the risk of loss when goods are sold by nonowners to third parties. AACSB: Analytical thinking Classification: Concept 68) 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 the seller or lessor 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 Skill: Legal Concepts LO: 12.7 Identify the party who bears the risk of loss when goods are sold by nonowners to third parties. AACSB: Analytical thinking Classification: Concept
20 C..
69) In which of the following cases does a seller have the right to stop delivery of goods in transit, regardless of the size of the shipment? A) if the buyer repudiates the contract B) if the buyer has payments due C) if the seller learns of the buyer's insolvency D) if the seller has been ordered for specific performance Answer: C Diff: 1 Skill: Legal Concepts LO: 12.8 List and describe remedies available to sellers, lessors, buyers, and lessees when there has been a breach of a sales or lease contract. AACSB: Analytical thinking Classification: Concept 70) 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 its 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 it had to settle for $150,000, as the chips were now suitable for specific audio engineering processes only. What remedy did Klint exercise when it stopped shipment to Zeitar? A) remedy to dispose of goods B) remedy to stop goods in transit C) remedy to obtain specific performance D) remedy to recover purchase rent Answer: B Diff: 2 Skill: Factual Application LO: 12.8 List and describe remedies available to sellers, lessors, buyers, and lessees when there has been a breach of a sales or lease contract. AACSB: Application of knowledge Classification: Application
21 C..
71) Pollard enters 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. Which of the following remedies can Pollard exercise to retrieve the painting from Jenson? A) remedy to cover B) remedy to recover damages for nondelivery C) remedy to obtain specific performance D) remedy to cancel the contract Answer: C Diff: 2 Skill: Factual Application LO: 12.8 List and describe remedies available to sellers, lessors, buyers, and lessees when there has been a breach of a sales or lease contract. AACSB: Application of knowledge Classification: Application 72) Blue Rorschach Inc. has an immediate requirement for 80 laptops and contracts with Zenzo Electronics for 80 OSN laptops at $550 each. But 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 remedy did Blue Rorschach exercise when contracting Dell Computers and suing Zenzo for failure of delivery of goods? A) remedy to replevy goods B) remedy to cover C) remedy to recover damages for accepted nonconforming goods D) remedy to obtain specific performance Answer: B Diff: 2 Skill: Factual Application LO: 12.8 List and describe remedies available to sellers, lessors, buyers, and lessees when there has been a breach of a sales or lease contract. AACSB: Application of knowledge Classification: Application 73) ________ are damages that will be paid upon a breach of contract that are established in advance. A) Comprehensive damages B) Liquidated damages C) Punitive damages D) Nominal damages Answer: B Diff: 1 Skill: Legal Concepts LO: 12.8 List and describe remedies available to sellers, lessors, buyers, and lessees when there has been a breach of a sales or lease contract. AACSB: Analytical thinking Classification: Concept 22 C..
74) Which of these is NOT a factor to be considered in determining whether liquidated damages are valid? A) if the liquidated damages are reasonable in light of the anticipated or actual harm caused by the breach B) the difficulties of proof of loss C) the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy D) the offensiveness of the conduct of the breaching party Answer: D Diff: 1 Skill: Legal Concepts LO: 12.8 List and describe remedies available to sellers, lessors, buyers, and lessees when there has been a breach of a sales or lease contract. AACSB: Analytical thinking Classification: Concept 75) On March 1, Bob Byer entered into a contract with Sam Cellar to purchase goods on credit extended by Sam. On April 1 Sam shipped the goods to Bob. The goods were received by Bob on April 15. Sam mailed an invoice to Bob on May 1. Unless the parties agreed to other terms, the credit period for this purchase began to run on ________. A) March 1 B) April 1 C) April 15 D) May 1 Answer: B Diff: 2 Skill: Legal Concepts LO: 12.8 List and describe remedies available to sellers, lessors, buyers, and lessees when there has been a breach of a sales or lease contract. AACSB: Application of knowledge Classification: Concept 76) 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 Skill: Legal Concepts LO: 12.8 List and describe remedies available to sellers, lessors, buyers, and lessees when there has been a breach of a sales or lease contract. AACSB: Analytical thinking Classification: Concept
23 C..
77) What are liquidated damages? Does the UCC permit them? When are they valid? Answer: The UCC permits parties to a sales or lease contract to establish in advance in their contract the damages that will be paid upon a breach of the contract. Such pre-established damages are called "liquidated damages" and are a substitute for actual damages. In a sales or lease contract, liquidated damages are valid if they are reasonable in light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. Diff: 1 Skill: Legal Concepts LO: 12.8 List and describe remedies available to sellers, lessors, buyers, and lessees when there has been a breach of a sales or lease contract. AACSB: Analytical thinking Classification: Concept 78) 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 Skill: Legal Concepts LO: 12.9 Describe warranties that apply to the sales and lease of goods. AACSB: Analytical thinking Classification: Concept 79) The doctrine of ________ governed the law of sales and leases for centuries before the UCC was adopted. A) cogito ergo sum B) caveat emptor C) res ipsa loquitur D) carpe diem Answer: B Diff: 1 Skill: Legal Concepts LO: 12.9 Describe warranties that apply to the sales and lease of goods. AACSB: Analytical thinking Classification: Concept
24 C..
80) If a seller or lessor fails to meet a warranty, the buyer or lessee can ________. A) sue for breach of warranty B) file a police report C) report the seller or lessor to the Better Business Bureau D) file a complaint with the state attorney general Answer: A Diff: 1 Skill: Legal Concepts LO: 12.9 Describe warranties that apply to the sales and lease of goods. AACSB: Analytical thinking Classification: Concept 81) Warranties which are based on contract law may be either ________ or ________. A) expressed by law; impliedly stated B) oral; verbal C) in English; in Latin D) expressly stated; implied by law Answer: D Diff: 1 Skill: Legal Concepts LO: 12.9 Describe warranties that apply to the sales and lease of goods. AACSB: Analytical thinking Classification: Concept 82) 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 Skill: Legal Concepts LO: 12.10 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept
25 C..
83) Which of the following would constitute the creation of an express warranty for goods? A) a description of the goods B) a commendation of the goods C) prior experience with the goods D) affirmation of the value of the goods Answer: A Diff: 1 Skill: Legal Concepts LO: 12.10 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 84) Sam expressed interest in buying a painting from Jasper, whose asking price was $15,000. 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. 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 Skill: Factual Application LO: 12.10 Describe express warranties and distinguish them from statements of opinion. AACSB: Application of knowledge Classification: Application 85) A(n) ________ is a warranty 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. A) implied warranty B) limited warranty C) express warranty D) primary warranty Answer: C Diff: 1 Skill: Legal Concepts LO: 12.10 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept
26 C..
86) Buddy's Diner advertises that it sells "The World's Best Cup of Coffee." This statement constitutes ________. A) an express warranty B) an opinion and mere puffing C) an implied warranty D) a statutory warranty Answer: B Diff: 1 Skill: Legal Concepts LO: 12.10 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 87) In order to create an express warranty, the formal words "warrant" and "guarantee" ________. A) do not necessarily have to be used B) must both be used C) must be used, but not necessarily both of them D) must both be printed in ALL CAPS and BOLD Answer: A Diff: 1 Skill: Legal Concepts LO: 12.10 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 88) Only written express warranties are valid. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 12.10 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 89) A seller's or lessor's statement of opinion or commendation of the goods does not create an express warranty. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.10 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept
27 C..
90) Give an account of 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. A seller's or lessor's statement of opinion (i.e., puffing) or commendation of goods does not create an express warranty. It is often difficult to determine whether a seller's statement is an affirmation of fact (which creates an express warranty) or a statement of opinion (which does not create a warranty). An affirmation of the value of goods does not create an express warranty. Diff: 1 Skill: Legal Concepts LO: 12.10 Describe express warranties and distinguish them from statements of opinion. AACSB: Analytical thinking Classification: Concept 91) Unless properly disclosed, a warranty that 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, is known as ________. A) implied volatility B) an implied cause of action C) an implied assertion D) the implied warranty of merchantability Answer: D Diff: 1 Skill: Legal Concepts LO: 12.11 List and describe implied warranties that may arise in the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 92) Which of the following constitutes 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 Skill: Legal Concepts LO: 12.11 List and describe implied warranties that may arise in the sale and lease of goods. AACSB: Analytical thinking Classification: Concept
28 C..
93) A(n) ________ refers to a warranty that arises where a seller or lessor warrants that the goods will meet the buyer's or lessee's expressed needs. A) implied warranty of fitness for a particular purpose B) implied warranty of merchantability C) express warranty D) limited warranty Answer: A Diff: 1 Skill: Legal Concepts LO: 12.11 List and describe implied warranties that may arise in the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 94) Which of these is NOT needed in order for a sales contract or lease contract to contain an implied warranty of merchantability? A) The seller or lessor is a merchant. B) The seller or lessor is a merchant in goods of the kind involved in the contract or lease. C) The goods involved in the contract or lease are valued for more than $1,000. D) The implied warranty of merchantability was not properly disclaimed. Answer: C Diff: 1 Skill: Legal Concepts LO: 12.11 List and describe implied warranties that may arise in the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 95) The implied warranty that food and drink served by restaurants, grocery stores, fast-food outlets, coffee shops, bars, vending machines, and other purveyors of food and drink be safe for human consumption is called the ________. A) implied warranty of fitness for a particular purpose B) implied warranty of fitness for human consumption C) implied warranty of merchantability D) implied warranty of food and drug safety Answer: B Diff: 1 Skill: Legal Concepts LO: 12.11 List and describe implied warranties that may arise in the sale and lease of goods. AACSB: Analytical thinking Classification: Concept
29 C..
96) The implied warranty of merchantability requires that the quality of the goods must pass without objection in the trade. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.11 List and describe implied warranties that may arise in the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 97) The implied warranty of fitness for a particular purpose applies only to merchants. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 12.11 List and describe implied warranties that may arise in the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 98) When does the implied warranty of merchantability arise in a sale or lease contract for a good? What is required under this warranty? Answer: The implied warranty of merchantability arises in a sale or lease contract for a good if the seller or lessor is a merchant with respect to goods of that kind. The implied warranty of merchantability does not apply to sales or leases by nonmerchants or casual sales. An implied warranty requires that the following standards be met: (1) the goods must be fit for the ordinary purposes for which they are used; (2) the goods must be adequately contained, packaged, and labeled; (3) the goods must be of an even kind, quality, and quantity within each unit; (4) the goods must conform to any promise or affirmation of fact made on the container or label; (5) the quality of the goods must pass without objection in the trade; or (6) fungible goods must meet a fair average or middle range of quality. Diff: 2 Skill: Legal Concepts LO: 12.11 List and describe implied warranties that may arise in the sale and lease of goods. AACSB: Analytical thinking Classification: Concept 99) Which 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 Skill: Legal Concepts LO: 12.12 Identify warranty disclaimers and determine when they are lawful. AACSB: Analytical thinking Classification: Concept
30 C..
100) What type of transactions are covered under the Magnuson-Moss Warranty Act? A) consumer transactions B) commercial transactions C) industrial transactions D) governmental transactions Answer: A Diff: 1 Skill: Legal Concepts LO: 12.12 Identify warranty disclaimers and determine when they are lawful. AACSB: Analytical thinking Classification: Concept 101) A statement that negates express and implied warranties is known as a ________. A) waiver B) novation C) caveat emptor clause D) warranty disclaimer Answer: D Diff: 1 Skill: Legal Concepts LO: 12.12 Identify warranty disclaimers and determine when they are lawful. AACSB: Analytical thinking Classification: Concept 102) The ________ is a federal statute that regulates written warranties on consumer products. A) Sarbanes-Oxley Act B) Smoot-Hawley Tariff Act C) Magnuson-Moss Warranty Act D) McLean-Stevenson Warranty Act Answer: C Diff: 1 Skill: Legal Concepts LO: 12.12 Identify warranty disclaimers and determine when they are lawful. AACSB: Analytical thinking Classification: Concept
31 C..
103) Written warranty disclaimers must be conspicuously displayed to be valid. Which of these printing techniques would NOT make a warranty disclaimer conspicuous? A) a heading printed in all uppercase letters B) a heading printed in a typeface that is larger than the rest of the body of a sales or lease contract C) a heading printed in the same style as the rest of the body of a sales or lease contract D) a heading printed in a different color type Answer: C Diff: 1 Skill: Legal Concepts LO: 12.12 Identify warranty disclaimers and determine when they are lawful. AACSB: Analytical thinking Classification: Concept 104) If a warrantor chooses to make an express warranty, the Magnuson-Moss Warranty Act requires that the warranty be labeled as either ________ or ________. A) written; oral B) full; limited C) express; implied D) void; voidable Answer: B Diff: 1 Skill: Legal Concepts LO: 12.12 Identify warranty disclaimers and determine when they are lawful. AACSB: Analytical thinking Classification: Concept 105) Implied warranties of quality cannot be disclaimed. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 12.12 Identify warranty disclaimers and determine when they are lawful. AACSB: Analytical thinking Classification: Concept 106) 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. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 12.12 Identify warranty disclaimers and determine when they are lawful. AACSB: Analytical thinking Classification: Concept
32 C..
107) 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. Limited warranties are made more often by sellers and lessors than are full warranties. Diff: 2 Skill: Legal Concepts LO: 12.12 Identify warranty disclaimers and determine when they are lawful. AACSB: Analytical thinking Classification: Concept
33 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 13 Credit, Secured Transactions, and Bankruptcy 1) Ashton borrows $25,000 from Amanda, who lends the money without taking an interest in collateral for the loan. Amanda is relying on Ashton's credit standing when she made the loan. In this case, 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 Skill: Factual Application LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Application of knowledge Classification: Application 2) When is a creditor referred to as 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 repaid the debt D) when the creditor has acquired collateral Answer: D Diff: 1 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept 3) The lender in a credit transaction is known as the ________. A) debtor B) creditor C) debtee D) surety Answer: B Diff: 1 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept
1 C..
4) ________ is a form of credit that does not require any security to protect the payment of the debt. A) Mortgage B) Secured credit C) Unsecured credit D) Equity Answer: C Diff: 1 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept 5) Personal property that is subject to a security agreement is known as ________. A) collateral B) mortgage C) deed D) intangible assets Answer: A Diff: 1 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept 6) Max borrowed money from Mabel. Max would be considered the ________. A) debtor B) creditor C) debtee D) surety Answer: A Diff: 1 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept
2 C..
7) In making a decision of whether to issue a loan to a consumer, an unsecured creditor may consider a number of factors. Which of these is NOT a factor that a creditor would normally consider? A) the consumer's credit history B) the consumer's income C) the consumer's other assets D) the consumer's voting history Answer: D Diff: 1 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept 8) Michael has borrowed $100,000 from his bank. If Michael fails to make payments on his loan, the bank can sue Michael. However, because Michael has no income and owns no property, if the bank sues Michael, the bank will never collect. Michael is considered to be ________. A) liquidated B) judgment-proof C) collateralized D) fully monetarized Answer: A Diff: 1 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept 9) The property in which a security interest is taken is called collateral. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept 10) Unsecured credit requires collateral to protect the payment of the debt. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept
3 C..
11) If a debtor is judgment-proof, the creditor may never collect the debt owed. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept 12) A creditor who relies on collateral to secure payment is known as an unsecured creditor. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept 13) Distinguish between secured and unsecured credit. Answer: Unsecured credit does not require any security to protect the payment of the debt. Instead, the creditor relies on the debtor's promise to repay the principal (with interest, if applicable) when it is due. In deciding whether to make the loan, the unsecured creditor considers the debtor's credit history, income, and other assets. If the debtor fails to make the payments, the creditor may bring legal action and obtain a judgment against him or her. Secured credit refers to credit that requires security that secures payment of the loan. Security interests may be taken in real, personal, intangible, and other property. If the debtor fails to make the payments when due, the collateral may be repossessed to recover the outstanding amount. Diff: 2 Skill: Legal Concepts LO: 13.1 Distinguish between unsecured and secured credit. AACSB: Analytical thinking Classification: Concept 14) A ________ is an instrument that gives the creditor a security interest in the debtor's property that is pledged as collateral. A) guaranty B) note C) reconveyance D) deed of trust Answer: D Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept
4 C..
15) 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) consignment B) foreclosure C) a mortgage D) an assignment Answer: C Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 16) 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) note D) deed of trust Answer: D Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 17) A(n) ________ is an instrument that evidences a borrower's debt to the lender for a real property. A) note B) consignment C) accommodation D) deed of trust Answer: A Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept
5 C..
18) A ________ statute 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 B) real property C) mortgage D) compilation Answer: A Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 19) 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 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 20) 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 is known as a ________. A) material lien B) judgment lien C) tax lien D) construction lien Answer: D Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept
6 C..
21) Bonnie made the final payment to Big Bank on the 30-year mortgage loan she had on her home. Shortly thereafter Big Bank, to prove that the mortgage has been paid, filed a satisfaction of a mortgage with ________. A) the secretary of state's office B) the county recorder's office C) the U.S. Department of Housing and Urban Development D) the U.S. Bankruptcy Court Answer: B Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 22) A satisfaction of a mortgage is also called a(n) ________. A) accommodation B) reconveyance C) consignment D) foreclosure Answer: B Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 23) A debtor who does not make the required payments on a secured real estate transaction is considered to be ________. A) liquidated B) judgment-proof C) in default D) collateralized Answer: C Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept
7 C..
24) A default by a debtor in a secured real estate transaction may trigger a legal court action for ________. A) compensation B) novation C) foreclosure D) reconveyance Answer: C Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 25) If the mortgagee's or lienholder's foreclosure action in court is successful, the court will issue a judgment that orders ________. A) that the mortgage or lien be renegotiated B) the debtor to arrange new financing C) that the underlying debt be forgiven D) the real property to be sold at a judicial sale Answer: D Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 26) Any surplus funds following a judicial sale must be ________. A) paid to the mortgagor or owner B) split between the mortgagor and the mortgagee C) paid to the court D) impounded by the state treasurer's office Answer: A Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 27) In a mortgage transaction, the creditor is known as the mortgagee. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept
8 C..
28) An improperly recorded mortgage or deed of trust is effective against subsequent purchasers of the subject real property. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 29) A deficiency judgment prevents a secured lender from recovering other property or income from a defaulting debtor if the collateral is insufficient to repay the unpaid loan. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 30) A lien release can be used by the property owner to defeat a statutory lienholder's attempt to obtain payment. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 31) What is an antideficiency statute and what does it affect? Answer: An antideficiency statute is a state law that prohibits deficiency judgments regarding certain types of mortgages, such as loans for the original purchase of residential property. Antideficiency statutes usually apply only to first purchase money mortgages (i.e., mortgages that are taken out to purchase houses). Second mortgages and other subsequent mortgages, even mortgages that refinance the first mortgage, usually are not protected by antideficiency statutes. Diff: 2 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept
9 C..
32) Describe the right of redemption and when it can be exercised. Answer: The common law and many state statutes give the mortgagor the right to redeem real property after default and before foreclosure. This right, called the right of redemption, requires the mortgagor to pay the full amount of the debt–that is, principal, interest, and other costs– incurred by the mortgagee because of the mortgagor's default. Redemption of a partial interest is not permitted. Upon redemption, the mortgagor receives title to the property, free and clear of the mortgage debt. Most states allow the mortgagor to redeem real property for a specified period (usually 6 months or one year) after foreclosure. This is called the statutory period of redemption Diff: 2 Skill: Legal Concepts LO: 13.2 Describe security interests in real property and the foreclosure of mortgages. AACSB: Analytical thinking Classification: Concept 33) ________ 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) A floating lien B) Attachment C) A mortgage D) Secured credit Answer: D Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 34) Which article of the Uniform Commercial Code (UCC) governs secured transactions in personal property? A) Article 8 B) Article 9 C) Article 18 D) Article 19 Answer: B Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept
10 C..
35) 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 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 36) 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 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 37) 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 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept
11 C..
38) ________ 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 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 39) A ________ 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. A) security disclosure B) financing statement C) possession statement D) custodial statement Answer: B Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 40) 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 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept
12 C..
41) Which of the following has the highest priority claim? A) the first party to secure the interest B) the first party to attach the interest C) the first party to possess the interest D) the first party to file a financing statement Answer: D Diff: 2 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 42) If a worker in the ordinary course of business furnishes services or materials to someone with respect to goods and receives a lien on the goods by statute, this is known as a(n) ________ lien. A) subordinate B) floating C) artisan's D) judgment Answer: C Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 43) A ________ transaction occurs when a seller sells goods to a buyer who has obtained financing from a third-party lender that takes a security interest in the goods sold. A) subordinate B) two-party secured C) three-party secured D) purchase money security interest Answer: C Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept
13 C..
44) The term ________ 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) collateral C) subordinated D) purchase money security interest Answer: A Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 45) ________ refers to an interest a creditor automatically obtains when he or she extends credit to a consumer to purchase consumer goods. A) Floating lien B) Mortgage C) Artisan's lien D) Purchase money security interest Answer: D Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 46) Tangible personal property includes securities, patents, trademarks, and copyrights. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 47) In a secured credit transaction, the creditor cannot recover the collateral despite the debtor's defaults on the loan. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 14 C..
48) Article 9 of the Uniform Commercial Code (UCC) governs secured transactions in personal property. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 49) To be valid, a security agreement must set forth the creditor's rights upon the debtor's default. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 50) A situation in which the value of the creditor's collateral is insufficient to satisfy the debt is called attachment. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 51) 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 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept
15 C..
52) 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 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 53) Perfection by investment of collateral is one of the methods of perfecting a security interest under the Uniform Commercial Code (UCC). Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 54) A purchase money security interest is an interest a creditor automatically obtains when he or she extends credit to a consumer to purchase consumer goods. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept
16 C..
55) Distinguish between two-party and three-party secured transactions with 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. 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 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept 56) Outline the priority of claims in secured and unsecured transactions. Answer: a) A creditor who has the only secured interest in the debtor's collateral has priority over unsecured interests. b) 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. c) 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. d) 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. e) 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 Skill: Legal Concepts LO: 13.3 Define secured transaction and describe how a security interest in personal property is created and perfected. AACSB: Analytical thinking Classification: Concept
17 C..
57) If a third party promises to be primarily liable for the payment of the borrower's debt, this is referred to as ________. A) garnishment B) subrogation C) a surety arrangement D) a guaranty arrangement Answer: C Diff: 1 Skill: Legal Concepts LO: 13.4 Compare surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 58) In order to help his daughter Pamela secure a loan for her new business, Rich promised the bank that he would also be liable for the payment of Pamela's loan. Which of these is NOT a term that describes Rich's role in this transaction? A) surety B) accommodation party C) co-signer D) security Answer: D Diff: 1 Skill: Legal Concepts LO: 13.4 Compare surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 59) In order to help his daughter Pamela secure a loan for her new business, Rich promised the bank that he would pay his daughter's loan if she defaults and does not pay the debt when it is due. Rich would be considered a(n) ________. A) co-debtor B) accommodation party C) co-signer D) guarantor Answer: D Diff: 1 Skill: Legal Concepts LO: 13.4 Compare surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept
18 C..
60) Which of the following is true about the 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 creditor can only approach the surety as a last resort. Answer: B Diff: 1 Skill: Legal Concepts LO: 13.4 Compare surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 61) Which of the following is true of a guarantor in a guaranty arrangement? A) The guarantor is secondarily liable on the debt. B) The guarantor must pay the debt even if the principal debtor is not in default. C) The creditor can first seek legal remedy from the guarantor. D) The guarantor has full legal rights to possession of the real property in this type of arrangement. Answer: A Diff: 1 Skill: Legal Concepts LO: 13.4 Compare surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 62) In a ________ arrangement, a third party promises to be primarily liable with the borrower for the payment of the borrower's debt. A) subrogation B) floating lien C) guaranty D) surety Answer: D Diff: 1 Skill: Legal Concepts LO: 13.4 Compare surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept
19 C..
63) In a(n) ________ arrangement, a third party promises to be secondarily liable for the payment of another's debt. A) three-party secured B) guaranty C) surety D) artisan's lien Answer: B Diff: 1 Skill: Legal Concepts LO: 13.4 Compare surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 64) The surety is primarily liable for paying the principal debtor's debt when it is due in a surety arrangement. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 13.4 Compare surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 65) In a guaranty agreement, the guarantor is primarily liable on the debt. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.4 Compare surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 66) Contrast a surety arrangement with a guaranty arrangement. Answer: In a strict surety arrangement, a third person—known as the surety or co-debtor— promises to be liable for the payment of another person's debt. A person who acts as a surety is commonly called an accommodation party or co-signer. Along with the principal debtor, the surety is primarily liable for paying the principal debtor's debt when it is due. The principal debtor does not have to be in default on the debt, and the creditor does not have to have exhausted all its remedies against the principal debtor before seeking payment from the surety. In a guaranty arrangement, a third person, the guarantor, agrees to pay the debt of the principal debtor if the debtor defaults and does not pay the debt when it is due. In this type of arrangement, the guarantor is secondarily liable on the debt. In other words, the guarantor is obligated to pay the debt if the principal debtor defaults on the debt and the creditor has unsuccessfully been able to collect the debt from the debtor. Diff: 2 Skill: Legal Concepts LO: 13.4 Compare surety and guaranty arrangements. AACSB: Analytical thinking Classification: Concept 20 C..
67) Chapter 7 of the Bankruptcy Code primarily deals with ________. A) debt 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 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 68) A(n) ________ is a document required to be filed by an equity security holder that states the nature and 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 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 69) 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 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept
21 C..
70) What is a homestead exemption? A) an investment in realty that a debtor must forfeit B) equity in a home that a debtor is permitted to retain C) a 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 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 71) An automatic stay provides for which of the following? A) the automatic discharge of secured debts B) the suspension of certain legal actions against the debtor C) a creditor's foreclosure on an asset pledged as collateral for a loan D) the automatic discharge of unsecured debts Answer: B Diff: 1 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 72) The term ________ refers to a document required to be filed by a creditor that states the amount of his or her claim against the debtor. A) proof of claim B) voluntary petition C) proof of interest D) discharge of debt Answer: A Diff: 1 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept
22 C..
73) 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) order of relief D) automatic stay Answer: D Diff: 1 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 74) The law that substantially amended federal bankruptcy law to make it much more difficult for debtors to escape unwanted debt through bankruptcy was the ________. A) Bankruptcy Reform Act of 1978 B) Credit Card and Student Loan Bankruptcy Act of 2007 C) Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 D) Bankruptcy Act in 1878 Answer: C Diff: 1 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 75) Bankruptcy judges are appointed for ________ terms. A) life B) staggered 5-year C) various D) 14-year Answer: C Diff: 1 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept
23 C..
76) The federal government official who has responsibility for handling and supervising many of the administrative tasks associated with a bankruptcy case is the ________. A) U.S. Trustee B) Executive Director of the Administrator of the Federal Courts C) Chief Judge of the U.S. Bankruptcy Court D) Deputy Secretary of the Treasury for Bankruptcies Answer: A Diff: 1 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 77) One day, while playing a round of golf at Flosswood Country Club, bankers Tinkers, Evers and Chance realized that each of their banks had given unsecured loans to Max Duffer for $100,000 and that Max has defaulted on each of the loans. Which of these strategies might the three bankers take with regards to Max Duffer? A) File a voluntary petition for bankruptcy with the bankruptcy court. B) File an involuntary petition for bankruptcy with the bankruptcy court. C) File a proof of interest with the bankruptcy court. D) Petition the bankruptcy court for an automatic stay. Answer: B Diff: 2 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Application of knowledge Classification: Concept 78) In a Chapter 11 business reorganization form of bankruptcy, appointment by the bankruptcy court of a bankruptcy trustee ________. A) is mandatory B) is determined by the creditor committee C) may be ordered upon a showing of fraud, dishonesty, incompetence, or gross mismanagement by the business' current management D) is not permitted by the Bankruptcy Code Answer: C Diff: 2 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept
24 C..
79) Bankruptcy courts are part of the state court system. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 80) A voluntary petition is a petition filed by a creditor that states that the debtor has debts. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 81) Gifts that a debtor is entitled to receive within 180 days after the petition is filed are part of the bankruptcy estate. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept 82) Explain in brief the composition of 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 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Analytical thinking Classification: Concept
25 C..
83) Fast Eddie tells you that he thinks he has everything worked out. Eddie owes over $50,000 to debtor, and while he owns practically no assets, he does have a baseball card collection worth $100,000. Eddie tells you that he plans on giving his baseball card collection as a gift to his cousin on Sunday, and then file for bankruptcy on Monday. Eddie tells you, "That way those creditors will get practically nothin'! Ha!" Is Eddie right? Is there a provision of the Bankruptcy Code that might dash Eddie's plan? Answer: The Bankruptcy Code gives the bankruptcy court the power to void certain fraudulent transfers of a debtor's property made by the debtor within two years prior to filing a petition for bankruptcy. These are gifts or transfers of property to insiders (e.g., relatives) or to noninsiders with the intent to hinder, delay, or defraud a creditor. The bankruptcy court in Eddie's case could very likely find that the gift of the baseball cards to his cousin constituted a fraudulent transfer, in which case the transfer will be voided. Diff: 2 Skill: Legal Concepts LO: 13.5 Describe bankruptcy law and list and describe the types of bankruptcy. AACSB: Application of knowledge Classification: Concept 84) ________ 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) An abusive filing B) Dissolution of debt C) Liquidation D) Reorganization Answer: C Diff: 1 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Analytical thinking Classification: Concept 85) 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 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 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Analytical thinking Classification: Concept
26 C..
86) Under the ________ test, debtors who earn a median family income equal to or below the state's median family income for the size of the debtor's family qualify for Chapter 7 bankruptcy. A) liquid assets B) tangible holdings C) median income D) propensity to repay Answer: C Diff: 2 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Analytical thinking Classification: Concept 87) ________ is a rehabilitation form of bankruptcy that permits a bankruptcy court to supervise the debtor's plan for the payment of unpaid debts in installments over the plan period. A) Chapter 7 B) Chapter 9 C) Chapter 12 D) Chapter 13 Answer: D Diff: 1 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Analytical thinking Classification: Concept 88) A(n) ________ provides for the reduction of a debtor's debts. A) extension B) liquidation C) limitation D) composition Answer: D Diff: 1 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Analytical thinking Classification: Concept
27 C..
89) ________ income is defined as current monthly income less amounts reasonably necessary to be expended for the maintenance or support of the debtor and the dependents of the debtor. A) Disposable B) Discernible C) Fungible D) Tangible Answer: A Diff: 1 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Analytical thinking Classification: Concept 90) Chapter 7 of the Bankruptcy Code deals with the ________ form of bankruptcy. A) reorganization B) liquidation C) rehabilitation D) consumer credit Answer: B Diff: 1 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Analytical thinking Classification: Concept 91) After running up a lot of credit card debt, Mort wants to make a "fresh start" by obtaining a Chapter 7 liquidation bankruptcy. Mort discovered that his family's income is below that of the median family income for a family the size of Mort's family in his state. As such, Mort qualifies to obtain a discharge of debts under Chapter 7 because ________. A) he passed the mean income test B) he passed the median income test C) he passed the undue hardship test D) he passed the mini/max test Answer: B Diff: 1 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Application of knowledge Classification: Concept
28 C..
92) In her pursuit of a PhD in Business, Rhonda took out many student loans. Now that she has graduated and is working, Professor Rhonda is wondering if she can get relief from her student loan debt by filing for bankruptcy. Will Professor Rhonda be able to have her student loans discharged in bankruptcy? A) Probably not, unless not having the loans discharged would cause an undue hardship to the Rhonda and her dependents. B) Probably so, because she successfully graduated with a PhD in Business. C) Probably not, unless she passes the median income test. D) Very likely, if she files for a Chapter 13 bankruptcy. Answer: A Diff: 1 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Application of knowledge Classification: Concept 93) Liquidation is a form of bankruptcy in which the debtor's exempt property is auctioned. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Analytical thinking Classification: Concept 94) Chapter 13 of the Bankruptcy Code permits a qualified debtor to propose a plan to pay all or a portion of the debts he or she owes in installments over a specified period of time. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Analytical thinking Classification: Concept 95) Describe the features of a Chapter 7 personal bankruptcy. Answer: A Chapter 7 bankruptcy (also called a straight bankruptcy) is a liquidation form of bankruptcy. In this type of bankruptcy proceeding, 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. Most Chapter 7 bankruptcy petitions are voluntarily filed by individuals. Diff: 1 Skill: Legal Concepts LO: 13.6 List and describe the various forms of personal bankruptcy. AACSB: Analytical thinking Classification: Concept
29 C..
96) Which of the following bankruptcy methods allows the reorganization of the debtor's financial affairs under the supervision of the bankruptcy court? A) Chapter 7 B) Chapter 9 C) Chapter 11 D) Chapter 12 Answer: C Diff: 1 Skill: Legal Concepts LO: 13.7 Describe how businesses are reorganized using bankruptcy law. AACSB: Analytical thinking Classification: Concept 97) What is an executory contract? A) a contract that cannot be discharged under Chapter 13 B) a contract that the debtor is obligated to perform despite filing for bankruptcy C) a contract between several creditors and a single debtor which stipulates equitable division of the debtor's property D) a contract that has not been fully performed Answer: D Diff: 1 Skill: Legal Concepts LO: 13.7 Describe how businesses are reorganized using bankruptcy law. AACSB: Analytical thinking Classification: Concept 98) Which of the following is the goal of Chapter 11? A) equitable distribution of the bankruptcy estate to all creditors B) strict distribution of the bankruptcy estate according to the statutorily-prescribed order of distribution to creditors C) discharge of the debtor's unsecured debts and payment of secured debts D) a proposed new capital structure for the debtor to assume when it emerges from bankruptcy Answer: D Diff: 1 Skill: Legal Concepts LO: 13.7 Describe how businesses are reorganized using bankruptcy law. AACSB: Analytical thinking Classification: Concept
30 C..
99) Chapter 11 of the Bankruptcy Code deals with the ________ form of bankruptcy. A) reorganization B) liquidation C) rehabilitation D) composition Answer: A Diff: 1 Skill: Legal Concepts LO: 13.7 Describe how businesses are reorganized using bankruptcy law. AACSB: Analytical thinking Classification: Concept 100) A contract or lease that has not been fully performed is termed as an ________ contract. A) executory B) executive C) executed D) executrix Answer: A Diff: 1 Skill: Legal Concepts LO: 13.7 Describe how businesses are reorganized using bankruptcy law. AACSB: Analytical thinking Classification: Concept 101) If unsecured creditors do not agree to a plan of reorganization, the court can use its ________ and make the dissenting class accept the plan. A) stuff-down authority B) lay-down authority C) beat-down authority D) cram-down authority Answer: D Diff: 1 Skill: Legal Concepts LO: 13.7 Describe how businesses are reorganized using bankruptcy law. AACSB: Analytical thinking Classification: Concept
31 C..
102) In a Chapter 11 bankruptcy proceeding, a debtor will submit to the bankruptcy court and to the creditors and other interested parties a proposal that sets forth suggested changes in its financial structure that it believes necessary in order to emerge from Chapter 11 bankruptcy as a viable business entity that will then be able to pay its debts. This proposal is called a(n) ________. A) rehabilitation blueprint B) plan of reorganization C) outline of restructuring D) master strategic protocol Answer: B Diff: 1 Skill: Legal Concepts LO: 13.7 Describe how businesses are reorganized using bankruptcy law. AACSB: Analytical thinking Classification: Concept 103) If all of the creditors in a Chapter 11 bankruptcy proceeding agree to a proposed plan of reorganization, the bankruptcy court will grant the ________ of the plan. A) affirmation B) confirmation C) composition D) annuit cœptis Answer: A Diff: 1 Skill: Legal Concepts LO: 13.7 Describe how businesses are reorganized using bankruptcy law. AACSB: Analytical thinking Classification: Concept 104) An executory contract refers to a contract or lease that has not been fully performed. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 13.7 Describe how businesses are reorganized using bankruptcy law. AACSB: Analytical thinking Classification: Concept
32 C..
105) 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 by 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 Skill: Legal Concepts LO: 13.7 Describe how businesses are reorganized using bankruptcy law. AACSB: Analytical thinking Classification: Concept
33 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 14 Small Business, General Partnerships, and Limited 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 Skill: Legal Concepts LO: 14.1 Define entrepreneurship and describe the types of businesses 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 business? A) an institution B) a charity C) a corporation D) a trust Answer: C Diff: 1 Skill: Legal Concepts LO: 14.1 Define entrepreneurship and describe the types of businesses 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 Skill: Legal Concepts LO: 14.1 Define entrepreneurship and describe the types of businesses that an entrepreneur can use to operate a business. AACSB: Analytical thinking Classification: Concept
1 C..
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 Skill: Legal Concepts LO: 14.2 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 must 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 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 6) Which of the following is true of a business operating under sole proprietorship? A) It is not considered a separate legal entity. 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 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept
2 C..
7) Which of the following is true of creating a sole proprietorship? A) No state government approval is required. B) A sole proprietorship is subject to double-taxation. C) No licenses are required to do business within a city or state. D) Special permission must be obtained to receive sole proprietorship status. Answer: A Diff: 2 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 8) Jonathan Lopez wants to be his own boss and ventures into retailing fruit in the neighborhood. Jonathon files the paperwork necessary to obtain a license to carry out business in his city, but files no other paperwork with any other government entity. Under which of the following major forms of business does Jonathan's store appear to be? A) a corporation B) a sole proprietorship C) a limited partnership D) a limited liability corporation Answer: B Diff: 2 Skill: Factual Application LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Application of knowledge Classification: Application 9) Orlando opened a hot dog stand in Brooklyn, doing business as Orlando's Red Hots. Unfortunately, the venture has not generated a profit. Orlando borrowed $5,000 from the bank to open his business, and the short-term loan is now due. Orlando's friend Bob has suggested partnering with him at the beginning of next year. From which of the following sources can the bank currently recover its $5,000? A) Orlando's secondary lender B) Orlando's savings account C) Orlando's family D) Bob, Orlando's prospective business partner Answer: B Diff: 2 Skill: Factual Application LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Application of knowledge Classification: Application
3 C..
10) Why does a sole proprietorship not pay taxes at the business level? A) It does not have a separate legal existence. B) It is a small business that is exempted from taxation. C) It is a non-profit organization. D) It is generally an institution with no business dealings. Answer: A Diff: 2 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 11) The earnings and losses from a sole proprietorship are reported on ________. A) the federal income tax filing document for sole proprietorships B) the sole proprietorship business license that is renewed each year C) the sole proprietor's personal income tax filing D) the state income tax filing document for sole proprietorships Answer: C Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 12) The designation for a business that is operating under a trade name is ________. A) also known as (a.k.a.) B) business operations legally occurring (b.o.l.o.) C) designated operating business (d.o.b.) D) doing business as (d.b.a.) Answer: D Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept
4 C..
13) A(n) ________ is a document that is filed with the state that designates a trade name of a business. A) registration of fabricated name B) fictitious business name statement C) articles of incorporation D) certificate of false trademark Answer: B Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 14) The sole proprietor has ________ liability. A) unlimited personal B) plenary business C) limited occupational D) limitless public Answer: A Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 15) Which of these is true with regards to operating a business as a sole proprietorship? A) Forming a sole proprietorship is complicated. B) Forming a sole proprietorship is expensive. C) The owner is restricted in making management decisions, especially those involving hiring and firing employees. D) The owner has the right to receive all of the business's profits. Answer: D Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 16) A sole proprietorship cannot be easily transferred when the owner desires to do so. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept
5 C..
17) A sole proprietor is legally responsible for the business's contracts. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 18) In a sole proprietorship, the business is considered a separate legal entity. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 19) No federal or state government approval is required for creating a sole proprietorship. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 20) A sole proprietorship can operate under the name of the sole proprietor or a trade name. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 21) A sole proprietor has limited personal liability. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 22) A sole proprietorship does not pay taxes at the business level. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 6 C..
23) List 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 Skill: Legal Concepts LO: 14.2 Define sole proprietorship and describe the liability of a sole proprietor. AACSB: Analytical thinking Classification: Concept 24) An association of two or more persons to carry on as co-owners of a business for profit is known as a ________. A) limited partnership B) sole proprietorship C) corporation D) general partnership Answer: D Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 25) An organization or venture must have a ________ motive in order to qualify as a partnership. A) large-scale expansion B) noncommercial C) profit D) target market Answer: C Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
7 C..
26) Which of the following is true of a general partnership? A) A business must generate a profit in order to qualify as a general partnership. B) The general partners need not be the co-owners of the business. C) A general partnership may be formed with little or no formality. D) Charity organizations and schools are usually formed as general partnerships. Answer: C Diff: 2 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 27) Where a partnership agreement provides for the sharing of profits but is silent as to how losses are to be shared, ________. A) losses are shared in the same proportion as profits B) losses are shared in greater proportion than profits C) profits are shared in greater proportion than losses D) losses are absorbed by the partnership entity rather than borne by the individual partners Answer: A Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 28) Which of the following is true in the creation of a general partnership? A) The business name must include the names of all partners. B) The business name cannot be a fictitious name. C) The 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 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
8 C..
29) Which of the following must be in writing under the Statute of Frauds? A) a business that has more than one commercial venture B) a partnership that is authorized to deal in real estate C) a business that is authorized to lend money D) an enterprise that deals in health and medicine Answer: B Diff: 2 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 30) According to the Statute of Frauds, a general partnership that exists for more than ________ must have a written partnership agreement. A) three months B) six months C) nine months D) one year Answer: D Diff: 1 Skill: Legal Concepts LO: 14.3 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 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 a general partner who is also a member of the partnership's board of directors has the authority to participate in the management of the partnership. D) If the vote is tied, the action being voted on is considered to be defeated. Answer: D Diff: 2 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
9 C..
32) Which of the following is true of profits and losses in a general partnership? A) By law, it is presumed that the proportion of profits shared is equal to the general partner's initial investment. B) Unless otherwise agreed, losses are shared equally by all general partners. C) The general partner who proposed the idea of the business receives the greatest share of profits. D) The proportion of investment governs only the proportion of losses shared and not profits obtained. Answer: B Diff: 2 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 33) Instead of suing the partnership 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 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 34) An ordinary partnership is also known as a ________. A) private partnership B) normal partnership C) major partnership D) general partnership Answer: D Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
10 C..
35) The ________ Act is a model act that codifies general partnership law. A) Uniform Partnership B) Model Partnership C) Reformed Partnership D) Codified Partnership Answer: A Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 36) A ________ is a partnership created for a fixed duration. A) temporal partnership B) partnership for a term C) nominal partnership D) partnership at will Answer: B Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 37) A ________ is a partnership created with no fixed duration. A) plenary partnership B) partnership for a term C) nominal partnership D) partnership at will Answer: D Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
11 C..
38) The Uniform Partnership Act and the Revised Uniform Partnership Act were each promulgated by ________. A) the United States Congress B) the National Alliance of Partners and Partnerships C) the National Conference of Commissioners on Uniform State Laws D) the Chancery Court of the State of Delaware Answer: C Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 39) It is estimated that the number of partnerships in the United States is ________. A) less than 500,000 B) between 500,000 and 1 million C) between 1 million and 2 million D) more than 2 million Answer: D Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 40) The Uniform Partnership Act (UPA) is a model act that codifies sole proprietorship law. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 41) The Revised Uniform Partnership Act is a federal statute that is recognized in all states. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
12 C..
42) Receipt of a share of business profits is prima facie evidence of a general partnership. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 43) The name selected by a general partnership cannot indicate that it is a corporation. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 44) A general partnership agreement must always be in writing to be considered legal. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 45) General partnerships do not pay federal income taxes. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 46) Since the income of a partnership must be reported on the individual partners' personal income tax returns, this results in double-taxation of partnership profits. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
13 C..
47) 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 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 48) Under the UPA, general partners are not permitted to sue the partnership or other partners at law. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 49) Explain the formation of a general partnership. Answer: A business must meet four criteria to qualify as a general partnership. 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 co-partner. 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 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
14 C..
50) What is meant by a "right to an accounting"? Answer: Under both the UPA and RUPA, partners are given the right to bring a lawsuit for an accounting against other partners. An action for an accounting is a formal judicial proceeding in which the court is authorized to (1) review the partnership and the partners' transactions and (2) award each partner his or her share of the partnership assets. An accounting action results in a money judgment for or against partners, according to the balance struck. Diff: 2 Skill: Legal Concepts LO: 14.3 Define general partnership and describe how general partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 51) Which of the following is true of tort liability of a general partnership? A) Only the partner who committed the tort is liable. B) Under the UPA, general partners have joint, but not several, liability for torts committed in the course and scope of the partnership. 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 Skill: Legal Concepts LO: 14.4 Describe the liability of general partnerships and the liability of general partners of a general partnership. AACSB: Analytical thinking Classification: Concept 52) Which of the following is true of the liability of an incoming partner? A) An incoming partner is liable for the antecedent debts of the partnership. B) An incoming partner has joint and several liability with existing partners for the antecedent debts of the partnership. C) An incoming partner is liable for the existing 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 Skill: Legal Concepts LO: 14.4 Describe the liability of general partnerships and the liability of general partners of a general partnership. AACSB: Analytical thinking Classification: Concept
15 C..
53) General partners have ________ liability for the debts and obligations of the partnership. A) unlimited personal B) plenary business C) limited occupational D) limitless public Answer: A Diff: 1 Skill: Legal Concepts LO: 14.4 Describe the liability of general partnerships and the liability of general partners of a general partnership. AACSB: Analytical thinking Classification: Concept 54) While claiming under ________ liability, a plaintiff must name the partnership and all of the partners as defendants in a lawsuit. A) individual B) joint C) conspiratorial D) cumulative Answer: B Diff: 1 Skill: Legal Concepts LO: 14.4 Describe the liability of general partnerships and the liability of general partners of a general partnership. AACSB: Analytical thinking Classification: Concept 55) Erin, Jayne, and Kathryn form a general partnership. Kathryn, while on partnership business, accidentally caused a fire that burned down Bill's house. Bill successfully sued the partnership and each of the partners and received a judgment for $500,000. Bill decided seek payment on the judgment just from Erin and Jayne, since they were known to be independently wealthy. Erin and Jayne ________. A) must divide the payment 50-50 B) can seek an injunction to prevent collection of the judgment since they were not involved in the tortious act C) may seek indemnification from the Kathryn, the partner who committed the tortious act. D) can avoid paying by dissolving the partnership immediately Answer: C Diff: 2 Skill: Legal Concepts LO: 14.4 Describe the liability of general partnerships and the liability of general partners of a general partnership. AACSB: Application of knowledge Classification: Concept
16 C..
56) General partners have unlimited personal liability for the debts and obligations of the partnership. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.4 Describe the liability of general partnerships and the liability of general partners of a general partnership. AACSB: Analytical thinking Classification: Concept 57) 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 Skill: Legal Concepts LO: 14.4 Describe the liability of general partnerships and the liability of general partners of a general partnership. AACSB: Analytical thinking Classification: Concept 58) Describe the liability situation of a newly admitted partner to a general partnership. Answer: A new partner to a general partnership is not personally liable for any partnership obligations incurred before the person's admission as a partner. However, the new partner is liable for the existing debts and obligations, the antecedent debts, of the partnership up to the extent of the new partner's capital contribution. The incoming partner is personally liable for debts and obligations incurred by the general partnership after becoming a partner. Diff: 1 Skill: Legal Concepts LO: 14.4 Describe the liability of general partnerships and the liability of general partners of a general partnership. AACSB: Analytical thinking Classification: Concept 59) 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) an action for an accounting B) indemnification C) winding up D) dissolution Answer: D Diff: 1 Skill: Legal Concepts LO: 14.5 Describe the dissolution and winding up of general partnerships. AACSB: Analytical thinking Classification: Concept
17 C..
60) ________ 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 Skill: Legal Concepts LO: 14.5 Describe the dissolution and winding up of general partnerships. AACSB: Analytical thinking Classification: Concept 61) According to priority, which of the following claims is satisfied first after dissolution? A) creditors B) creditor-partners C) capital contributions D) profits Answer: A Diff: 1 Skill: Legal Concepts LO: 14.5 Describe the dissolution and winding up of general partnerships. AACSB: Analytical thinking Classification: Concept 62) The ________ is a rule which provides that upon the death of a general partner, the deceased partner's right in specific partnership property vests in the remaining partner or partners; it does not pass to his or her heirs or next of kin. A) probationary taking rule B) right of survivorship C) partner participation right D) survivor protocol Answer: B Diff: 1 Skill: Legal Concepts LO: 14.5 Describe the dissolution and winding up of general partnerships. AACSB: Analytical thinking Classification: Concept 63) 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 Skill: Legal Concepts LO: 14.5 Describe the dissolution and winding up of general partnerships. AACSB: Analytical thinking Classification: Concept 18 C..
64) The dissolution of a general partnership discharges the liability of an outgoing partner for existing partnership debts and obligations. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.5 Describe the dissolution and winding up of general partnerships. AACSB: Analytical thinking Classification: Concept 65) How are assets distributed after the dissolution of a general partnership under the UPA? 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 to partners 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 Skill: Legal Concepts LO: 14.5 Describe the dissolution and winding up of general partnerships. AACSB: Analytical thinking Classification: Concept 66) A limited partnership has two types of partners, ________. A) general partners and sole proprietors B) general partners and limited partners C) ordinary partners and liable partners D) special partners and sole proprietors Answer: B Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
19 C..
67) Which of the following partners in a limited partnership invests capital, manages the business, and is personally liable for partnership debts? A) specific partners B) limited partners C) general partners D) sole proprietors Answer: C Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 68) Which of the following partners of a limited partnership invests capital but does not participate in management? A) specific partners B) limited partners C) general partners D) sole proprietors Answer: B Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 69) 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 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
20 C..
70) 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 be admitted as a general partner to the partnership after the business has commenced. B) Pedro cannot be admitted as a general partner to the partnership as a limited partnership can only have one general partner. C) Michael's mother cannot be admitted as 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 be admitted as either general or limited partners to the partnership. Answer: D Diff: 2 Skill: Factual Application LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Application of knowledge Classification: Application 71) 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 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 72) Which of the following information should a certificate of limited partnership contain? A) the latest date of dissolution of the partnership B) a clause to 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 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 21 C..
