Review

Krol Corp., a calendar-year taxpayer, purchased used furniture and fixtures for use in its business and placed the property in service on November 1, Year 9. The furniture and fixtures cost $56,000 and represented Krol's only acquisition of depreciable property during the year. Krol did not elect to expense any part of the cost of the property under Sec. 179 or to use bonus depreciation. What is the amount of Krol Corp.'s depreciation deduction for the furniture and fixtures under the Modified Accelerated Cost Recovery System (MACRS) for Year 9?

$ 2,000 The furniture and fixtures qualify as seven-year property and under MACRS will be depreciated using the 200% declining balance method. Normally, a half-year convention applies to the year of acquisition. However, the mid-quarter convention must be used if more than 40% of all personal property is placed in service during the last quarter of the taxpayer's taxable year. Since this was Krol's only acquisition of personal property and the property was placed in service during the last quarter of Krol's calendar year, the mid-quarter convention must be used. Under this convention, property is treated as placed in service during the middle of the quarter in which placed in service. Since the furniture and fixtures were placed in service in November, the amount of allowable MACRS depreciation is limited to $56,000 × 2/7 (twice the straight-line rate) × 1/8 (one-half of one quarter) = $2,000.

onner purchases 300 shares of Zinco stock for $30,000 in Year 5. On May 23, Year 8, Conner sells all the stock to his daughter, Alice, for $20,000, its then fair market value. Conner realizes no other gain or loss during Year 8. On July 26, Year 8, Alice sells the 300 shares of Zinco for $25,000. What is Alice's recognized gain or loss on her sale?

$0

Taylor Interior Designs declared Chapter 7 bankruptcy on February 1, 2019. Taylor has the following debts: ObligationFair market valueMortgage on its building$300,000$125,000Inventory$ 50,000$ 25,000Employee wages (Nov. 2019-Jan. 30, 2020)$15,000Trustee fees$10,000Attorney fees$20,000 The mortgage on the building is held by Great Western Savings. There are two secured creditors in the inventory, with Creditor A owed $20,000 and Creditor B owed $30,000. Assume that the building and inventory are sold for their FMV. What amount will employees receive in the distribution?

$0.00 The proceeds from the sale of the property and inventory must go to the secured creditors, and, unfortunately, the distribution ends there.

Miller, an individual calendar-year taxpayer, purchased 100 shares of Maples Inc. common stock for $10,000 on July 10, Year 3, and an additional 50 shares of Maples Inc. common stock for $4,000 on December 24, Year 3. On January 8, Year 4, Miller sold the 100 shares purchased on July 10, Year 3, for $7,000. What is the amount of Miller's recognized loss for Year 4, and what is the basis for her remaining 50 shares of Maples Inc. stock?

$1,500 recognized loss; $5,500 basis for her remaining stock No loss can be deducted on the sale of stock if substantially identical stock is purchased within 30 days before or after the sale. Any loss that is not deductible because of this rule is added to the basis of the new stock. If the taxpayer acquires less than the number of shares sold, the amount of loss that cannot be recognized is determined by the ratio of the number of shares acquired to the number of shares sold. Miller purchased 100 shares of Maples stock for $10,000 and sold the stock on January 8, Year 4, for $7,000, resulting in a loss of $3,000. However, only half of the loss can be deducted by Miller because on December 24, Year 3 (within 30 days before the January 8, Year 4, sale), Miller purchased an additional 50 shares of Maples stock. Since only $1,500 of the loss can be recognized, the $1,500 of loss not recognized is added to the basis of Miller's remaining 50 shares resulting in a basis of $4,000 + $1,500 = $5,500.

A taxpayer owned land with a basis of $120,000, subject to a mortgage of $75,000. The taxpayer exchanged the land held for another parcel of land with a fair market value of $200,000 plus cash of $35,000, and the taxpayer was relieved of the mortgage on the relinquished land. The transaction qualified for like-kind exchange treatment. What amount of taxable gain will be recognized on the taxpayer's tax return for this exchange?

$110,000 Amount Realized: New Land Received$200,000Cash 35,000Debt Relief 75,000 $310,000Adjusted Basis (120,000)Realized Gain $190,000 Boot received ($110,000) is cash received ($35,000) plus debt relief ($75,000). Gain must be recognized equal to the lower of the realized gain ($190,000) or boot received ($110,000). Recognized gain is $110,000.

Logan exchanged a business-use machine having an original cost of $100,000 and accumulated depreciation of $30,000 for business-use equipment owned by Baker having a fair market value of $80,000 plus $1,000 cash. Baker assumed a $2,000 outstanding debt on the machine. What taxable gain should Hogan recognize?

$13,000 Beginning in 2018, only real property exchanged for real property qualifies under the like-kind exchange rules. Hogan's transaction is not a like-kind exchange, and his realized gain must be recognized. Amount Realized:Equipment received$80,000Cash1,000Debt relief2,000Total$ 83,000Adjusted Basis:Cost$100,000Depreciation(30,000)(70,000)Recognized Gain$13,000

A taxpayer owned a rental home with an $85,000 fair market value, a $70,000 adjusted basis, and a $60,000 mortgage. The taxpayer exchanged the home for $12,000 in cash plus a rental property with a $65,000 fair market value and a $52,000 mortgage. What amount of gain, if any, must be recognized by the taxpayer on the exchange?

$15,000 This is a qualified like-kind exchange because the property is realty. Amount Realized: New rental property$65,000Cash12,000Debt relief60,000Debt assumed(52,000)$85,000Adjusted basis(70,000)Realized gain$15,000 Boot received ($20,000) is cash received ($12,000) plus net debt relief ($8,000 ($60,000 - $52,000)). Gain must be recognized equal to the lower of the realized gain ($15,000) or boot received ($20,000). Recognized gain is $15,000.

Taylor Interior Designs declared Chapter 7 bankruptcy on February 1, 2019. Taylor has the following debts: ObligationFair market valueMortgage on its building$300,000$425,000Inventory$ 50,000$ 25,000Employee wages (Nov. 2018-Jan. 30, 2020)$15,000Trustee fees$10,000Attorney fees$20,000 The mortgage on the building is held by Great Western Savings. There are two secured creditors in the inventory, with Creditor A owed $20,000 and Creditor B owed $30,000. Assume that the building and inventory are sold for their FMV. What amount will employees receive in the distribution?

$15,000 Employees have priority for $13,650 on their wage claims (and the wages here were earned within the time period that is protected). However, the priority is not a limit. If employees are still owed money, they drop down into general creditor group and can collect more if there is sufficient cash. In this case, they get their priority claim plus the additional amount for total repayment.

Jared purchases an apartment building on January 1, Year 1, for $500,000. The building is depreciated using Modified Accelerated Cost-Recovery System (MACRS) straight-line depreciation. The apartment building is sold on December 31, Year 12, for $620,000, when its adjusted tax basis is $320,000 (assume that $180,000 of depreciation has been claimed). How much gain from the sale of the building is subject to the 25% rate?

$180,000 Total gain on the sale is $300,000 ($620,000 − $320,000). Gain on the sale of realty is taxed at a 25% rate to the extent of the straight-line depreciation claimed on the asset. (Note that there is no Section 1250 recapture since straight-line depreciation was used for the asset.) The straight-line depreciation was $180,000 so the first $180,000 of gain is taxed at 25%. The remaining gain of $120,000 is taxed as Section 1231 gain.

On August 1, Year 9, Graham purchases and places into service an office building costing $264,000, including $30,000 for the land. What was Graham's MACRS deduction for the office building in Year 9?

$2,250 Under MACRS, the office building is considered nonresidential real property. Land cannot be depreciated. Its class life is 39 years. MACRS requires that the straight-ine method be used to compute the depreciation of 39-year class life property. Therefore, the office building would be depreciated at a rate of $6,000 per year ([$264,000 building cost, less $30,000 cost of land]/39 years). However, the mid-month convention applies to 39-year class life property. This convention requires that, regardless of when realty is placed into service, it is considered to be placed into service at mid-month. Therefore, for August (the first month of service), Graham could deduct $250 (= $6,000/12 months × one-half of a month). For the period of September to December (the remainder of the tax year), Graham could deduct $2,000 (= $6,000 × 4/12 months). Hence, Graham's MACRS deduction for the office building would be $2,250, the sum of the two periods.

On May 24, Knurl, an appliance dealer, files for bankruptcy under the provisions of Chapter 7 of the Federal Bankruptcy Code. A trustee is appointed and an order for relief is entered.Knurl's nonexempt property is converted to cash, which is available to satisfy the following claims and expenses: Claim by Card Corp. (one of Knurl's suppliers) for toasters ordered on May 11, and delivered on credit to Knurl on May 15.$50,000Fee earned by the bankruptcy trustee.$12,000Claim by Hill Co. for the delivery of televisions to Knurl on credit. The televisions were delivered on April 9, and a financing statement was properly filed on April 10. These televisions were sold by the trustee, with Hill's consent, for $7,000, their fair market value.$7,000Fees earned by the attorneys for the bankruptcy estate.$8,000 The cash available for distribution includes the proceeds from the sale of the televisions. What amount will be distributed to Card if the cash available for distribution is $50,000?

$23,000 All three of the other claims have a higher priority than the claim of Card. Card is a general creditor and comes last in the pecking order. All superior claims must be paid in full first, and then any leftovers will be paid to Card.After $50,000 − $12,000 − $7,000 − $8,000, Card will receive only $23,000.

Darla, Jack, and Sam have formed a partnership with each agreeing to contribute $100,000. Jack and Sam each contributed $100,000 cash. Darla contributed $75,000 cash and agreed to pay an additional $25,000 2 years later. After 1 year of operations the partnership is insolvent. The liabilities and fair market value of the assets of the partnership are as follows: Assets: Cash$40,000Trade accounts receivable35,000Receivable from Darla25,000Equipment100,000 $200,000Liabilities: Trade accounts payable$410,000 Both Jack and Sam are personally insolvent. Darla has a net worth of $750,000. If Darla is a general partner, what is her maximum potential liability?

$235,000 Darla, as a general partner, is individually liable for all obligations of the partnership which would amount to $210,000. She is also personally liable for the additional $25,000 she promised to pay; her maximum potential liability would be $235,000.

Smith and James were partners in S and J Partnership. The partnership agreement stated that all profits and losses were allocated 60% to Smith and 40% to James. The partners decided to terminate and wind up the partnership. The following was the balance sheet for S and J on the day of the windup: Cash$40,000 Accounts receivable 12,000 Property and equipment 38,000 Total assets $90,000 Accounts payable $24,000 Smith, capital 30,000 James, capital 36,000 Total liabilities and capital $90,000

$25,200 Smith would receive the amount in his capital account adjusted for the losses on the sale of assets, or $25,200 {$30,000 − [60% × ($2,000 loss on receivables + $6,000 loss on property and equipment)]}.

Nash, Owen, and Polk are co-sureties with maximum liabilities of $40,000, $60,000, and $80,000, respectively. The amount of the loan on which they have agreed to act as co-sureties is $180,000. The debtor defaulted at a time when the loan balance was $180,000. Nash paid the lender $36,000 in full settlement of all claims against Nash, Owen, and Polk. The total amount that Nash may recover from Owen and Polk is

$28,000 When there are co-sureties, each has a right to a proportionate contribution from the others if a co-surety pays an unfair share of the debt. In this case, Nash's liability is 2/9 of the total liability among all co-sureties ($40,000 out of a total $180,000). She therefore should not pay more than 2/9 of any total settlement. She has a right to recover 7/9 × $36,000 from the others, or $28,000. More specifically, she will get $12,000 from Owen and $16,000 from Polk.

Rock Crab, Inc. purchases the following assets during the year: Computer3,000Computer desk1,000Office furniture4,000Delivery van25,000 What should be reported as the cost basis for MACRS five-year property?

$28,000 The MACRS five-year property classification includes autos and taxis, light and heavy general-purpose trucks, calculators, copiers, computers, and peripheral equipment. The MACRS seven-year property classification includes office furniture, fixtures, and equipment, as well as agricultural machinery and equipment. Here, the $3,000 computer and $25,000 delivery van fall within the five-year property classification, while the computer desk and office furniture would be classified as seven-year property.

Joe Hall owns a limousine for use in his personal service business of transporting passengers to airports. The limousine's adjusted basis is $40,000. In addition, Hall owns his personal residence and furnishings that together cost him $280,000. Hall's capital assets amount to

$280,000 Capital assets are defined as all those assets held by the taxpayer, except for those listed in Code Section 1221. Those assets listed in Code Section 1221 include inventory, accounts receivable and depreciable property or real estate used in business. Hall's limousine does not qualify as a capital asset, because it is depreciable property used in business. However, Hall's personal residence and furnishings qualify as capital assets, as they are not inventory, accounts receivable and depreciable property or real estate used in business. Therefore, Hall's capital assets amount to $280,000.

Lobster, Inc. incurs the following losses on disposition of business assets during the year: Loss on the abandonment of office equipment$25,000Loss on the sale of a building (straight-line depreciation taken in prior years of $200,000)250,000Loss on the sale of delivery trucks15,000 What is the amount and character of the losses to be reported on Lobster's tax return?

$290,000 Section 1231 loss

Bluff purchases equipment for business use for $35,000 and makes $1,000 of improvements to the equipment. After deducting depreciation of $5,000, Bluff gives the equipment to Russett for business use. At the time the gift is made, the equipment has a fair market value of $32,000. Ignoring gift-tax consequences, what is Russett's basis in the equipment?

$31,000 Bluff's adjusted basis in the equipment before the gift is $31,000 (cost basis of $35,000 + $1,000 capital improvement - $5,000 cost recovery). When property is gifted, the donee has two bases in the gifted property: the gain basis is the donor's adjusted basis of $31,000 and the loss basis (also $31,000) is the lower of the adjusted basis ($31,000) and fair market value ($32,000). Therefore, Russett's gain and loss bases are both $31,000.

Ola Associates is a limited partnership engaged in real estate development. Hoff, a civil engineer, billed Ola $40,000 in Year 9 for consulting services rendered.In full settlement of this invoice, Hoff accepted a $15,000 cash payment plus the following: Fair market value Carrying amount on Ola's books 3% limited partnership interest in Ola$10,000N/ASurveying equipment7,000$3,000 What amount should Hoff, a cash-basis taxpayer, report in his Year 9 return as income for the services rendered to Ola?

$32,000 The amount of income realized by a taxpayer from services rendered equals the sum of the amount of cash received and the fair market value of any property received. Thus, Hoff would report the sum of the amount of cash received and the fair market value of any property received from Ola Associates. Hoff received $15,000 of cash, a 3% limited partnership interest in Ola Associates with a fair market value of $10,000 and surveying equipment with a fair market value of $7,000. Hence, Hoff would report $32,000 on his return as income for the services rendered to Ola Associates.

An individual taxpayer reported the following net long-term capital gains and losses: The amount of capital gain that the individual taxpayer should report in Year 3 is YearGain (loss)1($5,000)21,00034,000

$4,000 An individual can deduct only $3,000 of net capital losses each year. Excess capital losses are carried over indefinitely. In Year 1, $3,000 of the losses are deducted and the other $2,000 is carried forward. In Year 2, the $2,000 carryforward capital loss offsets the $1,000 capital gain to produce a $1,000 net capital loss. There is no carryforward loss to Year 3 so the entire $4,000 capital gain is recognized.

Kay received interest income as follows: On U.S. Treasury certificates$4,000On refund of the prior year's federal income tax$500 The total amount of interest subject to tax in Kay's tax return is

$4,500. Interest income received on U.S. Treasury certificates is not exempt from federal income tax. In addition, while federal income tax refunds are nontaxable, the interest received on the refund is taxable income. Hence, the interest income on the U.S. Treasury certificates and on the refund of prior year's federal income tax is reported on Kay's tax return, putting the total amount of interest subject to tax in Kay's tax return at $4,500.

In March, Year 9, Davis, who is single, purchased a new residence for $200,000. During that same month he sold his former residence for $380,000 and paid the realtor a $20,000 commission. The former residence, his first home, had cost $65,000 in Year 1. Davis added a bathroom for $5,000 in Year 5. What amount of gain is recognized from the sale of the former residence on Davis's Year 9 tax return?

$40,000 An individual may exclude from income up to $250,000 of gain that is realized on the sale or exchange of a residence, if the individual owned and occupied the residence as a principal residence for an aggregate of at least two of the five years preceding the sale or exchange. Davis's former residence cost $65,000 and he had made improvements costing $5,000, resulting in a basis of $70,000. Since Davis sold his former residence for $380,000 and paid a realtor commission of $20,000, the net amount realized from the sale was $360,000. Thus, Davis realized a gain of $360,000 − $70,000 = $290,000. Since Davis qualifies to exclude $250,000 of the gain from income, the remaining $40,000 of gain is recognized and included in Davis's income for Year 9.

Ray Birch, age 60, is single with no dependents. Birch's only income is from his occupation as a self-employed plumber. Birch must file a return for the current year if his net earnings from self-employment are at least

$400 - A self-employed individual must file an income tax return if net earnings from self-employment are $400 or more.

Talbot purchased a laptop for $1,500 and a television for $1,300. The laptop is used solely for business and the television solely for personal entertainment. During the same year, Talbot experienced serious financial difficulty and sold the television for $300 and the laptop for $1,000. What amount, if any, is Talbot entitled to deduct as a loss relating to the sale of the television and laptop?

$500 Losses from the sale of personal use assets are not deductible so the loss for the television is not deducted. There is a realized loss of $500 ($1,000 amount realized − $1,500 adjusted basis) for the laptop. Since this is a business asset, the $500 loss can be recognized and deducted.

If a married couple filing jointly has active income of $220,000 and net investment income of another $200,000, how much must they pay to satisfy their Medicare surtax obligation?

$6,460 The couple's Medicare surtax should be 3.8% of the lesser of (a) net investment income ($200,000 in this case), or (b) the excess of AGI over the AGI threshold ($170,000 in this case-$420,000 minus $250,000). Therefore, the correct tax is 3.8% of $170,000, which is $6,460.

A calendar-year taxpayer purchases a new business on July 1. The contract provides the following price allocation: customer list, $100,000; trade name, $50,000; goodwill, $90,000. What is the amortization deduction for the current year?

$8,000 Customer lists, trade names, and goodwill are intangible assets that are amortized over 180 months. For the current year the assets are amortized for six months since the business began July 1. ($240,000/180 months × 6 months = $8,000).

In May 2021, Marco Company purchased used equipment (5-year asset) to be used in the business from an unrelated taxpayer for $9,500. Marco Company did not elect Section 179. What is Marco's maximum allowable tax depreciation deduction for 2021?

$9,500 In 2021 acquisitions of used (and new) property qualify for bonus depreciation as long as the property was acquired from an unrelated taxpayer. Bonus depreciation is 100% for 2021.

A corporate taxpayer's capital gains and losses are as follows: Short-term capital gain$7,000Short-term capital loss($43,000)Long-term capital gain$9,000Long-term capital loss($21,000) What amount of capital loss deduction is the taxpayer entitled to use to offset against ordinary income?

0 A corporation's net capital loss cannot be offset against ordinary income. Instead, a corporate net capital loss is generally carried back three years and forward five years as a STCL to offset capital gains in those years.

Under the Revised Secured Transaction Article of the UCC, what would be the order of priority for the following security interests in consumer goods? I. Financing statement filed on April 1. II. Possession of the collateral by a creditor on April 10. III. Financing statement perfected on April 15.

1. 2.3.—> Since security interest I was perfected first when the financing statement was filed on April 1, it has the first priority. Security interest II was perfected on April 10 when the creditor took possession of the collateral. It has the second priority. Security interest III has the third priority since it was perfected last on April 15.

A married individual invested in Section 1244 small business stock in year 1. In year 7, the individual sold the stock at a loss of $157,000. There were no other stock transactions during year 7. If the taxpayer files a joint return, how much loss can the taxpayer deduct in year 7?

103,000 The $100,000 ordinary loss is deductible and the remaining capital loss is limited to $3,000. A married taxpayer can deduct up to $100,000 of losses for Section 1244 stock. The other $57,000 loss is a long-term capital loss, of which $3,000 of the capital loss is deductible.

A claim for refund of erroneously paid income taxes, filed by an individual before the statute of limitations expires, must be submitted on Form 1139. 1045. 1040X. 843.

1040X. - Form 1040X, Amended U.S. Individual Income Tax Return, should be used to claim a refund of erroneously paid income taxes.

Individual Lark's year 2 brokerage account statement listed the following capital gains and losses from the sale of stock investments: Short-term capital gain$ 6,000Long-term capital gain14,000Short-term capital loss4,000Long-term capital loss8,000 In addition, two stock investments became worthless in year 2. Public Company X stock was purchased in December, year 1, for $5,000, and formal notification was received by Lark on July, year 2, that it was worthless. Private company Section 1244 stock was issued to Lark for $10,000 in January, year 1, and was determined to be worthless in December, year 2. What is Lark's year 2 net capital gain or loss before any capital loss limitation?

