Law for Accountants

A(n) ____________ opinion is a qualified opinion by an auditor that indicates that the financial statements are an accurate reflection of the company's financial health apart from some minor deviation from GAAP, not serious enough to warrant an adverse opinion.

"except for"

To submit a shareholder proposal, a shareholder must have owned (for the past year) __________ percent or __________ in market value of the voting stock of the corporation.

1; $2,000

If Titanic Co. makes a tender offer to acquire more than ____________ of the shares of a target, Titanic Co. must file a statement with the SEC.

5%

Jamie authorizes Amy to sell his house, but does not clarify about the compensation payable to Amy. What amount should be paid to Amy when she sells Jamie's house?

A fair value for the services performed

____________ occurs when a targeted corporation makes a deal with the suitor to protect management of the target.

A targeted shareholder agreement

____________ refer to a system of coordinated health care institutions for Medicare patients developed by the Department of Health and Human Services.

Accountable care organizations

Some suggest that the insistence that all disputes involving U.S. corporations be fashioned under ____________ law, a trend known as ____________, makes listing in the U.S. unpopular.

American; legal imperialism

Charlena, a shelf-stocker, offers Megan the post of Vice-President of Procurement to express appreciation for Megan's hard work in stocking the shelves at Charlena's store, Thrift City. Megan creates business cards with her new title on them and uses one to purchase a new truck in Thrift City's name from Highway Auto. Which of these types of authority, if any, has Charlena given Megan?

Apparent authority

Repair Garage Company rents tools and stalls to independent auto mechanics to repair cars. Repair Garage allows Joe to print business cards reading "Repair Garage Company—Joe, Certified Mechanic." A customer is unhappy with the repairs Joe made to her car and sues Repair Garage. What legal theory, if any, would allow Repair to be sued by the customer?

Apparent authority

Janice requires information about the voting rights of members of Titan, LLC. Which document will contain this information?

Articles of organization

____________ refer(s) to the written application to the state for permission to form a limited liability company.

Articles of organization

Desmond, obeying the instructions of his employer, Bigger Company, sells Harry a computer system that is not capable of being expanded. Harry is now suing Desmond asserting fraud, but Desmond defends that Harry did not request an expandable system. What responsibility if any, does Bigger Company owe Desmond?

As Bigger's agent following instructions, Desmond is entitled to indemnification.

Henry, a promoter, signs a five-year lease agreement for office space for Ajax Corp., which has not yet been formed. After formation, Ajax moves into the office space, pays rent and occupies it for six months, but then finds a cheaper location and moves out. Which party is liable on the lease?

Both Henry and Ajax

Pogisa is a director at Trendz Corp. After studying and consulting with experts, Pogisa votes to have Trendz sell a tract of land for $500 per acre. Within a year, the land is worth $2,000 per acre, and Trendz shareholders want to sue Pogisa for her vote to sell the land. Under the ____________, Pogisa may be entitled to legal protection.

Business Judgment Rule

Grant wants to know the date of the annual shareholders meeting of Big Co. Which document will contain this information?

Bylaws or regulations

Which of the following is the official authorization of a corporation to do business in a state?

Certificate of incorporation

Alan sells merchandise on credit to ABC Co. ABC fails to pay for the merchandise. Alan later discovers that ABC is not a corporation, but a partnership consisting of Alice, Betty, and Charles. Which legal doctrine might shield Alice, Betty, and Charles from personal liability?

Corporation by estoppel

____________ give(s) shareholders more voting control, because this voting method states that each share of stock has as many votes as there are directors to be elected.

Cumulative voting

Which of the following would be considered a valid informed consent by a court?

Dr. Ambrose tells her patient in advance about a dangerous procedure and the risk involved, and obtains the patient's informed consent in writing on a form that is signed by the patient and witnessed by a third party.

Susan and Stanley are in a partnership called Easy Partnership. Susan purchases a truck with her personal funds with title to the truck naming Easy Partnership. Who owns the truck?

Easy Partnership only

The first major expansion of the Commerce Clause of the U.S. Constitution was done through which of these?

Gibbons v. Ogden

____________ is based on the belief that because corporate decision making influences more individuals and groups than just the shareholders and the managers, corporate decisions should be made by an impartial group of corporate outsiders.

Governmental control

Thomas is named "office manager" by Bigger Co., but his precise duties are not described. What type of authority would authorize Thomas to purchase office supplies?

