Business Law II Final Exam
The Tax Reform Act of 1976 imposes all EXCEPT which of the following penalties?
strict liability for the understatement of a client's tax obligation
Flow-through taxation provides that ________.
the income and losses of a limited liability company or limited liability partnership are reported on the owner's personal income tax return
According to the video, if a tax form signed only by an individual taxpayer contains an error, who is liable for the error?
the individual taxpayer
A registration statement must include all EXCEPT which of the following?
the name and address of the registered agent of the issuing company
A multinational corporation is also known as a(n) _____ corporation.
transnational
A group _____ is also known as a refusal to deal.
boycott
The ________ is a defense in a Section 2(a) action providing 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.
cost justification defense
Treble damages are ________.
damages that may be awarded in a successful civil antitrust lawsuit, in an amount that is triple the amount of actual damages
Which of the following is NOT a major responsibility of the Securities and Exchange Commission (SEC)?
determining the par value of publicly-traded securities
A unilateral refusal to deal ________.
doesn't violate the Sherman Act
A relevant product or service market ________.
includes substitute products or services that are reasonably interchangeable with the defendant's products or services
A corporation and a holder are signing an agreement to confirm the terms of a debt security. The holder reviews the contract carefully to make sure it contains the maturity date of the debt security, the required interest payment, the collateral (if any), rights to conversion into common or preferred stock, call provisions, any restrictions on the corporation's right to incur other indebtedness, and the rights of holders on default. This contract is called a(n) ________.
indenture agreement
Barry Knowles is an accountant who serviced a firm that was later involved in a major court action brought by the government. He is called as a witness against the client but has to consult a lawyer to determine whether or not it is lawful for him to testify against his client. Barry Knowles discovers that the accountant-client privilege ________.
is not recognized under federal law
A C corporation ________.
is subject to double taxation
A shareholder resolution can be included in the corporation's proxy materials if ________.
it relates to the corporation's business, concerns a policy issue (and not the day-to-day operations of the corporation), and does not concern the payment of dividends
In the Disney-Fox deal, Disney is the ________ corporation and Fox is the ________ corporation.
parent; subsidiary
To meet this duty, the directors and officers must discharge their duties (1) in good faith, (2) with the care that an ordinary prudent person in a like position would use under similar circumstances, and (3) in a manner they reasonably believe to be in the best interests of the corporation. These requirements pertain to which duty of directors and officers?
A duty of care
________ stock is a type of equity security that represents the residual value of a corporation.
Common
The True Blue Corporation issues preferred stock that requires the payment of a quarterly dividend of $2.00 per share. The True Blue Corporation falls behind with six quarterly payments—$12.00 per share of preferred stock. The next quarter, the corporation makes a profit of $14.00 per share. The corporation must pay the $12.00 per share of arrearages to the preferred shareholders plus this quarter's payment of $2.00 per share. Thus, the common shareholders receive nothing. Which kind of preferred stock is the True Blue Corporation issuing?
Cumulative preferred stock
_____ directors are the current directors of a corporation.
Incumbent
The Williams Act is an amendment to the _____.
Securities Exchange Act of 1934
Emily, Emma, Jill, and Diana form the member-managed LLC CooperStreet.com, which is an online marketplace for conflict-free jewelry. Emma would breach her duty of loyalty if she ________.
secretly starts a competing business selling conflict-free jewelry
Pedal Peddlers is a bicycle manufacturer that sells bikes nationally. TurningWheel Inc. is a local manufacturer that sells unique, one-of-a-kind bikes in California. Pedal Peddlers intends to acquire TurningWheel Inc. Since Pedal Peddlers intends to acquire TurningWheel Inc., the relevant ________ is the state of California.
section of the country
The subject of this video, Martin Shkreli, was once the CEO of Retrophin, a biotechnology firm. Shkreli received a huge amount of negative press for increasing that company's drug prices by as much as 2,000% percent. Despite the controversy, it can be argued that this price hike benefited ________.
shareholders
You are the owner of a small business, Mark's Tarps, located in Pawnee, Illinois, and you need to find public investors to buy company stock so you can raise capital. You should use the Small Company Offering Registration (SCOR) form (Form U-7) if ________.
you propose to raise $1 million or less over the course of 12 months
Stephen Hollander is an accountant who falsifies financial records for the company he works for, Suspicious Inc. Suspicious Inc. uses these intentionally falsified statements to submit a registration statement to the SEC and begin selling securities to the public. Should Stephen's fraud be discovered, he might become a defendant in a ________ action, which makes it unlawful for any person to defraud any other person in connection with the purchase and sales of any security.
Rule 10(b)-5
According to the video, many Americans need help completing their tax returns; approximately ____ percent of Americans pay for someone to prepare their tax forms. If a certified public accountant prepares an individual American's tax return but files it past the tax deadline, is the accountant ____ liable for the damages of the late filing.
60; is
________ is an agreement that requires selling shareholders to sell their shares to the other shareholders or to the corporation at the price specified in the agreement.
A buy-and-sell agreement
Which of the following is NOT true about a limited liability partnership (LLP)?
A certificate of limited liability partnership is a private document.
You and your twin brother decide to start a carpentry business called Bro & Bro Carpentry. Your business will be a private for-profit corporation whose shares are owned by a few shareholders who are family members, relatives, and friends. Bro & Bro Carpentry is which kind of corporation?
A closely held corporation
Which of the following statements about voluntary dissolution is NOT true?
A corporation cannot be voluntarily dissolved.
Which of the following is an INCORRECT statement regarding Delaware corporation law?
A corporation must do business in Delaware in order to obtain the benefits of Delaware corporation law.
Which of the following is an INCORRECT statement regarding corporate management?
A corporation usually has a decentralized management.
Which of the following is a clause that can be included in the articles of incorporation that permits the corporation to engage in any activity permitted by law?
A general-purpose clause
Derivative action is best defined by which of the following?
A lawsuit a shareholder brings against an offending party on behalf of a corporation when the corporation fails to bring the lawsuit
Which of the following best describes a bond?
A long-term debt security that is secured by some form of collateral
Utah Corporation, an LLC, has not been continued, so the LLC is wound up. The assets of an LLC that are being dissolved must be applied to first pay off the creditors; thereafter, the surplus amount is distributed to the members in equal shares, unless the operating agreement provides otherwise After the dissolution and winding up, Utah Corporation will file ________ with the secretary of state.
articles of termination
Which of the following is NOT true about the Clayton Act?
Section 7 of the Clayton Act prevents a failing companies from merging with another to prevent it from disappearing from the market.
An LLC that has no specified term of duration is termed a(n) ________.
at-will LLC
An ________ is 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.
audit
Which of the following is NOT an example of a breach of a director's or officer's duty of care?
a director's or an officer's failure to realize a profit for the corporation in any given calendar or fiscal year
Which of the following is an INCORRECT statement regarding members' and managers' duty of care to a limited liability company (LLC)?
A manager of a manager-managed LLC does not owe a fiduciary duty of loyalty to the LLC, since he or she is not a member.
Which of the following is an INCORRECT statement regarding members' and managers' duty of loyalty to a limited liability company (LLC)?
A manager of a manager-managed LLC does not owe a fiduciary duty of loyalty to the LLC, since he or she is not a member.
Which of the following is NOT true about the Racketeer Influenced and Corrupt Organizations Act (RICO)?
Accountants cannot be named as defendants in lawsuits that assert violations of RICO.
________ is an intentional misrepresentation or omission of a material fact that is relied on by the client and causes the client damage.
Actual fraud
________ are not civilly liable under Section 10(b) and Rule 10b-5 but can be held criminally liable.
Aiders and abettors
An LLC is formed by members John, Alicia, and Margaret. They designated the LLC as manager-managed and appoint Alicia and nonmember Robert as its managers. Who has the authority to bind the LLC to contracts?
Alicia and Robert, because they are the managers of the LLC
Which of the following is an INCORRECT statement regarding manager-managed LLCs?
All actions concerning the LLC can be delegated to managers.
Which of the following is NOT true regarding accounting malpractice (negligence)?
An accountant is relieved of liability if he or she can prove they followed applicable GAAP, GAAS, and/or IFRS.
________ is a formal entrance into a contract between a client and an accountant.
An engagement
Which of the following is an INCORRECT statement regarding common stock?
Common stock has a fixed maturity date.
The _____ is a federal administrative agency that is empowered to administer federal securities law.
Securities and Exchange Commission (SEC)
________ is a doctrine stating that if two or more firms act the same but no concerted action is shown, there is no violation of Section 1 of the Sherman Act.