73) 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 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 74) ________ 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 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 75) 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 in the state court with appropriate jurisdiction over the limited partnership D) withdrawing from any future equity participation in the enterprise and causing a certificate showing this withdrawal to be filed Answer: D Diff: 2 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
22 C..
76) Which of the following is true of a limited partnership agreement? A) It must provide that all partnership transactions be approved by all partners. B) It does not contain information about dissolution of the partnership, since it is an agreement of formation. C) It must provide 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 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 77) Under partnership law, ________ have the right to manage the affairs of the limited partnership. A) investors B) sole proprietors C) limited partners D) general partners Answer: D Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 78) Laura is an investor and a limited partner in a limited partnership. Two years after she becomes a limited partner, Laura believes that the general partners are not doing a very good job of managing the affairs of the limited partnership, and she accordingly participates in its management. While she was managing the business, 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 will be true? A) Laura will not be held personally liable, as she is technically a limited partner. B) Laura will be treated as a general partner and will be held personally liable for the loan. C) Laura will be held liable for her proportionate share of the $1 million, depending on the total number of general and limited partners in the limited partnership. D) Laura's liability will be restricted to the value of her capital investment in the limited partnership. Answer: B Diff: 3 Skill: Factual Application LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Application of knowledge Classification: Application 23 C..
79) Promulgated in 1976 and revised in 1985, the ________ Act is a uniform act that regulates the formation, operation, and termination of limited partnerships. A) Reformed Uniform Limited Partnership B) Uniform Limited Partnership C) Revised Uniform Limited Partnership D) Model Limited Partnership Answer: C Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 80) Limited partnerships are also known as ________. A) LLP's B) LtdP's C) LP's D) ULP's Answer: C Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 81) A(n) ________ is a document that two or more persons must execute and sign that makes a limited partnership legal and binding. A) certificate of limited partnership B) articles of partnership (limited) C) registration of intent to partner (limited) D) limited partner mutual assent document Answer: A Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
24 C..
82) ________ occurs when (1) a certificate of limited partnership is not properly filed, (2) there are errors in a certificate that is filed, or (3) some other statutory requirement for the creation of a limited partnership is not met. A) Improper partnering B) Defective formation C) Deformation D) Scrivener mistake Answer: B Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 83) A(n) ________ is a document that sets forth the rights and duties of general and limited partners. A) limited partnership agreement B) certificate of limited partnership C) articles of partnership (limited) D) limited partner mutual assent document Answer: A Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 84) With regards to the management of a limited partnership, if there are more than one general partner, ________. A) each general partner gets a weighted vote, proportional in size to his or her capital contribution B) each general partner gets a weighted vote, proportional in size to his or her share in the partnership's profits C) each general partner gets one vote D) each general partner and each limited partner get a weighted vote proportional in size to his or her capital contribution Answer: C Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
25 C..
85) A limited partnership cannot have general partners. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 86) 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 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 87) The creation of a limited partnership is formal and requires public disclosure. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 88) Defective formation of a limited partnership occurs when a certificate of limited partnership is not properly filed. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept
26 C..
89) How does defective formation of a limited partnership occur? How can a limited partner in a defectively formed limited partnership escape general partner liability? Answer: Defective formation of a limited partnership occurs when (1) a certificate of limited partnership is not properly filed, (2) there are defects in a certificate that is filed, or (3) some other statutory requirement for the creation of a limited partnership is not met. If there is a substantial defect in the creation of a limited partnership, persons who thought they were limited partners can find themselves liable as general partners. Partners who erroneously but in good faith believe they have become limited partners can escape liability as general partners by either (1) causing the appropriate certificate of limited partnership (or certificate of amendment) to be filed or (2) withdrawing from any future equity participation in the enterprise and causing a certificate showing this withdrawal to be filed. The limited partner remains liable to any third party who transacts business with the enterprise before either certificate is filed if the third person believed in good faith that the partner was a general partner at the time of the transaction. Diff: 2 Skill: Legal Concepts LO: 14.6 Define limited partnership and describe how limited partnerships are formed and operated. AACSB: Analytical thinking Classification: Concept 90) Which of the following types of liability does a general partner 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 Skill: Legal Concepts LO: 14.7 Describe the liability of limited partnerships and the liability of general partners and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept
27 C..
91) Which of the following types of liability does a limited partner of a limited partnership have for the debts and obligations of the limited partnerships? A) unlimited personal liability B) liability restricted to the extent of his or her capital contribution C) liability of termination as partner D) unlimited organizational capital liability Answer: B Diff: 1 Skill: Legal Concepts LO: 14.7 Describe the liability of limited partnerships and the liability of general partners and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 92) A limited partnership is liable ________. A) for a general partner's tortious conduct, but not for contracts entered into by a general partner on behalf of the partnership B) for contracts entered into by a general partner on behalf of the partnership, but not for a general partner's tortious conduct C) for a general partner's tortious conduct and for contracts entered into by a general partner on behalf of the partnership D) for neither a general partner's tortious conduct, nor for contracts entered into by a general partner on behalf of the partnership Answer: C Diff: 1 Skill: Legal Concepts LO: 14.7 Describe the liability of limited partnerships and the liability of general partners and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 93) With regards to the obligations of a limited partnership, whether arising in contract, tort, or otherwise, if the limited partnership has more than one general partner, the general partners can be personally liable ________. A) only for those obligations for which they were personally involved B) only for obligations arising in contract, but not those arising in tort or otherwise C) only to the extent of their capital contribution D) jointly and severally, for all obligations of the limited partnership whether arising in contract, tort, or otherwise Answer: D Diff: 1 Skill: Legal Concepts LO: 14.7 Describe the liability of limited partnerships and the liability of general partners and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 28 C..
94) General partners are not personally liable for partnership debts beyond their capital contributions. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.7 Describe the liability of limited partnerships and the liability of general partners and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 95) Limited partners have unlimited personal liability for the debts and obligations of the limited partnership. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.7 Describe the liability of limited partnerships and the liability of general partners and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept 96) 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 Skill: Legal Concepts LO: 14.7 Describe the liability of limited partnerships and the liability of general partners and limited partners of a limited partnership. AACSB: Analytical thinking Classification: Concept
29 C..
97) Who among the following gets first priority in the distribution of assets upon the dissolution of a limited partnership? A) investors B) limited partners C) general partners D) creditors Answer: D Diff: 1 Skill: Legal Concepts LO: 14.8 Describe the dissolution and winding up of limited partnerships. AACSB: Analytical thinking Classification: Concept 98) Which of the following is an accurate statement regarding dissolution of a partnership? A) A general partnership may be dissolved, while a limited partnership may not. B) Just like a general partnership, a limited partnership may be dissolved, and its affairs wound up. C) Dissolution of a general partnership is governed by federal law, while dissolution of a limited partnership is governed by state law. D) Dissolution of a limited partnership is governed by federal law, while dissolution of a general partnership is governed by state law. Answer: B Diff: 1 Skill: Legal Concepts LO: 14.8 Describe the dissolution and winding up of limited partnerships. AACSB: Analytical thinking Classification: Concept 99) ________ establishes rules for the dissolution of a limited partnership. A) The RULPA B) The UPA C) The UCC D) Federal statutory law Answer: A Diff: 2 Skill: Legal Concepts LO: 14.8 Describe the dissolution and winding up of limited partnerships. AACSB: Analytical thinking Classification: Concept
30 C..
100) A(n) ________ is a document that is filed with the secretary of state when a dissolved limited partnership has completed winding up. A) certificate of completion B) articles of cancellation C) statement of termination D) certificate of non-existence Answer: C Diff: 1 Skill: Legal Concepts LO: 14.8 Describe the dissolution and winding up of limited partnerships. AACSB: Analytical thinking Classification: Concept 101) According to the RULPA, which of the following categories is entitled to priority in the order of distribution of assets of a limited partnership during the winding-up phase? A) partners with respect to unpaid distributions B) partners with respect to capital contributions C) creditors of the limited partnership D) charitable organizations registered with the secretary of state in the state where the limited partnership was formed Answer: C Diff: 2 Skill: Factual Application LO: 14.8 Describe the dissolution and winding up of limited partnerships. AACSB: Application of knowledge Classification: Application 102) What is an FLP? A) a Fiscal Leasing Partnership B) a Financial Liability Partnership C) a Formal Legal Partnership D) a Family Limited Partnership Answer: D Diff: 1 Skill: Legal Concepts LO: 14.8 Describe the dissolution and winding up of limited partnerships. AACSB: Analytical thinking Classification: Concept
31 C..
103) Explain the three ways for the dissolution of a limited partnership to occur under the ULPA (2001). Answer: The following events can cause the dissolution of a limited partnership: 1. The happening of an event specified in the limited partnership agreement (e.g., the specified undertaking of the limited partnership has been completed or accomplished). 2. The consent of all general partners and the consent of the limited partners who own the majority of the rights to receive distributions. 3. After withdrawal of a general partner, the partners owning a majority of the rights to receive distributions as partners consent to dissolve the partnership. Diff: 1 Skill: Legal Concepts LO: 14.8 Describe the dissolution and winding up of limited partnerships. AACSB: Analytical thinking Classification: Concept 104) What is a family limited partnership (FLP), and what is its purpose? Answer: A family limited partnership (FLP) is a limited partnership that is formed to hold family businesses or investments. There are no state statutes that provide for the formation of FLPs. An FLP is a limited partnership that has been formed by family members to pool together a family's assets into a single limited partnership that is owned by family members. FLPs are used to centralize a family's businesses and investments into a single entity. Generally, senior family members, such as parents or grandparents, who have substantial assets, are the general partners who contribute assets to the FLP and manage its business and assets. The children or grandchildren are usually the limited partners. The general partners give all or a portion of their assets to the FLP in exchange for a small general partnership interest and a large limited partnership interest. Over time, they can give their limited partnership interests to their children or grandchildren, and upon death can distribute the remaining partnership interests to their children or grandchildren. There are important gift tax and estate tax benefits for using FLPs. Diff: 1 Skill: Legal Concepts LO: 14.8 Describe the dissolution and winding up of limited partnerships. AACSB: Analytical thinking Classification: Concept 105) In a limited liability limited partnership, which of the partners are personally liable for the debts and obligations of the limited partnership? A) the general partners B) the limited partners C) the general and the limited partners, jointly and severally D) none of the partners Answer: D Diff: 1 Skill: Legal Concepts LO: 14.9 Define a limited liability limited partnership and describe the liability of partners. AACSB: Analytical thinking Classification: Concept 32 C..
106) To become an LLLP, a limited partnership must file a certificate of limited liability limited partnership with the ________ stating that it is an LLLP. A) Internal Revenue Service B) secretary of state C) county clerk D) U.S. Department of Commerce Answer: B Diff: 1 Skill: Legal Concepts LO: 14.9 Define a limited liability limited partnership and describe the liability of partners. AACSB: Analytical thinking Classification: Concept 107) Limited liability limited partnerships (LLLPs) are ________. A) taxed at the individual partners' level only B) taxed at the partnership level only C) double taxed, i.e., at both the partnership level and at the individual partners' level D) tax exempt Answer: A Diff: 1 Skill: Legal Concepts LO: 14.9 Define a limited liability limited partnership and describe the liability of partners. AACSB: Analytical thinking Classification: Concept 108) A limited partnership (LLLP) requires at least one general partner and at least one limited partner. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 14.9 Define a limited liability limited partnership and describe the liability of partners. AACSB: Analytical thinking Classification: Concept 109) A limited partnership (LLLP) is subject to double taxation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 14.9 Define a limited liability limited partnership and describe the liability of partners. AACSB: Analytical thinking Classification: Concept
33 C..
110) What is a limited liability limited partnership? What distinguishes it from a limited partnership? Answer: A limited liability limited partnership, an LLLP, is a special form of a limited partnership in which all partners—limited partners and general partners—have limited liability for the debts and obligations of the partnership. Thus, unlike a limited partnership (an LP), none of the partners, not even an individual general partner, is personally liable for the debts and obligations of the limited partnership. The limited liability of the general partner, even a natural person as the general partner, is provided by the formation of the LLLP. The debts of an LLLP are solely the responsibility of the LLLP. Diff: 2 Skill: Legal Concepts LO: 14.9 Define a limited liability limited partnership and describe the liability of partners. AACSB: Analytical thinking Classification: Concept
34 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 15 Limited Liability Companies, Limited Liability Partnerships, and Special Forms of Business 1) An LLC is a(n) ________. A) unincorporated business entity B) incorporated business entity C) cooperative entity D) proprietorship Answer: A Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of an LLC? A) An LLC is a creature of federal law. B) An LLC is regarded as 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 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 3) The ________ is a model act that provides comprehensive and uniform laws for the formation, operation, and dissolution of LLCs. A) Williams Act B) Securities Exchange Act C) ULLCA D) ULPA Answer: C Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept
1 C..
4) The owner of an LLC is called a ________. A) general partner B) limited partner C) proprietor D) member Answer: D Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 5) Which of the following is true of the ULLCA? A) It provides comprehensive laws for the formation of corporations. B) It provides uniform laws for the dissolution of LLCs. C) It is a state law that is uniform across the United States. D) It governs the operation of proprietorships and LLPs. Answer: B Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 6) Which of the following is true of LLC 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 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept
2 C..
7) Which of the following is true of an LLC formation? A) Doctors and lawyers can 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 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 8) 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 D) general partnerships Answer: B Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 9) ________ refer to the formal documents that must be filed at the secretary of state's office of the state of organization of an LLC to form the LLC. A) Operating agreements B) Certificates of interest C) Articles of organization D) Articles of amendment Answer: C Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept
3 C..
10) 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 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 11) An LLC that was 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 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 12) A(n) ________ refers to an agreement 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) franchise agreement C) operating agreement D) agreement of conversion Answer: C Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept
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13) 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 members D) when the first certificate of interest is issued Answer: A Diff: 2 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 14) 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 $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 Skill: Factual Application LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Application of knowledge Classification: Application 15) Which of the following best defines the term distributional interest? A) the ratio in which profit is distributed among members of an LLC B) the process of distributing profits or losses according to the capital investment of the member C) the constitution of management of the 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 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept
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16) 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 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 17) 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 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 18) A(n) ________ is an unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnerships, and corporations. A) limited liability company B) S corporation C) sole proprietorship D) joint venture Answer: A Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept
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19) The creation of an LLC is pursuant to laws enacted by the ________ government. A) federal B) county C) state D) local township Answer: C Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 20) The ________ codifies LLC laws and tries to establish comprehensive LLC law that is uniform throughout the United States. A) Model LLC Statute B) Uniform Limited Liability Company Act (ULLCA) C) Williams Act D) Smoot Hawley Act Answer: B Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 21) An LLC is formed by delivering ________ to the office of the secretary of state of the state of organization for filing. A) corporate charter B) franchise agreement C) organization agreement D) articles of organization Answer: D Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept
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22) A member's ownership interest in an LLC is known as a ________. A) shareholder interest B) stakeholder interest C) distributional interest D) membership points Answer: C Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 23) A limited liability company is an incorporated business entity. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 24) Limited liability companies are created by federal law. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 25) LLCs are treated as artificial persons who can sue or be sued and enter into and enforce contracts. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 26) A member or a shareholder is the owner of an LLC. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept
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27) The Uniform Limited Liability Company Act is a model act that provides comprehensive and uniform laws for the formation, operation, and dissolution of LLCs. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 28) The ULLCA is a federal law and is valid across the United States. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 29) An LLC is taxed at the entity level. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 30) The income or losses of an LLC flow through to the members' individual income tax returns; this avoids double-taxation. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 31) An LLC can be organized in only one state. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept
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32) A limited liability company cannot be abbreviated as LC. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 33) The existence of an LLC begins when the articles of organization are filed. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 34) An LLC cannot amend its articles of organization. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 35) An LLC organized in the United States is considered a domestic LLC throughout the United States. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 36) Articles of organization are documents that evidence a member's ownership interest in an LLC. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept
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37) An operating agreement is a document that states the terms for converting an existing business to an LLC. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 38) An operating agreement can be oral. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 39) Profits and losses from an LLC do not have to be distributed in the same proportion. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 40) A distributional interest refers to a member's ownership interest in an LLC. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 41) 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 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept
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42) 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 Skill: Legal Concepts LO: 15.1 Define limited liability company (LLC) and describe the formation of an LLC. AACSB: Analytical thinking Classification: Concept 43) Jasmin, Shou-Yi, and Vanessa form an LLC, and each contributes $25,000 in capital. The LLC operates for a period of time, during which it borrows money from banks and purchases goods on credit from suppliers. After some time, the LLC experiences financial difficulties and goes out of business. If the LLC fails with $500,000 in debts, which of the following is an accurate statement regarding the liability of Jasmin, Shou-Yi, and Vanessa? A) Each will lose her capital contribution of $25,000, but will not be personally liable for the rest of the unpaid debts of the LLC. B) Each will lose her capital contribution of $25,000, and will be personally liable for the rest of the unpaid debts of the LLC. C) Each will not be personally liable for the $500,000 in debts, and will be reimbursed for her $25,000 capital contribution. D) Each will not be personally liable for the $500,000 in debts, and a constructive trust for the entire $75,000 in capital contributions will be imposed so that Jasmin, Shou-Yi and Vanessa can form a new business venture. Answer: A Diff: 2 Skill: Factual Application LO: 15.2 Describe the liability of limited liability companies and the limited liability of members of an LLC. AACSB: Application of knowledge Classification: Application
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44) John, Nathan, and Julio form JNJ, LLC, with equal capital investment each. On his way to a business meeting with clients of JNJ, Nathan accidentally injures 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 partners. D) John, Nathan, and Julio have equal personal liability for Jessica's injuries. Answer: A Diff: 2 Skill: Factual Application LO: 15.2 Describe the liability of limited liability companies and the limited liability of members of an LLC. AACSB: Application of knowledge Classification: Application 45) Members of an LLC have ________ liability. A) limited B) unlimited personal C) unlimited capital D) strict Answer: A Diff: 1 Skill: Legal Concepts LO: 15.2 Describe the liability of limited liability companies and the limited liability of members of an LLC. AACSB: Analytical thinking Classification: Concept 46) Which of the following is true of liabilities of LLCs? A) Members of the LLC are liable to the extent of their capital contribution. B) Managers of LLCs are personally liable for the debts, obligations, and liabilities of the LLC. 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 Skill: Legal Concepts LO: 15.2 Describe the liability of limited liability companies and the limited liability of members of an LLC. AACSB: Analytical thinking Classification: Concept
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47) Agents of an LLC are not permitted to enter into contracts on behalf of the LLC. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.2 Describe the liability of limited liability companies and the limited liability of members of an LLC. AACSB: Analytical thinking Classification: Concept 48) An LLC is not liable for any injury caused by an LLC member while acting within the ordinary course of business of the LLC. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.2 Describe the liability of limited liability companies and the limited liability of members of an LLC. AACSB: Analytical thinking Classification: Concept 49) Members of LLCs are not personally liable for the LLC's debts, obligations, and liabilities. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.2 Describe the liability of limited liability companies and the limited liability of members of an LLC. AACSB: Analytical thinking Classification: Concept 50) Managers of LLCs are not personally liable for the debts, obligations, and liabilities of the LLC they manage. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.2 Describe the liability of limited liability companies and the limited liability of members of an LLC. AACSB: Analytical thinking Classification: Concept
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51) Briefly discuss the liability of an LLC, its members, and its managers for contract obligations of an LLC. Answer: An LLC is liable for contracts entered on behalf of the company by members or managers while they are acting within LLC authority. Members of an LLC are not personally liable for obligations arising from contracts beyond their capital contributions. Managers of LLCs are not personally liable for the contract obligations of the LLCs that they manage. Diff: 1 Skill: Legal Concepts LO: 15.2 Describe the liability of limited liability companies and the limited liability of members of an LLC. AACSB: Analytical thinking Classification: Concept 52) Which of the following is true of the management of an LLC? 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 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 53) 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 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept
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54) 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 employees of the company. Answer: C Diff: 2 Skill: Factual Application LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Application of knowledge Classification: Application 55) Which of the following methods is used to appoint a manager of a manager-managed LLC? A) appointment by the secretary of state B) majority vote of the members C) unanimous vote of members D) unanimous vote of shareholders Answer: B Diff: 1 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 56) Which of the following actions requires all members in a manager-managed LLC to vote? 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 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept
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57) The ________ is a duty owed by a member of an LLC 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 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 58) In a ________ 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. A) manager-managed B) manager-membered C) member-membered D) member-managed Answer: D Diff: 1 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 59) In a ________ LLC, the managers have authority to bind the LLC to contracts, but nonmanager members cannot bind the LLC to contracts. A) manager-managed B) manager-membered C) member-membered D) member-managed Answer: A Diff: 1 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept
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60) A nonmanager member of a ________ LLC is treated equally to a shareholder in a corporation. A) manager-managed B) nonmanager-membered C) member-nonmembered D) member-managed Answer: A Diff: 1 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 61) A company operating its business as a(n) ________ cannot have more than 100 shareholders. A) limited liability company B) S corporation C) sole proprietorship D) joint venture Answer: B Diff: 1 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 62) The United States does not permit an LLC to be member-managed. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 63) In a manager-managed LLC, it is necessary that the manager is a member of that LLC. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept
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64) In a manager-managed LLC, amending the articles of organization cannot be delegated to the managers. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 65) A manager does not owe a duty of loyalty to the LLC as he or she is not a member of the LLC. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 66) The duty of care for managers and members includes the duty not to usurp the LLC's opportunities. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 67) 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 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept
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68) Distinguish between a member-managed 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 Skill: Legal Concepts LO: 15.3 Compare the management of a member-managed LLC and a manager-managed LLC. AACSB: Analytical thinking Classification: Concept 69) A provision in an LLC's operating agreement that provides for the continuation of the LLC upon the withdrawal of a member or other specified event is called a(n) ________. A) continuation agreement B) survivorship clause C) anti-dissipation agreement D) contingency proviso Answer: A Diff: 1 Skill: Legal Concepts LO: 15.4 Describe the dissolution and winding up of limited liability companies. AACSB: Analytical thinking Classification: Concept 70) A(n) ________ is a special form of partnership in which all partners are treated as limited partners with regards to liability. A) domestic LLC B) proprietorship C) LLC D) LLP Answer: D Diff: 1 Skill: Legal Concepts LO: 15.5 Define limited-liability partnership (LLP) and describe the formation of an LLP. AACSB: Analytical thinking Classification: Concept 20 C..
71) ________ refer to the formal documents that must be filed at the secretary of state's office of the state of organization of an LLP to form the LLP. A) Articles of LLP B) Agreements of conversion C) Articles of organization of LLP D) Articles of amendment of LLC Answer: A Diff: 1 Skill: Legal Concepts LO: 15.5 Define limited-liability partnership (LLP) and describe the formation of an LLP. AACSB: Analytical thinking Classification: Concept 72) An LLP has a(n) ________ tax benefit, where no tax is paid at the partnership level, and all profits and losses are reported on the individual partners' income tax returns. A) overpass B) flow-through C) double D) no Answer: B Diff: 1 Skill: Legal Concepts LO: 15.5 Define limited-liability partnership (LLP) and describe the formation of an LLP. AACSB: Analytical thinking Classification: Concept 73) Outline the steps necessary for a partnership to become a Limited Liability Partnership (LLP). Answer: For a partnership to become a Limited Liability Partnership (LLP), there first must be an affirmative vote to choose LLP status by the number of partners that is necessary to amend the partnership agreement. The partnership must then file a "statement of qualification" with the secretary of state that includes the name of the LLP, the address of the partnership's principal office, and a statement that the partnership elects to become a limited liability partnership. Some states refer to the document as "articles of limited liability partnership." Diff: 2 Skill: Legal Concepts LO: 15.5 Define limited-liability partnership (LLP) and describe the formation of an LLP. AACSB: Analytical thinking Classification: Concept
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74) Fred Adzum, CPA and Bill Subtraxem, CPA formed the accounting firm Adzum & Subtraxem, LLP. A former client of Fred's is suing Fred and the firm for accounting malpractice. If the former client is successful in his lawsuit, and Fred is found to have committed malpractice, what could this mean to the personal assets of Fred and Bill? A) Both Fred and Bill would be personally liable, jointly and severally. B) Fred would be personally liable due to his conduct; Bill may lose his capital contribution to the firm, but his personal assets would be shielded. C) As the firm is an LLP, the personal assets of both Bill and Fred would be shielded. D) Fred would be personally liable due to his conduct; both Bill's capital contribution to the firm and his personal assets would be shielded. Answer: B Diff: 2 Skill: Factual Application LO: 15.6 Describe the liability of limited liability partnerships and the limited liability of the partners of an LLP. AACSB: Application of knowledge Classification: Application 75) Partners of LLPs are personally liable for the LLPs' debts, obligations, and liabilities. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.6 Describe the liability of limited liability partnerships and the limited liability of the partners of an LLP. AACSB: Analytical thinking Classification: Concept 76) Why has the advent of the limited liability partnership changed the form of organization under which many large accounting firms operate? Answer: Prior to the advent of the limited liability partnership form of doing business, accounting firms operated as general partnerships. As such, the general partners were personally liable for the debts and obligations of the general partnership. Lawsuits were sometimes brought against accounting firms for damages caused by an individual partner's accounting malpractice. If liability were found, then all partners were held personally liable. The advent of the limited liability partnership form of organization changed this result. While operating as an LLP, if one partner commits accounting malpractice or other tortious conduct, that partner is personally liable for his or her conduct, but the other partners are not. The other partners may lose their capital contribution to the LLP, but their personal assets are shielded. As a result, a significant number of accounting firms, including all of the "Big Four" accounting firms, now operate as LLPs. Diff: 2 Skill: Legal Concepts LO: 15.6 Describe the liability of limited liability partnerships and the limited liability of the partners of an LLP. AACSB: Analytical thinking Classification: Concept 22 C..
77) During the process of winding up an LLP, after an LLP's assets have been liquidated and reduced to cash, the proceeds are distributed in the following order: A) First, partners who are creditors, then other creditors, and finally settlement of partners' accounts. B) First, creditors, then settlement of partners' accounts. Partners who are creditors take nothing. C) First, creditors (including partners who are creditors), then settlement of partners' accounts. D) First, settlement of partners' accounts, then partners who are creditors, and finally other creditors. Answer: C Diff: 1 Skill: Legal Concepts LO: 15.7 Describe the dissolution and winding up of limited liability partnerships. AACSB: Analytical thinking Classification: Concept 78) 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 79) Which of the following is true of a franchise? A) The franchisor and franchisee are generally 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept
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80) 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 81) In which of the following types of franchises 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 82) 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 that is dispatched to the franchises world over. These franchises then prepare and bottle the beverage for distribution. Which type of franchise has Limonelle adopted? A) chain-style franchise B) processing plant franchise C) distributorship franchise D) area franchise Answer: B Diff: 2 Skill: Factual Application LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Application of knowledge Classification: Application
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83) 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 84) 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 that make and sell all menu items from Rio's Sandwiches. Which of the following franchises would best suit the RioWerner Corporation's franchise plan? A) processing plant B) area C) distributorship D) chain-style Answer: D Diff: 2 Skill: Factual Application LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Application of knowledge Classification: Application 85) 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept
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86) The area franchisee is also called a ________. A) joint venturer B) limited partner C) subfranchisor D) strategic partner Answer: C Diff: 1 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 87) 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) Pepsi Co. ships Pepsi in the form of a drink concentrate that 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 Skill: Factual Application LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Application of knowledge Classification: Application 88) 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept
26 C..
89) 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 90) Ubiquitous Enterprises is a franchisee of the HotPan chain of restaurants. One afternoon Linda, an employee of Ubiquitous Enterprises, 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. Which of the following statements is accurate regarding liability for Gary's injury? A) HotPan is liable for not providing a "Caution: Wet Floor!" sign. B) Ubiquitous Enterprises is liable for not having its own "Caution" sign. C) Both HotPan and Ubiquitous Enterprises are jointly and severally liable. D) Neither HotPan nor Ubiquitous Enterprises is liable. Answer: B Diff: 2 Skill: Factual Application LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Application of knowledge Classification: Application 91) Ford Motor Company manufactures automobiles and franchises independently owned automobile dealers (franchisees) to sell them to the public. This is an example of a(n) ________ franchise. A) chain-style B) area C) distributorship D) processing plant Answer: C Diff: 1 Skill: Factual Application LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Application of knowledge Classification: Application
27 C..
92) In a(n) ________ 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. A) chain-style B) area C) distributorship D) processing plant Answer: D Diff: 1 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 93) A type of franchising where 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 is known as a(n) ________ franchise. A) chain-style B) area C) distributorship D) processing plant Answer: A Diff: 1 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 94) 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 ________. A) subfranchisor B) subfranchisee C) submaster franchisor D) francheezie Answer: A Diff: 1 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept
28 C..
95) A franchisee acquires a(n) ________ from a franchisor that allows the franchisee to use the franchisor's trademarks, service marks, trade names, and other intellectual property in the distribution of goods, services, software, and digital information. A) permit B) license C) easement D) grant Answer: B Diff: 1 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 96) A franchisee is established when parties of a general partnership conduct business outside the state of their incorporation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 97) 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 98) In an area franchise, the franchisor authorizes the franchisee to negotiate and sell franchises on behalf of the franchisor. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept
29 C..
99) A distributorship franchisee is called a subfranchisor. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 100) A franchisor deals with the franchisee as an independent contractor. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 101) Unless otherwise stated, the franchisor is liable for the torts of its franchisee. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 102) Explain the four basic types of franchises. 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 is 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept
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103) 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept 104) 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 Skill: Legal Concepts LO: 15.8 Define franchise and describe various forms of franchises. AACSB: Analytical thinking Classification: Concept
31 C..
105) ________ is a business arrangement that occurs when the owner of intellectual property contracts to permit another party to use the intellectual property. A) A general partnership B) Leasing C) Licensing D) A joint venture Answer: C Diff: 1 Skill: Legal Concepts LO: 15.9 Define licensing and describe how intellectual property and software are licensed. AACSB: Analytical thinking Classification: Concept 106) The party who grants a license is known as the ________. A) licensee B) licensor C) grantee D) grantor Answer: B Diff: 1 Skill: Legal Concepts LO: 15.9 Define licensing and describe how intellectual property and software are licensed. AACSB: Analytical thinking Classification: Concept 107) The party to whom a license is granted is known as the ________. A) licensee B) licensor C) grantee D) grantor Answer: A Diff: 1 Skill: Legal Concepts LO: 15.9 Define licensing and describe how intellectual property and software are licensed. AACSB: Analytical thinking Classification: Concept
32 C..
108) YouKnow Inc. is a corporation that creates educational resources. It grants Middlewest Public School the right to use its online encyclopedias for three years in return for a fee. In this arrangement, YouKnow Inc. is the ________. A) donor B) trustee C) grantor D) licensor Answer: D Diff: 2 Skill: Factual Application LO: 15.9 Define licensing and describe how intellectual property and software are licensed. AACSB: Application of knowledge Classification: Application 109) Intrepid Creations is a product design institute that 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 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 Skill: Factual Application LO: 15.9 Define licensing and describe how intellectual property and software are licensed. AACSB: Application of knowledge Classification: Application 110) 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 Skill: Legal Concepts LO: 15.9 Define licensing and describe how intellectual property and software are licensed. AACSB: Analytical thinking Classification: Concept
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111) A ________ is an arrangement in which two or more business entities combine their resources to pursue a single project or transaction. A) joint venture B) general partnership C) sole proprietorship D) franchise Answer: A Diff: 1 Skill: Legal Concepts LO: 15.10 Define joint venture and describe the advantages of using a joint venture. AACSB: Analytical thinking Classification: Concept 112) In pursuing a joint venture, many joint venturers form a corporation to operate the joint venture. This is called a ________. A) joint venture corporation B) joint general corporation C) joint alliance corporation D) franchising cooperative Answer: A Diff: 1 Skill: Legal Concepts LO: 15.10 Define joint venture and describe the advantages of using a joint venture. AACSB: Analytical thinking Classification: Concept 113) Joint venturers owe each other ________. A) nothing B) a duty of confidentiality C) a duty to keep an accounting and to share profits evenly D) the fiduciary duties of loyalty and care Answer: D Diff: 1 Skill: Legal Concepts LO: 15.10 Define joint venture and describe the advantages of using a joint venture. AACSB: Analytical thinking Classification: Concept 114) If a joint venture is operated as a partnership, then each joint venturer is considered a partner of the joint venture. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 15.10 Define joint venture and describe the advantages of using a joint venture. AACSB: Analytical thinking Classification: Concept 34 C..
115) Briefly describe what is meant by a joint venture. Compare and contrast a joint venture with a traditional partnership. 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. Diff: 1 Skill: Legal Concepts LO: 15.10 Define joint venture and describe the advantages of using a joint venture. AACSB: Analytical thinking Classification: Concept 116) An arrangement between two or more companies whereby they agree to ally themselves and work together to accomplish a designated objective is a(n) ________. A) affinity group B) strategic alliance C) merger D) collusion Answer: B Diff: 1 Skill: Legal Concepts LO: 15.11 Define strategic alliance and describe the advantages of entering into a strategic alliance. AACSB: Analytical thinking Classification: Concept 117) A strategic alliance is NOT intended to allow the companies involved to ________. A) reduce risks B) share costs C) restrain trade D) combine technologies Answer: C Diff: 1 Skill: Legal Concepts LO: 15.11 Define strategic alliance and describe the advantages of entering into a strategic alliance. AACSB: Analytical thinking Classification: Concept
35 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 16 Corporations and Corporate Governance 1) The ________ Act of 2002 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 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 2) Which of the following elects members of the board of directors for a corporation? A) the CEO B) the corporate officers C) the shareholders D) the employees Answer: C Diff: 1 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 3) 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 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept
1 C..
4) The ________ own(s) a corporation. A) shareholders B) board of directors C) CEO D) corporate officers Answer: A Diff: 1 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 5) ________ are a panel of decision makers who are elected by the shareholders. A) Registered agents B) Corporate officers C) Stakeholders D) Board of directors Answer: D Diff: 1 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 6) A panel of persons who are elected by shareholders that make policy decisions concerning the operation of a corporation is known as the ________. A) board of directors B) executive committee C) shareholder committee D) board of review Answer: A Diff: 1 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept
2 C..
7) ________ corporations are corporations that have many shareholders and whose securities are often traded on organized securities markets. A) Closely held B) Nonprofit C) Publicly held D) Professional Answer: C Diff: 1 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 8) Shareholders are owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 9) Corporation codes regulate the formation, operation, and dissolution of corporations. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 10) Corporations are not allowed to enter into contracts in their own name. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 11) The board of directors makes policy decisions concerning the operation of a corporation. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept
3 C..
12) Give an account of 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 Skill: Legal Concepts LO: 16.1 Define corporation and list the major characteristics of a corporation. AACSB: Analytical thinking Classification: Concept 13) The ________ 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 Skill: Legal Concepts LO: 16.2 Describe the limited liability of shareholders of a corporation. AACSB: Analytical thinking Classification: Concept 14) Shareholders have unlimited liability for the debts and obligations of a corporation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.2 Describe the limited liability of shareholders of a corporation. AACSB: Analytical thinking Classification: Concept
4 C..
15) What is meant by the limited liability of corporate shareholders? Answer: One of the most important features of a corporation is that its shareholders are not responsible for the corporation's debts and obligations. Generally, the shareholders have only limited liability. This limited liability means that shareholders are liable only to the extent of their capital contributions to the corporation; that is, they can lose their investment in the corporation. However, shareholders do not have personal liability for the corporation's debts and obligations. Diff: 1 Skill: Legal Concepts LO: 16.2 Describe the limited liability of shareholders of a corporation. AACSB: Analytical thinking Classification: Concept 16) A corporation is referred to as a(n) ________ corporation in the state in which it was formed. A) foreign B) domestic C) alien D) multinational Answer: B Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 17) 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 was incorporated C) a corporation in states other than the one in which it was incorporated D) a corporation in the United States which has been incorporated in another country Answer: C Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept
5 C..
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 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 19) Which of the following is true of a corporation's incorporation in a state? A) Domestic corporations can incorporate in only one state. B) Domestic corporations can incorporate in all states in which they conduct business. C) Alien corporations can only incorporate in one state. D) Foreign corporations can incorporate in more than one state. Answer: A Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 20) ________ are the basic governing documents of a corporation which must be drafted and filed with, and approved by, the state before the corporation can be officially incorporated. A) Debt securities B) Debentures C) Certificates of authority D) Articles of incorporation Answer: D Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept
6 C..
21) 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 terms warranting corporate dissolution D) the corporate seal used in the articles of incorporation Answer: B Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 22) 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) shareholder C) registered agent D) incorporator Answer: C Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 23) A detailed set of rules adopted by the board of directors after a corporation is incorporated that contains provisions for managing the business and the affairs of the corporation are referred to as ________. A) ultra vires rules B) articles of incorporation C) bylaws D) corporation codes Answer: C Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept
7 C..
24) Which of the following is true of corporate bylaws? A) They only contain rules addressing how the corporation can interact 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 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 25) Which of the following is true of a C Corporation? A) It does not pay taxes at the corporate level. B) Shareholders of such a corporation are not required to pay taxes on their dividends. C) Any corporation with more than 100 shareholders is automatically a C corporation for federal income tax purposes. D) Nonresident aliens cannot be shareholders unless they demonstrate due diligence in meeting federal requirements for residency status. Answer: C Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 26) Which of the following is true of an S corporation? A) It can have no more than 100 shareholders. B) Only a foreign corporation can become an S corporation. C) It is taxed at the corporate level. D) It must be a member of an affiliated group of corporations. Answer: A Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept
8 C..
27) Which of the following criteria must be satisfied for a corporation to be treated as an S corporation? A) The corporation's shareholders must be other corporations or partnerships. B) The corporation's shareholders must be citizens or residents of the United States. C) The corporation must have more than 100 shareholders. D) The corporation must have more than one class of stock. Answer: B Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 28) A corporation that is incorporated in another country is known as a(n) ________ corporation. A) foreign B) nondomestic C) international D) alien Answer: D Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 29) A(n) ________ is a person or a corporation that is empowered to accept service of process on behalf of a corporation and is identified in the articles of incorporation. A) registered agent B) corporate emissary C) process server D) attorney-in-fact Answer: A Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept
9 C..
30) The articles of incorporation are also known as the ________. A) bylaws B) corporate charter C) registration statement D) petition for incorporation Answer: B Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 31) A corporation is a foreign corporation in states other than the one in which it is incorporated. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 32) A corporation can be incorporated in several states. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 33) The articles of incorporation must contain the name and address of every incorporator. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 34) Corporations cannot provide their articles of incorporation online. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept
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35) Provisions concerning the limitation or regulation of powers of the corporation cannot be included in the articles of incorporation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 36) The bylaws of a corporation must be filed with a government official. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 37) The shareholders of a corporation have the absolute right to amend the bylaws. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 38) An S corporation must pay federal income tax at the corporate level. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 39) Foreign corporations can elect to be taxed as an S corporation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept
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40) Any corporation with more than 100 shareholders is automatically considered a C corporation for federal income tax purposes. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 41) An S corporation can have nonresident aliens as shareholders. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 42) A C corporation pays taxes at the corporate level and also at the shareholder level. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 43) An S corporation cannot have more than 100 shareholders. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept 44) An S corporation election is made by filing a Form 2553 with the Federal Trade Commission. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.3 Describe the process of incorporating and forming a corporation. AACSB: Analytical thinking Classification: Concept
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45) ________ is a type of equity security that represents the residual value of a corporation. A) Common stock B) Preferred stock C) Cumulative preferred stock D) Participating preferred stock Answer: A Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 46) A ________ is a preferred stockholder's 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 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 47) Stock for which any missed dividend payments must be paid in the future to the preferred shareholders before the common shareholders can receive any dividends is known as ________ stock. A) cumulative preferred B) noncumulative preferred C) common D) participating preferred Answer: A Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept
13 C..
48) 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 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 49) Issued shares that have been repurchased by the corporation are referred to as ________ shares. A) outstanding B) liquidated C) unissued D) treasury Answer: D Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 50) A contract between a corporation and a holder that contains the terms of a debt security is known as a(n) ________. A) option contract B) right of first refusal C) indenture D) shareholder voting agreement Answer: C Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept
14 C..
51) 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 entitled to receive dividends. Answer: B Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 52) Securities 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 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 53) 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 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept
15 C..
54) 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 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 55) Which of the following is true of a note? A) It is a long-term unsecured debt instrument that is based on a corporation's general credit standing. B) It is a long-term debt security that is secured by some form of collateral. C) It can be either unsecured or secured. D) It contains a conversion feature. Answer: C Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 56) Stock that permits a corporation to buy back the preferred stock at some future date is known as ________. A) redeemable preferred stock/callable preferred stock B) participating preferred stock C) convertible preferred stock D) treasury stock Answer: A Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept
16 C..
57) Authorized shares that have not been sold by the corporation are known as ________. A) treasury shares B) unissued shares C) outstanding shares D) preferred shares Answer: B Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 58) A(n) ________ is a long-term unsecured debt instrument that is based on a corporation's general credit standing. A) bond B) note C) indenture D) debenture Answer: D Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 59) A contract between a corporation and a holder that contains the terms of a debt security is known as a(n) ________. A) debenture B) note C) indenture agreement/indenture D) fully collateralized total return swap Answer: C Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 60) Common stockholders receive dividends declared by the board of directors. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept
17 C..
61) Preferred stockholders are given the right to vote for the board of directors of the corporation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 62) Convertible preferred stock permits the preferred stockholders to convert their shares into common stock. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 63) Authorized shares that have been sold by a corporation are called issued shares. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 64) Shares that are repurchased by a corporation are called unissued shares. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 65) Treasury shares cannot be reissued by a corporation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept
18 C..
66) Only outstanding shares have the right to vote. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 67) In debt securities, the corporation is the debtor and the holder is the creditor. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 68) Secured bondholders can foreclose on the collateral in the event of nonpayment of interest or principal. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 69) A note is a long-term debt security that is secured by some form of collateral. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept
19 C..
70) What is common stock? What are its features? Answer: Common stock is an equity security that represents the residual value of a corporation. Common stock has no preferences. That is, creditors and preferred shareholders must receive their required interest and dividend payments before common shareholders receive anything. Common stock does not have a fixed maturity date. If a corporation is liquidated, the creditors and preferred shareholders are paid the value of their interests first, and the common shareholders are paid the value of their interests last. Corporations may issue different classes of common stock. Persons who own common stock are called common stockholders. A common stockholder's investment in the corporation is represented by a common stock certificate. Common stockholders have the right to elect directors and to vote on mergers and other important matters. In return for their investment, common stockholders receive dividends declared by the board of directors. Diff: 2 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 71) Briefly describe the differences between a debenture, a bond, and a note. Answer: A debenture is a long-term (often 30 years or more), unsecured debt instrument that is based on a corporation's general credit standing. If the corporation encounters financial difficulty, unsecured debenture holders are treated as general creditors of the corporation (i.e., they are paid only after the secured creditors' claims are paid). A bond is a long-term debt security that is secured by some form of collateral (e.g., real estate, personal property). Thus, bonds are the same as debentures except that they are secured. Secured bondholders can foreclose on the collateral in the event of nonpayment of interest, principal, or other specified events. A note is a short-term debt security with a maturity of five years or less. Notes can be either unsecured or secured. They usually do not contain a conversion feature. They are sometimes made redeemable. Diff: 2 Skill: Legal Concepts LO: 16.4 Describe how a corporation is financed by equity securities and debt securities. AACSB: Analytical thinking Classification: Concept 72) 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 as agents of the corporation. Answer: A Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 20 C..
73) When is the annual shareholders' meeting held? A) according to the date fixed in the bylaws B) at the discretion of the board of directors C) only if and when there is an organizational crisis D) only when necessary to elect a new board of members Answer: A Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 74) A written document in which a shareholder authorizes a person to vote the shareholder's shares at the shareholders' meetings in the event of the shareholder's absence is known as a ________. A) quorum B) notice of shareholder's meeting C) certificate of authority D) proxy Answer: D Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 75) The Inkilwas Corporation has 30,000 shares outstanding. 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 Corporation 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 Skill: Factual Application LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application
21 C..
76) The Inkilwas Corporation has 30,000 shares outstanding. A shareholders' meeting is duly called to amend the company's articles of incorporation, and 17,501 shares are represented at the meeting. If an amendment to the articles of incorporation is put to vote at this meeting, which of the following statements is true in terms of passage of the amendment? A) The amendment will not pass, since all 30,000 outstanding shares must be represented at the meeting in order to vote to amend the articles of incorporation. B) The amendment will pass if all 17,501 shares represented at the meeting vote to approve it. C) The amendment will pass if 4,376 shares represented at the meeting vote to approve it. D) The amendment will pass if 8,751 shares represented at the meeting vote to approve it. Answer: D Diff: 2 Skill: Factual Application LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application 77) Bilkis Brans 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. Suppose that two directors of the corporation are to be elected from a potential pool of five candidates. Ester favors candidates 1 and 5, Mendez favors candidates 2 and 4, Judy favors candidates 3 and 4, and Aaron favors candidates 2 and 3. If straight voting occurs, which of the two candidates are likely to win? A) candidates 1 and 5 B) candidates 1 and 4 C) candidates 2 and 3 D) candidates 2 and 4 Answer: A Diff: 2 Skill: Factual Application LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application 78) Suppose Lisa owns 1,000 shares of a corporation. Assume that four directors are to be elected to the board. With ________ voting, Lisa can multiply the number of shares she owns (1,000) by the number of directors to be elected (four), and she can cast all the resulting votes (4,000) for one candidate or split them among candidates as she determines. A) supramajority B) noncumulative C) cumulative D) preemptive Answer: C Diff: 2 Skill: Factual Application LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application 22 C..
79) The 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 would be needed to pass the supramajority voting requirement? A) 14,001 B) 21,280 C) 21,000 D) 28,000 Answer: C Diff: 2 Skill: Factual Application LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Application of knowledge Classification: Application 80) According to the Revised Model Business Corporation Act (RMBCA), what establishes a quorum to hold a meeting of the shareholders? A) a majority of the outstanding shares B) a majority of the unissued shares C) a majority of the treasury shares D) a majority of the liquidated shares Answer: A Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 81) ________ 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 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept
23 C..
82) 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 will be paid to shareholders who have sold their shares prior to the record date. D) Dividends in cash or property, once declared, cannot be revoked. Answer: D Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 83) In which of the following cases can the alter ego doctrine be invoked in a corporate civil case? A) when shareholders bring a lawsuit on behalf of the corporation after the corporation failed to do so itself B) when unpaid creditors are trying to collect from shareholders a debt owed by the corporation C) when there is mismanagement of corporate stocks by the board of directors D) when shareholders are trying to collect for fraud committed by a third party Answer: B Diff: 2 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 84) Which of the following is true of cumulative voting? A) Each shareholder votes the number of shares he or she owns on candidates for each of the positions open for election. B) A majority shareholder always elects the entire board of directors. C) The cumulative voting method always applies to elections for the board of directors. D) A minority shareholder has a better opportunity to elect someone to the board of directors. Answer: D Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept
24 C..
85) 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 ________. A) debenture B) power of attorney C) proxy D) pixie Answer: C Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 86) 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) supramajority voting B) cumulative voting C) straight voting D) noncumulative voting Answer: B Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 87) A requirement that a greater than majority of shares constitutes a quorum of the vote of the shareholders is known as the ________ requirement. A) supramajority voting B) cumulative voting C) straight voting D) noncumulative voting Answer: A Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept
25 C..
88) ________ is a doctrine that says if a shareholder dominates a corporation and uses it for improper purposes, a court of equity can disregard the corporate entity and hold the shareholder personally liable for the corporation's debts and obligations. A) Res ipsa loquitur B) Fruit of the poisonous tree C) Mirabile dictu D) Piercing the corporate veil Answer: D Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 89) The shareholders of a corporation act as agents of the corporation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 90) The annual shareholders' meeting is held to elect new shareholders. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 91) Shareholders do not have to attend a shareholders' meeting to vote. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 92) 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 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 26 C..
