BSTR

Question 1

A stockholder’s right to inspect books and records of corporation will be properly denied if the purpose of the inspection is to

Answer 1

Obtain stockholder names for a retail mailing list.

Question 2

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

a. A shareholder not knowing of the illegality of the distribution and the corporation is solvent.
b. A shareholder not knowing of the illegality of the distribution and the corporation is insolvent.
c. A director not breaching his or her duty in approving the distribution and the corporation is solvent.
d. A director not breaching his or her duty in approving the distribution and the corporation is insolvent.

Answer 2

A shareholder not knowing of the illegality of the distribution and the corporation is insolvent.

Question 3

Under the Revised Model Business Corporation Act, following what type of corporate acquisition does the acquiring corporation automatically become liable for all obligations of the acquired corporation?

Answer 3

A merger.

Question 4

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

a. Limited partner in a limited partnership.
b. Member of a limited liability company.
c. Minority shareholder in a corporation listed on national stock exchange.
d. Limited partner in general partnership

Answer 4

Member of a limited liability company.

Question 5

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

a. Limited partnership.
b. General partnership.
c. C corporation.
d. Sole proprietorship.

Answer 5

C corporation.

Question 6

Berry, Drake, and Flanigan are partners in a general partnership. The partners made capital contributions as follows: Berry $150,000; Drake, $100,000; and Flanigan, $50,000. Drake made a loan of $50,000 to the partnership. The partnership agreement specifies that Flanigan will receive a 50% share of profits, and Drake and Berry each will receive a 25% share of profits. Under the Revised Uniform Partnership Act and in the absence of any partnership agreement to the contrary, which of the following statements is correct regarding the sharing of losses?

a. The partners will share in losses on a pro rata basis according to the capital contributions.
b. The partners will share in losses according to the allocation of profits specified in the partnership agreement.
c. The partners will share equally in any partnership losses.
d. The partners will share in losses on pa rata basis according to the capital contributions and loans made to the partnership.

Answer 6

The partners will share in losses according to the allocation of profits specified in the partnership agreement.

Question 7

Which of the following statements best states the purpose of cumulative voting?

a. To assure the continuance of incumbent directors.
b. To allow for the election of one-third of the board of directors each year.
c. To assure that a majority of shares voted elects the entire board of directors.
d. To allow minority shareholders to gain representation on the board of directors.

Answer 7

To allow minority shareholders to gain representation on the board of directors.

Question 8

The law of joint ventures is similar to that of

Answer 8

General partnerships.

Question 9

What type of business organization may generally be formed without filing an organizational document or certificate with state government agency or office?

Answer 9

A general partnership.

Question 10

Hughes and Brody start a business as a closely-held corporation. Hughes owns 51 of the 100 shares of stock issued by the firm and Brody owns 49. One year later, the corporation decides to sell another 200 shares. Which of the following types of rights would give Hughes and Brody a preference over other purchasers to buy shares to maintain control of the firm?

a. Preemptive rights.
b. Shareholder derivative rights.
c. Cumulative voting rights.
d. Inspection rights.

Answer 10

Preemptive rights.

Question 11

In which type of business organization are income taxes always required to be paid by the entity on profits earned as well as by the owners upon distribution thereof?

a. General partnership.
b. Subchapter S corporation.
c. Subchapter C corporation.
d. Limited liability company.

Answer 11

Subchapter C corporation.

Question 12

Grandiose secured an option to purchase a tract of land for $100,000. He then organized Dunbar Corporation and subscribed to 51% of the shares of stock of the corporation for $100,000, which was issued to him in exchange for his 3-month promissory note for $100,000. Controlling the board of directors through his share ownership, he had the corporation authorize the purchase of the land from him for $200,000. He made no disclosure to the board or to other shareholders that he was making a $100,000 profit. He promptly paid the corporation for his shares and redeemed his promissory note. A disgruntled shareholder subsequently learned the full details of the transaction and brought suit against Grandiose on the corporation’s behalf. Which of the following is a correct statement?

a. The judgment of the board of directors was conclusive under the circumstances.
b. Grandiose does not have a fiduciary duty to the corporation since he owns the majority of the corporation.
c. Grandiose breached his fiduciary’ duty to the corporation and must account for the profit he made.
d. Grandiose is entitled to retain the profit since he controlled the corporation as result of his share ownership.

