The Legal Environment of Business Text and Cases 9th Edition by Cross – Test Bank

$25.00

Category:

Description

INSTANT DOWNLOAD WITH ANSWERS
The Legal Environment of Business Text and Cases 9th Edition by Cross – Test Bank

Chapter 2

 

 

The Court System

 

 

 

 

N.B.:  TYPE indicates that a question is new, modified, or unchanged, as follows.

 

N      A question new to this edition of the Test Bank.

+       A question modified from the previous edition of the Test Bank.

=       A question included in the previous edition of the Test Bank.

 

 

TRUE/FALSE QUESTIONS

 

  1. Laws would be meaningless without the courts to interpret and apply them.

 

ANSWER:     T                               PAGES:   Section 1                TYPE:       +

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. The federal courts are superior to the state courts.

 

ANSWER:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. Under the authority of a long arm statute, a court can exercise personal jurisdic­tion over certain out-of-state defendants.

 

ANSWER:     t                               PAGES:   Section 2                TYPE:       +

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. A court can exercise jurisdiction over property that is located within its boundaries.

 

ANSWER:     F                               PAGES:   Section 2                TYPE:       +

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. Because corporations are not considered legal persons, courts use different principles to determine whether it is fair to exercise jurisdiction over a corporation.

 

ANSWER:     F                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. The minimum-contacts requirement is usually met if a corporation advertises or sells its products within a state.

 

ANSWER:     T                               PAGES:   Section 2                TYPE:       N

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

  1. For purposes of diversity of citizenship, a corporation is a citizen only of the state in which its principal place of business is located.

 

ANSWER:     F                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. To have standing to sue, a party must have complaining sufficient stake in a matter to justify seeking relief through the court system.

 

ANSWER:     T                               PAGES:   Section 2                TYPE:       +

BUSPROG: Analytic                                AICPA:  BB-Legal

 

  1. U.S. district courts have concurrent jurisdiction with state courts in matters involving federal questions.

 

answer:     F                               PAGES:   Section 3                TYPE:       +

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

  1. Procedural law does not have a significant impact on a person’s ability to pursue a legal claim.

 

ANSWER:     F                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Risk Analysis

 

  1. The litigation process has three phases: filing, answering, and appealing.

 

ANSWER:     F                               PAGES:   Section 4                TYPE:       +

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Only a defendant can file a motion to dismiss.

 

ANSWER:     F                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Critical Thinking

 

  1. The use of additional evidence distinguishes the motion for summary judgment from the motion for judgment on the pleadings.

 

ANSWER:     T                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Interrogatories are written questions for which written answers are prepared by a judge.

 

ANSWER:     F                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Any written material, including information stored electronically, can be the object of a discovery request.

 

ANSWER:     T                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. An expert witness is a person who is directly involved in the events concerning a lawsuit.

 

ANSWER:     F                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. After both sides have rested their cases, only the plaintiff’s attorney makes a closing argument.

 

ANSWER:     F                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Either party may appeal a jury’s verdict but only the defendant may appeal a judge’s ruling.

 

ANSWER:     F                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. A court of appeals does not hear any evidence.

 

ANSWER:     T                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. It is guaranteed that any judgment will be enforceable.

 

ANSWER:     F                               PAGES:   Section 4                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Risk Analysis

 

 

multiple-choice questions

 

  1. As a judge in a federal court, Christine can decide, among other things, whether the laws or actions of the executive and legislative branches are constitutional. The process for making this determination is known as

 

  1. judicial review.
  2. jurisdiction.
  3. venue.
  4. early neutral case evaluation.

 

answer:     A                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. A Maryland state court can exercise jurisdiction over National Insurance Corporation, an out-of-state company, if the firm has

 

  1. minimum contacts with the state.
  2. maximum contacts with the state.
  3. medium contacts with the state.
  4. no contacts with the state.

 

answer:     A                              PAGES:   Section 2                TYPE:       N

BUSPROG: Reflective                             AICPA:  BB-Decision Modeling

 

 

 

  1. Fresh Harvest Company, which is based on Georgia, packages and sells vegetables. Hayden, who is a resident of Indiana, buys a Fresh Harvest product, eats it, and suffers severe food poisoning. Hayden wants to file a suit against Fresh Harvest. The diversity of citizenship between these parties means that

 

  1. federal and state courts have concurrent jurisdiction.
  2. federal courts have exclusive jurisdiction.
  3. no court has jurisdiction.
  4. state courts have exclusive jurisdiction.

 

ANSWER:     A                              PAGES:   Section 2                TYPE:       N

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. Lewis wants to file a suit against Mikayla. Before any court can hear the case

 

  1. the parties to the dispute must agree.
  2. the court must have jurisdiction.
  3. the court must issue a deposition.
  4. the parties must own property.

 

answer:     B                              PAGES:   Section 2                TYPE:       N

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. Marcus files a suit against Naomi in an Ohio state court. Naomi’s only connec­tion to Ohio is an ad on the Web originating in Pennsylvania. For Ohio to exercise jurisdiction, the issue is whether Naomi, through her ad, has

 

  1. a commercial cyber presence in Ohio.
  2. conducted substantial business with Ohio residents.
  3. claimed to be a resident of Ohio.
  4. solicited virtual business in Ohio.