93) Once a quorum is present, the withdrawal of shares does not affect the quorum of the meeting. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 94) Straight voting gives a minority shareholder a better opportunity to elect someone to the board of directors. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 95) Shareholder resolutions are usually made when the corporation is soliciting proxies from its shareholders. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 96) The shareholders are responsible for determining how much will be paid in dividends. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 97) Once declared, a cash or property dividend cannot be revoked. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept
27 C..
98) A shareholder's authorization of another person to vote the shareholder's shares at a shareholders' meeting in the event of the shareholder's absence is known as a moxie. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.5 Define shareholder and describe the rights of shareholders of corporations. AACSB: Analytical thinking Classification: Concept 99) 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 Skill: Legal Concepts LO: 16.6 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept 100) The election of directors of the corporation can be held by electronic transmission. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.6 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept 101) A(n) ________ is a member of a board of directors who is not an officer of the corporation. Answer: outside director Diff: 1 Skill: Legal Concepts LO: 16.6 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept
28 C..
102) Briefly describe the manner in which a board of directors conducts business. Answer: A board of directors usually conducts its business at regular or special meetings of the board. Regular meetings of a board of directors are held at the times and places established in the bylaws. A board can call special meetings of the board of directors as provided in the bylaws. Special meetings are usually convened for reasons such as issuing new shares, considering proposals to merge with other corporations, adopting maneuvers to defend against hostile takeover attempts, and the like. The board of directors may act without a meeting if all the directors sign written consents that set forth the actions taken. A simple majority of the number of directors established in the articles of incorporation or bylaws usually constitute a quorum of the board of directors for transacting business. However, the articles of incorporation and the bylaws may increase this number. If a quorum is present, the approval or disapproval of a majority of the quorum binds the entire board. The articles of incorporation or the bylaws can require a greater than majority of directors to constitute a quorum of the vote of the board. The board of directors authorizes actions to be taken on behalf of the corporation by adopting resolutions. The resolution is put forward by a member of the board, usually seconded by another board member, and then put to the vote of the entire board of directors. Corporate resolutions are recorded in the written minutes of the board of directors' meetings and specify the action taken by the board of directors. Resolutions can be adopted for many subjects that affect the corporation. Diff: 2 Skill: Legal Concepts LO: 16.6 Define board of directors and describe the duties of members of boards of directors of corporations. AACSB: Analytical thinking Classification: Concept 103) ________ 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 Skill: Legal Concepts LO: 16.7 Define corporate officer and describe the duties and scope of authority of corporate officers. AACSB: Analytical thinking Classification: Concept
29 C..
104) The president of a corporation is an example of a corporate officer. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.7 Define corporate officer and describe the duties and scope of authority of corporate officers. AACSB: Analytical thinking Classification: Concept 105) Which of the following policies helps keep a corporate officer from being sued for honest mistakes made on behalf of a corporation? A) the duty of loyalty B) the duty of obedience C) the business judgment rule D) self-dealing Answer: C Diff: 1 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 106) A duty that requires directors and officers to not 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) the duty of care B) the duty of loyalty C) the duty of obedience D) self-dealing Answer: B Diff: 1 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept
30 C..
107) Which of the following constitutes 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 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 108) Helen is the vice-president of Gotspeed Corporation, a company that designs, manufactures and sells sports shoes. Nestor, an independent entrepreneur, designs a new shoe that helps the user's foot grip the shoe better, and he calls it the Anklator. Nestor's friend schedules an appointment for him to meet Helen and present the Anklator for possible adoption by Gotspeed. Instead of presenting the opportunity to Gotspeed's board of directors, Helen pays Nestor's asking price and purchases the Anklator design for herself. She then quits and forms her own company to manufacture and sell Anklator shoes. Helen has breached her duty of loyalty to Gotspeed Corporation by ________. A) self-dealing B) usurping a corporate opportunity C) making a secret profit D) competing with the corporation Answer: B Diff: 2 Skill: Factual Application LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Application of knowledge Classification: Application
31 C..
109) Jameson works for Fishy-Mart Corporation, a chain of superstores that sells large quantities of seafood. His job is to locate future sites for Fishy-Mart stores. Jameson finds a piece of real estate near a coastline that would make a great site for a Fishy-Mart store. He asks his friend to purchase the property from its current owner and has a secret agreement with his friend to split the profits when he sells the property to Fishy-Mart. Jameson, without disclosing his interest in the property, recommends the site to Fishy-Mart, which then purchases the property from Jameson's friend. The friend splits the profits with Jameson. What breach of the duty of loyalty has Jameson committed? A) usurping a corporate opportunity B) self-dealing C) competing with the corporation D) proxy Answer: B Diff: 2 Skill: Factual Application LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Application of knowledge Classification: Application 110) Marshall is a purchasing agent for DigitoolArt Corporation. His duties require him to negotiate and execute contracts to purchase office supplies and equipment for the corporation. Assume that Bronson, a computer sales representative, pays Marshall a $20,000 kickback to purchase from him computers needed by DigitoolArt Corporation. What breach of the duty of loyalty has Marshall committed here? A) competing with the corporation B) making a secret profit C) self-dealing D) usurping a corporate opportunity Answer: B Diff: 2 Skill: Factual Application LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Application of knowledge Classification: Application 111) The business judgment rule states that corporate directors and officers are liable to the corporation or its shareholders for even honest mistakes of judgment. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 32 C..
112) 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 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 113) 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 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 114) Secret profits obtained by a director or officer cannot be recovered by a corporation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 115) Usurping a corporate opportunity is a breach of the duty of loyalty that can only be committed by a shareholder. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept
33 C..
116) Fiduciary duties of directors and officers of a corporation include the duty of loyalty and the duty of care. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 117) 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. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 118) The duty of care requires corporate directors and officers to use care and diligence when acting on behalf of the corporation. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 119) A director or corporate officer who usurps a corporate opportunity would be violating the director's fiduciary duty called the ________. Answer: duty of loyalty Diff: 1 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept
34 C..
120) Explain the business judgment rule and its relationship to the fiduciary duty of care owed by corporate officers and directors. Answer: The determination of whether a corporate director or officer has met his or her duty of care is measured as of the time the decision is made; the benefit of hindsight is not a factor. Therefore, the directors and officers are not liable to the corporation or its shareholders for honest mistakes of judgment. This is called the business judgment rule. Were it not for the protection afforded by the business judgment rule, many high-risk but socially desirable endeavors might not be undertaken. Diff: 1 Skill: Legal Concepts LO: 16.8 Describe directors' and officers' duty of loyalty and duty of care and define the business judgment rule. AACSB: Analytical thinking Classification: Concept 121) According to the provisions set forth by 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 Skill: Legal Concepts LO: 16.9 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 122) The ________ Act prohibits public companies from making personal loans to their directors or executive officers. A) Sarbanes-Oxley B) Taft-Hartley C) Smoot Hawley D) Cliff-Robertson Answer: A Diff: 1 Skill: Legal Concepts LO: 16.9 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept
35 C..
123) The Sarbanes-Oxley Act requires CEO and CFO certification for annual and quarterly reports. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.9 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 124) The Sarbanes-Oxley Act prohibits public companies from making personal loans to their directors or executive officers. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.9 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 125) Private companies and nonprofit organizations are also influenced by the Sarbanes-Oxley Act's accounting and corporate governance rules. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.9 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept 126) Explain the CEO and CFO certification provision of the Sarbanes-Oxley Act (SOX) of 2002. Answer: The CEO and CFO of a public company must file a statement accompanying each annual and quarterly report, 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 Skill: Legal Concepts LO: 16.9 Describe how the Sarbanes-Oxley Act affects corporate governance. AACSB: Analytical thinking Classification: Concept
36 C..
127) An unwanted corporate takeover can be conducted by means of a ________. A) merger B) tender offer C) share exchange D) sale of assets Answer: B Diff: 1 Skill: Legal Concepts LO: 16.10 Define merger, share exchange, and tender offer and describe the process of corporate acquisition. AACSB: Analytical thinking Classification: Concept 128) After a merger, the corporation that continues to exist is called the merged corporation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.10 Define merger, share exchange, and tender offer and describe the process of corporate acquisition. AACSB: Analytical thinking Classification: Concept 129) Describe the mechanics of a tender offer. Answer: A corporation can make a tender offer for the shares of another corporation that it wants to acquire. In a tender offer the acquiring company, called the tender offeror, makes an offer directly to the shareholders of the target corporation to purchase their shares. The shareholders of the target corporation each make an individual decision about whether to sell their shares to the tender offeror. The offer can be made for all or a portion of the shares of the target corporation. Approval of the target company's board of directors is not required for a tender offer to be made to the corporation's shareholders. When a tender offer is made without the permission of the target company's management, it is referred to as a hostile tender offer. Diff: 2 Skill: Legal Concepts LO: 16.10 Define merger, share exchange, and tender offer and describe the process of corporate acquisition. AACSB: Analytical thinking Classification: Concept
37 C..
130) According to priority, which of the following claimants is the last to be paid after a corporation's assets have been liquidated? A) creditors B) common stockholders C) preferred shareholders D) bond holders Answer: B Diff: 1 Skill: Legal Concepts LO: 16.11 Describe how a corporation is dissolved and terminated. AACSB: Analytical thinking Classification: Concept 131) After a corporation has commenced business or issued shares, the corporation can be ________ if the board of directors recommends dissolution and a majority of voting shareholders favors dissolution. A) rescinded B) remanded C) administratively dissolved D) voluntarily dissolved Answer: D Diff: 1 Skill: Legal Concepts LO: 16.11 Describe how a corporation is dissolved and terminated. AACSB: Analytical thinking Classification: Concept 132) A corporation is dissolved upon the effective date of the articles of dissolution. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 16.11 Describe how a corporation is dissolved and terminated. AACSB: Analytical thinking Classification: Concept 133) 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 ________. Answer: administrative dissolution Diff: 1 Skill: Legal Concepts LO: 16.11 Describe how a corporation is dissolved and terminated. AACSB: Analytical thinking Classification: Concept
38 C..
134) Explain the concepts of winding up, liquidation, and termination. Answer: A dissolved corporation continues its corporate existence but may not carry on any business except as required to wind up and liquidate its business and affairs. In a voluntary dissolution, the liquidation is usually carried out by the board of directors. If the dissolution is involuntary or the dissolution is voluntary but the directors refuse to carry out the liquidation, a court appointed receiver carries out the winding up and liquidation of the corporation. Termination occurs only after the winding up of the corporation's affairs, the liquidation of its assets, and the distribution of the proceeds to the claimants. The liquidated assets are paid to claimants according to the following priority: (1) expenses of liquidation and creditors according to their respective liens and contract rights, (2) preferred shareholders according to their liquidation preferences and contract rights, and (3) common stockholders. Diff: 1 Skill: Legal Concepts LO: 16.11 Describe how a corporation is dissolved and terminated. AACSB: Analytical thinking Classification: Concept 135) Many multinational corporations conduct business in another country by using a(n) ________. A) shell company B) international subsidiary corporation C) alter ego corporation D) special purpose entity Answer: B Diff: 1 Skill: Legal Concepts LO: 16.12 Examine the use of multinational corporations in conducting international business. AACSB: Analytical thinking Classification: Concept 136) A corporation that uses subsidiary corporations to operate in more than one country cannot be termed as a multinational corporation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 16.12 Examine the use of multinational corporations in conducting international business. AACSB: Analytical thinking Classification: Concept
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137) What is a multinational corporation? What is an international subsidiary corporation? How are these two concepts related? Answer: A multinational corporation, also called a transnational corporation, is a corporation that operates in many countries. Multinational corporations operate in other countries through a variety of means, including the use of agents, branch offices, subsidiary corporations, business alliances, strategic partnerships, franchising, and other arrangements. Many multinational corporations conduct business in another country by using an international subsidiary corporation. The subsidiary corporation is organized under the laws of the foreign country. The parent corporation usually owns all or the majority of the shares of the subsidiary corporation. Diff: 1 Skill: Legal Concepts LO: 16.12 Examine the use of multinational corporations in conducting international business. AACSB: Analytical thinking Classification: Concept
40 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 17 Investor Protection, E-Securities, and Wall Street Reform 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 Skill: Legal Concepts LO: 17.1 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 Skill: Legal Concepts LO: 17.1 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 mortgage transactions B) hedge funds and derivatives C) reporting to investors D) the issue of securities online Answer: D Diff: 2 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept
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4) The ________ regulates the issuance and sale of securities online. 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 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 5) The SEC's "whistleblower bounty program" allows a person who provides information that leads to a successful SEC action in which more than $1 million is recovered to receive from ________ the money collected. A) 1 percent to 3 percent B) 5 percent to 10 percent C) 5 percent to 20 percent D) 10 percent to 30 percent Answer: D Diff: 1 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 6) 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) McLean-Stevenson Act of 1974 Answer: A Diff: 1 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept
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7) The ________ is a federal agency that is created by the Securities Exchange Act of 1934 and is empowered to administer federal securities laws. A) Federal Trade Commission (FTC) B) Interstate Commerce Commission (ICC) C) Securities and Exchange Commission (SEC) D) Consumer Financial Protection Bureau (CFPB) Answer: C Diff: 1 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 8) The Securities and Exchange Commission (SEC) is an administrative agency whose members are appointed by the ________. A) Chair of the Board of Governors of the Federal Reserve System B) President of the United States C) Secretary of the Treasury D) Attorney General Answer: B Diff: 1 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 9) The Securities and Exchange Commission (SEC) is an administrative agency headed by ________ Commissioners. A) five B) nine C) seventeen D) fifty-one Answer: A Diff: 1 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept
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10) The Securities and Exchange Commission (SEC) provides a(n) ________ which allows a person who provides information that leads to a successful SEC action to receive 10 percent to 30 percent of the money collected over $1 million recovered by the SEC. A) finders-keepers program B) whistleblower bounty program C) "snitches get riches" program D) Erin Brockovich program Answer: B Diff: 1 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 11) Which of the following has the largest trading volume of any securities exchange in the world? A) the NYSE B) Euronext C) NASDAQ D) the London Stock Exchange Answer: C Diff: 1 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 12) The electronic data and record system of the Securities and Exchange Commission (SEC) is known as ________. A) EDGAR B) NASDAQ C) MICEX D) SPSE Answer: A Diff: 1 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept
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13) 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 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 14) Continuous reporting to investors and the SEC is a requirement imposed by the Securities Act of 1933. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 15) 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 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 16) EDGAR is the world's largest electronic securities exchange. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 17.1 List and describe major federal securities laws. AACSB: Analytical thinking Classification: Concept 17) Which of the following is classified under "common securities"? A) real estate B) bullion C) a debenture D) a bank deposit account Answer: C Diff: 1 Skill: Legal Concepts LO: 17.2 Define a security. AACSB: Analytical thinking Classification: Concept 5 C..
18) 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 Skill: Legal Concepts LO: 17.2 Define a security. AACSB: Analytical thinking Classification: Concept 19) 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 Skill: Legal Concepts LO: 17.2 Define a security. AACSB: Analytical thinking Classification: Concept 20) 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 Skill: Legal Concepts LO: 17.2 Define a security. AACSB: Analytical thinking Classification: Concept
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21) Courts apply the ________ in determining whether an arrangement is an investment contract. A) Howey test B) misappropriation theory C) strict scrutiny test D) intermediate scrutiny test Answer: A Diff: 1 Skill: Legal Concepts LO: 17.2 Define a security. AACSB: Analytical thinking Classification: Concept 22) The ________ test is used to determine if an arrangement is an investment contract. A) Harvard B) Howey C) Oxley D) Noodlum Answer: B Diff: 1 Skill: Legal Concepts LO: 17.2 Define a security. AACSB: Analytical thinking Classification: Concept 23) Debentures are an example of ________ securities. A) unusual B) statutorily defined C) investment contract D) common Answer: D Diff: 1 Skill: Legal Concepts LO: 17.2 Define a security. AACSB: Analytical thinking Classification: Concept
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24) Interests or instruments that are expressly mentioned in securities acts are ________ securities. A) common B) statutorily defined C) investment contract D) debenture Answer: B Diff: 1 Skill: Legal Concepts LO: 17.2 Define a security. AACSB: Analytical thinking Classification: Concept 25) The courts apply the Howey test in determining whether an arrangement is a(n) ________ and therefore a security. A) preorganization subscription agreement B) interests in oil, gas, and mineral rights C) investment contract D) deposit receipts for foreign securities Answer: C Diff: 1 Skill: Legal Concepts LO: 17.2 Define a security. AACSB: Analytical thinking Classification: Concept 26) An investment contract is a flexible standard for defining a security. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 17.2 Define a security. AACSB: Analytical thinking Classification: Concept 27) Interests in oil, gas, and mineral rights are considered statutorily defined securities. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 17.2 Define a security. AACSB: Analytical thinking Classification: Concept
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28) ________ requires securities offered to the public through the use of the mails or any facility of interstate commerce to be registered with the Securities and Exchange Commission (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 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 29) Which of the following best defines an initial public offering (IPO)? 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 issuance of securities by an issuer to the public Answer: D Diff: 1 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 30) A(n) ________ refers to a document that an issuer of securities files with the Securities and Exchange Commission (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 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept
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31) 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) the date of termination of the initial public offering D) the maximum number of times a share can be sold post-issue Answer: B Diff: 2 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 32) Utilities Inc. decided to go public by an initial public offering. It sold securities, some of which were bought by James Jefferson. Six months later, Mr. Jefferson sold the Utilities shares he had purchased to Martha Graham and Mark Franco. Two years later, Mr. Jefferson bought back the Utilities shares from Ms. Graham and Mr. Franco and made a profit out of both transactions. Identify the issuer in this scenario. A) Utilities Inc. B) James Jefferson C) Martha Graham D) Mark Franco Answer: A Diff: 2 Skill: Factual Application LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Application of knowledge Classification: Application 33) Which of the following is true of a registration statement? A) A registration statement must be accompanied by financial statements certified by certified public accountants. B) Once submitted, a registration statement cannot be amended. C) The SEC judges the merits of the securities based on the registration statement. D) A registration statement need not reveal how a company plans on using the proceeds from the offering. Answer: A Diff: 2 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept
10 C..
34) A(n) ________ is submitted along with the registration statement to the Securities and Exchange Commission (SEC), and is 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 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 35) 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 the stock drops to $5 per share. 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 is true in this situation? A) Scissorwire Inc. can register with the SEC at any point after the decline in share price. B) The U.S. government can file a criminal lawsuit against Scissorwire Inc. to seek criminal penalties. C) The investors were negligent in failing to verify registration prior to stock purchase, and therefore cannot rescind their purchase. D) Scissorwire Inc. is liable for violation of the Securities Exchange Act of 1934. Answer: B Diff: 2 Skill: Factual Application LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Application of knowledge Classification: Application 36) An initial public offering is the sale of securities by ________. A) an issuer to the public B) the SEC to a stock exchange C) a stockholder to another stockholder D) the Federal Reserve Bank to a commercial bank Answer: A Diff: 1 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept
11 C..
37) During the review of a registration statement, the SEC ________ of the securities offered. A) establishes the opening sale price B) does not pass judgment on the merits C) reports on the credit worthiness D) estimates the bankruptcy value Answer: B Diff: 1 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 38) An investor who has purchased an unregistered security can ________. A) rescind the purchase, but cannot recover damages B) recover damages, but cannot rescind the purchase C) both rescind the purchase and recover damages D) neither rescind the purchase nor recover damages Answer: C Diff: 1 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 39) The issuance of securities by an issuer to the public is known as a(n) ________. A) underwriting B) stock buyback C) stock split D) initial public offering (IPO) Answer: D Diff: 1 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept
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40) A company that is issuing securities to the public must file a written ________ with the Securities and Exchange Commission (SEC). A) registration statement B) writ of certiorari C) financial statement D) prospectus Answer: A Diff: 1 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 41) 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 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 42) Only an established company is permitted to sell new securities to the public. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 43) A registration statement need not contain details on how the proceeds from the offering will be used. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept
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44) 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 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 45) 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 company that is issuing securities to the public must file a written registration statement with the Securities and Exchange Commission (SEC). 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. In addition, a registration statement must be accompanied by financial statements certified by certified public accountants. Diff: 2 Skill: Legal Concepts LO: 17.3 Describe initial public offerings and how securities are registered with the Securities and Exchange Commission (SEC). AACSB: Analytical thinking Classification: Concept 46) Which of these factors is NOT necessary for an existing company to qualify as an Emerging Growth Company (EGC) to conduct an IPO? A) the company must have less than $1.07 billion in annual revenue B) the company must have fewer than 100 shareholders C) the company must have issued no more than $1 billion in debt D) the company must have less than $700 million in stock outstanding after an IPO Answer: B Diff: 1 Skill: Legal Concepts LO: 17.4 Define an emerging growth company and describe the requirements for issuing securities as such. AACSB: Analytical thinking Classification: Concept
14 C..
47) One of the benefits for qualifying as an Emerging Growth Company (EGC) is ________. A) an EGC may submit a draft registration statement with the SEC for review by SEC staff who immediately publish it on the public SEC website B) an EGC may communicate with institutional accredited investors to test the waters to see if there is enough interest in its IPO before going forward with it C) an EGC needs to provide only three years of audited financial statements when filing an IPO registration to issue securities D) qualification allows EGCs to file for registration of securities using the same process and making the same disclosure of financial information as would a non-EGC IPO Answer: B Diff: 1 Skill: Legal Concepts LO: 17.4 Define an emerging growth company and describe the requirements for issuing securities as such. AACSB: Analytical thinking Classification: Concept 48) Outline the main benefits to a company for qualifying as an emerging growth company (EGC). Answer: The main benefits to a company for qualifying as an emerging growth company (EGC) include: • An EGC may submit a confidential draft registration statement with the SEC for review by SEC staff. This confidential filing allows companies to withdraw a proposed IPO without having to disclose confidential business information. • An EGC may communicate with institutional accredited investors to test the waters to see if there is enough interest in its IPO before going forward with it. • An EGC needs to provide only two years of audited financial statements when filing an IPO registration to issue securities, not the three years of audited financial statements that would be required in a traditional IPO. • Qualification allows EGCs to file for registration of securities using a streamlined process and reduced disclosure of financial information than is true for non-EGC IPOs. Diff: 2 Skill: Legal Concepts LO: 17.4 Define an emerging growth company and describe the requirements for issuing securities as such. AACSB: Analytical thinking Classification: Concept
15 C..
49) ________ permits issuers to sell up to $50 million of securities to the public during a 12month period, pursuant to a simplified registration process. 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 Skill: Legal Concepts LO: 17.5 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept 50) Which of the following is true of a Regulation A+ offering? A) It imposes resale restrictions on the securities it offers. B) It requires issuers to prepare a registration statement for offers exceeding $100,000. C) It requires more disclosure than a registration statement and is more costly to prepare. D) It mandates that an offering circular be provided to investors prior to their purchase of securities. Answer: D Diff: 2 Skill: Legal Concepts LO: 17.5 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept 51) An offering statement requires ________ disclosure compared to a registration statement. A) more B) much more C) equivalent D) less Answer: D Diff: 1 Skill: Legal Concepts LO: 17.5 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept
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52) There are ________ resale restrictions on securities that come under Regulation A+. A) no B) few C) many D) discretionary Answer: A Diff: 1 Skill: Legal Concepts LO: 17.5 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept 53) According to Regulation A+, securities of up to $50 million can only be sold to accredited investors. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 17.5 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept 54) Regulation A+ offerings can be sold without registration with the SEC provided that an offering statement is provided prior to the purchase of the securities. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 17.5 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept 55) An offering circular must be provided to the investors immediately after the purchase of a Regulation A offering. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 17.5 Describe the requirement for issuing securities pursuant to SEC Regulation A+. AACSB: Analytical thinking Classification: Concept
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56) A small business can file a ________ with the Securities and Exchange Commission (SEC) if it plans on raising $1 million or less in any 12-month period from a public offering of securities. A) Form U-7 B) registration statement C) Form S-1 D) certificate of interest Answer: A Diff: 1 Skill: Legal Concepts LO: 17.6 Describe the requirements that must be met to issue securities using a small company offering registration. AACSB: Analytical thinking Classification: Concept 57) Which of the following is true of the Small Company Offering Registration (SCOR) form? A) A SCOR form can only be used for raising more than $1 million through the sale of securities. B) A SCOR form can be used by both domestic and foreign companies. C) A SCOR form doubles as a prospectus for potential investors. D) A SCOR form must be completed by the issuee before purchasing securities. Answer: C Diff: 1 Skill: Legal Concepts LO: 17.6 Describe the requirements that must be met to issue securities using a small company offering registration. AACSB: Analytical thinking Classification: Concept 58) An issuer who plans on raising $1 million or less from the public must answer the questions on Form U-7, which doubles as a(n) ________ and must be made available to prospective investors. A) annual report B) prospectus C) registration statement D) consent decree Answer: B Diff: 1 Skill: Legal Concepts LO: 17.6 Describe the requirements that must be met to issue securities using a small company offering registration. AACSB: Analytical thinking Classification: Concept
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59) Erin Corp. wants to achieve well-known seasoned investor (WKSI) status. Which of these facts about Erin Corp. will allow it to qualify as a WKSI? A) Erin Corp. has issued $1 billion of securities in the previous three years. B) Erin Corp. has over 5,000 shareholders. C) Erin Corp. owns over $20 billion is assets. D) Erin Corp. has reported over $2 billion in revenue in each of the last 3 years. Answer: A Diff: 2 Skill: Factual Application LO: 17.7 Define a well-known seasoned investor and describe how securities can be issued pursuant to a shelf registration. AACSB: Application of knowledge Classification: Application 60) Briefly describe what is meant by a "shelf registration" and what its main benefits are to an issuer. Answer: The SEC permits companies that qualify as a well-known seasoned investor (WKSI) to file for a "shelf registration" (a/k/a/ "shelf offering" or "shelf prospectus"). Under this procedure a WKSI files the documents for a shelf registration with the SEC and is then permitted in the future to take securities "off the shelf" and sell the securities to the public using multiple offerings over a three-year period without filing a separate prospectus for each offering. A shelf registration allows an issuer to quickly issue securities when needed or when market conditions are optimal without waiting for the SEC to review a newly filed registration statement. Additionally, WKSIs are granted substantial flexibility of communication not provided to other issuers. A WKSI can release factual-information, forward-looking information, electronic communications, and free-writing prospectuses without significant restrictions during the entire offering period. Diff: 2 Skill: Legal Concepts LO: 17.7 Define a well-known seasoned investor and describe how securities can be issued pursuant to a shelf registration. AACSB: Analytical thinking Classification: Concept 61) ________ allows small companies to raise capital from many small-dollar investors through Web-based platforms. A) Catfishing B) Gaslighting C) Crowdfunding D) Spearphishing Answer: C Diff: 1 Skill: Legal Concepts LO: 17.8 Define crowdfunding and describe how capital is raised using crowdfunding. AACSB: Analytical thinking Classification: Concept 19 C..
62) Crowdfunding offerings are subject to the anti-fraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 17.8 Define crowdfunding and describe how capital is raised using crowdfunding. AACSB: Analytical thinking Classification: Concept 63) What is crowdfunding? What are some of the rules that the SEC has promulgated to regulate crowdfunding? Answer: Crowdfunding is a method by which entrepreneurs and small businesses can raise small amounts of capital by selling securities to public investors using online portals. With crowdfunding, companies can avoid many of the requirements and expenses associated with traditional issuing of securities. In SEC Regulation "Crowdfunding" the SEC has set out rules for a crowdfunding offering. Crowdfunding requires that an issuer sells its securities to the public exclusively using an intermediary's internet-based funding portal or web platform. Funding portals must register with the SEC. Crowdfunding allows small companies to raise up to $1,070,000 during a 12-month period from many small-dollar investors. The regulation sets limits on how much money individuals can invest in crowdfunding offerings each year. A "Form C" must be filed electronically with the SEC before fundraising can begin. An issuer can advertise the offering, including using email and social media. Companies that have issued securities using crowdfunding must file an annual report with the SEC and make it available on the company's website. Diff: 2 Skill: Legal Concepts LO: 17.8 Define crowdfunding and describe how capital is raised using crowdfunding. AACSB: Analytical thinking Classification: Concept 64) 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 each time the exempt security is transferred. D) Exempt securities cannot be traded publicly. Answer: B Diff: 2 Skill: Legal Concepts LO: 17.9 List and describe the securities that are exempt from registration. AACSB: Analytical thinking Classification: Concept
20 C..
65) Exempt securities include ________. 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 Skill: Legal Concepts LO: 17.9 List and describe the securities that are exempt from registration. AACSB: Analytical thinking Classification: Concept 66) Drafts that have a maturity date of six months are exempt from registration with the SEC. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 17.9 List and describe the securities that are exempt from registration. AACSB: Analytical thinking Classification: Concept 67) List the securities exempt from registration with the Securities and Exchange Commission (SEC). Answer: Certain securities are exempt from registration with the SEC. These are usually securities offered by certain institutions or securities that have certain characteristics which federal laws and the SEC believe do not require SEC oversight when issued. 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 Skill: Legal Concepts LO: 17.9 List and describe the securities that are exempt from registration. AACSB: Analytical thinking Classification: Concept
21 C..
68) The ________ is a registration exemption which states that securities transactions not made by an issuer, an underwriter, or a dealer do not have to be registered with the Securities and Exchange Commission (SEC). A) intrastate offering exemption B) private placement exemption C) Regulation A offering D) nonissuer exemption Answer: D Diff: 1 Skill: Legal Concepts LO: 17.10 List and describe offerings exempt from registration such as the nonissuer, intrastate, private placement, and small offering exemptions from registration. AACSB: Analytical thinking Classification: Concept 69) The ________ is a registration exemption that permits local businesses to raise capital from local investors to be used in the local economy without the need to register with the Securities and Exchange Commission (SEC). A) intrastate offering exemption B) Regulation A offering C) private placement exemption D) nonissuer exemption Answer: A Diff: 1 Skill: Legal Concepts LO: 17.10 List and describe offerings exempt from registration such as the nonissuer, intrastate, private placement, and small offering exemptions from registration. AACSB: Analytical thinking Classification: Concept 70) SEC Rule 506 is known as the ________ exemption. A) nonissuer B) intrastate offering C) private placement D) interstate offering Answer: C Diff: 1 Skill: Legal Concepts LO: 17.10 List and describe offerings exempt from registration such as the nonissuer, intrastate, private placement, and small offering exemptions from registration. AACSB: Analytical thinking Classification: Concept
22 C..
71) Which of the following is true of the small offering exemption? A) Securities coming under this exemption cannot be sold through general selling efforts 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 sold to nonaccredited investors. D) Securities coming under this exemption have no resale restrictions imposed on them. Answer: A Diff: 1 Skill: Legal Concepts LO: 17.10 List and describe offerings exempt from registration such as the nonissuer, intrastate, private placement, and small offering exemptions from registration. AACSB: Analytical thinking Classification: Concept 72) 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 Skill: Legal Concepts LO: 17.10 List and describe offerings exempt from registration such as the nonissuer, intrastate, private placement, and small offering exemptions from registration. AACSB: Analytical thinking Classification: Concept 73) 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 Skill: Legal Concepts LO: 17.10 List and describe offerings exempt from registration such as the nonissuer, intrastate, private placement, and small offering exemptions from registration. AACSB: Analytical thinking Classification: Concept
23 C..
74) Distinguish between the nonissuer exemption, the intrastate offering exemption, and the 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 35 nonaccredited investors without having to register the offering with the SEC. Diff: 2 Skill: Legal Concepts LO: 17.10 List and describe offerings exempt from registration such as the nonissuer, intrastate, private placement, and small offering exemptions from registration. AACSB: Analytical thinking Classification: Concept 75) Briefly describe "cryptocurrency" and an "initial coin offering" (ICO). To what extent is the SEC involved with an ICO? Answer: "Cryptocurrency" is a digital currency that works as a medium of exchange and serves as virtual cash. Bitcoin and Ether are examples of cryptocurrencies. Cryptocurrencies can be used to purchase goods, services, investments, or digital assets from sellers willing to accept such currency. An "initial coin offering" (ICO) is a method used by some start-up companies to raise capital. With an ICO, the start-up accepts payment from investors in Bitcoin or other cryptocurrency, or in money, and then issues its own crypto coins or tokens to the investors. Purchasers of the digital coins are not issued stock in the company and have no equity interest or voting rights. Investors are relying on the increase in the value of the digital coins they have been issued. The issuer has raised the money it needs to develop and expand its business. ICOs are made on the internet using websites, social media, and other electronic media. The SEC has determined that ICOs constitute the issuance of investment contracts that are securities, and, as such, are subject to federal securities laws. Therefore, an ICO must either be registered with the SEC or qualify for an exemption from registration. Most ICOs are issued pursuant to the SEC's crowdfunding rules. Online exchanges over which cryptocurrencies are traded must register with the SEC. Diff: 2 Skill: Legal Concepts LO: 17.10 List and describe offerings exempt from registration such as the nonissuer, intrastate, private placement, and small offering exemptions from registration. AACSB: Analytical thinking Classification: Concept
24 C..
76) Which of the following is true of Section 11 of the Securities Act of 1933? A) It permits injured private parties to bring criminal actions against issuers who file fraudulent registration statements. B) It imposes liability on those who defraud investors intentionally or 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 does not apply to a case involving the negligent omission of a material fact in a registration statement. Answer: B Diff: 2 Skill: Legal Concepts LO: 17.11 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept 77) 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 Section 5 of the act. B) It imposes criminal liability on any person who willfully violates either the act or the rules and regulations adopted thereunder. C) It imposes civil liability on a person who intentionally defrauds investors by making a misrepresentation of a material fact in a registration statement. D) It exclusively regulates the sale of securities online. Answer: B Diff: 1 Skill: Legal Concepts LO: 17.11 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept 78) ________ is a provision of the Securities Act of 1933 that imposes civil liability on a person who intentionally defrauds investors by making a misrepresentation or an omission of a material fact in a 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 Skill: Legal Concepts LO: 17.11 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept
25 C..
79) The issuer is not permitted to assert a(n) ________ defense against the imposition of Section 11 liability. A) due diligence B) due process C) double jeopardy D) equal protection Answer: A Diff: 1 Skill: Legal Concepts LO: 17.11 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept 80) A ________ issued by the Securities and Exchange Commission (SEC) indicates that a defendant agrees not to violate securities laws in the future but does not admit to having violated securities laws in the past. A) temporary restraining order B) consent decree C) permanent injunction D) writ of habeus corpus Answer: B Diff: 1 Skill: Legal Concepts LO: 17.11 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept 81) Civil liability under Section 11 is imposed on those who are negligent in not discovering fraud in their security offerings. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 17.11 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept 82) Defendants other than the issuer can assert a due diligence defense against liabilities arising from the violation of Section 11 of the Securities Act of 1933. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 17.11 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept
26 C..
83) 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 Skill: Legal Concepts LO: 17.11 Describe civil and criminal penalties for violating the Securities Act of 1933. AACSB: Analytical thinking Classification: Concept 84) Which of the following is required for a violation of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5? A) nonexemption status B) scienter C) a lack of due care D) negligence Answer: B Diff: 1 Skill: Legal Concepts LO: 17.12 Describe how trading in securities is regulated by federal securities laws. AACSB: Analytical thinking Classification: Concept 85) ________ is a federal statute that permits the Securities and Exchange Commission (SEC) to obtain a civil penalty of up to three times the illegal benefits received from insider trading. A) The Securities Act of 1933 B) The Securities Exchange Act of 1934 C) The Insider Trading Sanctions Act D) SEC Rule 506 Answer: C Diff: 1 Skill: Legal Concepts LO: 17.12 Describe how trading in securities is regulated by federal securities laws. AACSB: Analytical thinking Classification: Concept 86) 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 Skill: Legal Concepts LO: 17.12 Describe how trading in securities is regulated by federal securities laws. AACSB: Analytical thinking Classification: Concept
27 C..
87) In order to be found guilty for violation of Rule 10b-5, intentional conduct (scienter) must be proven. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 17.12 Describe how trading in securities is regulated by federal securities laws. AACSB: Analytical thinking Classification: Concept 88) Which of the following is an example of insider trading? A) An employee uses material nonpublic information to make a profit by trading in the securities of the company. B) A manager purchases all the 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 to another employee without notifying the company. Answer: A Diff: 2 Skill: Legal Concepts LO: 17.13 Define insider trading and describe the liability for engaging in insider trading. AACSB: Analytical thinking Classification: Concept 89) 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 Skill: Legal Concepts LO: 17.13 Define insider trading and describe the liability for engaging in insider trading. AACSB: Analytical thinking Classification: Concept
28 C..
90) 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 Skill: Legal Concepts LO: 17.13 Define insider trading and describe the liability for engaging in insider trading. AACSB: Analytical thinking Classification: Concept 91) ________ occurs when a company employee or company advisor uses material nonpublic information to make a profit by trading in the securities of the company. A) Insider trading B) Embezzlement C) Accredited investing D) Exempt trading Answer: A Diff: 1 Skill: Legal Concepts LO: 17.13 Define insider trading and describe the liability for engaging in insider trading. AACSB: Analytical thinking Classification: Concept 92) Insider trading in the purchase and sale of securities in the aftermarkets is prohibited by the ________. A) Securities Act of 1933 B) Securities Exchange Act of 1934 C) Sarbanes-Oxley Act of 2002 D) McLean-Stevenson Act of 1974 Answer: B Diff: 1 Skill: Legal Concepts LO: 17.13 Define insider trading and describe the liability for engaging in insider trading. AACSB: Analytical thinking Classification: Concept
29 C..
93) When a company employee makes a profit by personally purchasing shares of the corporation prior to public release of favorable information, it is not considered illegal. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 17.13 Define insider trading and describe the liability for engaging in insider trading. AACSB: Analytical thinking Classification: Concept 94) A tipper cannot be held liable for the profits made by the tippee. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 17.13 Define insider trading and describe the liability for engaging in insider trading. AACSB: Analytical thinking Classification: Concept 95) 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 Skill: Legal Concepts LO: 17.13 Define insider trading and describe the liability for engaging in insider trading. AACSB: Analytical thinking Classification: Concept 96) Who is covered by the Stop Trading on Congressional Knowledge Act (STOCK Act), and what activities does it prohibit? Answer: The Stop Trading on Congressional Knowledge Act (STOCK Act) covers members and employees of Congress, the president and all employees of the executive branch, and judges and employees of the judicial branch. The STOCK Act prohibits those covered from using for personal benefit any nonpublic information derived from their position or gained from performance of their duties. The act also prohibits them from receiving special access to initial public offerings. Diff: 2 Skill: Legal Concepts LO: 17.13 Define insider trading and describe the liability for engaging in insider trading. AACSB: Analytical thinking Classification: Concept
30 C..
97) Of the following, who is considered a Section 16 statutory insider? A) Sharon Muller, an editor who was tipped by her friend to buy shares of KYU Corp. B) Robert Morgan, an employee who owns ten 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 Skill: Factual Application LO: 17.14 Describe short-swing profit transactions that violate securities laws. AACSB: Application of knowledge Classification: Application 98) Which of the following best defines short-swing profits? A) profits made by an insider by selling shares of the corporation before the public disclosure of unfavorable information B) profits made by an insider by personally purchasing shares of the corporation before the public release of favorable information C) profits made by a statutory insider on trades involving equity securities of his or her corporation that occur within six months of each other D) profits made by a tippee by personally purchasing shares of the corporation either before or after the public release of favorable information Answer: C Diff: 2 Skill: Legal Concepts LO: 17.14 Describe short-swing profit transactions that violate securities laws. AACSB: Analytical thinking Classification: Concept 99) ________ 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 10b5-1 Answer: C Diff: 1 Skill: Legal Concepts LO: 17.14 Describe short-swing profit transactions that violate securities laws. AACSB: Analytical thinking Classification: Concept
31 C..
100) A 10-percent shareholder of an equity security of a reporting company is considered a statutory insider. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 17.14 Describe short-swing profit transactions that violate securities laws. AACSB: Analytical thinking Classification: Concept 101) 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 Skill: Legal Concepts LO: 17.14 Describe short-swing profit transactions that violate securities laws. AACSB: Analytical thinking Classification: Concept 102) The ________ coordinates state securities laws with federal securities laws. A) Insider Trading Sanctions Act B) Securities Exchange Act of 1934 C) Securities Act of 1933 D) Uniform Securities Act Answer: D Diff: 1 Skill: Legal Concepts LO: 17.15 Describe how state laws regulate securities transactions. AACSB: Analytical thinking Classification: Concept 103) Blue-sky laws are state laws that regulate the issuance and trading of securities. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 17.15 Describe how state laws regulate securities transactions. AACSB: Analytical thinking Classification: Concept 32 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 18 Agency Law 1) Who is an agent? A) a party who agrees to act on behalf of another B) a party who employs another person to act on his or her behalf C) a party who directs a worker under an express or implied contract of employment D) a party who receives the services of another for remuneration Answer: A Diff: 1 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 2) The ________ is the party who employs another person to act on his or her behalf. A) agent B) principal C) independent contractor D) employee Answer: B Diff: 1 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 3) Which of the following constitutes an agency? A) a principal-agent relationship B) an agent-agent relationship C) a principal-principal relationship D) an agent-independent contractor relationship Answer: A Diff: 1 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept
1 C..
4) A(n) ________ is a fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on 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 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 5) Martin, who wants to sell his house, authorizes his concierge, William, to find a potential buyer and finalize a deal above a stipulated price. William contracts Chris, a real estate broker, and intends him to only find a potential buyer and send him or her over to William for the sale. Martin then contracts ReNowait Goodhouses, a home improvement company, to renovate the house. ReNowait completes its work and Martin pays the company. 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) William B) Martin C) Chris D) George Answer: A Diff: 2 Skill: Factual Application LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Application of knowledge Classification: Application
2 C..
6) Martin, who wants to sell his house, authorizes his concierge, William, to find a potential buyer and finalize a deal above a stipulated price. William contracts Chris, a real estate broker, and intends him to only find a potential buyer and send him or her over to William for the sale. Martin then contracts ReNowait Goodhouses, a home improvement company, to renovate the house. ReNowait completes its work and Martin pays the company. Chris then searches for a suitable buyer and finds one in George. George buys the house and Chris is paid for his services. In this scenario, who is the principal during the land sale transaction? A) ReNowait Goodhouses B) George C) Martin D) William Answer: C Diff: 1 Skill: Factual Application LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Application of knowledge Classification: Application 7) Martin, who wants to sell his house, authorizes his concierge, William, to find a potential buyer and finalize a deal above a stipulated price. William contracts Chris, a real estate broker, and intends him to only find a potential buyer and send him or her over to William for the sale. Martin then contracts ReNowait Goodhouses, a home improvement company, to renovate the house. ReNowait completes its work and Martin pays the company. Chris then searches for a suitable buyer and finds one in George. George buys the house and Chris is paid for his services. In this scenario, what type of commercial relationship exists between Martin and William? A) an employer-employee relationship B) an agent-agent relationship C) an agent-independent contractor relationship D) a principal-agent relationship Answer: D Diff: 1 Skill: Factual Application LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Application of knowledge Classification: Application
3 C..
8) 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 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 9) 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 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 10) Which of the following types of relationships 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 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept
4 C..
11) Which of the following is true of an employer-employee relationship? A) An employee has implied power of attorney toward 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 task or service. Answer: D Diff: 1 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 12) Martin, who wants to sell his house, authorizes his concierge, William, to find a potential buyer and finalize a deal above a stipulated price. William contracts Chris, a real estate broker, and intends him to only find a potential buyer and send him or her over to William for the sale. Martin then contracts ReNowait Goodhouses, a home improvement company, to renovate the house. ReNowait completes its work and Martin pays the company. Chris then searches for a suitable buyer and finds one in George. George buys the house and Chris is paid for his services. In this scenario, what role does ReNowait Goodhouses perform? A) agent B) independent contractor C) principal D) trustee Answer: B Diff: 2 Skill: Factual Application LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Application of knowledge Classification: Application
5 C..
13) Martin, who wants to sell his house, authorizes his concierge, William, to find a potential buyer and finalize a deal above a stipulated price. William contracts Chris, a real estate broker, and intends him to only find a potential buyer and send him or her over to William for the sale. Martin then contracts ReNowait Goodhouses, a home improvement company, to renovate the house. ReNowait completes its work and Martin pays it. Chris then searches for a suitable buyer and finds one in George. George buys the house and Chris is paid for his services. In this scenario, what role does Chris perform? A) independent contractor B) agent C) principal D) trustee Answer: A Diff: 2 Skill: Factual Application LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Application of knowledge Classification: Application 14) A principal works on behalf of an agent. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 15) A principal-agent relationship exists when an employer hires an employee to perform some form of physical service. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 16) A party that employs an independent contractor is called an agent. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 6 C..
17) An employer-employee relationship occurs when an employer gives an employee the authority to act and enter into contracts on his or her behalf. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 18) A principal can authorize an independent contractor to enter into contracts. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.1 Define agency and describe the principal-agent relationship, the employer-employee relationship, and the principal-independent contractor relationship. AACSB: Analytical thinking Classification: Concept 19) 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 must not hire another broker to sell that piece of land until the expiration of the contract period. Nita finds a suitable buyer, makes the sale in time, and Marlon pays for her services. Which of the following types of agencies had Marlon and Nita entered into? A) apparent agency B) agency by ratification C) implied agency D) express agency Answer: D Diff: 2 Skill: Factual Application LO: 18.2 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application
7 C..
20) 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 must not hire another broker to sell that piece of land until the expiration of the contract period. 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 Skill: Factual Application LO: 18.2 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application 21) An agency that occurs when a principal and an agent categorically agree to enter into an agency agreement with each other is known as an ________. A) agency by ratification B) implied agency C) apparent agency D) express agency Answer: D Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 22) Which of the following is true of an express agency? A) It can be either oral or written unless the Statute of Frauds stipulates that it must be written. B) It is implied from the actions or conduct of the parties. C) It originates when the principal ratifies an unauthorized act. D) It arises when a principal creates the appearance of an agency that does not exist. Answer: A Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept
8 C..
23) A power of attorney is an example of an ________ agreement. A) agency by ratification B) apparent agency C) express agency D) implied agency Answer: C Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 24) Which of the following is true of a general power of attorney? A) It can be based on a conversation between the principal and agent. B) It must appoint a licensed attorney to act as the attorney-in-fact. C) It is one of the most informal types of express agency agreements. D) It allows the agent to sign legal documents on the principal's behalf. Answer: D Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 25) Taylor gives a power of attorney to his twin brother Corey, permitting Corey to make all decisions on his behalf while he is abroad. As per the terms of the power of attorney, Corey is allowed to make decisions to purchase 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 confers 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 Skill: Factual Application LO: 18.2 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application
9 C..
26) Which of the following is true about a special power of attorney? A) It is an implied form of 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 a licensed attorney to act as the attorney-in-fact. Answer: B Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 27) Which of the following is true about a durable power of attorney? A) It is only effective for as long as the principal has contractual capacity. B) It remains effective even though the principal is incapacitated. C) It is effective even when the agency is based on an oral agreement. D) It is only effective if the attorney-in-fact is a licensed attorney. Answer: B Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 28) Canton has listed his house for sale but cannot be present to take care of the sale, as he needs to go out of town. He intends to give his brother Stratham the power of attorney to just 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) an unlimited power of attorney D) an implied power of attorney Answer: B Diff: 2 Skill: Factual Application LO: 18.2 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application
10 C..
29) An express agency agreement that is often used to give an agent the power 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 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 30) 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 persons who want to purchase the house. He is not allowed to complete a deal without Marcus's 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 electricity repair. What is the nature of the agency that Dean used to fix the electricity problem in the house? A) implied agency B) agency by ratification C) power of attorney D) express agency Answer: A Diff: 2 Skill: Factual Application LO: 18.2 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application 31) 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." As 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 Skill: Factual Application LO: 18.2 Describe how express and implied agencies are created. AACSB: Application of knowledge Classification: Application 11 C..
32) 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 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 33) 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 agency contract B) implied agency contract C) express agency contract D) durable power of attorney Answer: A Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 34) 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 ________. A) durable power of attorney B) special power of attorney C) pro-forma power of attorney D) general power of attorney Answer: B Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept
12 C..
35) An ________ is an agency that occurs when a principal and an agent do not expressly create an agency, but it is inferred from the conduct of the parties. A) apparent agency B) acknowledged agency C) exclusive agency D) implied agency Answer: D Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 36) If a principal and an agent enter into an express agency contract, the principal cannot employ any agent other than the agent who entered into the contract. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 37) An express agency contract cannot be orally agreed upon. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 38) A power of attorney gives an agent the power to sign legal documents on behalf of the principal. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 39) A general power of attorney limits an agent to those acts enumerated by the agreement. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 13 C..