2,000 short-term capital gain and $1,000 long-term capital gain The Section 1244 loss is an ordinary loss so it is not included in the computation of the net capital gain or loss. The worthless stock of Company X results in a $5,000 long-term capital loss because worthless securities are deemed to become worthless on the last day of the tax year (December 31, Year 2).Lark has a net short-term capital gain of $2,000 ($6,000 STCG − $4,000 STCL). There is a net long-term capital gain of $1,000 ($14,000 LTCG − $8.000 LTCL − $5,000 LTCL).

Taylor Interior Designs declared Chapter 7 bankruptcy on February 1, 2019. Taylor has the following debts: Obligation Fair market value Mortgage on its building$300,000 $425,000 Inventory$ 50,000$ 25,000 Employee wages (Nov. 2018-Jan. 30, 2020)$15,000 Trustee fees$10,000 Attorney fees$20,000 The mortgage on the building is held by Great Western Savings. There are two secured creditors. Creditor A, a perfected secured creditor in the inventory, owed $20,000, and secured Creditor B in the inventory, owed $30,000. Assume that the building and inventory are sold for their FMV. What amount will Creditor A receive in the distribution?

20,000 A secured creditor has a priority only for the amount for which the collateral is sold or the full amount of the debt, whichever is less. However, secured creditors not paid in full drop down into the general creditor category for any amounts still owed and if there is sufficient cash are paid from that pool along with other creditors.

Flynn and Bleeker formed a partnership under the Revised Uniform Limited Partnership Act (RULPA). Flynn is the general partner and puts in a capital contribution of $40,000. Bleeker is the limited partner and puts in a capital contribution of $60,000. They do not discuss a profit-sharing plan. During the first year, the partnership earns $50,000 in profit. How do they split the profits between Flynn and Bleeker respectively?

20,000 and $30,000 respectively Under RULPA, if the partners fail to agree upon a profit-sharing plan, the profits are split in the proportion of their capital contributions, that is 40% for Flynn and 60% for Bleeker.

In what order are the following obligations paid after a secured creditor rightfully sells the debtor's collateral after repossession? I. Debt owed to any junior security holder. II. Secured party's reasonable sale expenses. III. Debt owed to the secured party.

3,2,1 This is the order of distribution in such a case: reasonable expenses incurred by the secured party in repossession and selling the collateral, remaining debt owed to the secured party, debt owed to any other (junior) security holders who give written notice of their interest, and any surplus (except if collateral is accounts or chattel paper) is then paid back to the debtor.

On February 1, year 1, a taxpayer purchased an option to buy 1,000 shares of XYZ Co. for $200 per share. The taxpayer purchased the option for $50,000, which was to remain in effect for six months. The market declined, and the taxpayer let the option lapse on August 1, year 1. The taxpayer would report which of the following as a capital loss on the year 1 income tax return?

50,000 short term. The taxpayer has a loss of $50,000 on the option since it lapsed. The character is capital since the underlying asset, the XYZ stock, is a capital asset. The loss is short term since the option was owned for only six months.

An individual with gross income of $78,000 had the following gains and losses from capital transactions during the current year: Loss of $11,000 on the sale of principal residence held for five years Gain of $5,000 from the sale of securities held for four years Loss of $9,000 on the sale of municipal bonds held for seven months Loss of $4,000 on the sale of a painting held for investment for fifteen years What amount of the capital loss should the individual carry forward?

5000 Losses from the sale of personal use assets are not deductible, so the $11,000 loss is not recognized. The $9,000 loss on the municipal bonds is a short-term capital loss, and the $4,000 loss on the painting is a long-term capital loss. The $5,000 long-term capital gain is reduced to zero by the $4,000 long-term capital loss and $1,000 of the short-term capital loss. Of the remaining $8,000 capital loss, $3,000 is deductible in the current year, and the remaining $5,000 is carried forward.

Dart Inc., a closely held corporation, is petitioned involuntarily into bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. Dart contests the petition. Dart has not been paying its business debts as they become due, has defaulted on its mortgage-loan payments, and owes back taxes to the IRS. The total cash value of Dart's bankruptcy estate after the sale of all assets and payment of administration expenses is $100,000. Dart has the following creditors: - Fracon Bank is owed $75,000 principal and accrued interest on a mortgage loan secured by Dart's real property. The property was valued at and sold, in bankruptcy, for $70,000. - The IRS has a $12,000 recorded judgment for unpaid corporate income tax. - JOG Office Supplies has an unsecured claim of $3,000 that was filed in timely fashion. - Nanstar Electric Co. has an unsecured claim of $1,200 that was not filed in a timely fashion. - Decoy Publications has a claim of $14,000, of which $2,000 is secured by Dart's inventory that was valued and sold, in bankruptcy, for $2,000. The claim was filed in a timely fashion. Assume that the bankruptcy estate was distributed. What total dollar amount would Fracon Bank receive on its secured and unsecured claims?

74,000 Of the $100,000, the first $70,000 will go to Fracon Bank, as that money was generated by the sale of the house in which they had a security interest. This leaves Fracon with an additional $5,000 in general debt. The next $2,000 will similarly go to Decoy as money raised from the sale of their security interest. This leaves $28,000. The next $12,000 will go to the IRS to satisfy their recorded judgment, leaving $16,000. All taxes are paid before general creditors are paid. The final $16,000 is divided pro rata among remaining creditors, since there is not enough to pay all of them in full. However, all general creditors who have filed a claim in a timely fashion must be fully repaid before those who have not filed in a timely fashion are paid anything. So, we have $20,000 of total general creditors' claims, and $16,000 to pay them. Each will take 80% of their unsecured claims. Fracon will take 80% of $5,000, or $4,000. This will be added to the $70,000 already received, to get the total of $74,000.

On October 1, Year 7, Lois Rice learned that she was bequeathed 1,000 shares of Elin Corp. common stock under the will of her uncle, Pat Prevor. Pat had paid $5,000 for the Elin stock in Year 2. Fair market value of the Elin stock on October 1, Year 7, the date of Pat's death, was $8,000 and had increased to $11,000 six months later. The executor of Pat's estate elected the alternative valuation for estate tax purposes. Lois sold the Elin stock for $9,000 on December 1, Year 7, the date that the executor distributed the stock to her. Lois's basis for gain or loss on sale of the 1,000 shares of Elin stock is

9,000. Since the alternate valuation was elected for Prevor's estate, but the stock was distributed to Lois within six months of date of death, Lois's basis is the $9,000 FMV of the stock on date of distribution (December 1, Year 7).

Eaton is the sole owner of a construction company and is concerned about personal liability. Which of the following entities will best allow Eaton to limit personal liability?

A C corporation. Unless Eaton personally guarantees his firm's debts or does something improper to cause the corporate veil to be pierced, he is not personally liable for its obligations, even if he is the sole shareholder.

Which of the following forms of business generally provides all owners with limited liability, while avoiding federal taxation of income at the entity level?

A Subchapter S corporation If the requirements of a Subchapter S corporation are met, the corporate entity pays no federal income tax. All income is passed through to the shareholders. Although the shareholders enjoy limited liability, they do pay personal income tax on dividends received.

Which of the following would be an example of the consumer goods classification of collateral?

A computer purchased for a teenager as a graduation gift This is a classic consumer good—in the hands of a consumer for consumer uses.

Under the parol evidence rule, oral evidence will be excluded if it relates to

A contemporaneous oral agreement relating to a term in the contract because the parol evidence rule applies to complete and unambiguous written contracts and makes any evidence that would modify or alter the written contract terms inadmissible. This rule applies to any oral agreements made prior to or contemporaneous with the written contract.

Which of the following contract subject matters would be covered by the Sales Article 2 of the Uniform Commercial Code?

A contract for the purchase and installation of four tires for a car Since the tires are the major part of the cost in the contract, the contract would be under UCC Article 2.

For which of the following contracts will a court generally grant the remedy of specific performance?

A contract for the sale of a patent. because specific performance is generally used when money damages will not suffice such as when the subject matter of the contract is unique or rare. A patent sale typically satisfies this rule.

Under the Revised Model Business Corporation Act (RMBCA), which of the following statements is correct regarding corporate officers of a public corporation?

A corporation may be authorized to indemnify its officers for liability incurred in a suit by stockholders. Under Subchapter E of the RMBCA, a corporation may indemnify officers in such suits, so long as the officers acted in good faith and followed the business-judgment rule.

Which of the following is correct in describing a master-servant relationship for purposes of tort liability?

A debt collection agent whose schedule is different every week is a servant of the debt collection agency. The ability to control the schedule of an employee, even if it varies, is the key element in determining whether something is a master-servant relationship.

In general, which of the following debts will be discharged under the voluntary-liquidation provisions of Chapter 7 of the Federal Bankruptcy Code?

A debt incurred owing to the negligence of the debtor, arising before the filing of the bankruptcy petition. So long as the debt itself has arisen before the filing, it will usually be discharged if it is based on simple negligence. Note that debts arising involving intoxication are not discharged by a Chapter 7 proceeding.

In which of the following situations does the first promise serve as valid consideration for the second promise?

A debtor's promise to pay $500 for a creditor's promise to forgive the balance of a $600 disputed debt. To give consideration, a person must promise to do something new or something not already obligated to do. If the debt is rightfully disputed, a debtor is not under a preexisting obligation to pay the full amount. In offering to pay $500, the offeror is promising to do something he or she does not otherwise have to do - pay $500. This promise, then, is consideration that supports the forgiveness of the rest of the disputed debt.

Which of the following statements is correct with respect to a limited partnership?

A general partner may be a secured creditor of the limited partnership. A general partner has a voice in management and has unlimited personal liability. Anyone, including a secured creditor of the limited partnership, may be a general partner if he/she takes on these responsibilities.

Jones, Smith, and Bay want to form a company called JSB Co., but are unsure about which type of entity would be most beneficial, based on their concerns. They all desire the opportunity to make tax-free contributions and distributions where appropriate. They want earnings to accumulate tax-free. They do not want to be subject to personal holding tax and do not want double taxation of income. Bay is going to be the only individual giving management advice to the company and wants to be a member of JSB through his current company, Channel, Inc. Which of the following would be the most appropriate business structure to meet all of their concerns?

A limited liability partnership.

A taxpayer lived in an apartment building and had a two-year lease that began 16 months ago. The taxpayer's landlord wanted to sell the building and offered the taxpayer $10,000 to vacate the apartment immediately. The taxpayer's lease on the apartment was a capital asset but had no tax basis. If the taxpayer accepted the landlord's offer, the gain or loss would be which of the following?

A long-term capital gain. Since the lease is a capital asset the gain is capital in nature. The gain is long-term since the lease is more than one year.

Which of the following parties generally has the most management rights?

A member of a limited-liability company. Members of LLCs have substantial management rights, although they may choose not to exercise them.

On July 1, Year 8, Kim Wald sold an antique for $12,000 that she had bought for her personal use in Year 6 at a cost of $15,000. In her Year 8 return, Kim should treat the sale of the antique as a transaction resulting in

A nondeductible loss. Since the antique was held for personal use, the sale of the antique at a loss is not deductible.

An S corporation must adhere to all of the following except having:

A nonresident alien as a shareholder. because a nonresident alien may not own shares of an S corporation.

Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a partner. After the assignment, Bean asserts the rights to I. Participate in the management of TLC. II. Cobb's share of TLC's partnership profits. Bean is correct as to which of these rights?

A partnership is like a marriage, in that partners do not have to be partners with anyone unless they want to be. A new partner cannot be added to a partnership without the unanimous consent of the existing partners. Unless someone getting an assignment is made a partner, (s)he will not have any management rights.The right to a share of profits, however, may be assigned. It is the only thing that is owned by each individual partner, and not collectively. Bean may receive Cobb's share of the partnership profits.

Which of the following transactions would illustrate a secured party perfecting its security interest by taking possession of the collateral?

A pawnbroker lending money. One method of perfecting an interest is by taking physical possession of it. When a pawnbroker lends money, s/he takes physical possession of the collateral for sale if the loan is not repaid according to the terms of the loan agreement.

Generally, a disclosed principal will be liable to third parties for its agent's unauthorized misrepresentations if the agent is an

A principal is liable for all torts of its agents if the agent was acting in the scope of its agency. A misrepresentation is a tort, and employees are agents. Thus, a principal is usually liable for misrepresentations of employees. Independent contractors are not agents because they are not subject to the same degree of control. A principal is not usually liable for torts of independent contractors because of the lack of control the principal has over their actions.

Sam is a member of a member-managed LLC. The other partners have agreed to make Sam the sole manager of the firm. Sam is worried about his liability, should he make any mistakes. Which protections would not be proper for Sam to ask the other members to approve?

A provision in the operating agreement indicating that Sam is not liable to the firm for money damages resulting from his knowing violation of the law. This provision would be improper, because it is manifestly unreasonable to eliminate a manager's liability for intentional violation of criminal law, intentional infliction of harm on the firm, or intentional violation of criminal law.

Which of the following requires a filing for perfection?

A purchase money security interest in equipment. Here, possession as a method of perfection is not practical, and, although it is a purchase money security interest, the collateral equipment is not covered by the automatic perfection rule. Thus, a filing is required.

Which of the following parties is liable to repay an illegal distribution made by a corporation?

A shareholder not knowing of the illegality of the distribution and the corporation is insolvent shareholders must repay illegal distributions that they receive when the corporation is insolvent.

Golden Enterprises, Inc. entered into a contract with Hidalgo Corporation for the sale of its mineral holdings. The transaction proved to be ultra vires. Which of the following parties, for the reason stated, may properly assert the ultra vires doctrine?

A shareholder of Golden Enterprises to enjoin the sale. An ultra vires doctrine applies when a corporation enters a contract outside the scope of its express or implied authority granted by its Articles of Incorporation. Since the state or shareholder has the right to object to an ultra vires act, a competitor could not object. A shareholder can institute a derivative action against directors and officers to recover damages for such acts.

Which of the following contract subject matters would be governed by common law?

A student loan A loan is a service and would be governed by common law.

Which of the following rights does a surety have? Right to compel the creditor to collect from the principal debtor or the Right to compel the creditor to proceed against the principal debtor's collateral

A surety doesn't have the right to: Right to compel the creditor to collect from the principal debtor or the Right to compel the creditor to proceed against the principal debtor's collateral A surety is primarily liable on a debt upon debtor's default. If the creditor wishes to collect from the surety, the creditor may do so. The surety may not compel the creditor to take either of these actions.

Unemployment tax payable under the Federal Unemployment Tax Act (FUTA), is

A tax-deductible employer's expense. Although these taxes are not deducted from employee paychecks as are FICA taxes, they are still a very real expense to the employer. As such, they are deductible by the employer for federal income-tax purposes.

A tax return preparer is researching authorities to support a position of deferral of gain taken on the disposal of an asset. Which of the following will provide the highest authority for this position?

A temporary regulation issued by the Treasury Department. - This is a source of primary tax authority. A temporary regulation issued by the Treasury Department belongs to Treasury Regulations, which is under administrative authority.

Accountants that prepare tax returns should be familiar with federal laws and regulations with respect to the privacy of client information. These laws and regulations include all of the following provisions except:

Accountants are required to notify their clients that the accountants are providing their confidential information to outsourcing firms for processing. It is not required by law.

On February 28, 20XX, Master, Inc. has total assets with a fair market value of $1.2m and total liabilities of $990,000. On January 15, 20XX, Master made a monthly installment-note payment to Acme Distributors Corp., a creditor holding a properly perfected security interest in equipment having a fair market value greater than the balance due on the note.On March 15, 20XX, Master voluntarily files a petition in bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. One year later, the equipment was sold to Acme for less than the balance due on the note. Which of the following statements correctly describes Acme's distribution from Master's bankruptcy estate?

Acme will have the same priority as unsecured general creditors, to the extent that the proceeds from the sale of its collateral are insufficient to satisfy the amount owed by Master. If this sale does not generate enough to cover the entire debt, then Acme becomes a general creditor for that portion of the debt. A perfected secured creditor only has a special priority right to the security interest, or collateral. When the collateral has been disposed of, it must wait in line for further payments with everyone else.

Generally, an agency relationship is terminated by operation of law in all of the following situations, except the

Agent's renunciation of the agency. Except for an agency for a specific term and an agency coupled with an interest, either side may terminate the agency arrangement at will. Therefore, no operation of law is needed when an agent desires to renounce his authority.

Larson, an unemployed carpenter, files for voluntary bankruptcy on August 14, 2005. Larson's liabilities are listed below. Credit-card charges due May 2, 2004$3,000Bank loan incurred June 2005$5,000Medical expenses incurred June 1998$7,000Alimony due during 2003$1,000 Under the provisions of Chapter 7 of the Federal Bankruptcy Code, Larson's discharge will not apply to the unpaid

Alimony. Most debts are discharged after a bankruptcy proceeding. Notable exceptions are alimony and child support payments, federal tax liens, and judgment liens based on intoxication torts.

The Securities Exchange Act of 1934 requires that certain persons register and that the securities of certain issuers be registered. In respect to such registration under the 1934 Act, which of the following statements is incorrect?

All securities offered under the Securities Act of 1933 also must be registered under the 1934 Act. The Securities Act of 1933 applies to the initial issuance of securities and has the purpose of providing investors with full and fair disclosure concerning these securities. The Securities Exchange Act of 1934 applies to the subsequent trading of securities but not necessarily all securities required to register under the 1933 Act. Thus, a security may be issued under the 1933 Act without needing to be registered under the 1934 Act.

The Securities Exchange Act of 1934 requires that certain persons register and that the securities of certain issuers be registered. In respect to such registration under the 1934 Act, which of the following statements is incorrect?

All securities offered under the Securities Act of 1933 also must be registered under the 1934 Act. This answer is correct because it is a false statement. The Securities Act of 1933 applies to the initial issuance of securities and has the purpose of providing investors with full and fair disclosure concerning these securities. The Securities Exchange Act of 1934 applies to the subsequent trading of securities but not necessarily all securities required to register under the 1933 Act. Thus, a security may be issued under the 1933 Act without needing to be registered under the 1934 Act.

The Securities Exchange Act of 1934 requires that certain persons register and that the securities of certain issuers be registered. In respect to such registration under the 1934 Act, which of the following statements is incorrect?

All securities offered under the Securities Act of 1933 also must be registered under the 1934 Act. The Securities Act of 1933 applies to the initial issuance of securities and has the purpose of providing investors with full and fair disclosure concerning these securities. The Securities Exchange Act of 1934 applies to the subsequent trading of securities but not necessarily all securities required to register under the 1933 Act. Thus, a security may be issued under the 1933 Act without needing to be registered under the 1934 Act.

Jones lives in Oklahoma and is the owner of a large number of valuable antiques. Treasures Delight, located in Arkansas, is a seller of antiques. Treasures Delight is owned by Sally Delight. Delight offers to purchase all of the antiques owned by Jones paying 60% of the agreed price and, by agreement, signs a security agreement for the balance putting up her entire inventory as security. The security agreement provides for monthly payments. Which of the following is correct?

Although this is a purchase money security interest, Jones must file to have a perfected security interest. The antiques are classified as inventory (collateral to be held for resell). Thus, although a purchase money security interest was created, being inventory, a filing is required for perfection.

Brian purchased an automobile from Robinson Auto Sales under a written contract by which Robinson obtained a security interest to secure payment of the purchase price. Robinson reserved the right to repossess the automobile if Brian failed to make any of the required ten payments. Ambrose, an employee of Robinson, was instructed to repossess the automobile on the ground that Brian had defaulted in making the third payment. Ambrose took possession of the automobile and delivered it to Robinson. It was then discovered that Brian was not in default. Which of the following is incorrect?

Ambrose is not liable for the wrongful repossession of the automobile since he was obeying the direct order of Robinson. Ambrose's act of repossessing the car constituted the tort of conversion. An agent or employee is always liable for his own torts, even if committed in the course of discharging his duties.

A married couple purchased their principal residence for $300,000. They spent $40,000 on improvements. After living in it for 10 years, the couple sold the home for $650,000 and paid $36,000 in real estate commissions. What gain should the couple recognize on their joint return?

Amount Realized:Cash$650,000Commission( 36,000)$614,000Adjusted Basis:Cost$300,000Improvements40,000(340,000)Realized gain$274,000 Since this is a married couple that meets the ownership and use test they can exclude up to $500,000 of gain on the sale of a principal residence. Thus, none of the $274,000 gain is included in income.

Wok Corp. has decided to expand the scope of its business. In this connection, it contemplates engaging several agents. Which of the following agency relationships is within the Statute of Frauds and thus should be contained in a signed writing?