Answer 12

Grandiose breached his fiduciary’ duty to the corporation and must account for the profit he made.

Question 13

Some parties owe fiduciary duty either to other parties in the corporation or to the corporation itself. Which of the statements is not correct?

a. Minority shareholders owe a fiduciary duty to the corporation.
b. Directors of the corporation a fiduciary duty to the corporation.
c. Officers of the corporation a fiduciary’ duty to the corporation.
d. Majority shareholders can owe fiduciary duty to the minority shareholders.

Answer 13

Minority shareholders owe a fiduciary duty to the corporation.

Question 14

What business entity can be voluntarily dissolved and terminated without filing dissolution document with the state of organization?

Answer 14

A general partnership.

Question 15

Which of the following entities must pay taxes for federal income tax purposes?

a. C corporation.
b. Limited partnership.
c. General partnership.
d. Joint venture.

Answer 15

C corporation.

Question 16

Which of the following is not true of general partnership?

a. It does not pay federal income tax.
b. An important characteristic is that the partners share in the profits equally.
c. It is a separate legal entity.
d. Each partner has an equal right to participate in management.

Answer 16

An important characteristic is that the partners share in the profits equally.

Question 17

Abbey brought in two friends, Burton and Chase, to mass produce and sell posters of Europe throughout the United States. They started the business in Miami where Burton and Chase each put in an initial capital contribution of $160,000 each. Abbey put in $10,000. They are not looking for any outside capital because they have ways to obtain any additional capital they may need. They each will manage the business. Which form of business organization should they form?

a. A general partnership.
b. A limited partnership with all three being protected as limited partners.
c. A corporation.
d. A limited partnership with Burton and Chase as the limited partners to protect their larger investments.

Answer 17

A general partnership.

Question 18

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

a. Inactive partners.
b. Transferees of partners’ interests.
c. Former partners.
d. Employees.

Answer 18

Inactive partners.

Question 19

Food Corp. owned a restaurant called The Ambers. The corporation president, T. J. Jones, hired a contractor to make repairs at the restaurant, signing the contract, “T.J. Jones for The Ambers.” Two invoices for the restaurant repairs were paid by Food Corp. with corporate checks. upon presenting the final invoice, the contractor was told that it would not be paid. The contractor sued Food Corp. Which of the following statements is correct regarding the liability of Food Corp.?

a. It is liable because Jones is not liable.
b. It is liable because Jones had authority to make the contract.
c. It is not liable because Jones is liable.
d. It is not liable because the corporation was an undisclosed principal.

Answer 19

It is liable because Jones had authority to make the contract.

Question 20

Green and Fenmore formed partnership. Green decided to use her own computer to perform work for the partnership. Which of the following is correct?

a. The computer is not partnership property because a partnership cannot legally hold title.
b. The computer is not presumed to be partnership property because Green owned it.
c. The computer is not presumed to be partnership property because she paid for it.
d. The computer is presumed to be partnership property because she is using it for partnership business.

Answer 20

The computer is not presumed to be partnership property because Green owned it.

Question 21

Barton Corporation and Clagg Corporation have decided to combine their separate companies pursuant to the provisions of their state corporation laws. After much discussion and negotiation, they decided that a consolidation was the appropriate procedure to be followed. Which of the following is an incorrect statement with respect to the contemplated statutory consolidation?

a. The larger of the corporations will emerge as the surviving corporation.
b. Creditors of Barton and Clagg will have their claims protected despite the consolidation.
c. A statutory consolidation pursuant to state law is recognized by the Internal Revenue Code as type of tax-free reorganization.
d. The shareholders of both Barton and Clagg must approve the plan of consolidation.

Answer 21

The larger of the corporations will emerge as the surviving corporation.

Question 22

Concerning the powers of corporations, which of the following is correct?

a. Corporations may guarantee other corporations’ obligations if it is in reasonable furtherance of the corporation’s business. b. Corporations may not acquire their own shares without a two-thirds vote by the shareholders.
c. Corporations may never give loans to its directors.
d. Corporations can make charitable contributions only if they can convince the shareholders that it is in the best interests of the corporation.

Answer 22

Corporations may guarantee other corporations’ obligations if it is in reasonable furtherance of the corporation’s business.

Question 23

Which of the following partners of a limited liability partnership (LLP) may avoid personal liability when partner commits negligent act?

a. All the partners.
b. The supervisor of the negligent partner.
c. All the partners other than the negligent partner.
d. All the partners other than the supervisor of, and the negligent partner.