Conscious parallelism
Corporation A wants to acquire Corporation B. Corporation A makes an offer to buy shares directly from the shareholders of Corporation B. If a reverse tender offer occurs ________.
Corporation B then makes an offer to buy shares directly from the shareholders of Corporation A
Corporation A wants to acquire Corporation B. Corporation A makes an offer to buy shares directly from the shareholders of Corporation B. If a reverse tender offer occurs ________.
Corporation B then makes an offer to buy shares directly from the shareholders of Corporation A
Corporation Delta and Corporation Echo merge, and it is agreed that Corporation Delta will absorb Corporation Echo. The representation of this merger is D + E = D. Which is the merged corporation?
Corporation Echo
Corporation X makes a tender offer for the shares of Corporation Y directly to its shareholders. A standstill agreement is reached if ________.
Corporation X agrees to give up its tender offer and not purchase any further shares if Corporation Y agrees to buy back the stock at a premium over fair market value
Corporation Yankee wants to acquire Corporation Zulu, so Corporation Yankee offers to trade its shares for those of Corporation Zulu. Corporation Zulu's shareholders approve the transaction. Corporation Yankee now owns all the stock of Corporation Zulu, and Corporation Zulu's shareholders are now shareholders of Corporation Yankee. The subsidiary corporation in this scenario is ________.
Corporation Zulu
_____ are the most financially dominant form of business organization in the United States, generating more than 85 percent of the country's gross business receipts.
Corporations
Which of the following is an INCORRECT statement regarding the corporation as a legal person?
Corporations are not separate legal persons.
According to the video, Disney's interest in Fox was driven by ________.
Disney's need to compete with Netflix
Which of the following is an INCORRECT statement regarding tender offers and the business judgment rule?
Due to the business judgment rule, the members of the board of directors of a corporation do not owe a fiduciary duty to the corporation and its shareholders.
According to the video, which regional association of countries has filed antitrust charges against Google?
EU
________ is(are) rule(s) that provides that the income and losses of a limited liability company or limited liability partnership are reported on the owner's personal income tax return.
Flow-through taxation
Which of the following is an INCORRECT statement regarding generally accepted accounting principles (GAAPs)?
GAAPs specify the methods and procedures that are to be used by public accountants when conducting external audits of company financial statements.
Certified public accountants must comply with two uniform standards of professional conduct: _____ and _____.
GAAPs; GAASs
Which of the following is an INCORRECT statement regarding generally accepted auditing standards (GAASs)?
GAASs are standards for the preparation and presentation of financial statements.
According to both the video and chapter, which of the following bond types is considered the safest?
Government bonds
Which of the following is NOT true about a limited liability partnership (LLP)?
In an LLP, all of the partners are personally liable for the debts and obligations of the LLP.
Which of the following is NOT true about an initial coin offering (ICO)?
In applying the Howey test, the SEC has found that most ICOs are not securities and therefore not subject to securities laws and SEC regulation.
Which of the following is an INCORRECT statement regarding agency authority to bind an LLC to contracts?
In a manager-managed LLC, non-manager members can bind the LLC to contracts.
The ________, which permits the SEC to obtain a civil penalty of up to three times the illegal profits gained or losses avoided on insider trading, was enacted in 1984.
Insider Trading Sanctions Act
What of the following is NOT a feature of the Sarbanes-Oxley Act?
It prohibits employees of an accounting firm from ever becoming CEO at one of their audit clients.
Which of the following is NOT true about the antifraud provisions of Section 14(a) of the Securities Exchange Act of 1934?
It prohibits shareholder resolutions.
Jim Bob, an officer of the Huntington Corporation, has the express authority to purchase supplies and equipment for the corporation. Delia, a sales representative for an equipment supplier, pays Jim Bob a 10 percent kickback of the price of the supplies and equipment he purchases for the corporation from her. Jim Bob has _____ and _____.
breached his duty of loyalty; Huntington can recover the kickback from Jim Bob
To usurp a corporate opportunity means that a director or officer ________.
breached their duty of loyalty by stealing a corporate opportunity for themselves
________ is a federal law that mandates the president of the United States to suspend, prohibit, or dismantle the acquisition of U.S. businesses by foreign investors if there is credible evidence that the foreign investor might take action that threatens to impair the "national security."
The Exon-Florio Foreign Investment Provision
Which of the following is NOT true about the Foreign Corrupt Practices Act (FCPA)?
The FCPA makes it illegal to make payments to expedite the performance of a foreign official's routine duties.
Which of the following is NOT true about SEC actions under the Securities Exchange Act of 1934?
The SEC may not require defendants to disgorge illegally gained profits.
_____ is a rule stating 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.
The Ultramares doctrine
Which of the following is a CORRECT statement regarding vertical restraints of trade?
The United States Supreme Court has applied both the per se rule and the rule of reason in determining the legality of vertical restraints of trade under Section 1 of the Sherman Act.
Which of the following is NOT true about the Williams Act?
The Williams Act requires a tender offeror to notify either the management of the target company or the Securities and Exchange Commission before the offer is made.
Which of the following is an INCORRECT statement regarding the Sarbanes-Oxley Act?
The act makes it possible for a registered public accounting firm to provide simultaneously audit and bookkeeping services to a public company.
________ is the power to control prices or exclude competition, measured by the market share the defendant possesses in the relevant market.
Monopoly power
Which of the following is NOT true regarding Regulation A offerings?
Most Regulation A+ offerings are done through online equity crowdfunding platforms such as SeedInvest and StartEngine, which handle the logistics of the offering and accept investments online.
Which of the following is an INCORRECT statement regarding shareholder resolutions?
Most shareholder resolutions have a great chance of being enacted.
The New York Stock Exchange (NYSE) is operated by ________.
NYSE Euronext
Beth and Tyler file the articles of organization to organize their new LLC in North Carolina. Once their LLC is up and running, it also does business in South Carolina and Georgia. In which state or states is their LLC a domestic LLC?
North Carolina
Which of the following is NOT true about Section 10A of the Securities Exchange Act of 1934?
Once the auditor reports the illegal act to the board of directors, the board of directors must inform the Securities and Exchange Commission of the auditor's conclusion within seven business days.
Which of the following is an INCORRECT statement regarding corporate voting requirements?
The affirmative vote of the majority of the non-voting shares represented at a shareholders' meeting constitutes an act of the shareholders for actions other than for the election of directors.
Which of the following is an INCORRECT statement regarding a merger or share exchange?
The approval of the surviving corporation's shareholders is not required if the merger or share exchange increases the number of voting shares of the surviving corporation by 49 percent or less.
Bingo, LLP enters into a contract to lease office space from a landlord for a five-year period. Two years later, the LLP fails and is unable to pay for the remaining three years' rent. The landlord sues both the LLP and the partners for breach of contract. Which of the following is true?
Only the assets of Bingo, LLC can be reached.
________ of the largest corporations in the United States have their articles of incorporation filed in the state of ________. One reason, in addition to others, is that its legislature has provided _________ in its corporation code.
Over one-half; Delaware; a potent antitakeover statute
Which of the following 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?
Piercing the corporate veil
Which of the following is NOT true about an audit committee?
The audit committee must register with the Public Company Accounting Oversight Board.
What is the difference between an international branch office and an international subsidiary?
The corporation of the international branch office is liable for torts committed by employees of the branch but would not be liable for torts committed by employees of the subsidiary. ADVERTISEMENT
Which of the following is an INCORRECT statement regarding the duty of care of directors and officers of a corporation?
The duty of care is not a fiduciary duty.
_____ is a rule stating that an accountant is liable for negligence to third parties who are foreseeable users of the client's financial statements. It provides the broadest standard for holding accountants liable to third parties for negligence.
The foreseeability standard
Which of the following is NOT true about determining whether a merger is lawful under Section 7 of the Clayton Act?
Whether a merger or acquisition creates a reasonable probability of a substantial lessening of competition or the likelihood of creating a monopoly requires actual proof of the lessening of competition.
Which of the following is NOT an example of a statutorily defined security?
a bond
According to the video, usury-level refund anticipation loan interest rates can range from 36% to 500%. An accountant who issues a refund anticipation loan may cause _____________. between the accountant and his client.
a breach of the duty of loyalty
A short-form merger is ________.
a combination between a parent corporation and a subsidiary corporation that does not require the approval of the shareholders of either corporation or the approval of the board of directors of the subsidiary corporation
You are an accountant for a firm that perpetrates a securities fraud upon investors. The investors have suffered $2 million in damages and sue to recover their losses. You and the other accountants at the firm are found to be 40% liable for the damages, so you will have to pay $800,000. Proportionate liability means ________.
a defendant's liability is limited to his or her proportionate degree of fault
A distribution of profits of the corporation to shareholders is called ________.
a dividend
A registration statement is ________.