An agency for the forthcoming calendar year which is entered into in mid-December of the prior year. Under the Statute of Frauds, certain contracts must be contained in a signed writing to be enforceable. Among these is a contract that cannot be performed within 1 year. In a personal service contract, the 1-year period begins running at the time that the contract is formed, not at the time the service is to commence. A contract creating an agency relationship for the forthcoming year which is entered into in mid-December of the prior year could not possibly be performed within 1 year and, therefore, must be contained in a signed writing in order to be in compliance with the Statute of Frauds.

When an agent acts for an undisclosed principal, the principal will not be liable to third parties if the

An agent need only be able to function minimally and complete job tasks. If the purpose of the agency (sale of the collection) has not been accomplished at the time of destruction, the principal will have no further obligation toward the agent.

Rey Corp.'s management intends to solicit proxies relating to its annual meeting at which directors will be elected. Rey is subject to the registration and reporting requirements of the Securities Exchange Act of 1934. As a result, Rey must furnish its shareholders with

An annual report containing its audited balance sheets for the 2 most recent years. because a company that is subject to SEC registration and continuing disclosure requirements must furnish its shareholders with audited financial statements for the last 2 years when soliciting proxies on behalf of management for an annual meeting at which directors are to be elected. Thus, Rey Corp. must furnish its shareholders with an annual report containing audited balance sheets for the 2 most recent years.

Opal offered, in writing, to sell Larkin a parcel of land for $300,000. If Opal dies, the offer will

An offer, unless irrevocable, IS terminated immediately upon the death of the offeror, and thus no contract could be formed.

Which of the following persons is not an insider of a corporation subject to the Securities Exchange Act of 1934 registration and reporting requirements?

An owner of 15% of the total face value of the corporation's outstanding debentures. because under the Securities Exchange Act of 1934, insiders include officers, directors, and beneficial owners of more than 10% of any class of the issuer's equity securities. An owner of 15% of the total face value of the corporation's outstanding debentures therefore does not qualify as an insider.

Mario is a member of a small trucking firm organized as an LLC. For which of the following obligations would he likely be personally liable?

Another driver owns a $100,000 judgment against the firm and Mario, that a jury handed down after finding that Mario was at fault for a collision at an intersection. Most LLC statutes provide limited-liability protection from contract debts of the firm, as well as tort obligations. But Mario cannot be protected for liability for torts he personally commits.

Adler, Inc. is a reporting company under the Securities Exchange Act of 1934. The only security it has issued is voting common stock. Which of the following statements is correct?

Any person who owns more than 10% of Adler's common stock must file a report with the SEC. Under the Securities Exchange Act of 1934 which applies if interstate commerce or the mail is used, any purchaser of more than 5% of a class of equity securities must file a report with the SEC.

Which of the following authorities cannot exist in an undisclosed principal/agent relationship?

Apparent authority. Because the existence of the principal (as well as identity) is not known, it is not possible for a third party to rely on representations or appearances to create authority.

A corporate stockholder is entitled to which of the following rights?

Approve dissolution. A shareholder does have this right. Unless there is a court order bringing about involuntary dissolution, shareholders will vote on the proposal.

Becca has obtained a loan of $270,000 from Federal Credit Union. Becca pledged her three vehicles, valued at $90,000, as collateral for the loan. Archie and Bain have agreed to act as sureties for the loan in the amount of $90,000 each. Becca repaid $45,000 of the loan, and Federal released two of the vehicles, valued at $45,000, back to Becca. Becca then defaults on the loan. Federal has demanded payment from Archie and Bain. Which of the following statements is correct?

Archie and Bain will each pay half of the amount due on the loan less the value of the released collateral. The amount due on the loan is $180,000, but because $45,000 of collateral was released, the amount due from the sureties is $180,000 - $45,000= $135,000. Archie and Bain will pay one half of $135,000 each.

claim will not be discharged in a bankruptcy proceeding if it

Arises from an extension of credit based upon false representations. Claims based on fraud or other intentional wrongdoing by the debtor will not be discharged. If a debtor commits fraud, that debtor cannot take advantage of the bankruptcy laws when it comes time to pay the defrauded party.

Smith takes his grandfather clock to A.S. Clockwise, a seller of clocks, for cleaning and repairs. Clockwise has a clearly stated policy that all repairs must be paid for in cash unless prior credit arrangements have been approved. The estimated cost of the cleaning and repairs is stated as $100-$125. Clockwise makes the repairs and, with cleaning, the bill is $120. Smith owns a number of nonexempt assets. When Smith comes to pick up his grandfather clock, he refuses to pay cash, and Clockwise refuses to turn over the grandfather clock to Smith. Which of the following is the best lien remedy available for Clockwise?

Artisan's lien Clockwise has a common-law possessory lien because Clockwise has made repairs to Smith's grandfather clock, did not give approval for credit, and still has possession. Clockwise has an artisan's lien and with proper notice can sell the clock to satisfy the lien.

O'Brien purchased two automobiles for personal use. Automobile 1 had an adjusted basis of $20,000, and automobile 2 had an adjusted basis of $10,000. O'Brien sold automobile 1 for $15,000 and automobile 2 for $15,000. What gain or loss should O'Brien recognize on the sales of the automobiles?

Automobile 1, loss of $0; automobile 2, gain of $5,000 Both automobiles are used for personal activities. Losses from the sale of personal use assets are not deductible, so the $5,000 realized loss from Auto 1 is not recognized. Gains from the sale of personal use assets are recognized, so the $5,000 gain from selling auto 2 is recognized.

Able, as agent for Baker, an undisclosed principal, contracted with Safe to purchase an antique car. In payment, Able issued his personal check to Safe. Able could not cover the check but expected Baker to give him cash to deposit before the check was presented for payment. Baker did not do so and the check was dishonored. Baker's identity became known to Safe. Safe may not recover from

Baker individually on the check One who issues a personal check is liable on it; however, any party or principal who is not disclosed on the check is not liable on the negotiable instrument.

Lazur Corp. entered into a contract with Baker Suppliers, Inc. to purchase a used word processor from Baker. Lazur is engaged in the business of selling new and used word processors to the general public. The contract required Baker to ship the goods to Lazur by common carrier pursuant to the following provision in the contract: "FOB Baker Suppliers, Inc. loading dock." Baker also represented in the contract that the word processor had been used for only ten hours by its previous owner. The contract included the provision that the word processor was being sold "as is" and this provision was in a larger and different type style than the remainder of the contract.Assume that Lazur refused to accept the word processor even though it was in all respects conforming to the contract and that the contract is otherwise silent. Under the UCC Sales Article,

Baker may resell the word processor to another buyer. A seller has the right to resell goods to another if the buyer refuses to accept the goods upon delivery.

Able, as agent for Baker, an undisclosed principal, contracts with Safe to purchase an antique car. In payment, Able issues a personal check to Safe. Able cannot cover the check but expects Baker to give him cash to deposit before the check is presented for payment.Baker did not do so and the check was dishonored.Baker's identity became known to Safe. Safe may not recover from

Baker, individually, on the check. The relationship between a drawer of a check and a payee is unrelated to that between an agent and principal. A principal is not responsible for the payment of an agent's personal checks.

Lark, CPA, entered into a signed contract with Bale Corp. to perform management advisory services for Bale. If Lark repudiates the contract prior to the date performance is due to begin, which of the following is not correct?

Bale can obtain a judgment ordering Lark to perform. The contract entered into by Lark is a personal service contract. The remedy of specific performance is not available for breach of a personal service contract. It would violate the constitutional amendment prohibiting involuntary servitude. Therefore, Bale will be unable to obtain a judgment ordering Lark to perform.

Susan Nathaniel and Bart Nesbitt entered into a contract for Bart to sell to Susan 350 adult tricycles for use in the retirement communities owned by Susan. The price in the contract for each tricycle was $420. After the contract was signed, Bart called Susan and explained that one of his suppliers for tricycle parts had increased his prices by 10%. Bart asked Susan if she would be willing to pay $425 per tricycle in order to help him cover the cost increases. Susan agreed to do so. When the time for payment came, Susan paid only $420 per tricycle, explaining "I had a valid contract for $420. The price increase of a supplier is not my problem." Which of the following statements is correct about Bart's rights?

Bart is entitled to collect the extra $5 per tricycle. Under the UCC, if the parties agree in good faith to a modification of their contract, then that modification is enforceable even if there is no additional consideration. Also, under the UCC, the contract can be modified through the good faith agreement of the parties with only one side receiving additional consideration.

The text of the letter from Bridge Builders, Inc. to Allied Steel Co. is as follows: We offer to purchase 10,000 tons of No. 4 steel pipe at today's quoted price for delivery two months from today. Your acceptance must be received in five days. Bridge Builders intended to create a (an)

Bilateral contract. The act of acceptance is not the act of performing the contract, which is what would be a unilateral contract. The act of acceptance is making a promise in exchange for the offer, which is also a promise.

On April 5, Anker, Inc. furnished Bold Corp. with Anker's financial statements dated March 31. The financial statements contained misrepresentations which indicated that Anker was solvent when in fact it was insolvent. Based on Anker's financial statements, Bold agreed to sell Anker 90 computers, "FOB—Bold's loading dock." On April 14, Anker received 60 of the computers. The remaining 30 computers are in the possession of the common carrier and in transit to Anker.With respect to the remaining 30 computers in transit, which of the following statements is correct if Anker refuses to pay Bold in cash and Anker is not in possession of a negotiable document of title covering the computers?

Bold may stop delivery of the computers to Anker despite the fact that title had passed to Anker. A seller is entitled to stop the delivery of goods in the hands of a carrier if an insolvent buyer who is not in possession of the document of title refuses to pay cash. Therefore, Bold may stop delivery of the computers since Anker refuses to pay in cash and is not in possession of the document of title.

Micro Corp., a calendar year, accrual basis corporation, purchased a 5-year, 8%, $100,000 taxable corporate bond for $108,530, on July 1, Year 8, the date the bond was issued.The bond paid interest semiannually. Micro elected to amortize the bond premium. For Micro's Year 8 tax return, the bond premium amortization for Year 8 should be I. Computed under the constant yield to maturity method. II. Treated as an offset to the interest income on the bond.

Both I and II. Taxpayers may elect to amortize taxable bonds purchased at a premium. Nontaxable bonds purchased at a premium generally are required to be amortized. The amortized bond premium is based on the constant yield to maturity. The amount amortized usually reduces the taxpayer's basis in the bonds and, for taxable bonds, results in an offsetting deduction for interest received from the bond. This response correctly states that the bond premium amortization should be computed under the constant yield to maturity method. In addition, this response correctly indicates that the bond premium amortization would be treated as an offset to the interest income from the bond.

Mandy is a limited partner in a limited partnership in which Strasburg and Hua are the general partners. Which of the following may Mandy do without losing limited liability protection?

Both I and II. A limited partner is allowed, without losing the protection of limited liability, to act as an agent of the limited partnership. The limited partner may also vote on the removal of a general partner.

Allison Winthrop is an employee of Sullivan Consulting. Sullivan has a major consulting contract with West New York for the improvement of its website and server. Allison is working with the West New York health care chain. She has a badge for access that all West New York employees have. Allison also has full access to West New York's server and website, including those pages that contain private patient information. Allison has been looking up the medical history of actors and sports figures and posting information she has gained on various websites. Which of the following statements is correct regarding liability for Allison's breach of patient privacy?

Both Sullivan Consulting and West New York will be liable for the breach of the patients' privacy. Sullivan is responsible for what its employees do, even what was done was done while at a third party's place of business. That is scope of employment. Sullivan is an independent contractor for West New York, and ordinarily it would not be liable, but there are questions regarding supervision and Allison's easy access with her badge.

If securities are registered under the Securities Exchange Act of 1934, which of the following disclosure provisions apply?

Both the notice of sales of the registered securities by corporation's officers must be registered with the SEC and the proxy material for the registered securities must be filed with the SEC Under the Securities Exchange Act of 1934, a corporation's officers (and all other insiders) are required to report any changes in ownership of the corporation's stock within 15 days. Also under the 1934 Act, the proxy statement, the proxy itself, and any proxy soliciting material concerning securities required to be registered under the 1934 Act must be filed with and approved by the SEC before it can be sent to shareholders.

How is apparent authority created?

By perceptions of third parties that have been created or allowed by the principal Apparent authority comes from how the agent is viewed by third parties when the principal does nothing to correct the appearance of authority.

All of the following are administrative sources of the tax law except:

Committee reports. - Committee reports are legislative sources of authority which provide insight into the intention of the House Ways & Means Committee, Senate Finance Committee, and Joint Conference Committee.

Which of the following statements is correct regarding both debt and common shares of a corporation?

Common shares represent an ownership interest in the corporation, but debt holders do not have an ownership interest. This answer is correct because common shares represent ownership interests and debt represents creditor interests.

Which of the following remedies is available to a party who had entered into a contract in reliance upon the other contracting party's innocent misrepresentations as to material facts?

Compensatory damages - NO Punitive damages - NO Rescission - Yes Under innocent misrepresentation a contract is voidable by one party if the other party has misrepresented a material fact. Since the misrepresentation is an innocent misstatement made in good faith (i.e., no scienter), the only remedy available to the party voiding the contract is rescission. Rescission is the annulment of the contract whereby parties are placed in the position they held before the contract was formed. All benefits received from the contract must be returned by both parties.

Gold contracted in writing to sell Hatch a used computer for $150. Hatch went to Gold's home with the money but Gold refused to deliver the computer. What would be the nature of Hatch's remedy against Gold?

Compensatory damages only. Under the UCC (and a computer is a good, so we have to turn to the UCC for analysis), the remedies for the buyer in a breach situation consist of what it takes to compensate the buyer for the breach. Compensatory damages would include any additional amounts the buyer has to pay to get a computer, any expenses in finding the computer, and perhaps shipping costs. Compensatory damages are what is required to put the buyer in the same financial position he/she would have been in had the seller not breached. Question 2

Which of the following types of conditions affecting performance may validly be present in contracts? Conditions precedent Conditions subsequent Concurrent conditions

Conditions precedent(before(, subsequent(after) and concurrent(happening at the same time) can be inserted into a contract

Vee Corp. retained Water, CPA, to prepare its 2019 income tax return. During the engagement, Water discovered that Vee had failed to file its 2016 income tax return. Water should:

Consider withdrawing from preparation of Vee's 2019 income tax return until the error is corrected. A member should inform the taxpayer promptly upon becoming aware of an error in a previously filed return or upon becoming aware of a taxpayer's failure to file a required return. A member should recommend the corrective measures to be taken. If a member is requested to prepare the current year's return and the taxpayer has not taken appropriate action to correct an error in a prior year's return, the member should consider whether to withdraw from preparing the return and whether to continue a professional or employment relationship with the taxpayer.

A distinction between a surety and a co-surety is that only a co-surety is entitled to

Contribution. Contribution is a right one co-surety has against another. There cannot be rights between sureties if there is only a single surety.

Craven was the CEO of Engines Plus, Inc., a publicly traded company. Hanson, CPA, was the longtime controller for the company. Engines Plus was about to be sued in a class action suit for defective engines. Only Craven knew about the impending suit. On March 1, Craven told Hanson about the impending suit. On March 2, Craven told Spore, an old friend, about the suit. Spore knew that Craven was the CEO of Engines Plus. On March 3, Craven, Hanson, and Spore all sold the stock they owned in Engines Plus. On March 4, the class action suit was filed and the value of Engine Plus stock plummeted. Under the insider trading provisions of the Securities Exchange Act of 1934, which of the following statements is correct regarding Craven, Hanson, and Spore?

Craven and Hanson would be considered insiders and Spore would be considered a tippee, all with knowledge of material, nonpublic information.

Girard gave tax advice to Frontenac Corporation. The Department of Justice and IRS are now investigating certain tax shelter transactions that Frontenac Corp. entered into. Girard is resisting their requests for information by citing the tax practitioner's privilege of §7525 of the I.R.C. To which of the following would that privilege be inapplicable?

Criminal proceedings. Written advice in connection with promotion of a tax shelter. Because §7525 applies to neither criminal proceedings nor written advice in connection with tax shelters, this is the best answer.

Which of the following is required under the Securities Exchange Act of 1934 or the SEC's reporting requirements issued pursuant thereto?

Current reporting by issuers of registered securities of certain specified corporate and financial events within 4 days of occurrence. under the Securities Exchange Act of 1934, current reports of certain specified corporate and financial items such as a change in corporate control, revaluation of assets, or a change in the amount of issued securities must be filed within 4 days.

Which of the following is required under the Securities Exchange Act of 1934 or the SEC's reporting requirements issued pursuant thereto?

Current reporting by issuers of registered securities of certain specified corporate and financial events within 4 days of occurrence. This answer is correct because under the Securities Exchange Act of 1934, current reports of certain specified corporate and financial items such as a change in corporate control, revaluation of assets, or a change in the amount of issued securities must be filed within 4 days.

Which of the following is not true of a joint venture?

Death of a joint venturer dissolves the joint venture. The law of joint ventures is similar to the law of partnerships with some exceptions. One of these exceptions is that the death of a joint venturer does not automatically dissolve the joint venture.

One of the elements necessary to establish that a preferential transfer has been made under the Bankruptcy Code by the debtor to a creditor is that the

Debtor was insolvent at the time of the transfer. Under the Bankruptcy Act, one of the elements which must be established in proving that a preferential transfer was made is that the debtor was insolvent at the time of the transfer. The Bankruptcy Act presumes that the debtor is insolvent during the 90 days prior to the date the petition was filed.

The intent, or scienter, element necessary to establish a cause of action for fraud will be met if the plaintiff can show that the

Defendant made a misrepresentation with a reckless disregard for the truth. Intent can be established in one of two ways: A plaintiff may show that the defendant actually knew of the misrepresentation, OR may prove that the defendant acted recklessly. Both amount to intent and may be used to prove that element of a fraud action.

At a confidential meeting, an audit client informed a CPA about the client's illegal insider-trading actions. A year later, the CPA was subpoenaed to appear in federal court to testify in a criminal trial against the client. The CPA was asked to testify to the meeting between the CPA and the client. After receiving immunity, the CPA should do which of the following?

Discuss the entire conversation including the illegal acts. This answer is correct because with some exceptions not mentioned in this fact pattern, the Code of Professional Conduct tells a CPA to comply with an enforceable subpoena.

What contractual duty does a principal owe to a gratuitous agent?

Duty to indemnify. The wording of the question might seem tricky because it is asking for the duty from a principal to an agent. Of those listed, only the duty to indemnify is one owed from a principal to an agent.

Which of the following statements is correct concerning the similarities between a limited partnership and a corporation?

Each is created under a statute and must file a copy of its certificate with the proper state authorities. Both of these organizations require special steps in their creation. One of these steps is the filing of a certificate, usually with the Secretary of State.

On June 15, Harper purchased equipment for $100,000 from Imperial Corp. for use in its manufacturing process. Harper paid for the equipment with funds borrowed from Eastern Bank. Harper gave Eastern a security agreement and financing statement covering Harper's existing and after-acquired equipment. On June 21, Harper was petitioned involuntarily into bankruptcy under Chapter 7 of the Federal Bankruptcy Code. A bankruptcy trustee was appointed. On June 23, Eastern filed the financing statement. Which of the parties will have a superior security interest in the equipment?

Eastern, because it perfected its security interest within the permissible time limit When a purchase money security interest uses noninventory as collateral, it has priority over prior competing interests as long as it is perfected within twenty days of the debtor obtaining possession of the collateral.

In a voluntary bankruptcy proceeding under Chapter 7 of the Federal Bankruptcy Code, which of the following claims, filed within 90 days of the filing for bankruptcy, will be paid first?

Employee vacation and sick pay in varying amounts up to $2,000 per employee. The bankruptcy establishes an order of priority for claims like these. After administrative expenses are paid, unpaid wages earned for 180 days prior to filing of the petition, up to $13,650 per employee, are paid; then, any claim for contributions to an employee benefit plan arising from services performed within 180 days before the filing of the petition or cessation of business (whichever comes first) up to $13,650 per employee (less the aggregate amount paid to employees as compensation under the fourth priority above). Any amount above the maximum is treated as a general creditor claim.

Which ACA provisions help pay for the health care that it provides?

Employer mandate The ACA's employer mandate helps fund the ACA by imposing penalties on employers of a certain size who do not provide enough of their employees with sufficient health insurance coverage.