Answer 23

All the partners other than the supervisor of, and the negligent partner.

Question 24

Grant, Lang, and Harrison formed a partnership several years ago. A client sued the partnership, Grant, and Lang, but not Harrison, for breach of contract. The partnership does not have sufficient funds to pay for this breach of contract. Which of the following is correct?

a. In addition to the partnership, the client may recover from Grant and Lang because they have joint and several liability.
b. The client may recover from the partnership but not the partners because the partnership is a legal entity.
c. The client may not recover beyond what the partnership can pay because Harrison was left off the lawsuit.
d. In addition to the partnership, the client may recover from both Grant and Lang because they have joint liability.

Answer 24

In addition to the partnership, the client may recover from Grant and Lang because they have joint and several liability.

Question 25

Which of the following statements is(are) correct regarding corporate debt and equity securities?

I. Both debt and equity security holders have an ownership interest in the corporation.

Il. Both debt and equity securities have an obligation to pay income.

Answer 25

Neither I or II

Question 26

Under which of the following circumstances is shareholder who receives an illegal dividend not obligated to repay the dividend?

a. The shareholder was aware the dividend was improper and the corporation was solvent at the time of payment.
b. The shareholder was not aware the dividend was improper and the corporation was insolvent at the time of payment.
c. The shareholder was aware the dividend was improper and the corporation was insolvent at the time of payment.
d. The shareholder was not aware the dividend was improper and the corporation was solvent at the time of payment

Answer 26

The shareholder was not aware the dividend was improper and the corporation was solvent at the time of payment

Question 27

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

a. Limited partnership.
b. Subchapter S corporation.
c. Subchapter C corporation.
d. Partnership.

Answer 27

Subchapter S corporation.

Question 28

Noll Corp. and Orr Co. are contemplating entering into an unincorporated joint venture. Such joint venture

Answer 28

Will be treated as a partnership in most important legal respects.

Question 29

A partner’s interest in specific partnership property is

a. Assignable to the partner’s individual creditors and Subject to attachment by the partner’s individual creditors.
b. Assignable to the partner’s individual creditors
c. Subject to attachment by the partner’s individual creditors
d. Neither

Answer 29

Neither

Question 30

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

a. Donaldson has no continuing potential liability to firm creditors as result of the agreements contained in the retirement plan.
b. Firm creditors are not precluded from asserting rights against Donaldson for debts incurred while she was a partner, the agreements of Donaldson and the remaining partners notwithstanding.
c. Since Donaldson obtained a release from firm debts she has no liability for debts incurred while she was a partner.
d. Edward’s assumption of Donaldson’s liability was matter of form since as an incoming partner he was liable as a matter of law.

Answer 30

Firm creditors are not precluded from asserting rights against Donaldson for debts incurred while she was a partner, the agreements of Donaldson and the remaining partners notwithstanding.

Question 31

Which of the following statements is correct with respect to the differences and similarities between corporation and a limited partnership?

a. A corporation and limited partnership may be created only pursuant to state statute and copy of its organizational document must be filed with the proper state agency.
b. Shareholders may be entitled to vote on corporate matters whereas limited partners are prohibited from voting on any partnership matters.
c. Directors fiduciary’ duties to the corporation and limited partners such duties to the partnership.
d. Stock of a corporation may be subject to the federal securities laws registration requirements whereas limited partnership interests are automatically exempt from such requirements.

Answer 31

A corporation and limited partnership may be created only pursuant to state statute and copy of its organizational document must be filed with the proper state agency.

Question 32

Darla, Jack, and Sam have formed a partnership with each agreeing to contribute $100,000. Jack and Sam each contributed $100,000 cash. Darla contributed $75,000 cash and agreed to pay an additional $25,000 two years later. After one year of operations the partnership is insolvent. The liabilities and FMV of the assets of the partnership are as follows:

Assets:

Cash $40,000

Trade accounts receivable 35,000

Receivable from Darla 25,000

Equipment 100,000

Liabilties :

Trade accounts payable 410,000

Both Jack and Sam are personally insolvent. Darla has a net worth of $750,000. If Darla is a limited partner, What is her maximum potential liability?

Answer 32

$25,000

Question 33

Which of the following is not necessary to create an express partnership?

a. Execution of a written partnership agreement.
b. Agreement to share ownership of the partnership.
c. Intention to create a relationship recognized as partnership.
d. Intention to conduct a business for profit.