40) A special power of attorney empowers an agent to act in any matters on the principal's behalf without limitation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 41) An agent given a power of attorney is known as an attorney-in-fact. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 42) Only a lawyer can become an attorney-in-fact. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 43) An orally agreed upon power of attorney is acceptable in court. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 44) A durable power of attorney remains effective even if the principal is incapacitated. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept
14 C..
45) If an agency is not an exclusive agency, the principal can employ more than one agent to try to accomplish a stated purpose. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 46) In an agency by ratification, the agent is relieved of any liability for misrepresentation. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 47) An agency by ratification occurs when a principal ratifies an authorized act. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 48) Ratification of a contract is a situation in which a principal accepts an agent's unauthorized contract. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept
15 C..
49) 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. Example: A homeowner employs a real estate broker to sell his house. A water pipe breaks and begins to leak water into the house. If the homeowner cannot be contacted, the real estate broker has implied authority to hire a plumber to repair the pipe to stop the water leak. The homeowner is responsible for paying for the repairs. Diff: 1 Skill: Legal Concepts LO: 18.2 Describe how express and implied agencies are created. AACSB: Analytical thinking Classification: Concept 50) 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 from 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 Skill: Legal Concepts LO: 18.3 Define apparent agency. AACSB: Analytical thinking Classification: Concept 51) 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 the 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 Skill: Legal Concepts LO: 18.3 Define apparent agency. AACSB: Analytical thinking Classification: Concept
16 C..
52) A principal is not bound to a contract made by an apparent agency. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.3 Define apparent agency. AACSB: Analytical thinking Classification: Concept 53) The agent's actions—not the principal's—create an apparent agency. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.3 Define apparent agency. AACSB: Analytical thinking Classification: Concept 54) An apparent agency is also known as an agency by estoppel. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.3 Define apparent agency. AACSB: Analytical thinking Classification: Concept 55) Describe the concept of apparent agency. Answer: Apparent agency, also called agency by estoppel, arises when a principal creates the appearance of an agency that in actuality does not exist. Where an apparent agency is established, the principal is estopped, that is, stopped, from denying the agency relationship and is bound to contracts entered into by the apparent agent while acting within the scope of the apparent agency. It should be noted that the principal's actions–not the agent's–create an apparent agency. Diff: 1 Skill: Legal Concepts LO: 18.3 Define apparent agency. AACSB: Analytical thinking Classification: Concept
17 C..
56) Ronald, the purchasing manager of Telly's Supermarket in Georgia, was asked to purchase the latest video game console, FunCase, to be kept in the supermarket. Due to a truckers' strike, Ronald had to personally make the trip to the FunCase warehouse in Florida to pick up the console. Ronald paid for the trip himself, went to the warehouse, procured the console, and returned. After he got back, Telly's Supermarket paid Ronald for the personal expenses he incurred in making the trip to Florida. What duty of the principal did Telly's Supermarket satisfy when it paid Ronald for the trip? A) duty to cooperate B) duty to reimburse C) duty to compensate D) duty to indemnify Answer: B Diff: 2 Skill: Factual Application LO: 18.4 List and describe the duties of a principal. AACSB: Application of knowledge Classification: Application 57) 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 cooperate B) duty to reimburse C) duty to compensate D) duty to indemnify Answer: C Diff: 1 Skill: Legal Concepts LO: 18.4 List and describe the duties of a principal. AACSB: Analytical thinking Classification: Concept 58) The ________ is a 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 reimburse C) duty to compensate D) duty to indemnify Answer: D Diff: 1 Skill: Legal Concepts LO: 18.4 List and describe the duties of a principal. AACSB: Analytical thinking Classification: Concept
18 C..
59) If there is no agreement about the amount of compensation, the law implies a promise that a principal will pay the agent the customary fee paid in the industry. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.4 List and describe the duties of a principal. AACSB: Analytical thinking Classification: Concept 60) A principal owes a duty to indemnify the agent for any losses the agent suffers because of the principal's conduct. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.4 List and describe the duties of a principal. AACSB: Analytical thinking Classification: Concept 61) Unless otherwise agreed, the principal owes a duty to cooperate with and assist the agent in the performance of the agent's duties and the accomplishment of the agency. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.4 List and describe the duties of a principal. AACSB: Analytical thinking Classification: Concept 62) List the four duties that a principal owes to an agent. Answer: A principal owes the following four duties to an agent: • Duty to compensate • Duty to reimburse • Duty to indemnify • Duty to cooperate Diff: 1 Skill: Legal Concepts LO: 18.4 List and describe the duties of a principal. AACSB: Analytical thinking Classification: Concept
19 C..
63) 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 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 64) 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 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 65) Which of the following statements is true of an agent taking an opportunity? A) An agent can legally take an opportunity to which the principal is entitled. B) A third-party offer to an agent need not be conveyed to the principal. C) An agent cannot appropriate an offer for himself or herself once the principal rejects it. D) A principal is permitted to recover for a usurped opportunity taken by the agent. Answer: D Diff: 2 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept
20 C..
66) 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 details of his past employer to the principal. Answer: D Diff: 2 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 67) 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 the soil on 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 also 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 Skill: Factual Application LO: 18.5 List and describe the duties of an agent. AACSB: Application of knowledge Classification: Application 68) 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 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept
21 C..
69) Which of the following is true of dual agency? A) An undisclosed dual agent is allowed to retain compensations of the transaction provided he or she discontinues the dual agency. B) Examples of dual agents are finders and marketing intermediaries. 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 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 70) Harrison hires an agent to look for a three-bedroom house in Atlanta. Elaine, the agent, finds a three-bedroom house within Harrison's budget but buys it herself without informing Harrison. This is an instance of the agent ________. A) misusing confidential information B) usurping an opportunity C) competing with the principal D) self-dealing Answer: B Diff: 2 Skill: Factual Application LO: 18.5 List and describe the duties of an agent. AACSB: Application of knowledge Classification: Application 71) An agent who does not perform his or her express duties or fails to use the standard degree of care, skill, or diligence is liable to the principal for damages. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 72) An agent does not owe a duty to notify the principal of important information he learns concerning the agency. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept
22 C..
73) An agent is not liable to the principal for any injuries resulting from a breach of the duty to notify. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 74) The legal rule of imputed knowledge means that the principal is assumed to know what the agent knows. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 75) Any property, money, or other benefit received by the agent in the course of an agency belongs to the principal. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 76) The duty of loyalty is a fiduciary duty owned by an agent not to act adversely to the interests of the principal. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 77) Undisclosed self-dealing by an agent is not regarded as a violation of the duty of loyalty. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept
23 C..
78) If an agent reveals confidential information about a principal to a third party, the principal's course of action is to obtain an injunction against the third party. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 79) An agent does not violate his or her duty of loyalty by serving two parties with the same interest. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 80) Dual agency occurs when an agent acts for two or more different principals in the same transaction. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 81) Dual agency is permitted if all parties in a transaction agree to it. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept
24 C..
82) Why can't an agent take an opportunity meant for the principal? When is an agent permitted to take such an opportunity? Give an illustration of an agent's violation of his or her 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 Skill: Legal Concepts LO: 18.5 List and describe the duties of an agent. AACSB: Analytical thinking Classification: Concept 83) 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 regardless of whether the conduct occurs within the scope of the agency. B) A principal is responsible for the tortious conduct of an agent regardless of whether the conduct occurs within the course of the agency. 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 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 84) What is vicarious liability? A) non-liability B) liability for multiple torts C) liability without knowledge D) liability without fault Answer: D Diff: 1 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept
25 C..
85) Minksine Corporation employs Sandy as its marketing manager. Sandy is driving her automobile to attend a meeting with a client on behalf of her employer. On her way, Sandy is involved in an automobile accident that is caused by her negligence. Several people are seriously injured. Which of the following is true of this case? A) Sandy is solely liable for damages caused by the accident. B) The injured parties cannot recover damages from Sandy. C) Minksine Corporation is liable for the injuries caused by Sandy. D) The injured parties can only claim medical reimbursement from Minksine Corporation. Answer: C Diff: 2 Skill: Factual Application LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Application of knowledge Classification: Application 86) ________ 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 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 87) ________ 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) Respondeat superior B) Frolic and detour C) Vicarious liability D) Dual-purpose mission Answer: B Diff: 1 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept
26 C..
88) 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 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 89) 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 will be true? A) Open Heart Hospital will be completely liable for the injury. 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 will be liable to the injured person. D) Only Fiona will be liable for her negligence. Answer: D Diff: 2 Skill: Factual Application LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Application of knowledge Classification: Application 90) 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, but has similar agency relationships with all 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 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept
27 C..
91) ________ 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) Respondeat superior B) Frolic and detour C) Nunc pro tunc D) Dual-purpose mission Answer: A Diff: 1 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 92) Gem's principal asked her to pick up his dry cleaning on her way to work. While driving to work after picking up the dry-cleaning, Gem struck an old man crossing the street due to her negligence. Under the theory of ________, Gem's principal is liable to the injured man. A) res ipsa loquitur B) mens rea C) respondeat superior D) nunc pro tunc Answer: C Diff: 2 Skill: Factual Application LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Application of knowledge Classification: Application 93) A ________ 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) respondeat superior B) frolic and detour C) vicarious liability D) dual-purpose mission Answer: B Diff: 2 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept
28 C..
94) Sometimes, principals request that agents run errands or conduct other acts on their behalf while the agent or employee is on personal business. This is an instance of ________ for the agent. A) respondeat superior B) frolic and detour C) vicarious liability D) dual-purpose mission Answer: D Diff: 1 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 95) Most jurisdictions hold ________ liable if the agent injures someone while on a dual-purpose mission. A) just the principle B) just the agent C) both the principal and the agent D) neither the principle nor the agent Answer: C Diff: 1 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 96) 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 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 97) Vicarious liability is liability with fault. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept
29 C..
98) A principal is liable for an agent's tortious conduct during a substantial frolic and detour. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 99) 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 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 100) The principal is not liable for an agent's negligence while the agent is on a dual-purpose mission. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept 101) Explain the legal concept of "frolic and detour" as it relates to the liability of a principal for the torts of an agent. Answer: Agents sometimes act during the course of their employment to further their own interests rather than the principal's interests. For example, an agent might take a detour to run a personal errand while on assignment for the principal. This is commonly referred to as "frolic and detour." While agents are always personally liable for their tortious conduct in such situations, principals are generally relieved of liability if the agent's frolic and detour is substantial. However, if the frolic and detour is minor, the principal is liable for the injuries caused by the agent's tortious conduct. Diff: 1 Skill: Legal Concepts LO: 18.6 Describe the tort liability of principals and agents to third parties. AACSB: Analytical thinking Classification: Concept
30 C..
102) 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 on 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 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 103) 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 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 104) 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 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept
31 C..
105) Under the ________ test, the principal is liable for any intentional torts committed by an agent during working hours on the principal's premises. A) acid B) motivation C) work-related D) dual agency Answer: C Diff: 1 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 106) An employee, motivated by jealousy, intentionally injures someone on the work premises and during work hours who dated her boyfriend. Based on the ________ test, the principal is liable for the injury. A) work-related B) motivation C) malice aforethought D) dual agency Answer: A Diff: 2 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 107) A car salesperson is employed to sell the principal's car, and the principal tells the agent that the car was repaired after it was involved in a major accident. If the agent intentionally tells the buyer that the car was never involved in an accident, the agent has committed the tort of ________. A) assault B) intentional misrepresentation C) false advertising D) libel Answer: B Diff: 2 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept
32 C..
108) 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 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 109) Battery committed by an agent on the principal's premises and during the scope of employment is considered an unintentional tort. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 110) A principal is not liable for the intentional torts of agents and employees that are committed outside the principal's scope of business. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 111) An agent is strictly liable for any intentional or innocent misrepresentation made by the principal in a transaction. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 112) A principal is liable for the intentional and innocent misrepresentations made by an agent acting within the scope of his or her employment. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept
33 C..
113) The work-related test puts liability on the agent if the agent commits an intentional tort within a work-related time and space. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 114) Compare and contrast the "motivation" test and the "work-related" tests. Answer: A principal is normally liable under the doctrine of vicarious liability for the intentional torts of agents committed within the agent's scope of employment. To determine whether an agent's intentional torts were committed within the agent's scope of employment, courts generally apply either the motivation test or the work-related test. Under the motivation test, if the agent's motivation for committing an intentional tort is to promote the principal's business, the principal is liable for any injury caused by the tort. But, if an agent's motivation for committing the intentional tort is personal, the principal is not liable, even if the tort takes place during business hours or on business premises. On the other hand, under the work-related test, if an agent commits an intentional tort within a work-related time or space–for example, during working hours or on the principal's premises–the principal is liable for any injuries caused by the agent's intentional torts. Under this test, the agent's motivation is immaterial. Diff: 1 Skill: Legal Concepts LO: 18.7 Describe the liability of agents and principals for intentional torts. AACSB: Analytical thinking Classification: Concept 115) 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 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept
34 C..
116) 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 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 117) 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, not the principal D) an agent who discloses only the name of his or her principal in a transaction Answer: C Diff: 2 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 118) 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, not the principal. C) All transactions with the third party are made by the principal without involving the agent. D) Transactions under the agency are considered unlawful. Answer: A Diff: 1 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 119) A fully disclosed agency results if a third party entering into a contract knows the actual identity of the principal. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept
35 C..
120) The agent is not liable on the contract in a fully disclosed agency. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 121) 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 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 122) A partially disclosed agency can be created by mistake. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 123) Undisclosed agencies are not lawful in the United States. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 124) In an undisclosed agency, the principal is solely liable on the contract with the third party. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept
36 C..
125) A principal who authorizes an agent to enter into a contract with a third party is liable on the contract. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 126) 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 Skill: Legal Concepts LO: 18.8 Describe the principal's and agent's liability on third-party contracts. AACSB: Analytical thinking Classification: Concept 127) Jamie is a lawyer who runs her own law firm and specializes in real estate law. Raymond, a real estate developer, hires Jamie to represent him in the purchase of land. Jamie is the ________. A) principal B) agent C) third party D) independent contractor Answer: D Diff: 1 Skill: Legal Concepts LO: 18.9 Define independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept
37 C..
128) 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 a bystander, Mildred, 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 Skill: Factual Application LO: 18.9 Define independent contractor and describe the liability of independent contractors. AACSB: Application of knowledge Classification: Application 129) 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 Skill: Legal Concepts LO: 18.9 Define independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 130) The principal is liable for all torts of independent contractors. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.9 Define independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 131) Principals do not control the means by which independent contractors achieve results. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.9 Define independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept
38 C..
132) Who is an independent contractor? Answer: Principals often employ outsiders–that is, 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 Skill: Legal Concepts LO: 18.9 Define independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 133) Explain in brief 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 Skill: Legal Concepts LO: 18.9 Define independent contractor and describe the liability of independent contractors. AACSB: Analytical thinking Classification: Concept 134) Which of the following circumstances leads to 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 outbreak of a war between the principal's country and the agent's country Answer: A Diff: 1 Skill: Legal Concepts LO: 18.10 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept
39 C..
135) Which of the following leads to the termination of an agency by operation of law? A) loss or destruction of the subject matter of the agency B) death of either the principal or agent C) loss of a required qualification D) a change in the law Answer: B Diff: 1 Skill: Legal Concepts LO: 18.10 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 136) 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) termination by operation of law D) wrongful termination Answer: D Diff: 1 Skill: Legal Concepts LO: 18.10 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 137) Constructive notices are not valid against strangers who assert claims of apparent agency. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.10 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 138) The outbreak of a war between the principal's country and the agent's country is grounds for terminating an agency. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.10 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept
40 C..
139) The bankruptcy of the principal is not a valid reason to terminate an agency. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 18.10 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 140) If an agency terminates by operation of law, there is no duty to notify third parties about the termination. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 18.10 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept 141) List the circumstances that can lead to termination of an agency 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 of an agency by impossibility of performance. 1. The loss or destruction of the subject matter of the agency. Example: A principal employs an agent to sell his horse, but the horse dies before it is sold. The agency relationship terminates at the moment the horse dies. 2. The loss of a required qualification. Example: A principal employs a licensed real estate agent to sell her house, but the real estate agent's license is revoked before he can sell the principal's house. The agency relationship terminates at the moment the real estate agent's license is revoked. 3. A change in the law. Example: A principal employs an agent to trap alligators. If a law is passed that makes trapping alligators illegal, the agency contract terminates when the law becomes effective. Diff: 1 Skill: Legal Concepts LO: 18.10 Describe how an agency is terminated. AACSB: Analytical thinking Classification: Concept
41 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 19 Equal Opportunity in Employment 1) The ________ is the federal agency responsible for enforcing most federal antidiscrimination laws. A) EEOC B) FEPA C) ADEA D) BFOQ Answer: A Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 2) Which of the following is true of the 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) A person should file a complaint with EEOC after filing a discriminatory lawsuit against the employer. Answer: A Diff: 2 Skill: Legal Concepts LO: 19.1 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 the ________ instead of the EEOC. A) ADA B) ADEA C) FEPA D) BFOQ Answer: C Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept
1 C..
4) If the 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 Skill: Legal Concepts LO: 19.1 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 EEOC? A) It is issued when the EEOC chooses to bring suit. B) It is issued when the 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 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. 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 GINA C) Civil Rights Act of 1964 D) Lilly Ledbetter Fair Pay Act Answer: D Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept
2 C..
7) A female is hired by an employer as an employee. During a 36-month period, the employer engages in pay act violations and underpays the female employee each pay period. According to the Lilly Ledbetter Fair Pay Act of 2009, how long does the female employee have to file her claim? A) within three years from her initial date of hire B) within 90 days from the initial paycheck violation C) within 180 days from the last paycheck violation D) within one year from the last paycheck violation Answer: C Diff: 2 Skill: Factual Application LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Application of knowledge Classification: Application 8) The Equal Employment Opportunity Commission is the administrative agency responsible for enforcing most ________ antidiscrimination laws. A) state B) local C) federal D) international Answer: C Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 9) The Lilly Ledbetter Fair Pay Act of 2009 is a federal statute that permits a complainant to file an employment discrimination claim against an employer within ________ of the most recent paycheck violation. A) 15 days B) 180 days C) 3 months D) 2 years Answer: B Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept
3 C..
10) A ________ is issued by the EEOC if it chooses not to bring an action against an employer and authorizes a complainant to sue the employer for employment discrimination. A) right to sue letter B) temporary injunction C) cease and desist order D) findings and recommendations report Answer: A Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 11) The Equal Employment Opportunity Commission (EEOC) is the federal administrative agency that is responsible for enforcing most federal antidiscrimination laws. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 12) The jurisdiction of the EEOC is restricted to investigating charges of discrimination based on gender. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 13) 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 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept
4 C..
14) The EEOC and a complainant can jointly sue an employer who discriminated against the complainant. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 15) The EEOC will issue a right to sue letter to the complainant even if it does not find a violation upon investigation of the charge. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 16) A complainant cannot file his or her claim of discrimination with the Fair Employment Practices Agency (FEPA) instead of the EEOC. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 17) A plaintiff can file a claim against an employer within 180 days of the most recent paycheck violation. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 18) The members of the EEOC are appointed by the U.S. president. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept
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19) Based on his religion, an employee feels discriminated against by his employer. 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 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 Skill: Legal Concepts LO: 19.1 Describe the functions of the Equal Employment Opportunity Commission. AACSB: Analytical thinking Classification: Concept 20) ________ was intended to eliminate job discrimination based on race, color, national origin, sex, and religion. A) The Lilly Ledbetter Fair Pay Act B) The Fair Employment Practices Act C) Title II of the GINA D) Title VII of the Civil Rights Act of 1964 Answer: D Diff: 1 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 21) 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 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept
6 C..
22) ________ 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 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 23) To claim under disparate-treatment discrimination, the complainant must prove that ________. A) he or she is physically challenged 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 ADA Answer: C Diff: 1 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 24) 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 hires a nonminority applicant for the position. The minority applicant can sue under ________. A) Title I of the ADA B) Title II of the GINA C) Title VII of the Civil Rights Act D) the Lilly Ledbetter Fair Pay Act Answer: C Diff: 2 Skill: Factual Application LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Application of knowledge Classification: Application
7 C..
25) ________ discrimination occurs when an employer discriminates against an entire protected class. A) Disparate-treatment B) Disparate-impact C) Favored-treatment D) Unfair-impact Answer: B Diff: 1 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 26) Which of the following is true of employment discriminations 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 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 27) Which of the following is an instance of disparate-treatment discrimination? A) An employer does not promote Kelly, as she is only 24 years old and the employer believes she is too young to successfully perform the job. 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. Answer: B Diff: 2 Skill: Factual Application LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Application of knowledge Classification: Application
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28) Disparate-treatment discrimination occurs when an employer discriminates against a specific individual because of his or her ________. A) age B) physical disability C) veteran status D) race, color, national origin, sex, or religion Answer: D Diff: 1 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 29) ________ 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. A) Disparate-treatment B) Disparate-impact C) Favored-treatment D) Unfair-impact Answer: B Diff: 1 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 30) Title VII of the Civil Rights Act of 1964 is the federal statute that prohibits job discrimination based on the race, color, religion, sex, or ________ of the job applicant. A) politics B) age C) national origin D) physical disability Answer: C Diff: 1 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 31) Title VII of the Civil Rights Act of 1964 does not apply to labor unions. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 9 C..
32) Title VII of the Civil Rights Act of 1964 was intended to eliminate job discrimination based on race, color, national origin, sex, and religion. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 33) Title VII of the Civil Rights Act of 1964 applies to employers with any number of employees. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 34) Native American tribes and tax-exempt private clubs are expressly excluded from Title VII of the Civil Rights Act of 1964. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 35) 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 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 36) 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 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept
10 C..
37) 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. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 38) If an employer refuses to promote all persons of the Asian race, the company has engaged in disparate-impact discrimination. Answer: FALSE Diff: 2 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 39) Explain the scope and provisions of Title VII of the Civil Rights Act of 1964. 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 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 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept
11 C..
40) Distinguish between disparate-treatment 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 Skill: Legal Concepts LO: 19.2 Describe the scope of coverage of Title VII of the Civil Rights Act of 1964. AACSB: Analytical thinking Classification: Concept 41) 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. Joe is the best-qualified applicant for the job. If QuickMoney does not hire Joe because he is an African-American, the company has engaged in ________ discrimination. A) genetic information B) race C) color D) national origin Answer: B Diff: 2 Skill: Factual Application LO: 19.3 Identify race and color discrimination that violate Title VII. AACSB: Application of knowledge Classification: Application
12 C..
42) If a light-skinned member of a race refuses to hire a dark-skinned member of the same race, this will constitute discrimination in violation of ________. A) Title I of the ADA B) Title II of the GINA C) Title VII of the Civil Rights Act of 1964 D) Title IV of the GINA Answer: C Diff: 1 Skill: Legal Concepts LO: 19.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept 43) The ________ is a federal statute enacted after the Civil War that prohibits racial and national origin employment discrimination. A) Civil Rights Act of 1866 B) Anti-Discrimination Law of 1870 C) Reconstruction Act of 1867 D) National Reconciliation Act of 1872 Answer: A Diff: 1 Skill: Legal Concepts LO: 19.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept 44) A person having origins in any of the original peoples of the Middle East belongs to the Caucasian racial group. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept 45) If a light-skinned member of a race refuses to hire a dark-skinned member of the same race, this constitutes racial discrimination. Answer: FALSE Diff: 2 Skill: Legal Concepts LO: 19.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept
13 C..
46) A private plaintiff can bring an action for employment discrimination under Section 1981 of the Civil Rights Act of 1866 without going through the procedural requirements of Title VII of the Civil Rights Act of 1964. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept 47) 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 Skill: Legal Concepts LO: 19.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept 48) The Civil Rights Act of 1866 is unconcerned with discrimination based on national origin. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 19.3 Identify race and color discrimination that violate Title VII. AACSB: Analytical thinking Classification: Concept 49) Which of the following types of employment discrimination is carried out against a person because of his or her heritage or cultural characteristics? A) race discrimination B) color discrimination C) national origin discrimination D) genetic information discrimination Answer: C Diff: 1 Skill: Legal Concepts LO: 19.4 Identify national origin discrimination that violates Title VII. AACSB: Analytical thinking Classification: Concept
14 C..
50) If a company does not hire certain employees because of their accents, it has carried out ________ discrimination. A) genetic information B) race C) color D) national origin Answer: D Diff: 2 Skill: Legal Concepts LO: 19.4 Identify national origin discrimination that violates Title VII. AACSB: Analytical thinking Classification: Concept 51) For purposes of Title VII of the Civil Rights Act of 1964, "national origin" does NOT include ________. A) the place of origin of a person's ancestors B) color or complexion of a person's skin C) physical, linguistic, or cultural characteristics D) heritage Answer: B Diff: 1 Skill: Legal Concepts LO: 19.4 Identify national origin discrimination that violates Title VII. AACSB: Analytical thinking Classification: Concept 52) 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 the GINA. Answer: C Diff: 2 Skill: Legal Concepts LO: 19.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept
15 C..
53) Which of the following best describes quid pro quo sex discrimination? A) employment discrimination because of pregnancy, childbirth, or related medical conditions B) discrimination where sexual favors are requested in order to obtain a job or be promoted C) discrimination in hiring or promotion based on the gender of the employee under consideration D) selective or partial treatment offered to an employee or a group of employees based on their gender Answer: B Diff: 2 Skill: Legal Concepts LO: 19.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 54) 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 of 1964. A) Pregnancy Discrimination Act B) Sex Discrimination Act C) Gender Discrimination Act D) Sexual Harassment Act Answer: A Diff: 1 Skill: Legal Concepts LO: 19.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 55) 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 liable for quid pro quo sex discrimination. B) Lila's employer is liable for hostile work environment sex discrimination. C) Lila's employer was lawful in denying her the promotion. D) Lila's employer has violated Title VII of the Civil Rights Act of 1964. Answer: D Diff: 2 Skill: Factual Application LO: 19.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Application of knowledge Classification: Application
16 C..
56) The Pregnancy Discrimination Act is an amendment to ________ that forbids employment discrimination because of pregnancy, childbirth, or related medical conditions. A) the Lilly Ledbetter Fair Pay Act B) the Fair Employment Practices Act C) Title II of the Genetic Information Nondiscrimination Act D) Title VII of the Civil Rights Act of 1964 Answer: D Diff: 1 Skill: Legal Concepts LO: 19.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 57) Title VII prohibits any form of gender discrimination where sexual favors are requested in order to obtain a job or be promoted. This is called ________ sex discrimination. A) quid pro quo B) disparate-impact C) disparate-treatment D) res ipsa loquitur Answer: A Diff: 1 Skill: Legal Concepts LO: 19.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 58) If an employer refuses to promote a qualified female to a management position because of her gender, this would be in violation of Title VII of the Civil Rights Act of 1964. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 59) Sex-plus discrimination occurs when an employer does not discriminate against a class as a whole, but treats a subset of the class differently. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 17 C..
60) Discrimination because of pregnancy, childbirth, or related medical conditions violates the Civil Rights Act of 1866. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 19.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 61) Denying employment to a woman because she is pregnant is a form of quid pro quo sex discrimination. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 19.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 62) If an employer denies a salary increase to an employee because she is a woman, the employer is liable for sexual harassment. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 19.5 Define gender discrimination and describe the scope of protection against gender discrimination. AACSB: Analytical thinking Classification: Concept 63) The Equal Employment Opportunity Commission (EEOC) interprets the prohibition against sex discrimination in ________ to include members of the LGBTQ community. A) the Lilly Ledbetter Fair Pay Act B) the Fair Employment Practices Act C) Title II of the Genetic Information Nondiscrimination Act D) Title VII of the Civil Rights Act of 1964 Answer: D Diff: 1 Skill: Legal Concepts LO: 19.6 Describe how members of the LGBTQ community are protected from job discrimination. AACSB: Analytical thinking Classification: Concept
18 C..
64) The term LGBTQ generally refers ________. A) only to an individual's sexual orientation B) only to an individual's gender identity C) to an individual's sexual orientation or gender identity D) neither to an individual's sexual orientation nor to an individual's gender identity Answer: C Diff: 1 Skill: Legal Concepts LO: 19.6 Describe how members of the LGBTQ community are protected from job discrimination. AACSB: Analytical thinking Classification: Concept 65) Employment discrimination based on an individual's personal experience of one's own gender is referred to as ________. A) sex discrimination B) gender identity discrimination C) sexual orientation discrimination D) gender discrimination Answer: B Diff: 1 Skill: Legal Concepts LO: 19.6 Describe how members of the LGBTQ community are protected from job discrimination. AACSB: Analytical thinking Classification: Concept 66) Distinguish between sex-plus discrimination and gender identity discrimination. Answer: Sex-plus discrimination occurs when an employer does not discriminate against a class as a whole, but treats a subset of the class differently. Courts have held that sex-plus discrimination violates Title VII of the Civil Rights Act of 1964. For example, an employer does not discriminate against females in general, but does discriminate against married women or women with children. Sex discrimination can also involve treating someone less favorably because of his or her connection with an organization or group that is generally associated with people of a certain sex. For example, an employer violates Title VII if he discriminates against female job applicants or employees who belong to the National Organization for Women (NOW). Lesbian, gay, bisexual, and transgender individuals may bring sex discrimination claims, such as when an employer takes an adverse action because of the person's nonconformance with sex stereotypes. Discrimination against an individual because that person is transgender is sex discrimination that violates Title VII. This is known as gender identity discrimination. Diff: 2 Skill: Legal Concepts LO: 19.6 Describe how members of the LGBTQ community are protected from job discrimination. AACSB: Analytical thinking Classification: Concept 19 C..
67) Using a sexually explicit picture or screensaver to mock an employee constitutes ________. A) gender discrimination B) quid pro quo sex discrimination C) sexual harassment D) physical abuse Answer: C Diff: 2 Skill: Legal Concepts LO: 19.7 Describe racial, sexual, and other forms of harassment. AACSB: Analytical thinking Classification: Concept 68) 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 of 1964 B) the Fair Employment Practices Act C) Title II of the GINA D) Title I of the ADA Answer: A Diff: 1 Skill: Legal Concepts LO: 19.7 Describe racial, sexual, and other forms of harassment. AACSB: Analytical thinking Classification: Concept 69) Which of the following elements constitutes an affirmative defense by an employer whose employee has suffered sexual harassment at the workplace? A) The plaintiff-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 plaintiff-employee failed to take advantage of any preventive or corrective opportunities provided by the employer. D) The plaintiff-employee misinterpreted words or actions by the employer or his employees which were not intended to cause sexual harassment. Answer: C Diff: 2 Skill: Legal Concepts LO: 19.7 Describe racial, sexual, and other forms of harassment. AACSB: Analytical thinking Classification: Concept
20 C..
70) 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 email is considered sexual harassment. D) Absence of a complaint policy makes an employer liable for disparate-impact discrimination. Answer: C Diff: 2 Skill: Legal Concepts LO: 19.7 Describe racial, sexual, and other forms of harassment. AACSB: Analytical thinking Classification: Concept 71) What must an employer prove in order to establish an affirmative defense so as to not be liable for a claim of harassment? What factors will a court consider if an employer raises an affirmative defense to determine whether the defense was proven? Answer: An employer can prove an affirmative defense if the following is established: • The employer exercised reasonable care to prevent, and promptly correct, any sexual harassing behavior, and • The plaintiff-employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to otherwise avoid harm. In determining whether the defense has been proven, a court will consider (1) whether the employer has an anti-harassment policy, (2) whether the employer had a complaint mechanism in place, (3) whether employees were informed of the anti-harassment policy and complaint procedure, and (4) other factors that the court deems relevant. Diff: 2 Skill: Legal Concepts LO: 19.7 Describe racial, sexual, and other forms of harassment. AACSB: Analytical thinking Classification: Concept 72) Jason Smith, a Hispanic scriptwriter from Brazil, worked for a television show on an American cable network. He was fired after the producer learned 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 of 1964. A) racial B) religious C) national origin D) disparate-impact Answer: B Diff: 2 Skill: Factual Application LO: 19.8 Describe an employer's duty to make reasonable accommodation for employees' religions. AACSB: Application of knowledge Classification: Application 21 C..
73) Which of the following is true of religious discrimination? A) Only monotheistic religions are covered under Title VII of the Civil Rights Act of 1964. B) Employers need not accommodate religious observances or practices of their 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: D Diff: 2 Skill: Legal Concepts LO: 19.8 Describe an employer's duty to make reasonable accommodation for employees' religions. AACSB: Analytical thinking Classification: Concept 74) An employer must make reasonable accommodations for an employee's religious beliefs if it could be done without causing an undue hardship on the employer. Which of these would NOT be considered an undue hardship? A) The requested accommodation would be costly. B) The requested accommodation would compromise workplace safety. C) The requested accommodation would mean the employee would have contact with the public. D) The requested accommodation would infringe on the rights of other employees. Answer: C Diff: 2 Skill: Legal Concepts LO: 19.8 Describe an employer's duty to make reasonable accommodation for employees' religions. AACSB: Analytical thinking Classification: Concept 75) Under Title VII of the Civil Rights Act of 1964, the right of an employee to practice his or her religion is absolute. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 19.8 Describe an employer's duty to make reasonable accommodation for employees' religions. AACSB: Analytical thinking Classification: Concept
22 C..
76) Describe what is meant by a "religion" for purposes of the prohibition on employment discrimination based on a person's religion contained in Title VII of the Civil Rights Act of 1974. Answer: As used in Title VII of the Civil Rights Act of 1974, "religions" include • traditional religions, such as Buddhism, Christianity, Hinduism, Islam, and Judaism; • other religions that recognize a supreme being, and; • religions based on ethical or spiritual tenets. Diff: 1 Skill: Legal Concepts LO: 19.8 Describe an employer's duty to make reasonable accommodation for employees' religions. AACSB: Analytical thinking Classification: Concept 77) Why is proving a bona fide occupational qualification essential? A) for justifying discrimination based on gender B) to establish the employer's violation of Title VII of the Civil Rights Act of 1964 C) to establish that the employee's claim is fraudulent D) for an employee to successfully claim being discriminated against by the employer Answer: A Diff: 2 Skill: Legal Concepts LO: 19.9 List and describe defenses that may be raised by an employer against a charge of violating Title VII. AACSB: Analytical thinking Classification: Concept 78) Discrimination based on protected classes, other than race or color, is permitted if it is shown to be ________. A) cost effective B) a bona fide occupational qualification (BFOQ) C) unobjectionable on its face D) approved by the relevant union Answer: B Diff: 1 Skill: Legal Concepts LO: 19.9 List and describe defenses that may be raised by an employer against a charge of violating Title VII. AACSB: Analytical thinking Classification: Concept
23 C..
79) Which of these is NOT a valid defense against a charge of violating Title VII of the Civil Rights Act of 1964? A) merit B) seniority C) discrimination based on sex, religion, or national origin if it is a valid BFOQ for the position D) discrimination based on race or color if it is a valid BFOQ for the position Answer: D Diff: 2 Skill: Legal Concepts LO: 19.9 List and describe defenses that may be raised by an employer against a charge of violating Title VII. AACSB: Analytical thinking Classification: Concept 80) Quantum Corporation has a policy of giving promotions to those employees who earn a jobrelated graduate degree. Decisions made under this policy would be ________. A) lawful under Title VII as it is based on merit B) lawful under Title VII as it is based on seniority C) lawful under Title VII as it is based on a BFOQ D) a violation of Title VII Answer: A Diff: 2 Skill: Factual Application LO: 19.9 List and describe defenses that may be raised by an employer against a charge of violating Title VII. AACSB: Application of knowledge Classification: Application 81) 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 gender in some circumstances. To be legal, a BFOQ must be both job related and a business necessity. For 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 Skill: Legal Concepts LO: 19.9 List and describe defenses that may be raised by an employer against a charge of violating Title VII. AACSB: Analytical thinking Classification: Concept
24 C..
82) ________ protects both sexes from pay discrimination based on sex. A) The Lilly Ledbetter Fair Pay Act B) The Fair Employment Practices Act C) Title VII of the Civil Rights Act of 1964 D) The Equal Pay Act Answer: D Diff: 1 Skill: Legal Concepts LO: 19.10 Describe the scope of coverage of the Equal Pay Act. AACSB: Analytical thinking Classification: Concept 83) Which of the following is true of the Equal Pay Act? A) It protects both sexes from pay discrimination based on gender. 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 Skill: Legal Concepts LO: 19.10 Describe the scope of coverage of the Equal Pay Act. AACSB: Analytical thinking Classification: Concept 84) 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, assuming that the employer recognizes seniority in its compensation system? A) The employer has violated the Fair Employment Practices Act. B) The employer is liable for disparate-treatment discrimination. C) The employer is liable for disparate-impact discrimination. D) The employer has not violated the Equal Pay Act. Answer: D Diff: 2 Skill: Factual Application LO: 19.10 Describe the scope of coverage of the Equal Pay Act. AACSB: Application of knowledge Classification: Application
25 C..
85) The Equal Pay Act of 1963 protects ________ from pay discrimination based on sex. A) females only B) men only C) females and older men D) both sexes Answer: D Diff: 1 Skill: Legal Concepts LO: 19.10 Describe the scope of coverage of the Equal Pay Act. AACSB: Analytical thinking Classification: Concept 86) Federal workers are not covered under the Equal Pay Act. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.10 Describe the scope of coverage of the Equal Pay Act. AACSB: Analytical thinking Classification: Concept 87) What is prohibited by the Equal Pay Act? What will a court examine to determine if prohibited pay disparity exists? Answer: The Equal Pay Act prohibits disparity in pay to members of different sexes for jobs that require • equal skill (i.e., equal experience), • equal effort (i.e., mental and physical exertion), • equal responsibility (i.e., equal supervision and accountability), or • similar working conditions (e.g., dangers of injury, exposure to the elements). To make this determination, the courts examine the actual requirements of jobs to determine whether they are equal and similar. If two jobs are determined to be equal and similar, an employer cannot pay disparate wages to members of different sexes. Diff: 2 Skill: Legal Concepts LO: 19.10 Describe the scope of coverage of the Equal Pay Act. AACSB: Analytical thinking Classification: Concept
26 C..
88) The ________ is a federal statute that prohibits age discrimination practices against employees who are 40 years and older. A) FEPA B) OWBPA C) ADEA D) EEOC Answer: C Diff: 1 Skill: Legal Concepts LO: 19.11 Describe the scope of coverage of the Age Discrimination in Employment Act. AACSB: Analytical thinking Classification: Concept 89) The ________ is a federal statute that prohibits age discrimination regarding employee benefits. A) FEPA B) OWBPA C) ADEA D) EEOC Answer: B Diff: 1 Skill: Legal Concepts LO: 19.11 Describe the scope of coverage of the Age Discrimination in Employment Act. AACSB: Analytical thinking Classification: Concept 90) The OWBPA is a federal statute that prohibits ________ discrimination in employee benefits. A) age B) gender C) race D) disability Answer: A Diff: 1 Skill: Legal Concepts LO: 19.11 Describe the scope of coverage of the Age Discrimination in Employment Act. AACSB: Analytical thinking Classification: Concept
27 C..
91) Under the ________, an employer can maintain an employment practice whereby it gives preferential treatment to older workers over younger workers when they are both within the 40 years and older category. A) ADEA B) OWBPA C) ADA D) FEPA Answer: A Diff: 1 Skill: Legal Concepts LO: 19.11 Describe the scope of coverage of the Age Discrimination in Employment Act. AACSB: Analytical thinking Classification: Concept 92) The Age Discrimination in Employment Act (ADEA) is a federal statute that prohibits age discrimination practices against employees who are 40 years and older. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.11 Describe the scope of coverage of the Age Discrimination in Employment Act. AACSB: Analytical thinking Classification: Concept 93) The ________ imposes obligations on employers and providers of public transportation, telecommunications, and public accommodations to accommodate physically challenged individuals. A) ADEA B) OWBPA C) ADA D) FEPA Answer: C Diff: 1 Skill: Legal Concepts LO: 19.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept
28 C..
94) Title I of the ADA requires employers to make ________ to assist employees with disabilities that do not cause undue hardship to the employer. A) reasonable accommodations B) reasonable compensation C) employee policy statements D) negotiated concessions Answer: A Diff: 1 Skill: Legal Concepts LO: 19.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 95) Title I of the ADA covers ________. A) employers with 14 employees B) the United States government C) corporations wholly owned by the United States government D) corporations partially owned by the United States government Answer: D Diff: 1 Skill: Legal Concepts LO: 19.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 96) Title I of the ADA is administered by ________. A) the ADAAA B) the EEOC C) the DOJ D) the FTC Answer: B Diff: 1 Skill: Legal Concepts LO: 19.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 97) The Americans with Disabilities Act (ADA) is a federal statute that imposes obligations on employers and providers of public transportation, telecommunications, and public accommodations to accommodate physically challenged individuals. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 29 C..
98) Title I of the ADA covers employers with three or more employees. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 19.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 99) Title I forbids an employer from asking a job applicant about the existence, nature, and severity of a disability. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 100) Explain the concept of reasonable accommodation of physically challenged employees. When is an employer not obligated to provide such an accommodation? Answer: Under Title I of 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. 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 Skill: Legal Concepts LO: 19.12 Describe the protections afforded by the Americans with Disabilities Act. AACSB: Analytical thinking Classification: Concept 101) The ________ is a federal statute that makes it illegal for an employer to discriminate against job applicants and employees based on genetic information. A) ADA B) GINA C) ADAAA D) OWBPA Answer: B Diff: 1 Skill: Legal Concepts LO: 19.13 Define genetic information discrimination. AACSB: Analytical thinking Classification: Concept
30 C..
102) Discriminating against a possible job applicant because of his or her family history of heart ailments is forbidden under ________. A) the Age Discrimination in Employment Act (ADEA) B) Title II of the Genetic Information Nondiscrimination Act (GINA) C) the Americans with Disabilities Act Amendments Act (ADAAA) D) Title I of the Americans with Disabilities Act (ADA) Answer: B Diff: 1 Skill: Legal Concepts LO: 19.13 Define genetic information discrimination. AACSB: Analytical thinking Classification: Concept 103) Discrimination based on information from which it is possible to determine a person's propensity to be stricken by diseases is called ________. A) proactive healthcare discrimination B) discrimination due to projected medical costs C) future medical propensity discrimination D) genetic information discrimination Answer: D Diff: 1 Skill: Legal Concepts LO: 19.13 Define genetic information discrimination. AACSB: Analytical thinking Classification: Concept 104) Which of these is NOT considered to be a violation of the Genetic Information Nondiscrimination Act (GINA)? A) firing an employee based on genetic information B) harassing an employee because of genetic information C) discovering genetic information from an employee's voluntary submission as part of a wellness program D) not providing benefits due to genetic information Answer: C Diff: 1 Skill: Legal Concepts LO: 19.13 Define genetic information discrimination. AACSB: Analytical thinking Classification: Concept
31 C..
105) 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 Skill: Legal Concepts LO: 19.13 Define genetic information discrimination. AACSB: Analytical thinking Classification: Concept 106) Megan filed a claim with the EEOC alleging that her employer engaged in religious discrimination in violation of Title VII. Because she filed this claim, her employer did not give Megan a promotion for which she clearly qualified. A) This does not constitute illegal retaliation because it dealt with religious discrimination. B) This does not constitute illegal retaliation because she was not fired from her job. C) This does not constitute illegal retaliation because she did not allege harassment. D) This does constitute illegal retaliation. Answer: D Diff: 2 Skill: Factual Application LO: 19.14 Explain the protections afforded employees from employer retaliation. AACSB: Application of knowledge Classification: Application 107) Federal antidiscrimination laws prohibit employers from engaging in retaliation against an employee for filing a charge of discrimination. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 19.14 Explain the protections afforded employees from employer retaliation. AACSB: Analytical thinking Classification: Concept 108) The ________, as amended by the Veterans' Benefits Act of 2010, is a federal statute that applies to all civilian and government employers in the United States and U.S. employers operating in foreign countries. A) EEOC B) FEPA C) USERRA D) OWBPA Answer: C Diff: 1 Skill: Legal Concepts LO: 19.15 Describe employment protections for veterans and military personnel. AACSB: Analytical thinking Classification: Concept 32 C..
109) The Uniformed Services Employment and Reemployment Rights Act (USERRA) does NOT cover those who served in ________. A) the Air National Guard B) the State Department Diplomatic Security Service C) the U.S. Marine Corps D) the Coast Guard Reserve Answer: B Diff: 1 Skill: Legal Concepts LO: 19.15 Describe employment protections for veterans and military personnel. AACSB: Analytical thinking Classification: Concept 110) Under the USERRA, an employer is not required to rehire a veteran of military service or military personnel if ________. A) the person has future military obligations B) the person has service-connected disabilities, even if the disability can be reasonably accommodated C) the person served less than five years in uniform service D) the person served more than five years in uniform service Answer: D Diff: 1 Skill: Legal Concepts LO: 19.15 Describe employment protections for veterans and military personnel. AACSB: Analytical thinking Classification: Concept 111) What employment protections are afforded to veterans of military service and military personnel under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA)? Answer: The USERRA does the following: • Prohibits employers from engaging in employment and wage discrimination against persons because of their past military service or their current or future military obligations. • Requires employers to rehire returning service members who had previously been its employees at a job—with comparable status, pay, benefits, and seniority—that the person would have attained had he or she not been absent for military service. If the service member cannot qualify for re-employment for that position, the law allows for alternative re-employment positions. A person must serve less than five years in uniform service to qualify for reemployment. • Requires employers to rehire persons with service-connected disabilities if the disability can be reasonably accommodated. Diff: 2 Skill: Legal Concepts LO: 19.15 Describe employment protections for veterans and military personnel. AACSB: Analytical thinking Classification: Concept 33 C..