Jane wishes to obtain a loan of $90,000 from Silver Corp. At the request of Silver, Jane has entered into an agreement with Bing, Piper, and Long to act as cosureties on the loan. The agreement between Jane and the cosureties stated that the maximum liability of each cosurety is: Bing $60,000, Piper $30,000, and Long $90,000. Based upon the surety relationship, Silver agreed to make the loan. After paying three installments totaling $30,000, Jane defaulted. Prior to making payment, the cosureties may seek the remedy of

Exoneration Before paying the debt, the surety may seek the remedy of exoneration where the surety files a suit in equity to compel the debtor to pay the creditor. Indemnification, subrogation, and contribution are all remedies available to the surety after he has paid the creditor.

Lyle Corp. is a distributor of pharmaceuticals and sells only to retail drug stores. Lyle received unsolicited samples of nonprescription drugs from a manufacturer. Lyle donated these drugs to a qualified exempt organization and deducted their fair market value as a charitable contribution. What should be included as gross income in Lyle's return for receipt of these samples?

Fair market value A corporation may deduct the fair market value of the contributed property but must add the same amount to its gross income for the receipt of the gift. Since Lyle Corp. deducted the fair market value of the donated drugs as a charitable contribution, it must add the same amount to its gross income.

Donaldson reached the mandatory retirement age as a partner of the Malcomb and Black partnership. Edwards was chosen by the remaining partners to succeed Donaldson. The remaining partners agreed to assume all of Donaldson's partnership liability and released Donaldson from such liability. Additionally, Edwards expressly assumed full liability for Donaldson's partnership liability incurred prior to retirement. Which of the following is correct?

Firm creditors are not precluded from asserting rights against Donaldson for debts incurred while she was a partner, the agreements of Donaldson and the remaining partners notwithstanding. because a retiring partner is liable to creditors for existing debts of the partnership, but not for those incurred after retirement, as long as creditors had notice of the retirement before extending the credit. Partners may agree not to hold a retiring partner liable among themselves, but they cannot prevent him from being held personally liable by third parties. Therefore, when Donaldson leaves the partnership, she is still individually liable on all past contracts and obligations, unless existing creditors agree to release her and look to the new incoming partner, Edwards (a novation).

Bridget opened a clothing store with a loan from Coastal Bank of $500,000. Coastal Bank took a security interest in Bridget's inventory on January 13, 2019. Coastal filed a financing statement on January 15, 2019. Commercial Ventures sold clothing racks, mirrors, and movable shelving to Bridget for $150,000 on credit, taking a security interest in the equipment it had delivered. Commercial and Bridget executed a security agreement on January 15, 2019, and Commercial filed a financing statement that same day. Blue Jay Clothing sold Bridget $100,000 in inventory on February 1, 2019, with a security interest in Bridget's inventory. Blue Jay filed a financing statement on February 15, 2019, and the Blue Jay clothing was delivered to Bridget on February 20, 2019. Blue Jay then notified Coastal of its interest in Bridget's inventory upon delivery. Bridget struggled for the following four months, and on June 24, 2019, Bridget was able to purchase $50,000 in new display items from Tailors, Inc. on credit. Tailors had Bridget sign a security agreement on June 25, 2019, and Tailors delivered the display items on June 26, 2019. Bridget filed for Chapter 7 bankruptcy on July 2, 2019, and Tailors filed a financing statement on July 5, 2019. Which of the following is the correct order of priorities for Bridget's secured creditors?

For the equipment, Tailors, Commercial, bankruptcy trustee Tailors perfected within the 20-day period, so it is treated as perfected at the time of the attachment, which was prior to the bankruptcy filing. Tailors was a PMSI creditor, and although its PMSI was perfected after Commercial's, it has priority over Commercial if it perfects in a timely manner. No notification of prior creditors is required for equipment.

Bridget opened a clothing store with a loan from Coastal Bank of $500,000. Coastal Bank took a security interest in Bridget's inventory on January 13, 2019. Coastal filed a financing statement on January 15, 2019. Commercial Ventures sold clothing racks, mirrors, and movable shelving to Bridget for $150,000 on credit, taking a security interest in the equipment it had delivered. Commercial and Bridget executed a security agreement on January 15, 2019, and Commercial filed a financing statement that same day. Blue Jay Clothing sold Bridget $100,000 in inventory on February 1, 2019, with a security interest in Bridget's inventory. Blue Jay filed a financing statement on February 15, 2019, and the Blue Jay clothing was delivered to Bridget on February 20, 2019. Blue Jay then notified Coastal of its interest in Bridget's inventory upon delivery. Bridget struggled for the following four months, and on June 24, 2019, Bridget was able to purchase $50,000 in new display items from Tailors, Inc. on credit. Tailors had Bridget sign a security agreement on June 25, 2019, and Tailors delivered the display items on June 26, 2019. Bridget filed for Chapter 7 bankruptcy on July 2, 2019, and Tailors filed a financing statement on July 5, 2019. Which of the following is the correct order of priorities for Bridget's secured creditors

For the equipment, Tailors, Commercial, bankruptcy trustee Tailors perfected within the 20-day period, so it is treated as perfected at the time of the attachment, which was prior to the bankruptcy filing. Tailors was a PMSI creditor, and although its PMSI was perfected after Commercial's, it has priority over Commercial if it perfects in a timely manner. No notification of prior creditors is required for equipment. Question 6 of 17prevnext

Funston, a retailer, shipped goods worth $600 to a customer by using a common carrier. The contract used by the common carrier, and agreed to by Funston, limited liability to $100 unless a higher fee is paid. Funston did not pay the higher fee. The goods were shipped FOB destination point and were destroyed in transit due to a flash flood. Which of the following is correct?

Funston will suffer a loss of $600. Common carriers are not liable for losses due to causes deemed acts of God. Although a common carrier may limit its damages to a dollar amount specified in the contract, it is not liable at all in this case. Funston, not the customer, had the risk of loss due to the FOB terms.

Which of the following pre-judgment remedies would be available to a creditor when a debtor owns no real property?

Garnishment is the legal process of having sums deducted directly from a debtor's paycheck to satisfy a debt. Clearly, no real property is necessary for garnishment. Under a writ of attachment, a debtor's property is seized so that, if a creditor wins a judgment, something will be available to pay the judgment. There is no need for the property to be real property, such as land or a house; it is usually personal property, such as cars or boats.

Which of the following statements is (are) usually correct regarding general partners' liability? I. All general partners are jointly and severally liable for partnership torts. II. All general partners are liable only for those partnership obligations they actually authorized.

General partners are jointly and severally liable, or potentially liable, for an entire tort judgment against their firm. Their liability extends beyond acts they authorized. Even unauthorized acts can create liability for the general partners.

Sal wishes to form a business entity that he will own and control all by himself. Which of the following is not a good choice for him?

General partnership A partnership requires at least one other person or entity to be Sal's partner in ownership and management of the firm, so this is not a good choice.

Which of the following sales should be reported as a capital gain?

Government bonds sold by an individual investor Government bonds held by an investor is treated as a capital asset.

Taylor Interior Designs declared Chapter 7 bankruptcy on February 1, 2019. Taylor has the following debts: ObligationFair market valueMortgage on its building$300,000$425,000Inventory$ 50,000$ 25,000Employee wages (Nov. 2018-Jan. 30, 2020)$15,000 Trustee fees$10,000Attorney fees$20,000 The mortgage on the building is held by Great Western Savings. There are two secured creditors in the inventory, with Creditor A owed $20,000 and Creditor B owed $30,000. Assume that the building and inventory are sold for their FMV. What amount will Great Western receive in the bankruptcy distribution?

Great Western is a secured creditor and is entitled to receive the lesser of the proceeds from the sale of the building or the amount owed to it, in this case $300,000.

Which of the following elements, if present, would support a finding of constructive fraud on the part of a CPA?

Gross negligence in applying generally accepted auditing standards. Fraud usually involves intentional deception. This question, however, asks about a close cousin of fraud -- constructive fraud. In a constructive fraud case, gross negligence (sometimes referred to as recklessness) acts as a substitute for intentional deception. Ordinary negligence or carelessness is not serious enough to act as a substitute for intent.

Carr Corp. declares a 7% stock dividend on its common stock. The dividend

Has no effect on Carr's earnings and profits for federal income-tax purposes The tax on corporate profits is the same, whether the profits are reinvested in the company or distributed to shareholders in the form of dividends.

To file for bankruptcy under Chapter 7 of the Federal Bankruptcy Code, an individual must

Have debts of any amount. Debts must exist in some amount. Otherwise, there is nothing from which a person needs protection. However, there is no minimum amount of debt. So long as the filing is not a "substantial abuse of the process," as when a millionaire tries to declare bankruptcy based on minor credit card debts, the filing is valid.

Trego is a CPA. Under which of the following circumstances would it be permissible for Trego to share confidential client information?

He has been hospitalized on April 14 and needs to share information with his partner, Tandy, who will complete a client's tax return before the April 15 deadline. A client has filed a complaint with the State Board of Accountancy about Trego's work, and he needs to show the Board confidential information to prove that he acted professionally throughout the engagement. Two recognized exceptions to the confidentiality requirement are disclosure to other firm members on a need-to-know basis and disclosure during an ethics examination.

Blink Corp., an accrual-basis calendar-year corporation, had a net operating loss for the tax year ended December 31, 2018. Blink's gross revenues have been under $500,000 since inception. Blink expects to have profits for the tax year ending December 31, 2019. Which method(s) of estimated tax payment can Blink use for its quarterly payments during the 2019 tax year to avoid underpayment of federal estimated taxes? I. 100% of the preceding tax year method II. Annualized income method

II only. Corporations owing $500 or more in income tax for the tax year are required to make estimated tax payments or be subject to an interest penalty. The payments must be equal to the lesser of 100% of the tax liability for the current year (i.e., the annualized income method) or the preceding year (i.e., the preceding-year method). The payments cannot be based on the preceding year if: (1) the corporation did not file a return showing a tax liability for that year (e.g., the corporation experienced a net operating loss); (2) the preceding year was less than 12 months; or (3) the corporation had taxable income of over $1,000,000. Hence, Blink Corp. could not use the preceding-year method for calculating its estimated tax payments because it sustained a net operating loss for that year. Blink Corp. must use the annualized income method. This response correctly states that Blink Corp. could use only the annualized method.

Eckson was granted an order for relief after having filed a petition in bankruptcy. Which of the following actions would bar a general discharge in bankruptcy? I. Ten months before the bankruptcy proceedings, Eckson had obtained credit from Cardinal Corporation by using false information on the credit application. II. Six months before he filed the petition, Eckson removed assets from his land with the intent to defraud creditors. III. During the bankruptcy proceedings, Eckson made a false entry on some records pertaining to his assets.

II. Six months before he filed the petition, Eckson removed assets from his land with the intent to defraud creditors. III. During the bankruptcy proceedings, Eckson made a false entry on some records pertaining to his assets. Actions that bar a general discharge in bankruptcy include removing or destroying property within twelve months prior to filing the petition with intent to hinder, delay, or defraud creditors. Also included is making a false entry in a document related to the bankrupt's affairs. Question 8 of 18

When a corporation elects to be a Subchapter S corporation, which of the following statements is (are) true regarding the federal tax treatment of the corporation's income or loss? I.The corporation's income is taxed at the corporate level and not the shareholders' level.II.The shareholders report the corporation's income on their tax returns only when the income is distributed to them.III.The shareholders report the corporation's income on their tax returns even if the income is not distributed to them.IV.The shareholders generally report the corporation's loss on their tax returns.

III and IV only are true When a corporation elects to be a Subchapter S corporation, the corporate income and loss flow through to the income tax returns of the individual shareholders even when the income is not distributed to them.

A large organization specializing in preparing federal income tax returns, Heward Jacklin (HJ) advertised that for an extra fee it would give all its tax client customers a "gold guarantee" that all returns would be accurate and that HJ would bear any costs or penalties that a customer received from the IRS. When client Chapman paid for the gold guarantee but found that HJ would not live up to its promise in that it refused to pay costs and penalties that Chapman incurred because of HJ's errors, he was unhappy. When he found that there were hundreds of HJ tax clients across the country who had similar experiences he began to suspect that the "gold guarantee" was just a marketing ploy that HJ never intended to live up to. Which of the following is true?

If Chapman can prove his suspicions with clear and convincing evidence, he can win a fraud lawsuit against HJ. This is the appropriate burden of proof for fraud claims in civil cases.

Rally Co. has purchased some inventory from Kantar Corporation to sell to customers who will use the inventory primarily for consumer use. Which of the following is not correct?

If Kantar sells the inventory to Rally on credit and takes out a security interest using the inventory as collateral, this is a purchase money security interest in consumer goods. Kantar has a security interest in the inventory it sold and is also using the same inventory as collateral for the credit, this is a purchase money security interest. However, because the items Rally purchased are inventory, not consumer goods, in Rally's hands, this is not a PMSI in consumer goods.

Rally Co. has purchased some inventory from Kantar Corporation to sell to customers who will use the inventory primarily for consumer use. Which of the following is not correct?

If Kantar sells the inventory to Rally on credit and takes out a security interest using the inventory as collateral, this is a purchase money security interest in consumer goods. Because Kantar has a security interest in the inventory it sold and is also using the same inventory as collateral for the credit, this is a purchase money security interest. However, because the items Rally purchased are inventory, not consumer goods, in Rally's hands, this is not a PMSI in consumer goods.

The Maglie Corporation has been doing business for many years, but it has had some difficulties lately. Which of the following is true about the rules for involuntary dissolution for Maglie?

If Maglie has admitted in writing that a creditor's claim is due and owing and that Maglie is insolvent, the creditor could sue for an involuntary judicial dissolution of Maglie. Creditors may seek an involuntary judicial dissolution of a corporation in this situation (corporation admits in writing that the claim is due and it is insolvent) or if the creditor has a claim that has been reduced to judgment, is unsatisfied, and the corporation is proved to be insolvent).

On February 28, year 1, Master, Inc., had total assets with a fair market value of $1,200,000 and total liabilities of $990,000. On January 15, year 1, Master made a monthly installment note payment to Acme Distributors Corp., a creditor holding a properly perfected security interest in equipment having a fair market value greater than the balance due on the note. On March 15, year 1, Master voluntarily filed a petition in bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. One year later, the equipment was sold for less than the balance due on the note to Acme. If a creditor challenged Master's right to file, the petition would be dismissed

If Master is an insurance company. Chapter 7 relief may be sought by almost any person or company, provided that they have some outstanding debt. However, there are exceptions. Insurance companies may not file a voluntary petition for Chapter 7 relief.

Turtle was audit partner on ABC Accounting's audit of Jemison Corporation. Turtle knew that the audit was ineptly performed, although he hoped (without much reason) that the financial statements were accurate. He certified them as such. Which of the following is true?

If a court decided that Turtle had acted willfully, he could be held criminally liable under the federal securities laws.

An involuntary petition in bankruptcy

If not contested will result in the entry of an order for relief by the bankruptcy judge This answer is correct because an involuntary petition in bankruptcy, if not contested, will automatically result in the entry of an order for relief by the bankruptcy court. Only if the petition is contested will the creditor(s) be required to prove either that the debtor is not paying her/his debts as they mature, or that during the 120 days preceding the filing of a petition, a custodian was appointed or took possession of the debtor's property. Question 16 of 18prevnext

An involuntary petition in bankruptcy

If not contested will result in the entry of an order for relief by the bankruptcy judge. This answer is correct because an involuntary petition in bankruptcy, if not contested, will automatically result in the entry of an order for relief by the bankruptcy court. Only if the petition is contested will the creditor(s) be required to prove either that the debtor is not paying her/his debts as they mature, or that during the 120 days preceding the filing of a petition, a custodian was appointed or took possession of the debtor's property. Question 13 of 17

On June 15, 2004, Alpha, Inc., contracted with Delta Manufacturing, Inc., to buy a vacant parcel of land Delta owned. Alpha intended to build a distribution warehouse on the land because of its location near a major highway. The contract stated that: "Alpha's obligations hereunder are subject to the vacant parcel being rezoned to a commercial zoning classification by July 31, 2005." Which of the following statements is correct?

If the parcel is not rezoned by July 31, and Alpha refuses to purchase it, Alpha would not be in breach of contract. The rezoning clause is a condition precedent. Alpha has no duty to perform under the contract until and unless the parcel is rezoned by July 31. Essentially, the condition must be met before there are any contractual obligations.

Under a personal services contract, which of the following circumstances will cause the discharge of a party's duties?

Illegality of the services to be performed. This is the best answer, as it is always correct. If a service becomes illegal to perform, it is treated as having become objectively impossible, and performance is always excused.

Under the Revised Uniform Partnership Act, which of the following have the right to inspect partnership books and records?

Inactive partners. all partners have the right to inspect partnership books and records.

Which of the following is false regarding a Chapter 13 bankruptcy?

Individuals in general need not have regular income. It is a false statement and therefore the correct answer. Under a Chapter 13 bankruptcy—Debts Adjustment Plan—in general, individuals need to have regular income along with other specified requirements

Chapter 7 of the Federal Bankruptcy Code will deny a debtor a discharge when the debtor

Is a corporation or a partnership. Corporations and partnerships may go through a Chapter 7 liquidation, but do not qualify for a general discharge from all remaining debts as natural persons do.

Janet Worth has a lease for two years at the Wythe Courtyard apartment complex. Janet has the opportunity to study at Oxford for one year and has agreed to sublease her apartment to Lucy Lantern. Lucy is to take over the lease on August 1, 2016, and finish the term of the lease, which ends May 31, 2017. Janet and Lucy execute an agreement for the lease takeover. In January 2017, Lucy misses her rent payment and then moves out of the apartment. The Wythe Courtyard owner wants to recover from Janet. This contract:

Is partially executed. The contract was negotiated and the apartment was furnished to Lucy, but Lucy has not paid.

Under the provisions of the Securities Exchange Act of 1934, a corporation whose common stock is listed on a national stock exchange

Is subject to having the registration of its securities suspended or revoked. A corporation whose stock is listed on a national stock exchange is regulated under the provisions of the Securities Exchange Act of 1934. Under the 1934 Act, one of the sanctions available to the SEC is the revocation or suspension of the registration of the securities of any registrant.

Which of the following statements is correct regarding the parol evidence rule?

It applies to prior or contemporaneous oral agreements that contradict the terms of final written agreements. The parol evidence rule does not permit evidence of terms not in a complete, final, and unambiguous contract. If you want terms in your contract, put them in your contract. Oral understandings not part of the contract terms are inadmissible in court.

Which of the following statements concerning the scope of Section 10(b) of the Securities Exchange Act of 1934 is correct?

It applies to purchases as well as sales of securities in interstate c ommerce. because under Rule 10b-5 it is unlawful to use any manipulative or deceptive devices in the purchase or sale of securities if the mail, interstate commerce, or a national stock exchange is used. Question 11 of 11

Which of the following is not a significant feature of the ACA?

It completely socializes health care in the U.S.

Noll gives Carr a written power of attorney. Which of the following statements is correct regarding this power of attorney?

It may limit Carr's authority to specific transactions A power of attorney usually limits an agent's authority to specific transactions.

Unger owes a total of $50,000 to eight unsecured creditors and one fully secured creditor. Quincy is one of the unsecured creditors and is owed $6,000. Quincy has filed an involuntary bankruptcy petition against Unger under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. Unger has been unable to pay debts as they become due. Unger's liabilities exceed Unger's assets. Unger has filed papers opposing the bankruptcy petition. Which of the following statements regarding Quincy's petition is correct?

It will be dismissed because Unger's debt to Quincy alone is less than the required amount to bring an involuntary petition. An involuntary petition may succeed if the aggregate unsecured claims of the petitioners equals or exceeds $16,750. Quincy's claim of $6000 alone does not meet that limit.

On January 31, 2019, Ralph sent a written offer to Jake to sell his classic Triumph for $6,500. Jake received the offer on February 2, 2019. On February 3, 2019, Jake emailed Ralph and asked if Ralph could hold the car until February 10, 2019, so that he could sell some stock to get the cash. On February 4, 2019, Ralph e-mailed Jake, "Of course. I will hold the car." Later on that date, Tom saw the Triumph at Ralph's house with a "For Sale" sign on it and offered Ralph $7,000. Ralph sold the Triumph to Tom and sent Jake a letter on February 5, 2019, revoking his offer. On February 6, 2019, Jake sent Ralph a letter with a cashier's check for $6,500. Jake received the revocation on February 7, and Ralph received Jake's check and acceptance on February 8, 2019. Which of the following statements is correct?

Jake has formed a valid contract for the purchase of the Triumph. Jake accepted a still-open offer because he had not received the revocation.

Spencer's Appliance had a line of credit with First National Bank. Spencer's gave First National Bank a security agreement in its inventory on February 1, 2019. First National filed a financing statement for its security interest on February 10, 2019. Spencer's sold a refrigerator on March 1, 2019, to Jarrod Smith for use in his home, and Jarrod signed a security agreement for the refrigerator that same day. On March 3, 2019, Spencer's purchased inventory from Frost-Free Refrigerators and Freezers. Spencer's gave Frost-Free a security interest in its inventory, and Frost-Free filed a financing statement on March 10, 2019. Spencer's did not pay either First National or Frost-Free, and both First National and Frost-Free sought to repossess Spencer's inventory and the refrigerator from Jarrod. Which of the following statements is correct?