 

answer:     B                              PAGES:   Section 2                TYPE:       +

BUSPROG: Reflective                             AICPA:  BB-Legal

 

 

 

  1. Arnold loses his suit against Buffy in a Colorado state trial court. Arnold ap­peals to a state intermediate court of appeals and loses again. Arnold would appeal next to

 

  1. a U.S. district court.
  2. the Colorado Supreme Court.
  3. the United States Supreme Court.
  4. the U.S. Court of Appeals for the Ninth Circuit.

 

ANSWER:     B                              PAGES:   Section 3                TYPE:       =

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

  1. The Montana Supreme Court rules against Natural Grocery Mart in a case against One Stop 2 Shop Stores, Inc. Natural Grocery files an appeal with the United States Supreme Court. The Court does not hear the case. This

 

  1. is a decision on the merits that has value as a precedent.
  2. indicates agreement with the Montana court’s decision.
  3. means nothing.
  4. means that the Montana court’s decision is the law in Montana.

 

answer:     D                              PAGES:   Section 3                TYPE:       =

BUSPROG: Reflective                             AICPA:  BB-Legal

 

  1. The Iowa Supreme Court rules against Jennifer in a case against Kut-Rate Stores, Inc. Jennifer wants to appeal her case to the United States Supreme Court. She must ask the Court to issue a writ of

 

  1. appeal.
  2. certiorari.
  3. jurisdiction.
  4. summons.

 

answer:     B                              PAGES:   Section 3                TYPE:       N

BUSPROG: Reflective                             AICPA:  BB-Critical Thinking

 

 

 

  1. Gilbert wants to initiate a suit against Healthways Insurance Company by filing a complaint. The complaint should include

 

  1. an explanation of the proof to be offered at trial.
  2. a statement refuting any defense that the defendant might assert.
  3. a motion for judgment on the pleadings.
  4. a statement alleging the facts showing the court has jurisdiction.

 

ANSWER:     D                              PAGES:   Section 4                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Ballpark Sportsfield, Inc., files a suit against Concessions & Tailgate Services. The document that informs Concessions & Tailgate that it must file an answer within a specified time period is

 

  1. the answer.
  2. the complaint.
  3. the writ of certiorari.
  4. the summons.

 

answer:     D                              PAGES:   Section 4                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Neville files a suit against Olina. If Olina fails to respond,

 

  1. Neville must appeal the case to a different court.
  2. Olina’s failure to respond will be considered to be a denial.
  3. Neville will not be awarded the remedy sought.
  4. Olina will have a default judgment entered against her.

 

answer:     D                              PAGES:   Section 4                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. Lyn files a suit against Karl. Karl denies Lyn’s charges and sets forth his own claim that Lyn breached their contract and owes Karl money for the breach. Karl’s claim is

 

  1. counterclaim.
  2. motion for judgment on the pleadings.
  3. motion for summary judgment.
  4. motion to dismiss.

 

ANSWER:     A                              PAGES:   Section 4                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Renewable Resources, Inc., files a suit against Sunrich Utility Company and seeks to examine certain documents in Sunrich’s possession. A legitimate reason for this examination is that the documents contain

 

  1. information that is relevant to the case.
  2. private information about Sunrich’s operations.
  3. public information about energy generation.
  4. irrelevant data that can be eliminated from consideration.

 

ANSWER:     A                              PAGES:   Section 4                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. To prepare for a trial between SmartPhones, Inc., and TechApps Company, TechApps’ attorney places SmartPhones’ chief executive officer (CEO) under oath. A court official makes a record of the attorney’s questions and the CEO’s answers. This is

 

  1. a cross-examination.
  2. a deposition.
  3. voir dire.
  4. an interrogatory.

 

ANSWER:     B                              PAGES:   Section 4                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. During the trial phase of Sof’ Drink Soda Corporation’s suit against TimeOut Convenience Stores, Inc., their attorneys engage in voir dire. This is

 

  1. an assessment of the arguments on the issues.
  2. the determination of the issues to be argued.
  3. the testimony by a party to the lawsuit or by any witness, recorded by an authorized court official.
  4. the selection of jurors.

 

ANSWER:     D                              PAGES:   Section 4                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Jenna files a civil suit against Keshia. To succeed, Jenna must prove her case

 

  1. beyond a reasonable doubt.
  2.          by a preponderance of the evidence.
  3. by indisputable proof.
  4. to the extent promised in her attorney’s opening statement.

 

ANSWER:     B                              PAGES:   Section 4                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. In Hazel’s suit against Ingrid, the court issues a judgment in Ingrid’s favor. If the case is appealed to an appropriate court of appeals, the appellate court will hear

 

  1. all of the evidence.
  2. most of the evidence.
  3. none of the evidence.
  4. select pieces of evidence.

 

answer:     C                              PAGES:   Section 4                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 


 

Fact Pattern 2-1 (Questions 18–20 apply)

Martin files a suit against Nichelle in a state court over payment due on a short-term employment contract. The case proceeds to trial, after which the court renders a verdict. The case is appealed to an appellate court.

