Business Law Practice Exam (Intermediate Level) Part- III

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1. Dee, an accountant, does not work for Emergent Company, but wrongfully obtains inside information concerning Emergent. Based on the information, Dee buys and sells Emergent stock for personal gain. The Securities and Exchange Commission prosecutes Dee, arguing that she is liable because she stole information rightfully belonging to another. This argument is

Explanation

The misappropriation theory is the correct answer because it refers to the act of wrongfully obtaining and using confidential information for personal gain, even if the person obtaining the information does not have a fiduciary duty to the company. In this case, Dee, as an accountant, wrongfully obtained inside information about Emergent Company and used it to buy and sell their stock for personal gain. The Securities and Exchange Commission is prosecuting Dee based on the misappropriation theory, arguing that she stole information that rightfully belonged to another.

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About This Quiz
Business Law Practice Exam (Intermediate Level) Part- III - Quiz

This intermediate-level exam in Business Law, Part-III, focuses on secured transactions. It assesses understanding of secured transactions, collateral, financing statements, and the sale of collateral. Essential for learners... see moreaiming to grasp the intricacies of business law. see less

2. To acquire the ownership of a mountain cabin by adverse possession, Cody must occupy the cabin exclusively, continuously, and peaceably for a specified period of time

Explanation

Cody must occupy the mountain cabin in an open, hostile, and adverse manner in order to acquire ownership through adverse possession. This means that Cody must openly and visibly occupy the cabin, without the owner's permission, and in a manner that is hostile to the owner's rights. Cody must also occupy the cabin continuously and exclusively for a specified period of time, until the owner files a suit. The state's permission is not required for adverse possession.

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3. Superior powers is a corporation. Superior's implied powers enable it to:

Explanation

Superior's implied powers allow it to perform any actions that are reasonably appropriate and necessary to achieve its corporate goals. This means that the corporation has the authority to take any actions that are deemed necessary for the success and functioning of the company, even if these actions are not explicitly stated in its articles of incorporation. These implied powers give Superior the flexibility to adapt and make decisions that may not have been anticipated when the articles of incorporation were created.

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4. Mari buys 500 shares of common stock in N.L.T. As a shareholder of record, Mari owns a proportionate interest in terms of:

Explanation

As a shareholder of record, Mari owns a proportionate interest in terms of control, earnings, and net assets. This means that Mari has a say in the decision-making process of the company (control), is entitled to a portion of the company's profits (earnings), and has a claim on the company's assets (net assets).

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5. Fact Pattern 26-2 Sid a director of Tech Software Company learned that Sid a Tech engineer has developed a new exciting video game.  Sid buys tech stock and tells his friend Uri who also buys tech stock.  When the new game is released three weeks later, Sid and Uri sell their stock for a big profit.   Refer to fact pattern 26-2, Regarding Sid's profits on the purchase and sale of tech stock under section 16(b) of the Securities Exchange Act of 1934, Tech may recapture

Explanation

Under section 16(b) of the Securities Exchange Act of 1934, Tech may recapture all of Sid's profits. This is because section 16(b) requires insiders, such as directors, to disgorge any profits made from buying and selling company stock within a six-month period. In this case, Sid bought the tech stock and sold it for a big profit within three weeks, making him an insider who is subject to the provisions of section 16(b). Therefore, Tech has the right to recapture all of Sid's profits.

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6. FACT PATTERN 23-2: Luann and Mace are partners in Networx, a computer peripherals firm. Refer to fact pattern 23-2. Luann signs a contract with Oleo Chips, a retail component supplier, apparently on Networx's behalf. The contract is binding on:

Explanation

Luann, Mace, and Networx are all bound by the contract with Oleo Chips. This is because Luann signed the contract apparently on behalf of Networx, indicating that she had the authority to bind the partnership. As partners in Networx, both Luann and Mace are responsible for the actions and obligations of the partnership, including contracts entered into by one partner on behalf of the partnership. Therefore, all three parties are bound by the contract.

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7. Heavy Hauling, Inc. is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that Heavy Hauling's financial results are accurate and timely, the firm's senior officers must set up and maintain

Explanation

The correct answer is internal "disclosure controls and procedures". Under the Sarbanes-Oxley Act of 2002, public companies like Heavy Hauling, Inc. are required to establish and maintain effective internal controls over financial reporting. These controls are designed to ensure that the company's financial statements are accurate and reliable. Disclosure controls and procedures refer to the processes and systems that are put in place to ensure that all relevant information is properly disclosed to investors and regulatory authorities in a timely manner. This helps to promote transparency and accountability in the company's financial reporting.

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8. Clark is a shareholder of Bedrest Mattress Company. Clark will be deemed to have fiduciary duty to Bed rest and its minority shareholders if he has

Explanation

If Clark has a sufficient number of shares to exercise de facto control, it means that he holds enough shares to have significant influence over the company's decisions and operations. This would imply that he has a higher level of responsibility towards the company and its minority shareholders, as he has the power to make important decisions that can affect their interests. Therefore, Clark would be deemed to have fiduciary duty to Bedrest and its minority shareholders in this scenario.

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9. Orin owns Pilot's Landing Office Park. His ownership rights include the right to sell or give away the property without restriction, as well as the right to commit waste, if she chooses. Orin's ownership interest is

Explanation

Orin's ownership interest is a fee simple absolute. This means that Orin has complete and unrestricted ownership rights over the Pilot's Landing Office Park. He has the right to sell or give away the property as he wishes, and he also has the right to commit waste, which means he can use or abuse the property in any way he sees fit. A fee simple absolute is the highest form of ownership interest one can have in real property.

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10. Carl sells Direct Marketing Enterprises, a sole proprietorship, to Eve. This a transfer of

Explanation

The transfer of Direct Marketing Enterprises from Carl to Eve implies a transfer of ownership of the business. This means that Carl is selling his rights, assets, and liabilities associated with the business to Eve, making her the new owner of the sole proprietorship.

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11. Felipe is a member of Great States Transportation LLC. Felipe's relationship to Great States ends, but the firm continues to do business. This is

Explanation

Dissociation is the correct answer because it refers to the situation where a member of a limited liability company (LLC) leaves or has their relationship with the company terminated, but the LLC continues to operate and conduct business. In this scenario, Felipe's relationship with Great States Transportation LLC ends, but the company itself continues to function and carry out its operations.