Jarrod holds the refrigerator free from either the First National or Frost-Free security interest. As a bfp consumer purchaser in the ordinary course of business, Jarrod takes free and clear of any other security interests. Question 8

Juan recently started operating a flower shop as a proprietorship. In its first year of operations, the shop had a taxable income of $60,000. Assuming that Juan had no other employment-related earnings,

Juan must pay self-employment tax on the earnings of the business. As a sole proprietor, Juan is self-employed and must pay self-employment taxes on the earnings of the business, which are, in essence, also his earnings.

Which is not a form of collateral under Article 9 UCC security interests?

Judgments and liens cannot be used as collateral under Article 9.

A company that has filed a Chapter 11 bankruptcy petition intends to pay an insider key employee an inducement to remain with the company. The average amount of similar payments made to nonmanagement employees will be $35,000 in the same calendar year. Which of the following annual monetary incentives can be paid to this employee?

KERP (key employee retention plan) payments are made to nonmanagement and management employees. Those paid to management cannot be more than 10 times the average amount of retention payments made to nonmanagement employees. Therefore $335,000 is correct as it is not more than the $350,000 limitation ($35,000 x 10 = $350,000). Note: the question does not ask for the maximum payment allowable. Rather it asks for which of the amounts provided are permissible under the bankruptcy provisions.

Ace Corporation engaged Kosier, CPA, to perform a consulting engagement. While driving to Ace's office, Kosier was involved in an automobile accident in which Norton was injured. The accident was solely Kosier's fault. If Norton sues both Ace and Kosier for the injuries Norton sustained, what will be the result?

Kosier will be liable, and Ace will not be liable because Kosier is an independent contractor. Independent contractors are not in a master-servant relationship with their clients, so there is no tort liability.

Which of the following is (are) a true statement about LLPs?

LLPs have fewer requirements to qualify for pass-through taxation than do Subchapter S corporations. In most states, LLPs need not limit themselves to 100 shareholders, as must Subchapter S corporations. However, they are limited to professionals, such as doctors and accountants. In many states, the LLP must purchase a minimum amount of liability insurance in order for limited liability to be granted to its partners.

Dart Corp. engages Jay Associates, CPAs, to assist in a public stock offering. Jay audits Dart's financial statements and gives an unqualified opinion, despite knowing that the financial statements contain misstatements. Jay's opinion is included in Dart's registration statement. Larson purchases shares in the offering and suffers a loss when the stock declines in value after the misstatements became known. In a suit against Jay, under the anti-fraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, Larson must prove all of the following, except

Larson was an intended user of the false registration statement A private action under the 1934 Act is similar to a common-law fraud action in that the plaintiff must show that he relied on the misstatement and that the defendant intended to deceive in making the misstatement. But, unlike a common-law fraud action, there is no requirement of privity, or even that the plaintiff was an intended user of the false statement.

While conducting an audit, Larson Associates, CPAs, fails to detect material misstatements included in its client's financial statements. Larson's unqualified opinion was included with the financial statements in a registration statement and prospectus for a public offering of securities made by the client. Larson knew that its opinion and the financial statements would be used for this purpose. Which of the following statements is correct with regard to a suit against Larson and the client by a purchaser of the securities under Section 11 of the Securities Act of 1933?

Larson will not be liable if it had reasonable grounds to believe that the financial statements were accurate. An accountant defendant has a due diligence defense under Section 11 if it can prove that it acted carefully in performing the audit, even if mistakes were made. However, the standard is one of negligence, not scienter, and the burden of proof is on the accountant.

In February 28, year 1, Master, Inc. has total assets with a fair market value of $1.2mn and total liabilities of $990,000. On January 15, year 1, Master makes a monthly installment-note payment to Acme Distributors Corp., a creditor holding a properly perfected security interest in equipment having a fair market value greater than the balance due on the note. On March 15, year 1, Master voluntarily files a petition in bankruptcy under the liquidation provisions of Chapter 7 instead of a Chapter 11 reorganization under the Federal Bankruptcy Code. One year later, the equipment is sold to Acme for less than the balance due on the note. If Master's voluntary petition is filed properly,

Lawsuits by Master's creditors will be stayed by the Federal Bankruptcy Code. Once a petition is filed, there is an automatic stay under both Chapter 7 and 11, which ends almost any proceeding against the debtor. The creditors will then have to seek relief from the bankruptcy court and not through independent legal action.

Under the Revised Uniform Limited Partnership Act, which of the following statements is correct regarding limited partnerships?

Limited partners may lose limited liability if they participate in management activities. While limited partners may consult with the general partners, work for the partnership in a non-management capacity, guaranty its obligations and do a number of other things without forfeiting limited liability, they may not participate in management. They are granted limited liability and in exchange are expected to remain passive investors.

Knox operates an electronics store as a sole proprietor. On April 5, Knox was involuntarily petitioned into bankruptcy under the liquidation provisions of the Bankruptcy Code. On April 20, a trustee in bankruptcy was appointed and an order for relief was entered. Knox's nonexempt property has been converted to cash, which is available to satisfy the following claims and expenses as may be appropriate: Claims and Expenses Claim by Dart Corp. (one of Knox's suppliers) for computers ordered on April 6, and delivered on credit to Knox on April 10. $20,000 Fee earned by the bankruptcy trustee. $15,000 Claim by Boyd for a deposit given to Knox on April 1 for a computer Boyd purchased for personal use but that had not yet been received by Boyd. $ 1,500 Claim by Noll Co. for the delivery of stereos to Knox on credit. The stereos were delivered on April 4 and a financing statement was properly filed on April 5. These stereos were sold by the trustee with Noll's consent for $7,500, their fair market value. $ 5,000 Fees earned by the attorneys for the bankruptcy estate. $10,000 Claims by unsecured general creditors. $ 1,000 The cash available for distribution includes the proceeds from the sale of the stereos. If the trustee in bankruptcy wishes to avoid Noll's April 4 transaction with Knox as a preferential transfer, the trustee will

Lose because there is an interim creditor status protection in involuntary bankruptcy There is a priority for those who sell goods on credit to a debtor who has been involuntarily placed into bankruptcy. The reason for their special priority is that the debtor is disputing the need to be in bankruptcy and we give priority and protection to those creditors who extend credit whilst the bankruptcy is proceeding. So, that's what Noll Co is - an interim creditor - involuntary bankruptcy filed and they are extending credit to keep the debtor going. Under Article 9, when a creditor takes a security interest in the goods the debtor purchased using funds advanced by the creditor, then the creditor has a period of time (10 days under old questions - 20 days under newer question) because of Article 9 amendments. If they perfect within that time, then they have the status of a perfected secured creditor even though they perfected after the bankruptcy filing.

Wallace, an agent for Lux, made a contract with Doolittle which exceeded Wallace's authority. If Lux wishes to hold Doolittle to the contract, Lux must prove that

Lux ratified the contract before withdrawal from the contract by Doolittle. if an agent acts without authority, neither the principal nor the third party is bound to perform the contract. However, if Lux ratified Wallace's unauthorized act before Doolittle withdrew from the contract, Doolittle would be bound by the agreement.

Emily has been running a flower shop as a sole proprietor. She purchased refrigerators for her flowers for $25,000 with Pimco Bank providing the funds for the order and purchase of those refrigerators. On February 1, Emily signed a security agreement presented to her by Pimco Bank that covered the refrigerators and all other after-acquired equipment in the flower shop. On February 2, Pimco filed a financing statement covering the refrigerators. The refrigerators were delivered on March 10. On which date was the security interest perfected?

March 10. Once Emily has an interest in the refrigerators, the security interest attaches and the earlier perfection can take effect. In this case perfection and attachment occurred later than the execution of the security agreement, but all three components—underlying debt, security agreement, and attachment—are necessary before there can be perfection.

Emily has been running a flower shop as a sole proprietor. She purchased refrigerators for her flowers for $25,000 with Pimco Bank providing the funds for the order and purchase of those refrigerators. On February 1, Emily signed a security agreement presented to her by Pimco Bank that covered the refrigerators and all other after-acquired equipment in the flower shop. The refrigerators were delivered on March 10. On March 11, Pimco Bank filed a financing statement covering the refrigerators. On which date was the security interest perfected?

March 11. ith the filing of the financing statement, the security interest was perfected because it had attached on March 10.

Montrose sent Bilbo a written offer to sell his tract of land located in Majorsville for $50,000. The parties were engaged in a separate dispute. The offer stated that it would be irrevocable for 30 days if Bilbo would promise to refrain from suing Montrose during this time. Bilbo promptly delivered a promise not to sue during the term of the offer and to forego suit if she accepted the offer. Montrose subsequently decided that the possible suit by Bilbo was groundless and therefore phoned Bilbo and revoked the offer 10 days after making it. Bilbo mailed an acceptance on the 30th day. Montrose did not reply. Under the circumstances

Montrose's offer was supported by consideration, and was irrevocable for the 30 day period. because Bilbo's promise to forego suit would be sufficient consideration to create an option offer. An option offer is irrevocable for the stated time period.

Under the liquidation provisions of Chapter 7 of the federal Bankruptcy Code, certain property acquired by the debtor after the filing of the petition becomes part of the bankruptcy estate. An example of such property is

Municipal-bond interest received by the debtor within 180 days of the filing of the petition. A debtor's estate in bankruptcy consists of all tangible and intangible property of the debtor held at the commencement of the bankruptcy proceedings. In addition, the estate consists of any after-acquired income from such property. Therefore, interest from municipal bonds (held as part of the estate) also becomes part of the estate. Any gifts received within 180 days of the filing the petition also become part of the estate. All other payments received after the filing of the petition are not considered income from the existing debtor's (bankruptcy) estate. Therefore, B and C are incorrect, because they are payments received after the filing of the petition, and are not considered income from the existing debtor's (bankruptcy) estate. D is incorrect, because it is a gift received more than 180 days after the filing of the petition.

A bankrupt person who filed voluntarily and received a discharge in bankruptcy under the provisions of Chapter 7 of the Federal Bankruptcy Code

Must surrender for distribution to the creditors any amount received as an inheritance if received within 180 days of filing the petition. There is a 180-day rule. Not only must most assets be surrendered if they existed at the time of filing, but some assets (including inherited assets) must be added to the bankruptcy estate if acquired within 180 days of the filing.

Under the agent's duty to account, which of the following acts must a gratuitous agent perform?

NO - Commingle funds YES - Account for the principal's property as agents have a duty not to commingle their funds with the principal's funds, and should account for the principal's property.

The registration provisions of the Securities Exchange Act of 1934 require disclosure of all of the following information except the

Names of owners of at least 5% of any class of nonexempt equity security. Exchange Act of 1934 has registration provisions that require specified disclosures including bonus and profit-sharing arrangements, the financial structure and nature of this business, and names of officers and directors.

Which of the following statements is (are) correct regarding corporate debt and equity securities? I. Both debt and equity security holders have an ownership interest in the corporation. II. Both debt and equity securities have an obligation to pay income.

Neither Debt and equity security holders DO NOT have ownership in the corporation and debt and equity securities DO NOT have an obligation to pay income.

A homestead exemption ordinarily could exempt a debtor's equity in certain property from postjudgment collection by a creditor. To which of the following creditors will this exemption apply? Valid Home mortgage lien or a Valid IRS tax lien?

Neither - Although a homestead exemption can exempt a debtor's equity in certain property from postjudgment collection by a creditor, the exemption applies to general creditors and the bankruptcy trustee, not secured creditors or lien holders.

Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the security's registration statement. Under Section 11, which of the following must be proven by a purchaser of the security? Reliance on the financial statements Fraud by the CPA

Neither - Under Section 11 of the 1933 Act, a plaintiff need not show either reliance or fraud (or even negligence) by the defendants. However, defendants can win the day if they can disprove reliance. And the defendants other than the issuer can win if they can establish that they acted with due diligence. The primary things that plaintiffs must show to win their Section 11 claim are that there was a material misstatement in the registration statement on the effective date; that they can trace their shares to that registration statement; and that they suffered damages.

Which of the following conditions, if any, must a debtor meet to file a voluntary bankruptcy petition under Chapter 7 of the Federal Bankruptcy Code? Insolvency or 3 or more creditors

Neither is required. Almost anyone can file a voluntary petition for Chapter 7 relief at any time regardless of the number of creditors. The only restriction is that the filing is not a "substantial abuse," but neither of these choices inherently indicates substantial abuse.

Which is correct? Acceptances must be communicated in of an acceptance the same manner as an offer Revocations.requires consideration.

Neither: An offer can provide that acceptance must be received to be effective or that an acceptance must be communicated in a particular manner. Unless so specified in the offer, acceptances can be by any reasonable means.

Phillips, CPA, was engaged by Veda, Inc. to audit Veda's financial statements. Phillips was told that the financial statements and the audit report were to be shown to Ryan, a potential investor. As a result of the audit, Phillips issued an audit report containing an unqualified opinion on Veda's financial statements. Ryan, after seeing the financial statements and audit report made a substantial investment in Veda shares. Although Phillips exercised reasonable care in performing the audit, inaccuracies in the financial statements were later discovered causing Veda share prices to fall. Ryan claimed that had Ryan known of the inaccuracies, Ryan would not have purchased the shares. Will Ryan succeed in a suit against Phillips for negligence?

No, because Phillips exercised reasonable care in performing the audit. Phillips owed Ryan a duty of care, but did not breach it. Phillips exercised reasonable care in performing the audit. Therefore, Phillips did not act negligently and is not liable to Ryan. Perfection is not the standard of care for auditors.

Landry Company contracted orally with Newell to pay her $50,000 for the completion of an ethics audit of Landry Company. The report is to span a period of time of at least ten months and is due in fourteen months from now. Newell has agreed orally to perform the ethics audit and says that she will begin within three months, noting that even if she delays the full three months, she will have the report ready within the fourteen-month deadline. Does this contract fall under the Statute of Frauds?

No, despite the due date of fourteen months. nder The Statute of Frauds, agreements that can be performed within one year of their making can be oral. In this case the ethics audit need only span ten months and the completion of the report will take less than one additional month for a total of less than one year. We know that the report can be done in less than a month because Newell points out that even if she delays start for three months, she will still complete the ten-month audit before the fourteen-month deadline. The fact that it might take longer than a year does not require it to be in writing since it possibly could be completed within one year.

North, Inc. hires Sutter as a purchasing agent. North gives Sutter written authorization to purchase, without limit, electronic appliances. Later, Sutter is told not to purchase more than 300 of each appliance.Sutter contracts with Orr Corp. to purchase 500 tape recorders. Orr had been shown Sutter's written authorization. Which of the following statements is correct?

North will be liable to Orr, because of Sutter's actual and apparent authority. The written authorization given to Sutter constitutes actual authority. Actual authority exists whenever an agent acts under direct orders, or takes steps reasonably necessary to complete specific directives. For the first 300 of the 500 recorders, Sutter has actual authority. Further, he has apparent authority to buy the other 200, because Orr can reasonably believe that Sutter is authorized to make such a purchase after seeing his authorization.An agent has apparent authority to act whenever a third party reasonably believes the agent has authority to act.

On February 28, 2005, Master, Inc. has total assets with a fair market value of $1.2mn and total liabilities of $990,000. On January 15, 2005, Master made a monthly installment-note payment to Acme Distributors Corp., a creditor holding a properly perfected security interest in equipment, having a fair market value greater than the balance due on the note. On March 15, 2005, Master voluntarily files a petition in bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. One year later, the equipment is sold for less than the balance due on the note to Acme. Master's payment to Acme could

Not be set aside as a preferential transfer, because Acme was oversecured. A payment is not preferential if it is not more than the creditor would have received in a bankruptcy proceeding. Since Acme has a perfected security interest, its rights are unaffected by the bankruptcy proceeding, and it retains the right to receive repayment of its debt without having the payments set aside.

Rogers and Lennon entered into a written computer consulting agreement that required Lennon to provide certain weekly reports to Rogers. The agreement also stated that Lennon would provide the computer equipment necessary to perform the services and that Rogers' computer would not be used. As the parties were executing the agreement, they orally agreed that Lennon could use Rogers' computer. After executing the agreement, Rogers and Lennon orally agreed that Lennon would report on a monthly, rather than weekly, basis. The parties now disagree on Lennon's right to use Rogers' computer and how often Lennon must report to Rogers. In the event of a lawsuit between the parties, the parol evidence rule will

Not prevent the admission into evidence of testimony regarding Lennon's right to report on a monthly basis. This answer is correct because an exception to the parol evidence rule allows evidence of "subsequent agreements" to be admitted into evidence. The parol evidence rule applies to complete and unambiguous written contracts and prohibits any evidence that would modify or alter the contract. This rule would apply to oral agreements made "prior" to the formation of the written contract but does not apply to "subsequent" agreements.

Drew bought a computer for personal use from Hale Corp. for $3,000. Drew paid $2,000 in cash and signed a security agreement for the balance. Hale properly filed the security agreement. Drew defaulted in paying the balance of the purchase price. Hale asked Drew to pay the balance. When Drew refused, Hale peacefully repossessed the computer. Under the UCC Secured Transactions Article, which of the following remedies will Hale have?

Obtain a deficiency judgment against Drew for the amount owed Remedies after a default are cumulative. If one method does not fully satisfy the debt, others may be sought. If the computer is repossessed and sold, and money is still owed, Hale may seek a deficiency judgment against Drew for the remainder.

Which of the following bonds are an obligation of a surety?

Official bonds This is a secondary obligation: Basically a party is guaranteeing that a public official will discharge duties in compliance with laws and regulations.

Thorp was a purchasing agent for Ogden, a sole proprietor, and had express authority to place purchase orders with Ogden's suppliers. Thorp placed an order with Datz, Inc. on Ogden's behalf after Ogden was declared incompetent in a judicial proceeding. Thorp was aware of Ogden's incapacity. Which of the following statements is correct concerning Ogden's liability to Datz?

Ogden will not be liable because Thorp's agency ended when Ogden was declared incompetent. Death or insanity of either the principal or the agent will end an agency immediately. Once Ogden, the principal, was declared insane, the agency relationship between Thorp and Ogden ended. Since the agency was terminated automatically by operation of law, Ogden would not be liable for the contract.

purchase money security interest

One may perfect a security interest without filing if he or she has a purchase money security interest (PMSI) in consumer goods. This happens when the money to purchase the collateral is given as the basis of the security interest. The collateral, however, must be in consumer goods and purchased by a consumer for personal, family, or household use for a PMSI to exist.

Which of the following will make a contract voidable?

One of the parties lacks capacity. The party who lacks capacity has the option of honoring the contract or exercising the right to disaffirm because of the lack of capacity.

Which of the following statements is correct regarding the formation of a unilateral contract?

Only one party to a unilateral contract makes a promise. A unilateral contract is a promise in exchange for performance. One side does not make a promise to perform, but if that side does complete the performance then the promising party is bound and must pay whatever was offered. Once performance is complete, the promise must be fulfilled.

Edwards Corp. lent Lark $200,000. At Edwards's request, Lark entered into an agreement with Owen and Ward for them to act as compensated co-sureties on the loan in the amount of $200,000 each. If Edwards releases Ward without Owen's or Lark's consent, and Lark later defaults, which of the following statements is correct?

Owen will be liable for 50% of the loan balance. Since Edwards released one of the two sureties, the remaining surety is liable for only half of the entire debt. Until the release, Edwards could have collected the entire debt from either surety, and then that surety could have sued the other surety for half of that amount under the right of contribution. However, now Edwards can only collect 50% of the debt from Owen, because it has eliminated Owen's ability to collect anything from Ward.

Baker (P) leaves her two-month-old daughter, Summer, at the Ave Maria Child Care Center (D). Because Summer will not stop crying, one of D's employees, Davis, hits Summer's head against the corner of a shelf, causing major brain injury. Davis later pleads guilty to injury to a child and goes to jail. P sues D for Davis's tort. Which of the following is true?

P will probably recover. Because Davis was attempting to advance her employer's interest by maintaining order in the day-care center, even though she did so in a wrongful manner, her employer is liable. Therefore, this is the best answer.

Park purchased from Derek Truck Sales a truck which had serious mechanical problems. Park learned of the defects 6 months after the date of sale. Five years after the date of sale Park commenced an action for breach of warranty against Derek. Derek asserts the statute of limitations as a defense. Which of the following statements made by Derek is correct?