Implied authority

Geoffrey is an agent of Smith's Meat Products Limited. While delivering products, the company's van breaks down. What legal theory, if any, would allow Geoffrey to contract a garage for the repair of the principal's van?

Incidental authority

Iris represents Drew, an eccentric billionaire who lives alone on a Pacific Island. Although Drew passes away on May 1st, this fact is not revealed until June 1st. On May 15th, Iris enters into a contract with Peggy on behalf of Drew. What is the legal liability, if any, of Iris to Peggy?

Iris is liable for a breach of implied warranty of authority.

Jack has an auto accident while on business for Small Enterprises, an RLLP consisting of Jack and Alex. Who is liable for damages resulting from the auto accident?

Jack only

Jackie is interested in the property of the Big Partnership, in which Jackie is a full partner. She wants to mortgage the property in order to collateralize loans for the organization. However, not all the partners agree with Jackie. What is Jackie's legal position with regard to the mortgage under UPA?

Jackie's interest in the partnership property cannot be assigned.

Smith, an agent, buys and sells used computer equipment on behalf of New Life Technologies, Inc. In the absence of an agreement, which of the following tasks may Smith delegate to Elizabeth?

Keeping a record of transactions Smith undertakes on behalf of New Life.

The Crown Corp. offers to buy the voting stock of the L&N Corp. with the intention of acquiring L&N and changing its management. To avoid being taken over by Crown, L&N asks the Spendle Corp. to outbid Crown. In this situation:

L&N is the target, Crown is a hostile bidder, and Spendle is a white knight.

In a general partnership, which of the following is true of limited partners?

Limited partners are nonparticipating investors.

Liz, a promoter, hired an office support staff for a corporation that had not yet been incorporated. If there is a novation clause in a subsequent contract with the corporation and the staff, which of these is correct?

Liz will escape potential liability under the novation contract entered into.

Tina is a limited partner in Aon Enterprises, a limited partnership, while Mark is a general partner. Tina assumes management duties for three weeks, while Mark is recovering from heart surgery. Most likely, who or what has liability for partnership actions during this period?

Mark and Tina

Milton is offered a contract by Marcos and Co. to design condos for a fourteen-story structure. After the condos are completed, Marcos and Co. finds that instead of two cupboards, all the condos have only one cupboard. The error is traced back to Milton's faulty design. The error notwithstanding, the condos are still in absolutely usable condition. What is Milton's liability?

Milton has to reimburse the client for any extra money spent to fit in an extra cupboard.

Morgan, an agent, was instructed to sell Drew's property at a specified "firm" price of $450,000. A month later, the value of the property decreased substantially to $75,000 because of zoning changes. What is the status of the agency relationship?

Most likely, the agency is terminated because of impossibility.

____________ occurs if the hospital has retained a physician that the governing body of the hospital knew or should have known was incompetent.

Negligent credentialing

Wolfgang was transported while unconscious from the scene of a motorcycle accident to a local hospital, where he was admitted for emergency treatment. Does the hospital need to be concerned about obtaining written consent to treatment from someone before starting treatment on Wolfgang?

No, general consent is implied, and this is an emergency.

John knows that The Franklin Enterprises Partnership, in which John is a partner, is interested in purchasing a particular tract of land for a business location. Can John lawfully have his aunt buy the land, so that she may resell the land to Franklin Partnership?

No, it violates John's duty of loyalty.

Ajax Co. has six directors. Three of the directors favor corporate expansion and three directors want to keep Ajax at its current size and distribute the surplus profit. How will a court likely resolve this deadlock?

Order an involuntary dissolution of Ajax.

Vivian, owner of Titan Corp., uses Titan Corp. as a way to order merchandise for her personal benefit and fails to pay for the merchandise. Creditors who have shipped merchandise to Titan want to sue Vivian personally. Which of the following legal doctrines would allow a personal suit against Vivian?

Piercing the corporate veil

Jim tells his independent accountant, Rachelle, to prepare a financial statement for his business associate, Mel. If Rachelle is negligent in her preparation of this financial statement,:

Rachelle will be liable if Mel suffers actual financial loss due to her negligence.

The ____________ Act specifically addresses promotional allowances.

Robinson-Patman

____________ elect the ____________, who take whatever actions are appropriate and in the best interests of the corporation.