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
Beth and Tyler file the articles of organization to organize their new LLC in North Carolina. Once their LLC is up and running, it also does business in South Carolina and Georgia. In North Carolina, Beth and Tyler's LLC is considered ________.
a domestic LLC
Margaret Brown is a meticulous accountant who adheres to all generally accepted accounting standards and practices. However, when conducting an audit of Mega Corporation Inc., she fails to recognize a well-concealed fraud in the financial statements. She gives an unqualified opinion, believing it to be accurate at the time, and Mega Corporation includes this opinion in its registration statement. After Mega Corporation begins selling securities, an investor purchases the stock of Mega Corporation. When the fraud becomes public, the investor loses money and sues Margaret Brown for damages. Margaret Brown can assert ________ to liability.
a due diligence defense
The duty of loyalty is ________.
a duty that directors and officers have not to act adversely to the interests of the corporation and to subordinate their personal interests to those of the corporation and its shareholders
A limited liability partnership in any state other than the one in which it is organized is called ________.
a foreign LLP
A supramajority voting requirement means that ________.
a greater than majority of shares constitutes a quorum of the vote of the shareholders
If Louis Vuitton, a maker of expensive women's clothing, shoes, handbags, and accessories, refuses to sell its merchandise to Wal-Mart stores, this is ________.
a lawful unilateral refusal to deal
Which of the following best defines a foreign LLC?
a limited liability company (LLC) in any state other than the one in which it is organized
A domestic LLP is ________.
a limited liability partnership in the state in which it is organized
Emma, Emily, Diana, and Jill form an LLC. Emily and Emma are named as manager. Emma enters into a contract to purchase goods from a supplier for the LLC. Diana enters into a contract to lease equipment on behalf of the LLC. The LLC is bound to the contract entered into by Emma, but is not bound to the contract entered by Diana. This is because the LLC is which of the following?
a manager-managed LLC
A horizontal merger is defined as ________.
a merger between 2 or more companies that compete in the same business and geographical market
Upscale Handbags Unlimited manufactures luxury handbags and sets a minimum price of $2,000, below which the handbags cannot be sold to consumers. Setting a minimum resale price is ________.
a per se violation of Section 1 of the Sherman Act
Winter Corporation currently has five members on its board of directors. The annual meeting of the shareholders is approaching. Management proposes that the current board members be reelected. Mr. Roman, who owns 10 percent of Winter Corporation's stock, is unsatisfied with the decisions made by the current board members. He proposes a new slate of directors, including himself and four others, to replace the incumbent members of the board of directors In order to seek votes for both the management's proposal and Mr. Roman's, Mr. Roman can institute ________.
a proxy contest
Regulation A+ is ________.
a regulation that permits an issuer to sell $50 million of securities pursuant to a simplified registration process
The board members of Bluegold corporation are meeting to discuss the possibility of the voluntary dissolution of the corporation. The idea for voluntary dissolution is put forward by a member of the board. The idea is seconded by another board member, and then put to the vote of the entire board of directors. The idea passes, and Bluegold corporation is voluntarily dissolved. The vote that authorized the dissolution is called ________.
a resolution
A nonprice vertical restraint is ________.
a restraint of trade that is unlawful under Section 1 of the Sherman Act if its anticompetitive effects outweigh their procompetitive effects
share exchange is ________.
a situation in which one corporation acquires all the shares of another corporation, and both corporations retain their separate legal existence
A limited liability partnership (LLP) is ________.
a special form of partnership in which all partners are limited partners, and there are no general partners
The board of directors of National Corporation is considering a merger with another corporation. In order to have the proposed merger approved, the board of directors would have to call for ________.
a special shareholders' meeting
Barney is a former member of an LLC who has disassociated himself. The LLC would like to give constructive notice of what happened, so they file the appropriate document with the secretary of state. This notice is effective against any person who later deals with Barney, whether the person was aware of the notice or not. This document is called ________.
a statement of disassociation
Cumulative voting is ________.
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
Straight voting or noncumulative voting is ________.
a system in which each shareholder votes the number of shares he owns on candidates for each of the open positions
Bruno and Nicole are putting together the articles of organization for their new LLC. In the articles of organization, they set for a date for the dissolution of the LLC. The articles of organization include the following language: "This LLC will be dissolved 50 years from the date of filing of the articles of organizations." Bruno and Nicole's LLC can best be described as ________.
a term LLC
An audit is ________.
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
Which of the following is NOT an example of a common security?
a warranty
A proxy is ________.
a written document signed by a shareholder that authorizes another person to vote the shareholder's shares
Joel Orenstein is an accountant who has been assigned to conduct an audit of Company Enterprises. While conducting the audit, he does not comply with generally accepted auditing standards and completely overlooks evidence that the CEO of Company Enterprises had embezzled at least $300,000 of company money in the past two years. Joel Orenstein can be sued for damages arising from his ________.
accounting malpractice (negligence)
Disney's purchase of Fox's assets for $52 billion is an example of a(n) ________.
acquisition
Extreme Corporation has just failed to file an annual report and did not pay its franchise fee. The secretary of state can now obtain ________ because Extreme Corporation has failed to comply with certain procedures required by law.
administrative dissolution
Which type of opinion is usually issued when an auditor determines that a company has materially misstated certain items on its financial statements?
adverse
A(n) _____ opinion determines that the financial statements do not fairly represent the company's financial position, results of operations, or change in cash flows in conformity with generally accepted accounting principles.
adverse
Richard Thomas's business undergoes an audit after discrepancies are noted on tax documents filed on behalf of his business. After the audit is completed, Richard receives a copy of the results, which state that the financial statements of Richard's business do not fairly represent the company's financial position, results of operations, or change in cash flows in conformity with generally accepted accounting principles. The auditor's results for Richard's business would be best described as a(n) ________.
adverse opinion
Which of the following best defines an at-will LLC?
an LLC that has no specified term of duration
Constructive fraud has happened when ________.
an accountant acts with "reckless disregard" for the truth or for the consequences that will occur as a result of his or her actions
A certified public accountant (CPA) is ________.
an accountant who has met certain educational requirements, has passed the CPA examination, and has had a certain number of years of auditing experience
An operating agreement is ________.
an agreement entered into among members that governs the affairs and business of the LLC and the relations among members, managers, and the LLC
A qualified opinion 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
If a drug manufacturer requires patients to purchase its blood-monitoring services along with its drug to treat schizophrenia, where the drug manufacturer was one of many providing blood-monitoring services, but the only manufacturer of the drug, this would be ________.
an illegal tying arrangement
A member of the board of directors who is also an officer of the corporation is called ________.
an inside director
Actual fraud is ________.
an intentional misrepresentation or omission of a material fact that is relied on by the client and causes the client damage
An office of a multinational corporation that is located in a foreign country is called ________.
an international branch office
Which of the following issuers qualifies as a "well-known seasoned investor (WKSI)"?
an issuer who has issued at least $700 million of outstanding equity securities owned by non-affiliate investors
Which of the following issuers qualifies as a "well-known seasoned investor (WKSI)"?
an issuer who has issued $1 billion of securities in the previous three years
An act by a corporation that is beyond its express or implied powers is called ________.
an ultra vires act
A limited liability company (LLC) is ________.
an unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnerships, and corporations
A price increase for shirt dresses causes consumers to switch to wearing men's dress shirts. These two products in the same line of commerce ________.
are considered interchangeable
Janae is a shareholder in Major Corporation. In order to pay for her wedding, Janae sells some of her shares. This scenario demonstrates that corporate shares ________.
are freely transferable
According to the _____ rule, directors and officers are not liable to the corporation or its shareholders for honest mistakes of judgment.
business judgement
According to the video, one of the European Union's charges against Google relates to the company using its dominance in online search to drive users to places it wants them to go. This is known as the "_____" controversy.
comparison shopping
Antitrust defendants often opt to settle government-brought antitrust actions through a _____ in a government civil action.
consent decree
Miyu owns preferred stock in Major Corporation. She learns that the corporation's common stock has significantly increased in value. If Miyu owns convertible preferred stock she can ________.
convert her preferred shares into common stock
A mechanism that allows entrepreneurs and small businesses to raise small amounts of capital by selling securities to public investors using online portals is ________.
crowdfunding
A long-term unsecured debt instrument that is based on a corporation's general credit standing is called a ________.
debenture
Which of the following actions does NOT require shareholders' approval?