112) Employers often adopt a(n) ________ that 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 strategy B) affirmative defense C) affirmative action plan D) reasonable accommodation plan Answer: C Diff: 1 Skill: Legal Concepts LO: 19.16 Define affirmative action in employment. AACSB: Analytical thinking Classification: Concept 113) ________ refers to a policy which provides that certain job preferences will be given to minority or other protected class applicants when an employer makes an employment decision. A) Reverse discrimination B) Affirmative action C) Proactive discrimination D) Corrective action Answer: B Diff: 1 Skill: Legal Concepts LO: 19.16 Define affirmative action in employment. AACSB: Analytical thinking Classification: Concept 114) ________ is discrimination against a group which is usually thought of as a majority class. A) Reverse discrimination B) Majoritarian discrimination C) Nonprotected class bias D) Retrogressive discrimination Answer: A Diff: 1 Skill: Legal Concepts LO: 19.16 Define affirmative action in employment. AACSB: Analytical thinking Classification: Concept
34 C..
115) To be lawful, an affirmative action plan must be ________ to achieve some compelling interest. A) narrowly tailored B) broadly drawn C) quota-based D) expansively designed Answer: A Diff: 1 Skill: Legal Concepts LO: 19.16 Define affirmative action in employment. AACSB: Analytical thinking Classification: Concept 116) 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 Skill: Legal Concepts LO: 19.16 Define affirmative action in employment. AACSB: Analytical thinking Classification: Concept
35 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 20 Employment Law and Worker Protection 1) Employment where an employer and employee enter a contract for a specified time is known as ________. A) term employment B) at-will employment C) contract employment D) gig employment Answer: A Diff: 1 Skill: Legal Concepts LO: 20.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 2) An employee who is employed under a term contract is called a(n) ________. A) at-will employee B) term employee C) agent D) contractor Answer: B Diff: 1 Skill: Legal Concepts LO: 20.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 3) An employer who terminates a term employee without cause during the stated period is liable for ________. A) employment discrimination B) tortious interference C) punitive damages D) wrongful discharge Answer: D Diff: 1 Skill: Legal Concepts LO: 20.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept
1 C..
4) An employer may terminate a term employee during the stated term without being liable for damages if the employee was fired ________. A) arbitrarily B) for financial considerations C) for cause D) capriciously Answer: C Diff: 1 Skill: Legal Concepts LO: 20.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 5) In the United States, most employees, including most managers, are ________. A) term employees B) at-will employees C) union members D) government employees Answer: B Diff: 1 Skill: Legal Concepts LO: 20.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 6) In general, an at-will employee can be terminated ________ by their employer. A) without cause and at any time B) only with cause, but at any time C) without cause, but only after a statutory probationary period D) only with cause, and only after a statutory probationary period Answer: A Diff: 1 Skill: Legal Concepts LO: 20.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept
2 C..
7) Which of the following is NOT one of the common exceptions where even an at-will employee cannot be legally terminated? A) labor union exception B) public policy exception C) statutory exception D) nepotism exception Answer: D Diff: 1 Skill: Legal Concepts LO: 20.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 8) Under the labor union exception, federal and state labor laws, along with ________, restrict an employer's ability to discharge employees who are union members. A) tradition B) a collective bargaining agreement C) community standards D) political pressure Answer: B Diff: 1 Skill: Legal Concepts LO: 20.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 9) Which of the following has been held to come under the public policy exception, that is, where an employee cannot be discharged because such discharge violates public policy? A) discharging an employee for serving as a juror B) discharging an employee for violating the law C) discharging an employee for distributing defective products D) discharging an employee for taking their birthday off Answer: A Diff: 1 Skill: Legal Concepts LO: 20.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept
3 C..
10) Compare and contrast term employment with at-will employment. Answer: Term employment occurs where an employer and employee enter a contract for a specified time. An employee who is employed under a term contract is called a term employee. An employer who terminates a term employee without cause during the stated period is liable for wrongful discharge and owes damages to the employee. However, an employer may terminate a term employee before the end of the term for cause without being liable for damages. On the other hand, most employees, including most managers, are at-will employees. This is because they do not have term contracts with their employer. An at-will employee can be terminated without cause at any time by the employer. The employee has no redress to recover damages from the employer. At-will employees may also be terminated for cause, but a showing of cause is not necessary for the employer to terminate the employee. Diff: 2 Skill: Legal Concepts LO: 20.1 Define term employee and at-will employee. AACSB: Analytical thinking Classification: Concept 11) 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 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 12) States usually require employers to purchase ________ insurance from private insurance companies or state funds to cover workers' compensation claims. A) employee B) relief fund C) provident fund D) workers' compensation Answer: D Diff: 1 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept
4 C..
13) Which of the following must be proven 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 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 14) 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 ________. A) covered by workers' compensation insurance B) not covered by workers' compensation C) covered by the employer's self-insurance fund D) not covered by the employee's medical insurance Answer: B Diff: 2 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 15) Workers' compensation is a(n) ________ remedy. A) exclusive B) cumulative C) provisional D) equitable Answer: A Diff: 1 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept
5 C..
16) Which of the following is true of workers' compensation? A) A worker must file a complaint with the police before claiming workers' compensation benefits. B) Workers' compensation is a provisional remedy, not an equitable remedy. C) A worker who receives workers' compensation cannot sue his or her employer in civil court. D) Workers' compensation is generally awarded as punitive damages in a civil lawsuit initiated by the injured employee. Answer: C Diff: 2 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 17) 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 civil lawsuit by an injured worker. D) The employer can offer lower basic pay to workers. Answer: C Diff: 2 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 18) Jorge, a forklift truck operator for the retail chain Hanes Ridge, was injured when the forklift he was operating toppled over. The forklift truck was designed and manufactured by Ionic Machines, Inc. Jorge received workers' compensation benefits for his injury. It was later determined that the forklift truck was not designed to be used to lift as much weight as Ionic Machines claimed it could. To which of the following legal rights is Jorge entitled? A) sue Hanes Ridge in civil court for his work-related injuries B) sue Hanes Ridge in federal court for violation of the Fair Labor Standards Act (FLSA) C) sue Ionic Machines in civil court for damages D) Jorge cannot sue either Hanes Ridge or Ionic Machines, since he has already received workers' compensation benefits. Answer: C Diff: 2 Skill: Factual Application LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Application of knowledge Classification: Application
6 C..
19) In which of the following situations can an employee sue an employer in civil court to recover damages for employment-related injuries? A) The employer is self-insured. B) The employer unintentionally injures an employee covered under workers' compensation. C) The employee suffers an injury on work premises that is not work-related. D) The employer intentionally injures an employee covered under workers' compensation. Answer: D Diff: 2 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 20) Workers' compensation is a(n) ________ remedy, which means that workers cannot receive workers' compensation and also sue their employers in court for damages. A) exclusive B) inclusive C) plenary D) alternative Answer: A Diff: 1 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 21) Workers' compensation benefits are usually paid according to preset limits established by statute or regulation. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 22) Under common law, employees who were injured on the job could not sue their employers for negligence. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept
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23) Employees are required to purchase workers' compensation insurance from private insurance companies or state funds. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 24) 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 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 25) Workers' compensation insurance does not cover stress and mental illnesses that are employment-related. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 26) Workers cannot both receive workers' compensation and sue their employers in court for damages. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 27) Workers' compensation acts bar injured workers from suing responsible third parties to recover damages. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept
8 C..
28) If an employer intentionally injures a worker, the worker cannot collect workers' compensation benefits. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 29) "Workers' compensation is an exclusive remedy." Elaborate on this statement with 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. She cannot sue the university to recover damages. Diff: 2 Skill: Legal Concepts LO: 20.2 Describe workers' compensation programs and the benefits available. AACSB: Analytical thinking Classification: Concept 30) The ________ is a federal act enacted in 1970 that promotes safety in the workplace. A) OSHA B) FLSA C) FMLA D) ERISA Answer: A Diff: 1 Skill: Legal Concepts LO: 20.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept
9 C..
31) The OSHA guidelines that set safety rules for specific equipment, procedures, types of work, and unique work conditions are known as ________. A) standards of wellness B) specific duty standards C) the code of direction D) general standards of work Answer: B Diff: 1 Skill: Legal Concepts LO: 20.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 32) 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) nonhazardous work environment imprimatur Answer: A Diff: 1 Skill: Legal Concepts LO: 20.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 33) Which of the following is true of OSHA's general duty standard? A) The standard must be established with each safety regulation. B) It requires an employer to provide a work environment that does not result in employee mental stress. C) An employer is required to provide a work environment that is free from recognized hazards. D) OSHA has no authority regarding employer safety violations, since it is merely a model act. Answer: C Diff: 2 Skill: Legal Concepts LO: 20.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept
10 C..
34) The ________ is a federal agency that is empowered to inspect places of employment for health hazards and safety violations. A) Department of Health and Human Services (DHHS) B) Occupational Safety and Health Administration (OSHA) C) Mine Safety & Health Administration (MSHA) D) Ombudsman for the Energy Employees Occupational Illness Compensation Program (EEOMBD) Answer: B Diff: 1 Skill: Legal Concepts LO: 20.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 35) OSHA standards establish safety requirements for safety guards on saws. This is an example of a ________ standard. A) general duty B) power tool safety C) hazardous machinery safety D) specific duty Answer: D Diff: 1 Skill: Legal Concepts LO: 20.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 36) The ________ Act contains a general duty standard that imposes on an employer a duty to provide employment and a work environment that is free from recognized hazards that are causing or are likely to cause death or serious physical harm to its employees. A) Occupational Safety and Health B) Worker Welfare C) Employee Safety and Wellness D) Vaughn-Monroe Job Safety Answer: A Diff: 1 Skill: Legal Concepts LO: 20.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept
11 C..
37) 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 Skill: Legal Concepts LO: 20.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 38) The general duty standard requires an employer to provide a work environment that does not result in its employees' mental stress. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 39) The OSHA serves only as a model act and employers who violate its rules are not liable for penalties. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept
12 C..
40) What is the federal agency known as OSHA, and what does it do? Answer: The Occupational Safety and Health Administration (OSHA) is a federal administrative agency within the Department of Labor that is empowered with enforcing the Occupational Safety and Health Act. OSHA is empowered to adopt rules and regulations to interpret and enforce the Occupational Safety and Health Act. OSHA has adopted thousands of regulations to enforce the safety standards established by the act. OSHA is also empowered to inspect places of employment for health hazards and safety violations. If a violation is found, OSHA can issue a written citation that requires the employer to abate or correct the situation. Contested citations are reviewed by the Occupational Safety and Health Review Commission. Its decisions are appealable to the Court of Appeals for the Federal Circuit. Employers who violate the act, OSHA rules and regulations, or OSHA citations are subject to both civil and criminal penalties. Additionally, OSHA approves and monitors state safety and health programs. Diff: 2 Skill: Legal Concepts LO: 20.3 Describe employers' duty to provide safe working conditions under the Occupational Safety and Health Act. AACSB: Analytical thinking Classification: Concept 41) The FLSA applies to ________. A) state government employees B) federal government employees C) employees engaged in the production of goods for interstate commerce D) self-employed U.S. citizens Answer: C Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 42) The ________ forbids the use of oppressive child labor and makes it unlawful to ship goods produced by businesses that use oppressive child labor. A) OSHA B) ERISA C) FMLA D) FLSA Answer: D Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept
13 C..
43) Under limited exceptions approved by the U.S. Department of Labor, children under the age of 14 can be employed as ________. A) dishwashers B) child actors C) waiters or waitresses D) retail store clerks Answer: B Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 44) Which of the following is true of 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 under the age of 14 may work limited hours in nonhazardous jobs. D) Children may work in nonhazardous agricultural jobs, outside of school hours, with parental consent. Answer: D Diff: 2 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 45) Who among the following fall within the limited exceptions approved by the Department of Labor for child labor in the United States? A) children who work as retail store clerks B) children who work in fast-food restaurants C) children employed as actors and performers D) children employed at gasoline stations Answer: C Diff: 2 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept
14 C..
46) Which of the following is true of the federal minimum wage? A) An employer may not reduce the minimum wage by an amount equal to the reasonable cost of food provided to employees. B) It is set by Congress and can be changed. C) Apprentices cannot be paid less than the minimum wage. D) Employees who earn tips, such as waiters and waitresses, are not entitled to the minimum wage. Answer: B Diff: 2 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 47) Which of the following acts establishes the minimum wage and overtime pay requirements for workers in the United States? A) FLSA B) OSHA C) FMLA D) COBRA Answer: A Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 48) Which of the following is true of the minimum wage in the United States? A) A state can enact a law that sets the minimum wage higher than the federal minimum wage. B) A city cannot set a minimum wage higher than the federal minimum wage. C) A living wage law sets a lower minimum wage than the federal minimum wage. D) For a tipped employee, if an employee's tips and direct employer payment do not equal the federal minimum wage, the employer is not required to make up the difference. Answer: A Diff: 2 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept
15 C..
49) Overtime pay is ________ 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 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 50) Overtime pay is paid for each hour worked in excess of ________ hours in a week. A) 35 B) 40 C) 45 D) 50 Answer: B Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 51) If a wage employee works 50 hours one week and 30 hours the next week, for how many hours of overtime pay does the employer owe the employee? A) 0 B) 10 C) 40 D) 80 Answer: B Diff: 2 Skill: Factual Application LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Application of knowledge Classification: Application
16 C..
52) Who among the following is NOT exempt from the federal overtime pay requirement? A) Kelly, a district sales executive B) Angelica, a waitress C) Tsun, a software engineer D) Orlando, a college professor Answer: B Diff: 2 Skill: Factual Application LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Application of knowledge Classification: Application 53) Which of the following statements is true of exemptions from minimum wage and overtime pay requirements? A) Apprentices must be paid minimum wage. B) Learned professionals need not be paid overtime pay. 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 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 54) Helga works as a nurse in a private hospital. She is paid an hourly wage. Helga is typically required to work 40 hours per week, from 10 p.m. until 6 a.m. Monday through Friday. Due to the recent resignation of another nurse, Helga's supervisor has offered her the opportunity to work additional hours each week. Which of the following is true in terms of Helga's prospects for overtime pay? A) Helga cannot receive overtime pay, since federal law conclusively presumes that health care workers are paid on a salaried basis. B) Helga can receive overtime pay only if she works more than 60 hours per week, due to the federal overtime pay restrictions imposed on the health care sector. C) Helga cannot receive overtime pay, as federal law prohibits overtime pay for health care workers. D) Helga is entitled to overtime pay if she works the additional hours. Answer: D Diff: 2 Skill: Factual Application LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Application of knowledge Classification: Application 17 C..
55) The Fair Labor Standards Act (FLSA) is enforced by the ________. A) U.S. Department of Labor B) U.S. Department of Commerce C) U.S. Social Security Administration D) U.S. Federal Trade Commission Answer: A Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 56) The ________ Act forbids the use of oppressive child labor and makes it unlawful to ship goods produced by businesses that use oppressive child labor. A) Equal Employment Opportunity B) Fair Labor Standards C) Occupational Safety and Health D) No Child Left Behind Answer: B Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 57) Under the FLSA, an employer cannot require nonexempt employees to work more than 40 hours per week unless they are paid ________ of one-and-a-half times their regular pay for each hour worked in excess of 40 hours that week. A) bonuses B) stock options C) commissions D) overtime pay Answer: D Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept
18 C..
58) The ________ exemption is an exemption that applies to employees who will be paid by the client or customer, whose primary duty is making sales or obtaining orders or contracts for services, and who is customarily and regularly engaged away from the employer's place of business. A) independent contractor B) independent agent C) outside sales representative D) external sales agent Answer: C Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 59) Only private employers, and not governmental bodies, come under the purview of the FLSA. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 60) The FLSA makes it unlawful to ship goods produced by businesses that use oppressive child labor. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 61) According to the FLSA, children under the age of 14 are forbidden from working, including child actors. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept
19 C..
62) Private civil actions are permitted under the FLSA. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 63) Child actors and performers fall within an approved exception from the child labor restrictions of the FLSA. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 64) The U.S. Department of Labor permits employers to pay less than the minimum wage to students and apprentices. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 65) An employee who earns tips must be paid minimum wage by the employer, excluding the income from tips. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept
20 C..
66) States are allowed to enact minimum wage laws that set minimum wages higher than the federal level. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 67) Living wage laws are minimum wage laws enacted by cities. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 68) Overtime pay must always be set at twice the regular pay of an employee. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 69) Overtime pay is given to nonexempt employees who work more than 40 hours per week. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 70) Executives who are compensated on a salary basis and engage in management are exempt from overtime pay. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 21 C..
71) Administrative employees who do not do manual work are exempt from the federal overtime pay requirement. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 72) Senior professors and physicists in research laboratories are entitled to federal overtime pay. Answer: FALSE Diff: 1 Skill: Factual Application LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Application of knowledge Classification: Application 73) Software developers and other computer professionals cannot claim overtime pay. Answer: TRUE Diff: 1 Skill: Factual Application LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Application of knowledge Classification: Application 74) Describe the measures taken by the U.S. Department of Labor against oppressive child labor. Answer: The Fair Labor Standards Act (FLSA) 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, with limited exceptions approved by the Department of Labor, (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. Persons age 18 and older may work at any job, whether it is hazardous or not. Diff: 1 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept
22 C..
75) Outline the minimum wage requirement established by the Fair Labor Standards Act. How are wages paid to a tipped employee? Answer: The FLSA establishes minimum wage and overtime pay requirements for workers. The 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. Over half of the states have enacted minimum wage laws that set minimum wages at a rate higher than the federal rate. Some cities have enacted minimum wage requirements, usually called living wage laws, which also set higher minimum wage rates than the federal level. Diff: 2 Skill: Legal Concepts LO: 20.4 Describe the minimum wage, overtime pay, and other rules of the Fair Labor Standards Act. AACSB: Analytical thinking Classification: Concept 76) The ________ guarantees workers unpaid time off from work for family and medical emergencies. A) FLSA B) OSHA C) FMLA D) ERISA Answer: C Diff: 1 Skill: Legal Concepts LO: 20.5 Describe the protections afforded by the Family and Medical Leave Act. AACSB: Analytical thinking Classification: Concept 77) To be covered by the FMLA, an employee must ________. A) have worked for the employer for at least three years 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 physical injury or ailment Answer: B Diff: 1 Skill: Legal Concepts LO: 20.5 Describe the protections afforded by the Family and Medical Leave Act. AACSB: Analytical thinking Classification: Concept 23 C..
78) The ________ is a federal act that guarantees workers up to 12 weeks of unpaid leave in a 12-month period to attend to family and medical emergencies and other specified situations. A) Family and Medical Leave Act (FMLA) B) Consolidated Omnibus Budget Reconciliation Act (COBRA) C) Fair Labor Standards Act (FLSA) D) Employee Retirement Income Security Act (ERISA) Answer: A Diff: 1 Skill: Legal Concepts LO: 20.5 Describe the protections afforded by the Family and Medical Leave Act. AACSB: Analytical thinking Classification: Concept 79) The Family and Medical Leave Act (FMLA) applies ________ as well as federal, state, and local governments. A) to companies with 50 or more workers B) to companies with 15 or more workers C) to all companies which engage in interstate commerce D) to all healthcare organizations Answer: A Diff: 1 Skill: Legal Concepts LO: 20.5 Describe the protections afforded by the Family and Medical Leave Act. AACSB: Analytical thinking Classification: Concept 80) Which of these situations is NOT covered by the Family and Medical Leave Act (FMLA)? A) the birth of a child B) the adoption of a child C) care for a sibling with a serious health problem D) an employee's serious health condition that makes the employee unable to perform his or her duties Answer: C Diff: 1 Skill: Legal Concepts LO: 20.5 Describe the protections afforded by the Family and Medical Leave Act. AACSB: Analytical thinking Classification: Concept
24 C..
81) An eligible employee returning to work under the Family and Medical Leave Act (FMLA) ________. A) may be given an inferior position with slightly lower pay and benefits B) is entitled to the accrual of seniority during the leave period C) may be denied restoration if they were an hourly employee D) is not entitled to the accrual of seniority during the leave period Answer: D Diff: 1 Skill: Legal Concepts LO: 20.5 Describe the protections afforded by the Family and Medical Leave Act. AACSB: Analytical thinking Classification: Concept 82) The Fair Labor Standards Act (FLSA) guarantees workers unpaid time off from work for family and medical emergencies and other specified situations. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.5 Describe the protections afforded by the Family and Medical Leave Act. AACSB: Analytical thinking Classification: Concept 83) What is the Family and Medical Leave Act (FMLA)? How is an employee covered under it? Answer: In February 1993, Congress enacted the Family and Medical Leave Act (FMLA) for emergencies and other specified situations. The act, which applies to companies with 50 or more workers as well as federal, state, and local governments, covers about half of the nation's workforce. To be covered by the act, an employee must have worked for the employer for at least one year and must have performed more than 1,250 hours of service during the previous 12month period. Covered employers are required to provide up to 12 weeks of unpaid leave during any 12-month period due to the following: 1) The birth of and care for a child. 2) The placement of a child with an employee for adoption or foster care. 3) A serious health condition that makes the employee unable to perform his or her duties. 4) Care for a spouse, child, or parent with a serious health problem. Leave because of the birth of a child or the placement of a child for adoption or foster care cannot be taken intermittently unless the employer agrees to such arrangement. Other leaves may be taken on an intermittent basis. The employer may require medical proof of claimed serious health conditions. Diff: 2 Skill: Legal Concepts LO: 20.5 Describe the protections afforded by the Family and Medical Leave Act. AACSB: Analytical thinking Classification: Concept
25 C..
84) Which of the following is true of COBRA? A) Government employees are subject to parallel provisions found in the Public Health Service Act. B) Under most circumstances, COBRA coverage is available for 24 months after employment has ended. C) An employer is under no obligation to notify covered employees and their beneficiaries of their rights under COBRA. D) To continue coverage after employment has ended, a person need not pay the group rate premium. Answer: A Diff: 1 Skill: Legal Concepts LO: 20.6 Describe the protections afforded by the Consolidated Omnibus Budget Reconciliation Act. AACSB: Analytical thinking Classification: Concept 85) 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) FLSA B) FMLA C) ERISA D) COBRA Answer: D Diff: 1 Skill: Legal Concepts LO: 20.6 Describe the protections afforded by the Consolidated Omnibus Budget Reconciliation Act. AACSB: Analytical thinking Classification: Concept 86) The ________ permits employees and their beneficiaries to continue their group health insurance after the voluntary or involuntary termination of a worker's employment. A) Family and Medical Leave Act (FMLA) B) Consolidated Omnibus Budget Reconciliation Act (COBRA) C) Fair Labor Standards Act (FLSA) D) Employee Retirement Income Security Act (ERISA) Answer: B Diff: 1 Skill: Legal Concepts LO: 20.6 Describe the protections afforded by the Consolidated Omnibus Budget Reconciliation Act. AACSB: Analytical thinking Classification: Concept
26 C..
87) Which of the following statements is true with regards to the provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA)? A) Employers need not notify covered employees their rights under COBRA. B) To continue coverage, the former employer must continue to pay the required premium. C) COBRA coverage is usually available for 36 months after employment has ended. D) To continue coverage, the former employee must pay the required group rate premium. Answer: D Diff: 1 Skill: Legal Concepts LO: 20.6 Describe the protections afforded by the Consolidated Omnibus Budget Reconciliation Act. AACSB: Analytical thinking Classification: Concept 88) The Consolidated Omnibus Budget Reconciliation Act (COBRA) is an act designed to prevent fraud and other abuses associated with private pension funds. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.6 Describe the protections afforded by the Consolidated Omnibus Budget Reconciliation Act. AACSB: Analytical thinking Classification: Concept 89) What is COBRA, and what does it do? Answer: COBRA is the Consolidated Omnibus Budget Reconciliation Act. COBRA provides that an employee of a private employer—or the employee's beneficiaries—be offered the opportunity to continue group health insurance after the voluntary or involuntary termination of a worker's employment or the loss of coverage due to certain qualifying events defined in the law. The employer must notify covered employees and their beneficiaries of their rights under COBRA. To continue coverage, a person must pay the required group rate premium. Under most circumstances, COBRA coverage is available for 18 months after employment has ended. Diff: 2 Skill: Legal Concepts LO: 20.6 Describe the protections afforded by the Consolidated Omnibus Budget Reconciliation Act. AACSB: Analytical thinking Classification: Concept
27 C..
90) The ________ is a federal act designed to prevent fraud and other abuses associated with private pension funds. A) ERISA B) COBRA C) FLSA D) FMLA Answer: A Diff: 1 Skill: Legal Concepts LO: 20.7 Describe the protections afforded by the Employee Retirement Income Security Act. AACSB: Analytical thinking Classification: Concept 91) ________ occurs when an employee has a nonforfeitable right to receive pension benefits. A) Vesting B) Easement C) Anti-lapse D) Reconciliation Answer: A Diff: 1 Skill: Legal Concepts LO: 20.7 Describe the protections afforded by the Employee Retirement Income Security Act. AACSB: Analytical thinking Classification: Concept 92) Under ERISA, vesting occurs when an employee has a(n) ________ right to receive pension benefits. A) mutable B) reversible C) irreconcilable D) nonforfeitable Answer: D Diff: 1 Skill: Legal Concepts LO: 20.7 Describe the protections afforded by the Employee Retirement Income Security Act. AACSB: Analytical thinking Classification: Concept
28 C..
93) Which of the following statements is true with regards to the Employee Retirement Income Security Act (ERISA)? A) ERISA requires all employers to establish pension plans for their employees. B) ERISA subjects employers with pension plans to record-keeping, disclosure, fiduciary duty, and other requirements. C) ERISA was never designed to prevent fraud and other abuses associated with private pension funds. D) Federal, state, and local government pension funds are covered by ERISA. Answer: B Diff: 1 Skill: Legal Concepts LO: 20.7 Describe the protections afforded by the Employee Retirement Income Security Act. AACSB: Analytical thinking Classification: Concept 94) Which of the following statements is NOT true with regards to the Employee Retirement Income Security Act (ERISA)? A) ERISA is administered by the Department of Labor. B) ERISA requires that pension plans be in writing. C) ERISA requires that pension fund managers owe a fiduciary duty to act as a "prudent person" in managing the fund and investing its assets. D) ERISA requires that at least 15 percent of a pension fund's assets be invested in the securities of the sponsoring employer. Answer: D Diff: 1 Skill: Legal Concepts LO: 20.7 Describe the protections afforded by the Employee Retirement Income Security Act. AACSB: Analytical thinking Classification: Concept 95) The Employee Retirement Income Security Act (ERISA) is administered by the U.S. Department of Labor. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.7 Describe the protections afforded by the Employee Retirement Income Security Act. AACSB: Analytical thinking Classification: Concept 96) Vesting occurs when an employee has a nonforfeitable right to receive pension benefits. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 20.7 Describe the protections afforded by the Employee Retirement Income Security Act. AACSB: Analytical thinking Classification: Concept 29 C..
97) What is vesting? What is the difference between cliff vesting and gradual vesting? Answer: Vesting is that which occurs when an employee gets a nonforfeitable right to receive pension benefits. The Employee Retirement Income Security Act (ERISA) provides for the immediate vesting of each employee's own contributions to a pension plan. ERISA also requires employers' contributions to be either (1) totally vested after five years (cliff vesting) or (2) gradually vested over a seven-year period and completely vested after that time. Diff: 2 Skill: Legal Concepts LO: 20.7 Describe the protections afforded by the Employee Retirement Income Security Act. AACSB: Analytical thinking Classification: Concept 98) Under the ________ and state laws enacted to implement the program, employers are required to pay unemployment contributions (taxes). A) FLSA B) FMLA C) FUTA D) FICA Answer: C Diff: 1 Skill: Legal Concepts LO: 20.8 Describe unemployment compensation and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 99) To assist workers who are temporarily unemployed, the ________ requires employers to pay unemployment contributions. A) Federal Unemployment Tax Act B) Federal Insurance Contributions Act C) Fair Labor Standards Act (FLSA) D) Employee Retirement Income Security Act (ERISA) Answer: A Diff: 1 Skill: Legal Concepts LO: 20.8 Describe unemployment compensation and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept
30 C..
100) In 1935, Congress established a(n) ________ to assist workers who are temporarily unemployed. A) Social Security program B) supplemental nutrition program C) national recovery program D) unemployment compensation program Answer: D Diff: 1 Skill: Legal Concepts LO: 20.8 Describe unemployment compensation and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 101) Which of the following statements is true with regards to unemployment compensation programs? A) Employers are required to pay unemployment contributions (taxes). B) By law, the tax rate and unemployment wage level are not allowed to change. C) Employees pay matching unemployment taxes. D) The federal government administers unemployment compensation programs. Answer: A Diff: 1 Skill: Legal Concepts LO: 20.8 Describe unemployment compensation and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 102) Which of the following statements is NOT true with regards to unemployment compensation programs? A) Each state establishes its own eligibility requirements and the amount and duration of the benefits. B) To collect benefits, applicants must be unable to work. C) To collect benefits, applicants must be available for work and seeking employment. D) Workers who have been let go because of bad conduct are not eligible to receive unemployment benefits. Answer: B Diff: 1 Skill: Legal Concepts LO: 20.8 Describe unemployment compensation and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept
31 C..
103) Under the Federal Unemployment Tax Act (FUTA), employers are exempted from paying unemployment taxes. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.8 Describe unemployment compensation and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 104) Workers who quit work without just cause can claim unemployment benefits. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 20.8 Describe unemployment compensation and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 105) What is the purpose of unemployment compensation? Are all employees eligible for unemployment compensation? Answer: Unemployment compensation is a program that was established to assist workers who are temporarily unemployed. The Federal Unemployment Tax Act (FUTA) and state laws were enacted to implement the program to which employers are required to pay unemployment contributions (taxes). Not all employees are eligible for unemployment compensation. While each state establishes its own eligibility requirements, to collect benefits, applicants must be able to work and be available for work and seeking employment. Additionally, workers who have been let go because of bad conduct (e.g., illegal activity, drug use on the job) or who voluntarily quit work without just cause are not eligible to receive unemployment benefits. Diff: 2 Skill: Legal Concepts LO: 20.8 Describe unemployment compensation and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 106) Which of the following is NOT a Social Security benefit? A) retirement benefits B) disability benefits C) Medicare D) workers' compensation Answer: D Diff: 1 Skill: Legal Concepts LO: 20.9 Describe Social Security and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept
32 C..
107) Which of the following is true of Social Security? A) The Social Security system operates like a savings account. B) Current Social Security contributions are used to pay past and future Social Security claims. C) An employee must pay taxes into the Social Security fund, and the employee's employer must pay a matching amount. D) Self-employed individuals are exempt from making contributions to the Social Security system. Answer: C Diff: 2 Skill: Legal Concepts LO: 20.9 Describe Social Security and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 108) The ________ system was established to provide limited retirement and death benefits to covered employees and their dependents. A) Supplemental Nutrition B) Social Security C) Employee Retirement Income Security D) Federal Unemployment Compensation Answer: B Diff: 1 Skill: Legal Concepts LO: 20.9 Describe Social Security and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 109) Under the ________, employees must make contributions (i.e., pay taxes) into the Social Security fund. A) Federal Unemployment Tax Act B) Federal Insurance Contributions Act C) Fair Labor Standards Act (FLSA) D) Employee Retirement Income Security Act (ERISA) Answer: B Diff: 1 Skill: Legal Concepts LO: 20.9 Describe Social Security and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept
33 C..
110) Self-employed individuals are required to pay Social Security contributions under the ________ Act. A) Federal Unemployment Tax B) Federal Insurance Contributions C) Self-Employment Contributions D) Employee Retirement Income Security Answer: C Diff: 1 Skill: Legal Concepts LO: 20.9 Describe Social Security and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 111) Under the Federal Insurance Contributions Act (FICA) payments into the Social Security fund are ________. A) solely the responsibility of the employee B) jointly the responsibility of the employee and the employer, who each transmit payments C) only made by self-employed individuals D) the responsibility of the employer, who deducts the employees' portions from their wages and remits those, along with the employer's matching payment, to the federal government Answer: D Diff: 1 Skill: Legal Concepts LO: 20.9 Describe Social Security and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 112) 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 federal government. 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. Failure to submit Social Security taxes subjects the violator to interest payments, penalties, and possible criminal liability. Social Security taxes may be changed by an act of Congress. Diff: 2 Skill: Legal Concepts LO: 20.9 Describe Social Security and how persons qualify for benefits. AACSB: Analytical thinking Classification: Concept 34 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 21 Labor Law and Immigration 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 (CIO) B) American Federation of Labor (AFL) C) National Labor Relations Board (NLRB) D) International Labor Organization (ILO) Answer: B Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 2) Only ________ workers were allowed to belong to the American Federation of Labor. A) skilled craft B) unskilled C) literate D) illiterate Answer: A Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 3) In 1935, the ________ was formed, which permitted semiskilled and unskilled workers to be its members. A) International Labor Organization (ILO) B) Congress of Industrial Organizations (CIO) C) National Labor Relations Board (NLRB) D) American Federation of Labor (AFL) Answer: B Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept
1 C..
4) Which of the following is provided by the National Labor Relations Act of 1935? A) regulation of the internal affairs of each union B) employee representation according to their sectors of employment C) collective bargaining with employers D) equal representation for every union member Answer: C Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 5) 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 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 6) 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 prior to a union election. C) It provides for the equal representation of skilled and unskilled workers. D) It gives the president of the United States the right to seek an injunction against a strike. Answer: B Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept
2 C..
7) 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 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 8) Which of the following federal statutes that regulate labor-management relationships covers airline carriers? A) Norris-LaGuardia Act B) National Labor Relations Act C) Railway Labor Act D) Landrum-Griffin Act Answer: C Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 9) 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) USCIS B) NLRB C) AFL D) CIO Answer: B Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept
3 C..
10) The ________ 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. A) Norris-LaGuardia Act B) Labor Management Relations Act C) Railway Labor Act D) Landrum-Griffin Act Answer: B Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 11) When the American Federation of Labor (AFL) was formed in 1886, ________ were allowed to belong. A) only unskilled factory workers B) only skilled craft workers C) only semiskilled and unskilled workers D) all workers Answer: B Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 12) When the Congress of Industrial Organizations (CIO) was formed in 1935, it permitted ________ to be its members. A) only unskilled factory workers B) only skilled craft workers C) semiskilled and unskilled workers D) all workers Answer: C Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept
4 C..
13) Enacted in 1932, the ________ is a federal statute which stipulates that it is legal for employees to organize. A) Norris-LaGuardia Act B) Labor Management Relations Act C) Railway Labor Act D) Landrum-Griffin Act Answer: A Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 14) In the United States, labor unions have the right to engage ________ in support of their positions. A) in picketing B) in violent protests C) in sabotage D) in trespassing Answer: A Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 15) At its founding, only skilled craft workers such as ________ were allowed to belong to the American Federation of Labor. A) automobile assembly plant workers B) silversmiths and artisans C) accountants and lawyers D) fire fighters and teachers Answer: B Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept
5 C..
16) The Norris-LaGuardia Act is a federal statute which stipulates that it is ________ for employees to organize. A) illegal B) unwise C) not economically prudent D) legal Answer: D Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 17) The Taft-Hartley Act gives the ________ the right to seek an injunction against a strike that would create a national emergency. A) CEO of the company struck B) U.S. Attorney General C) President of the United States D) Chairman of the SEC Answer: C Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 18) The NLRB oversees union elections and prevents employers and unions from engaging in ________. A) illegal and unfair labor practices B) political campaigns C) securities fraud D) collusion Answer: A Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 19) Labor unions use the approach of individual bargaining with employers to obtain better working conditions. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 6 C..
20) Unskilled and semiskilled workers did not qualify as members of the CIO. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 21) Individual unions are not allowed to join AFL-CIO; the members need to be individual employees. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 22) The National Labor Relations Act (NLRA) 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 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 23) 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 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept
7 C..
24) List the major federal statutes that regulate the labor-management relationship, along with their respective provisions. Answer: The following are the major federal statutes that regulate labor-management relationships: 1) Norris-LaGuardia Act: Enacted in 1932, the Norris-LaGuardia Act stipulates that it is legal for employees to organize. 2) National Labor Relations Act (NLRA): The NLRA 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: This 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, and (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: This act regulates internal union affairs and establishes the rights of union members. 5) Railway Labor Act: The Railway Labor Act covers employees of railroad and airline carriers. These federal statutes, rules and regulations adopted pursuant to these statutes, and court decisions interpreting and applying the statutes and rules and regulations are collectively referred to as labor law. Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept 25) Provide a brief history of organized labor in the United States. Answer: The American Federation of Labor (AFL) was formed in 1886. Only skilled craft workers such as silversmiths and artisans were permitted to belong. In 1935, the Congress of Industrial Organizations (CIO) was formed. The CIO permitted semiskilled and unskilled workers to become members. In 1955, the AFL and CIO combined to form the AFL-CIO. Individual unions (e.g., United Auto Workers, United Steel Workers) may choose to belong to the AFL-CIO, but not all unions opt to join. During the 1930s, federal statutes were enacted that gave workers certain rights and protections. Since then, these statutes have been amended and other statutes have been added that protect workers' rights to form and join labor unions and bargain with employers for employment benefits and protections. Many workers in the United States currently belong to labor unions. Today, approximately 11 percent of wage and salary workers in the United States belong to labor unions. Less than six percent of private-sector employees belong to unions, with the largest unionized occupations being in transportation, construction, and utilities. Diff: 1 Skill: Legal Concepts LO: 21.1 List and describe federal labor law statutes. AACSB: Analytical thinking Classification: Concept
8 C..
26) A group of employees that a union is seeking to represent is known as a(n) ________ unit. A) combined conciliation B) appropriate mediation C) collective negotiation D) appropriate bargaining Answer: D Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 27) Which of the following gives employees the right to join together to form a union? A) The Wagner Act B) Section 3 of the Landrum-Griffin Act C) Section 7 of the NLRA D) Section 1 of the Taft-Hartley Act Answer: C Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 28) The ________ is required to supervise all contested union elections. A) Congress of Industrial Organizations (CIO) B) American Federation of Labor (AFL) C) National Labor Relations Board (NLRB) D) Election Assistance Commission (EAC) Answer: C Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 29) A ________ union election can be held without NLRB supervision. A) dissent B) consent C) decertification D) conditional Answer: B Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 9 C..
30) M'ore Mining Company's employees want a union to represent their rights. All of the employees live in company-owned employee housing adjacent to their place of work. In order for a union to be established, solicitation must be carried out by pro-union employees. Which of the following rules may assist those employees in their union solicitation efforts on M'ore Mining Company property? A) the incompatibility caveat B) the incontestability exclusion C) the inaccessibility exception D) the insubordination proviso Answer: C Diff: 2 Skill: Factual Application LO: 21.2 Describe how a union is organized. AACSB: Application of knowledge Classification: Application 31) If employees no longer want to be represented by a union, a ________ election is held. A) nonunionization B) disorganization C) right-to-work D) decertification Answer: D Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 32) Decertification elections must be supervised by the ________. A) Federal Election Commission (FEC) B) American Federation of Labor (AFL) C) National Labor Relations Board (NLRB) D) U.S. Election Assistance Commission (EAC) Answer: C Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept
10 C..
33) The group that a union is seeking to represent is called the ________ unit, and it must be defined before the union can petition for an election. A) targeted labor B) worker solidarity C) bargaining collective D) appropriate bargaining Answer: D Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 34) Which of the following is a provision of Section 8(a) of the NLRA? 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 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 35) ________ prohibits unions from engaging in unfair labor practices that interfere with a union election. A) The Wagner Act B) Section 7 of the NLRA C) Section 8(a) of the NLRA D) Section 8(b) of the NLRA Answer: D Diff: 2 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept
11 C..
36) An appropriate bargaining unit is a group of ________. A) company managers with whom a union seeks to negotiate B) employees that a union is seeking to represent C) union leaders skilled in conducting negotiations D) NLRB arbitrators who can settle disputes Answer: B Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 37) An appropriate bargaining unit ________ consist of employees from a single company. A) need not B) must C) cannot D) is required by statute to Answer: A Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 38) Managers and professional employees cannot belong to unions formed by ________. A) other managers and professional employees B) judicial mandate C) public employee unions D) employees they manage Answer: D Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept
12 C..
39) To certify a union, more than ________ of the employees must vote for establishing the union. A) 500 B) 50 percent C) two-thirds D) 35 percent Answer: B Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 40) A decertification election is held when ________. A) an employer does not want to deal with multiple unions B) a union no longer wants to represent certain workers C) employees no longer want to be represented by a union D) the NLRB seeks to expel a union from a company Answer: C Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 41) An employer ________ from union solicitation on company premises. A) is permitted to bar off-duty employees B) is permitted to bar all employees C) cannot bar off-duty employees D) must seek an order from the NLRB to bar off-duty employees Answer: A Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept
13 C..
42) The inaccessibility exception is a rule that permits employees and union officials to engage in union solicitation ________ if the employees are beyond the reach of reasonable union efforts to communicate with them. A) immediately adjacent to company property B) on company property C) via social media D) at workers' homes Answer: B Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 43) Section 8(a) of the NLRA makes it ________ for an employer to interfere with, coerce, or restrain employees from exercising their statutory right to form and join unions. A) permissible B) a criminal offense C) easy D) an unfair labor practice Answer: D Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 44) An employer threatening to close a factory because the employees are in the process of organizing a union is considered ________. A) an unfair labor practice B) a criminal offense C) a permissible negotiating tactic D) unethical, but not illegal Answer: A Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept
14 C..
45) If at least 25 percent of the employees in a bargaining unit sign consent cards indicating that they are interested in joining or forming a union, the National Labor Relations Board can be petitioned to investigate and to set an election date. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 46) Section 7 of the NLRA is a federal law that gives employers the right to terminate union practices detrimental to the organization. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 47) The NLRB is required to supervise all consent elections. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 48) Describe the process by which workers can elect to be represented by a union. Answer: To have a vote on whether to establish a union, union organizers attempt to obtain signatures of employees from the identified bargaining unit on consent cards indicating their interest in having an election on whether to establish a union. If at least 30 percent of the employees in a bargaining unit sign consent cards indicating that they are interested in joining or forming a union, the NLRB can be petitioned to investigate and to set an election date. In most of these situations, elections are contested by the employer. The NLRB is required to supervise all contested elections. A simple majority vote of employees (more than 50 percent) wins the election, and if this occurs, the union is certified. If 50 percent or fewer employees vote for the union, the union is not certified. If a majority of employees (more than 50 percent) sign the consent cards indicating their desire to form and join a union, the employer may agree not to contest the result and can recognize the union without a vote. In this case, the union is certified. If management still wants an election to be held, a consent election may be held without NLRB supervision. To certify the union, more than 50 percent of the employees must vote for establishing a union. Diff: 1 Skill: Legal Concepts LO: 21.2 Describe how a union is organized. AACSB: Analytical thinking Classification: Concept 15 C..
49) 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) litigation Answer: C Diff: 1 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 50) Which of the following is a compulsory subject during collective bargaining? A) health benefits B) closed shop recognition C) corporate reorganization D) workplace location Answer: A Diff: 1 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 51) 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 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept
16 C..
52) Which of the following is true of a union shop agreement? 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 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 53) 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 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 54) 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) closed shop D) open shop Answer: C Diff: 1 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept
17 C..
55) Wages, hours, and other terms and conditions of employment are ________ of collective bargaining. A) compulsory subjects B) alternative subjects C) permissive subjects D) conditional subjects Answer: A Diff: 1 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 56) The act of negotiating contract terms between an employer and the members of a union is known as ________. A) collective bargaining B) arbitration C) mediation D) meditation Answer: A Diff: 1 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 57) Closed shop security agreements are ________. A) legal throughout the United States B) illegal throughout the United States C) illegal in right-to-work states D) legal only in right-to-work states Answer: B Diff: 1 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 58) Wages, hours, and other terms and conditions of employment are permissive subjects of collective bargaining. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 18 C..
59) Under a closed shop agreement, an employer agrees to hire only employees who are already members of a union. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 60) Under an agency shop agreement, an employer may hire anyone whether he or she belongs to a union or not. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 61) Outline the act 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 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept
19 C..
62) Differentiate between a union shop agreement, an agency shop agreement and a closed shop agreement. Answer: Under a union shop agreement, an employer may hire anyone whether he or she belongs to a union or not. However, an employee must join the union within a certain time period (e.g., 30 days) after being hired. Union shops are lawful. Under an agency shop agreement, an employer may hire anyone whether he or she belongs to a union or not. After employees are hired, they do not have to join the union, but if they do not join, they must pay an agency fee to the union. This fee includes an amount to help pay for the costs of collective bargaining. A nonunion employee cannot be assessed fees for noncollective bargaining union activities, such as political campaigning and the like. The agency fee prevents the free rider problem that would occur if an employee did not have to pay union dues or their equivalent, but was the recipient of union collective bargaining activities. Agency shops are lawful. Under a closed shop agreement, an employer agrees to hire only employees who are already members. The employer cannot hire employees who are not members of a union. A closed shop agreement is illegal in the United States. Diff: 2 Skill: Legal Concepts LO: 21.3 Describe the process of collective bargaining. AACSB: Analytical thinking Classification: Concept 63) 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 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 64) Which of the following is an illegal strike? A) a sit-down strike at the employer's premises B) a work absence C) the cessation of work D) an employer lockout Answer: A Diff: 1 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 20 C..
65) 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 an indefinite cessation of work. Answer: C Diff: 2 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 66) 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 premises. A) strike B) picket C) employer lockout D) secondary boycott Answer: C Diff: 1 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 67) The laborers at Lillon Fabrics are paid on a daily-wage basis. When the employee union announces a strike that involves a cessation of work, one of the employees, Lina, is hesitant to participate in it 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 employees. B) Lina cannot be compelled by the union to participate in the strike. C) Lina's employer is obligated to pay her even if she ceases to work and joins the strike. D) Lina must find a replacement employee before joining the strike. Answer: B Diff: 2 Skill: Factual Application LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Application of knowledge Classification: Application
21 C..
68) Once a strike begins, the employer may continue operations by ________ to take the place of striking employees. A) hiring replacement workers B) hiring undocumented workers C) acquiring crossover workers D) acquiring wildcat strikers Answer: A Diff: 1 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 69) What legal course of action is available to a corporation if its employees go on strike without any notice? A) threaten the employees with plant closure if they continue to strike B) dissolve the union within the company C) dismiss the striking employees D) solicit on behalf of a second union to represent company employees Answer: C Diff: 2 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 70) It is illegal for a strike to take place in violation of a negotiated ________ clause. A) cooling-off B) no-strike C) prohibere D) mandatory arbitration Answer: B Diff: 1 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept
22 C..
71) Employees who choose not to strike or who return to work after joining the strikers for a period of time are known as ________ workers. A) crossover B) reversing C) transgressing D) replacement Answer: A Diff: 1 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 72) When individual union members go on strike without proper authorization from the union, it is referred to as a ________ strike. A) bobcat B) wildfire C) wildcat D) hotstove Answer: C Diff: 1 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 73) 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 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 74) Sit-down strikes are illegal. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept
23 C..
75) If an employer reasonably anticipates a strike by some of its employees, it may prevent those employees from entering the plant or premises. This is called an employer lockout. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 76) Employees who choose not to return to work after joining the strikers are known as crossover workers. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept 77) List and explain the types of strikes that are considered unlawful under federal labor 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 an 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. An employer can discharge illegal strikers, who then have no rights to reinstatement. Diff: 1 Skill: Legal Concepts LO: 21.4 Describe employees' right to strike and when strikes are illegal. AACSB: Analytical thinking Classification: Concept
24 C..
78) Strikers walking in front of their employer's premises while carrying signs announcing the strike is known as ________. A) occupying B) picketing C) locking out D) boycotting Answer: B Diff: 1 Skill: Legal Concepts LO: 21.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 79) 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 subject employer's product C) when picketing is carried out against a neutral employer D) when the employer institutes a "lockout" against the picketers Answer: A Diff: 2 Skill: Legal Concepts LO: 21.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 80) If union members picketing a restaurant block deliveries to and from the restaurant, this is ________ picketing. A) lawful B) illegal C) conditional D) absolute Answer: B Diff: 2 Skill: Legal Concepts LO: 21.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept
25 C..
81) 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 Skill: Legal Concepts LO: 21.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 82) The right to picket is implied from the ________ Act. A) Norris-LaGuardia B) Labor Management Relations C) Railway Labor D) National Labor Relations Answer: D Diff: 1 Skill: Legal Concepts LO: 21.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 83) ________ 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) Secondary boycott B) Supplier grievance C) Customer informational D) Derivative protest Answer: A Diff: 1 Skill: Legal Concepts LO: 21.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 84) Secondary boycott picketing is not lawful if it is against the primary employer's product. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 21.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept
26 C..
85) Picketing that prevents customers from entering the employer's place of business is illegal. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 21.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 86) 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 Skill: Legal Concepts LO: 21.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept 87) What is secondary boycott picketing? When is it legal, and when is it not? Answer: Unions sometimes try to bring pressure against an employer by picketing the employer's suppliers or customers. Such secondary boycott picketing is lawful only if it is product picketing (i.e., if the picketing is against the primary employer's product). For example, union members go on strike against their employer, an electronics manufacturer. The union members subsequently picket a big box electronics retail store that sells the manufacturer's products. They carry signs announcing their strike and request that customers of the big box electronics retail store not buy products manufactured by their employer. This is lawful secondary boycott picketing. On the other hand, secondary boycott picketing is illegal if it is directed against the neutral employer instead of the struck employer's product. For example, if the union members in the example above carried signs requesting that customers of the big box electronics retail stores not shop at the big box electronics retail store at all, this would be unlawful secondary boycott picketing. Diff: 2 Skill: Legal Concepts LO: 21.5 Describe employees' right to picket and when picketing is illegal. AACSB: Analytical thinking Classification: Concept
27 C..
88) 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 Skill: Legal Concepts LO: 21.6 Explain how labor's bill of rights affects internal union affairs. AACSB: Analytical thinking Classification: Concept 89) ________ Act, also known as labor's "bill of rights," gives each union member equal rights and privileges to nominate candidates for union office, vote in elections, and participate in membership meetings. A) The Norris-LaGuardia B) Section 14(b) of the Taft-Hartley C) Title I of the Landrum-Griffin D) Section 7 of the National Labor Relations Answer: C Diff: 1 Skill: Legal Concepts LO: 21.6 Explain how labor's bill of rights affects internal union affairs. AACSB: Analytical thinking Classification: Concept 90) The WARN Act is a federal law that requires employers with 100 or more employees to give their employees 60 days' notice before engaging in certain plant closings or layoffs. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 21.6 Explain how labor's bill of rights affects internal union affairs. AACSB: Analytical thinking Classification: Concept 91) A union is allowed to discipline members for working for wages below union scale. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 21.6 Explain how labor's bill of rights affects internal union affairs. AACSB: Analytical thinking Classification: Concept
28 C..
92) How does the Landrum-Griffin Act regulate the internal affairs of unions? Can unions discipline their members? Explain your response. 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 Skill: Legal Concepts LO: 21.6 Explain how labor's bill of rights affects internal union affairs. AACSB: Analytical thinking Classification: Concept 93) An ________ 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 Skill: Legal Concepts LO: 21.7 Describe immigration laws and foreign worker visas. AACSB: Analytical thinking Classification: Concept 94) Cliff Thomas, a cardiologist, emigrates from the United Kingdom to the United States. Under which of the following visa categories can his wife live in the United States as Dr. Thomas' dependent? A) H1 B) H4 C) H-1C D) H-1B Answer: B Diff: 2 Skill: Factual Application LO: 21.7 Describe immigration laws and foreign worker visas. AACSB: Application of knowledge Classification: Application
29 C..
95) 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 dependent family members to the United States. D) H4 visa holders are allowed to work for minimum wage or more in the United States. Answer: A Diff: 2 Skill: Legal Concepts LO: 21.7 Describe immigration laws and foreign worker visas. AACSB: Analytical thinking Classification: Concept 96) The ________ Act of 1986, which is administered by the USCIS, requires employers to verify whether prospective employees are either U.S. citizens or otherwise authorized to work in the country. A) Immigration Reform and Control B) USA Patriot C) Immigration D) Homeland Security Answer: A Diff: 1 Skill: Legal Concepts LO: 21.7 Describe immigration laws and foreign worker visas. AACSB: Analytical thinking Classification: Concept 97) The immigration laws of the United States are administered by the U.S. Citizenship and Immigration Services (USCIS). Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 21.7 Describe immigration laws and foreign worker visas. AACSB: Analytical thinking Classification: Concept 98) H-1B visa holders are allowed to bring their immediate family members to the United States under the H4 visa category. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 21.7 Describe immigration laws and foreign worker visas. AACSB: Analytical thinking Classification: Concept
30 C..
99) The EB-1 visa 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 Skill: Legal Concepts LO: 21.7 Describe immigration laws and foreign worker visas. AACSB: Analytical thinking Classification: Concept 100) 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. Employers must file for the visa for workers in categories (2) and (3), while applicants in category (1) can file for the visa themselves. Fewer than 50,000 EB-1 visas are granted each year. The U.S. Citizenship and Immigration Services determines EB-1 eligibility. Persons who are granted an EB-1 visa may become U.S. citizens, usually in five years. Diff: 1 Skill: Legal Concepts LO: 21.7 Describe immigration laws and foreign worker visas. AACSB: Analytical thinking Classification: Concept
31 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 22 Antitrust Law and Unfair Trade Practices 1) ________ laws 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 B) Antitrust C) Laissez-faire D) Canon Answer: B Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes 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) Private parties cannot intervene in public antitrust actions brought by the government. 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 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes 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 Act Answer: D Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept
1 C..
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 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes 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 Act Answer: D Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes 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 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 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept
2 C..
7) ________ damages are the only damages that may be recovered for violations of the Federal Trade Commission (FTC) Act. A) Treble B) Double C) Potential D) Actual Answer: D Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 8) 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 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 9) 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 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept
3 C..
10) Federal antitrust law comprises ________ major statute(s) that prohibit certain anticompetitive and monopolistic practices. A) one B) two C) several D) hundreds of Answer: C Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 11) The Clayton Act is a federal statute, enacted in 1914, that regulates ________ and prohibits certain exclusive dealing arrangements. A) mergers B) securities C) international trade D) tariffs Answer: A Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 12) Under ________ of the Clayton Act, any person who suffers antitrust injury in his or her business or property can bring a private civil action against the offenders. A) Article 3 B) Section 4 C) Title IX D) Section 8 Answer: B Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept
4 C..
13) Government enforcement of federal antitrust laws is divided between ________. A) the Antitrust Division of the U.S. Department of Justice and the Bureau of Competition of the Federal Trade Commission B) the Enforcement Division of the Securities and Exchange Commission and the Federal Bureau of Investigation of the U.S. Department of Justice C) the Office of Inspector General of the U.S. Department of Commerce and the U.S. Secret Service of the U.S. Department of Homeland Security D) the Bureau of Competition of the U.S. Department of Justice and the Antitrust Division of the Federal Trade Commission Answer: A Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 14) Antitrust defendants often opt to settle government-brought antitrust actions by entering a plea of ________. A) guilty B) not guilty C) nolo contendere D) corpus juris secundum Answer: C Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 15) The antitrust laws were enacted to promote anticompetitive behavior in commerce and industry. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept
5 C..
16) Federal antitrust laws provide only for government lawsuits. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 17) The Clayton Act, enacted in 1914, regulates mergers and prohibits certain exclusive dealing arrangements. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 18) The Robinson-Patman Act is a federal statute that makes it mandatory to provide a notification prior to a merger. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 19) The Sherman Act is the only major antitrust act that includes criminal sanctions. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 20) Treble damages cannot be sought for the violation of antitrust laws. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 6 C..