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12. Denise borrows $90,000 from Clear Lake Credit Union to buy a home. Denise loses her job and fails to make payments, but assures Clear Lake Union that she will secure a new job. The lender agrees to postpone the payments. This is

Explanation

Forbearance is the correct answer because it refers to an agreement between a borrower and a lender where the lender agrees to temporarily suspend or reduce the borrower's monthly payments due to financial hardship. In this case, Denise lost her job and was unable to make payments, but the lender agreed to postpone the payments until she secured a new job. This demonstrates forbearance as the lender is showing leniency and understanding towards Denise's situation.

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13. Delite Candy Company hires Elton to sell Delite's products in a certain area. Delite agrees to pay Elton a salary, plus commission, for a trial period. They also agree that Elton can sell using any methods and during any hours that seem appropriate. The key factor in whether Elton is Delite's employee is

Explanation

The key factor in determining whether Elton is Delite's employee is the control that Delite has over the details of the work. This means that if Delite has the authority to dictate how and when Elton sells the products, then Elton would be considered an employee. The amount of salary, the length of the trial period, and the title are not the determining factors in this case.

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14. Maple Products Corporation is a public company, which New Hampshire regulates and in which Orin invests. The Sarbanes-Oxley-Act of 2002 introduced direct federal corporate governance requirements to

Explanation

The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements to public companies. This means that the Act imposes regulations and standards specifically on publicly traded companies like Maple Products Corporation. It does not apply to private investors or state regulators, as they are not subject to the same level of federal oversight and regulations. Therefore, the correct answer is public companies.

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15. Filtration Products, Inc., files a suit against Emmett may be held liable

Explanation

If Filtration Products, Inc. cannot prove actual fraud, they may still hold Emmett liable if he was grossly negligent in the performance of his duties. This means that if Emmett displayed a severe lack of care or competence in carrying out his responsibilities, he can be held accountable for any resulting damages or losses. The key factor here is the level of negligence, rather than intentional fraudulent behavior or impersonation.

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16. Zero Sums Game Corporation has 43 shareholder. The minimum number that must be present at a meeting for a shareholders vote is

Explanation

A quorum is the minimum number of members required to be present at a meeting in order to conduct official business. In this case, since Zero Sums Game Corporation has 43 shareholders, the minimum number required for a shareholder vote would be a quorum. This means that not all shareholders need to be present, but rather a specific number that is determined by the company's bylaws or governing documents.

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17. Bakri owns a house. In the house, on a tile floor is a throw rug. Most likely to meet the definition of a fixture is

Explanation

The tile floor is most likely to meet the definition of a fixture because fixtures are typically considered permanent attachments to a property. The tile floor is permanently attached to the house and is not easily removable, unlike the throw rug which can be easily taken out of the house. Therefore, the tile floor is the most likely choice to meet the definition of a fixture in this scenario.

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18. Jim organized, and owns and operates, Jim's Landscaping Service in the simplest form of business organization. This is

Explanation

The given answer is a sole proprietorship because the description states that Jim owns and operates the business. In a sole proprietorship, the owner has complete control and is solely responsible for the business. This form of business organization is the simplest and most common, where the owner has unlimited liability for the business's debts and obligations.

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19. Ivy and Justin want to form and do business as Kayak Adventures Corporation. A corporation can be owned by

Explanation

A corporation can be owned by both artificial and natural persons. This means that individuals as well as other legal entities, such as other corporations or organizations, can have ownership in a corporation. This allows for a diverse range of ownership and investment opportunities in the corporation, promoting business growth and development.

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20. Ozzy is an officer of Prudent Financial Corporation. Ozzy serves in a representative capacity for Prudent Financial's owners. With respect to binding Prudent Financial to Contracts, Ozzy is

Explanation

Ozzy is an agent of Prudent Financial Corporation because he serves in a representative capacity for the company's owners. As an agent, he has the authority to bind Prudent Financial to contracts.

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21. Research statistics corporation uses a merit system to pay its employees according to their job performance. Suki, a female and Troy a male are research employees with comparable jobs. Due to superior performance Suki is paid more than Troy. This is

Explanation

This situation is not discrimination because the employees are being paid based on their job performance, not their gender. Suki is being paid more than Troy because she has demonstrated superior performance, regardless of her gender. Discrimination would occur if Suki was being paid more than Troy solely because she is a female, without considering their job performance. However, in this case, the merit system is being used to determine pay, which is a fair and non-discriminatory approach.

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22. Jamie, an accountant, contracts to perform services for Kase. Jamie acts in good faith and conforms to generally accepted accounting principles, but makes a mistake in judgement. Jamie is most likely

Explanation

Jamie, as an accountant, has acted in good faith and followed generally accepted accounting principles. However, Jamie made a mistake in judgment. In this scenario, Jamie is not liable because making a mistake in judgment does not automatically make someone liable for any resulting consequences. Liability would typically arise if Jamie had acted negligently, breached a duty of care, or failed to fulfill professional responsibilities. Since Jamie acted in good faith and followed accepted principles, the mistake in judgment does not make Jamie liable.

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23. The United States taxes each barrel of imported oil at a flat rate. This is

Explanation

The correct answer is a tariff. A tariff is a tax imposed on imported goods, in this case, each barrel of imported oil. It is a common trade policy measure used by governments to protect domestic industries, regulate trade, and generate revenue. Unlike antidumping duties, which are specific to unfair trade practices, or quotas, which limit the quantity of imports, a flat rate tax on imported oil is best described as a tariff.

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24. Fabiola, or any foreign citizen, can bring a civil suit in a U.S. court for

Explanation

Foreign citizens, including Fabiola, have the right to bring a civil suit in a U.S. court for a violation of a treaty of the United States or of the law of nations. This means that if there is a breach of a treaty between the United States and another country, or if there is a violation of customary international law, Fabiola can seek legal recourse in a U.S. court. This allows foreign citizens to seek justice and protection under international law within the U.S. legal system.

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25. Iggy hires Joy to act as his agent to purchase Kup-a-Koffee Kompany. Iggy tells Joy to reveal only that she is buying the firm on behalf of a third party without telling the Kup-a-Koffee seller who that third party is. Iggy is

Explanation

In this scenario, Iggy is considered a partially disclosed principal. This is because Iggy has disclosed to Joy that he is the buyer of Kup-a-Koffee Kompany, but he has not disclosed the identity of the third party on whose behalf he is purchasing the firm. The seller of Kup-a-Koffee Kompany is aware that there is a third party involved, but does not know who that third party is. Therefore, Iggy's status as the principal is partially disclosed.