Shareholders; board of directors

The ___________ Act prohibits contracts, combinations, and conspiracies in restraint of trade.

Sherman Antitrust

Betty, the manager of The Great Retail Store, purchases a variety of merchandise on credit. When Betty quits, what notice must The Great Retail Store provide to its creditors?

The Great Retail Store should send an actual notice to parties Betty has done credit business with and place an advertised notice in a newspaper of general circulation to the rest of the public.

Which of the following statements is true about the "true locality" rule (TLR)?

The TLR requires the court to look at the standard of care used in the exact locality of the physician.

Henry owns a movie production house which is represented by a BigLaw Firm. He also owns a shipping agency which is represented by Chase Bank. The agency relationships will be terminated by the bankruptcy of which of the parties?

The bankruptcy of Henry will terminate the agency relationship.

In terms of the steps in the incorporation process, which of the following occurs after the charter is issued?

The organizational meeting is held.

Which of the following is an advantage of a sole proprietorship?

The owner of a sole proprietorship has complete control over the business.

Bill employs Charles as a real estate agent to sell his house. The house is destroyed by fire. What is the status of the agency relationship?

The relationship is automatically terminated.

The Titanic Partnership's loan from Big Bank is structured so that payments on the loan are made out of profits and the amounts of the payments vary according to profitability. Which of these best describes this arrangement?

This is not evidence of a partnership between Titanic and Big Bank.

Thomas invests $10,000 in the Thomas and Trudy partnership named Tremendous Enterprise. Thomas needs $2,000 for medical expenses and insists that he is entitled to withdraw that amount immediately from what he has invested. Trudy asserts that the $10,000 investment is partnership property. Under the RUPA, who owns the $10,000?

Tremendous Enterprise

In which of the following situations can an agent legally appoint a subagent?

When the appointment is implied from the nature of the employment

Gordon employs Josh as an agent to sell Gordon's house. When does this agency end if the agreement is silent?

When the house is sold

The ____________ case held that a farmer's production of wheat for use only on his own farm was held to impact interstate commerce.

Wickard v. Filburn

Greta, an agent, receives money from clients of Wayne, her principal, on the fifteenth of each month. In the absence of an agreement, how frequently must Greta account to Wayne for the money she receives?

Within a reasonable period of time after the money is received

Alan and Baker are disappointed in the profitability of their A and B Partnership. They want to join their partnership with the X and Y Partnership. Is it possible for a partnership to be a partner?

Yes

Corazon employs Josefina, a C.P.A., to represent her in tax liability negotiations with the IRS. Josefina is busy with other clients and delegates the negotiation to Lillian, a non-C.P.A. member of her office. Has Corazon impliedly agreed to this delegation?

Yes, Corazon is relying on Josefina's skill and integrity.

Carlos instructs his sales agent, Edgar, not to sell on credit to Andrew because Carlos has experienced problems collecting from Andrew for prior purchases. Edgar sells on credit to Andrew, who pays properly. Has Edgar violated any obligation to Carlos?

Yes, Edgar has violated the duty to obey all instructions of the principal.

Claus tells CPA Vernon that he needs an audit to borrow money from Big Bank. Claus pays Vernon, and Claus takes Vernon's audit to Big Bank who makes the loan. When Claus defaults on the loan, Big discovers numerous liabilities that the audit did not reveal. Can Big Bank sue Vernon for negligence in a state that recognizes the near-privity rule?

Yes, because Big was an actually named third party.

Linda, a manager and a currency trader for United Traders, has specific instructions from the CEO not to take a position on any currency in excess of $1 million. Linda sees what she believes to be a sure thing and takes a $20 million position. Unfortunately, the transaction goes bad and costs United $60 million. Does Linda have any liability to United?

Yes, because Linda violated specific instructions and is, therefore, liable for the company's loss.

Charlotte is declared mentally incompetent by a court and is unable to participate as a partner in AMLAP Enterprises. Charlotte wants to leave the AMLAP partnership, but is contractually obligated for three more years. Can Charlotte leave the AMLAP partnership?

Yes, she can do so without any liability to the partnership.

When forming a limited partnership, it is critical to know that:

a certificate of limited partnership must be filed with the Secretary of State's office.