 

  1. Refer to Fact Pattern 2–1. After its review of Martin v. Nichelle, the appel­late court upholds the lower court’s verdict. The appellate court has

 

  1. affirmed the case.
  2. reversed the case.
  3. remanded the case.
  4. reversed and remanded the case.

 

ANSWER:     A                              PAGES:   Section 4                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Refer to Fact Pattern 2–1. After a final determination in the case of Martin v. Nichelle, any judgment will be satisfied

 

  1. if the losing party pays the judgment.
  2. if the winning party has sufficient assets to cover the amount of damages sought.
  3. if the losing party proves that he or she is unable to pay the judgment.
  4. all of the choices.

 

ANSWER:     A                              PAGES:   Section 4                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Critical Thinking

 

  1. Refer to Fact Pattern 2–1. After the state’s highest court’s review of Martin v. Nichelle, a party can appeal the decision to the United States Supreme Court if

 

  1. a federal question is involved.
  2. a question of state law remains unresolved.
  3. the party is unsatisfied with the result.
  4. the state trial and appellate court rulings are different.

 

ANSWER:     A                              PAGES:   Section 4                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

 


 

Essay Questions

 

  1. Chase is injured in an accident while driving an off-road vehicle made by Drivers Edge, Inc., an out-of-state corporation. Chase files a suit against Drivers Edge, alleging negligence, and mails a summons and a copy of the complaint to the firm by certified mail, return receipt requested. The envelope is addressed in part to “Elvin, President, Drivers Edge, Inc.” The receipt is returned with the signature of “Francine,” a Drivers Edge employee. A U.S. Postal employee later testifies that Francine usually receives mail on Drivers Edge’s behalf. Drivers Edge does not respond to the suit. In a default judgment, Chase is awarded damages of $500,000. Later, Elvin claims that he was not noti­fied of the suit and asks the court to set aside the judgment. What is the issue in this set of facts? What rule applies? What should be the result on the application of the rule? Why?

 

ANSWER:     The sufficiency of the service of process is at the center of this dispute. The requirements for sufficient service of process are that a summons and a copy of the complaint must be delivered to the proper party.

Here, the defendant was a corporation, and the service was addressed to the corporation’s president. The documents were sent via first-class mail, return receipt requested. Generally, service of process is proper if the documents are delivered to a person authorized by a corpo­ration to receive the service. The court should not grant Drivers Edge and Elvin’s motion to set aside the judgment. Chase met the requirements for serving an out-of-state corporation. Significantly, he addressed the service to Elvin, not to the corporation. Francine was a Drivers Edge employee who regularly received mail on her employer’s behalf. Francine’s notice of the action can thus be imputed to Drivers Edge and Elvin.

 

PAGES:         Section 4                                                                  TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Decision Modeling

 

  1. Tech Performance, Inc., completes programming and other tech services for Uno IT Products Corporation. When Uno’s computer system crashes, it loses $500,000 worth of business and pays $100,000 to have the system reprogrammed. Uno IT announces to the media that the crash was due to Tech Performance’s incompetence and files a complaint in a federal court against the firm. What are Tech Performance’s options in response?

 

ANSWER:     In response to the complaint, Tech Performance (the defendant) may file an answer in which the firm admits the statements or allegations set out in Uno IT’s complaint or denies them and sets out any defenses that Tech Performance may have. (If Tech Performance admits to the allegations, a judgment will be entered in fa­vor of Uno IT. If Tech Performance denies the allegations, the matter will proceed.) In the answer, Tech Performance may assert an affirmative defense—that is, admit the truth of the complaint but raise new facts to show that the firm should not be held liable for the damage sustained by Uno IT . (The sorts of facts these might be and the legal effect they might have are details explained in later chapters in this text.) Tech Performance could also deny Uno IT’s allegations and assert a coun­ter­claim alleging that the crash occurred as a result of something Uno IT did and that Uno IT owes Tech Performance damages for the harm done to its reputation. Uno IT would have to submit an answer to the counterclaim.

Instead of filing an answer, Tech Performance might file a motion to dismiss. This motion might contend that Uno IT failed to state a claim for which relief can be granted—in other words, even if the facts presented in the complaint are true, their legal conse­quences are such that there is no reason to go ahead with the suit. Other grounds for this motion include improper service of process and the court’s lack of ju­risdiction or venue. (If the motion is denied, Tech Performance will be given time to file an answer. If the motion is granted, Uno IT will be given time to file an amended complaint.)

 

PAGES:         Section 4                                                                   type:       N

BUSPROG: Reflective                             AICPA: BB-Decision Modeling

 

Chapter 14

 

 

Intellectual Property Rights

 

 

 

 

N.B.:  TYPE indicates that a question is new, modified, or unchanged, as follows.

 

N      A question new to this edition of the Test Bank.

+       A question modified from the previous edition of the Test Bank.

=       A question included in the previous edition of the Test Bank.

 

 

TRUE/FALSE QUESTIONS

 

  1. More than two hundred years ago, the Declaration of Independence recognized the importance of protecting creative works.

 

ANSWER:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. States do not have trademark statutes.

 

ANSWER:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Trademarks may be registered only with the federal government.

 

answer:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. A service mark distinguishes products used by those in public service.