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26. Rona is Stu's administrative assistant and both work for Tricounty Labor Inc. Stu tells Rona that for sexual favors, he will give her an excellent performance review and recommend a raise. this is

Explanation

The given scenario describes a situation where Stu, Rona's superior, offers her a positive performance review and a raise in exchange for sexual favors. This aligns with the concept of quid pro quo-harassment, which refers to a form of sexual harassment where employment benefits or opportunities are conditioned upon the submission to or rejection of unwelcome sexual advances. In this case, Stu is using his position of power to exploit Rona and create a hostile work environment.

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27. Sherman dies without a will, survived by his granddaughter Roxy and Roxy's brother Pio. Roxy and Pio are Sherman's

Explanation

Sherman's granddaughter Roxy and Roxy's brother Pio are referred to as lineal descendants. Lineal descendants are the direct blood relatives of an individual, such as children, grandchildren, or great-grandchildren. In this case, Roxy and Pio are Sherman's grandchildren, making them his lineal descendants. Since Sherman died without a will, Roxy and Pio may have a claim to his estate as his lineal descendants.

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28. Leslie, an accountant, enters into a contract to provide services to Marty. Leslie does not finish the work within the contracts deadline. Leslie is

Explanation

Leslie, as an accountant, entered into a contract with Marty to provide services. However, Leslie failed to complete the work within the agreed-upon deadline. This constitutes a breach of contract, as Leslie did not fulfill their obligation within the specified timeframe. Being a professional does not exempt Leslie from liability in this situation, as professionals are still expected to fulfill their contractual obligations. Additionally, the fact that the work took longer than anticipated does not absolve Leslie of their responsibility to complete the work within the agreed-upon timeframe. Therefore, Leslie is liable for breach of contract.

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29. Grover Nut Company files a suit against Hud, its former accountant, alleging actual fraud. Grover must prove

Explanation

To successfully prove actual fraud against Hud, Grover Nut Company needs to establish the intent to deceive on Hud's part. Intent to deceive means that Hud intentionally acted with the purpose of misleading or tricking Grover. This requires demonstrating that Hud had a conscious desire to deceive Grover and knowingly made false statements or engaged in deceptive conduct. Simply proving misrepresentation of a non-material fact, the lack of an injury, or unjustifiable reliance alone would not be sufficient to establish actual fraud.

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30. Reed borrows $150,000 dollars from Suburban Credit Union to buy a home, which secures the loan. Three years later, reed stops making payments. After suburban credit repossesses and auction off the property to Tyler equity remains. This amount most likely belongs to

Explanation

The correct answer is Reed because the question states that Reed borrowed the money from Suburban Credit Union and used the property as collateral for the loan. Therefore, any remaining equity after the property is auctioned off would belong to Reed.

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31. Office company and Keep company wish to combine all assets, stock, and personnel into a new firm called OK corp. This is

Explanation

The correct answer is consolidation. In this scenario, both Office company and Keep company are combining their assets, stock, and personnel to form a new firm called OK corp. This process of combining and integrating resources from multiple entities into one is known as consolidation.

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32. Beth is an accountant with coffee sales corp. Doral buys coffee sales stock and loses money on the investment. To recover from Beth under SEC 10(b) of the Sales Exchange Act of 1934 and SEC Rule 10b-5, Doral must prove

Explanation

Doral must prove scienter, fraud, reliance, materiality, and causation only in order to recover from Beth under SEC 10(b) of the Sales Exchange Act of 1934 and SEC Rule 10b-5. This means that Doral must show that Beth had knowledge of the false information, that Beth intentionally deceived Doral, that Doral relied on Beth's false information, that the false information was significant enough to affect Doral's decision to invest, and that Doral suffered financial loss as a result of Beth's actions.

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33. Seth files for bankruptcy. Seth must include with the petition

Explanation

When filing for bankruptcy, it is necessary for Seth to include a list of creditors and the amount of debt owed to each. This is important because it allows the court to have a clear understanding of Seth's financial obligations and helps in the process of determining how the debts will be handled during the bankruptcy proceedings. Including this information ensures transparency and provides a comprehensive overview of Seth's financial situation to the court.

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34. Lucky owns Mud Flats Ranch, which is situated on certain Nevada acreage. The exterior boundaries of the land extend

Explanation

The correct answer is "to the center of the earth and up to the farthest reaches of the atmosphere." This means that Lucky owns the land from its deepest point in the earth's core to the highest point in the atmosphere. This implies that Lucky has complete ownership and control over the entire area, including both the surface and the space above and below it.

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35. The payment of Eden's debt to Flem is guaranteed by Eden's personal property.  This property is

Explanation

The correct answer is collateral because collateral refers to a valuable asset or property that is used to secure a loan or debt. In this case, Eden's personal property is being used as a guarantee for the payment of their debt to Flem. By using their personal property as collateral, Eden ensures that Flem has a form of security in case they fail to repay the debt.

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36. Mountain Mining Company, a U.S. firm, owns property in Bolivia. The government of Bolivia seizes the property for an illegal purpose without paying just compensation. This is

Explanation

The given scenario describes the government of Bolivia seizing the property of the U.S. firm, Mountain Mining Company, without providing any compensation. This action is referred to as confiscation, which is the act of taking someone's property without any legal authority or justification. It is different from defalcation, which refers to embezzlement or misappropriation of funds, and dumping, which refers to selling goods in a foreign market at a price lower than the cost of production. Expropriation, on the other hand, involves the government taking over private property for a public purpose but with compensation.

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37. Doral, Eduard, and Francesca are co-sureties on Glenda's debt to Hi-Credit Company. Doral Pays Glenda's entire debt. Doral's right to seek proportionate payments from Eduard and Francesca is the right of

Explanation

Doral, Eduard, and Francesca are co-sureties, which means they are all equally responsible for Glenda's debt. Doral pays off the entire debt on Glenda's behalf, but this does not absolve Eduard and Francesca of their responsibility. Doral has the right to seek proportionate payments from Eduard and Francesca, as they should contribute their fair share towards the debt. This right to seek proportionate payments is known as the right of contribution.