Answer 33

Execution of a written partnership agreement.

Question 34

The limited liability of the shareholder of closely held corporation will most likely be disregarded if the shareholders

Answer 34

Undercapitalized the corporation when it was formed.

Question 35

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

a. Recovering damages to the corporation from third party.
b. Enforcing access to corporate records.
c. Compelling payment of properly declared dividends.
d. Protecting preemptive rights.

Answer 35

Recovering damages to the corporation from third party.

Question 36

Under the Revised Model Business Corporation Act, which of the following items of information should be included in corporation’s Articles of Incorporation (charter)?

a. Number of shares authorized.
b. Name and address of each preincorporation subscriber.
c. Name and address of the corporation’s promoter.
d. Election of either C corporation or S corporation status.

Answer 36

Number of shares authorized.

Question 37

Joint ventures are most similar to which of the following types of business organizations?

a. Limited partnerships.
b. General partnerships.
c. Business trusts.
d. Subchapter S corporations.

Answer 37

General partnerships.

Question 38

Acorn and Sean were general partners in a farm machinery business. Acorn contracted, on behalf of the partnership, to purchase 10 tractors from Cobb Corp. Unknown to Cobb, Acorn was not authorized by the partnership agreement to make such contracts. Sean refused to allow the partnership to accept delivery of the tractors and Cobb sought to enforce the contract. Cobb will

Answer 38

Prevail because Acorn has apparent authority to bind the partnership.

Question 39

Larson, Martin, and Chan formed a partnership to manufacture widgets. Their capital contributions were $30,000, $60,000, and $90,000, respectively. They all managed the business; however, Larson spent much more time than the others. They agreed to split all profits equally, but at the end of the first year, they had a loss of $90,000. Assuming each partner has sufficient outside funds, how should they split this loss?

Answer 39

$30,000 each because although they failed to decide how to split losses, they had decided to split profits equally.

Question 40

Following the formation of a corporation, which of the following terms best describes the pacess by which the pamoter is released from, and the corporation is made liable for, preincorporation contractual obligations?

a. Novation.

b/ Accord and satisfaction.

c. Delegation.
d. Assignment.

Answer 40

Novation.

Question 41

Terry recently started a new business and is trying to decide what type of entity to form. Terry is part-owner and is active in running the business. What type of entity would best protect Terry, as one of the owners, from personal liability?

Answer 41

Limited liability company.

Question 42

A limited partnership was formed with ten general partners and eight limited partners. In order to admit new general partner, what approval is needed?

Answer 42

All of the general partners and limited partners.

Question 43

Thorn works as a mechanic repairing cars for We-Repair Auto Shop, a corporation. We-Repair has explicit instructions for the mechanics. Norton had his brakes repaired at We-Repair. Later, Norton got into an accident when his brakes failed because Thorn had failed to follow one of We-Repair’s instructions. Which of the following is correct?

a. Norton can hold either Thorn or We-Repair liable, but not both.
b. We-Repair, as well as Thorn, can be held liable.

c. We-Repair can be held only if Norton did not know which mechanic had worked on the brakes.
d. We-Repair is not liable, but Thorn is because Thorn failed to follow one of We-Repair’s explicit instructions.

Answer 43

We-Repair, as well as Thorn, can be held liable.

Question 44

Which of the following circumstances may permit the piercing of the corporate veil of closely held corporation and thus may cause its shareholders to be held personally liable?

I. The corporation is thinly capitalized.

Il. The corporation borrows money from shareholder without giving the shareholder security interest in corporate assets.

Answer 44

I only

Question 45

Hart and Ruck formed a limited partnership in which Hart was a general partner and Ruck was a limited partner. A certificate of limited partnership was filed with the secretary of state. Which of the following is correct under the Revised Uniform Limited Partnership Act?

a. The certificate of limited partnership requires that at least one of Hart’s or Ruck’s name appears on it.
b. Ruck’s name need not appear on the certificate of limited partnership as long as his name appears in the partnership name.
c. Only Hart’s name must appear on the certificate of limited partnership.
d. Both Hart’s and Ruck’s names must appear on the certificate of limited partnership unless waiver is granted.

Answer 45

Only Hart’s name must appear on the certificate of limited partnership.