 

answer:     F                               PAGES:   Section 1                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. A famous trademark may be diluted only by the unauthorized use of an identical mark.

 

answer:     f                               PAGES:   Section 1                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Counterfeit goods copy or otherwise imitate trademarked goods, and they are in fact sometimes genuine trademarked goods.

 

answer:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. A trade name can be protected under the common law, but only if it is unusual or fancifully used.

 

ANSWER:     T                               PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. A license permits the use of another’s intellectual property for certain purposes.

 

ANSWER:     T                               PAGES:   Section 1                TYPE:       +

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. A patent applicant must demonstrate that an invention is “commercially practicable” to receive a patent.

 

answer:     f                               PAGES:   Section 2                TYPE:       =

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. With a few exceptions, almost anything is patentable.

 

ANSWER:     T                               PAGES:   Section 2                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. The first person to invent a product obtains the patent rights rather than the first person to file an application for a patent.

 

answer:     F                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Critical Thinking

 

  1. For an infringement of copyright to occur, the reproduction must be exactly the same as the original.

 

answer:     f                               PAGES:   Section 3                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. An exception to liability for copyright infringement is made under the “fair use” doctrine.

 

answer:     T                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Critical Thinking

 

  1. All aspects of software are protected by copyright law.

 

ANSWER:     F                               PAGES:   Section 3                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Technology has limited the potential for copyright infringement via the Internet.

 

answer:     F                               PAGES:   Section 3                TYPE:       N

BUSPROG: Technology                          AICPA: BB-Legal

 

  1. Protection of trade secrets extends both to ideas and to their expression.

 

ANSWER:     T                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Critical Thinking

 

  1. Production techniques are not trade secrets.

 

ANSWER:     F                               PAGES:   Section 4                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. The theft of trade secrets is a federal crime.

 

ANSWER:     T                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Critical Thinking

 

 

 

  1. Under the Madrid Protocol, a company can register its trademark in more than one country with a single application.

 

ANSWER:     T                               PAGES:   Section 5                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Under the Anti-Counterfeiting Trade Agreement, member nations are required to establish border measures that allow officials to search commercial shipments of imports and exports for counterfeit goods.

 

answer:     T                               PAGES:   Section 5                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

 

multiple-choice questions

 

  1. Savory Bean Company makes and sells a sweet espresso coffee beverage under the name “Sugar Sugar.” Tropic Roast, Inc., later markets a similar drink under the name “Sweet Sweet.” This is most likely

 

  1. copyright infringement.
  2. patent infringement.
  3. trademark infringement.
  4. not infringement.

 

answer:     C                              PAGES:   Section 1                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Effervescent Egg Cream Company’s trademark is used by Fizzy Drinks without its owner’s permission. Fizzy’s use of the mark is actionable provided that

 

  1. consumers are confused.
  2. Fizzy’s use is intentional.
  3. Fizzy and Effervescent are competitors.
  4. Effervescent’s mark is registered.

 

ANSWER:     A                              PAGES:   Section 1                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. In 2014, Cloud Computing Corporation registers its trademark as provided by federal law. After the first renewal, this registration

 

  1. is renewable every ten years.
  2. is renewable every twenty years.
  3. runs for the life of the corporation plus seventy years.
  4. runs forever.

 

ANSWER:     A                              PAGES:   Section 1                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Gold & Sweet Company bottles and sells maple syrup from its plant in Vermont. On the labels is a logo that states “100% Genuine New England Maple Syrup Certified by the Northeast Maple Syrup Harvesters Association.” This logo is

 

  1. a certification mark.
  2. none of the choices.
  3. a service mark.
  4. trade dress.

 

answer:     A                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Wendy works as a weather announcer for a TV station under the character name Weather Wendy. Wendy can register her character’s name as

 

  1. a certification mark.
  2. a trade name.
  3. a service mark.
  4. none of the choices.

 

ANSWER:     C                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. René operates The Spicy Chocolatier Café chain of restaurants. “The Spicy Chocolatier Café” is

 

  1. a certification mark.
  2. none of the choices.
  3. a service mark.
  4. a trade name.

 

answer:     D                              PAGES:   Section 1                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Metro Movers Miami Corporation allows Metro Movers Milwaukee Company to use Metro Movers’ trademark as part of its company advertising. This is

 

  1. a license.
  2. a likelihood of consumer confusion.
  3. a generic use.
  4. trademark dilution.

 

ANSWER:     A                              PAGES:   Section 1                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. GreatGro, Inc., makes genetically modified seeds with properties that are iden­tical to Hearty Harvest Corporation’s patented seeds, without Hearty Harvest’s permission. This is most likely

 

  1. copyright infringement.
  2. patent infringement.
  3. trademark infringement.
  4. not infringement.

 

ANSWER:     B                              PAGES:   Section 2                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. Odell invents “Profits Unbound,” new stock-trading algorithm software, and applies for a patent. If Odell is granted a patent, his invention will be protected

 

  1. for ten years.
  2. for twenty years.
  3. for the life of the inventor plus seventy years.
  4. forever.