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38. Elle is an agent for Fine Cosmetics, INC. Elle owes Fine Cosmetics the duty of

Explanation

As an agent for Fine Cosmetics, INC, Elle is obligated to fulfill her duties and responsibilities towards the company. This includes carrying out her tasks and responsibilities to the best of her abilities, meeting performance expectations, and achieving the desired results. Performance is crucial for Elle as it ensures that she is actively working towards the success of Fine Cosmetics and fulfilling her obligations as their agent.

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39. Lather Up Soap Products Company grants its agent Kathy an exclusive territory in which to sell Lather Up products.  The firm cannot compete with Kathy in that territory under the principal's duty of

Explanation

The correct answer is cooperation. The principal's duty of cooperation means that the firm cannot compete with Kathy in her exclusive territory. Cooperation implies that the principal supports and assists the agent in their sales efforts, rather than engaging in competition within the same market.

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40. Caffine Cafe, Inc., files its articles of incorporation with the appropriate government agency. Least likely to appear in the articles is the name of:

Explanation

The articles of incorporation typically include important information about the corporation, such as its name, purpose, registered agent, and initial shareholders. However, the least likely to appear in the articles is the name of each of the corporation's shareholders. While the shareholders are important to the operation of the corporation, their names are not typically required to be included in the articles of incorporation. The articles primarily focus on the legal and structural aspects of the corporation rather than the individual shareholders.

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41. Fact Pattern 26-3 Dhani, an accountant for Eureka, learns of undisclosed company plans to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He reveals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu. Both Geoff and Hu buy 100 shares. They know that Fey got her information from Dhani. When Eureka publicly announces it's new laptops Dhani, Fey, Geoff, and Hu sells their stock for a profit.  Refer to fact pattern 26-3, under the Security Exchange Act of 1934, Hu is most likely

Explanation

Hu is most likely liable for insider trading. This is because Hu received insider information from Geoff, who in turn received it from Fay, who received it from Dhani. Hu is considered a tippee, someone who receives insider information from an insider (Geoff) and trades based on that information. The Security Exchange Act of 1934 prohibits trading on material non-public information, and Hu's actions fall under this definition. Therefore, Hu can be held liable for insider trading.

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42. Energy Green LLC, is a limited liability company. Instead of distributing its profits to its members, Energy wants to reinvest the profits in its business. For this reason Energy may prefer to be taxed as:

Explanation

Energy Green LLC may prefer to be taxed as a corporation because it wants to reinvest its profits in its business. As a corporation, Energy Green LLC can retain its profits and use them for business expansion, research and development, or other investment opportunities without having to distribute them to its members. This allows the company to have more flexibility and control over its financial resources, enabling it to grow and thrive in the long term.

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43. Felicity and Gideon want to form and do business as Home Healthcare Corporation. A corporation is

Explanation

A corporation is considered an artificial person because it is a legal entity separate from its owners or shareholders. It has its own rights, obligations, and liabilities, just like a natural person. This legal concept allows corporations to enter into contracts, own property, sue or be sued, and engage in various business activities. While a corporation is not a tangible thing or a visible radiance, it exists in the legal realm as a distinct entity, capable of conducting business and being held accountable under the law.

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44. Before undergoing surgery that could cause death, Donnelly, a guitarist, gives his guitars to Cathy. If the surgery is successful, and Donnelly does not die the gift of guitars is

Explanation

The gift of guitars is revoked because it was a gift causa mortis. Causa mortis refers to a gift made in contemplation of death, where the donor expects to die soon. In this scenario, Donnelly is giving his guitars to Cathy before undergoing a surgery that could potentially cause his death. However, if the surgery is successful and Donnelly does not die, the gift is considered revoked because the condition of imminent death, which is necessary for a causa mortis gift, is not met.

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45. Based on Nan's conduct Odel reasonably believes that Poppy has the authority to act on Nan's behalf even though Poppy does not have the actual authority to do so. In this circumstance Poppy has

Explanation

In this scenario, even though Poppy does not have actual authority to act on Nan's behalf, based on Nan's conduct, Odel reasonably believes that Poppy has the authority to do so. This is known as apparent authority. Apparent authority occurs when a person who does not have actual authority is perceived by others to have authority due to the actions or words of another person. In this case, Nan's conduct creates the appearance that Poppy has the authority to act on Nan's behalf, leading Odel to reasonably believe so.

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46. Jamal signs a lease with Kelvin to occupy a house on Leech lake in Minnesota for the summer. Jamal's tenancy is

Explanation

Jamal's tenancy is a fixed-term tenancy because he signed a lease with Kelvin for a specific period of time, which is the summer. This means that Jamal has the right to occupy the house for the duration of the agreed-upon lease term, and Kelvin cannot terminate the tenancy before the end of the summer unless there is a breach of the lease agreement. This type of tenancy provides certainty and stability for both parties involved.

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47. Shingle and Tile Roofing LLC, obtains an insurance policy against the liability for injuries or losses sustained by employees during the course of their employment. The policy covers claims not covered by workers' compensation insurance. This is

Explanation

The correct answer is employer's liability insurance. This type of insurance provides coverage for injuries or losses sustained by employees during the course of their employment, specifically for claims that are not covered by workers' compensation insurance. It helps protect the employer from potential legal and financial liabilities related to workplace injuries or accidents.

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48. Amelia executes a separate written instrument to amend her prior will. This separate document is

Explanation

A codicil is a separate written instrument that is used to amend a prior will. It is a legal document that allows individuals like Amelia to make changes or additions to their existing will without having to create an entirely new will. Unlike a holographic will, which is entirely handwritten and does not require witnesses, a codicil typically needs to be witnessed and signed in the presence of witnesses. A living will, on the other hand, is a document that outlines an individual's wishes regarding medical treatment in the event they are unable to communicate their choices. A nuncupative will is an oral will, which is generally not considered as valid as a written will.

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49. Lucille, an accountant, is subject to the accounting conventions, rules, and procedures that constitute the Generally Accepted Accounting Principles (GAAP).  GAAP is determined by

Explanation

The correct answer is the Financial Accounting Standards Board. The Financial Accounting Standards Board (FASB) is responsible for establishing and improving the Generally Accepted Accounting Principles (GAAP) in the United States. GAAP is a set of accounting conventions, rules, and procedures that provide a standard framework for financial reporting. Lucille, being an accountant, is subject to these GAAP guidelines, and the FASB plays a crucial role in determining and updating these principles.