21) Private parties cannot intervene in public antitrust actions brought by the government. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 22) The Federal Trade Commission (FTC) Act can be used to recover treble damages. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 23) Name the four major antitrust laws enacted by Congress in the late 1800s and early 1900s. Answer: In the late 1800s and early 1900s, Congress enacted four major federal antitrust statutes aimed at curbing abusive and monopoly practices by business, specifically: The Sherman Antitrust Act (or Sherman Act), enacted in 1890, makes certain restraints of trade and monopolistic acts illegal. The Clayton Antitrust Act (or Clayton Act), enacted in 1914, regulates mergers and prohibits certain exclusive dealing arrangements. The Federal Trade Commission Act (FTC Act), enacted in 1914, prohibits unfair methods of competition. The Robinson-Patman Act, enacted in 1930, prohibits price discrimination. Diff: 1 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 24) Describe the effect of a government judgment against a defendant in an antitrust case. Answer: A government judgment obtained against a defendant for an antitrust violation may be used as prima facie evidence of liability in a private civil treble-damages action. As a result, antitrust defendants often opt to settle government-brought antitrust actions by entering a plea of nolo contendere in a criminal action or a consent decree in a government civil action. These pleas usually subject the defendant to penalty without an admission of guilt or liability. Diff: 2 Skill: Legal Concepts LO: 22.1 List and describe the major federal antitrust statutes and the enforcement of federal antitrust laws. AACSB: Analytical thinking Classification: Concept 7 C..
25) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 26) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 27) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
8 C..
28) Which of the following is true of the per se rule in restraint of trade? A) It fails to permit any defenses and justifications to save the restraint of trade. B) It applies only to restraints that are found to be unreasonable with certain evidentiary standards being met. C) It applies to restraints that are based primarily on the firm's market share and power. D) It requires a balancing of the positive and negative effects of the challenged restraint. Answer: A Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 29) 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 relevant factors Answer: D Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 30) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
9 C..
31) 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 the ________. 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 Skill: Factual Application LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Application of knowledge Classification: Application 32) Which of the following is true of price fixing? A) It is a reasonable violation of Section 1 of the Sherman Act. B) It is a process seen exclusively among sellers of goods and services. C) It is permissible as it helps consumers or protects competitors from ruinous competition. D) It includes fixing the quantity of a product or service to be produced or provided. Answer: D Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 33) ________ 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) Gain sharing Answer: C Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
10 C..
34) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 35) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 36) Which of the following is an example of a horizontal restraint of trade? A) resale price maintenance B) division of markets C) unilateral refusal to deal D) conscious parallelism Answer: B Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
11 C..
37) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 38) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 39) Restraints of trade that are unlawful under Section 1 of the Sherman Act only if their anticompetitive effects outweigh their procompetitive effects are known as ________. A) nonprice vertical restraints B) group boycotts C) division of markets D) the setting of minimum resale prices Answer: A Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
12 C..
40) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 41) ________ occurs when an independent choice is made by one party not to deal with another party. A) A non-price vertical restraint B) A monopoly to deal C) A unilateral refusal to deal D) Conscious parallelism Answer: C Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 42) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
13 C..
43) Conscious parallelism occurs 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 its procompetitive effects Answer: C Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 44) ________ 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) The Noerr doctrine B) The Colgate doctrine C) Nolo contendere D) The de minimis exemption Answer: A Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 45) Which of the following is the rationale behind the Noerr doctrine? A) state statutory law B) the Uniform Commercial Code (UCC) C) Article I of the U.S. Constitution D) the Bill of Rights Answer: D Diff: 2 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
14 C..
46) The per se rule is applicable to restraints of trade considered ________ anticompetitive. Once this determination is made about a restraint of trade, the court will not permit any defenses or justifications to save it. A) inherently B) arguably C) probably D) unlikely to be Answer: A Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 47) Contracts, combinations, and conspiracies in restraint of trade are outlawed by Section 1 of the ________ Act. A) Clayton B) Hart-Scott-Rodino C) Robinson-Patman D) Sherman Answer: D Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 48) Price fixing is a per se violation of Section 1 of the ________ Act. A) Clayton B) Sherman C) Hart-Scott-Rodino D) Robinson-Patman Answer: B Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
15 C..
49) Resale price maintenance occurs when a party at one level of distribution enters into an agreement with a party at another level to adhere to a schedule that ________ prices. A) suggests B) makes no reference to C) allows flexible D) either sets or stabilizes Answer: D Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 50) The legality of ________ under Section 1 of the Sherman Act is examined by using the rule of reason. A) division of markets B) nonprice vertical restraints of trade C) price fixing D) market sharing Answer: B Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 51) The ________ doctrine states that a firm can unilaterally choose not to deal with another party without being liable under Section 1 of the Sherman Act. A) Colgate B) Noerr C) Walmart D) Kresse Answer: A Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
16 C..
52) If two competing manufacturers of a similar product both separately reach an independent decision not to deal with a retailer, ________ is said to have occurred, which is not a violation of Section 1 of the Sherman Act. A) meeting of the minds B) mental synergy C) conscious parallelism D) a Noerr situation Answer: C Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 53) The Noerr doctrine holds that two or more persons may ________ the executive, legislative, or judicial branch of the government or administrative agencies to enact laws or to take other action without violating antitrust laws. A) petition B) sue C) be prosecuted by D) conspire against Answer: A Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 54) Group boycotts can be either a ________ violation or a ________ violation. A) literal; figurative B) per se; rule of reason C) price fixing; restraint of trade D) civil; criminal Answer: B Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
17 C..
55) Division of markets is considered to be a type of ________. A) horizontal restraint of trade B) vertical restraint of trade C) group boycott D) price fixing Answer: A Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 56) Conscious parallelism occurs if two competing manufacturers of a similar product ________ not deal with a retailer. A) both conspire to B) both organize a boycott to C) both collude to D) separately reach an independent decision to Answer: D Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 57) The per se rule is applicable to restraints of trade that are considered inherently anticompetitive. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 58) Restraints that are not characterized as per se violations are not further examined using the rule of reason. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
18 C..
59) Price fixing is a rule of reason violation of Section 1 of the Sherman Act. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 60) Only price fixing conducted by sellers is considered a violation of Section 1 of the Sherman Act. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 61) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 62) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 63) The setting of minimum resale prices is a rule of reason violation of Section 1 of the Sherman Act. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
19 C..
64) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 65) 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 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 66) The Noerr doctrine holds that two or more persons may petition the government to enact laws or take other action without violating antitrust laws. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 67) 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. For example, General Motors and Ford collectively petition Congress to pass a law that would limit the importation of foreign automobiles into the United States. This is lawful activity under the Noerr doctrine. Diff: 1 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
20 C..
68) Briefly explain the "rule of reason" and list factors that a court will examine when conducting a rule of reason analysis in a Sherman Act Section 1 case. Answer: The rule of reason holds that only unreasonable restraints of trade violate Section 1 of the Sherman Act. Reasonable restraints are lawful. The courts examine the following factors in applying the rule of reason to a case: • The pro- and anticompetitive effects of the challenged restraint; • The competitive structure of the industry; • The firm's market share and power; • The history and duration of the restraint; and, • Other relevant factors. Diff: 2 Skill: Legal Concepts LO: 22.2 Describe the restraints of trade that violate Section 1 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 69) Monopoly power is characterized by ________. A) market share above 50 percent in the relevant market B) market share above 60 percent in the non-relevant market C) market share above 70 percent in the relevant market D) market share above 80 percent in the non-relevant market Answer: C Diff: 1 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 70) Which of the following is a defense to a charge of monopoly? A) horizontal price fixing B) natural monopoly C) the setting of minimum resale prices D) market sharing Answer: B Diff: 1 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
21 C..
71) 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 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 72) The power of a firm to control prices or exclude competition, measured by the market share the defendant possesses in the relevant market, is known as ________. A) monopoly power B) political power C) naked capitalism D) optimal free market power Answer: A Diff: 1 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 73) Predatory pricing, which is used to drive out competition, is in violation of ________ Act. A) Article 7 of the Clayton B) Section 2 of the Sherman C) Title I of the Hart-Scott-Rodino D) Section 8 of the Robinson-Patman Answer: B Diff: 1 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
22 C..
74) Natural monopoly is a defense to a charge of ________ which recognizes that a small market can support only one competitor, such as a small-town newspaper. A) conspiracy B) monopolizing C) price fixing D) obstruction of justice Answer: B Diff: 1 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 75) ________ prohibits the act of monopolization. A) Article 7 of the Clayton Act B) Section 2 of the Sherman Act C) Title II of the Emmanuel-Lewis-Webster Act D) Section 8 of the Robinson-Patman Answer: B Diff: 1 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 76) The relevant product or service market generally includes ________ products or services. A) sample B) supplementary C) substitute D) unrelated Answer: C Diff: 1 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 77) The relevant geographical market is always considered statewide. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept
23 C..
78) Predatory pricing has been held to violate Section 2 of the Sherman Act. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 79) Natural monopolies are found to violate Section 2 of the Sherman Act. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 80) 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 Skill: Legal Concepts LO: 22.3 Identify acts of monopolization that violate Section 2 of the Sherman Act. AACSB: Analytical thinking Classification: Concept 81) A merger between two or more companies that compete in the same business and geographical market is known as ________. A) a horizontal merger B) a vertical merger C) a unilateral refusal to deal D) conscious parallelism Answer: A Diff: 1 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept
24 C..
82) 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 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 83) 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 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 84) 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 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept
25 C..
85) ________ 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 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 86) Which of the following is considered a primary defense against Section 7 of the Clayton Act? A) the Noerr doctrine B) the Colgate doctrine C) the failing company doctrine D) conscious parallelism Answer: C Diff: 1 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 87) The ________ 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 30-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 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept
26 C..
88) The ________ Act, enacted in 1950, widened the scope of Section 7 of the Clayton Act to include asset acquisitions. A) Celler-Kefauver B) Clayton C) Robinson-Patman D) Sherman-Helmsley Answer: A Diff: 1 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 89) Mergers between firms ________ are known as conglomerate mergers. A) which are competitors B) in similar industries C) which are upstream/downstream from each other in a supply chain D) in unrelated businesses Answer: D Diff: 1 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 90) The merger of two grocery store chains that serve the same geographical market is an example of a horizontal merger. Answer: TRUE Diff: 1 Skill: Factual Application LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Application of knowledge Classification: Application 91) Vertical mergers create an increase in market share because the merging firms serve similar markets. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 27 C..
92) The unfair advantage theory is intended to prevent wealthy companies from overwhelming the competition in a given market. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 93) 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 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 94) 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 30day waiting period begins (15 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 30 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 Skill: Legal Concepts LO: 22.4 Explain how the lawfulness of mergers is examined under Section 7 of the Clayton Act. AACSB: Analytical thinking Classification: Concept
28 C..
95) ________ 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) A tying arrangement B) Predatory pricing C) Price fixing D) A group boycott Answer: A Diff: 1 Skill: Legal Concepts LO: 22.5 Describe tying arrangements that violate Section 3 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 96) ________ are vertical trade restraints that involve the seller's refusal to sell a particular product to a customer unless the customer purchases a second product. A) Bundling B) Tying arrangements C) Predatory selling D) Noerr violations Answer: B Diff: 1 Skill: Legal Concepts LO: 22.5 Describe tying arrangements that violate Section 3 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 97) Section 1 of the Sherman Act allows for intangible properties to be sold in tying arrangements. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.5 Describe tying arrangements that violate Section 3 of the Clayton Act. AACSB: Analytical thinking Classification: Concept
29 C..
98) Briefly describe a "tying arrangement." Which antitrust statutes do tying arrangements potentially violate, and what must be shown to establish the violation? Answer: Tying arrangements are vertical trade restraints that involve the seller's refusal to sell a product (the tying item) to a customer unless the customer purchases a second product (the tied item). Section 3 of the Clayton Act prohibits tying arrangements that involve sales and leases of goods (tangible personal property). Section 1 of the Sherman Act (restraints of trade) forbids tying arrangements involving goods, services, intangible property, and real property. The defendant must be shown to have had sufficient economic power in the tying product market to restrain competition in the tied product market. Diff: 2 Skill: Legal Concepts LO: 22.5 Describe tying arrangements that violate Section 3 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 99) The ________ is a defense in a Section 2(a) action 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 Skill: Legal Concepts LO: 22.6 List and describe the types of price discrimination that violate Section 2 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 100) The Robinson-Patman Act is a federal statute, enacted in 1930, that ________ price discrimination. A) prohibits B) encourages C) repeals D) enhances Answer: A Diff: 1 Skill: Legal Concepts LO: 22.6 List and describe the types of price discrimination that violate Section 2 of the Clayton Act. AACSB: Analytical thinking Classification: Concept
30 C..
101) It is necessary to prove actual injury in order for a plaintiff to recover in a price discrimination lawsuit. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 22.6 List and describe the types of price discrimination that violate Section 2 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 102) 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 Skill: Legal Concepts LO: 22.6 List and describe the types of price discrimination that violate Section 2 of the Clayton Act. AACSB: Analytical thinking Classification: Concept 103) The Federal Trade Commission (FTC) and the Department of Justice share the power to enforce the FTC Act. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.7 Describe antitrust acts and unfair methods of competition that violate Section 5 of the Federal Trade Commission Act. AACSB: Analytical thinking Classification: Concept 104) Treble damages are allowed for violations of the Federal Trade Commission (FTC) Act. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.7 Describe antitrust acts and unfair methods of competition that violate Section 5 of the Federal Trade Commission Act. AACSB: Analytical thinking Classification: Concept 31 C..
105) Explain why Section 5 of the Federal Trade Commission Act is considered to be broader than the other antitrust laws. What agency is empowered to enforce this Act, and what has the Act enabled it to do? Answer: Section 5 of the Federal Trade Commission Act prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce. Section 5 is considered to be broader than the other antitrust laws because it covers conduct that (1) violates any provision of the Sherman Act or the Clayton Act, (2) violates the "spirit" of those acts, (3) fills the gaps of those acts, and (4) offends public policy; is immoral, oppressive, unscrupulous, or unethical; or causes substantial injury to competitors or consumers. The Federal Trade Commission (FTC) is exclusively empowered to enforce the Federal Trade Commission Act. The FTC can issue interpretive rules, general statements of policy, trade regulation rules, and guidelines that define unfair or deceptive practices; the FTC can conduct investigations of suspected antitrust violations. The FTC can also issue cease-and-desist orders against violators; these orders are appealable to federal court. Diff: 2 Skill: Legal Concepts LO: 22.7 Describe antitrust acts and unfair methods of competition that violate Section 5 of the Federal Trade Commission Act. AACSB: Analytical thinking Classification: Concept 106) Which of the following businesses or activities enjoy a statutory exemption from antitrust laws? A) airlines B) professional baseball C) agricultural cooperatives D) all professional sports and games Answer: C Diff: 1 Skill: Legal Concepts LO: 22.8 List and describe express and implied exemptions from antitrust laws. AACSB: Analytical thinking Classification: Concept 107) Which of the following businesses or activities enjoys an implied exemption from antitrust laws? A) railroads B) agricultural cooperatives C) airlines D) labor unions Answer: C Diff: 1 Skill: Legal Concepts LO: 22.8 List and describe express and implied exemptions from antitrust laws. AACSB: Analytical thinking Classification: Concept 32 C..
108) The exemption of railroads from antitrust laws is an example of a(n) ________ exemption. A) statutory B) implied C) deliberate D) Erin Answer: D Diff: 1 Skill: Legal Concepts LO: 22.8 List and describe express and implied exemptions from antitrust laws. AACSB: Analytical thinking Classification: Concept 109) Insurance business that is regulated by a state enjoys a statutory exemption from federal antitrust laws. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 22.8 List and describe express and implied exemptions from antitrust laws. AACSB: Analytical thinking Classification: Concept 110) The U.S. Supreme Court has held that professionals such as lawyers do not qualify for an implied exemption from federal antitrust laws. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 22.8 List and describe express and implied exemptions from antitrust laws. AACSB: Analytical thinking Classification: Concept 111) States lack the power to enact antitrust statutes autonomously. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 22.9 Describe the scope of state antitrust laws. AACSB: Analytical thinking Classification: Concept
33 C..
112) 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 applied loosely, plaintiffs often bring lawsuits under state antitrust laws. Diff: 1 Skill: Legal Concepts LO: 22.9 Describe the scope of state antitrust laws. AACSB: Analytical thinking Classification: Concept
34 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 23 Consumer Protection 1) ________ laws are federal and state statutes and regulations that promote product safety and prohibit abusive, unfair, and deceptive business practices. A) Profit-à-prendre B) Canon C) Consumer protection D) Caveat emptor Answer: C Diff: 1 Skill: Legal Concepts LO: 23.1 Describe government regulation of meat, poultry, and egg products by the U.S. Department of Agriculture. 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 Skill: Legal Concepts LO: 23.1 Describe government regulation of meat, poultry, and egg products by the U.S. Department of Agriculture. AACSB: Analytical thinking Classification: Concept
1 C..
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 facility failed to meet numerous safety standards, encountered rodent infestation, 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 Skill: Factual Application LO: 23.1 Describe government regulation of meat, poultry, and egg products by the U.S. Department of Agriculture. 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 led 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 Skill: Factual Application LO: 23.1 Describe government regulation of meat, poultry, and egg products by the U.S. Department of Agriculture. AACSB: Application of knowledge Classification: Application
2 C..
5) In the United States, the U.S. Department of Agriculture (USDA) is the federal administrative agency that is primarily responsible for regulating ________. A) meat, poultry, and other food products B) cosmetics C) prescription drugs D) children's toys Answer: A Diff: 1 Skill: Legal Concepts LO: 23.1 Describe government regulation of meat, poultry, and egg products by the U.S. Department of Agriculture. AACSB: Analytical thinking Classification: Concept 6) 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 Skill: Legal Concepts LO: 23.1 Describe government regulation of meat, poultry, and egg products by the U.S. Department of Agriculture. AACSB: Analytical thinking Classification: Concept 7) The U.S. Food and Drug Administration promotes the principle of caveat emptor in sales transactions involving food and drugs. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.1 Describe government regulation of meat, poultry, and egg products by the U.S. Department of Agriculture. AACSB: Analytical thinking Classification: Concept 8) 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 Skill: Legal Concepts LO: 23.1 Describe government regulation of meat, poultry, and egg products by the U.S. Department of Agriculture. AACSB: Analytical thinking Classification: Concept 3 C..
9) Sellers of raw fruits and vegetables can adopt a voluntary approach when it comes to labeling requirements. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 23.1 Describe government regulation of meat, poultry, and egg products by the U.S. Department of Agriculture. AACSB: Analytical thinking Classification: Concept 10) What are the three major federal statutes for regulating meat, poultry, and eggs? What federal department has the authority to act under these laws and promulgate regulations to enforce these statutes? Answer: The Federal Meat Inspection Acts require the U.S. Department of Agriculture (USDA) to inspect all cattle, sheep, swine, goats, and horses to be slaughtered and processed into products for human consumption. The Poultry Products Inspection Acts require the USDA to inspect any domesticated birds intended for human food, including chickens, turkeys, ducks, geese, squabs, and other birds. The Egg Products Inspection Act requires the USDA to inspect plants that produce shell eggs and egg products for human consumption. The USDA has authority to adopt and implement regulations to enforce these statutes. Diff: 2 Skill: Legal Concepts LO: 23.1 Describe government regulation of meat, poultry, and egg products by the U.S. Department of Agriculture. AACSB: Analytical thinking Classification: Concept 11) The Food, Drug, and Cosmetic Act is a federal statute that ________. A) covers all food products including poultry and processed meat B) regulates the sale of foods, 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 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept
4 C..
12) Ajax, 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. Ajax has to approach a U.S. federal administrative agency called the ________ 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 Skill: Factual Application LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Application of knowledge Classification: Application 13) 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 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 14) 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) Health Care and Education Reconciliation Act C) Nutrition Labeling and Education Act D) Patient Protection and Affordable Care Act Answer: C Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept
5 C..
15) The Nutrition Labeling and Education Act (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 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 16) Which of the following is true of the Nutrition Labeling and Education Act (NLEA)? 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 with any exceptions. D) The NLEA specifically eliminates the practice of providing point-of-purchase nutrition information by sellers. Answer: B Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 17) Rapid Rise is a health drink targeted at teenagers. Their advertisement campaign claims that regular consumption of the drink over a two-month period leads to a four-inch increase in height. However, this claim is not substantiated by laboratory research and has not been proven in most of its users. This act of making scientifically unsubstantiated health claims about one's product is likely to be a violation of the ________. A) Health Care Reform Act B) Nutrition Labeling and Education Act C) Consumer Product Safety Act D) Patient Protection and Affordable Care Act Answer: B Diff: 2 Skill: Factual Application LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Application of knowledge Classification: Application 6 C..
18) 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 was approved by Mika. However, Mika failed to identify that the substance used to make the particular preservative was banned. If the food product is released with this new preservative, which of the following provisions of the Nutrition Labeling and Education Act (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) initiation of legal proceedings against violators Answer: B Diff: 2 Skill: Factual Application LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Application of knowledge Classification: Application 19) 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 was approved by Mika. However, Mika failed to identify that the substance used to make the particular preservative was banned. The food product was released into the market with the preservative containing the banned substance. Which of the following agencies has the power to enact the statutes that govern such violations? 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 Skill: Factual Application LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Application of knowledge Classification: Application
7 C..
20) The ________ requires food manufacturers and processors to disclose uniform information about the serving sizes and nutrients contained in the food, and establishes standard definitions for terms like "low fat," "lean," and "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) Health Care Reform Act Answer: B Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 21) The Menu Labeling Rule 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. This rule was adopted by the ________. A) U.S. Food and Drug Administration B) United Nations C) Federal Trade Commission D) Consumer Product Safety Commission Answer: A Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 22) The ________ is a federal law that gives the FDA broad powers to license new drugs in the United States. A) Drug Amendment to the FDCA B) Food Labeling and Education Act C) Health Care Reform Act D) Patient Protection and Affordable Health Care Act Answer: A Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept
8 C..
23) Which of the following is true of the FDA's role in the introduction of a new drug in the market? A) The FDA bases its approval of a new drug on the rule of caveat emptor. B) The FDA limits itself to providing relevant suggestions to improve the drug. C) The FDA has the power to investigate the merits of a new drug. D) The FDA prosecutes producers of questionable medicines directly by the powers vested in it by the U.S. Department of Justice. Answer: C Diff: 2 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 24) The new line of fairness-enhancing products marketed by Radiance has allegedly been developed using large-scale animal testing procedures. Insiders reveal that the high levels of lead present in the cosmetics 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) Health Care Reform Act D) Federal Trade Commission Act Answer: A Diff: 2 Skill: Factual Application LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Application of knowledge Classification: Application 25) 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 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept
9 C..
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 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 27) The ________, enacted in 1962, gives the FDA power to withdraw approval of any previously licensed drug. A) Drug Amendment to the FDCA B) Food, Drug, and Cosmetic Act C) Consumer Product Safety Act D) Federal Trade Commission Act Answer: A Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 28) The ________ is the federal administrative agency empowered to enforce the FDCA. A) U.S. Food and Drug Administration B) Interstate Commerce Commission C) Federal Trade Commission D) Consumer Product Safety Commission Answer: A Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept
10 C..
29) The Menu Labeling Rule requires restaurants and retail food establishments with ________ locations to disclose calorie counts of their food items on menus and menu boards. A) any public B) 20 or more C) two or more D) 100 or more Answer: B Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 30) The FDA's Menu Labeling Rule requires restaurants that come under the rule to post on its menus and menu boards the ________ in its food items. A) calories B) amount of sodium C) amount of protein D) total calories from fat Answer: A Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 31) The FDA's Menu Labeling Rule requires restaurants that come under the rule to post on its menus and menu boards the ________. A) number of servings in each food item listed B) number of calories a healthy person should eat in a day C) presence of nuts or dairy in any of its items D) total dietary fiber in each food item Answer: B Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept
11 C..
32) Besides traditional menus in a sit-down restaurant setting, the FDA's Menu Labeling Rule can also apply to ________. A) roadside produce stands and vending machines B) drive-thru menu boards and garage sales C) farmers' markets and roadside produce stands D) vending machines and drive-thru menu boards Answer: D Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 33) The Family Smoking Prevention and Tobacco Control Act gives the ________ the authority to regulate the tobacco industry. A) Food and Drug Administration B) U.S. Department of Agriculture C) Bureau of Alcohol, Tobacco, Firearms and Explosives D) U.S. Attorney General Answer: A Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 34) The Family Smoking Prevention and Tobacco Control Act includes specific restrictions on the marketing of tobacco products to young people, including ________. A) a ban on the sale of tobacco products to persons under 21 years old B) a ban on the sale of candy cigarettes C) prohibition of tobacco-brand sponsorships of sporting events D) prohibition of all cigarette vending machines Answer: C Diff: 2 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept
12 C..
35) In 2016, the FDA adopted a rule that extended its regulatory authority over tobacco-related products. This rule did NOT extend to ________. A) cigars B) cigarette lighters C) pipe tobacco D) e-cigarettes Answer: B Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 36) Beginning in 1965, federal law has required all cigarette packages to contain ________. A) a toll-free telephone number to a nicotine addiction help line B) tax stamps C) health warnings D) FDA contact information Answer: C Diff: 2 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 37) FDA approval is not mandatory for medicinal devices to be legally sold in the United States. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 38) 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 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept
13 C..
39) The Menu Labeling Rule requires restaurants and retail food establishments with 20 or more locations to disclose calorie counts of their food items. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 40) The Drug Amendment to the FDCA gives the FDA broad powers to license new drugs in the United States. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 41) The FDA cannot withdraw approval of any previously licensed drug. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 42) The FDA labels ordinary household soap as a cosmetic product. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 43) The FDA cannot recall any cosmetics that contain unsubstantiated claims of preserving youth or increasing virility from the market. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 14 C..
44) The mislabeling of medicinal devices is prohibited under the Nutrition Labeling and Education Act. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 45) Kidney dialysis machines are scrutinized for attainment of quality standards under the Drug Amendment to the FDCA. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 46) 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 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept
15 C..
47) What is the Family Smoking Prevention and Tobacco Control Act, and what are some of its restrictions on the marketing of tobacco? Answer: In 2009, in order to address the problem of young people smoking cigarettes and using tobacco products, the U.S. Congress enacted the Family Smoking Prevention and Tobacco Control Act, often called the Tobacco Control Act. The act gives the FDA broad authority to regulate the tobacco industry. The Act also put into place specific restrictions on marketing tobacco products to young people, such as: • Bans the sales of tobacco products to minors. A person must be 18 years or older to purchase cigarettes and related-cigarette products; • Bans the sale of candy, fruit, and other flavored cigarettes and tobacco products. The ban includes any flavors except menthol; • Bans free giveaways of sample cigarettes and non-tobacco promotional items; • Prohibits the sale of packages of fewer than 20 cigarettes; • Prohibits tobacco-brand sponsorships of sports and entertainment events or other social or cultural events; and, • Prohibits vending machine sales except in adult-only facilities. Diff: 2 Skill: Legal Concepts LO: 23.2 Describe government regulation of foods, drugs, cosmetics, and medicinal devices by the Consumer Protection Agency. AACSB: Analytical thinking Classification: Concept 48) Which of the following consumer products comes under the purview of the Consumer Product Safety Commission (CPSC)? A) aircrafts B) motor vehicles C) firearms D) children's toys Answer: D Diff: 1 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product safety. AACSB: Analytical thinking Classification: Concept
16 C..
49) The Consumer Product Safety Commission (CPSC) 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 few consumer products like motor vehicles, boats, aircrafts, 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 medicinal devices Answer: C Diff: 1 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product safety. AACSB: Analytical thinking Classification: Concept 50) Which of the following is true of seeking injunctions on consumer products that violate the Consumer Product Safety Act (CPSA) or Consumer Product Safety Commission (CPSC) rules? A) Only the CPSC can 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 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product 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 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product safety. AACSB: Analytical thinking Classification: Concept
17 C..
52) The Consumer Product Safety Commission (CPSC) is a(n) ________ agency empowered to conduct research on the safety of consumer products. A) Congressional B) state C) nonprofit D) independent federal administrative Answer: D Diff: 1 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product safety. AACSB: Analytical thinking Classification: Concept 53) The Consumer Product Safety Commission, created in 1972, has the authority to require a manufacturer to recall unsafe toys. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product safety. AACSB: Analytical thinking Classification: Concept 54) The Consumer Product Safety Commission is the federal administrative agency empowered to enforce the FDCA. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product safety. AACSB: Analytical thinking Classification: Concept 55) 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 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product safety. AACSB: Analytical thinking Classification: Concept
18 C..
56) Under the Consumer Product Safety Act, a private party can sue for an injunction to prevent violations of the act or of Consumer Product Safety Commission (CPSC) rules and regulations. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product safety. AACSB: Analytical thinking Classification: Concept 57) If a consumer product is found to be imminently hazardous, the Consumer Product Safety Commission (CPSC) has the power to require the manufacturer to recall the product. Answer: TRUE Diff: 2 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product safety. AACSB: Analytical thinking Classification: Concept 58) Firearms represent an example of consumer products that do not come under the Consumer Product Safety Commission (CPSC) rules. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product safety. AACSB: Analytical thinking Classification: Concept 59) What are the powers of the Consumer Product Safety Commission (CPSC)? 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, (3) collect data regarding injuries caused by consumer products, and (4) require recall notices to be issued to consumers where violations of the act have been found. Certain consumer products, including motor vehicles, boats, aircrafts, and firearms, are regulated by other government agencies and not by the CPSC. Diff: 1 Skill: Legal Concepts LO: 23.3 Describe federal laws that regulate product safety. AACSB: Analytical thinking Classification: Concept
19 C..
60) Which of these is NOT regulated by the National Traffic and Motor Vehicle Safety Act? A) segways B) electric-powered vehicles C) self-driving vehicles D) school buses Answer: A Diff: 2 Skill: Legal Concepts LO: 23.4 Describe federal laws that regulate automobile, vehicle, bus, and motorcycle safety. AACSB: Analytical thinking Classification: Concept 61) The National Highway Traffic Safety Administration (NHTSA) is part of ________. A) the U.S. Department of Commerce B) the U.S. Department of Transportation C) the U.S. Department of Energy D) the U.S. Department of Housing and Urban Development Answer: B Diff: 1 Skill: Legal Concepts LO: 23.4 Describe federal laws that regulate automobile, vehicle, bus, and motorcycle safety. AACSB: Analytical thinking Classification: Concept 62) The Federal Motor Vehicle Safety Standards (FMVSS) are divided into three categories. Which of these is NOT one of those categories? A) crash avoidance B) repair costliness C) crashworthiness D) post-crash survivability Answer: B Diff: 1 Skill: Legal Concepts LO: 23.4 Describe federal laws that regulate automobile, vehicle, bus, and motorcycle safety. AACSB: Analytical thinking Classification: Concept
20 C..
63) More than 90 percent of serious vehicle crashes are caused by ________. A) defective suspension systems B) faulty brakes C) tire failure D) human error Answer: D Diff: 1 Skill: Legal Concepts LO: 23.4 Describe federal laws that regulate automobile, vehicle, bus, and motorcycle safety. AACSB: Analytical thinking Classification: Concept 64) The safest vehicles on the road are ________. A) passenger automobiles B) motorcycles C) school buses D) SUVs Answer: C Diff: 1 Skill: Legal Concepts LO: 23.4 Describe federal laws that regulate automobile, vehicle, bus, and motorcycle safety. AACSB: Analytical thinking Classification: Concept 65) What agency was created by the National Traffic and Motor Vehicle Safety Act, and what is that agency empowered to do? Answer: The National Traffic and Motor Vehicle Safety Act is the federal statute that created the National Highway Traffic Safety Administration (NHTSA), a federal administrative agency which is part of the U.S. Department of Transportation, to administer the act. The NHTSA issues regulations pursuant to its authority granted in the act to regulate the safety of automobiles, SUVs, vans, trucks, electric-powered vehicles, self-driving vehicles, school buses, and motorcycles. The agency may also require recall notices to be issued to consumers where violations of the safety standards have been found. Diff: 2 Skill: Legal Concepts LO: 23.4 Describe federal laws that regulate automobile, vehicle, bus, and motorcycle safety. AACSB: Analytical thinking Classification: Concept
21 C..
66) 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 Skill: Legal Concepts LO: 23.5 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 67) Which of the following would constitute false advertising under the FTC Act? A) sales talk B) unsubstantiated claims C) minimal commercial speech D) statements of opinion Answer: B Diff: 1 Skill: Legal Concepts LO: 23.5 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 68) The Do-Not-Call Registry is administered 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 Skill: Legal Concepts LO: 23.5 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept
22 C..
69) 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 exempt from the registry. D) Customers cannot choose the companies from which they do not wish to receive calls. Answer: C Diff: 1 Skill: Legal Concepts LO: 23.5 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 70) The Federal Trade Commission (FTC) created and administers the ________, on which consumers can place their telephone numbers and free themselves from most unsolicited telemarketing and commercial telephone calls. A) Do-Not-Call Registry B) Stop-Phonecalls-Annoyingly-Made (SPAM) List C) Junk Call Directory D) Never-Call-Me-Again Index Answer: A Diff: 1 Skill: Legal Concepts LO: 23.5 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 71) The FTC can sue in either the state or federal courts to obtain compensation on behalf of consumers. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 23.5 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 72) Proof of actual deception is required for advertising to be considered false under Section 5 of the FTC. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.5 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept
23 C..
73) The Do-Not-Call Registry allows consumers to designate specific companies not to call them. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 23.5 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 74) The U.S. Supreme Court has deemed the Do-Not-Call Registry service as an unconstitutional violation of commercial speech. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.5 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 75) When was the Federal Trade Commission formed, and what are its powers under Section 5 of the Federal Trade Commission Act? Answer: Congress enacted the Federal Trade Commission Act in 1914. The Federal Trade Commission (FTC) was created the following year to enforce the Federal Trade Commission Act as well as other federal consumer protection statutes. Section 5 of the Federal Trade Commission Act, as amended, prohibits unfair methods of competition and unfair or deceptive acts or practices. It has been used extensively to regulate business conduct. This section gives the FTC the authority to bring an administrative proceeding to attack a deceptive or unfair practice. If, after a public administrative hearing, the FTC finds a violation of Section 5, it may issue a cease-and-desist order, an affirmative disclosure to consumers, corrective advertising, or the like. The FTC may sue in state or federal court to obtain compensation on behalf of consumers. A decision of the FTC may be appealed to federal court. Diff: 2 Skill: Legal Concepts LO: 23.5 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept
24 C..
76) What is the National Do-Not-Call Registry, and who is exempt from it? Answer: To allow consumers to be free from most unsolicited telemarketing and commercial telephone calls, Congress passed the Do-Not-Call Implementation Act which required the Federal Trade Commission (FTC) to create and administer the National Do-Not-Call Registry. While the registry does not apply to business phones, consumers can place their telephone numbers on this registry and it is recorded in the Do-Not-Call Registry the next day. Telemarketers and other businesses then have 31 days to remove the customer's phone number from their sales call list and cease calling the number. Registration of a telephone on the Do-NotCall Registry is permanent. More than 70 percent of Americans have registered on the Do-NotCall Registry. Charitable organizations, political organizations, parties conducting surveys, and creditors and collection agencies are exempt from the registry. Also, an "established business relationship" exception allows businesses to call a customer for 18 months after they sell or lease goods or services to that person or conduct a financial transaction with that person. The Do-Not-Call Registry allows consumers to designate specific companies not to call them, including those that otherwise qualify for the established business relationship exemption. Diff: 2 Skill: Legal Concepts LO: 23.5 Identify and describe unfair and deceptive business practices. AACSB: Analytical thinking Classification: Concept 77) Which of the following federal statutes requires creditors to disclose finance charges, including interest, points, and other fees paid for the extension of credit to debtors? 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 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 78) 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 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 25 C..
79) Creditors who violate the Consumer Lease 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 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 80) Which of the following legislation protects consumers in challenging 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 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 81) The ________ Act of 2003 permits consumers to place fraud alerts on 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 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept
26 C..
82) Melissa owes money to her bank for her credit card bills. For the past two weeks, debt collectors have been harassing her for bill payment by sending people to her workplace. Her boss expressly asks her to avoid such meetings, but despite Melissa's repeated requests that the collection agency stop, the collectors continue to visit her workplace. Which of the following Acts has provisions that would help 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 Skill: Factual Application LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Application of knowledge Classification: Application 83) Tim has been approached by Kent, his best friend, regarding Tim's credit card debt with 1st Security One. 1st Security One previously informed Kent that Tim was in default on his credit card debt, and encouraged Kent to tell his friend to "do the right thing." Kent says he has come to get assurance that Tim will make the required payment. Which of the following legislation has 1st Security One violated by informing Kent of Tim's debt? 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 Skill: Factual Application LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Application of knowledge Classification: Application 84) The ________ Act is a federal statute that prohibits discrimination in the extension of credit based on sex, marital status, race, color, national origin, religion, age, or receipt of income from public assistance programs. A) Fair Debt Collection Practices B) Equal Credit Opportunity C) Fair Credit Billing D) Truth-in-Lending Answer: B Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept
27 C..
85) The ________ Act is a federal statute that requires creditors to make certain disclosures to debtors in consumer transactions and real estate loans on the debtor's principal dwelling and covers only creditors that regularly extend credit for goods or services to consumers. A) Truth-in-Lending B) Fair Credit Billing C) Fair Credit and Charge Card Disclosure D) Fair Debt Collection Practices Answer: A Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 86) ________ is an administrative agency regulation that sets forth detailed rules for compliance with the Truth-in-Lending Act (TILA). A) The Menu Labeling Rule B) Gibbs Rule 62 C) Protocol 10 D) Regulation Z Answer: D Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 87) A person of a specific religion is protected from credit extension discrimination by the ________ Act. A) Fair Debt Collection Practices B) Equal Credit Opportunity C) Fair Credit Billing D) Truth-in-Lending Answer: B Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept
28 C..
88) The ________ expressly prohibits debt collectors from using certain practices like harassing, abusing, or intimidating debtors. A) Fair Debt Collection Practices Act B) Equal Credit Opportunity Act C) Fair Credit Billing Act D) Truth-in-Lending Act Answer: A Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 89) The Fair and Accurate Credit Transactions Act permits consumers to place ________ in their credit files. A) reference letters from friends B) mobile phone numbers C) fraud alerts D) email messages Answer: C Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 90) Lease creditors who violate the ________ are subject to the civil and criminal penalties provided in the Truth-in-Lending Act (TILA). A) Fair and Accurate Credit Transactions Act B) Fair Credit Reporting Act C) Consumer Leasing Act D) Fair Credit and Charge Card Disclosure Act Answer: C Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept
29 C..
91) The ________ is a federal statute that requires disclosure of credit terms on credit card and charge card solicitations and applications. 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: C Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 92) The ________ limits the contact that a debt collector may have with third persons other than the debtor's spouse or parents. 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: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 93) The ________ allowed all credit-card companies with whom a cardholder had a credit card to raise the interest rate on his or her card, including on the existing balances, if the cardholder was late in making a payment to any credit card company. A) universal default rule B) credit card collusion compact C) uniform interest hike protocol D) late payment penalty agreement Answer: A Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept
30 C..
94) The ________ applies to lessors who engage in leasing or arranging leases for consumer goods in the ordinary course of their business. A) Consumer Leasing Act B) Equal Credit Opportunity Act C) Fair Credit Billing Act D) Truth-in-Lending Act Answer: A Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 95) ________ is defined as credit extended to natural persons for personal, family, or household purposes. A) Wholesale credit B) Retail credit C) Natural person credit D) Consumer credit Answer: D Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 96) The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) ________. A) requires that payments above the minimum payment be applied to pay lower-interest balances first B) requires credit card companies to place a notice on each billing statement that notifies the cardholder how long it would take to pay off the existing balance plus interest if the cardholder were to make minimum payments on the card C) sets limits on how high an interest rate can be charged on a credit card D) applies to both consumer and business credit cards Answer: B Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept
31 C..
97) The Fair and Accurate Credit Transactions Act gives consumers the right to ________. A) obtain one free credit report once every 6 months from the three nationwide credit reporting agencies B) obtain their credit score for free once a year C) learn how their credit score was calculated D) place fraud alerts on their creditors' credit files Answer: C Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 98) In accordance with the Fair Debt Collection Practices Act (FDCPA), a debt collector can contact a debtor ________. A) after 9 p.m. if the debtor works an overnight shift B) at church C) even if the debtor is represented by an attorney D) at work, regardless of the employer's objections Answer: A Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 99) The Fair Credit Billing Act requires that creditors promptly acknowledge in writing consumer billing complaints and investigate billing errors. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 100) Casual leases between consumers are subject to the Consumer Leasing Act (CLA). Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept
32 C..
101) The Fair and Accurate Credit Transactions Act permits consumers to place fraud alerts on their credit files. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 102) The Equal Credit Opportunity Act does not have provisions for consumers to recover damages against the creditor. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 103) What uniform disclosures to consumers are required under the Truth-in-Lending Act and Regulation Z, and what is the rationale for these uniform disclosures? Answer: The Truth-in-Lending Act and Regulation Z require a creditor to disclose the following information to the consumer-debtor: • Cash price of the product or service • Down payment and trade-in allowance • Unpaid cash price • Finance charge, including interest, points, and other fees paid for the extension of credit • Annual percentage rate (APR) of the finance charges • Charges not included in the finance charge (such as appraisal fees) • Total dollar amount financed • Date the finance charge begins to accrue • Number, amounts, and due dates of payments • Description of any security interest • Penalties to be assessed for delinquent payments and late charges • Prepayment penalties • Comparative costs of credit (optional) The rationale behind these uniform disclosures is that they will help consumers shop for the best credit terms. Diff: 2 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept
33 C..
104) Under the Fair Credit Reporting Act (FCRA), what information can consumers request from credit bureaus, and what recourse do consumers have if they find inaccurate information in their credit report? Answer: Under the Fair Credit Reporting Act (FCRA), consumers may request the following information at any time from a credit bureau: (1) the nature and substance of all the information in their credit file; (2) the sources of this information; and, (3) the names of recipients of their credit report. If a consumer challenges the accuracy of pertinent information contained in a credit file, the agency may be compelled to reinvestigate. If the reporting company cannot find an error, despite the consumer's complaint, consumers may file a 100-word written statement of their version of the disputed information. If a consumer reporting agency or user violates the FCRA, injured consumers may bring a civil action against the violator and recover actual damages. The FCRA also provides for criminal penalties. Diff: 2 Skill: Legal Concepts LO: 23.6 List and describe laws that protect debtor's rights. AACSB: Analytical thinking Classification: Concept 105) State data breach notification laws generally ________. A) apply only to private entities and not to governmental entities B) require entities that have suffered a data breach to conduct a secret data system audit C) require entities that have suffered a data breach to notify customers or other affected parties of the security breach D) require entities that have suffered a data breach to confidentially notify the state auditor general Answer: C Diff: 1 Skill: Legal Concepts LO: 23.7 Describe state consumer protection laws. AACSB: Analytical thinking Classification: Concept
34 C..
106) Personal information is usually defined as a person's name combined with some other information, such as ________. A) social security number B) office location C) business telephone number D) business email address Answer: A Diff: 1 Skill: Legal Concepts LO: 23.7 Describe state consumer protection laws. AACSB: Analytical thinking Classification: Concept 107) Many states have enacted state consumer protection laws that prohibit fraudulent, deceptive, and unfair trade practices that harm consumers. Which of these is NOT a usual feature of these laws? A) creation of a state administrative agency to enforce state consumer protection laws B) the ability to conduct inspections C) expelling from the state those who have conducted unfair trade practices D) the ability to hold administrative hearings Answer: A Diff: 1 Skill: Legal Concepts LO: 23.7 Describe state consumer protection laws. AACSB: Analytical thinking Classification: Concept
35 C..
108) What are security breach notification laws, and what do they require? Answer: In response to data breaches involving the misappropriation of consumer and customer information from businesses where the information was digitally stored, all 50 states have enacted security breach notification laws, also called data breach notification laws. These laws require private and governmental entities that have been subject to a data breach to notify customers—or other affected parties of the security breach—that their personal information has been obtained by an unauthorized party. Personal information is usually defined as a person's name combined with a social security number, credit card information, account number, financial information, and such. States laws require that individuals whose information has been obtained must be notified within a specified period of time after the breach has been discovered. Many state security breach notification laws apply to employee information, as well as to medical and health records. Entities that suffer a data security breach are usually only subject to civil liability if they (1) have failed to implement steps that are required by law or that are reasonable in the circumstances to protect private information from being stolen, or (2) have not complied with data breach notification laws or taken reasonable post-breach actions to remedy the situation or mitigate the harm caused by the breach. Diff: 2 Skill: Legal Concepts LO: 23.7 Describe state consumer protection laws. AACSB: Analytical thinking Classification: Concept
36 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 24 Environmental Protection 1) The ________ is a federal administrative agency created by the U.S. Congress to coordinate the implementation and enforcement of federal environmental protection laws. A) Ministry of Environmental Protection (MEP) B) Environmental Investigation Agency (EIA) C) Environmental Protection Agency (EPA) D) Global Environment Facility (GEF) Answer: C Diff: 1 Skill: Legal Concepts LO: 24.1 Describe environmental protection and identify when an environmental impact statement must be completed. AACSB: Analytical thinking Classification: Concept 2) The ________ is a federal agency that can initiate judicial proceedings in court against suspected violators of federal environmental laws. A) Environmental Protection Agency (EPA) B) U.S. Army Corps of Engineers C) Nuclear Regulatory Commission D) Pollution Control Board Answer: A Diff: 1 Skill: Legal Concepts LO: 24.1 Describe environmental protection and identify when an environmental impact statement must be completed. AACSB: Analytical thinking Classification: Concept 3) The Environmental Protection Agency (EPA) has ________ powers to hold hearings and order remedies for violation of environmental laws. A) legislative B) adjudicative C) administrative D) rule making Answer: B Diff: 1 Skill: Legal Concepts LO: 24.1 Describe environmental protection and identify when an environmental impact statement must be completed. AACSB: Analytical thinking Classification: Concept
1 C..
4) The U.S. Congress created the Environmental Protection Agency (EPA) in ________. A) 1950 B) 1970 C) 1980 D) 1990 Answer: B Diff: 1 Skill: Legal Concepts LO: 24.1 Describe environmental protection and identify when an environmental impact statement must be completed. AACSB: Analytical thinking Classification: Concept 5) When was the Environmental Protection Agency created and what are its purpose and powers? Answer: The U.S. Congress created the Environmental Protection Agency (EPA) in 1970 to coordinate the enforcement of the federal environmental protection laws. The EPA has broad rule-making powers to adopt regulations to advance the laws that it is empowered to administer. The agency also has adjudicative powers to hold hearings, make decisions, and order remedies for violations of federal environmental laws. In addition, the EPA can initiate judicial proceedings in court against suspected violators of federal environmental laws. Diff: 1 Skill: Legal Concepts LO: 24.1 Describe environmental protection and identify when an environmental impact statement must be completed. AACSB: Analytical thinking Classification: Concept 6) The National Environmental Policy Act (NEPA) is a federal statute that 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) implement 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 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept 2 C..