For most business decisions, the quorum, or minimum number of directors necessary to conduct business, is usually ____________ of the total number of directors.

a majority

A(n) ____________ is an exception to the rule that says that either the principal or the agent may terminate an agency relationship at any time.

agency coupled with an interest

A(n) ____________ is an examination of the _______ records of an organization to determine whether the records are a fair representation of the actual financial health of the organization.

audit, financial

Dan is an accountant with Miller & Co. The financial condition of Miller & Co. is not so good, but Dan shows it to be very healthy while preparing its financial statement, knowing that Miller & Co. will show the statement to Chase in seeking financing for its new project. Dan will ____________ personally liable to Chase if the new project goes bankrupt, and Chase will be able to recover against Miller based on the liability theory of ____________.

be; actually named third parties

State security statutes are commonly called ____________ laws.

blue sky

In order to bring a derivative suit, a shareholder must own stock:

both at the time of the injury and at the time of the suit.

Michelson was chairman of the board and chief executive officer of a computer manufacturing firm. When considering whether to purchase CompuPrint, the manufacturer of computer printers, Michelson examined CompuPrint's financial records, consulted with legal and financial experts, and conducted an in-depth study of the marketplace and decided that it would be profitable for his corporation to purchase CompuPrint. If CompuPrint turns out to be a poor investment, and a court hears a case challenging Michelson's decision, the court will most likely analyze his conduct based on the ____________ rule.

business judgment

Dr. Samuel, a physician, is being sued for medical malpractice. If the "true locality" rule was applied in his case, the court would judge Dr. Samuel's actions:

by looking at the standard of care used in the same exact locality as Samuel.

A(n) ____________ is a corporation where the outstanding shares of stock and managerial control are held by fewer than ____________ shareholders.

close corporation; 50

The Panon Corporation is incorporated in Tennessee, but its corporate headquarters is in Massachusetts. As a result, the Panon Corporation is:

considered a citizen of both Massachusetts and Tennessee.

A limited liability company is best thought of as a cross between a partnership and a:

corporation.

A(n) ____________ is one that has been formed properly by incorporators who followed all of the steps outlined by the state incorporation statute.

de jure corporation

In the case United States v. Todd Newman and Anthony Chiasson, the Second Circuit Court of Appeals held that for a ____________ to be ____________, she must have the requisite ____________ to receive a personal benefit in exchange for that information.

defendant-tippee; civilly liable; mens rea

Under RUPA, a ____________ takes place whenever a partner is no longer associated with the running of the firm.

dissociation

A partner's ____________ is her share of the ___________ plus any ____________, which is any remaining funds after dissolution.

economic interest; profits and losses; surplus

Under the RUPA, a partnership:

has continuity of existence.

Jan signs the articles of incorporation for a corporation being formed, and Tom wants to locate possible investors in the new corporation. Jan is a(n):

incorporator.

Homeruns Co. manufactures baseball bats. It withdrew deals from a few retailers who refused to put a particular price tag, as decided by Homeruns Co, on the bats. This act of Homeruns Co.:

is legal under the quasi-RPM arrangement.

The Uniform Electronic Transactions Act (UETA):

legitimizes the use of electronic agents.

The four fundamental legal principles that are designed to protect the corporate structure are (1) corporate status as an entity, (2) corporate constitutional rights, (3) corporate citizenship and (4):

limited liability.

A ____________ might be used by target management if the target owns an irreplaceable piece of property, the sale of which would seriously devalue the overall worth of the target.

lockup agreement

An attorney has a duty of ____________ to protect the client and to make certain that the client receives advice and representation that is free of conflicting interests.

loyalty

If Drake, a shareholder of Sweet Corp., feels that he has been deprived of the right to purchase some of the corporation's newly issued stock, he:

may bring a direct suit against Sweet's corporate management.

Cal, an investor, lost $15,000 after purchasing corporate stock based on a false registration statement. Under the Securities Act of 1933, Cal:

may sue the accountant who prepared the registration statement under the Securities Act of 1933.

A ____________ means the exclusive control of a market by a business enterprise.

monopoly

Angela asserts that HIPAA allows her to have copies of the records that result from her psychotherapy sessions with Dr. Xenon. Angela:

must have Dr. Xenon's permission and can only look through the records along with Dr. Xenon.

Nodest Co., a Delaware corporation, wants to do business in California. Since Nodest is a foreign corporation, it:

must obtain a certificate of authority from California.