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50. Ping's debt to Oak Furniture Warehouse is past due. Oak obtains a judgement against Ping, but Ping refuses to pay it. Oak asks the court for an order that directs the sheriff to seize and sell any of Ping's nonexempt real or personal property that is within the court's geographical jurisdiction. This is a request for

Explanation

The correct answer is a writ of execution. A writ of execution is a court order that authorizes the sheriff to seize and sell a debtor's nonexempt property to satisfy a judgement debt. In this case, Oak Furniture Warehouse is requesting the court to issue a writ of execution to enforce the judgement against Ping and collect the debt by seizing and selling Ping's nonexempt property.

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51. Dag is an employee of Eagle Mining company. Under federal labor law, dag and other employees have the right to

Explanation

Under federal labor law, employees have the right to bargain collectively with their employer through their representatives. This means that Dag and other employees have the right to negotiate and discuss work conditions, wages, and other employment terms with Eagle Mining company through their chosen representatives, such as a labor union. This allows employees to have a voice and be involved in the decision-making process that affects their working conditions.

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52. LaDonna signs a one-year lease with Mae to occupy an apartment in Ames, Iowa, near the University of Iowa. LaDonna needs the apartment only for two semesters and may have to sublet it for the rest of the term

Explanation

The correct answer is a fixed-term tenancy. A fixed-term tenancy is a lease agreement that has a specific start and end date. In this scenario, LaDonna signs a one-year lease, indicating a fixed-term agreement. This type of tenancy is suitable for LaDonna's situation because she only needs the apartment for two semesters, which is within the one-year fixed term. After the fixed term ends, LaDonna may have the option to sublet the apartment for the remaining duration of the lease.

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53. Naomi & Ogden are shareholders of MediCare Residences Inc. As shareholder's, they must approve

Explanation

As shareholders of MediCare Residences Inc., Naomi & Ogden have the authority to approve conducting a merger. This means that they have the power to agree to the company merging with another entity. This decision is significant as it can have a major impact on the company's future, including its financial stability, market position, and overall operations. Therefore, the shareholders' approval is necessary to proceed with such a strategic move.

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54. Elsa, the owner of Fertile Farm, sells Gina a right to camp on Fertile land overnight. Gina's right is

Explanation

In this scenario, Gina is given the right to camp on Fertile Farm's land overnight. However, this right is not a permanent or exclusive right, but rather a temporary and revocable permission granted by Elsa, the owner of the land. This type of permission is known as a license. Unlike a leasehold estate, which grants exclusive possession for a specific duration, a license is a more limited and flexible arrangement. Similarly, an easement grants a specific right to use another person's property, but it typically involves a specific use or access rather than overnight camping. A profit, on the other hand, refers to the right to use or take something from another person's property, such as harvesting crops or mining minerals, which is not applicable in this scenario.

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55. The payment of Brian's debt to Chuck is guaranteed by Bryan's personal property.This is

Explanation

The correct answer is a secured transaction. In a secured transaction, the debtor provides collateral to the creditor as a guarantee for the payment of the debt. In this case, Brian's debt to Chuck is guaranteed by Bryan's personal property, indicating that there is a security interest in place. This means that if Brian fails to repay the debt, Chuck can take possession of Bryan's personal property to satisfy the debt.

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56. Rona and Savannah do business as Treasure Island Traders. Acting in good faith on the firm's behalf in a deal with Unlimited Potential. Inc. Rona makes an honest error in overestimating the profit. To her firm, Rona is

Explanation

Rona is not liable for her honest error in overestimating the profit on behalf of her firm. This is because Rona acted in good faith and made an honest mistake, which does not constitute a breach of duty.

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57. Craig is an accountant whose clients include Digby Excavation Corp. Elbert is Craig's attorney. Under the common law and by statute in many states, working papers that Craig develops when preparing financial reports for digby are owned by

Explanation

According to the common law and statutes in many states, working papers developed by an accountant when preparing financial reports for a client are owned by the accountant. In this case, Craig is the accountant who developed the working papers for Digby Excavation Corp, so he owns the papers.

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58. Erin and Dooley, a married couple, borrow $120,000 from Capital & Credit Bank to buy a home.  When Erin and Dooley divorce, they are unable to make payments on the mortgage.  The market value of the home has declined to less than the balance of the loan.  Capital and Credit agrees to a sale of the property for this amount.  This is

Explanation

A short sale occurs when a homeowner sells their property for an amount less than the outstanding balance of their mortgage, with the agreement of the lender. In this scenario, Erin and Dooley are unable to make mortgage payments and the market value of the home has dropped below the loan balance. Capital and Credit Bank agrees to sell the property for this lower amount, which is a short sale. This allows Erin and Dooley to avoid foreclosure and potentially reduce their financial obligations.

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59. Bild-It-Rite Corporation is a public company that is preparing to issue securities that do not qualify for an exemption from registration. This means that Bild-It-Rite must

Explanation

Bild-It-Rite Corporation is a public company that is preparing to issue securities that do not qualify for an exemption from registration. This means that Bild-It-Rite must file a registration statement with the SEC. This is because securities that do not qualify for an exemption from registration must be registered with the Securities and Exchange Commission (SEC) before they can be offered or sold to the public. By filing a registration statement with the SEC, Bild-It-Rite ensures that it complies with the necessary regulations and provides potential investors with the required information about the securities being offered.

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60. Select Furniture Store sells household consumer goods. To create a purchase-money security interest, Select Furniture must

Explanation

Select Furniture Store must extend credit for part or all of the purchase price of the goods in order to create a purchase-money security interest. This means that the store must provide financing or allow customers to make partial or full payments over time for the goods they are purchasing. By doing so, Select Furniture Store can secure its interest in the goods and have a legal claim to them if the customer fails to make the required payments.

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61. Tiny is an accountant, Tiny's violation of Generally Accepted Accounting Principles and Generally Accepted Auditing Standards

Explanation

The given correct answer states that Tiny's violation of Generally Accepted Accounting Principles and Generally Accepted Auditing Standards is prima facie evidence that Tiny was negligent. This means that the violation itself serves as initial evidence or proof of negligence on Tiny's part. However, this does not necessarily mean that Tiny is automatically liable or that Tiny cannot raise any defense against a negligent claim. It simply suggests that the violation can be used as evidence to support a claim of negligence.