 

answer:     B                              PAGES:   Section 2                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. NoGas, Inc., designs and makes a non-fuel propulsion system that copies parts of Omni Momentum Corporation’s designs without Omni’s permis­sion. This is most likely

 

  1. copyright infringement.
  2. patent infringement.
  3. trademark infringement.
  4. not infringement.

 

answer:     B                              PAGES:   Section 2                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. In 2014, Kelly writes Like the Wind, a novel about marathoners and ultra marathoners. Kelly does not register the work with the appropriate government office. Under federal copyright law, Kelly’s work is protected

 

  1. for ten years.
  2. for twenty years.
  3. for the life of the author plus seventy years.
  4. forever.

 

ANSWER:     C                              PAGES:   Section 3                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. Edge is a video game featuring interactive extreme sports. The graphics used in the game are protected by

 

  1. copyright law.
  2. patent law.
  3. trademark law.
  4. none of the choices.

 

answer:     A                              PAGES:   Section 3                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Milo publishes a book titled No Equals, which includes a chapter from Paige’s copyrighted book Olympic Champions. Milo’s use of the chapter is actionable provided that

 

  1. consumers are confused.
  2. Milo’s use is intentional.
  3. Milo’s use reproduces Paige’s chapter exactly.
  4. Milo does not have Paige’s permission.

 

ANSWER:     D                              PAGES:   Section 3                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Giancarlo copies Hedrick’s book, Information Free, in its entirety and sells it to Justice Fair Books, Inc., without Hedrick’s permission. Justice Fair publishes it under Giancarlo’s name. This is

 

  1. copyright infringement.
  2. fair use.
  3. licensing.
  4. protected expression.

 

ANSWER:     A                              PAGES:   Section 3                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. Kamal reproduces Lorena’s copyrighted work “Musica” without paying royalties. Kamal is most likely excepted from liability for copyright infringement under the “fair use” doctrine if

 

  1. Kamal copies the entire work.
  2. Kamal distributes the copies without charge to the public.
  3. Kamal’s use has no effect on the market for Lorena’s work.
  4. Kamal’s use is for a commercial purpose.

 

ANSWER:     C                              PAGES:   Section 3                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Damien buys a copy of the book Exchange. Later, after reading the book, Damien sells it to his sister. Under the first sale doctrine, Damien’s sale of the book is

 

  1. legal.
  2. legal only if the copyright has expired.
  3. legal only if Damien sells it for less than he paid for it.
  4. illegal.

 

ANSWER:     A                              PAGES:   Section 3                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Robyn, an employee at Social Media, Inc., is laid off. Before he leaves, he e-mails Social Media’s marketing campaign to Tweets & Trades Corporation, Social Media’s competitor, without permission. This is

 

  1. a sneaky but legal method of competing with a business rival.
  2. a secretive but lawful way to exact revenge on a supervisor.
  3. a simple, legitimate attempt to create a job opportunity.
  4. a theft of trade secrets.

 

ANSWER:     D                              PAGES:   Section 4                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. The idea for “Prices & Profit,” an app that businesses can use to control their revenue, profits, and payrolls, is protected by

 

  1. copyright law.
  2. patent law.
  3. trademark law.
  4. trade secrets law.

 

answer:     D                              PAGES:   Section 4                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Like most successful companies, Pads & Phones, Inc. (P&P), has trade secrets. The law protects those secrets if

 

  1. P&P employees do not divulge the information to outside parties.
  2. P&P employees do not handle confidential documents.
  3. P&P employees never leave the company’s employ.
  4. the information is unique and has value to a competitor.

 

ANSWER:     D                              PAGES:   Section 4                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Siri downloads and sells, in international markets via the Internet, e-textbooks without the authors’ or publishers’ permission. The international treaty that applies to pirated copyrighted works being distributed via the Internet is

 

  1. the Federal Trademark Dilution Act.
  2. the Madrid Protocol.
  3. the Trade-Related Aspects of Intellectual Property Rights agreement.
  4. the Anti-Counterfeiting Trade Agreement.

 

ANSWER:     D                              PAGES:   Section 5                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

Essay Questions

 

  1. In 2005, Recreation & Relaxation Corporation began making and selling all-terrain vehicles (ATVs) under the mark “R&R.” Ten years later, recoveryandrehabilitation.com, Inc., a differ­ent company selling medical equipment and supplies, begins to use “R&R” as part of its URL and registers it as a domain name. Can Recreation & Relaxation stop recoveryandrehabilitation.com’s use of “R&R”? If so, what must the ATV maker show?

 

ANSWER:     Recreation & Relaxation may be successful in obtaining a court order to stop the use of its name as part of another company’s URL and registered domain name. This use may constitute trademark dilution.

Dilution occurs when a trademark is used, without permission, in a way that diminishes the distinctive quality of the mark. This cause of action does not require proof that consumers are likely to be confused by a connection between the un­authorized use and the mark. The products in­volved do not have to be similar. To succeed on a charge of dilution, how­ever, the owner must be able to show that its mark was famous when the dilution took place.