Miranda, a student in Brad's business law class, asks a hypothetical question that is, in fact, based upon a current problem that her brother, Stan, is having. Brad gives an incorrect answer, and Stan suffers a loss when he acts according to the answer Miranda provided him. Brad has:

no duty of due care to either Miranda or Stan.

Aqua, LLC is a member-managed LLC. Andrew, a member, agrees to resolve a dispute with a customer by submitting the claim to binding arbitration. This action by Andrew is:

not legally binding on Aqua.

A promoter can escape liability by having the corporation and the third party create a(n):

novation.

Some jurisdictions consider managers liable only if they exceed their authority and the violation results in negligent or intentional conduct. This duty is referred to as the duty of:

obedience.

Small State has a limited customer base north and south of the interstate highway. Company A and Company Z agree that A will sell north of the interstate highway and Z will sell south of the interstate. This is a ___________ violation of the Sherman Antitrust Act.

per se

Alan and Delen enter into a partnership agreement with a $10,000 capital contribution. Six months later, Delen loans Alan $1,000. The loan is a

personal loan to Alan only.

Generally, a ____________ is established as a pre-offer strategy that remains dormant until the right set of circumstances activates its operation.

poison pill defense

When shareholders join together in a temporary arrangement, it is called a:

pooling agreement.

If Tom is a potential investor in Delta Co., he should receive a ____________ prior to investing.

prospectus

A ____________ refers to the actual document that is used to request the right to vote the other shareholders' votes.

proxy solicitation

The right to cast another shareholder's vote is called:

proxy voting.

In a ____________, a target corporation uses news releases, advertisements, and press conferences to convince shareholders to retain present management.

public relations campaign

Alan, a corporate manager at DollarShopper Corp., decides he would like to pursue a business opportunity he knows DollarShopper would also be interested in. Under the corporate opportunity rule, Alan may:

pursue the business opportunity only if he first offers it to DollarShopper, and the corporation rejects it.

Patricia holds 150 shares of common stock in a large corporation. Patricia:

risks whatever money she invested in the 150 shares of common stock.

Mill enterprises needs to raise a large amount of money. To raise the money, it sells its fractional interest in orange groves, located in Florida, to Sunshine Co. in New York. Sunshine Co. would be ensured a return in investment from the land purchased. Mill enterprises has sold:

securities.

A ____________ is defined as a coalition of individual outsiders who do not necessarily own stock, but can be affected by corporate decision making.

special interest group

An attempt at a(n) ____________ occurs when one corporation makes a tender offer to the shareholders of another corporation.

stock acquisition

In a(n) ____________, the buyer purchases enough shares in a corporation to gain voting control of that corporation.

stock acquisition

In a limited partnership, general partners:

take an active part in management, but have unlimited liability for the firm's debts.

Arian is a sole proprietor and owes a number of business creditors. The business creditors may sue to:

take both Arian's business and personal assets.

The Model Rules of Professional Conduct for attorneys was established by:

the American Bar Association.

The RUPA has eliminated:

the concept of tenancy in partnership.

Under the UPA, a partner in a tenancy in partnership has all the following rights except:

the right to be a co-owner of partnership property with no interest in partnership property which can be transferred, either voluntarily or involuntarily.

The status of a de facto corporation can be directly challenged by:

the state government.

An agent's duty of loyalty means she likely cannot act for:

two principals in the same transaction.

Kay, an 80% shareholder of Big Corp., dies leaving her stock to her nephew, Carl. Big Corp. will be:

unaffected.

Some states require that a merger involving an LLC have a ____________, rather than the two-thirds majority required of corporations.

unanimous approval

EA Games Industries is a manufacturer of home video game machines and home video games. Johnson Department Store wants to market the home video games, but EA refuses to sell the games unless Johnson also agrees to purchase the home video machines. A court will most likely find such a restriction to be a(n):

unlawful tying agreement.

When auditors conclude that the financial records of the company are an accurate reflection of the company's financial status, they will issue a(n):

unqualified opinion.

Koto, a successful accountant, has been invited to join the board of directors of Big Corp. Koto is concerned that she will face personal liability for her decisions while on the board of Big. Big Corp. can limit Koto's liability at this point in time by including:

voluntary protective measures in its bylaws.

Eva, a Mercy Hospital patient, received medication intended for another patient and, as a result, suffered severe complications. In a malpractice case against Mercy, regarding the administering of the wrong medication to Eva, most likely expert testimony:

will be required.