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62. Refer to Fact Pattern 31-1. First State Bank issues a letter if credit in favor of Oboe Company, an American firm, to facilitate an international sales contract to buy resources from Lapland Mining, Ltd., a Finnish company.  First State Bank

Explanation

First State Bank will make payment when Lapland presents the proper document. This means that the bank will only release the payment to Lapland Mining, Ltd. once they provide the required document as specified in the terms of the international sales contract. The bank acts as an intermediary, ensuring that the transaction is completed according to the agreed-upon terms and that the proper documentation is provided before payment is made.

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63. Sophie and Tiny incorporate their beverage container business as U-Twist Products, Inc.  The first board of directors may be appointed by who?

Explanation

The correct answer is "Incorporators". When a business incorporates, the incorporators are the individuals or entities responsible for filing the necessary paperwork and forming the corporation. They are typically the ones who appoint the first board of directors. The CEO, shareholders, and anyone related to the corporation may have roles within the company, but they are not specifically responsible for appointing the first board of directors.

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64. Tracy borrows $30,000 from Secure State Bank. The lender accepts Tracys equity in her home as collateral which ca preceding that occurs if Tracn be seized if the loan isn't paid on time. With respect to any fails to make payments this loan is subordinated. This means that

Explanation

In this scenario, the term "subordinated" indicates that the loan takes a lower priority compared to the primary mortgage. This means that if Tracy fails to make payments on time and her home is seized, the primary mortgage will be paid off first before any funds are allocated towards paying off the loan from Secure State Bank. Therefore, the loan from Secure State Bank is considered to have a lower priority in terms of repayment.

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65. North American Properties, Inc. and its officers, directors, and shareholders, buy and sell securities. Section 16(b) of the Securities Exchange Act of 1934 covers

Explanation

Section 16(b) of the Securities Exchange Act of 1934 covers only purchases and sales of securities involving short-swing profits. This means that if an insider, such as an officer, director, or shareholder of a company, buys and sells securities within a six-month period and makes a profit, they are required to return those profits to the company. This provision is in place to prevent insiders from taking advantage of their position and making quick profits at the expense of other shareholders. It does not cover purchases and sales involving misappropriation or tippers and tippees.

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66. Realty Company and Security Corp plan to consolidate. Most likely, the articles of incorporation will be filed with

Explanation

When a company plans to consolidate, the articles of incorporation, which outline the company's structure and purpose, need to be filed. This filing is typically done with the state's secretary of state. The secretary of state is responsible for maintaining corporate records and ensuring compliance with state laws. Therefore, it is most likely that the articles of incorporation for the consolidation of Realty Company and Security Corp will be filed with the state's secretary of state.

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67. Cohtton Products Corporation is a public company wose shares are traded in the public securities markets. The Securities Act of 1933 requires Cotton to disclose financial and other significant information concerning its securities in order to

Explanation

The Securities Act of 1933 requires Cotton Products Corporation to disclose financial and other significant information concerning its securities in order to protect investors. This is because by providing this information, investors can make informed decisions about whether to invest in the company or not. This disclosure requirement ensures transparency and reduces the risk of fraud or misleading information, ultimately safeguarding the interests of investors.

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68. Bowie owns a 1957 Chevrolet coupe, which Danica customizes and details to Bowies specifications. The car earns several awards at regional vehicle customizing competition shows. The result of Danica's efforts is

Explanation

The word "accession" means the act of attaining or acquiring something, typically a position of power or authority. In this context, Danica customizes and details Bowie's car according to his specifications, resulting in the car achieving several awards at vehicle customizing competitions. This implies that the car has gained recognition and prestige, which aligns with the meaning of "accession" as the correct answer.

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69. Grain from Harvest Farms is wrongfully commingled with grain from Idyllic Fields, which obtains possession of all of the grain. This is

Explanation

Confusion is the correct answer because it refers to a situation where the goods of two or more parties are mixed together to an extent that they cannot be separated or identified. In this scenario, the grain from Harvest Farms and Idyllic Fields is wrongfully mixed together, and Idyllic Fields obtains possession of all the grain. This results in a state of confusion where it becomes impossible to distinguish the grain belonging to each party.

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70. The Payment of John's debt to kirsten is guaranteed by John's personal property.  Kirsten is most likely to perfect her interest by

Explanation

Kirsten is most likely to perfect her interest by filing a financing statement with the appropriate authority. This is because filing a financing statement gives public notice of Kirsten's interest in John's personal property, which ensures that her claim is recognized and protected. Attaching a bright label to John's property or correcting grammatical errors in the parties' written agreement would not provide the same level of legal protection. Calculating the precise amount of John's debt is important, but it does not directly relate to perfecting Kirsten's interest in the property.

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71. Greta is a member of Hovercraft LLC. As a member Greta is:

Explanation

Greta is an owner of Hovercraft LLC. This means that she has a stake in the company and holds ownership rights. As an owner, Greta has a financial interest in the success of the company and may have decision-making power regarding its operations and direction. However, the information provided does not specify whether Greta holds any other roles within the company such as being a manager or officer.

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72. The Association of Southeast Asian Nations is a regional trade association that was created through

Explanation

The correct answer is a multilateral agreement. The Association of Southeast Asian Nations (ASEAN) was formed through a multilateral agreement, which means it involved multiple countries coming together and agreeing to establish the regional trade association. This agreement would have required negotiations and consensus among the member countries to create a framework for cooperation and economic integration within the region. A bilateral agreement refers to an agreement between two countries, while a lateral agreement and a unilateral agreement do not accurately describe the process of establishing ASEAN.

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73. Agnes borrows $110,000 from Bay Harbor Bank to buy a home under a mortgage with an acceleration clause. After eighteen payments, Agnes stops making payments on the mortgage. Bay Harbor

Explanation

The correct answer is "can foreclose once on the entire amount of the loan" because the mortgage has an acceleration clause. This clause allows the lender to demand immediate payment of the entire loan if the borrower defaults on the mortgage. Since Agnes has stopped making payments, Bay Harbor Bank has the right to foreclose on the entire amount of the loan. They do not have to wait or foreclose on small amounts over time.