declaring a dividend
As the journalist in this video notes, Martin Shkreli was convicted of securities fraud for using the funds from one hedge fund to pay off another. Suppose that the hedge fund's managers choose not to file a lawsuit against Shkreli to retrieve the stolen funds. In that case, the shareholders might choose to initiate a ________ to file a lawsuit on the hedge fund's behalf.
derivative action
In defrauding hedge funds, Martin Shkreli broke the duty of loyalty. In other words, he ________.
did not subordinate his personal interests to those of the corporation and its shareholders
A _____ interest is a member's ownership interest in an LLC that entitles the member to receive distributions of money and property from the LLC.
distributional
Danez, Meghan, and Emily are all members of Poets Speak Out LLC. Each owns a one-third interest in the LLC, and they agree to divide the distributions equally in one-third portions. Danez then sells his one-third interest to Katherine, who is not a member of the LLC. The LLC makes $60,000 in profit. Katherine is now entitled to receive one-third of the distributions ($20,000). In this scenario, Danez has transferred his ________ to Katherine.
distributional interest
The Ford Motor Company, a major manufacturer of automobiles and other vehicles, is incorporated in Delaware. It is a(n) _____ corporation in Delaware.
domestic
The articles of incorporation of Smith, Inc. state that the corporation can only make investments in real estate. If a corporate officer invests corporate funds in the commodities markets, the officer is liable to the corporation for any losses suffered because of his or her _____.
duty of obedience
Elissa, Lindsey, Amy, Carrie, and Alison form Cooper Square, LLC. Alison contributes $50,000 capital, and the other four members each contribute $10,000. The members are deciding whether to stop selling one of their product lines. Elissa, Amy, and Carrie all vote in favor. Lindsey and Alison are opposed. If this is a member-managed LLC ________.
each member has equal rights in the management
The JOBS Act creates a new class of public company and a new category of issuer under federal securities laws called the _____ company.
emerging growth
A corporate officer is defined as an ________.
employee of a corporation who is appointed by the board of directors to manage the day-to-day operations of the corporation
The terms of a(n) _____ are specified when an accountant and a client enter into a contract for the provisions of accounting services by the accountant.
engagement
Self-dealing is a breach of loyalty when a director or officer of a corporation ________.
engages in undisclosed self-dealing with their principal, the corporation
According to the video and chapter, young investors would likely have more money invested in __________ as part of their portfolios, since they have a longer timeline to invest prior to retirement than do older investors
equity (or stock)
Stephen Hollander is an accountant who falsifies financial records for the company he works for, Suspicious Inc. Suspicious Inc. uses these intentionally falsified statements to submit a registration statement to the SEC and begin selling securities to the public. Should Stephen's fraud be discovered, he might become a defendant in a Rule 10(b)-5 action. Rule 10(b)-5 ________.
makes it unlawful for any person to defraud any other person in connection with the purchase and sales of any security
A dividend preference is the right to receive a(n) _____ dividend at set periods during the year.
fixed
Quality Motor Company is incorporated in California. It conducts business in Oregon, where its headquarters are located, and it distributes vehicles in both California and Oregon, as well as all the other US states. In Oregon, Quality Motor Company would be considered a(n) ________ corporation.
foreign
The Ford Motor Company, a major manufacturer of automobiles and other vehicles, is incorporated in Delaware. It distributes vehicles in Delaware, as well as the other 49 states. The Ford Motor Company is a(n) _____ corporation in the other 49 states.
foreign
Solis & Co., a national accounting firm, was hired to conduct an audit of Huntington Corp.'s financial statements. Solis & Co. negligently conducted the audit and failed to discover $1 million in false receivables that were based on fictitious sales and other suspicious activities. Solis & Co. rendered an unqualified opinion and provided 32 copies of the audited financial statements to Huntington Corp. Huntington gave one copy to Stemler State Bank, who then made a loan to Huntington based on the information in the audited statement. Solis & Co. was unaware that the statements would be provided to anyone outside of Huntington. When Huntington failed to repay the loan, Stemler State Bank brought a negligence action against Solis & Co. Under which theory of liability would Solis & Co. be liable to Stemler State Bank?
foreseeability standard
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
A ________ is a restraint of trade in which two or more purchasers at the same level of distribution agree not to purchase a product from a specified seller.
group boycott by purchasers
According to the video, a new business that is experiencing rapid expansion and does not have a long track record is most likely in the__________ stock category, as defined in the chapter.
growth
You are an accountant who prepares financial statements for Huge Corporation Inc., and you were instrumental in preparing financial statements to be included in the registration statement to be filed with the SEC before Huge Corporation begins selling securities to the public. The expertised portion of the statement ________.
has been prepared by expert in this matter (i.e. you as an accountant)
A publicly held corporation ________.
has many shareholders and its securities are traded on a national exchange
The Public Company Accounting Oversight Board (PCAOB) is a board created by the Sarbanes-Oxley Act of 2002 that ________.
has the authority to adopt rules concerning auditing, accounting quality control, independence, and ethics of public companies and public accountants
Which of the following is NOT an example of a defense to price discrimination?
if the price differential is due to lack of buyer bargaining power
Section 11(a) ________.
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
Section 32 of the Securities Exchange Act of 1934 is a provision that ________.
imposes criminal liability on any person who willfully violates the 1934 act or the rules or regulations adopted thereunder
The misappropriation theory ________.
imposes liability 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
An accountant's work papers are defined as ________.
internal work papers generated by accountants while performing services for their clients
Scott is a corporate officer at Bluegold Corporation. Their articles of incorporation authorize the corporation to invest in real estate only. Scott breaches his duty of obedience if he ________.
invests corporate funds in the commodities markets
The CEO and CFO certification ________.
is a certification required by the Sarbanes-Oxley Act that the chief executive officer (CEO) and chief financial officer (CFO) of a public company file with each annual and quarterly report of the company
The per se rule ________.
is applicable to restraints of trade considered inherently anticompetitive
Members of an LLC have _____ liability for the debts, obligations, and liabilities of an LLC.
limited
Shareholders of a corporation generally have _____ liability for the debts and obligations of the corporation.
limited
Chris and Christie, brother and sister, form C&C, an LLC, to own and operate a business. Each contributes $20,000 capital. While driving around the local community on LLC business, Chris accidentally hits and injures a pedestrian, Angela. Angela can recover damages for her injuries from Chris personally because he committed the negligent act. She can also recover damages from C&C, LLC, because Chris was acting within the scope of ordinary business when the accident occurred. The only consequence to Christie could be the loss of her $20,000 capital contribution. This is because Christie, as a member of the LLC, has ________.
limited liability
In an LLP, there does not have to be a general partner who is personally liable for the debts and obligations of the partnership. Instead, all partners are limited partners who stand to lose only their capital contribution if the partnership fails. None of the partners is personally liable for the debts and obligations of the partnership beyond his or her capital contribution. This means that all partners in an LLP have ________.
limited liability
Susan Wilcox is a partner in the accounting firm that she founded with her friend, a woman named Lauren White. Wilcox and White are not personally liable for the debts and obligations of the accounting firm; if the firm fails, they only lose their capital contribution. Susan and Lauren's accounting firm is organized and operated as a(n) ________.
limited liability partnership
Most public accounting firms are organized and operated as _____.
limited liability partnerships
Directors and officers of a corporation owe a fiduciary duty to act honestly. This duty, called the duty of _____, requires directors and officers to subordinate their personal interest to those of the corporation and its shareholders.
loyalty
Furniture Unlimited wants to acquire Carpentry World. Rather than proposing a merger or acquisition, Furniture Unlimited makes an offer directly to the shareholders of Carpentry World to acquire their shares without the approval of Carpentry World's board of directors. Furniture Unlimited has just ________.
made a hostile tender offer
Short-swing profits are ________.
made by a statutory insider on trades involving equity securities occurring within six months of each other
In 2012, the Jumpstart Our Business Startups Act (JOBS Act) was enacted to ________.
make it easier for start-up companies to raise capital through initial public offerings (IPOs)
Gentris has just been hired by Greenwhite Corporation's board of directors to be a corporate officer. Gentris' duties include ________.
management of the day-to-day operations of the corporation
Two regional paper companies, Paper Paper and Mifflin Wilde, are planning to merge. Each company serves a specific area in the state of Georgia, and neither company sells in the other company's geographic area. The merger between Paper Paper and Mifflin Wilde would be an example of a ________.
market extension merger
The owners of LLCs are usually called _____.
members
A situation in which one corporation is absorbed into another corporation and ceases to exist is called a ________.
merger
Conglomerate mergers can be defined as ________.
mergers between companies that deal in completely unrelated businesses
As discussed in the video, investors can purchase what the chapter calls __________, which pool money from many investors to buy a mix of securities.
mutual funds
Antitrust defendants often opt to settle government-brought antitrust actions by entering a plea of _____ in a criminal action.
nolo contendere
Managers of LLCs are _____ liable for the debts, obligations, and liabilities of the LLC they manage.
not personally
The fiduciary duty of loyalty includes the following duties EXCEPT?
not to engage in a known violation of the law
Shawn Marcus is an accountant hired to conduct an audit of Big Huge Company, Inc. He gives an unqualified opinion to the company, which uses that opinion to take out an $800,000 loan from Greenwhite Bank. When Big Huge Company defaults on the loan, it is uncovered that Shawn Marcus was negligent in conducting the audit, so Greenwhite Bank sues Shawn Marcus for damages. Under the Ultramares doctrine, Shawn Marcus is ________.
only liable to the party that he is in privity of contract with, Big Huge Company, Inc.