Park was required to bring the action within the statute of limitations as measured from Derek's tender of delivery. concerning breach of an implied warranty the statute of limitations begins to run when delivery of the defective goods is tendered. Question 10 of 18

Unless the partnership agreement prohibits it, a partner in a general partnership may validly assign rights to Partnership property. Partnership distributions.

Partners cannot assign their rights to use partnership assets or management rights to anyone without the unanimous consent of other partners. The only thing that may be assigned without this consent is a partner's right to the distribution of profits.

In which of the following statements concerning a CPA firm's action is scienter or its equivalent absent?

Performance of substandard auditing procedures. because the intent to deceive is not present in the performance of substandard auditing procedures; however, such performance would constitute negligence which does not require scienter.

Which of the following is a capital asset?

Personal-use recreation equipment The definition of capital assets includes personal-use property but excludes property used in a trade or business (e.g., delivery truck, land used as a parking lot).

Pine, an employee of Global Messenger Co., was hired to deliver highly secret corporate documents for Global's clients throughout the world. Unknown to Global, Pine carried a concealed pistol. While Pine was making a delivery, he suspected an attempt was being made to steal the package, drew his gun and shot Kent, an innocent passerby. Kent will not recover damages from Global if

Pine's weapon was unlicensed and illegal. In general, the employer is not responsible for the crimes of the employee unless the employer aided or permitted the illegal activity, even if the activity was within the scope of the employment. Question 6 of 17

Which of the following transfers by a debtor within 90 days of filing for bankruptcy could be set aside as a preferential payment?

Prepaying an installment loan on inventory Any action by a debtor that gives a creditor an advantage over other creditors who would have priority in bankruptcy can be set aside as a voidable preference.

CPA who fraudulently performs an audit of a corporation's financial statements will

Probably be liable to any person who suffered a loss as a result of the fraud. In most jurisdictions, the CPA will be liable if foreseeable users rely on the fraudulently prepared statements and suffer a loss. This is true whomever the plaintiffs may be, so long as they can prove reliance and loss and that they are foreseeable users.

on her grandfather's death, Jordan inherited 10 shares of Universal Corp. stock that had a fair market value of $5,000. Her grandfather acquired the shares 20 years ago for $2,500. Four months after her grandfather's death, Jordan sold all her shares of Universal for $7,500. What was Jordan's recognized gain in the year of sale?

Property bequeathed due to the death of the owner has a fair market value basis to the beneficiary, and a long term holding period. Jordan's gain on the sale of the inherited stock is: Amount Realized$7,500Adjusted Basis(5,000)Recognized Gain$2,500 Even though Jordan has owned the stock for only four months her holding period is long term since the stock was inherited.

Under Chapter 11 of the Federal Bankruptcy Code, which of the following actions is necessary before the court may confirm a reorganization plan?

Provision for full payment of administration expenses. Under Chapter 11 of the Federal Bankruptcy Code, a business may be allowed to continue its operations and keep its business assets. The court-supervised reorganization plan provides for payment of all or part of the debts over an extended period. The claims are divided into classes of similar claims so that they can be treated equally. For the court to confirm the reorganization plan, it must provide for full payment of administration expenses.

Which of the following is not required for the creation of a security interest?

Public disclosure of the security interest. A security interest attaches without public notice. Public notice or filing deals with rights in relation to other creditors, but with creation, the creditor becomes a secured creditor.

On April 15, 2017 Wren Corp., an appliance wholesaler, was petitioned involuntarily into bankruptcy under Chapter 7. When the petition was filed, Wren's creditors included: Fifth Bank—first mortgage on warehouse owned by Wren: $50,000 Hart Manufacturing Corporation—perfected purchase money security interest in inventory: $30,000 TVN Computers, Inc.—perfected security interest in office computers: $15,000 Wren's other creditors include: IRS—2016 federal income tax: $20,000 Acme Office Cleaners—services for January, February, and March 2017: $750 Ted Smith (employee)—February and March wages: $4,400 Joan Sims (employee)—March 2017 commissions: $1,500 Power Electric—electricity charges for January, February, and March 2017: $600 Soft Office Supplies for supplies purchased during 2016: $2,000 The following transactions occurred before the bankruptcy petition was filed: On December 31, 2016, Wren paid off a $5,000 loan from Mary Lake, the sister of one of Wren's directors. On January 30, 2017, Wren donated $2,000 to Universal Charities. On February 1, 2017, Wren gave Young Finance Co. a security agreement covering Wren's office fixtures to secure a loan previously made by Young. On March 1, 2017, Wren made the final $1,000 monthly payment to Integral Appliance Corp. on a two-year note. On April 1, 2017, Wren purchased from Safety Co. a new burglar alarm system for its factory, for $5,000 cash. All of Wren's assets were liquidated. The warehouse was sold for $75,000, the computers were sold for $12,000, and the inventory was sold for $25,000. After paying the bankruptcy administration expenses of $8,000, secured creditors, and priority general creditors, there was enough cash to pay each nonpriority general creditor 50 cents on the dollar. Which of the following would not be set aside by the trustee as a voidable preference?

Purchase from Safety Co. This is a contemporary transfer of cash for new goods—and a safe may not be needed for a company teetering on bankruptcy, but it is not voidable.

Noninventory goods were purchased and delivered on June 15. Several security interests exist in these goods.Which of the following security interests has priority over the others?

Purchase money security interest perfected June 24. Usually, the first security interest to be perfected has top priority.There is an exception, though, for a purchase money security interest. A purchase money security interest in noninventory collateral has priority if it is perfected before the debtor takes possession or within 20 days thereafter.

Clark bought series EE U.S. Savings Bonds in the current year. Redemption proceeds will be used for payment of college tuition for Clark's dependent child. One of the conditions that must be met for tax exemption of accumulated interest on these bonds is that the

Purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse). Taxpayers redeeming qualified U.S. Series EE Bonds in the same year that qualified higher education expenses are paid may exclude the interest income on the bonds from gross income. The conditions that must be met for tax exemption of accumulated interest on these bonds is that the purchaser of the bond must have made the purchase after reaching the age of 24 and be the sole owner of the bonds (or joint owner with his or her spouse). As this response states that one of the conditions that must be met for tax exemption of accumulated interest on these bonds is that the purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse), it is correct.

Which of the following actions may be taken by a corporation's Board of Directors without stockholder approval?

Purchasing substantially all of the assets of another corporation Shareholders have the right to vote on many important corporate changes, including amendments to the articles of incorporation, dissolution, sale of all or substantially all of the corporation's assets, and mergers & consolidations. Choices B, C, and D are all on this list. Choice A is, therefore, the correct answer. Often, one corporation can buy all or substantially all of the assets of another company without there being any large qualitative change in the life of the purchasing corporation. Therefore, when a large corporation gobbles up the assets of a smaller corporation, the shareholders of the large buyer do not have the right to vote on the transaction. There would be a much greater impact on the life of the selling corporation and its shareholders would therefore have the right to vote on the transaction.

Quick Corp. agreed to purchase 200 typewriters from Union Suppliers, Inc. Union is a wholesaler of appliances and Quick is an appliance retailer. The contract required Union to ship the typewriters to Quick by common carrier, "F.O.B. Union Suppliers, Inc. Loading Dock." Which of the parties bears the risk of loss during shipment?

Quick, because the risk of loss passes when the typewriters are delivered to the carrier. In an F.O.B. place of shipment contract, the risk passes from seller to buyer when the goods are placed in the possession of the carrier. From that point on, Quick bears risk of loss.

For the entire year of year 2, Ral Supermarket, Inc. conducts its business operations without any permanent or full-time employees. Ral employs temporary and part-time workers during each of the 52 weeks in the year. Under the provisions of the Federal Unemployment Tax Act (FUTA), which of the following statements is correct regarding Ral's obligation to file a federal unemployment tax return for year 2?

Ral must file a year 2 FUTA return because it had at least one employee during at least 20 weeks of year 2.

Which of the following corporate shareholder rights is enforceable by means of a derivative suit?

Recovering damages to the corporation from a third party. Protecting preemptive rights. This is a derivative suit because the shareholder is suing on behalf of the corporation.

Dill purchased a computer from Park, who regularly sells computers to the general public. After receiving payment in full, Park tendered delivery of the computer to Dill. Rather than take immediate delivery, Dill stated that he would return later that day to pick up the computer. Before Dill returned, thieves entered Park's store and stole Dill's computer. The risk of loss

Remained with Park since Dill had not yet received the computer. This answer is correct because provided there is no agreement to the contrary and neither party is in breach, risk of loss will ordinarily pass upon tender of delivery. However, because Park is a merchant seller the risk of loss does not pass until the buyer takes receipt of the goods.

The antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934

Require that the wrongful act must be accomplished through the mail, any other use of interstate commerce, or through a national securities exchange. For the Securities Exchange Act of 1934 to apply, including the antifraud provisions of Rule 10b-5, there must be shown a federal constitutional basis such as use of the mail, interstate commerce, or a national securities exchange.

The antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934

Require that the wrongful act must be accomplished through the mail, any other use of interstate commerce, or through a national securities exchange. For the Securities Exchange Act of 1934 to apply, including the antifraud provisions of Rule 10b-5, there must be shown a federal constitutional basis such as use of the mail, interstate commerce, or a national securities exchange.

The provisions of the Securities Exchange Act of 1934

Require the distribution of financial statements prior to or concurrent with a proxy solicitation. because any person requested to sign a proxy must be furnished with a proxy statement disclosing material financial information as well as other material information.

Jason's Jellies had a contract to furnish small jars of jelly to Ricardo's Bistro. Jason's was able to obtain several larger supply contracts that were more profitable, but Jason's could not continue to supply Ricardo's. Which of the following is correct about Ricardo's rights?

Ricardo is entitled to compensatory and incidental damages. Ricardo can recover whatever the additional costs of finding a substitute contract along with the costs of obtaining such a supplier as well as any legal fees incurred to recover the cost differential.

Sand Corp. sold and delivered a photocopier to Barr for use in Barr's business. According to their agreement, Barr may return the copier within 30 days. During the 30-day period, if Barr has not returned the copier or indicated acceptance of it, which of the following statements is correct with respect to risk of loss and title?

Risk of loss and title remain with Sand. his answer is correct because provided there is no agreement to the contrary and neither party is in breach, both risk of loss and title to goods being purchased on a sale on approval basis remain with the seller until the sale is completed. Since in this case Barr has not indicated acceptance of the copier, the sale is incomplete, and the risk of loss and title remain with Sand during the 30-day period.

Rita Davenport ordered a suede ottoman from Furniture Specialists, Inc. When the ottoman was delivered, there was a line through the center that looked like a fold in the fabric. The ottoman was functional, and the suede fabric showed no weakness in the fold area. Which of the following statements is correct?

Rita can reject the ottoman because it is defective. Under the UCC, a buyer has the right to accept, reject, or accept any commercial unit if the goods are defective in any way. A line in the fabric of an ottoman is a defect, no matter how immaterial.

Rory Ziegfield had a mortgage with PNB Bank. PNB Bank sold Rory's mortgage to American Thrift on April 30, 2018. Rory made her usual monthly payment to PNB Bank on May 1, 2018. Rory also made her June 1, 2018, payment to PNB Bank. On June 3, 2018, American Thrift notified Rory that it now held her mortgage and included payment information for her as well as a notice that she was two months behind on her payments. Which of the following is correct about the rights of the three parties in this situation?

Rory does not need to pay the missed two months to American Thrift. Upon an assignment, it is the responsibility of the assignee (American Thrift) to notify the promisor (Rory) about the change in ownership. Until that notification has occurred, the promisor properly continues to pay the original promise (PNB Bank).

Russ, CPA, is auditing the financial statements of Ruben Corporation and has not received consent from management regarding the disclosure of confidential information. Which of the following is not true regarding confidentiality of Ruben Corporation's information under the AICPA rules?

Russ may provide access to Ruben's information if a major shareholder of Ruben Corporation requests the information. A CPA may not disclose confidential information to the major shareholder without management's consent

Newton just joined ABC Corporation and has come to you for advice regarding the Federal Insurance Contributions Act (FICA), which will be an area of responsibility for him in his new position. Please tell Newton which of the following is true.

Sandy was a fully insured worker who had a heart attack and died on the job. Sandy's widow is entitled to survivor benefits. Fully insured workers earn survivor benefits for their widow or widower and dependents.

Thayer Corporation purchased an apartment building on January 1, Year 6, for $200,000. The building was depreciated using the straight-line method. On December 31, Year 9, the building was sold for $220,000, when the asset balance net of accumulated depreciation was $170,000. On its Year 9 tax return, Thayer should report

Section 1231 gain of $44,000 and ordinary income of $6,000. Sec. 1250 recaptures gain as ordinary income to the extent of "excess" depreciation (i.e., depreciation deducted in excess of straight line). The total gain less any depreciation recapture is Sec. 1231 gain. Since straight-line depreciation was used, there is no recapture under Sec. 1250. However, Sec. 291 requires that the amount of ordinary income on the disposition of Sec. 1250 property by corporations be increased by 20% of the additional amount that would have been ordinary income if the property had instead been Sec. 1245 property. If the building had been Sec. 1245 property the amount of recapture would have been $30,000 ($200,000 − $170,000). Thus, the Sec. 291 ordinary income is $30,000 × 20% = $6,000. The remaining $44,000 is Sec. 1231 gain. Note: The entire gain is not Section 1231 gain. The asset is a Section 1231 asset. But the gain from the sale of the asset is: Ordinary income to the extent of recapture 25% unrecaptured gain Section 1231 gain Only part "c" can be netted against other Section 1231 gains and losses, not the entire amount of the gain.

Which of the following statements describes the same characteristic for both an S corporation and a C corporation?

Shareholders can contribute property into a corporation without being taxed

Link Corp. is subject to the reporting provisions of the Securities Exchange Act of 1934. Which of the following situations would require Link to be subject to the reporting provisions of the 1934 Act? Shares listed on a national securities exchange More than one class of stock

Shares listed on a national securities exchange - would require a corp to be subject to the reporting provisions of the 1934 Act More than one class of stock - this would NOT require a corp be subject to the reporting provisions of the 1934 Act If the shares are listed on a national securities exchange, they are subject to the reporting provisions of the 1934 Act. There is no provision concerning a corporation owning more than one class of stock that by itself requires that it be subject to the reporting provisions of the 1934 Act.

Green is heavily in debt to numerous creditors. Green does have some assets, including an antique car that he drives in parades and to other functions. Green is looking for a method that will allow him to get out of debt without going into bankruptcy, and will allow him to continue to drive his antique car. Green sells the antique car to a friend living in another city at a price estimated at 70% of the car's actual value. The friend has agreed to allow Green to keep the car and use it as before the sale. Green then gets all other creditors, except Sharp, to sign an agreement that, upon selling all of his remaining non-exempt assets, and with an appropriate division of proceeds, they would release him from his debts. Which of the following is correct? Since the vast majority of creditors signed the Composition of Creditor's Agreement, Sharp is also bound by the agreement.

Sharp can pursue an action based on fraud-in-law to set aside the sale to Green's friend. Since Sharp did not sign the Agreement, he is not bound by it. To be an assignment for the benefit of creditors, Green would have to voluntarily transfer certain assets to a trustee or an assignee who, in turn, offers each creditor a pro rata payment. This not only did not happen, but the Agreement assured him that almost all of his debts would be cancelled. Although there may be fraud-in-fact on the sale of the antique car, it will be difficult to prove, since there was a substantial payment (70% of the car's estimated value) to a non-relative. What Sharp can prove is fraud-in-law, whereby, despite the sale, Green was allowed to possess and use the car as if the sale never took place. This gives Sharp the basis for an action of fraud-in-law; a presumption of fraud, which it is doubtful Green can rebut.

Foster Co. and Rice executed a contract by which Foster was to sell a warehouse to Rice for $270,000. The contract required Rice to pay the entire $270,000 at the closing. Foster has refused to close the sale of the warehouse to Rice. If Rice commences a lawsuit against Foster, what relief would Rice likely be entitled to?

Specific performance or compensatory damages The remedy of specific performance is used when money damages will not sufficiently compensate the afflicted party due to the unique nature of the subject matter of the contract. In a contract for the sale of land, the buyer has the right to enforce the agreement by seeking the remedy of specific performance because real property is considered unique. Another remedy for this breach of contract would be for the buyer to seek compensatory damages. If the buyer desires, s/he may seek this remedy instead of specific performance. However, in this situation, Rice could only sue for either specific performance or compensatory damages but would not be entitled to both remedies.

Spencer's Appliance had a line of credit with First National Bank. Spencer's sold a refrigerator on March 1, 2019 to Jarrod Smith for use in his home, and Jarrod signed a security agreement for the refrigerator that same day. Jarrod did not make his payment on the refrigerator. Which of the following is correct about Spencer's rights?

Spencer's can repossess the refrigerator from Jarrod. As a secured creditor, Spencer's has the right to repossess the goods when the debtor defaults.

Peters Co. repairs computers. On February 9, year 1, Stark Electronics Corp. sells Peters a circuit tester on credit.Peters executes an installment note for the purchase price, a security agreement covering the tester, and a financing statement that Stark files on February 11, year 1. On April 13, year 1, creditors other than Stark file an involuntary petition in bankruptcy against Peters. What is Stark's status in Peters' bankruptcy?

Stark is a secured creditor and can assert a claim to the circuit tester that will be superior to the claims of Peters' other creditors. Stark is a perfected secured creditor, because it holds an executed security agreement and a financing statement was filed. It has a right to retain its security interest during the bankruptcy proceeding. Further, this right is superior to that of other creditors, because the interest was perfected by filing and by being a purchase-money security interest for Stark.

In a jurisdiction having an accountant-client privilege statute, to whom may a CPA turn over workpapers without a client's permission?

State CPA society quality control panel. because in a jurisdiction having an accountant-client privilege statute, the CPA generally may not turn over workpapers without the client's permission. It is allowable to do so, however, for use in a quality review under AICPA authorization or to be given to the state CPA society quality control panel.

Stearn was one of the promoters of Lehman Company which was not yet incorporated. On January 2, Stearn made a contract with Stanley Corporation to have Stanley provide 6,000 electrical parts for Lehman Company at fixed prices beginning on July 15 and lasting for 5 more months. Stanley was not told and was unaware that Lehman Company had not been formed. On April 10, Lehman Company was formed under the relevant statutes. On July 15, Stanley delivered 1,000 of the 6,000 parts as agreed and Lehman accepted them. On August 15, when Stanley tried to deliver another batch, Lehman refused, saying that the prices of other suppliers had dropped. Which of the following is correct?

Stearn is personally liable on this contract.

Under the RMBCA, which of the following dividends is not defined as a distribution?

Stock Dividends A stock dividend is a pro rata distribution of additional shares of a corporation's stock to shareholders. For example, shareholders may receive two additional shares of stock for each ten they already own. Because the corporation essentially created new stock, giving stock dividends to shareholders is not considered a distribution for these purposes.

The filing of an involuntary bankruptcy petition under the Federal Bankruptcy Code

Stops the enforcement of judgment liens against property in the bankruptcy estate. Once a bankruptcy petition is filed, the enforcement of any lien against this property is stopped pending a resolution through bankruptcy proceedings.

On April 15, 2017 Wren Corp., an appliance wholesaler, was petitioned involuntarily into bankruptcy under Chapter 7. When the petition was filed, Wren's creditors included: Fifth Bank—first mortgage on warehouse owned by Wren: $50,000 Hart Manufacturing Corporation—perfected purchase money security interest in inventory: $30,000 TVN Computers, Inc.—perfected security interest in office computers: $15,000 Wren's other creditors include: IRS—2016 federal income tax: $20,000 Acme Office Cleaners—services for January, February, and March 2017: $750 Ted Smith (employee)—February and March wages: $4,400 Joan Sims (employee)—March 2017 commissions: $1,500 Power Electric—electricity charges for January, February, and March 2017: $600 Soft Office Supplies for supplies purchased during 2016: $2,000 The following transactions occurred before the bankruptcy petition was filed: On December 31, 2016, Wren paid off a $5,000 loan from Mary Lake, the sister of one of Wren's directors. On January 30, 2017, Wren donated $2,000 to Universal Charities. On February 1, 2017, Wren gave Young Finance Co. a security agreement covering Wren's office fixtures to secure a loan previously made by Young. On March 1, 2017, Wren made the final $1,000 monthly payment to Integral Appliance Corp. on a two-year note. On April 1, 2017, Wren purchased from Safety Co. a new burglar alarm system for its factory, for $5,000 cash. All of Wren's assets were liquidated. The warehouse was sold for $75,000, the computers were sold for $12,000, and the inventory was sold for $25,000. After paying the bankruptcy administration expenses of $8,000, secured creditors, and priority general creditors, there was enough cash to pay each nonpriority general creditor 50 cents on the dollar. How much will TVN receive from the trustee following the sale of secured property and the liquidation described?