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74. RingTone Corporation is a public company whose securities are traded among investors. Under the Securities Act of 1933, a security is

Explanation

The correct answer is "almost any stake in the ownership or debt of a company". This is because the Securities Act of 1933 defines a security as any kind of ownership interest or debt instrument issued by a company that can be bought, sold, or traded among investors. This includes stocks, bonds, options, and other types of financial instruments that represent an ownership stake or a debt obligation in a company.

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75. Flynn, an accountant, helps Grange Supply company prepare and file a false federal corporate income tax return. Under the Internal Revenue Code, this is

Explanation

Under the Internal Revenue Code, preparing and filing a false federal corporate income tax return is considered a felony. This means that it is a serious crime that is punishable by both a fine and imprisonment.

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76. Lost in a canyon near Gila, Arizona, Hester writes her will in crayon, on a paper bag, while Ivan states orally how he wants his estate distributed. Most states do not permit

Explanation

A nuncupative will is a type of will that is spoken aloud, rather than being written down. In most states, nuncupative wills are not recognized as valid because they are considered to be less reliable and more susceptible to fraud or coercion. In this scenario, Hester writing her will in crayon on a paper bag and Ivan stating orally how he wants his estate distributed would be considered nuncupative wills, which most states do not permit.

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77. B2B, LLC is a limited liability company. Among its members, a dispute arises that the operating agreement does not cover. The dispute is governed by:

Explanation

In this scenario, the dispute among the members of B2B, LLC is governed by the applicable state LLC statute. Since B2B, LLC is a limited liability company, the laws and regulations regarding LLCs in the state where it is registered will apply. The operating agreement does not cover the dispute, so the members will need to refer to the state LLC statute to determine how the dispute should be resolved.

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78. A merger between Green Mills Company and Farm2Fork can be expressed as Grain Mills + Farm2Fork=

Explanation

The correct answer is Farm2Fork because the question states that a merger between Green Mills Company and Farm2Fork can be expressed as Grain Mills + Farm2Fork. Since there is no other option that includes Farm2Fork, it can be concluded that Farm2Fork is the correct answer.

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79. Jim agrees to act on Kit's behalf, subject to Kit's control, and Kit trusts Jim to go act.  This describes a relationship between

Explanation

The given scenario describes a relationship between a principal and an agent. Jim agrees to act on Kit's behalf, subject to Kit's control, indicating that Jim will be acting as an agent for Kit. Kit trusts Jim to go act, further emphasizing the agency relationship. In this relationship, the principal (Kit) delegates authority to the agent (Jim) to act on their behalf while still maintaining control over the actions of the agent.

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80. Myron is an employee of Neto. Either party can terminate the employment relationship at any time for any reason without liability. With respect to the employment at will doctrine this is

Explanation

This scenario is an example of the employment at will doctrine, which allows either the employer or the employee to terminate the employment relationship at any time and for any reason without incurring liability. In this case, both parties have the freedom to end the employment without facing legal consequences.

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81. Fresh Seasonal Fruit Company has assets of less than $10 million and fewer than fifty shareholders. Gourmet Pastries Inc has assets of more than $50 million and more than 500 shareholders. The Security Exchange Act of 1934 applies to

Explanation

The Security Exchange Act of 1934 applies to Gourmet Pastries only because it has assets of more than $50 million and more than 500 shareholders. Fresh Seasonal Fruit Company does not meet the criteria of having assets over $10 million or more than fifty shareholders, so it is not subject to the Act.

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82. Megan and Nicole do business as One World Realty. In acting on the firm's behalf in a deal with Property Acquisition company, Megan fails to account for the profit. To her firm, Megan is:

Explanation

Megan is liable for the breach of the duty of loyalty because she failed to account for the profit while acting on behalf of her firm, One World Realty. The duty of loyalty requires individuals to act in the best interests of their organization and to prioritize the organization's interests over their own. By not accounting for the profit, Megan has violated this duty and is therefore held liable for the breach.

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83. City Bank's financing statement in collateral owned by Delta Waters Corporation will expire in less than a year. Filed timely, a continuation statement could extend the effectiveness of the financing statement for

Explanation

A continuation statement can be filed to extend the effectiveness of a financing statement in collateral owned by Delta Waters Corporation. Since the financing statement is set to expire in less than a year, filing a continuation statement would extend its effectiveness for an additional period of time. The correct answer is five years, as it is the longest duration among the options provided.

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84. Frawsty Corporation distributes beverages in the greater northwest. Frawsty's board of directors can delegate some of their functions to

Explanation

The correct answer is Frawsty's officers. The board of directors of Frawsty Corporation has the authority to delegate some of their functions to the officers of the company. This means that certain responsibilities and decision-making powers can be transferred from the board to the officers, allowing them to manage and oversee various aspects of the company's operations. By delegating these functions, the board can focus on higher-level strategic decisions while still ensuring that the day-to-day operations are effectively managed by the officers.

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85. Cory employs Daily Delivery Agency as an agent under a written agreement that describes the rights and the duties of both parties. This is a

Explanation

The written agreement between Cory and Daily Delivery Agency clearly outlines the rights and duties of both parties, indicating that there is a clear and explicit expression of authority. This means that the authority granted to Daily Delivery Agency is explicitly stated and agreed upon in the written agreement.

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86. Sonia manages a Tasty Party Store for United Food Company. To manage the business Sonia's authority can be implied by

Explanation

Sonia's authority can be implied by an inference from the position she occupies because her position within the Tasty Party Store suggests that she has been given the responsibility and power to manage the business. This implies that she has the authority to make decisions, oversee operations, and represent the store in dealings with customers and suppliers. A reasonable inference from her position would be that she has the necessary authority to fulfill her managerial role effectively.

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87. Hobby Farms Inc, owns rural property that it leases to various tenants, including Ira. Ira's transfer of his entire interest in the leased property to Jason is

Explanation

When Ira transfers his entire interest in the leased property to Jason, it is considered an assignment. An assignment is the transfer of rights and obligations from one party to another. In this case, Ira is transferring his rights and obligations as a tenant to Jason. This means that Jason will now have the same rights and responsibilities as Ira did under the lease agreement with Hobby Farms Inc.

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88. Denise and Elke do business as Final Curtain Decorators. In most states, for purposes of holding title to property, this partnership would be treated as

Explanation

This partnership would be treated as an entity for purposes of holding title to property. This means that Denise and Elke, doing business as Final Curtain Decorators, would be seen as a separate legal entity from the individual partners. As an entity, they would have the ability to own property, enter into contracts, and be held liable for any debts or obligations incurred by the partnership.