 

PAGES:         Section 1                                                                   type:       =

BUSPROG: Reflective                             AICPA: BB-Decision Modeling

 

  1. For five years, clothing makers and marketers Style-One Corporation and Trend Now, Inc., both use the phrase “Looks Great” on their labels. Style-One files a suit against Trend Now, claiming trademark infringement. Trend Now argues that the phrase generally is not associated with any particu­lar firm and that other companies use the same phrase on their labels and in their ads. In whose favor is the court most likely to rule, and why?

 

ANSWER:     The court is most likely to rule in favor of the defendant Trend Now because the phrase “Looks Great” is generic and therefore cannot be owned by the plaintiff Style-One. That the phrase is generic is indicated by its use by other companies on their labels and in their ads. Also, that both clothing makers have used the phrase on their labels for the same pe­riod of time supports a finding that the phrase is generic. The court might also consider the words of the phrase, “looks” and “great,” and reason that there is nothing distinctive about the words or their combination. In addition, the phrase has not developed a secondary meaning or any other attrib­utes that would support a conclusion in the plaintiff’s favor.

 

PAGES:         Section 1                                                                   type:       =

BUSPROG: Reflective                             AICPA: BB-Decision Modeling

 

Chapter 28

 

 

Investor Protection and

Corporate Governance

 

 

 

 

N.B.:  TYPE indicates that a question is new, modified, or unchanged, as follows.

 

N      A question new to this edition of the Test Bank.

+       A question modified from the previous edition of the Test Bank.

=       A question included in the previous edition of the Test Bank.

 

 

TRUE/FALSE QUESTIONS

 

  1. Securities generally do not include any documents evidencing corporate ownership or debt.

 

ANSWER:     F                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. The Securities and Exchange Commission (SEC) requires companies to file certain information electronically so that it can be posted on the SEC’s EDGAR database.

 

ANSWER:     T                               PAGES:   Section 1                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. All securities transactions must be registered with the Securities and Exchange Commission—there are no exemptions.

 

ANSWER:     F                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Once a registration statement has been filed, a waiting period begins while the Securities and Exchange Commission reviews the statement.

 

ANSWER:     T                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. A well-known seasoned issuer cannot file a registration statement until after it announces a new offering.

 

ANSWER:     F                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Securities offerings in unlimited amounts can be exempt from the registration requirements in certain circumstances.

 

ANSWER:     T                               PAGES:   Section 2                TYPE:       =

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Most securities can be resold without registration.

 

ANSWER:     T                               PAGES:   Section 2                TYPE:       +

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Liability can be imposed on those who are negligent in not discovering fraud in connection with a registration statement or prospectus.

 

ANSWER:     T                               PAGES:   Section 2                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. The Securities Exchange Act of 1934 applies to companies that have assets in excess of $5 million and five hundred or more employees.

 

ANSWER:     F                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 apply just to corporate “insiders.”

 

ANSWER:     F                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. The key to liability under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 is whether information omitted or misrepresented in connection with the purchase or sale of a security is material.

 

ANSWER:     T                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Corporate “outsiders” may not be held liable for insider trading under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

 

ANSWER:     F                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. In the context of Section 16(b) of the Securities Exchange Act of 1934, insiders include officers, directors, and large stockholders of Section 12 corporations.

 

ANSWER:     T                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. For civil sanctions to be imposed under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, the violator must not have had an intent to defraud or knowledge of his or her misconduct.

 

ANSWER:     F                               PAGES:   Section 3                TYPE:       +

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. The Securities and Exchange Commission does not regulate the content of proxy statements.

 

ANSWER:     F                               PAGES:   Section 3                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Private parties can sue violators of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 for rescission of a contract to buy securities.

 

ANSWER:     T                               PAGES:   Section 3                TYPE:       +

BUSPROG: Analytic                                AICPA: BB-Legal

 

 

 

  1. Every state has it own corporate securities laws that regulate the offer and sale of securities within tis borders.

 

ANSWER:     T                               PAGES:   Section 4                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. Corporate accountability can be increased by imposing strict disclosure requirements and harsh penalties for securities laws.

 

ANSWER:     T                               PAGES:   Section 5                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Critical Thinking

 

  1. Under the Sarbanes-Oxley Act of 2002, chief financial officers must certify the accuracy of information in corporate financial statements and reports that are filed with the Securities and Exchange Commission.

 

ANSWER:     T                               PAGES:   Section 5                TYPE:       +

BUSPROG: Analytic                                AICPA: BB-Legal

 

  1. The Securities and Exchange Commission does not enforce the antifraud provisions of the securities laws in the online environment.

 

ANSWER:     F                               PAGES:   Section 6                TYPE:       N

BUSPROG: Analytic                                AICPA: BB-Legal

 

 

MULTIPLE CHOICE QUESTIONS

 

  1. Cotton Products Corporation is a public company whose shares are traded in the public securities markets. With respect to financial and other significant information concerning its securities, the Securities Act of 1933

 

  1. imposes increased responsibility on chief corporate executives.
  2. prevents insiders from trading among themselves.
  3. requires disclosure.
  4. creates a “safe harbor” for companies to make forward-looking statements.

 

ANSWER:     C                              PAGES:   Section 2                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Guitar Factory Corporation files a registration statement and delivers a prospectus to the appropriate parties. These items are intended to enable the evaluation of certain financial risks by

 

  1. market professionals to explain to all investors.
  2. government regulators to disclose to the general public.
  3. sophisticated investors only.
  4. unsophisticated investors.