TVN—computers sold for $12,000 plus half of the remaining $3,000 for total of $13,500. The $3,000 is the difference between the value of the computers and what they were sold for.

Bridget opened a clothing store with a loan from Coastal Bank of $500,000. Coastal Bank took a security interest in Bridget's inventory on January 13, 2019. Coastal filed a financing statement on January 15, 2019. Commercial Ventures sold clothing racks, mirrors, and movable shelving to Bridget for $150,000 on credit, taking a security interest in the equipment it had delivered. Commercial and Bridget executed a security agreement on January 15, 2019, and Commercial filed a financing statement that same day. Blue Jay Clothing sold Bridget $100,000 in inventory on February 1, 2019, with a security interest in Bridget's inventory. Blue Jay filed a financing statement on February 15, 2019, and the Blue Jay clothing was delivered to Bridget on February 20, 2019. Blue Jay then notified Coastal of its interest in Bridget's inventory upon delivery. Bridget struggled for the following four months, and on June 24, 2019, Bridget was able to purchase $50,000 in new display items from Tailors, Inc. on credit. Tailors had Bridget sign a security agreement on June 25, 2019, and Tailors delivered the display items on June 26, 2019. Bridget filed for Chapter 7 bankruptcy on July 2, 2019, and Tailors filed a financing statement on July 5, 2018. The sale of the equipment by the trustee brings $100,000. Tailors is owed $50,000 and Commercial is owed $100,000. How will the trustee distribute the $100,000 from the sale?

Tailors and Commercial each get $50,000. The two creditors are not on equal footing, because Tailors has priority. Tailors receives the full amount of what it is owed, and Commercial gets the remainder.

Under the Sales Article of the UCC, which of the following events will result in the risk of loss passing from a merchant seller to a buyer?

Tender of the goods at the seller's place of business - NO Use of the seller's truck to deliver the goods - NO The risk of loss starts with the seller. In neither of these situations does it pass to the buyer. The seller's use of his or her own truck does nothing to affect the risk of loss until there is tender at buyer's place of business or residence. Likewise, the seller's placing of the goods at seller's own place of business does not pass risk of loss if the buyer is to pick up the goods. Since the seller is a merchant, risk of loss does not pass until the buyer takes possession of the goods.

In Year 2, Stewart Corp. properly accrued $5,000 for an income item on the basis of a reasonable estimate. In Year 3, after filing its Year 2 federal income tax return, Stewart determined that the exact amount was $6,000. Which of the following statements is correct?

The $1,000 difference is includible in Stewart's income tax return. Under the accrual method of accounting, income is reported once all events to establish a taxpayer's right to receive the income have occurred and the amount can be determined with reasonable accuracy. If an amount of income has been accrued on the basis of a reasonable estimate with the exact amount to be determined at a later date, any difference between the estimate and exact amount is to be included in income or deducted in the year when the exact amount can be determined.

Willful violations of which of the following acts can create the basis for federal criminal liability?

The 1933 Securities Act. The 1934 Securities Exchange Act.

Which of the following statements is generally correct regarding the liability of a CPA who negligently gives an opinion on an audit of a client's financial statements?

The CPA is liable to anyone in a class of third parties who the CPA knows will rely on the opinion There are three general viewpoints regarding an accountant's liability to third parties. One view requires privity of contract for a third party to recover. Another view allows all reasonably foreseeable users of an accountant's report to sue. But the majority view, known as the Restatement view, limits an accountant's liability to a limited class of actually foreseen users. This question obviously asks the student to apply the majority (Restatement) view.

For a CPA to be liable for damages under the anti-fraud provisions of Section 10(b) and rule 10b-5 of the Securities Exchange Act of 1934, a plaintiff must prove all of the following, except that

The CPA violated generally accepted auditing standards. Section 10(b) and Rule 10b-5 govern material misstatements and omissions that are related to the sale of any security. To win a case against a CPA based on one of these theories, the plaintiff must show that (s)he relied on the misstatements; that the misstatements were material; and that the CPA knew of the misstatements (acted with scienter). If GAAS has been followed, this probably indicates that a CPA will not be liable, but a CPA may lose a case like this even if GAAS has been followed, so long as all three elements can be shown.

A party involuntarily petitioned into bankruptcy under Chapter 7 of the Federal Bankruptcy Code who succeeds in having the petition dismissed could recover

The Code is potentially harsh on creditors who wrongfully file an involuntary petition, especially if it is done to harass the debtor. In such a case, the debtor can recover court costs and reasonable attorney's fees, as well as compensatory and possibly even punitive damages.

Which of the following statements is(are) correct concerning issuers of securities registered under the Securities Exchange Act of 1934? I. The issuers must have each Form 10-K audited by an independent public accountant. II. The issuers must have each Form 10-Q audited by an independent public accountant. III. The issuers must have each Form 10-Q audited by an independent public accountant except for the fourth fiscal quarter of each of its fiscal years.

The Form 10-K must be audited by an independent public accountant, but the Form 10-Q need not be audited. The Form 10-Q is submitted to the SEC for the first 3 fiscal quarters of the issuer's fiscal year.

Seimone, an auditor for the ABC accounting firm, learns that her audit client, Bupkis Co., is about to announce a record profit. She buys Bupkis shares in a fake name and profits upon the public announcement. Which of the following is true?

The SEC may bring civil charges against Seimone.

Carson agreed orally to repair Ives' rare book for $450. Before the work was started, Ives asked Carson to perform additional repairs to the book and agreed to increase the contract price to $650. After Carson completed the work, Ives refused to pay and Carson sued. Ives' defense was based on the Statute of Frauds. What total amount will Carson recover?

The Statute of Frauds requires that all contracts of $500 or more for a sale of goods be in writing. Although a book is a good, this contract does not call for its sale but for its repair. The repair of a book is a service, and so is not covered by the Statute of Frauds and the writing requirement. In addition, any modifications of a service contract require consideration to support the modifications. Here, the additional $200 was for additional repairs (consideration), and thus the modification is binding. Carson can recover $650.

An accountant compiled the unaudited financial statements for Taylor Company, a nonissuer company. The financial statements contained a material misstatement that was not discovered in the compilation. The accountant issued a report that stated that the financial statements were fairly stated based on the limited evidence that he collected. Which of the following is true about the accountant's liability to a third party who relies on the financial statements?

The accountant will likely be held liable because an appropriately worded report was not issued. The report overstated the accountant's level of work.

Which of the following statements concerning agency law is not true?

The agent's duties are by necessity based on contract law. Although there is typically a contract between the principal and agent in an agency relationship, this is not required. For example, a principal may authorize a friend to act as his/her agent, and the agent might consent to do it as a favor. Additionally, the agent owes the principal fiduciary duties regardless of what duties are imposed by an employment contract.

Under the Secured Transactions Article of the UCC, which of the following items can usually be excluded from a filed original financing statement?

The amount of the obligation secured. There need not be the amount of the debt reflected in the publicly filed financing statement. All that needs to be included is which collateral is subject to the security interest, not the value of the collateral or the debt.

Which of the following provisions of the Securities Exchange Act of 1934 applies despite the fact that a corporation's securities are exempt from registration?

The antifraud provisions. because the antifraud provisions of the 1934 Act apply to all transactions involving interstate commerce whether or not the corporation involved has to register under the 1934 Act.

Which of the following statements is correct concerning what constitutes a debtor's bankrupt property estate?

The appreciated value, since the petition was filed, of the debtor's stamp collection.

Which of the following statements best describes the effect of the assignment of an interest in a general partnership?

The assignment transfers the assignor's interest in partnership profits and surplus. A partner can assign only his/her economic interest in the partnership - the right to obtain a share of profits, if distributed, and a share of net assets upon dissolution. An assignee can never receive more than this from one partner acting alone in assigning his/her interests.

eed's Appliances purchased $50,000 in inventory on credit from Whirlpool, with Whirlpool taking a security interest in Reed's inventory on May 1, 2019. Whirlpool recorded a financing statement on May 3, 2019. The appliances were delivered by Whirlpool to Reed's on May 14, 2019. On May 10, 2019, Reed's Appliances opened a line of credit with FCB Bank for $500,000. FCB took a security interest in Reed's inventory on May 10 and recorded a financing statement on May 11, 2019. Reed first drew on the FCB line of credit on May 15, 2019. Janice Taubman purchased a washer and dryer on credit from Reed's Appliances on July 15, 2019. Reed's Appliances was insolvent by August 2019 and filed for bankruptcy. Which of the following statements is correct about Reed's bankruptcy?

The bankruptcy trustee cannot repossess the washer and dryer from Taubman. Taubman is a good faith purchaser in the ordinary course of business. The washer and dryer belong to her and cannot be sold as part of the inventory or taken back by the trustee.

Which of the following statements is correct with regard to an individual taxpayer who has elected to amortize the premium on a bond that yields taxable interest?

The bond's basis is reduced by the amortization. An individual taxpayer who has elected to amortize the premium on a bond that yields taxable interest may reduce the bond's basis by the amortization of the premium. In addition, the amount of bond premium attributable to the tax year may be used to offset interest received on the bond in computing the taxpayer's taxable income. This response correctly states that the bond's basis is reduced by the amortization.

Pine has a security interest in certain goods purchased by Byron on an installment contract. Byron has defaulted on the payments, resulting in Pine's taking possession of the collateral. Which of the following is correct

The collateral may be sold by Pine at a private sale and, if the collateral is consumer goods, without notice to other secured parties If the collateral is consumer goods, Pine may sell the collateral at a private sale without notice to other secured parties. However, Pine must notify the debtor before the sale unless the collateral is perishable or threatens to decline in value.

Pine has a security interest in certain goods purchased by Byron on an installment contract. Byron has defaulted on the payments, resulting in Pine's taking possession of the collateral. Which of the following is correct?

The collateral may be sold by Pine at a private sale and, if the collateral is consumer goods, without notice to other secured parties. If the collateral is consumer goods, Pine may sell the collateral at a private sale without notice to other secured parties. However, Pine must notify the debtor before the sale unless the collateral is perishable or threatens to decline in value.

Pine has a security interest in certain goods purchased by Byron on an installment contract. Byron has defaulted on the payments, resulting in Pine's taking possession of the collateral. Which of the following is correct?

The collateral may be sold by Pine at a private sale and, if the collateral is consumer goods, without notice to other secured parties. This answer is correct. If the collateral is consumer goods, Pine may sell the collateral at a private sale without notice to other secured parties. However, Pine must notify the debtor before the sale unless the collateral is perishable or threatens to decline in value. Question 1 of 1prevnext

On March 13, Ike contracted with Turner for Turner to perform in Ike's club, exclusively, for four weeks beginning June 2 for $10,000 per week. Which of the following statements is correct?

The contract is governed by common law. Contracts for services are governed by common law.

Which of the following statements is true with regard to the Statute of Frauds?

The contract terms may be stated in more than one document .The Statute of Frauds sets forth requirements that must be met in order for a writing to be sufficient.These elements may be present in more than one document, with some in one document and some in another, so long as there is evidence that all documents are related to the same agreement.

Which of the following is required for a valid reaffirmation agreement?

The debtor must sign the reaffirmation agreement prior to filing it with the court. The Debtor must file the signed agreement in advance so that the court can review it as part of the process of awarding the decree to the debtor.

Which of the following might prevent a plaintiff investor from recovering from a defendant accountant in a Section 18(a) lawsuit?

The document containing the false statement was not filed with the SEC. The plaintiff did not read the false document. The defendant established that it acted in good faith and did not know of the error in the document.

Which of the following results in an automatic discharge of performance obligations under a contract?

The expiration of the statute of limitations. When suit can no longer be brought on the contract, the duties under the contract are discharged.

Marcross is an agent for Fashion Frocks, Ltd. As such, Marcross made a contract for and on behalf of Fashion Frocks with Sowinski Fabrics which was not authorized and upon which Fashion has disclaimed liability. Sowinski has sued Fashion on the contract asserting that Marcross had the apparent authority to make it. In considering the factors which will determine the scope of Marcross' apparent authority, which of the following would not be important?

The express limitations placed upon Marcross' authority which were not known by Sowinski. because a third person's reasonable interpretation of a principal's representations measures apparent authority. Express limitations on Marcross' authority, which were not known by Sowinski, are called secret limitations. These limitations do not alter an agent's apparent authority since the third party can assume there are no limits on the agent's normal authority unless informed to the contrary.

Which of the following defenses would a surety be able to assert successfully to limit the surety's liability to a creditor?

The incapacity of the surety. When a surety loses capacity, the surety can usually avoid liability. Many legal obligations are therefore extinguished, including obligations taken on as a surety.

In deciding a controversy involving the question of who has the risk of loss, the court will look primarily to

The intent of the parties manifested in the contract. the UCC rules concerning risk of loss only apply if the parties have not allocated risk of loss in their contract.

Jack Davis borrowed $360,000 from First Bank. First Bank required three sureties for the loan. The following parties agreed to act as a surety for Davis in the following amounts: Ames—$300,000, Barclay—$180,000, and Charles—$240,000. Which of the following statements is correct?

The liability of Ames, Barclay, and Charles exists upon default, and no notice of default is required. When parties agree to act as sureties, their obligation to pay results because of the default of the debtor. The creditor need not give notice of default. The creditor can, however, demand payment from any or all of the sureties.

Which of the following is not considered to be an advantage of the corporate form of doing business over the partnership form?

The managers in the corporation and shareholders have limited liability. A major advantage is that shareholders have limited liability, that is, typically limited to what they paid for the stock. However, managers do not have limited liability for their actions as managers. If a manager is also a shareholder, that person has limited liability for the ownership in the stock but can still be sued for misdeeds as a manager.

Dart Corp. engages Jay Associates, CPAs, to assist in a public-stock offering. Jay audits Dart's financial statements and gives an unqualified opinion, despite knowing that the financial statements contain misstatements. Jay's opinion is included in Dart's registration statement. Larson purchases shares in the offering and suffers a loss when the stock declines in value after the misstatements becomes known. In a suit against Jay and Dart under the Section 11 liability provisions of the Securities Act of 1933, Larson must prove that

The misstatements contained in Dart's financial statements were material. A Section 11 plaintiff does not have the burden of showing that defendants acted fraudulently or carelessly and need not establish reliance. The primary things that plaintiffs must show to win their Section 11 claims are that there was a material misstatement in the registration statement on the effective date; that they can trace their shares to that registration statement; and that they suffered damages.

Marglow Supplies, Inc. mailed a letter to Wilson Distributors on September 15, offering a 3-year franchise dealership. The offer stated the terms in detail and at the bottom stated that the offer would not be withdrawn prior to October 1. Which of the following is correct?

The offer cannot be assigned to another party by Wilson if Wilson chooses not to accept.

If a house burns down after two parties have made a contract for its purchase and sale,

The parties are discharged from performance on the contract Destruction of the subject matter is grounds for discharge.

A requirement of a private action to recover damages for violation of the registration requirements of the Securities Act of 1933 is that

The plaintiff has acquired the securities in question. This answer is correct because in order to establish damages under the Securities Act of 1933, the plaintiff must establish that he has acquired the securities in question. There is no requirement under the Act that fraud or negligence be proven as long as there is a misstatement of a material fact or the omission of a material fact present in the registration statement.

Which of the following conditions must be met to form an agency?

The principal must possess contractual capacity. The principal must have the ability to enter into contracts.

On July 8, Ace, a refrigerator wholesaler, purchased 50 refrigerators. This comprised Ace's entire inventory and was financed under an agreement with Rome Bank that gave Rome a security interest in all refrigerators on Ace's premises, all future acquired refrigerators, and the proceeds of sales. On July 12, Rome filed a financing statement that adequately identified the collateral. On August 15, Ace sold one refrigerator to Cray for personal use and four refrigerators to Zone Co. for its business. Which of the following statements is correct?

The refrigerator sold to Cray will not be subject to Rome's security interest. Even though the interest is perfected, Cray still gets to keep the refrigerator. A buyer in the ordinary course of business takes goods free from a security interest, even if the buyer has knowledge of the security agreement.

Under the Sales Article of the UCC, which of the following statements regarding liquidated damages is(are) correct? I. The injured party may collect any amount of liquidated damages provided for in the contract. II. The seller may retain a deposit of up to $500 when a buyer defaults even if there is no liquidated damages provision in the contract.

The seller may retain a deposit of up to $500 when a buyer defaults even if there is no liquidated damages provision in the contract Where the seller justifiably withholds delivery of goods and the buyer has made a deposit or payment and there is no liquidated damage clause, the seller may keep $500 or 20% of the purchase price, whichever is less.

Under the Sales Article of the UCC, when a contract for the sale of goods stipulates that the seller ship the goods by common carrier "F.O.B. purchaser's loading dock," which of the parties bears the risk of loss during shipment?

The seller, because risk of loss passes only when the goods reach the purchaser's loading dock. When the terms of a sale's contract calls for delivery by a carrier at F.O.B. purchaser's loading dock, "risk of loss" (in absence of express contract) passes from the seller to the buyer upon tender or delivery of the goods at the purchaser's loading dock. Thus, the seller has the risk during shipment.

In 1983, Dart bought an office building from Graco under a written contract signed only by Dart. In 2015, Dart discovered that Graco made certain false representations during their negotiations concerning the building's foundation. Dart could have reasonably discovered the foundation problems by 1989. Dart sued Graco claiming fraud in the formation of the contract. Which of the following statements is correct?

The statute of limitations would likely prevent Dart from prevailing because of the length of time that has passed.

Sec. 1244 stock permits shareholders to deduct an ordinary loss on sale or worthlessness of stock. Which of the following is correct with respect to qualifying for Sec. 1244 ordinary loss treatment?

The stock can be common or preferred, voting or nonvoting. In order to deduct an ordinary loss on sale or worthlessness of stock under Sec. 1244, (1) the shareholder must be the original holder of stock, and an individual or partnership; (2) the stock can be common or preferred, voting or nonvoting; (3) the amount of ordinary loss is limited to $50,000 ($100,000 on joint return); (4) the corporation during the 5-year period before the year of loss received less than 50% of its total gross receipts from royalties, rents, dividends, interest, annuities, and gains from sales or exchanges of stock or securities; and (5) the corporation's aggregate amount of money and adjusted basis of other property received for stock as a contribution to capital and paid-in surplus does not exceed $1,000,000.

Ted properly forms an LLP. The firm's consulting business is going well until (a) one of its clerical employees causes a wreck while driving on firm business in the firm car, and (b) the firm finds it has insufficient assets to pay for a piece of real estate it has contracted to buy. The LLP should protect Ted from personal liability for:

The tort lawsuit brought by the victim of the car accident. The breach of contract lawsuit brought by the seller of the real estate

The officers of West Corporation wish to buy some used equipment for West Corporation. The used equipment is actually owned by Parks, a director of West Corporation. For this transaction to not be a conflict of interest for Parks, which of the following is (are) required to be true? I.Parks sells the used equipment to West Corporation in a contract that is fair and reasonable to the corporation .II.Parks' ownership of the used equipment is disclosed to the shareholders of West who approve it by majority vote. III.Parks' ownership of the used equipment is disclosed to the board of directors, who approve it by a majority vote of the disinterested directors.

The transaction the director wishes to have with the corporation is not a conflict of interest if any one of the following is true. (1) The transaction is fair and reasonable for the corporation. (2) The shareholders are given the relevant facts and they approve it by a majority vote. (3) The board of directors are given the relevant facts and they approve it by a majority vote of the disinterested members of the board of directors.

An individual acquired 500 shares of stock on December 20, year 1, for a personal portfolio. On March 15, year 2, the individual executed a short sale of 500 shares of the stock. On December 21, year 2, the individual delivered the 500 shares to cover the short sale. Which of the following statements best characterizes the gain or loss on the short sale?

The transaction will be treated as a short-term capital asset sale. A short sale occurs when the taxpayer sells borrowed property and purchases the property later to repay the lender. The holding period is usually determined by how long the property used to close the short sale was held. A short sale against the box occurs when the taxpayer already owns substantially identical securities on the short sale date, as is the case in this problem. In that case, the holding period for the sale begins on December 20, year 1, and ends on March 14, year 2 (the short sale date). Therefore, the holding period is short-term. The stock is an investment, so any gain or loss is capital.

Under the Secured Transactions article of the UCC, when does a security interest become enforceable?

The value has been given, the secured party receives a security agreement describing the collateral authenticated by the debtor, and the debtor has rights in the collateral.

Ogden Corp. hires Thorp as a sales representative for nine months at a salary of $3,000 per month, plus 4% of sales. Which of the following statements is correct?

Thorp is obligated to act solely in Ogden's interest in matters concerning Ogden's business. Thorp is an agent, as he has been hired to act on Ogden's behalf by representing it. A primary duty of an agent is one of loyalty - an agent must act in his principal's interests and not his own when participating in matters affecting the principal's business.