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89. Pace is an attorney, whose clients include Quikfeet Running Shoes company. Unless Quikfeet has violated securities law, the contents of Pace's file on Quikfeet may be disclosed to someone other than Quikfeet

Explanation

The contents of Pace's file on Quikfeet can only be disclosed with Quikfeet's consent. This means that unless Quikfeet gives permission, the information cannot be shared with anyone else, including third parties or under a court order. Therefore, the correct answer is "only with Quikfeet's consent."

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90. Flo-thru Corporation is poised to issue securities that, under the securities act of 1933, are exempt. This means that the securities can be sold

Explanation

The correct answer is "without being registered." This means that Flo-thru Corporation can issue securities without going through the process of registering them with the Securities and Exchange Commission (SEC). This exemption allows the company to save time and resources by avoiding the extensive disclosure requirements and regulatory oversight that comes with registering securities. However, it is important to note that even though the securities are exempt from registration, they still need to comply with other securities laws and regulations.

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91. Teona files a voluntary petition in bankruptcy for relief through a liquidation. Debts that will not be discharged include claims for

Explanation

A domestic support obligation refers to debts owed for child support or alimony. These types of debts are not dischargeable in bankruptcy, meaning they cannot be eliminated or forgiven through the bankruptcy process.

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92. Sol is chairman of the board of Tasty Foods. Uma, a consumer, falls sick after eating a Tasty Foods product. Uma sues Tasty, and Sol individually. Tasty may pay Sol's legal fees

Explanation

Tasty Foods may pay Sol's legal fees regardless of the outcome because Sol is the chairman of the board of Tasty Foods. This suggests that there is a close relationship between Sol and the company. Even if Uma wins the suit, Tasty Foods may still choose to cover Sol's legal fees as a way to protect their reputation and maintain a positive relationship with Sol. Alternatively, if Tasty Foods wins the suit, they may also decide to pay Sol's legal fees as a gesture of appreciation for his role as chairman.

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93. Egan is a director of First Realty Corp. As a director, Egan can act as an agent to bind First Realty:

Explanation

As a director, Egan cannot act as an agent to bind First Realty in any circumstances. This means that Egan does not have the authority to enter into contracts on behalf of First Realty.

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94. Mineral Products Corporation, which owns no land, has a right to mine the copper from Natural Resource Company's land. Mineral's right is

Explanation

In this scenario, Mineral Products Corporation has the right to mine the copper from Natural Resource Company's land, despite not owning any land themselves. This right is referred to as a profit. A profit is a non-possessory interest in land that allows the holder to enter another person's land and extract resources or profit from it. Therefore, Mineral Products Corporation has a profit in this situation, granting them the right to mine the copper.

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95. Doug is an accountant whose clients include Everyday products, Inc. (EPI). Under the Ultramares rule, if Doug is negligent in his work for EPI, he could be liable to

Explanation

Under the Ultramares rule, accountants can only be held liable to their clients for negligence in their work. Therefore, if Doug is negligent in his work for EPI, he could be liable to EPI only. The Ultramares rule limits the liability of accountants to only those parties with whom they have a direct contractual relationship, in this case, EPI. It does not extend liability to third parties unless they are specifically identified as intended users of the accountant's work.

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96. Mona, an accountant, prepares for NuTech Corp a financial statement that omits a material fact. The financial statement is included in NuTech's registration Statement which Pam reads. Pam buys NuTech stock. Under Section II of the Securities Act of 1933, for Mona to be liable for the omission, Pam must show that

Explanation

For Mona to be liable for the omission under Section II of the Securities Act of 1933, Pam must show that she suffered a loss on the stock. This means that Pam needs to demonstrate that she experienced a financial loss as a result of purchasing NuTech stock, which was based on the financial statement prepared by Mona that omitted a material fact. The other options, such as Pam relying on the omission, knowing about the omission before making the purchase, or the omission having no causal connection to her loss, are not necessary for Mona to be held liable in this case.

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97. Hal's hardware store defaults on a debt to Intrastate Bank, which takes possession of the collateral securing the debt. Intrastate sells the collateral. THe proceeds from the sale are applied first to

Explanation

When a debtor defaults on a debt and the collateral is seized by the creditor, the proceeds from the sale of the collateral are typically applied in a specific order. First, any fees or expenses incurred by the creditor for the sale are deducted from the proceeds. In this case, Intrastate Bank would deduct its fees for the sale. After that, the remaining amount would be applied towards Hal's debt to Intrastate. Any payments that Hal has already made on the debt would not be relevant at this stage, as they would have already been accounted for. Hal's debt to other creditors would only be considered after Intrastate's fees and Hal's debt to Intrastate have been satisfied.

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98. Bret obtains a fire insurance policy on his rental house with Continental Insurance Company. Like all insurance, this policy is an arrangement for

Explanation

The correct answer is "transferring and allocating risk." The fire insurance policy that Bret obtains from Continental Insurance Company allows him to transfer the risk of potential loss due to fire to the insurance company. In the event of a fire, the insurance company will bear the financial responsibility for the damages, thus allocating the risk away from Bret. This is a common purpose of insurance policies, to transfer the risk from the insured to the insurer and allocate the potential losses.

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99. Skyler dies after having made a valid will. Skyler has died

Explanation

When someone dies "testate," it means that they have died with a valid will in place. In this case, Skyler has made a valid will before their death, indicating their wishes for the distribution of their assets. Therefore, the correct answer is "testate."

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100. Michael, a citizen of Ireland, and Nina, a citizen of the United States, enter into a contract. When Nina breaches the contract, Michael obtains an award of damages in an Irish court. He asks a U.S. court to enforce the award. The U.S. court defers to and enforces the Irish court's decree. This is

Explanation

The principle of comity refers to the recognition and respect given by one country to the laws and judicial decisions of another country. In this scenario, the U.S. court defers to and enforces the award granted by the Irish court, showing respect for the Irish legal system and its decision. This is in line with the principle of comity, which promotes cooperation and mutual respect between different legal systems.

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Bowie owns a 1957 Chevrolet coupe, which Danica customizes and details...
Grain from Harvest Farms is wrongfully commingled with grain from...
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