The rule of reason states that ________.
only unreasonable restraints of trade violate Section 1 of the Sherman Act
A(n) _____ is an agreement entered into among members that governs the affairs and business of the limited liability company (LLC) and the relations among members, managers, and the LLC.
operating agreement
If an officer acts _________ and enters into a contract with a third person, but the corporation _________ of the contract, the corporation has _________ the contract and is bound by it.
outside the scope of his or her employment, accepts the benefits, ratified
Which of the following is NOT a recognized strategy or tactic incumbent management may use in defending against hostile tender offers?
parallel tender offer
The ________ is a rule that is applicable to restraints of trade considered inherently anticompetitive. Once this determination is made about a restraint of trade, the court will not permit any defenses or justifications to save it.
per se rule
Redeemable preferred stock is preferred stock that ________.
permits a corporation to buy back the preferred stock at some future date
The board of directors are ________.
persons elected by the shareholders that make policy decisions concerning the operation of a corporation
The written disclosure document that must be submitted to the SEC along with a company's registration statement is the ________.
preliminary prospectus
Predatory pricing is ________.
pricing of a product or service below average or marginal cost that is intended to drive out competition
Professional corporations are ________.
private corporations formed by professionals such as lawyers, accountants, physicians, and dentists
The ________ 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.
private placement (SEC Rule 506)
Which of the following is NOT a statutory exemption to federal antitrust laws?
privately owned companies
Section 10(b) of the Securities Exchange Act of 1934 ________.
prohibits any manipulative or deceptive practice in connection with the purchase or sale of a security
A(n) _____ is a person who organizes and starts a corporation, negotiates and enters into contracts in advance of its formation, and finds the initial investors to finance the corporation.
promoter
The business judgment rule ________.
protects the decisions of a board of directors that are made on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the corporation and its shareholders
Most states have enacted securities laws. State securities laws generally require the registration of certain securities, ________, and contain broad antifraud provisions. State securities laws are usually applied when ________ companies are issuing securities within that state. The ________ has been adopted by many states, which coordinates state securities laws with federal securities laws.
provide exemptions from registration; smaller; Uniform Securities Act
A corporation has 30,000 shares outstanding. A shareholders' meeting is duly called to amend the articles of incorporation, and 16,050 shares are represented at the meeting. A ________ is present because a majority of the shares entitled to vote are represented.
quorum
Jackie is the president of a corporation and a statutory insider. On February 1, she purchases 2,000 shares of her employer's stock at $10 per share. On June 1, she sells the stock for $14 per share. Under Section 16 of the Securities Exchange Act of 1934, the corporation may ________.
recover the $8,000 profit because the trades occurred within 6 months of each other
The video discusses several investment options, including stocks and bonds. According to the video and chapter, the type of investment an individual investor is likely to choose is based on the level of __________ with which the investor is comfortable.
risk
The _____ standard holds that only unreasonable restraints of trade violate Section 1 of the Sherman Act.
rule of reason
The fair price rule is a rule that ________.
says any increase in price paid for shares tendered must be offered to all shareholders, even those who have previously tendered their shares
According to the video, one of the European Union's charges against Google is that it is _____ content from third-party websites.
scraping
Securities that are exempt from registration with the SEC include all EXCEPT which of the following?
securities that can be classified as either common stock or preferred stock
Jim Bob, Carlos, Carole, and Serena formed the Huntington Corporation, which opened a restaurant in December of 2019. Jim Bob, Carlos Carole, and Serena are all on the board of directors. Which of the following would NOT be an action taken at the first organizational meeting of the board?
selecting a state for incorporation
"Going public" means ________.
selling securities to the public for the first time
According to the video, the money that the major banks in the United States plan to distribute to shareholders will be in the form of _____.
share buybacks and dividend increases
Even if management is not in favor a shareholder has a right to have the ________ included in the corporation's proxy materials if it (1) relates to the corporation's business, (2) concerns a policy issue (and not the day-to-day operations of the corporation), and (3) does not concern the payment of dividends.
shareholder resolution
Huntington Corporation gives $13.7 million of its own shares to Gemini Corporation for all of the stock in Gemini Corporation. This is known as a _____. Huntington Corporation is now the _____ of Gemini Corporation and the shareholders of Gemini Corporation are now the ____.
share exchange; parent corporation; shareholders of the Huntington Corporation
Market _____ is a restraint of trade in which competitors agree that each will serve only a designated portion of the market.
sharing
A well-known seasoned investor (WKSI) may issue securities to the public during a 3-year period without filing a new registration statement for each offering in a ________.
shelf registration
A combination between a parent corporation and a subsidiary corporation that does not require the approval of the shareholders of either corporation or the approval of the board of directors of the subsidiary corporation is called a ________.
short-form merger
The ________ exemption is an exemption from registration that permits the sale of securities not exceeding $5 million during a 12-month period.
small offering (SEC Rule 504)
Anticompetitive activity involving intrastate commerce is often evaluated under ________.
state antitrust laws
Many states have enacted laws that require the registration of certain securities, provide exemptions from registration, and contain broad antifraud provisions. These laws are called ________.
state securities laws/"blue sky" laws
Limited liability partnership codes are ________.
state statutes that regulate the formation, operation, and dissolution of limited liability partnerships (LLPs)
Preorganization subscription agreements; interests in oil, gas, and mineral rights; and deposit receipts for foreign securities are examples of ________ securities.
statutorily defined
A system in which each shareholder votes the number of shares he or she owns on candidates for each of the positions open is called ________.
straight voting (noncumulative voting)
The articles of incorporation or the bylaws of a corporation can require a greater than majority of the shares to constitute a quorum of the vote of the shareholders. This is called a _____ voting requirement.
supramajority
A _____ offer is an offer that an acquirer makes directly to a target corporation's shareholders in an effort to acquire the target corporation.
tender
Emma, Emily, Diana, and Jill form an LLC. Emily and Emma are named as managers. Emma enters into a contract to purchase goods from a supplier for the LLC. Diana enters into a contract to lease equipment on behalf of the LLC. If the LLC is manager-managed ________.
the LLC is bound to the contract entered into by Emma, but is not bound to the contract entered by Diana
A federal statute that establishes rules to improve corporate governance, prevent fraud, and add transparency to corporate operations is called ________.
the Sarbanes-Oxley Act (SOX) of 2002
Kitchen Corporation is preparing to buy shares of another company called Bathroom Corporation. Kitchen Corporation ultimately makes its decision based on Bathroom Corporation's financial statements, which were audited by James Dryer, a CPA. If any negligence is revealed in the preparation of the financial statements and audit, James Dryer would be liable to Bathroom Corporation under the foreseeability standard, which says ________.
the accountant will be liable to any foreseeable user of the client's financial statements
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 are called ________.
the articles of limited liability partnership
Johanna and Tom want to start a limited liability company in Michigan. They put together the necessary paperwork, and they file it with the secretary of state of Michigan. The existence of their LLC begins when their paperwork is filed. The filing of this paperwork by the secretary of state is conclusive proof that the organizers have satisfied all the conditions necessary to create the LLC. The paperwork that Johanna and Tom file is called ________.
the articles of organization
Articles of amendment are filed when ________.
the articles of organization must be amended
According to the video, a notable concern regarding the major United States banks' $23 billion capital distribution plan is that _____.
the banks could fail again because they have less money on hand
An unqualified opinion can be defined as ________.
the best opinion an auditor can give, as it states that a company's financial records fairly represent the company's actual financial position
A target corporation is ________.
the corporation that is proposed to be acquired in a tender offer situation
The JOBS Act of 2012 created a new category of issuer under federal securities laws called ________.
the emerging growth company (EGC)
For the incorporation process, ________ must be followed.
the state's corporation code
"Securities law" refers only to ________.