7) The ________ administers the NEPA and has the authority to adopt regulations for the enforcement of the act. A) Environmental Protection Agency (EPA) B) Environmental Investigation Agency (EIA) C) Ministry of Environmental Protection (MEP) D) Association of Environmental Professionals (AEP) Answer: A Diff: 1 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept 8) 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 influence abstract (EIA) B) environmental impact statement (EIS) C) environmental imprimatur declaration (EID) D) strategic environmental assessment (SEA) Answer: B Diff: 1 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept 9) Which of the following steps immediately follows the publication of the environmental impact statement (EIS) for a proposed project? A) The U.S. Congress passes a bill adopting the EIS. B) Environmentalists are allowed access to the EIS. C) The government issues an order to proceed with federal action on the project, consistent with the recommendations set forth in the EIS. D) Interested parties are allowed to submit comments to the Environmental Protection Agency (EPA). Answer: D Diff: 2 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept
3 C..
10) 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 the U.S. Congress passes a bill adopting the EIS. D) It is not required for projects undertaken by private parties. Answer: B Diff: 1 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept 11) The ________ and EPA regulations require that an environmental impact statement (EIS) be prepared by the federal government for any proposed legislation or major federal action that significantly affects the quality of the natural and human environment. A) Safe Drinking Water Act B) National Environmental Policy Act (NEPA) C) Federal Water Pollution Control Act (FWPCA) D) Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Answer: B Diff: 1 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept 12) The ________ mandates that the federal government consider the "adverse impact" of proposed legislation, rulemaking, or other federal government action on the environment before the action is implemented. A) Clean Air Act B) National Environmental Policy Act (NEPA) C) Federal Water Pollution Control Act (FWPCA) D) Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Answer: B Diff: 1 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept
4 C..
13) An environmental impact statement (EIS) must contain ________ of the proposed action and alternative actions. A) artists' renderings B) a cost-benefit analysis C) detailed spreadsheets of expenditures to date D) endorsements from local public officials Answer: B Diff: 1 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept 14) The Environmental Protection Agency (EPA) administers the National Environmental Policy Act (NEPA) and has the authority to adopt regulations for the enforcement of the act. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept 15) The NEPA and EPA regulations require that an environmental impact statement (EIS) be prepared by the state government. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept 16) An EIS can be challenged in court by environmentalists and other interested parties. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept
5 C..
17) Describe the purpose and requirements of an environmental impact statement (EIS). Answer: The purpose of an environmental impact statement (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. Expert professionals, such as engineers, geologists, and accountants, may be consulted during the preparation of an EIS. Diff: 1 Skill: Legal Concepts LO: 24.2 Define an environmental impact statement and identify when the federal government is required to prepare one prior to enacting laws. AACSB: Analytical thinking Classification: Concept 18) 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 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 19) 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 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept
6 C..
20) The primary level of national ambient air quality standards (NAAQS) protects ________. A) flora B) human beings C) water bodies D) climate Answer: B Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 21) Which of the following statements is true of national ambient air quality standards (NAAQS)? A) They divide pollutants into five categories based exclusively on the risks the pollutants pose to human beings. B) They are set at two different levels: primary and secondary. C) They apply to all sources of pollution. D) They are administered exclusively by the federal government. Answer: B Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 22) Each state is required to prepare a ________ that sets out how the state plans to meet the federal standards set by NAAQS. A) strategic environmental assessment (SEA) B) comprehensive protection assessment (CPA) C) state assessment plan (SAP) D) state implementation plan (SIP) Answer: D Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept
7 C..
23) Which of the following is true of national ambient air quality standards (NAAQS)? A) The federal government has the right to enforce NAAQS if the states fail to do so. B) State governments are responsible for setting standards for air quality in their respective states. C) Human beings are protected under the secondary level of NAAQS. D) Only standards for oxides of elements and particulate matter are evaluated under NAAQS. Answer: A Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 24) A geographical area that does not meet established air quality standards is designated as a ________. A) limited pollution area B) nonattainment area C) non-regulated area D) federal regulation area Answer: B Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 25) In a survey of the nonattainment areas in a state, the state air pollution regulatory authority found Region 3 to be the region that exceeded the ozone standard by the largest margin, far exceeding the air pollution levels in all other regions of the state. Region 3 is most likely to be categorized as a(n) ________ nonattainment area. A) atypical B) extreme C) marginal D) serious Answer: B Diff: 1 Skill: Factual Application LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Application of knowledge Classification: Application
8 C..
26) Which of the following measures is most likely to reduce indoor air pollution in an office building? A) complete air conditioning with sealed windows B) heavy insulation C) the closure of all air ducts D) a prohibition on copy machines Answer: D Diff: 2 Skill: Factual Application LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Application of knowledge Classification: Application 27) Which of the following is a primary cause of sick building syndrome in the United States? A) a large number of outdoor ducts B) unsealed windows C) a thinly insulated building D) hazardous chemicals and construction materials Answer: D Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 28) Which of the following is a federal sanction imposed on states that fail to meet air quality standards? A) an increase in personal property taxes on state residents B) a decrease in federal funding of the state's public school system C) a limitation on the development of new pollution sources within the state D) a reduction in congressional membership (for example, one less state representative in the U.S. House of Representatives) Answer: C Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept
9 C..
29) The ________ Act requires states to identify major stationary sources of air pollution and develop plans to reduce air pollution from these sources. A) Safe Drinking Water B) National Environmental Policy C) Clean Air D) Comprehensive Environmental Response, Compensation, and Liability Answer: C Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 30) The Clean Air Act directs the EPA to establish ________ standards for certain pollutants. These standards are set at two different levels: primary—to protect human beings, and secondary—to protect vegetation, matter, climate, visibility, and economic values. A) national ambient air quality B) national atmospheric environmental C) regional anti-pollution D) clean air Answer: A Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 31) Oil refineries are an example of ________ sources of air pollution. A) stationary B) transient C) mobile D) non-permanent Answer: A Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept
10 C..
32) The ________ Act authorizes the EPA to regulate air pollution caused by fuel and fuel additives. A) Safe Drinking Water B) National Environmental Policy C) Clean Air D) Comprehensive Environmental Response, Compensation, and Liability Answer: C Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 33) The primary level of the national ambient air quality standards (NAAQS) protects ________. A) vegetation B) human beings C) economic values D) climate Answer: B Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 34) Which of the following is NOT a nonattainment area classification category? A) marginal B) moderate C) acceptable D) extreme. Answer: C Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept
11 C..
35) Indoor air pollution is also called ________. A) sick building syndrome B) secondary smoke C) halitosis D) chemical-induced smells Answer: A Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 36) The Clean Air Act does not apply to stationary sources of pollution. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 37) The pollutant standards under the national ambient air quality standards (NAAQS) are set at primary and secondary levels. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 38) Human beings are protected by the secondary level of the NAAQS. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 39) The right to enforce air pollution standards is an exclusive prerogative of the federal government. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept
12 C..
40) 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 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 41) Regions that do not meet air quality standards are designated as air quality control regions. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 42) The EPA can prohibit the construction of a new industrial plant that causes pollution in a state that is a nonattainment area. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 43) According to the Environmental Protection Agency (EPA), the air inside a building is typically the safest, as it is free from pollution. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 44) Indoor air pollution is primarily caused by toxic fumes from industrial plants located in cities. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept
13 C..
45) Explain the nature and enforcement of national ambient air quality standards (NAAQS). Answer: The Clean Air Act directs the 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 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). Each region is monitored to ensure compliance. Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 46) What is a "nonattainment area"? How are these areas rated, and what are the consequences to states for having nonattainment areas? Answer: Regions that do not meet air quality standards are designated nonattainment areas. A nonattainment area is classified into one of five categories–marginal, moderate, serious, severe, or extreme–based on the degree to which it exceeds the ozone standard. Deadlines are established for areas to meet the attainment level. States that fail to meet air quality standards are subject to sanctions such as loss of federal funds for state projects and limitations on the development of new sources of pollution (e.g., industrial plants). Diff: 1 Skill: Legal Concepts LO: 24.3 Describe the Clean Air Act and national ambient air quality standards. AACSB: Analytical thinking Classification: Concept 47) Which of the following federal agencies administers the Clean Water Act? A) the Environmental Investigation Agency (EIA) B) the Environmental Protection Agency (EPA) C) the Bureau of Environmental Protection (BEP) D) the Department of Environmental Maintenance (DEM) Answer: B Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept
14 C..
48) ________ is/are primarily responsible for enforcing the provisions of the Clean Water Act. A) The federal government B) Independent agencies C) State governments D) Nonprofit organizations Answer: C Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 49) AMS, Inc. is a factory located in Norfolk, Virginia that uses chemicals like lead and arsenic in its production process. It discharges the waste products associated with its manufacturing process into the Atlantic Ocean. From the information provided, it can be inferred that ________. A) AMS, Inc. is an electrical goods manufacturing company B) AMS, Inc. is using radioactive materials in its production process C) AMS, Inc. is likely to face corrective action by the U.S. Army Corps of Engineers D) AMS, Inc. is a stationary source of pollution Answer: D Diff: 2 Skill: Factual Application LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Application of knowledge Classification: Application 50) The process by which heated water or material is discharged into waterways, upsetting the water's ecological balance and decreasing its oxygen content as a result, is defined as ________. A) land pollution B) radioactive pollution C) air pollution D) thermal pollution Answer: D Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept
15 C..
51) Areas that are inundated or saturated by surface water or groundwater that support vegetation typically adapted for life in such conditions are called ________. A) marine reefs B) aquifers C) wetlands D) reservoirs Answer: C Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 52) 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 (MEP) B) U.S. Army Corps of Engineers (USACE) C) Environmental Protection Agency (EPA) D) Nuclear Regulatory Commission (NRC) Answer: B Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 53) Which of the following actions is prohibited under the Clean Water Act? A) the inhabitation of inland areas in the vicinity of wetlands and marshes B) the chemical treatment of wastes to reduce toxicity before discharge into wetlands C) the construction of residences by filling qualified wetlands without a permit from the Army Corps of Engineers D) the creation of artificial lakes and waterways for recreation Answer: C Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept
16 C..
54) The ________ is a federal statute that authorizes the EPA to establish national primary drinking water standards. A) Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) B) Federal Water Pollution Control Act (FWPCA) C) Clean Water Act D) Safe Drinking Water Act Answer: D Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 55) 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 (FWPCA) D) the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Answer: B Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 56) 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 (CERCLA) C) Federal Water Pollution Control Act (FWPCA) D) Marine Protection, Research, and Sanctuaries Act Answer: A Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept
17 C..
57) 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 the 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 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 58) 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 a 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 the discharge of dredged or fill material into navigable waters and qualified wetlands Answer: B Diff: 2 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 59) In 1948, Congress enacted the ________ to regulate water pollution. This act has been amended several times. As amended, it is simply referred to as the Clean Water Act. A) Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) B) Federal Water Pollution Control Act C) Clean Water Act D) Safe Drinking Water Act Answer: B Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept
18 C..
60) The sources of water pollution that are stationary are known as ________ sources of water pollution. A) point B) non-moving C) areal D) tertiary Answer: A Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 61) Wetlands are defined as areas that are ________ surface water or groundwater that support vegetation typically adapted for life in saturated soil conditions. A) in proximity to B) inundated or saturated by C) contiguous to D) within 15 miles of Answer: B Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 62) The Clean Water Act authorizes the U.S. government to clean up ________ in ocean waters within 12 miles of the shore and on the continental shelf and to recover the cleanup costs from responsible parties. A) spent military ordinance B) sunken and abandoned ships C) oil spills and spills of other hazardous substances D) plastic drinking straws Answer: C Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept
19 C..
63) The Clean Water Act forbids the filling or dredging of navigable waters and qualified wetlands unless a permit has been obtained from the ________. A) Environmental Protection Agency B) U.S. Department of the Interior C) U.S. Coast Guard D) U.S. Army Corps of Engineers Answer: D Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 64) 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: FALSE Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 65) The federal government is primarily responsible for the implementation of the Clean Water Act in all states. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 66) Point source dischargers of pollutants are required to maintain monitoring equipment, keep samples of discharges, and keep records. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 67) Point sources are sources of pollution that are stationary. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 20 C..
68) Sources of thermal pollution are subject to the provisions of the Clean Water Act and the regulations adopted by the EPA. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 69) The filling or dredging of navigable waters and qualified wetlands is prohibited unless a permit has been obtained from the Army Corps of Engineers. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 70) The Clean Water Act authorizes the EPA to establish national primary drinking water standards. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 71) The Marine Protection, Research, and Sanctuaries Act, enacted in 1972, extends environmental protection to the oceans. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 72) The Marine Protection, Research, and Sanctuaries Act strictly prohibits, without exception, the dumping of wastes and other foreign materials into ocean waters; as a result, dumping permits are not available. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept
21 C..
73) 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 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 74) 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 groundwater 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 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept 75) Describe two federal laws 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: The Clean Water Act—It 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—It 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. Diff: 1 Skill: Legal Concepts LO: 24.4 Describe the Clean Water Act and effluent water standards. AACSB: Analytical thinking Classification: Concept
22 C..
76) Which of the following is true of the EPA standards set for toxic substances? A) They are set with an aim to test new chemicals and determine their effects on human health and environment. 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 national ambient air quality standards (NAAQS). D) They require a complete ban on all toxic substances. Answer: A Diff: 1 Skill: Legal Concepts LO: 24.5 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 Insecticide, Fungicide, and Rodenticide Act? A) It only allows pesticides manufactured by the U.S. government 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 unregistered pesticides to be sold only with close monitoring by the EPA. Answer: B Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 78) The ________ is a federal statute that authorizes the EPA to regulate facilities that generate, treat, store, transport, and dispose of hazardous wastes. A) Resource Conservation and Recovery Act (RCRA) B) Clean Water Act C) Toxic Substances Control Act D) Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Answer: A Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept
23 C..
79) The remains of the process by which nuclear power is generated in a reactor are most likely to be classified as ________. A) composite wastes B) inert elements C) pesticides D) hazardous wastes Answer: D Diff: 2 Skill: Factual Application LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Application of knowledge Classification: Application 80) 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 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 81) The Superfund, which is administered by the 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) clean up 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 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept
24 C..
82) Which of the following is true of the Superfund? A) It gives a mandate to 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 a state where hazardous wastes have been improperly disposed. 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 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 83) Armex I, a large nuclear 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 nearby areas. This safety violation is likely to be addressed by the ________ for corrective action, including possible closure of the plant. A) Federal Nuclear Agency (FNA) B) U.S. Army Corps of Engineers (USACE) C) Nuclear Waste Policy Commission (NWPC) D) Nuclear Regulatory Commission (NRC) Answer: D Diff: 2 Skill: Factual Application LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Application of knowledge Classification: Application 84) Which of the following is a federal government mandate under the Nuclear Waste Policy Act? 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 for nuclear waste disposal Answer: B Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 25 C..
85) The ________ Act requires manufacturers and processors to test new chemicals to determine their effects on human health and the environment and to report the results to the EPA before the chemicals are marketed. A) Resource Conservation and Recovery B) Clean Water C) Toxic Substances Control D) Comprehensive Environmental Response, Compensation, and Liability Answer: C Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 86) Under the ________ Act, pesticides must be registered with the EPA before they can be sold. A) Resource Conservation and Recovery B) Insecticide, Fungicide, and Rodenticide C) Toxic Substances Control D) Comprehensive Environmental Response, Compensation, and Liability Answer: B Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 87) The Comprehensive Environmental Response, Compensation, and Liability Act provides for the creation of a ________ hazardous waste sites. A) government fund to finance the cleanup of B) federal police force to investigate C) custodial agency to quarantine D) U.S. Justice Department Division to prosecute owners of Answer: A Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept
26 C..
88) In 1980, Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which is commonly called the ________. A) BigDig B) Supermax C) Megaclean D) Superfund Answer: D Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 89) The disposal of new hazardous wastes is regulated by the ________ Act. A) Resource Conservation and Recovery B) Insecticide, Fungicide, and Rodenticide C) Toxic Substances Control D) Comprehensive Environmental Response, Compensation, and Liability Answer: A Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 90) Toxic Substances Control Act is administered by the ________. A) Environmental Protection Agency B) Army Corps of Engineers C) Nuclear Regulatory Commission D) Environmental Control Board Answer: A Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept
27 C..
91) The ________ 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. A) Resource Conservation and Recovery B) Toxic Substances Control C) Insecticide, Fungicide, and Rodenticide D) Comprehensive Environmental Response, Compensation, and Liability Answer: B Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 92) To date, the Environmental Protection Agency (EPA) has identified more than ________ chemicals as toxic, including asbestos, mercury, vinyl chloride, benzene, beryllium, and radionuclides. A) 15 B) 100 C) 200 D) 10,000 Answer: C Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 93) The Toxic Substances Control Act requires stationary sources of toxic chemicals to ________ emissions of toxic substances. A) install equipment and technology to control B) immediately halt C) monitor D) submit an environmental impact statement addressing Answer: A Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept
28 C..
94) The Toxic Substances Control Act is administered by the U.S. Army Corps of Engineers. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 95) The EPA requires special labeling of toxic substances. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 96) The Clean Air Act requires the EPA to identify toxic air pollutants that present a substantial risk of injury to human health or the environment. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 97) Under the Resource Conservation and Recovery Act, the EPA is authorized to regulate underground storage facilities. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 98) The Superfund is financed through taxes on products that contain hazardous substances. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 29 C..
99) The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) is commonly called the Superfund. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 100) Describe the law by which the federal government regulates insecticide, fungicide, and rodenticide, including the rationale for the law, and the scope of the law. Answer: In 1947, Congress enacted the Insecticide, Fungicide, and Rodenticide Act which gave the federal government authority to regulate pesticides and related chemicals. Farmers and ranchers use chemical pesticides, herbicides, fungicides, and rodenticides to kill insects, weeds, and pests. Evidence shows that the use of some of these chemicals on food and their residual accumulation in soil pose health hazards. This act, which has been amended, is administered by the Environmental Protection Agency. Under the act, pesticides must be registered with the EPA before they can be sold. The EPA may suspend the registration of a pesticide that it finds poses an imminent danger or emergency. Diff: 2 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept
30 C..
101) What is the Superfund law? What does the Superfund law empower the Environmental Protection Agency to do? Answer: In 1980, Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which is commonly called "Superfund." The act is administered by the Environmental Protection Agency and gives the federal government a mandate to deal with hazardous wastes that have been spilled, stored, or abandoned. The act provides for the creation of a government fund to finance the cleanup of hazardous waste sites (hence the name Superfund). The fund is financed through taxes on chemicals, feedstock, motor fuels, and other products that contain hazardous substances. The Superfund requires the EPA to (1) identify sites in the United States where hazardous wastes have been disposed of, stored, abandoned, or spilled, and (2) rank these sites regarding the severity of the risk. The hazardous waste sites with the highest ranking receive first consideration for cleanup. The EPA can order a responsible party to clean up a hazardous waste site. If that party fails to do so, the EPA can spend Superfund money to clean up the site and recover the cost of the cleanup from responsible parties. The Superfund imposes strict liability–that is, liability without fault. The EPA can recover the cost of the cleanup from (1) the generator who deposited the wastes, (2) the transporter of the wastes to the site, (3) the owner of the site at the time of the disposal, and (4) the current owner and operator of the site. The EPA has the authority to clean up hazardous sites quickly to prevent fire, explosion, contamination of drinking water, and other imminent danger. Diff: 2 Skill: Legal Concepts LO: 24.5 Explain how environmental laws regulate the use of toxic substances and the disposal of hazardous wastes. AACSB: Analytical thinking Classification: Concept 102) Which of the following is true of the Endangered Species Act? A) It is the only federal law that currently protects wildlife. B) It empowers the U.S. Secretary of the Interior to declare a form of wildlife as endangered. C) It does not include marine species and amphibian life. D) It applies only to the government taking of any endangered species. Answer: B Diff: 1 Skill: Legal Concepts LO: 24.6 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept
31 C..
103) The Secretary of Commerce is empowered to enforce the provisions of the ________ Act that protect endangered marine species. A) Sea Creatures B) Marine Wildlife C) Clean Water D) Endangered Species Answer: D Diff: 1 Skill: Legal Concepts LO: 24.6 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept 104) The Endangered Species Act requires the EPA and the Department of Commerce to designate ________ for each endangered and threatened species, where real estate and other development is prohibited or severely limited. A) national landmark areas B) natural homelands C) vital ecosystems D) critical habitats Answer: D Diff: 1 Skill: Legal Concepts LO: 24.6 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept 105) The Endangered Species Act prohibits the "taking" of any endangered species. "Taking" is defined so as to include an act intended to "________, harm, pursue, hunt, shoot, wound, kill, trap, capture, or collect" an endangered animal. A) feed B) harass C) adopt D) film Answer: B Diff: 1 Skill: Legal Concepts LO: 24.6 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept
32 C..
106) 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 Skill: Legal Concepts LO: 24.6 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept 107) The Endangered Species Act applies only to private parties. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 24.6 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept 108) 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 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. Diff: 1 Skill: Legal Concepts LO: 24.6 Describe how the Endangered Species Act protects endangered and threatened species and their habitats. AACSB: Analytical thinking Classification: Concept
33 C..
109) ________ statutes and ordinances to protect the environment. A) Many state and local governments have enacted B) Federal law outlaws state and local C) Few state and local governments have enacted D) The U.S. Constitution prohibits state and local Answer: A Diff: 1 Skill: Legal Concepts LO: 24.7 Describe state environmental protection laws. AACSB: Analytical thinking Classification: Concept 110) Give an account of state environmental protection laws. Answer: Many state and local governments have enacted statutes and ordinances to protect the environment. Most states require that an 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. Examples: Florida has enacted laws to protect the Everglades subtropical landscape, California has enacted laws to protect its Pacific Ocean coastline, Washington has enacted laws to protect the water ecosystem of Puget Sound, and Alaska has enacted laws to protect its wilderness areas. Diff: 1 Skill: Legal Concepts LO: 24.7 Describe state environmental protection laws. AACSB: Analytical thinking Classification: Concept
34 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 25 Real Property and Land Use Regulation 1) Land as well as buildings, trees, soil, minerals, timber, plants, and other things permanently affixed to the land are known as ________ property. A) intellectual B) intangible C) personal D) real Answer: D Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 2) A(n) ________ is an example of real property. A) building B) patent C) automobile D) framed painting Answer: A Diff: 1 Skill: Legal Concepts LO: 25.1 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 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept
1 C..
4) The rights to the earth located beneath the surface of the land are referred to as ________ rights. A) chattel B) air C) mineral D) joint Answer: C Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 5) Which of the following is true of subsurface rights in real property? A) Subsurface rights cannot be used to mine exhaustible natural resources. B) Subsurface rights can be sold separately from surface rights. C) Subsurface rights are not provided for the discovery of malleable metals like gold and iron. D) Subsurface rights can only be invoked to dig oil wells. Answer: B Diff: 1 Skill: Legal Concepts LO: 25.1 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 ________ property. A) intangible B) real C) personal D) community Answer: B Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept
2 C..
7) Plant life that is severed from the land is considered ________ property. A) intangible B) immovable C) real D) personal Answer: D Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 8) What is a fixture? A) personal property so closely associated with real property that it becomes part of the realty B) an intangible asset created within the parameters of certain real property C) a component of real property that is easily transferrable without substantial damage to the real property D) a tangible, physical item that cannot be classified as real property Answer: A Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 9) Air rights enable the owner of property to ________. A) develop cultivated plant life on the land B) drill into the earth to utilize groundwater for personal use C) rent or sell the space above the property for commercial purposes D) create fixtures that become a part of the real estate sales contract Answer: C Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept
3 C..
10) Certain personal property is so closely associated with real property that it becomes part of the realty. Such items are called ________. A) fixtures B) intangible property C) real property D) surreal property Answer: A Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 11) Buildings constructed on land are considered personal property. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 12) A bridge is an example of real property. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 13) Subsurface rights cannot be sold separately from surface rights. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 14) Plant life and vegetation growing on the surface of land are considered personal property. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept
4 C..
15) Kitchen cabinets in a building are considered fixtures. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.1 List and describe the different types of real property. AACSB: Analytical thinking Classification: Concept 16) The legal right a real property owner has to possess, use, and enjoy the property is known as a(n) ________. A) future interest B) estate in land C) easement right D) estoppel by deed Answer: B Diff: 1 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept 17) A(n) ________ is an estate in which the owner has a present possessory interest in the real property. A) servient estate B) freehold estate C) future interest D) easement Answer: B Diff: 1 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept 18) ________ 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 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept 5 C..
19) Which of the following is true of a 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 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept 20) 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 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept 21) A ________ 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) life estate Answer: C Diff: 1 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept
6 C..
22) ________ 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 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept 23) 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 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept 24) A life estate that is measured by the life of a third party is referred to as ________. A) an estate pour autre vie B) a servient estate C) community property D) a quid pro quo Answer: A Diff: 1 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. 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 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept
7 C..
26) If a person owns real property in fee simple, his or her ownership is limited in duration. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. 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 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept 28) The person who is given a life estate is called the life tenant. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. 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 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. 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 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept
8 C..
31) 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: 2 Skill: Legal Concepts LO: 25.2 Describe the different types of freehold estates and life estate. AACSB: Analytical thinking Classification: Concept 32) A ________ is a form of co-ownership that includes the right of survivorship. A) tenancy in common B) joint tenancy C) cooperative D) tenancy by the entirety Answer: B Diff: 1 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 33) Horace, Keith, and John own Rendezvous, a luxury dining restaurant, as joint tenants. After the death of Horace, Keith and John became the owners of Horace's interest in the property automatically. This feature of concurrent ownership is called ________. A) a quiet title action B) adverse possession C) a nonconforming use D) the right of survivorship Answer: D Diff: 1 Skill: Factual Application LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application
9 C..
34) 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 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 35) Karen, Kelsey, Rita, and Lizzi own a large commercial building as concurrent owners. They are tenants with the right to survivorship. Lizzi sells a quarter of her interest in the building to Stella. What kind of concurrent ownership exists between Karen, Kelsey, Rita, and Stella? A) a tenancy in common B) a tenancy by the entirety C) a joint tenancy D) a community property Answer: A Diff: 2 Skill: Factual Application LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application 36) 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 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept
10 C..
37) 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 passes away, his ownership interest in the building is acquired by the two remaining tenants of the building. Which of the following kinds of concurrent ownership would allow such a passage of title? A) a tenancy by the entirety B) a community property C) a joint tenancy D) a tenancy in common Answer: C Diff: 2 Skill: Factual Application LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application 38) Kate, Kelly, Rita, and Lucy own a large commercial building as joint tenants with a right of survivorship. Kate sells her one-quarter interest in the building to Bao. After the sale, Bao, Kelly, Rita, and Lucy are ________. A) joint tenants, with a right of survivorship B) tenants by the entirety, with no right of survivorship C) tenants in common, with no right of survivorship D) tenants by the entirety, with a right of survivorship Answer: C Diff: 2 Skill: Factual Application LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application 39) 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 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept
11 C..
40) Martin, who owned a piece of land 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) joint tenancy B) tenancy in common C) tenancy by the entirety D) community property Answer: B Diff: 2 Skill: Factual Application LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application 41) A ________ 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 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 42) Which of the following is true of a tenancy by the entirety? A) It can only be formed by and between corporations. B) It does not include the right of survivorship. C) It cannot be created by express words alone. D) It cannot be transferred by one of the tenants without the consent of the other. Answer: D Diff: 1 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept
12 C..
43) 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) condominium Answer: B Diff: 1 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 44) Jonas is a successful investment banker who earns $400,000 per year. He marries Penny, a nurse at a county hospital. At the time of their marriage, Jonas owns real estate worth $1 million and securities worth $1.5 million, while Penny has no savings or property. After four years, Jonas and Penny opt for a divorce. Over the four years of their marriage, Jonas earns $400,000 in the first two years and $500,000 in the remaining two. Penny earns $25,000 in the first three years and $150,000 in the final year of their marriage. Their living expenses were $130,000 per year, and they have $1,450,000 of their earnings saved in a bank account. During the marriage, Jonas's real estate increases in value to $1.5 million, and his securities increase in value to $3 million. If they file for divorce in a state that recognizes community property, what amount would each receive from community property? A) $1,300,000 B) $2,297,500 C) $725,000 D) $1,050,000 Answer: C Diff: 2 Skill: Factual Application LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application
13 C..
45) Ben is a successful investment banker who earns $400,000 per year. Ben marries Elena, a nurse at a county hospital. At the time of their marriage, Ben owns real estate worth $1 million and securities worth $1.5 million, while Elena has no savings or property. After four years, Ben and Elena opt for a divorce. Over the four years of their marriage, Ben earns $400,000 in the first two years and $500,000 in the remaining two. Elena earns $25,000 in the first three years and $150,000 in the final year of their marriage. Their living expenses were $130,000 per year, and they have $1,450,000 of their earnings saved in a bank account. During the marriage, Ben's real estate increases in value to $1.5 million, and his securities increase in value to $3 million. If Ben and Elena file for divorce in a state that recognizes community property, what would be Ben's share of the real estate and securities holdings at the end of their marriage? A) real estate worth $1 million and securities worth $1.5 million B) real estate worth $500,000 and securities worth $2.5 million C) real estate worth $1.5 million and securities worth $3 million D) real estate worth $2.5 million and securities worth $2 million Answer: C Diff: 2 Skill: Factual Application LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Application of knowledge Classification: Application 46) In a joint tenancy, upon the death of one of the co-owners, or joint tenants, the deceased person's interest in the property automatically passes to the remaining joint tenant or joint tenants. This is due to the co-owners' ________. A) estate in land B) adverse possession C) nonconforming use D) right of survivorship Answer: D Diff: 1 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 47) Tenancy by the entirety is a form of co-ownership of real property that can be used only by ________. A) married couples B) religious orders C) nonprofit organizations D) siblings dividing their parents' estate Answer: A Diff: 1 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 14 C..
48) In community property, property that is acquired through gift or inheritance either before or during marriage is considered ________. A) community property B) separate property C) intestate property D) joint property Answer: B Diff: 1 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 49) A deceased joint tenant's will is effective over the right to survivorship. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 50) A joint tenant does not have the right to sell or transfer his or her interest in the property. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 51) 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 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 52) A surviving spouse in a tenancy by the entirety has the right of survivorship. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept
15 C..
53) Separate property is included in community property. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 54) Give an account of concurrent ownerships in multiple-dwelling buildings. Answer: Condominiums and cooperatives are two types of concurrent ownerships in multipledwelling buildings. 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, such as hallways, elevators, parking areas, and 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 Skill: Legal Concepts LO: 25.3 Identify and describe the different types of concurrent ownership of real property. AACSB: Analytical thinking Classification: Concept 55) A future interest in real property refers to ________. A) an interest in real property that involves actual and current possession B) an interest in an estate that represents the highest form of ownership C) an interest in real property that has been sold or permanently transferred to a third party D) an interest in real property that a grantor retains for himself or herself or a third party Answer: D Diff: 1 Skill: Legal Concepts LO: 25.4 Identify and describe the different types of future interests in real property. AACSB: Analytical thinking Classification: Concept
16 C..
56) 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 Skill: Legal Concepts LO: 25.4 Identify and describe the different types of future interests in real property. AACSB: Analytical thinking Classification: Concept 57) Which of the following defines a form of future interest in real property known as a remainder? 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 on 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 Skill: Legal Concepts LO: 25.4 Identify and describe the different types of future interests in real property. AACSB: Analytical thinking Classification: Concept 58) A reversion is a right of possession that returns to ________ after the expiration of a limited or contingent estate. A) the grantor B) a third party C) a third party's decedent's estate D) the county recorder of deeds Answer: A Diff: 1 Skill: Legal Concepts LO: 25.4 Identify and describe the different types of future interests in real property. AACSB: Analytical thinking Classification: Concept
17 C..
59) The two forms of future interests in rights of possession are reversion and ________. A) return B) remainder C) escrow D) replevin Answer: B Diff: 1 Skill: Legal Concepts LO: 25.4 Identify and describe the different types of future interests in real property. AACSB: Analytical thinking Classification: Concept 60) Reversion occurs when the rights of possession return to a third party upon the expiration of a limited estate. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.4 Identify and describe the different types of future interests in real property. AACSB: Analytical thinking Classification: Concept 61) A remainder is an example of a future interest. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.4 Identify and describe the different types of future interests in real property. AACSB: Analytical thinking Classification: Concept 62) Which of the following is the implied default title conveyed in the sale of real estate? A) life estate B) servient estate C) fee simple absolute D) fee simple defeasible Answer: C Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept
18 C..
63) A(n) ________ is an instrument used to convey real property by sale or gift. A) indenture B) deed C) license D) easement Answer: B Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 64) 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 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 65) 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 ________ deed. A) quitclaim B) general warranty C) grand D) special warranty Answer: A Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept
19 C..
66) What is a quiet title action? A) a lawsuit to determine the rightful owner of disputed real property and his or her rights B) a lawsuit to enforce the right of survivorship against the holder of title to real property C) a lawsuit asking for the judicial conversion of a joint tenancy to a tenancy in common D) a lawsuit to obtain reimbursement for losses caused by undiscovered defects in title Answer: A Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 67) A ________ deed contains the greatest number of warranties and provides the highest level of protection to a grantee. A) quitclaim B) general warranty C) limited warranty D) special warranty Answer: B Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 68) Under a ________ deed, the seller is not liable for defects in title that existed before the seller obtained the property or for encumbrances that were present when the seller obtained the property. A) quitclaim B) general warranty C) pre-existing warranty D) special warranty Answer: D Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept
20 C..
69) ________ deeds are most often used when property is transferred between relatives by gift or otherwise. A) Quitclaim B) General warranty C) Limited warranty D) Familial warranty Answer: A Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 70) The Statute of Frauds requires real estate sales contracts to be in writing. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 71) A deed can only be used to transfer a fee simple absolute interest in real property. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 72) A general warranty deed contains the greatest number of warranties and provides the highest level of protection to a grantee. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 73) Under a special warranty deed, the seller is liable for defects in title that existed before the seller obtained the property. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 21 C..
74) Recording a deed gives constructive notice to the world of the owner's interest in the property. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 75) 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 (such as 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. Often, a buyer of real estate will purchase title insurance to cover this risk. Diff: 1 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 76) 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, such as mortgages, liens, and 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, such as lienholders, mortgagees, and easement holders, have an interest in the property. The recording 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 Skill: Legal Concepts LO: 25.5 Explain how ownership interests in real property can be transferred. AACSB: Analytical thinking Classification: Concept 22 C..
77) ________ 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) Equitable servitude C) A non-possessory interest D) A future interest Answer: A Diff: 1 Skill: Legal Concepts LO: 25.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept 78) Which of the following statements about adverse possession is true? A) Adverse possession requires the delivery of a deed. B) Adverse possession covers all property, including those owned by federal and state governments. C) Adverse possession requires continuous and uninterrupted occupancy of the property. D) Adverse possession covers only voluntary occupancy obtained with the express or implied permission of the owner. Answer: C Diff: 1 Skill: Legal Concepts LO: 25.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept 79) Under the doctrine of ________, the transfer of the property is involuntary and does not require the delivery of a deed. A) adverse possession B) equitable servitude C) a non-possessory interest D) a future interest Answer: A Diff: 1 Skill: Legal Concepts LO: 25.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept
23 C..
80) Properties owned by state and federal governments are subject to the doctrine of adverse possession. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept 81) The doctrine of adverse possession requires the delivery of the deed for the transfer of property to be valid. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept 82) To obtain title under adverse possession, the adverse possessor must physically occupy the property. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept
24 C..
83) What is adverse possession, and what are the usual requirements to achieve it? Answer: Adverse possession is the term for the situation where a person who wrongfully possesses someone else's real property can obtain title to that property. In most states, certain statutory requirements need to be met to obtain title under adverse possession, including: • the transfer of the property is involuntary and does not require the delivery of a deed; • the wrongful possession must be: ∘ for a statutorily prescribed period of time (this varies from state to state, but is usually between 7 and 20 years); ◦ open, visible, and notorious, that is, the adverse possessor must occupy the property so as to put the owner on notice of the possession; ◦ actual and exclusive, that is, the adverse possessor must physically occupy the premises; ◦ continuous and peaceful, that is, the occupancy must be continuous and uninterrupted for the required statutory period, and the adverse possessor cannot take the property by force from an owner; ◦ hostile and adverse, that is, the possessor must occupy the property without the express or implied permission of the owner; and • the property must not be owned by federal, state, or local government. Diff: 2 Skill: Legal Concepts LO: 25.6 Describe and apply the doctrine of adverse possession. AACSB: Analytical thinking Classification: Concept 84) If a person holds an interest in another person's property without actually owning any part of the property, this is known as a ________. A) present possessory interest B) future interest C) reversion D) nonpossessory interest Answer: D Diff: 1 Skill: Legal Concepts LO: 25.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept
25 C..
85) 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 Skill: Legal Concepts LO: 25.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept 86) An easement is an example of a nonpossessory interest in another's real property. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept
26 C..
87) What is an easement and how is it created? Answer: A person may own a nonpossessory interest in another's real estate, such as an easement. 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 or roads, walking paths, party walls, and rights-of-way. Easements can be created expressly, they can be implied, or they can exist by prescription. These methods of creating easements are: 1. Express easements — Easements can be expressly created. Express easements include the following: • Easement by grant — This occurs where an owner expressly grants another party an easement across his or her property. • Easement by reservation — This occurs where an owner sells land that he or she owns to another party, but reserves an easement on the sold land. 2. Implied easements — Easements can be implied. Implied easements include: • Easement by implication Example: This occurs where an owner subdivides a piece of property that has a well, path, road, or other beneficial appurtenant on it that serves the entire parcel. The purchasers of individual pieces of property have an implied easement to use the well, path, road, or other beneficial appurtenant. • Easement by necessity Example: A party who owns a piece of "landlocked" property that does not have any egress out of or ingress into the property is granted an implied easement to cross a surrounding piece of property to reach a road so that the owner of the landlocked property can enter and exit his or her property. 3. Easements by prescription — Easements can be created by prescription. This is called an easement by prescription. Example: A person has been using a road that crosses another person's property and meets the statutory requirements for adverse possession. In this example, the person that has been using the road acquires an easement by prescription, that is, by adverse possession. Diff: 2 Skill: Legal Concepts LO: 25.7 List and describe the different types of easements. AACSB: Analytical thinking Classification: Concept
27 C..
88) A landlord-tenant relationship is characterized by ________. A) transfer of title to the tenant B) the tenant's receipt of a non-freehold estate C) the creation of a future interest for the tenant D) the tenant's fee simple absolute ownership of the leased property Answer: B Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 89) An estate in which the tenant has the right to possess the real property but does not own title to the property is called a ________. A) fee simple absolute estate B) gifted estate C) non-freehold estate D) fee tail estate Answer: C Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 90) A tenant's interest in real property is called a ________ estate. A) fee tail B) free simple absolute C) gifted D) leasehold Answer: D Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept
28 C..
91) A rental agreement between a landlord and a tenant is known as a ________. A) title transfer B) lease C) novation D) deed Answer: B Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 92) A tenancy created when a landlord and a tenant agree on a specific duration for a lease is known as a ________. A) tenancy for years B) tenancy for life C) tenancy by the entirety D) tenancy at sufferance Answer: A Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 93) A tenancy created when a lease specifies intervals at which payments are due but does not specify the duration of the lease is known as a ________. A) tenancy at sufferance B) life tenancy C) periodic tenancy D) tenancy at will Answer: C Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept
29 C..
94) If a person lives in a house and pays rent on a monthly basis, which of the following types of tenancy would that represent? A) tenancy at will B) tenancy at sufferance C) life tenancy D) periodic tenancy Answer: D Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 95) What is a tenancy at will? A) a tenancy created when a lease specifies intervals at which payments are due, but does not specify the duration of the lease 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 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 96) 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) tenancy for life B) tenancy at will C) tenancy at sufferance D) tenancy for years Answer: C Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept
30 C..
97) 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 action brought against the landlord for breach of the implied warranty of habitability C) a lawsuit brought by the 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 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 98) Which of the following forms of tenancy involves the possession of property without right? A) tenancy at sufferance B) tenancy for life C) tenancy for years D) tenancy at will Answer: A Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 99) Which of the following is true in most states regarding a tenancy at sufferance? A) It can be terminated only after an eviction proceeding. B) It cannot be terminated, as the holdover tenant has title. C) It has a specific time period before expiration. D) It requires a notice period that equals the length of the payment period. Answer: A Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 100) In a landlord-tenant relationship, the tenant receives a nonfreehold estate in the real property. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept
31 C..
101) A rental agreement between a landlord and a tenant is called a lease. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 102) Any lease for a stated period, irrespective of its duration, is called a periodic tenancy. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 103) A tenancy for years terminates automatically, without notice, upon the expiration of the stated term. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 104) In a periodic tenancy, the notice period is usually the same as the length of the payment period. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 105) The death of one of the parties of a tenancy at will does not terminate the contract. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept
32 C..
106) A tenant at sufferance is liable for the payment of rent during the period of sufferance. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 107) 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. It 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. For example, Bank of America's lease of a branch office would be negotiated with the owner of the building. Diff: 2 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 108) Compare and contrast: a gross lease, a modified gross lease, a net lease, a double net lease, and a triple net lease. Answer: A tenant owes a duty to pay the landlord the agreed-on amount of rent for the leased premises at the agreed-on time and terms. What exactly the tenant is paying for depends in large measure on what type of lease is involved. With a gross lease, the tenant pays a gross sum to the landlord. The landlord is responsible for paying the utilities, insurance, property taxes, and assessments on the property. If a tenant is responsible for paying rent and utilities, it is called a modified gross lease, which is often used in residential leases. With a net lease, the tenant is responsible for paying rent and property taxes. In a double net lease arrangement, the tenant is responsible for paying rent, property taxes, and utilities. Finally, in a triple net lease (or a net, net, net lease), the tenant is responsible for paying rent, property taxes, utilities, and insurance. Diff: 2 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept
33 C..
109) What is the implied warranty of habitability? Where and when does it apply? Give examples of what conditions would and would not constitute a breach of this warranty. What remedies are available to an aggrieved tenant? 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. Unchecked rodent infestation, leaking roofs, and unworkable bathroom facilities have each been held to breach the implied warranty of habitability. On the other hand, a small crack in a wall or some paint peeling from a door does not breach this warranty. State statutes and judicial decisions provide various remedies if a landlord's failure to maintain or repair leased premises affects the tenant's use or enjoyment. Generally, the tenant may (1) withhold from the rent the amount by which the defect reduced the value of the premises to the tenant, (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: 2 Skill: Legal Concepts LO: 25.8 Define a landlord-tenant relationship and describe how it is created. AACSB: Analytical thinking Classification: Concept 110) Which of the following legislation makes it unlawful for a party to refuse to sell, rent, finance, or advertise housing to any person because of his or her race, color, national origin, sex, religion, disability, or family status? 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 Skill: Legal Concepts LO: 25.9 List and describe the civil rights and fair housing laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 111) The Fair Housing Act of 1968 does not apply to a person who leases a single-family dwelling and does not own more than three single-family dwellings. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.9 List and describe the civil rights and fair housing laws that apply to real estate. AACSB: Analytical thinking Classification: Concept
34 C..
112) The Fair Housing Act specifically prohibits discrimination against disabled individuals in employment, public services, public accommodations, and services. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.9 List and describe the civil rights and fair housing laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 113) The Americans with Disabilities Act applies only to places of accommodation operated by public entities. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.9 List and describe the civil rights and fair housing laws that apply to real estate. AACSB: Analytical thinking Classification: Concept 114) 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) deviance C) dominant estate D) servient estate Answer: A Diff: 1 Skill: Legal Concepts LO: 25.10 Describe zoning laws and how they apply to real property. AACSB: Analytical thinking Classification: Concept 115) Uses for real estate and buildings that already exist in a zoned area that are permitted to continue even though they do not fit within a new zoning use established for the area are known as ________ uses. A) variant B) deviant C) nonconforming D) servient Answer: C Diff: 1 Skill: Legal Concepts LO: 25.10 Describe zoning laws and how they apply to real property. AACSB: Analytical thinking Classification: Concept
35 C..
116) 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, that is, 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. If landowners believe that a zoning ordinance is illegal or that it has been unlawfully applied to them or their property, they may institute a court proceeding, seeking judicial review of the ordinance or its application. An owner who wants to use his or her property for a use different from that permitted under a current zoning ordinance may seek relief from the ordinance by obtaining a variance. To obtain a variance, the landowner must prove that the ordinance causes an undue hardship by preventing him or her from making a reasonable return on the land as zoned. Variances are usually difficult to obtain. 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 Skill: Legal Concepts LO: 25.10 Describe zoning laws and how they apply to real property. AACSB: Analytical thinking Classification: Concept 117) The ________ Clause of the Fifth Amendment to the U.S. Constitution allows the government to take private property for public use. A) Takings B) Just Compensation C) Double Jeopardy D) Ratification Answer: A Diff: 1 Skill: Legal Concepts LO: 25.11 Describe the government's power of eminent domain in taking real property. AACSB: Analytical thinking Classification: Concept
36 C..
118) The process by which the government can acquire private property for public use is known as ________. A) a remainder B) constructive eviction C) adverse possession D) eminent domain Answer: D Diff: 1 Skill: Legal Concepts LO: 25.11 Describe the government's power of eminent domain in taking real property. AACSB: Analytical thinking Classification: Concept 119) Which of the following is true of the government's exercise of eminent domain? A) It does not allow the owner of the property to make a case for keeping the property. B) It requires the government to compensate the property owner. C) It does not apply to state and local governments. D) It allows the government to set up zoning areas. Answer: B Diff: 1 Skill: Legal Concepts LO: 25.11 Describe the government's power of eminent domain in taking real property. AACSB: Analytical thinking Classification: Concept 120) The Due Process Clause of the Fifth Amendment to the U.S. Constitution requires the government to compensate the property owner when it exercises the power of eminent domain. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.11 Describe the government's power of eminent domain in taking real property. AACSB: Analytical thinking Classification: Concept 121) The compensation provided by the government for its exercise of the power of eminent domain is final and cannot be disputed further. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 25.11 Describe the government's power of eminent domain in taking real property. AACSB: Analytical thinking Classification: Concept
37 C..
122) The power of eminent domain allows the government to take private property for public use after paying just compensation. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 25.11 Describe the government's power of eminent domain in taking real property. AACSB: Analytical thinking Classification: Concept
38 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 26 International and World Trade Law 1) Which of the following statements is true about 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 all international laws is regulated by a unitary world executive branch. C) There is no single legislative source from which all international laws are created. D) All countries have to follow the international laws enacted by other countries. Answer: C Diff: 1 Skill: Legal Concepts LO: 26.1 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 constitutional provisions give the federal government the authority to regulate foreign affairs? A) the Due Process Clause and the 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 Skill: Legal Concepts LO: 26.1 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, it violates the ________ Clause of the U.S. Constitution. A) Equal Protection B) Foreign Commerce C) Privileges and Immunities D) Due Process Answer: B Diff: 1 Skill: Legal Concepts LO: 26.1 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
1 C..
4) Which of the following statements is true of the Treaty Clause? A) It provides that the president can make treaties autonomously. B) It provides that the president can enter into treaties with two-thirds senate approval. 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 Skill: Legal Concepts LO: 26.1 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, the ________ is seen as the agent of the United States in dealing with foreign countries. A) United Nations (UN) Secretariat B) U.S. president C) United Nations (UN) D) U.S. Senate Answer: B Diff: 1 Skill: Legal Concepts LO: 26.1 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 defined as a(n) ________. A) statute B) charter C) treaty D) arraignment Answer: C Diff: 1 Skill: Legal Concepts LO: 26.1 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 C..
7) Treaties arranged by international organizations like the United Nations (UN) are known as ________. A) arraignments B) easements C) amendments D) conventions Answer: D Diff: 1 Skill: Legal Concepts LO: 26.1 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) Under the ________ Clause of the Constitution, treaties become part of the "law of the land," and conflicting state or local law is void. A) Supremacy B) Foreign Commerce C) Privileges and Immunities D) Due Process Answer: A Diff: 1 Skill: Legal Concepts LO: 26.1 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) Conventions are treaties that are sponsored by ________. A) political parties B) international organizations C) national nonprofit organizations D) grass-root movements Answer: B Diff: 1 Skill: Legal Concepts LO: 26.1 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 C..
10) The U.S. Constitution divides the power to regulate foreign affairs equally between the federal and state governments. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.1 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) 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 Skill: Legal Concepts LO: 26.1 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 12) Under the Treaty Clause, both the federal government and state governments can enter into treaties with foreign nations. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.1 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) 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 Skill: Legal Concepts LO: 26.1 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 C..