 

ANSWER:     D                              PAGES:   Section 2                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Global Trade Corporation is a public company that is poised to issue securities that do not qualify for an exemption from registration. This means that Global Trade must

 

  1. file a registration statement with the SEC.
  2. issue the securities through an online registration site.
  3. refrain from issuing the securities to unregistered investors.
  4. register the securities with a national stock exchange.

 

ANSWER:     A                              PAGES:   Section 2                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Household Products Corporation wants to make an offering of securities to the pub­lic. This offering is not exempt from registration under the Se­curities Act of 1933. Before Household Products sells its securities, it must provide in­vestors with

 

  1. a forward-looking financial forecast.
  2. an investment contract.
  3. a prospectus.
  4. samples of its products.

 

ANSWER:     C                              PAGES:   Section 2                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. Riverwalk Restaurants Corporation is a noninvestment company that wants to is­sue stock of $3 million in a twelve-month period. Riverwalk, with less than $20 mil­lion in annual sales, qualifies as a small business issuer. Before Riverwalk sells the stock, it must provide investors with

 

  1. an offering circular.
  2. a notice of the issue.
  3. a red herring prospectus.
  4. a tombstone ad.

 

ANSWER:     A                              PAGES:   Section 2                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Fleet Delivery Corporation is a public company with a market capitalization of less than $75 million. Fleet is poised to issue securities in a transaction that, under the Securities Act of 1933, is “exempt.” This enables Fleet to

 

  1. reduce the compliance costs by not requiring an auditor report.
  2. buy and sell the securities without liability for “recaptures.”
  3. make forward-looking financial forecasts without liability.
  4. withhold inside information from accredited investors.

 

ANSWER:     A                              PAGES:   Section 2                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. As part of a stock offering for Designer Studio Corporation, the firm’s accountant Evelyn intention­ally misrepresents material facts in the pro­spectus. Flores buys the stock unaware of the misrepresentation and suf­fers a loss. Evelyn may be subject to

 

  1. a fine and damages only.
  2. a fine and imprisonment only.
  3. a fine, imprisonment, and damages.
  4. damages only.

 

ANSWER:     C                              PAGES:   Section 2                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. Space Trips Inc. files a registration statement with the SEC before making an offering to the general public. The registration contains false, immaterial statements of which the investors are unaware. Space Trips is charged with violating the Securities Act of 1933. Space Trips’s best defense is

 

  1. the investors were not aware of the misrepresentations.
  2. the issuer reasonably believed the misstatements were true.
  3. the offering was made available to the general public.
  4. the untrue statements were not material.

 

ANSWER:     D                              PAGES:   Section 2                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Fresh Fruit Company has assets of less than $10 million and fewer than fifty shareholders. Gourmand Pastries, Inc., has assets of more than $50 mil­lion and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to

 

  1. Fresh Fruit and Gourmand Pastries.
  2. Fresh Fruit only.
  3. Gourmand Pastries only.
  4. neither Fresh Fruit nor Gourmand Pastries.

 

ANSWER:     C                              PAGES:   Section 3                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Bonds & Stocks Corporation, and its officers, directors, and sharehold­ers, buy and sell securities. SEC Rule 10b-5 applies to the purchase or sale of

 

  1. a security by a financial corporation only.
  2. a security involving a corporate insider only.
  3. a security involving short-swing profits only.
  4. any security.

 

ANSWER:     D                              PAGES:   Section 3                TYPE:       +

BUSPROG: Analytic                                AICPA: BB-Legal

 

 

 

  1. To raise capital to form Business Apps Corporation with Cris, Dona sells bonds and stock in other companies, and plans to register an initial public of­fer­ing under the Securities Act of 1933. SEC Rule l0b-5 covers

 

  1. just about any form of securities.
  2. only bonds.
  3. only securities registered under the Securities Act of 1933.
  4. only stock.

 

ANSWER:     A                              PAGES:   Section 3                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

Fact Pattern 28-1 (Questions 12–13 apply)

Dhani, an accountant for Eureka! Inc. 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 tells Geoff. Both Fay and Geoff buy 100 shares. Geoff knows that Fay got her informa­tion from Dhani. When Eureka! publicly an­nounces its new laptop, Dhani, Fay, and Geoff sell their stock for a profit.

 

  1. Refer to Fact Pattern 28-1. Under the Securities Ex­change Act of 1934, Fay is most likely

 

  1. liable for insider trading.
  2. not liable because Fay did not prevent others from profiting.
  3. not liable because Fay did not misappropriate any information.
  4. not liable because Fay does not work for Eureka!

 

ANSWER:     A                              PAGES:   Section 3                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Refer to Fact Pattern 28-1. Under the Securities Ex­change Act of 1934, Geoff is most likely

 

  1. liable for insider trading.
  2. not liable because Geoff is only a tippee, not a tipper.
  3. not liable because Geoff is too far down the chain of disclosure.
  4. not liable because Geoff traded on the basis of a material fact.