the statutes enacted by federal and state governments to regulate the issuance and trading of securities
The corporation that is proposed to be acquired in a tender offer situation is called ________.
the target corporation
Furniture Unlimited wants to acquire Carpentry World. Rather than proposing a merger or acquisition, Furniture Unlimited makes an offer directly to the shareholders of Carpentry World to acquire their shares. If this is a hostile tender offer ________.
this offer is made without the permission of the board of directors of Carpentry World
After conducting considerable research and investigation, the directors of a major automobile company, American Car Company, decide to produce a large volume of diesel cars. Four years later, when the diesel cars are introduced to the public for sale, few of them are sold because of the public's interest in buying electric and hybrid vehicles due to the increasing environmental damage of pollutants and an increase in gasoline prices. The business judgement rule will shield the corporate management from liability because ________.
this was an honest mistake of judgment so corporate management did not breach their duty of care
A special shareholders' meeting is called ________.
to consider and vote on important or emergency issues
Michael is a member of a member-managed LLC. While engaging in LLC business, Michael is driving an automobile and accidentally hits Ibrahem, a pedestrian, and severely injures him. Ibrahem sues the LLC and recovers $500,000 in damages. If Michael breached his duty of care to the LLC, he is liable ________.
to the LLC and to Ibrahem
A person who intentionally or unintentionally (negligently) causes injury or death to another person is a(n) ________.
tortfeasor
Vertical trade restraints that involve the seller's refusal to sell a product to a customer unless the customer purchases a second product are known as ________.
tying arrangements
An act by a corporation that is beyond its express or implied powers is called a(n) _____ act.
ultra vires
A sale of Fox's assets is ________ to occur as a result of the Disney-Fox deal.
unlikely
A(n) _____ opinion is the most favorable opinion an auditor can give.
unqualified
Negligence usually involves a director's or officer's failure to do any of the following EXCEPT?
usurp a corporate opportunity.
A ________ merger is a merger that integrates the operations of a supplier and a customer.
vertical
Tying arrangements are ________.
vertical trade restraints that involve the seller's refusal to sell a product to a customer unless the customer purchases a second product
Jim Bob, Carlos, Carole, and Serena formed the Huntington Corporation, which opened a restaurant in December of 2019. Due to the pandemic and the state's order to close, in June of 2020 the Huntington Corporation filed articles of dissolution with the Secretary of State. This is known as a(n) _____, which required _____ vote by the shareholders
voluntary dissolution; a majority
Barney and Robin are members of a term LLC. In their operating agreement, they agreed that the LLC would be dissolved on December 1, 2020. On April 1, 2015, Barney withdraws from the LLC. Barney is now liable to the LLC and to the other members for any damages caused by his ________.
wrongful disassociation
Section _____ of the _____ imposes civil liability on accountants and others for 1) making misstatements or omissions of material facts in a registration statement or 2) failing to find such misstatements or omissions.
11(a); Securities Act of 1933
Section _____ of the _____ is an antifraud provision that prohibits material misrepresentations or omissions of a material fact in the proxy materials.
14(a); Securities Exchange Act of 1934
Section _____ of the _____ Act permits the government or a private plaintiff to obtain an injunction against anti-competitive behavior that violates antitrust laws.
16; Clayton
A corporation has 20,000 shares outstanding, of which Paolo owns 2,000. Assume that the corporation plans to raise more capital by issuing another 20,000 shares of stock. With preemptive rights, Paolo must be offered the option to purchase _____ of the 20,000 new shares before they are offered to the public. If he does not purchase them, and all of the shares are sold, his ownership in the corporation will be diluted _____.
2,000; from 10% to 5%
Section _____ of the _____ Act prohibits monopolization and attempts or conspiracies to monopolize trade.
2; Sherman
A corporation has 20,000 shares outstanding, of which Paolo owns 2,000. If the corporation declares a stock dividend of 20 percent, Paolo will receive a stock dividend of _____ shares. He now owns _____ outstanding shares.
400; 2,400 of a total of 24,000
Section _____ of the _____ Act permits any person who suffers antitrust injury in his or her "business or property" to bring a private civil action against the offenders.
4; Clayton
Section _____ of the _____ Act prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce.
5; Federal Trade Commission
Jim Bob, Carlos, Carole, and Serena formed the Huntington Corporation, which opened a restaurant in December of 2019. Although the corporate bylaws expressly prohibit the use of the leased space for anything other than a restaurant, the pandemic in early 2020 forced the closing of the restaurant and Jim Bob leased the space to a pet store. Which of the following is true?
Carlos, Carole, and/or Serena could bring a lawsuit against Jim Bob for engaging in an ultra vires act.
Which of the following is an INCORRECT statement regarding corporate shareholders?
Generally, shareholders have unlimited liability for corporate debts.
_____ is the purchase by a target corporation of its stock from an actual or perceived tender offeror at a _____.
Greenmail; premium
_____ trading occurs when a company employee or company advisor uses material _____ information to make a profit by trading in the securities of the company.
Insider; nonpublic
Four accountants, Jim Bob, Carlos, Carole, and Serena form a limited liability partnership (LLP), JCCS, LLP, to provide auditing services. JCCS, LLP is organized in the State of Texas. After several years of business, the firm opens an office in Oklahoma. Which of the following is true?
JCCS, LLP is a domestic LLP in Texas and must register as a foreign LLP in Oklahoma.
Huntington Corp. operates a chain of restaurants selling fast-food burgers and chicken sandwiches. If Burger Queen, which sells similar food products and operates in the same geographic area as the Huntington chain proposed a merger with them, it would be considered a(n) _____ merger most likely violating _____.
horizontal; Section 7 of the Clayton Act
A bond is a _________ security that is __________.
long-term, debt; secured by some form of collateral
An LLC can be either a(n) _____-managed LLC or a(n) _____-managed LLC.
member; manager
After a share exchange, one corporation (the _____ corporation) owns all the shares of the other corporation (the _____ corporation).
parent; subsidiary
Proving that a defendant is in violation of Section 2 means proving that the defendant in the _____ market possesses _____ power and engaged in a _____ act of monopolization to acquire or maintain that power.
relevant; monopoly; willful
A person who discloses material nonpublic information to another person is called a(n) _____, while a person who receives such information is known as a(n) _____.
tipper; tippee
According to the video, Google was founded on the motto _____.
"Don't Be Evil"
Chris and Christie, brother and sister, form C&C, an LLC, to own and operate a business. Each contributes $20,000 capital. While driving around the local community on LLC business, Chris accidentally hits and injures a pedestrian, Angela. Angela can recover damages for her injuries from Chris personally because he committed the negligent act. She can also recover damages from C&C, LLC, because Chris was acting within the scope of ordinary business when the accident occurred. How much could Christie potentially lose in this situation?
$20,000
Danez, Meghan, and Emily are all members of Poets Speak Out LLC. Each owns a one-third interest in the LLC, and they agree to divide the distributions equally in one-third portions. Danez then sells his one-third interest to Katherine, who is not a member of the LLC. The LLC makes $60,000 in profits. As Danez has transferred his distributional interest to Katherine, how much is she entitled to receive?
$20,000
According to the video, major banks in the United States are ready to distribute _____ as __________ to investors after the banks pass the Federal Reserve's "_____ test." a
$23 billion; dividends; stress
Shannon owns 10,000 shares (10 percent) of the 100,000 outstanding shares of Greenwhite Corporation. If the Greenwhite Corporation board of directors declares a stock dividend of 20% she will receive ________.
2,000 additional shares
Corporation A wants to acquire Corporation B, so Corporation A makes an offer to buy shares directly from the shareholders of Corporation B. Corporation B then makes an offer to buy shares directly from the shareholders of Corporation A. Corporation A has just taken which of the following actions?
Made a reverse tender offer
Corporation Bravo wants to acquire Corporation Charlie. However, the board of directors of Corporation Charlie does not agree to a merger. As a result, Corporation Bravo offers to buy the shares directly from the shareholders of the Corporation Charlie, with the board of directors of Corporation Charlie's approval. The shareholders each make an individual decision about whether to sell their shares to Corporation Bravo. Which of the following actions has Corporation Bravo taken in this scenario?
Made a tender offer
Which of the following is NOT true about holding companies?
Many holding companies are S corporations.
The _____ is a model act that provides comprehensive and uniform laws for the formation, operation, and dissolution of LLCs.
ULLCA
Preemptive rights are ________.
rights that give existing shareholders of a corporation the option to purchase new shares issued by the corporation in proportion to their current ownership interests
An LLC is a(n) _____ LLC unless it is designated as a(n) _____ LLC.
at-will; term
According to the video, the Federal Reserve's "stress test" is designed to ensure banks have enough capital on hand to withstand a _____ percent unemployment rate, a _____ percent decline in home prices, and a _____ percent decline in the stock market.