14) 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 two-thirds 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 Skill: Legal Concepts LO: 26.1 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 15) 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 (UN) B) League of Nations C) General Agreement on Tariffs and Trade (GATT) D) World Trade Organization (WTO) Answer: A Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 16) The General Assembly of the United Nations (UN) is ________. A) a special task committee that addresses the socioeconomic problems of the United States B) the legislative body of the UN 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) an autonomous committee that administers the day-to-day operations of the UN Answer: B Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept
5 C..
17) Which of the following branches of the United Nations (UN) 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 (ICJ) Answer: C Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 18) Which of the following is headed by the secretary-general of the United Nations (UN)? A) the International Court of Justice (ICJ) B) the Secretariat C) the Security Council D) the General Assembly Answer: B Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 19) 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 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept
6 C..
20) Which of the following is an example of an autonomous agency of the United Nations (UN)? A) the North Atlantic Treaty Organization (NATO) B) the Security Council C) the World Trade Organization (WTO) D) the International Monetary Fund (IMF) Answer: D Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 21) The ________ is a body that prosecutes 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 (ICJ) D) International Monetary Fund (IMF) Answer: C Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 22) Which of the following statements is true of the International Court of Justice (ICJ)? A) It is the executive branch of the United Nations (UN) that helps interpret international law. B) It only hears cases of nations, not of individuals or businesses. C) It does not have the authority to hear cases involving treaties. D) It is headed by the secretary-general of the United Nations (UN). Answer: B Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept
7 C..
23) The World Bank ________. A) is an autonomous agency under the organizational framework of the European Union B) is an agency that monitors the financial partnerships taking place in the eurozone C) is primarily responsible for promoting sound monetary, fiscal, and macroeconomic policies in developed countries D) provides money to developing countries to fund projects for humanitarian purposes and to relieve poverty Answer: D Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 24) All United Nations (UN) members are part of the ________, which is the legislative body of the UN. A) General Assembly B) Security Council C) Secretariat D) Executive Council Answer: A Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 25) The International Court of Justice is the ________ branch of the United Nations. A) executive B) judicial C) peace-keeping D) legislative Answer: B Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept
8 C..
26) The Secretariat administers the ________ operations of the United Nations (UN). A) peace-keeping B) law enforcement C) judicial D) day-to-day Answer: D Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 27) The United Nations (UN) Security Council, composed of ________ member nations, is primarily responsible for maintaining international peace and security and has authority to use armed force. A) 5 B) 15 C) 51 D) 193 Answer: B Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 28) Which of the following is true of the International Monetary Fund (IMF)? A) It consists of representatives from all states located in the United States. B) It is funded by the Superfund of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). C) It promotes sound monetary, fiscal, and macroeconomic policies worldwide by providing assistance to poor countries. D) It provides one-time grants to needy countries with no terms or conditions attached to the assistance. Answer: C Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept
9 C..
29) The United Nations (UN) Security Council is composed of all the UN member nations. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 30) The United Nations (UN) does not allow permanent membership of the Security Council to any member nation. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 31) The United Nations (UN) Secretariat is headed by the secretary-general of the UN. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 32) The secretary-general of the United Nations (UN) is elected by the Security Council. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 33) The World Bank is an example of an autonomous agency that is a part of the UN. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept
10 C..
34) The United Nations (UN) secretary-general may refer matters that threaten international peace and security to the Security Council and use his or her office to help solve international disputes. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 35) The International Court of Justice (ICJ) is composed of 15 judges who serve nine-year terms. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 36) 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 (ICJ). Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 37) Only individuals or businesses, not nations, can have cases decided by the International Court of Justice (ICJ). Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept
11 C..
38) 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 regional offices elsewhere throughout the world. The World Bank provides money to developing countries to fund projects for humanitarian purposes and to relieve poverty. The World Bank provides funds to build roads, construct dams, and build 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 Skill: Legal Concepts LO: 26.2 Describe the functions, governance, and organizations of the United Nations. AACSB: Analytical thinking Classification: Concept 39) The ________ 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) Eastern Bloc B) Common Market C) North Atlantic Treaty Organization (NATO) D) European Union (EU) Answer: D Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 40) Which of the following statements is true of the European Union (EU)? A) All issues have to be passed unanimously by EU members to be enforced. B) Every EU country has adopted the euro as its monetary unit. C) Customs duties have been eliminated among EU member nations. D) Customs duties in trade between the EU and the rest of the world have been completely eliminated. Answer: C Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept
12 C..
41) The European Union's (EU's) ________ is composed of representatives from each member country who meet periodically to coordinate efforts to fulfill the objectives of the treaty. A) Security Council B) Council of Ministers C) Executive Committee D) Politburo Answer: B Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 42) The countries that have voted to use the euro comprise the ________. A) eurozone B) Common Market C) Europa League D) Eurovision Answer: A Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 43) European Union was formerly called the ________. A) European Community, or Common Market B) League of Nations C) North Atlantic Treaty Organization D) Benelux Answer: A Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept
13 C..
44) Which of these nations is a member of the European Union? A) Switzerland B) Malta C) Russia D) the Vatican Answer: B Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 45) The European Union treaty provides for the free flow of ________ among member nations. A) military resources B) water C) tax funds D) capital, labor, goods, and services Answer: D Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 46) In 2016, ________ voted to leave the EU. A) the United Kingdom B) Luxembourg C) Turkey D) Switzerland Answer: A Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept
14 C..
47) Member nations of the European Union ________. A) have surrendered substantial sovereignty to the EU B) retain all the sovereignty they had before joining the EU C) surrender only limited sovereignty with regards to customs among member nations D) surrender only limited sovereignty so that the EU can act uniformly with regards to tariffs with other nations Answer: A Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 48) A unanimous vote of existing European Union (EU) members is needed to admit a new member country. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 49) The European Union (EU) treaty creates open borders for trade by providing for the free flow of capital, labor, goods, and services among member nations. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 50) The European Union Commission has delegated substantial powers to individual member nations to enact legislation and take enforcement actions to ensure compliance with the European Union (EU) treaty. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept
15 C..
51) Under the European Union (EU), customs duties have been eliminated among member nations. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 52) The euro can be used in all countries of the eurozone. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 53) Describe the administration of the European Union. Answer: The European Union's Council of Ministers is composed of representatives from each member country who meet periodically to coordinate efforts to fulfill the objectives of the treaty. The council votes on significant issues and changes to the treaty. Some matters require unanimity, whereas others require only a majority vote. The member nations have surrendered substantial sovereignty to the EU. The European Union Commission, which is independent of its member nations, is charged to act in the best interests of the union. The member nations have delegated substantial powers to the commission, including authority to enact legislation and to take enforcement actions to ensure member compliance with the treaty. Diff: 2 Skill: Legal Concepts LO: 26.3 Describe the European Union (EU) and list the countries that belong to the EU. AACSB: Analytical thinking Classification: Concept 54) The ________ is a trilateral treaty that has removed or reduced tariffs, duties, quotas, and other trade barriers between the United States, Canada, and Mexico. A) Western Hemispheric Bloc B) North American Free Trade Agreement (NAFTA) C) Central America Free Trade Agreement (CAFTA) D) General Agreement on Tariffs and Trade (GATT) Answer: B Diff: 1 Skill: Legal Concepts LO: 26.4 Describe the North American Free Trade Agreement (NAFTA) and list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept
16 C..
55) Which of the following statements is true of the North American Free Trade Agreement (NAFTA)? A) It allows a member country to reinstitute tariffs if an import surge from one of the other nations hurts its economy or workers. B) It has significantly improved the environment in Mexico due to its strict pollution measures that are mandatory on all member nations. C) It disallows a NAFTA member from trading with another country without the consent of the other member nations. D) It has been hailed by economists as a perfect example of a free trade pact. Answer: A Diff: 1 Skill: Legal Concepts LO: 26.4 Describe the North American Free Trade Agreement (NAFTA) and list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept 56) The NAFTA is a treaty between ________ to create a free trade zone between the three countries. A) the United States, France, and the United Kingdom B) Russia, China, and Cuba C) Honduras, Nicaragua, and Belize D) the United States, Mexico, and Canada Answer: D Diff: 1 Skill: Legal Concepts LO: 26.4 Describe the North American Free Trade Agreement (NAFTA) and list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept 57) While NAFTA has eliminated or reduced most of the duties, tariffs, quotas, and other trade barriers among Mexico, the United States, and Canada, it also includes special protection for favored industries. As such, many economists assert that NAFTA is ________. A) a free trade pact B) a managed trade agreement C) an open borders treaty D) identical to the European Union treaty Answer: B Diff: 1 Skill: Legal Concepts LO: 26.4 Describe the North American Free Trade Agreement (NAFTA) and list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept
17 C..
58) The North American Free Trade Agreement (NAFTA) is a bilateral treaty between the United States and Mexico. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.4 Describe the North American Free Trade Agreement (NAFTA) and list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept 59) 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. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.4 Describe the North American Free Trade Agreement (NAFTA) and list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept 60) What are the implications of the North American Free Trade Agreement (NAFTA) treaty? Answer: NAFTA has eliminated or reduced most of the duties, tariffs, quotas, and other trade barriers between 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 Skill: Legal Concepts LO: 26.4 Describe the North American Free Trade Agreement (NAFTA) and list the countries that belong to NAFTA. AACSB: Analytical thinking Classification: Concept
18 C..
61) Indonesia, Vietnam, Thailand, and the Philippines are members of the ________. A) Organization of the Petroleum Exporting Countries (OPEC) B) Association of Southeast Asian Nations (ASEAN) C) Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) D) North American Free Trade Agreement (NAFTA) Answer: B Diff: 1 Skill: Legal Concepts LO: 26.5 Describe the Association of Southeast Asian Nations (ASEAN) and list the countries that belong to ASEAN. AACSB: Analytical thinking Classification: Concept 62) Founded in 1967, this regional association of Southeast Asian nations promotes cooperation on economic, political, and cultural issues. A) Association of Southeast Asian Nations (ASEAN) B) Southeast Asia Treaty Organization (SEATO) C) Southeast Asian Tariff and Aid Cooperative (SEA-TAC) D) Regional Economic Association of Southeast Asian Nations (REASEAN) Answer: A Diff: 1 Skill: Legal Concepts LO: 26.5 Describe the Association of Southeast Asian Nations (ASEAN) and list the countries that belong to ASEAN. AACSB: Analytical thinking Classification: Concept 63) The Association of Southeast Asian Nations (ASEAN) have agreed to the eventual goal of ________. A) collective defense B) eliminating tariffs and non-tariff barriers between association member nations C) nuclear nonproliferation in the region D) forming a single sovereign nation Answer: B Diff: 1 Skill: Legal Concepts LO: 26.5 Describe the Association of Southeast Asian Nations (ASEAN) and list the countries that belong to ASEAN. AACSB: Analytical thinking Classification: Concept
19 C..
64) The association called "ASEAN Plus Three" brings together the ASEAN nations along with three economically powerful countries to discuss regional economic, social, and political issues of mutual interest. Which of the following is NOT one of these "Plus Three" countries? A) China B) Japan C) the United States D) South Korea Answer: C Diff: 1 Skill: Legal Concepts LO: 26.5 Describe the Association of Southeast Asian Nations (ASEAN) and list the countries that belong to ASEAN. AACSB: Analytical thinking Classification: Concept 65) ASEAN has entered into free trade agreements with a number of non-ASEAN member nations, including ________. A) India B) Pakistan C) New Zealand D) Australia Answer: A Diff: 1 Skill: Legal Concepts LO: 26.5 Describe the Association of Southeast Asian Nations (ASEAN) and list the countries that belong to ASEAN. AACSB: Analytical thinking Classification: Concept 66) The Association of Southeast Asian Nations (ASEAN) was created as a treaty among the oilproducing countries of Asia. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.5 Describe the Association of Southeast Asian Nations (ASEAN) and list the countries that belong to ASEAN. AACSB: Analytical thinking Classification: Concept
20 C..
67) Decribe the manner in which China, Japan, India, South Korea, and the United States interact with the Association of Southeast Asian Nations (ASEAN). Answer: Three of Asia's largest economies, China, Japan, and South Korea, are not members of ASEAN, but a current association called "ASEAN Plus Three (APT)"–the "three" being China, Japan, and South Korea–does, however, discuss regional economic, social, and political issues of mutual interest. Japan has been instrumental in providing financing for the countries that make up ASEAN. China also works closely with the countries of ASEAN and has provided economic assistance to the organization. The United States is a dialogue partner country of ASEAN and meets regularly with ASEAN to discuss regional and economic issues. China and ASEAN have created the ASEAN-China Free Trade Area (ACFTA), an agreement between China and the member countries of ASEAN. India and ASEAN have entered into the ASEAN-India Free Trade Area (AIFTA), an agreement between India and the member countries of ASEAN. These free trade agreements reduce tariffs on thousands of products traded among the signatory countries. Japan and ASEAN have entered into the ASEAN-Japan Comprehensive Economic Partnership. South Korea and ASEAN have entered into the ASEAN-Korea Free Trade Area (AKFTA). The population of South Korea is approximately 50 million. Each agreement reduces tariffs on goods traded among countries signatory to the agreements. Diff: 2 Skill: Legal Concepts LO: 26.5 Describe the Association of Southeast Asian Nations (ASEAN) and list the countries that belong to ASEAN. AACSB: Analytical thinking Classification: Concept 68) Ecuador, Algeria, and the United Arab Emirates are members of the ________. A) North American Free Trade Agreement (NAFTA) B) Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) C) Association of Southeast Asian Nations (ASEAN) D) Organization of the Petroleum Exporting Countries (OPEC) Answer: D Diff: 1 Skill: Legal Concepts LO: 26.6 Describe the Organization of the Petroleum Exporting Countries (OPEC) and list the countries that belong to OPEC. AACSB: Analytical thinking Classification: Concept
21 C..
69) The purpose of the Organization of the Petroleum Exporting Countries (OPEC) is to ________. A) eliminate tariffs between member nations B) set quotas on the output of oil production by member nations C) address the threat of climate change D) promote broad-based economic development Answer: B Diff: 1 Skill: Legal Concepts LO: 26.6 Describe the Organization of the Petroleum Exporting Countries (OPEC) and list the countries that belong to OPEC. AACSB: Analytical thinking Classification: Concept 70) 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 Skill: Legal Concepts LO: 26.6 Describe the Organization of the Petroleum Exporting Countries (OPEC) and list the countries that belong to OPEC. AACSB: Analytical thinking Classification: Concept 71) What do members of OPEC have in common? What is the mission of OPEC? Answer: The Organization of the Petroleum Exporting Countries (OPEC) members are all oilproducing and exporting countries. Geographically, they are in Africa, Asia, the Middle East, and South America. The mission of OPEC is to set quotas on the output of oil production by member nations. The member nations of OPEC account for more than 40 percent of global oil production and more than 70 percent of proven oil reserves. Diff: 1 Skill: Legal Concepts LO: 26.6 Describe the Organization of the Petroleum Exporting Countries (OPEC) and list the countries that belong to OPEC. AACSB: Analytical thinking Classification: Concept
22 C..
72) Mercosur, the largest regional economic organization in South America, includes ________. A) Guyana B) Aruba C) Curaçao D) Paraguay Answer: D Diff: 1 Skill: Legal Concepts LO: 26.7 Describe the trade organizations of South America, Central America, and the Caribbean. AACSB: Analytical thinking Classification: Concept 73) Mercosur was formed to ________. A) eliminate customs duties among its member nations and to provide for the free movement of goods, services, and factors of production between member nations B) stem the flow of immigration between member nations C) implement a non-aggression and mutual defense pact D) set quotas on the output of oil production by member nations Answer: A Diff: 1 Skill: Legal Concepts LO: 26.7 Describe the trade organizations of South America, Central America, and the Caribbean. AACSB: Analytical thinking Classification: Concept 74) The Andean Community of Nations is a regional trading bloc in South America comprised of the countries of Bolivia, Columbia, Peru, and ________. A) Chile B) Paraguay C) Ecuador D) Uruguay Answer: C Diff: 1 Skill: Legal Concepts LO: 26.7 Describe the trade organizations of South America, Central America, and the Caribbean. AACSB: Analytical thinking Classification: Concept
23 C..
75) The Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) includes Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and ________. A) Belize B) Panama C) Colombia D) the United States Answer: D Diff: 1 Skill: Legal Concepts LO: 26.7 Describe the trade organizations of South America, Central America, and the Caribbean. AACSB: Analytical thinking Classification: Concept 76) The Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) prohibits its member nations from entering into treaties with countries in Central America that are not part of the DR-CAFTA. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.7 Describe the trade organizations of South America, Central America, and the Caribbean. AACSB: Analytical thinking Classification: Concept 77) What is Mercosur? How is it run? What is its purpose and how big is it? Answer: Mercosur, also called Mercusol or the Southern Common Market, is a regional trade block in South America comprised of Argentina, Brazil, Paraguay, and Uruguay. (Venezuela has been suspended as a member.) Bolivia is negotiating to become a member. The Common Market Council is the governing body, and the presidency rotates among its members. Mercosur was formed to eliminate customs duties among its members and to provide for the free movement of goods, services, and factors of production between member nations. Trade among members is tariff-free except for certain protected sectors. The members of Mercosur impose a common external tariff on goods from outside Mercosur. Residents of the countries belonging to Mercosur are authorized to live and work in any of the member countries. Chile, Columbia, Ecuador, Peru, and Suriname are associate members who receive tariff reductions when trading with Mercosur's members, but do not have voting rights. Mercosur brings together more than 300 million people, and is the largest regional economic organization in South America. Brazil is the largest member with more than 230 million people, and Argentina is second with more than 45 million people. Argentina and Brazil account for about 95 percent of the block's trade. Diff: 2 Skill: Legal Concepts LO: 26.7 Describe the trade organizations of South America, Central America, and the Caribbean. AACSB: Analytical thinking Classification: Concept 24 C..
78) The ________, an organization comprised of all 55 countries located on the African continent, is primarily a political organization that seeks to establish an integrated, politically united, and prosperous African continent. A) African Union (AU) B) African Economic Community (AEC) C) Common Market of Eastern and Southern Africa (COMESA) D) Economic Community of Central African States (ECCAS) Answer: D Diff: 1 Skill: Legal Concepts LO: 26.8 Describe the trade organizations of Africa. AACSB: Analytical thinking Classification: Concept 79) What is the African Union and what are its goals? Answer: The African Union (AU) is an organization comprised of all 55 countries located on the African continent. The AU is primarily a political organization that seeks to establish an integrated, politically united, and prosperous African continent based on the ideals of PanAfricanism and Africa's Renaissance. The AU goals include eliminating poverty, safeguarding sovereignty and territorial integrity, advancing respect for human rights, promoting justice and the rule of law, coordinating economic development, defending the interests of Africa, and promoting international cooperation of African countries at the United Nations. Diff: 2 Skill: Legal Concepts LO: 26.8 Describe the trade organizations of Africa. AACSB: Analytical thinking Classification: Concept 80) The ________ is an international organization of 160 member nations created in 1995 to promote and enforce trade agreements among member countries and customs territories. A) World Trade Organization (WTO) B) International Monetary Fund (IMF) C) North American Free Trade Commission (NAFTA) D) General Agreement on Tariffs and Trade (GATT) Answer: A Diff: 1 Skill: Legal Concepts LO: 26.9 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept
25 C..
81) In case of a breach in trade agreements of the World Trade Organization (WTO), which of the following WTO bodies first hears the dispute? A) the WTO panel B) the WTO appellate body C) the WTO dispute settlement body D) the WTO General Council Answer: A Diff: 1 Skill: Legal Concepts LO: 26.9 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept 82) What is the role of the World Trade Organization (WTO) dispute settlement body? A) to serve as the "court of last resort" for appeals from the WTO appellate body B) to create panel reports based on findings of fact and law C) to hear and decide war disputes and issue sanctions against aggressor nations D) to review WTO panel reports and adopt them if appropriate Answer: D Diff: 1 Skill: Legal Concepts LO: 26.9 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept 83) The ________ is a board composed of one representative from each WTO member nation that reviews panel reports. A) WTO dispute settlement body B) WTO security council C) WTO assembly D) WTO high commission Answer: A Diff: 1 Skill: Legal Concepts LO: 26.9 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept
26 C..
84) The World Trade Organization (WTO) dispute settlement body is the first body to hear a settlement dispute among member nations. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.9 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept 85) The World Trade Organization (WTO) dispute settlement body is required to adopt the panel report unless the body, by consensus, agrees not to adopt it. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.9 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept 86) The World Trade Organization (WTO) appellate body hears appeals that are limited to issues of law, not fact. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.9 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept
27 C..
87) 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 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. If a violation of a trade agreement is found, the panel report and appellate decision can order the offending nation to cease engaging in the violating practice and to pay damages to the other party. If the offending nation refuses to abide by the order, the WTO can order retaliatory trade sanctions (e.g., tariffs) by other member nations against the noncomplying nation. Diff: 1 Skill: Legal Concepts LO: 26.9 Describe the World Trade Organization (WTO) and explain how its dispute-resolution procedure works. AACSB: Analytical thinking Classification: Concept 88) The majority of cases involving international law disputes are heard by ________. A) the International Court of Justice (ICJ) B) the World Court C) national courts D) the United Nations (UN) Answer: C Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 89) A(n) ________ clause in an international contract designates which nation's laws will be applied in deciding a dispute arising out of the contract. A) equal protection B) supremacy C) forum-selection D) choice of law Answer: D Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 28 C..
90) A ________ clause in an international contract designates which nation's court has jurisdiction to hear a case arising out of the contract. A) forum-selection B) treaty C) foreign commerce D) choice of law Answer: A Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 91) The ________ doctrine states that judges of one country cannot question the validity of an act committed by another country within that other country's borders. A) sovereign immunity B) act of state C) Colgate D) Noerr Answer: B Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 92) The Foreign Sovereign Immunities Act (FSIA) ________. A) stipulates the rules for conflict resolution among the DR-CAFTA members B) endows the president with powers to enter into treaties with foreign nations C) governs exclusively suits against foreign nations in the United States D) regulates commerce between the United States and foreign nations Answer: C Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept
29 C..
93) Which of the following is codified under the Foreign Sovereign Immunities Act (FSIA)? 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 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 94) Which of the following is a recognized exception to immunity under the Foreign Sovereign Immunities Act (FSIA)? A) the unfair and deceptive trade practice exception B) the managed trade exception C) the diversity of citizenship exception D) the commercial activity exception Answer: D Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 95) The act of state doctrine is based on the principle that a country has absolute authority over what transpires within its own territory. The doctrine states that ________ of one country cannot question the validity of an act committed by another country within that other country's borders. A) judges B) ambassadors C) heads of state D) legislators Answer: D Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept
30 C..
96) Many ________ contain a choice of forum clause that designates which nation's court has jurisdiction to hear a case arising out of a dispute. A) domestic franchise agreements B) international contracts C) non-proliferation treaties D) pre-nuptial agreements Answer: B Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 97) The ________ exclusively governs suits against foreign nations that are brought in federal or state courts in the United States. A) United Nations Charter B) Kellogg-Briand Pact C) Foreign Intelligence Surveillance Act (FISA) D) Foreign Sovereign Immunities Act (FSIA) Answer: D Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 98) A forum-selection clause designates which nation's court has jurisdiction to hear a case arising out of a contract. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 99) A choice of law clause is a clause in an international contract that designates which nation's equity principles will be applied in mediating a dispute arising out of a contract. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept
31 C..
100) The act of state doctrine is based on the principle that a country has limited authority over what transpires within its own territory. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 101) The United States follows the principle of restricted immunity for suits against foreign nations. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 102) The FSIA strictly states that a foreign country is not immune to lawsuits in U.S. courts under any circumstance. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept 103) 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 Skill: Legal Concepts LO: 26.10 Describe the jurisdiction of U.S. courts over international disputes. AACSB: Analytical thinking Classification: Concept
32 C..
104) ________ prescribes comprehensive and integrated rules of religious, political, and legal life that together form Jewish thought. A) The Qur'an B) The Torah C) Dharmasastra D) Riba Answer: B Diff: 1 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 105) Throughout Christianity, divine and natural laws have been issued in the form of ________. A) edicts B) conventions C) novations D) canons Answer: D Diff: 1 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 106) Which of the following statements is true about 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 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept
33 C..
107) 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 complete 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, and inheritance and, to a limited degree, criminal law. Answer: D Diff: 1 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 108) Classical Hindu law is based on ________. A) civil codes B) court decisions C) the works of private scholars D) canons collectively called riba Answer: C Diff: 1 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 109) The ________ law system is derived from the Qur'an, the Sunnah, and reasonings by scholars. A) Islamic B) Orthodox C) Hindu D) Jewish Answer: A Diff: 1 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept
34 C..
110) Laws and regulations that have been adopted by Catholic and other Christian ecclesiastical authorities that relate to internal laws that govern the church and its members are known as ________ law. A) theocratic B) canon C) episcopal D) beatified Answer: B Diff: 1 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 111) Jewish jurisprudence is administered by the ________, which is a Jewish court consisting of rabbi-judges. A) Shul B) Mitzvah C) Beth Midrash D) Beis Din Answer: D Diff: 1 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 112) The Beis Din is more a search for the truth than it is an adversarial process. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 113) The Islamic law of Shari'a encourages levying interest on loan payments. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept
35 C..
114) The canons of Christian faiths provide rules for believers to follow in living their lives and professing their faith. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 115) 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 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept 116) Classical Hindu law heavily rests on civil codes adopted during the reigns of different kings. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 26.11 Describe the scope of international religious laws. AACSB: Analytical thinking Classification: Concept
36 C..
The Legal Environment of Business and Online Commerce, 9e (Cheeseman) Chapter 27 Accountants' Duties and Liability 1) Which of the following statements is true of accountants? A) Accountants who pass the CPA examination are called private noncertified accountants. B) Accountants cannot be held liable by provisions of common law. C) Accountants cannot be held liable to clients and third parties. D) Accountants who lack CPA certification are called public accountants. Answer: D Diff: 2 Skill: Legal Concepts LO: 27.1 Describe public accounting and define the term certified public accountant. AACSB: Analytical thinking Classification: Concept 2) Accountants who meet certain educational requirements, pass the CPA examination, and have a certain number of years of auditing experience are called ________. A) certified public accountants B) central private accountants C) central public accountants D) certified private accountants Answer: A Diff: 1 Skill: Legal Concepts LO: 27.1 Describe public accounting and define the term certified public accountant. AACSB: Analytical thinking Classification: Concept 3) Which of the following is the form of business ownership used by most public accounting firms? A) limited liability partnership B) C corporation C) S corporation D) general partnership Answer: A Diff: 2 Skill: Legal Concepts LO: 27.1 Describe public accounting and define the term certified public accountant. AACSB: Analytical thinking Classification: Concept
1 C..
4) Erin is a partner in the accounting firm of Adzem & Subtraxum, LLP, a limited liability partnership. The firm is being sued for negligence because of an audit in which she was not personally involved. If a huge verdict is entered against the firm, Erin could lose ________. A) nothing B) her capital contribution into the LLP C) her capital contribution into the LLP, along with her personal assets D) her personal assets, but not her capital contribution into the LLP Answer: B Diff: 2 Skill: Factual Application LO: 27.1 Describe public accounting and define the term certified public accountant. AACSB: Application of knowledge Classification: Application 5) Bill is a partner in the accounting firm of Adzem & Subtraxum, LLP, a limited liability partnership. Bill and the firm are being sued for negligence because of an audit in which he was the partner-in-charge. If the jury finds that Bill's negligence caused the damages to the plaintiffs and a huge verdict is entered, Bill could lose ________. A) nothing B) his capital contribution into the LLP C) his capital contribution into the LLP, along with his personal assets D) his personal assets, but not his capital contribution into the LLP Answer: C Diff: 2 Skill: Factual Application LO: 27.1 Describe public accounting and define the term certified public accountant. AACSB: Application of knowledge Classification: Application 6) A person who practices as an accountant but is not certified is referred to as a public accountant. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 27.1 Describe public accounting and define the term certified public accountant. AACSB: Analytical thinking Classification: Concept 7) Most public accounting firms operate as limited liability partnerships (LLPs). Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 27.1 Describe public accounting and define the term certified public accountant. AACSB: Analytical thinking Classification: Concept
2 C..
8) Standards for the preparation and presentation of financial statements are known as ________. A) engagements and agreements B) auditors' opinions C) generally accepted accounting principles D) generally accepted auditing standards Answer: C Diff: 1 Skill: Legal Concepts LO: 27.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 9) Which of the following statements is true of Generally Accepted Accounting Principles (GAAP)? A) They are used by auditors as a guide, but only for non-audit services. B) They are accepted and applied by accounting firms globally. C) They cannot be modified once initially established by the American Institute of Certified Public Accountants. D) They establish rules for how corporations and accounting firms prepare financial statements. Answer: D Diff: 2 Skill: Legal Concepts LO: 27.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 10) The ________, an organization created by the accounting profession, issues new GAAP rules and amends existing rules. A) Financial Accounting Standards Board (FASB) B) International Accounting Standards Board (IASB) C) International Financial Reporting Board (IFRB) D) American Institute of Certified Public Accountants (AICPA) Answer: A Diff: 1 Skill: Legal Concepts LO: 27.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept
3 C..
11) ________ 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) Auditors' expert opinions D) General engagements and agreements Answer: B Diff: 1 Skill: Legal Concepts LO: 27.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 12) Generally Accepted Auditing Standards (GAASs) are established by ________. A) the American Institute of Certified Public Accountants B) the Financial Accounting Standards Board C) the Institute of Internal Auditors D) the American Accounting Association Answer: A Diff: 1 Skill: Legal Concepts LO: 27.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 13) Most companies located outside the United States follow the standards for prepararation and presentation of financial statements that are known as the A) United Nations Principles for Accounting (UNPAs). B) International Financial Reporting Standards (IFRSs). C) World Bank Standards for Financial Statements (WBSFSs). D) Principles of the European Union for Accounting (PEUAs). Answer: B Diff: 1 Skill: Legal Concepts LO: 27.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept
4 C..
14) International Financial Reporting Standards (IFRSs) are promulgated by ________. A) the European Central Bank in Frankfurt, Germany B) the International Chamber of Commerce in Paris, France C) the United Nations Commission on International Trade Law in Vienna, Austria D) the International Accounting Standards Board in London, England Answer: D Diff: 1 Skill: Legal Concepts LO: 27.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 15) 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 Skill: Legal Concepts LO: 27.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept 16) The Financial Accounting Standards Board (FASB) issues new GAAP rules and amends existing ones. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 27.2 Describe Generally Accepted Accounting Principles (GAAPs) and Generally Accepted Auditing Standards (GAASs). AACSB: Analytical thinking Classification: Concept
5 C..
17) Monica is an accountant with Mildred & Lane Inc., 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. Monica'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 Skill: Factual Application LO: 27.3 Define audit and describe auditor's opinions. AACSB: Application of knowledge Classification: Application 18) 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 or she is closely associated with the company. D) The auditor must provide a qualified opinion wherever possible, since it helps the company in its business practices. Answer: A Diff: 2 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 19) A(n) ________ opinion is 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. A) disclaimer of B) adverse C) qualified D) unqualified Answer: D Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept
6 C..
20) A(n) ________ is an auditor's opinion that the financial statements are fairly represented except for, or subject to, a departure from 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 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 21) Which 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 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 22) Which of the following opinions would an auditor make for a company that 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 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept
7 C..
23) If an auditor makes a disclaimer of opinion, this means that the auditor ________. A) generally agrees that the company's financial records accurately represent the company's financial position, but notes a few departures from GAAPs B) disagrees that the company's financial records accurately represent the company's financial position C) cannot draw a conclusion about the accuracy of the company's financial records, generally due to a lack of sufficient information about the records D) agrees that the company's financial records accurately represent the company's financial position Answer: C Diff: 2 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 24) Which of the following opinions is necessary for a company to avoid unfavorable consequences (for example, not being able to sell its securities to the public)? A) an adverse opinion B) a qualified opinion C) a disclaimer of opinion D) an unqualified opinion Answer: D Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 25) 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 CPA is known as a(n) ________. A) probate B) ademption C) audit D) deposition Answer: C Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept
8 C..
26) An accountant's failure to follow GAASs when conducting audits constitutes ________. A) fraud B) negligence C) criminal misconduct D) racketeering Answer: B Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 27) Businessman Ernie Baydoff needs to file with the SEC a set of financial statements for his publicly traded company. The statements need to be certified by a CPA. The set of statements that Ernie wants to file show his company making a record profit; they are also completely bogus. To accomplish his goal, Ernie has been meeting with numerous small accounting firms and offering a big fee to any firms that would issue an unqualified opinion on the financial statements without conducting an audit or asking any questions. What Ernie is doing is known as ________. A) "shopping" for accountants B) racketeering C) money laundering D) capitalism Answer: A Diff: 1 Skill: Factual Application LO: 27.3 Define audit and describe auditor's opinions. AACSB: Application of knowledge Classification: Application 28) Pursuant to federal securities laws, an audit must be performed by a CPA who works as the chief executive officer (CEO) or chief financial officer (CFO) of the company being audited. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 29) A qualified opinion is the most favorable opinion that an accountant can render. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 9 C..
30) The issuance of an unqualified opinion means that the company's financial statements are not in conformity with GAAPs. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 31) A disclaimer of opinion is a corporate auditing exemption that effectively prohibits an auditor from accessing a high-priority portion of the company's financial records. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 32) An adverse opinion is usually issued when an auditor determines that a company has materially misstated certain items on its financial statements. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 33) Probate is defined as the verification of a company's books and records by a certified accountant. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept
10 C..
34) 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 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 35) What is meant by an "unqualified" audit opinion? Is this a good opinion? Answer: An unqualified audit opinion represents an auditor's finding 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 (GAAPs). This is the most favorable opinion an auditor can give. Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 36) When would an auditor issue a "qualified" audit opinion? Answer: An auditor would issue a qualified opinion if the auditor found that the financial statements under audit fairly represent the company's financial position, the results of its operations, and the change in cash flows for the period under audit, except for, or subject to, a departure from GAAPs, a change in accounting principles, or a material uncertainty. The exception, departure, or uncertainty will be noted in the auditor's opinion. Diff: 1 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept
11 C..
37) What does an adverse audit opinion mean? When would an auditor issue such an opinion? What are the implications of such an opinion? Answer: An adverse audit opinion indicates that the financial statements do not fairly represent the company's financial position, results of operations, or change in cash flows in conformity with GAAPs. This type of opinion is usually issued when an auditor determines that a company has materially misstated certain items on its financial statements. The issuance of an adverse audit opinion—or any opinion 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. Diff: 2 Skill: Legal Concepts LO: 27.3 Define audit and describe auditor's opinions. AACSB: Analytical thinking Classification: Concept 38) 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 Skill: Legal Concepts LO: 27.4 Describe how accountants can be found liable to their clients. AACSB: Analytical thinking Classification: Concept 39) ________ is defined as the intentional misrepresentation or omission of a material fact that is relied on by the client and causes the client damage. A) An unqualified opinion B) Actual fraud C) A disclaimer of opinion D) Constructive fraud Answer: B Diff: 1 Skill: Legal Concepts LO: 27.4 Describe how accountants can be found liable to their clients. AACSB: Analytical thinking Classification: Concept
12 C..
40) Accountants can be held liable for ________ in preparing unaudited financial statements. A) securities fraud B) violation of Rule 10b-5 C) negligence D) violating Section 11(a) of the Securities Act of 1933 Answer: C Diff: 1 Skill: Legal Concepts LO: 27.4 Describe how accountants can be found liable to their clients. AACSB: Analytical thinking Classification: Concept 41) ________ occurs when an accountant acts with reckless disregard for the truth or the consequences of his or her actions. A) Racketeering B) Actual fraud C) Sanctionable conduct D) Constructive fraud Answer: D Diff: 1 Skill: Legal Concepts LO: 27.4 Describe how accountants can be found liable to their clients. AACSB: Analytical thinking Classification: Concept 42) Maze engaged the firm of Hamilton & Burr to prepare a tax return that had to be filed with the state by the end of the month. Hamilton & Burr failed to prepare and file the return on time. As a result, Maze had to hire the firm of Adzem & Subtraxum to prepare and file the return, which was now late. As a result, Maze had to pay a fee to Adzem & Subtraxum, and pay the state the taxes that he owed, a late payment penalty, and post-due-date interest on the taxes he owed. In a subsequent lawsuit against Hamilton & Burr for breach of contract, Maze should be able to recover each of the following costs, EXCEPT: A) the fee to Adzem & Subtraxum. B) the taxes that he owed. C) the late payment penalty. D) the post-due-date interest on the taxes he owed. Answer: B Diff: 2 Skill: Factual Application LO: 27.4 Describe how accountants can be found liable to their clients. AACSB: Application of knowledge Classification: Application
13 C..
43) Violations of GAAPs or GAASs, or IFRSs, if applicable, are ________ evidence of negligence, although compliance does not automatically relieve the accountant of such liability. A) prima facie B) res ipsa loquitur C) in rem D) mens rea Answer: A Diff: 1 Skill: Legal Concepts LO: 27.4 Describe how accountants can be found liable to their clients. AACSB: Analytical thinking Classification: Concept 44) Accountants owe a duty to use ________ care, knowledge, skill, and judgment when providing auditing and other accounting services to a client. A) minimal B) a layperson's C) expert D) reasonable Answer: D Diff: 1 Skill: Legal Concepts LO: 27.4 Describe how accountants can be found liable to their clients. AACSB: Analytical thinking Classification: Concept 45) If an audit turns up a suspicious transaction or entry, the accountant ________. A) must ignore it, due to the duty to client confidentiality B) is under a duty to report it at once to the PCAOB C) must investigate it and inform the client of the results of the investigation D) is required to report it immediately to, and only to, the SEC Answer: C Diff: 1 Skill: Legal Concepts LO: 27.4 Describe how accountants can be found liable to their clients. AACSB: Analytical thinking Classification: Concept 46) A formal entrance into a contract between a client and an accountant is called an abatement. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 27.4 Describe how accountants can be found liable to their clients. AACSB: Analytical thinking Classification: Concept
14 C..
47) ________ 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) The foreseeability standard B) The Ultramares doctrine C) The due diligence defense D) Section 552 of the Restatement (Second) of Torts Answer: B Diff: 1 Skill: Legal Concepts LO: 27.5 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 48) 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) the due diligence defense Answer: A Diff: 2 Skill: Legal Concepts LO: 27.5 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 49) Which of the following standards have most states adopted regarding accountant liability for negligence to third parties? A) the Ultramares doctrine B) the foreseeability standard C) Section 552 of the Restatement (Second) of Torts D) the due diligence standard Answer: C Diff: 1 Skill: Legal Concepts LO: 27.5 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
15 C..
50) A rule that says that an accountant is liable for negligence to third parties who are foreseeable users of the client's financial statements is known as ________. A) the foreseeability standard B) the Ultramares doctrine C) the due diligence defense D) Section 552 of the Restatement (Second) of Torts Answer: A Diff: 1 Skill: Legal Concepts LO: 27.5 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 51) Which of the following is the broadest standard for holding accountants liable to third parties for negligence? A) Section 552 of the Restatement (Second) of Torts B) the foreseeability standard C) the Ultramares doctrine D) the due diligence doctrine Answer: B Diff: 2 Skill: Legal Concepts LO: 27.5 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 52) When an accountant has behaved negligently causing damage to a third party, the third party ________. A) can claim privity of contract with the accountant B) cannot bring a tort action against the accountant C) cannot sue the accountant for breach of contract D) cannot sue the accountant for constructive fraud Answer: C Diff: 1 Skill: Legal Concepts LO: 27.5 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
16 C..
53) Third parties ________ against an accountant for constructive fraud. A) cannot bring a tort action B) can bring a tort action C) will frequently bring breach of contract actions D) are barred from bringing a tort action Answer: B Diff: 1 Skill: Legal Concepts LO: 27.5 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 54) Third parties ________ accountants for breach of contract. A) frequently sue B) are barred by federal law from suing C) must defer to state attorneys general to sue D) usually cannot sue Answer: D Diff: 1 Skill: Legal Concepts LO: 27.5 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 55) The Ultramares doctrine is the broadest standard for holding accountants liable to third parties for negligence. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 27.5 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
17 C..
56) In Ultramares Corporation vs. Touche, the court found the defendant accounting firm not liable for negligence due to the plaintiff's lack of privity of contract or a privity-like relationship with the defendant. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 27.5 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 57) The legal standard that holds an accountant liable for his or her negligence to any member of a limited class of intended users for whose benefit the accountant has been employed is Section 552 of the Restatement (Second) of Torts. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 27.5 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 58) 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 Skill: Legal Concepts LO: 27.5 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
18 C..
59) 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 Skill: Legal Concepts LO: 27.5 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 60) Which of the following is true of Section 10A of the Securities Exchange Act of 1934? A) It prohibits manipulative or deceptive practices in probate. B) It is a due diligence defense an accountant can assert to avoid civil liability. C) It imposes duties on auditors to detect and report illegal acts committed by their clients. D) It imposes criminal liability on accountants for making material misstatements or omissions in their performance of non-audit services. Answer: C Diff: 1 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 61) ________ 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 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept
19 C..
62) Which of the following can an accountant use as a defense to liability 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 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 63) ________ 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 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 64) Which of the following is true of Rule 10b-5? A) Privity of contract is necessary for filing a lawsuit under this rule. B) Civil 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 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept
20 C..
65) In which of the following ways can an accountant avoid liability under Section 18(a) of the Securities Exchange Act of 1934? A) if the accountant can show that the misleading statement was made to protect the company from Chapter 7 or Chapter 11 bankruptcy B) if the accountant acted recklessly, rather than negligently C) if the accountant had served as the plaintiff's employee within 180 days before the filing of the Section 18(a) action D) if the accountant can show that the plaintiff had knowledge of the false statement when the securities were purchased or sold Answer: D Diff: 2 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 66) Accountants can be found liable for violating Section 18(a) of the Securities Exchange Act of 1934 since ________. A) they often file reports and other documents with the SEC on behalf of clients B) CPAs are directly employed by the SEC C) all companies require an accountant's approval before buying securities from the SEC D) securities can only be bought through a CPA Answer: A Diff: 2 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 67) ________ is a rule that limits the liability of an accountant or other securities professional to his or her personal degree of fault. A) Privity of contract B) The due diligence defense C) Proportionate liability D) The Ultramares doctrine Answer: C Diff: 1 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept
21 C..
68) 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 ________. A) Securities and Exchange Commission (SEC) B) Financial Accounting Standards Board (FASB) C) American Institute of Certified Public Accountants (AICPA) D) Public Company Accounting Oversight Board (PCAOB) Answer: A Diff: 1 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 69) ________ by an accountant is not a violation of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. A) Actual fraud B) Ordinary negligence C) Intentional deceit D) Reckless conduct Answer: B Diff: 1 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 70) The Private Securities Litigation Reform Act of 1995 replaced ________. A) proportionate liability with joint and several liability B) civil liability with criminal liability C) criminal liability with civil liability D) joint and several liability with proportionate liability Answer: D Diff: 1 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 71) 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 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 22 C..
72) Only purchasers and sellers of securities can sue under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 73) 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 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 74) Describe an auditor's duty to report a client's illegal activity. Answer: In 1995, Congress amended Section 10A of the Securities Exchange Act of 1934 to impose a duty on auditors to detect and report illegal acts committed by their clients. Under Section 10A, an illegal act is defined as an "act or omission that violates any law, or any rule or regulation having the force of law." Section 10A mandates the following reporting requirements on accountants: • Unless an illegal act is "clearly inconsequential," the auditor must inform the client's management and audit committee of the illegal act. • If management fails to take timely and appropriate remedial action, the auditor must report the illegal act to the client's full board of directors if (a) the illegal act will have a material effect on the client's financial statements and (b) the auditor expects to issue a nonstandard audit report or intends to resign from the audit engagement. • Once the auditor reports the illegal act to the board of directors, the board of directors must inform the Securities and Exchange Commission (SEC) of the auditor's conclusion within one business day; if the client fails to do so, the auditor must notify the SEC the next business day. Diff: 2 Skill: Legal Concepts LO: 27.6 Describe how accountants can be held liable for violating securities laws. AACSB: Analytical thinking Classification: Concept 23 C..
75) Which of the following legislation 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) the Tax Reform Act of 1976 C) the Private Securities Litigation Reform Act of 1995 D) Section 10(b) of the Securities Exchange Act of 1934 Answer: A Diff: 1 Skill: Legal Concepts LO: 27.7 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept 76) The ________ Act of 1976 specifically imposes penalties and fines on accountants and others who prepare federal tax returns 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 Skill: Legal Concepts LO: 27.7 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept 77) Which of the following is required to bring a civil action for securities fraud against a violator of RICO? A) The accountant must not be a third-party independent contractor. B) The defendant must first be criminally convicted in connection with the securities fraud. C) The plaintiff must file the civil case before the government initiates a criminal action. D) The defendant must first be tried for violation of Section 32(a) of the Securities Exchange Act of 1934. Answer: B Diff: 1 Skill: Legal Concepts LO: 27.7 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept
24 C..
78) Which of the following legislation provides for both criminal and civil penalties (including treble damages) for securities fraud by accountants and other professionals? A) the Private Securities Litigation Reform Act of 1995 B) Section 32(a) of the Securities Exchange Act of 1934 C) the Tax Reform Act of 1976 D) the Racketeer Influenced and Corrupt Organizations Act Answer: D Diff: 1 Skill: Legal Concepts LO: 27.7 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept 79) The SEC ________ an offending party for violations of Section 32(a) of the Securities Exchange Act of 1934. A) has the independent power to criminally prosecute B) can make a criminal referral to the U.S. Department of Justice, with a recommendation that they criminally prosecute C) can make a criminal referral to a state attorney general, with a recommendation that he or she criminally prosecute D) is limited to pursuing civil actions, and is thus barred from making criminal referrals for Answer: B Diff: 1 Skill: Legal Concepts LO: 27.7 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept 80) Persons injured by a RICO violation can ________. A) only request that the violator be criminally prosecuted B) bring a private civil action, but it is limited to injunctive relief C) bring a private civil action against the violator and recover double damages D) bring a private civil action against the violator and recover treble damages Answer: D Diff: 1 Skill: Legal Concepts LO: 27.7 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept
25 C..
81) Accountants cannot be held criminally liable for material irregularities in financial statements prepared for registration statements. Answer: FALSE Diff: 1 Skill: Legal Concepts LO: 27.7 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept 82) Accountants can be named as defendants in lawsuits that assert violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 27.7 Describe how accountants can be found criminally liable for their actions. AACSB: Analytical thinking Classification: Concept 83) Which of the following is true of the Public Company Accounting Oversight Board (PCAOB)? A) All members of the PCAOB must be CPAs. B) The PCOAB was created by the Tax Reform Act of 1976. C) The SEC has oversight and enforcement authority over the PCOAB. D) The PCOAB does not have any disciplinary authority over accountants and accounting firms. Answer: C Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 84) Under the Sarbanes-Oxley Act, in order to audit a public company, ________. A) only public accountants can serve as members of the audit committee B) a public accounting firm must register with the PCAOB C) a public accounting firm must assign as members of the audit committee only accountants who have worked closely with the company being audited for three years or longer D) the accountant-client privilege must be recognized by the state legislature of the state in which the audit will occur Answer: B Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept
26 C..
85) According to the Sarbanes-Oxley Act of 2002, any person who is employed by a public accounting firm that audits a client can be hired by that client as the chief executive officer (CEO) or chief financial officer (CFO), but only ________. A) if that person is a CPA B) when at least a year has passed since the audit C) when at least five years have passed since the audit D) if the person pledges to have nothing to do with any future audits Answer: B Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 86) The ________ created the Public Company Accounting Oversight Board (PCAOB). A) Tax Reform Act of 1976 B) Uniform Securities Act C) Private Securities Litigation Reform Act of 1995 D) Sarbanes-Oxley Act of 2002 Answer: D Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 87) Registered accounting firms that audit more than 100 public companies annually are subject to inspection and review by ________ once a year. A) the Financial Accounting Standard Board (FASB) B) the Public Company Accounting Oversight Board (PCAOB) C) the American Institute of Certified Public Accountants D) the U.S. Department of Justice Answer: B Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept
27 C..
88) The Sarbanes-Oxley Act of 2002 allows a registered public accounting firm to simultaneously provide to a public company audit and ________. A) investment banking services B) financial information systems services C) legal services D) audit-committee-approved tax services Answer: D Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 89) ________ members of the Public Company Accounting Oversight Board (PCAOB) must be CPAs. A) None of the B) All C) Two of the five D) Five of the nine Answer: C Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 90) The Sarbanes-Oxley Act of 2002 requires that for each audit performed by a certified public accounting firm, the firm must assign at least two partners: a lead audit partner to supervise the audit and approve the audit report, and a ________. A) reviewing partner to review and approve audit reports prepared by the firm B) collecting partner to be in charge of collecting payments owed by the client C) marketing partner to see what other services the firm can offer the client D) public information partner to be the spokesperson for the firm for any media inquiries Answer: A Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept
28 C..
91) In accordance with the Sarbanes-Oxley Act of 2002, all audit papers must be retained by the auditing firm ________. A) for at least 3 years B) for at least 7 years C) until the client changes auditors D) forever Answer: B Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 92) The Sarbanes-Oxley Act of 2002 mandates that every public corporation must have an audit committee that is entirely composed of members of the board of directors who ________. A) are also officer of the corporation B) have been on the board the longest C) are CPAs D) are independent, i.e., not employed by the corporation and are only compensated for their directors' duties Answer: D Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 93) In accordance with the Sarbanes-Oxley Act of 2002, the audit committee must have at least one member who is ________. A) a financial expert B) a professor of Accounting C) a lawyer D) a retired auditor Answer: A Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept
29 C..
94) The SEC has oversight and enforcement authority over the Public Company Accounting Oversight Board (PCAOB). Answer: TRUE Diff: 1 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 95) 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 Skill: Legal Concepts LO: 27.8 Describe the provisions of the Sarbanes-Oxley Act and how they apply to accountants. AACSB: Analytical thinking Classification: Concept 96) The accountant-client privilege provides that ________. A) only an accountant can serve as a witness for his or her client in a court action B) an accountant's paperwork be used as prima facie evidence against his or her client in a court action C) an accountant cannot be called as a witness against his or her client in a court action D) an accountant does not enjoy work product immunity when his or her client is accused of gross negligence Answer: C Diff: 1 Skill: Legal Concepts LO: 27.9 Explain under what circumstances an accountant-client privilege applies. AACSB: Analytical thinking Classification: Concept
30 C..
97) ________ provides that an accountant's work papers cannot be used against his or her client in a court action. A) Work product immunity B) The accountant-client privilege C) The foreseeability standard D) The Noerr Doctrine Answer: A Diff: 1 Skill: Legal Concepts LO: 27.9 Explain under what circumstances an accountant-client privilege applies. AACSB: Analytical thinking Classification: Concept 98) The U.S. Supreme Court ________ accountant-client privilege under federal law. A) has ruled that there is no B) has held that there is a limited C) has recognized the application of a state D) has mandated a wide-ranging Answer: A Diff: 1 Skill: Legal Concepts LO: 27.9 Explain under what circumstances an accountant-client privilege applies. AACSB: Analytical thinking Classification: Concept 99) Federal law ________ discovery of an accountant's work papers in a federal case against the accountant's client. A) allows for B) recognizes the accountant-client privileges and bars C) adopted the accountant work product privilege that prevents D) expanded the attorney-client privilege to discourage the Answer: A Diff: 1 Skill: Legal Concepts LO: 27.9 Explain under what circumstances an accountant-client privilege applies. AACSB: Analytical thinking Classification: Concept
31 C..
100) 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 RICO, or other federal criminal statutes. Diff: 1 Skill: Legal Concepts LO: 27.9 Explain under what circumstances an accountant-client privilege applies. AACSB: Analytical thinking Classification: Concept
32 C..