 

ANSWER:     A                              PAGES:   Section 3                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

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

 

  1. the blue-sky theory.
  2. the misappropriation theory.
  3. the free-writing prospectus theory.
  4. the tipper/tippee theory.

 

ANSWER:     B                              PAGES:   Section 3                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. OnSpec, Inc., and its officers, directors, and share­holders, buy and sell securities. Section 16(b) of the Securities Exchange Act of 1934 covers purchases and sales of securities involving

 

  1. corporate insiders.
  2. misappropriation.
  3. short-swing profits.
  4. tippers and tippees.

 

ANSWER:     C                              PAGES:   Section 3                TYPE:       N

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Grain Mills Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 14(a) of the act regulates

 

  1. the declaration of dividends by Grain Mills’s board of directors.
  2. the later re-registration of Grain Mills’s securities.
  3. the short-swing activities of Grain Mills’s insiders.
  4. the solicitation of proxies from Grain Mills’s shareholders.

 

ANSWER:     D                              PAGES:   Section 3                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. Cattle Ranch Company offers its stock for sale only in a single state. The law in Cattle Ranch’s state is like the law in most states. Cattle Ranch’s offer is sub­ject to state securities statutes that include

 

  1. antifraud and disclosure provisions.
  2. antifraud provisions only.
  3. disclosure provisions only.
  4. neither antifraud nor disclosure provisions.

 

ANSWER:     A                              PAGES:   Section 4                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. Boats & Yachts Corporation is a public company, which California regulates and in which Dorian invests. The Sarbanes-Oxley Act of 2002 introduced direct federal corporate governance requirements to

 

  1. public companies.
  2. private investors.
  3. state regulators.
  4. the Securities and Exchange Commission.

 

ANSWER:     A                              PAGES:   Section 5                TYPE:       +

BUSPROG: Reflective                             AICPA: BB-Legal

 

  1. HVAC Heating & Air Conditioning, Inc., is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that HVAC’s financial results are accurate and timely, the firm’s senior officers must set up and maintain

 

  1. internal “disclosure controls and procedures.”
  2. external “release and reveal timetables.”
  3. personal “peruse and review liability policies.”
  4. public “information and discussion forums.”

 

ANSWER:     A                              PAGES:   Section 5                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

 

  1. Rollo is the chief executive officer of Specialty Magazines, Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Rollo must

 

  1. certify that the reports are complete and accurate.
  2. designate a corporate official to assume liability for inaccuracies.
  3. do nothing.
  4. read the reports and be prepared to answer questions about them.

 

ANSWER:     A                              PAGES:   Section 5                TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Legal

 

 

Essay Questions

 

  1. Ridley is an officer of Sun Watts, Inc. Ridley knows that a Sun Watts engi­neer recently developed a new, inexpensive method for collecting, storing, and converting solar power into fuel. Ridley takes advantage of this information to buy Sun Watts stock from Taylor and, after the discovery is announced, to sell the stock to Ulrich at a profit. Taylor claims that this is a violation of federal law. Is Taylor correct? If so, what federal law has Ridley violated, and what are its possible penalties?

 

ANSWER:     Yes, assuming that Taylor did not know about the new method before it became public knowledge, Taylor is correct. Ridley has violated the Securities Exchange Act of 1934.

The Securities Exchange Act of 1934 ex­tends li­ability to officers and di­rectors in their per­sonal transactions for tak­ing advantage of inside informa­tion when they know it is unavail­able to the persons with whom they are dealing.

In this problem, Ridley used the un­disclosed information about the new collection, storage, and conversion method to buy Sun Watts stock from Taylor, who apparently was not aware of the devel­op­ment at the time of the deal with Ridley, and then sell it at a profit to Ulrich when the method was revealed to the public.

There are both criminal and civil penalties for violations of this act. Criminal punishment includes fines up to $5 million, imprisonment up to twenty-five years, or both. Civil sanctions include triple the profits gained or the loss avoided, and rescission of the contract to buy securities.

 

PAGES:         Section 3                                                                   TYPE:       =

BUSPROG: Reflective                             AICPA: BB-Decision Modeling

 

  1. When OmniOil Corporation wishes to issue certain securities, it must provide sufficient in­for­mation for Petra, and other unsophisticated investors, to evaluate the fi­nancial risk involved. Specifically, the law imposes liability for making a false statement or omission that is “material.” What sort of information would Petra consider material?

 

ANSWER:     Most likely, Petra, and any other average unsophisticated investor, is not con­cerned with mi­nor inaccura­cies but with facts that if disclosed would tend to deter her from buying the se­curities. This would include facts that have an important bearing on the con­dition of the issuer and its busi­ness—fraud, a divi­dend change, a significant change in the firm’s financial condition, and a new discovery, process, or product, as well as its li­ability, loans to offi­cers and directors, cus­tomer delinquencies, and pending lawsuits. Making false statements or omissions with respect to this type of infor­ma­tion could subject a corporation to liability under the securities laws.

 

PAGES:         Section 3                                                                   type:       =

BUSPROG: Reflective                             AICPA: BB-Decision Modeling

 

Reviews

There are no reviews yet.

Be the first to review “The Legal Environment of Business Text and Cases 9th Edition by Cross – Test Bank”

Your email address will not be published. Required fields are marked *