Frey Products, Inc. leased 10 lathes from Tri Corp., a manufacturer of lathes. The lease provided for monthly payments of $2,000 per month for 60 months. Frey has an option to purchase the 10 lathes for $200 upon completion of the 60 payments. Tri has accounted for this lease as a sales-type lease and Frey has accounted for this lease as a capital lease. Assuming Frey exercises the option, which of the following statements is correct?

Title to the lathes passed to Frey prior to the time Frey exercised the option. because it is clear in this case (evidenced by the treatment of the lease as a capital lease and as a sales-type lease by the lessee and the lessor, respectively) that a sale of the lathes is intended. If there is no agreement as to when title passes, then title passes when the seller completes performance with respect to the physical delivery of the goods. Thus, title to the lathes passed at the time Frey delivered the lathes to Tri Corp. and prior to the time Frey exercised the option.

Under the Secured Transactions Article of the UCC, which of the following requirements is necessary to have a security interest attach? Debtor has rights in the collateral Proper filing of a security agreement Value given by the creditor

To create a security interest the creditor must give value, the debtor must have rights in the collateral, and the creditor must take possession of the collateral or obtain the agreement in a signed or authenticated writing by the debtor. Filing is not necessary to create an interest, it is only necessary to perfect an interest that has already been created.

For what purpose will a stockholder of a publicly held corporation be permitted to file a stockholder's derivative suit in the name of the corporation?

To recover damages from corporate management for an ultra vires management act. Shareholders can sue the corporation and its officers and directors for injuries done to them individually. Shareholders may also file derivative lawsuits against persons who have injured the corporation. A shareholder's derivative suit is so named because the shareholder is not suing for an individual injury done to him/her but, instead, for an injury done to the corporation. The shareholder stands in the proverbial shoes of the corporation to bring an action to remedy an injury done to it. A shareholder who sued to force payment of dividends, to enforce a right to inspect records, or to compel dissolution, would most likely be suing to redress an injury done to him/her individually. Such an injury is remedied through an individual lawsuit brought on the shareholder's own behalf, not a derivative lawsuit brought on the corporation's behalf. This is why Choices A, B, and C are not correct. However, an ultra vires act would likely injure the corporation itself, which is why it is the most logical candidate for a derivative suit and why Choice D is the best answer.

For a cash-basis taxpayer, gain or loss on a year-end sale of listed stock arises on the

Trade date. The holding period for stocks and securities acquired by purchase begins on the trade date that the stock or security was acquired and ends on the trade date on which the stock or security was sold or exchanged. Therefore, the gain or loss on a year-end sale of listed stock arises on the trade date.

Ames, claiming to be an agent of Clar Corporation, makes a contract with Trimon in the name of Clar Corporation. Later, Clar Corporation, for the first time, learns what Ames has done and notifies Trimon of the truth that Ames was not an agent of Clar Corporation. Which of the following statements is incorrect?

Trimon may enforce this contract even if Clar Corporation does not wish to be bound. Since Ames had no express, implied, or actual authority, Trimon cannot enforce the contract. Apparent authority is not present either; there are no facts present to show that Trimon was reasonable to believe Ames' unsubstantiated claim.

Ginnie of Ginnie's Gems purchased inventory for her jewelry store from Tristar Gold through a credit arrangement. Ginnie signed a security agreement with Tristar Gold on May 10, 2018. The security interest was given in her inventory. On May 3, 2018, Ginnie had obtained a line of credit with Bank of the East for the purchase of additional inventory. The inventory was being purchased from Gold Reflections and was a series of specially designed pieces that Gold Reflections would be manufacturing. The pieces were finished on May 31, 2018. Which of following statements is correct?

Tristar's security interest attached before Bank of the East's security interest. The security must be identified in order for a security interest to attach. Bank of the East, although having a signed agreement prior to Tristar, could not attach until May 31.

A debtor purchased an LCD television from BestBuy for $1,000. BestBuy financed the transaction. With finance charges, the total cost of the financing is $1,200. After the debtor has paid $600, he defaults on the payment and BestBuy repossesses the TV. BestBuy has decided to keep the TV as a floor display model. The debtor believes it would be best if BestBuy sold the TV.

Under Article 9, BestBuy must sell the TV. The debtor has paid 60% of the PURCHASE PRICE, so BestBuy must sell the TV.

Under the Revised Uniform Partnership Act, in which of the following cases will property be deemed to be partnership property? I.A partner acquires property in the partnership name. II.A partner acquires title to it in his/her own name using partnership funds. III.Property owned previously by a partner is used in the partnership business.

Under RUPA, partnership property not only in-cludes property purchased in the partnership name but also includes property purchased by a partner, who is an agent of the partnership, with partnership funds. Note that a partner may use property in the partnership business without it becoming partnership property.

Under the position taken by a majority of the courts, to which third parties will an accountant who negligently prepares a client's financial report be liable?

Under the position taken by a majority of the courts, to which third parties will an accountant who negligently prepares a client's financial report be liable? - Although the AICPA lists this as the correct answer, it is poorly worded. The majority view is the Restatement "limited class" approach, which generally allows recovery by third parties where the CPA had prior knowledge of the existence of a limited class of potential users (but not necessarily of their individual identities) and of the general purpose of their use of the audit. Prior knowledge is the key, so mere foreseeability is not enough, although this answer implies the contrary.

A debtor is in default. The collateral consists of 100 cows described in the security agreement. Thirty cows were stolen through no fault of the debtor. Which of the following statements is correct concerning the secured party's rights due to the debtor's default?

Upon default, the secured party can proceed to recover under the Uniform Commercial Code or proceed with any judicial remedy (such as get a judgment and levy on the debtor's non-exempt property). Upon the debtor's default, the secured party has the choice to proceed under the Uniform Commercial Code by taking possession of the 70 cows, either peacefully or through judicial process. The secured party can then either sell or, without objection, keep the collateral in full satisfaction of the debt. Alternately, the secured party can proceed to file suit, receive a judgment and levy on the non-exempt property of the debtor.

Bryce Whitman has entered into an agreement with Carl Foulger for Foulger to withdraw from running in the primary election in which they are opponents. Whitman has agreed to pay Foulger $93,000 to get out of the race. The agreement is in writing, and both have signed it. What type of contract is this?

Void. This a contract for payment of a bribe as well as public corruption. Despite the written agreement, the courts would not enforce the agreement because it violates public policy.

Sean Reckers has had a guardian appointed for him by a court. After the appointment, Sean entered into a contract with Reince Larabee for the purchase of Larabee's 400-acre ranch. The contract between Reckers and Larabee is

Void. - When one party has been declared incompetent by a court, neither side can enforce the contract and the courts do not honor it.

Petty Corp. makes a public offering subject to the Securities Act of 1933. In connection with the offering, Ward & Co., CPAs renders an unqualified opinion on Petty's financial statements included in the SEC registration statement. Huff purchases 500 of the offered shares. Huff brings an action against Ward under Section 11 of the Securities Act of 1933 for losses resulting from misstatements of facts in the financial statements included in the registration statement. Ward's weakest defense would be that

Ward was not in privity of contract with Huff. This is no defense at all. Privity of contract is absolutely not required in a Section 11 action

Ritz hired West for 6 months as an assistant sales manager at $4,000 a month plus 3% of sales. Which of the following is correct?

West must disclose any interests he has which are adverse to Ritz in matters concerning Ritz's business. As a fiduciary to the principal, an agent must act in the best interest of the principal. Therefore, the agent has an obligation to refrain from competing with or acting adversely to the principal, unless the principal knows and approves of such activity.

Under the UCC Secured Transactions Article, if a debtor is in default under a payment obligation secured by goods, the secured party has the right to Peacefully repossess the goods without judicial process Reduce the claim to a judgment Sell the goods and apply the proceeds toward the deb

When a debtor defaults, the secured creditor may repossess the collateral on its own so long as the repossession is done without disturbing the peace. The secured party may use a court proceeding to have the amount of its claim reduced to a judgment and by a writ of execution levy on the nonexempt property of the debtor. Once the collateral has been recovered, the secured party may sell the goods in a commercially reasonable manner to recover the debt owed.

When do title and risk of loss for conforming goods pass to the buyer under a shipment contract covered by the Sales Article of the UCC?

When the goods are given to a common carrier. When there is a shipment contract, the obligation of the seller is to place the goods in the hands of a carrier to be delivered to the buyer. The risk of loss passes (FOB place of shipment) when the goods are delivered to the carrier.

Link Corp. is subject to the reporting provisions of the Securities Exchange Act of 1934. Which of the following reports must also be submitted to the SEC? Report by any party making a tender offer to purchase Link's stock Report of proxy solicitations by

When there is a proxy solicitation, Link must make a report of this to the SEC. Also, reports of tender offers to purchase securities need to be submitted to the SEC.

Wick Company made a contract in writing to hire Zake for five years for $150,000 per year. After two years, Zake asked Wick for a raise of $20,000 per year. Wick at first refused but agreed to pay Zake a $60,000 bonus after Zake completed the fifth year of work. Zake put some pressure on Wick to get Wick to agree to these terms. After the fifth year, Zake left and demanded Wick pay Zake the $60,000 bonus and Wick refused. Zake sued Wick for the $60,000 bonus. Who wins?

Wick, even though Wick agreed to the bonus. Both Zake and Wick had a contract that was binding for five years. For them to modify this contract, both of them must give new consideration under common law rules which apply to employment contracts such as this one. When Wick agreed to the bonus, only Wick gave new consideration in the form of $60,000. Zake did not give new consideration because he would perform in the last three years as originally agreed. Question 15 of 18

Andrea Selznick is an auditor with Wilmer Tate. Andrea has been assigned to conduct the audit at Celestial Herbal Teas, Inc. Andrea is working on site and has been driving from her home directly to Celestial without stopping at Wilmer Tate's offices. One morning on her way to Celestial for the day, Andrea ran a red light, striking and disabling a school bus with resulting injuries for the driver of the bus and most of the children on board. Who could be held liable for the accident?

Wilmer Tate and Andrea only Andrea is in a master-servant relationship with Wilmer Tate and was in the scope of employment, traveling to an offsite work locati

On July 1, Silk, Inc. sent Blue a telegram offering to sell Blue a building for $80,000. In the telegram, Silk stated that it would give Blue 30 days to accept the offer. On July 15, Blue sent Silk a telegram that included the following statement: "The price for your building seems too high. Would you consider taking $75,000?" This telegram was received by Silk on July 16. On July 19, Tint made an offer to Silk to purchase the building for $82,000. Upon learning of Tint's offer, Blue, on July 27, sent Silk a signed letter agreeing to purchase the building for $80,000. This letter was received by Silk on July 29. However, Silk now refuses to sell Blue the building. If Blue commences an action against Silk for breach of contract, Blue will

Win, because Blue effectively accepted Silk's offer of July 1. because Blue effectively accepted Silk's offer to sell prior to the termination of the offer. Normally, a counteroffer terminates an offer when communicated to the offeror. However, Blue's inquiry into the selling price on July 15 did not constitute a counteroffer since it was merely a request for different terms. Thus, the offer remained open beyond July 15. Also, Blue's knowledge of Tint's offer to purchase the building did not serve as a revocation of Silk's offer. Therefore, the offer to sell the building remained open until acceptance by Blue on July 29.

In September, Cobb Company contracted with Thrifty Oil Company for the delivery of 100,000 gallons of heating oil at the price of $.75 per gallon at regular specified intervals during the forthcoming winter. Due to an unseasonably warm winter, Cobb took delivery on only 70,000 gallons. In a suit against Cobb for breach of contract, Thrifty will

Win, because the change of circumstances could have been contemplated by the parties. The contract entered into by Cobb Company with Thrifty Oil Company was a valid contract for a specified quantity of heating oil. Therefore, Cobb is obligated to purchase the entire 100,000 gallons from Thrifty as agreed upon in the contract. The fact that there was an unseasonably warm winter will not change Cobb's obligation to Thrifty since this was a change of circumstances which could be foreseen by the parties.

Ted buys Synchotic Corporation shares based on Synchotic's announcement of record earnings. But just a few days later, on July 1, 2010, Synchotic admits that its earnings had been artificially inflated via fraudulent earnings management. Its stock price drops dramatically that day, and Ted makes a significant loss. Ted wishes to bring a 1934 Act securities-fraud lawsuit against Synchotic. In terms of the statute of limitations, when must Ted bring his lawsuit?

Within two years of when he should have discovered the fraud and within five years of the fraud. This answer is correct because it uses the correct statute of limitations (2yr/5yr, rather than 1yr/3yr), and notes properly that the plaintiff must meet both deadlines.

Which of the following methods will allow a creditor to collect money from a debtor's wages?

Writ of garnishment. This action, if ordered by a court, will deduct sums directly from a paycheck. State laws generally limit the amount that can be deducted to around 25% of a debtor's after-tax wages.

XYZ Corporation classified large numbers of its workers as independent contractors, but in litigation brought by the IRS, the court held that they were actually employees who had been deprived of their rightful benefits. Which of the following is likely true if XYZ's classification was erroneous, but not intentional

XYZ's unintentional error will probably not be punished if its decision had a reasonable basis within the meaning of the safe harbor that exists of these decisions. If XYZ can fit itself within the safe harbor by proving that it had a reasonable basis for its classification, perhaps one based on an IRS letter ruling, it will probably not be punished.

Under the UCC Secured Transactions Article, which of the following after-acquired property may be attached to a security agreement given to a secured lender? Inventory or Equipment?

YES -Inventory YES -Equipment The debtor may give a security interest in either inventory or equipment that the debtor has rights to and the security agreement can also provide that this security interest applies to any inventory or equipment the debtor acquires in the future.

Which of the following generally may ratify a contract that was agreed to by his/her agent without authority from the principal? Fully disclosedprincipal Partially disclosedprincipal Undisclosedprincipal

Yes - Fully disclosed principal Yes - Partially disclosed principal No - Undisclosedprincipal When the third party is aware that there is a principal, that principal, fully disclosed or partially disclosed, may generally ratify the contract when he or she is aware of all material facts and if ratification of the entire contract takes place. Since a third party would not know of the existence of an undisclosed principal, ratification is not possible in that circumstance.

Under the "Ultramares" rule, to which of the following parties will an accountant be liable for negligence?

Yes - Parties in privity No - Foreseen parties The "Ultramares" rule, established in a 1931 case of the same name, requires privity before an accountant is liable for negligence. Other rules, such as the Restatement rule, allow foreseeable users who rely on a negligently false statement to sue.

Wine purchased a computer using the proceeds of a loan from MJC Finance Company. Wine gave MJC a security interest in the computer. Wine executed a security agreement and financing statement, which was filed by MJC. Wine used the computer to monitor Wine's personal investments. Later, Wine sold the computer to Jacobs for Jacobs' family use. Jacobs was unaware of MJC's security interest. Wine now is in default under the MJC loan. May MJC repossess the computer from Jacobs?

Yes, because MJC's security interest was perfected before Jacobs' purchase A buyer is protected from a secured party's security interest if the buyer buys an item in the regular course of the seller's business. Here, Jacobs bought the machine from Wine for personal use. Nothing indicates that Wine normally sells computers, and, thus, Jacobs is a buyer not in the ordinary course of business of consumer goods.Although Jacobs purchased (for value) the computer for personal use without knowledge of MJC's security. MJC's perfection by filing (not by attachment) gave MJC priority to repossess the computer.

On April 1, Roe borrowed $100,000 from Jet to pay Roe's business expenses. On June 15, Roe gave Jet a signed security agreement and financing statement covering Roe's inventory. Jet immediately filed the financing statement. On July 1, Roe filed for bankruptcy. Under the Bankruptcy Code, can Roe's trustee in bankruptcy set aside Jet's security interest in Roe's inventory?

Yes, because Roe giving the security interest to Jet created a voidable preference This answer is correct since preferential transfers include those made within the previous ninety days while insolvent and include those made for antecedent debts including a security interest given by a debtor to secure antecedent debts.

On April 1, Roe borrowed $100,000 from Jet to pay Roe's business expenses. On June 15, Roe gave Jet a signed security agreement and financing statement covering Roe's inventory. Jet immediately filed the financing statement. On July 1, Roe filed for bankruptcy. Under the Bankruptcy Code, can Roe's trustee in bankruptcy set aside Jet's security interest in Roe's inventory

Yes, because Roe giving the security interest to Jet created a voidable preference. This answer is correct since preferential transfers include those made within the previous ninety days while insolvent and include those made for antecedent debts including a security interest given by a debtor to secure antecedent debts.

When CPAs fail in their duty to carry out their contracts for services, liability to clients may be based on

Yes: Breach of contract No: Strict liability When a CPA fails to carry out his/her obligations under a contract for services, the CPA may be held liable based on breach of contract but not strict liability. The theory of strict liability is used in some product liability cases but is not applicable when deciding the liability of the CPA. Question 12 of 23

Where the parties have entered into a written contract intended as the final expression of their agreement, which of the following agreements will be admitted into evidence because they are not prohibited by the parol evidence rule?

Yes: Subsequent oral agreements No: Prior written agreements The parol evidence rule will not allow evidence of prior agreements to be admitted as evidence. If a contract is established as a final expression of an agreement or a "total integration," it is assumed that anything not in the final, written contract was not intended to be a part of the agreement. The rule does allow evidence of agreements made after the contract was signed, as such agreements would not have naturally been included in a final agreement.

duty to indemnify

a principal owes a duty to indemnify the agent for any losses the agent suffers because of the principal's conduct

The right of replevin

has to do with recovering identified property that is being improperly held by the seller when the buyer cannot find another seller. Eagle cannot use the remedy of replevin because the units were not identified to the contract with Eagle.

Which of the following liens generally require(s) the lienholder to give notice of legal action before selling the debtor's property to satisfy the debt?

mechanic's lien, one based on improvements to real property that have not been paid for, requires the holder to give notice before selling the property. An artisan's lien, one based on amounts unpaid for work done on personal property, also requires notice be given before sale of the property.

Following the formation of a corporation, which of the following terms best describes the process by which the promoter is released from, and the corporation is made liable for, pre-incorporation contractual obligations?

novation The general rule is that promoters are liable on pre-incorporation contracts that they negotiate on the corporation's behalf. When the corporation comes into existence and adopts the contracts, the general rule is that both the promoter and the corporation are now liable under them. However, if the other party agrees to release the agent from liability and to look only to the corporation for satisfaction, then a novation has taken place.

executory contract

one not fully performed. Neither party has performed their part of the contract.

Mullin, a director of Royal Corporation, wishes to sell a plot of land to the corporation. She is willing to sell the land for the fair market value but is concerned about a potential conflict of interest as a director dealing directly with her own corporation. Which of the following is(are) the minimum steps necessary for Mullin to not have a conflict of interest as director of Royal corporation? I.She sells the plot of land to Royal in a fair and reasonable transaction for the corporation at the fair market value II.She discloses her ownership in the land to the board of directors and the board approves the transaction. III.She discloses her ownership in the land to the shareholders and a majority approves it.

only 1. She sells the plot of land to Royal in a fair and reasonable transaction for the corporation at the fair market value it is sufficient that the transaction be a fair and reasonable transaction for the corporation at the fair market value. Actually, statement III by itself would also be sufficient, but this was not one of the choices. Question 16 of 18

Specific performance only.

specific performance is available as a remedy for a contract breach only when the goods are rare, unique, or specially manufactured for the buyer. For a computer, and there are hundreds of brands, specific performance would not be available.

Which of the following statements is true of professional corporations under the various state laws? I.The professionals in the corporation have personal liability for their professional acts.II.Normally under state laws, only licensed professionals are permitted to own shares in professional corporations.

under state laws, only licensed professionals may own shares in professional corporations. Furthermore, the licensed professionals retain personal liability for their professional acts in the professional corporation.

Which of the following actions between a debtor and its creditors will generally cause the debtor's release from its debts?

yes - composition of Creditors No - Assignment for benefit of creditors A composition of creditors occurs when creditors make an agreement with each other to accept less than the full debts as full satisfaction of those debts. Once the debtor performs under the agreement, the debts are discharged, so this generally causes a release of the debtor from its debts. However, an assignment for the benefit of creditors does not generally cause the release of the debtor from it debts. In this case the creditors do not have to agree to the assignment. The debtor assigns its assets to a trustee who sells the assets for cash. The cash is then paid out to creditors who agree to accept a stipulated amount to release their claims. The assignment itself, however, does not cause the claims to be released because at that point the creditors have not agreed to do so. Question 5 of 18prevnext

Which of the following burdens of proof must be met when a disclosed position regarding a particular individual deduction is evaluated to determine whether it was taken in good faith.

≥ 20% chance of being sustained This "reasonable basis" standard applies to disclosed positions.