10; 25; 60
During Martin Shkreli's tenure as CEO of the biotechnology firm Retrophin, the price of one of the company's drugs, Thiola, increased from $1.50 to $30 per pill. Suppose that Retrophin's bylaws had a supramajority voting requirement indicating that increased drug prices must be approved by 75% of the voting shares. If the company had 400,000 shares outstanding, then the company would require a "Yes" vote from ________ shares to raise the price.
300000
According to the video, antitrust fines imposed by the European Union against Google could reach as much as $_____
6 billion
The video references an actual scenario in which Internal Revenue Service (IRS) auditors pretended to be "regular people" who wanted to have their tax forms completed by tax preparers. What percentage of the forms revealed errors committed by the tax preparers? Are accountants liable for the errors they commit on taxpayers' returns?
60%; Yes
Petroleum, Inc., is a corporation that owns 20,000 refineries in the United States, Asia, and Europe. Petroleum Inc. is an example of which of the following?
A multinational corporation
You would like to start a new company that provides tutoring services in English for students who speak multiple languages. Which of the following types of corporations would be the best fit for your company?
A nonprofit corporation
________ protects against the hostile takeover of corporations incorporated in or doing business in the state.
A state antitakeover statute
Which of the following is NOT true regarding the management of an LLC?
All actions in a manager-managed LLC must be delegated to the managers.
Which of the following is NOT true about the Uniform Limited Liability Company Act (ULLCA)?
All states have adopted the ULLCA as law.
Which of the following is an INCORRECT statement regarding the management of an LLC?
An LLC must be managed by designated management, not by its members.
Which of the following is NOT true about the limited liability of a limited liability partnership (LLP)?
An LLP must have at least one general partner who is personally liable for the debts and obligations of the LLP.
American Electronics Company, a U.S. corporation incorporated under the laws of California, forms a corporation called American-China Electronics Company. American-China Electronics Company is a Chinese corporation formed under the laws of China to sell electronics there. If an employee of American-China negligently injures a Chinese citizen while installing new electronics, only American-China Electronics Company is liable. American-China Electronics Company would be considered which of the following?
An international subsidiary corporation
Which of the following is NOT true about private placement exemptions under SEC Rule 506(b)?
An issuer may use public solicitation and advertising, including the internet, websites, social media, and other media, regarding the offering, even if there are nonaccredited investors.
Which of the following is NOT true about antitakeover statutes?
Antitakeover statutes are usually enacted to encourage new corporations to move into the state in order to increase tax revenues.
The ________ is a division within the U.S. Department of Justice that is authorized to investigate suspected antitrust violations and to prosecute criminal antitrust lawsuits on behalf of the federal government.
Antitrust Division of the Department of Justice
Johanna and Tom want to start a limited liability company in Michigan. They put together the articles of organization, and they file them with the secretary of state of Michigan. Johanna and Tom then buy a new home, so they need to change their address as the organizers in the articles of organization. In order to change their address, Johanna and Tom need to file which of the following?
Articles of amendment
Which of the following is an INCORRECT statement regarding capital contributions to a limited liability company (LLC)?
A member's capital contribution to an LLC may not be in the form of services.
Which of the following is an INCORRECT statement regarding capital contributions to an LLC?
A member's obligation to contribute capital is excused by the member's death.
According to the video, which bank received only a "conditional pass" in terms of the Federal Reserve's "stress test?"
Bank of America
Four accountants, Jim Bob, Carlos, Carole, and Serena form a limited liability partnership (LLP) to provide auditing services. While performing an audit on a small business, Jim Bob is negligent, resulting in a $1 million judgment against the business. Which of the following is true?
Both Jim Bob and the LLP are liable, but not Carlos, Carole, or Serena.
Which of the following is NOT true about Rule 10b-5 of the Securities Exchange Act of 1934?
Both intentional and negligent conduct are unlawful under Rule 10b-5.
Jim Bob, Carlos, Carole, and Serena formed the Huntington Corporation, which opened a restaurant in December of 2019. Each of the shareholders contributed $200,000 in capital. Huntington Corporation borrowed $1 million from its local bank. Due to the pandemic and the state's order to close, in June of 2020 the Huntington Corporation filed for bankruptcy. Huntington's only assets were $100,000, which the bank recovered, leaving a remaining debt of $900,000 Which of the following is true?
Jim Bob, Carlos, Carole, and Serena are not liable for the $900,000 owed to the bank.
Jon is a corporate officer at SuperMassive Corporation. One of Jon's subordinate employees, Greg, is being investigated for embezzlement. Greg is eventually charged. Jon has been negligent, breaching his duty of care, if ________.
Jon failed to make a reasonable investigation of Greg's conduct and failed to attend board meetings on a regular basis
A(n) _____ is an unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnerships, and corporations.
LLC
Which of the following is an INCORRECT statement regarding limited liability companies (LLCs)?
LLCs are creatures of federal statue.
The Roja Corporation has 100,000 outstanding shares, and RJ owns 10,000 shares (10 percent). Roja plans to raise more capital by issuing another 100,000 shares of stock. RJ must be offered the option to purchase 10,000 of the 100,000 new shares before they are offered to the public. If he does not purchase them, and all of the shares are sold, his ownership in the corporation will be diluted from 10 percent to 5 percent. RJ must be offered the option to purchase a percentage of the new shares under which of the following?
Preemptive rights
________ is a regulation that permits an issuer to sell $50 million of securities pursuant to a simplified registration process.
Regulation A+
The Hatpin Corporation brings in its outside certified public accountants once per year for an annual audit. Sharlene is one of the CPAs who conduct the audit, which discloses that the Hatpin Corporation's profits have tripled since the past year. Sharlene discloses this information to Lindsey, the chief financial officer (CFO) of the Hatpin Corporation. Prior to the public announcement of this information, Sharlene buys stock in the Hatpin Corporation at $70 per share. After the earnings information is released to the public, the stock of the Hatpin Corporation increases to $100 per share. Sharlene's role as an accountant in this scenario places her in the category of ________.
Section 10(b) insiders
Due diligence is a defense to a ________.
Section 11 civil action
________ is a section of the Securities Exchange Act of 1934 that makes it a criminal offense for any person willfully and knowingly to make or cause to be made any false or misleading statement in any application, report, or other document required to be filed with the SEC pursuant to the Securities Exchange Act of 1934 or any rule or regulation adopted thereunder.
Section 32(a)
________ prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce.
Section 5 of the Federal Trade Commission Act
________ is a rule stating 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. It provides a broader standard for holding accountants liable to third parties for negligence than does the Ultramares doctrine.
Section 552 of the Restatement (Second) of Torts
Solis & Co., a national accounting firm, was hired to conduct an audit of Huntington Corp.'s financial statements in order for them to secure a bank loan. Solis & Co. negligently conducted the audit and failed to discover $1 million in false receivables that were based on fictitious sales and other suspicious activities. Solis & Co. rendered an unqualified opinion and provided 32 copies of the audited financial statements to Huntington Corp. Huntington gave one copy to Stemler State Bank, who then made a loan to Huntington based on the information in the audited statement. Solis & Co. was unaware of which bank Huntington intended to use. When Huntington failed to repay the loan, Stemler State Bank brought a negligence action against Solis & Co. Under which theory of liability would Solis & Co. be liable to Stemler State Bank?
Section 552 of the Restatement (Second) of Torts
The majority of states have adopted which rule of liability in determining whether an accountant is liable in negligence to third parties?
Section 552 of the Restatement (Second) of Torts
Which of the following is a major rule of liability that a state can adopt in determining whether an accountant is liable in negligence to third parties?
Section 552 of the Restatement (Second) of Torts
Mark works for Ericsson Corporation, a corporation that has superstores that sell a wide range and large inventory of home goods. Mark's job is to locate future sites for Ericsson stores. Mark finds a piece of real estate that would make a great site for an Ericsson store. Mark tells his friend Joel to purchase the property from its current owner, which Joel does. Mark makes a secret agreement with Joel to split the profits when Joel sells the property to Ericsson. Without disclosing his interest in the property, Mark recommends the site to Ericsson, which then purchases the property from Joel. Joel then splits the profits with Peter. This is an example of which of the following breaches of the duty of loyalty?
Self-dealing
Suppose that the Fox board of directors had decided to fight the merger with Disney using the "crown jewels" tactic. What does this tactic entail?
Selling off the assets that Disney particularly wants to own
Which of the following is NOT true of dissenting shareholder appraisal rights?
Shareholders do not have to be notified of the existence of their appraisal rights before a transaction can be voted on.
Ashley is starting a new corporation called Stars, Inc. on behalf of her client. If Ashley is serving in the capacity of promoter, what sort of acts does she perform?
She is organizing the corporation, negotiating contracts, and helping to locate investors to finance the corporation.
Which of the following is true about accountant-client privilege?
Sometimes clients of accountants are sued in court.
Which of the following is true about state antitrust laws?
State antitrust statutes are usually patterned after federal antitrust statutes.
Corporation Delta and Corporation Echo merge, and it is agreed that Corporation Delta will absorb Corporation Echo. The representation of this merger is D + E = D. In this scenario, Corporation Echo is which of the following?
The merged corporation
Which of the following is NOT an element that must be shown to prove usurping a corporate opportunity?
The opportunity is accompanied by demonstrated proof of profitability.
Nikhil and Rohan are two shareholders in a corporation. They enter into an agreement whereby they both agree that, if they are to sell their shares, the selling shareholder must offer to sell his shares to the other party to the agreement before selling them to anyone else. What is Nikhil and Rohan's agreement called?
The right of first refusal
Corporation Sierra and Corporation Tango merge, and it is agreed that Corporation Sierra will gain all the rights, privileges, powers, duties, obligations, and liabilities of Corporation Tango. The representation of this merger is S + T = S. In this scenario, Corporation Sierra is which of the following?
The surviving corporation
Company A is proposing a merger with Company B, and the transaction is approved. However, some of the shareholders of Corporation B object to the proposed merger, even though the transaction received the required approvals. These shareholders deliver written notice of their intent to demand payment of their shares to the corporation before the vote is taken, and they do not vote their shares in favor of the proposed action. After the proposed action is taken, Corporation B must pay each dissenting shareholder the amount the corporation estimates to be the fair value of their shares, plus accrued interest. The shareholders of Corporation B are exercising which of the following?
Their dissenting shareholder appraisal rights
Massive Corporation, a new company, is working on its articles of incorporation. One of the things included in the articles of incorporation is a provision regarding authorized shares. What are authorized shares?
They are the total amount of shares the corporation is authorized to issue.
Which of the following is NOT true about the laws pertaining to the foreign acquisitions of U.S. companies?
The Exon-Florio Foreign Investment Provision is a federal law that prohibits U.S. companies from acquiring foreign enterprises, particularly in sensitive areas such as defense systems, airlines, telecommunications, information technology, and advanced computing.
Apple and Moto X petition the government to ban the import of Huawei phones to the U.S. Which of the following is true?
This activity is permitted under the Noerr doctrine.
Solis & Co., a national accounting firm, was hired to conduct an audit of Huntington Corp.'s financial statements in order for them to secure a bank loan with Stemler State Bank. Solis & Co. negligently conducted the audit and failed to discover $1 million in false receivables that were based on fictitious sales and other suspicious activities. Solis & Co. rendered an unqualified opinion and provided 32 copies of the audited financial statements to Huntington Corp. Huntington gave one copy to Stemler State Bank, who then made a loan to Huntington based on the information in the audited statement. When Huntington failed to repay the loan, Stemler State Bank brought a negligence action against Solis & Co. Under which theory of liability would Solis & Co. be liable to Stemler State Bank?
Ultramares doctrine
Which of the follows correctly ranks the major rules of liability (Ultramares, Section 552, foreseeability standard) in order from least broad to broadest standard for holding accountants liable to third parties for negligence?
Ultramares, Section 552, foreseeability standard
________ are financial statements of a company that have not been audited by an accountant.
Unaudited financial statements
Which of the following is NOT true about a member's dissociation from a limited liability company (LLC)?
Under no circumstances can a member withdraw from a term LLC.
Which of the following is an INCORRECT statement regarding the taxation of limited liability companies (LLCs)?
Under the Internal Revenue Code, for federal income tax purposes, an LLC is taxed as a corporation unless it elects to be taxed as a partnership.
After conducting considerable research and investigation, the directors of a major automobile company decide to produce large and expensive sport-utility vehicles (SUVs). Three years later, when the SUVs are introduced to the public for sale, few of them are sold because of the public's interest in buying smaller, less expensive automobiles due to an economic recession and an increase in gasoline prices. In this case, the directors are protected by the _____ rule.
business judgment
You've just been elected to the board of directors at Mega Corporation. At your meeting on Thursday, you and the other board members have an agenda to meet to discuss the time and place of the annual shareholders' meeting, how special meetings of shareholders are called, and the required vote necessary to enact a corporate matter. The decisions the board makes about these matters are called ________.
bylaws
As a general rule, members of an LLC are not personally liable to third persons for the debts, obligations, and liabilities of an LLC beyond their _____.
capital contribution
In order to fund repairs to its school system infrastructure, your city government issues securities in the form of municipal bonds. Municipal bonds are an example of ________.
exempt securities
Statutory exemptions are ________.
exemptions from antitrust laws that are expressly provided in statutes enacted by Congress
Jim Bob, Carlos, Carole, and Serena formed the Huntington Corporation, which opened a restaurant in December of 2019. Due to the pandemic and the state's order to close, in June of 2020, the Huntington Corporation filed articles of dissolution with the Secretary of State. Which of the following would be paid first?
expenses of liquidation
The findings of the court in the Martin Shkreli case make it clear that Shkreli ________.
failed in the duty of loyalty
A(n) _____ is a shareholders' authorizing of another person to vote the shareholder's shares at the shareholders' meetings in the event of the shareholder's absence.
proxy
Melissa is a corporate shareholder. She would like to authorize another person to vote her shares at the shareholders' meeting under her direction. In order to do so, Melissa must fill out paperwork that fully describes (1) the matter for which the other person is being solicited, (2) who is soliciting the other person (Melissa), and (3) any other pertinent information. Melissa's paperwork is called a(n) ________.
proxy statement
A corporation formed to meet a specific governmental or political purpose is called a ________ corporation.
public
A professional who is not a certified public accountant is generally referred to as a(n) _____ accountant.
public
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.
qualified opinion
A(n) ________ is 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.
registration statement
Federal antitrust statutes are federal statutes that ________.
regulate anticompetitive behavior and monopoly business practices
The broad purpose of the Securities Exchange Act of 1934 is to ________.
regulate trading in securities
The Securities Act of 1933 is the federal statute that ________.
regulates primarily the issuance of securities by corporations, limited partnerships, and companies
A ________ is an area in which the defendant and its competitors sell the product or service.
relevant geographical market
The goals of the Sarbanes-Oxley Act (SOX) of 2002 include all EXCEPT which of the following?
replace independent corporate audits with internal audits ADVERTISEMENT
Under the Securities Act of 1933, a company whose shares are traded on a national securities exchange and has made a registered offering is known as a(n) ________.
reporting company
To ensure they receive good tax preparation assistance, individuals seeking the help of tax preparers should do all of the following EXCEPT ____.
require that a licensed attorney review the completed tax form(s) prior to submission to the Internal Revenue Service
Kitchen Corporation is preparing to buy shares of another company called Bathroom Corporation. Kitchen Corporation ultimately makes its decision based on Bathroom Corporation's financial statements, which were audited by James Dryer, a CPA. If any negligence is revealed in the preparation of the financial statements and audit, James Dryer would be liable to Bathroom Corporation under ________, which says that the accountant will be liable to any foreseeable user of the client's financial statements.
the foreseeability standard
The articles of limited liability partnership are ________.
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
Shareholders are ________.
the owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation
According to the Revised Model Business Corporation Act (RMBCA), the articles of incorporation must include all EXCEPT which of the following?
the period of duration of the corporation
Winding up and liquidation is ________.
the process by which a dissolved corporation's assets are collected, liquidated, and distributed to creditors, preferred shareholders, and common shareholders
Greenmail is defined as ________.
the purchase by a target corporation of its stock from an actual or perceived tender offeror at a premium
Jason is a corporate officer of Farmtown, a corporation that produces farming equipment. While still an officer, Jason decides to start a new tractor company that would directly compete with Farmtown. Is this allowed?
No, Jason owes Farmtown a duty of loyalty and is not allowed to compete with the corporation.
Which of the following is NOT true regarding crowdfunding?
Non-U.S. companies can use crowdfunding in the U.S.
A corporation has 20,000 shares outstanding. A shareholders' meeting is duly called to amend the articles of incorporation, and 10,001 shares are represented at the meeting. There is no provision in the articles of incorporation as to what constitutes a quorum. If 5,001 shares are voted in favor of the amendment, does it pass?
Yes, the quorum was met, and the majority voted in favor of the amendment.