Question 46

Leslie, Kelly and Blair wanted to form business. Which of the following business entities does not require the filing of organization documents with the state?

a. Subchapter S corporation.
b. Limited partnership.
c. Joint venture.
d. Limited liability company.

Answer 46

Joint venture.

Question 47

Under the Revised Model Business Corporation Act, which of the following dividends is not defined as distribution?

a. Property dividends.
b. Cash dividends.
c. Liquidating dividends.
d. Stock dividends.

Answer 47

Stock dividends

Question 48

Which of the following corporate actions is subject to shareholder approval?

a. Removal of officers.
b. Election of officers.
c. Removal of directors.
d. Declaration of cash dividends.

Answer 48

Removal of directors.

Question 49

Which of the following acts is most likely to cause court to pierce the corporate veil?

a. Failure to designate registered agent in the Articles of Incorporation (Charter).
b. Failure to conduct a significant portion of business in the chartering state.
c. Retention of excess capital.
d. Using corporate assets for the owner’s personal purposes.

Answer 49

Using corporate assets for the owner’s personal purposes.

Question 50

Which of the following may not own shares in an S corporation?

a. Individuals.
b. Estates.
c. Trusts.
d. Corporations.

Answer 50

Corporations.

Question 51

A general partner of partnership

Answer 51

Can by virtue of his acts, impose tort liability upon the other partners.

Question 52

Phillips was the principal promoter of the Waterloo Corporation, a corporation which was to have been incorporated not later than July 31. Among the many things to be accomplished prior to incorporation were the obtaining of capital, the hiring of key executives and the securing of adequate office space. In this connection, Phillips obtained written subscriptions for $1.4 million of common stock from 17 individuals. He hired himself as the chief executive officer of Waterloo at $200,000 for 5 years and leased three floors of office space from Downtown Office Space, Inc. The contract with Downtown was made in the name of the corporation. Phillips had indicated orally that the corporation would be coming into existence shortly. The corporation did not come into existence through no fault of Phillips. Which of the following is correct?

a. Phillips is personally liable on the lease with Downtown.
b. The subscribers have a recognized right to sue for and recover damages.
c. The subscribers were not bound by their subscriptions until the corporation came into existence.
d. Phillips has the right to recover the fair value of his services rendered to the proposed corporation.

Answer 52

Phillips is personally liable on the lease with Downtown.

Question 53

Two individuals are planning to form a business with equal ownership. The individuals would like to limit their personal liability, avoid double taxation, and be active in the business. Which of the following organization structures would meet their requirements?

a. C corporation.
b. Limited liability company.
c. Limited partnership.
d. General partnership.

Answer 53

Limited liability company.

Question 54

A general partnership must

Answer 54

Have two or more partners.

Question 55

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

a. Both corporations can have more than 100 shareholders.
b. Shareholders can be either citizens of the united States or foreign countries.
c. Both corporations have the disadvantage of double taxation.
d. Shareholders can contribute property into a corporation without being taxed.

Answer 55

. Shareholders can contribute property into a corporation without being taxed.

Question 56

Which of the following is requirement for small business corporation to elect S corporation status?

a. It has more than 100 shareholders.
b. It has only one class of stock.
c. It has international ownership.
d. It has at least one partnership as shareholder.

Answer 56

It has only one class of stock.

Question 57

In which type of business entity is the entire ownership most freely transferable?

Answer 57

Corporation.

Question 58

Which of the following statements generally is correct regarding general partner in general partnership as compared to general partner in limited partnership?

a. A general partner in a general partnership has greater liability than a general partner in a limited partnership.
b. A general partner in a general partnership has greater rights and powers than a general partner in a limited partnership.
c. A general partner in a general partnership has rights and powers provided by articles of partnership, while a general partner in limited partnership has rights and powers provided by statute.
d. A general partner in general partnership and general partner in limited partnership have the same rights and powers.

Answer 58

A general partner in general partnership and general partner in limited partnership have the same rights and powers.

Question 59

Mint, an accountant, is in professional corporation. Mint is concerned about potential liability in this form of business organization. For which of the following is Mint liable personally?

I. Liability due to Mint’s negligence in the performance of an audit.

II. Liability for debt of the professional corporation.

Answer 59

I only

Question 60

Which of the following is(are) correct concerning partnership?

I. An important characteristic is profit sharing which needs to be equal among the partners.

Il. An important characteristic is the right of each general partner to participate in the management of the partnership.

Answer 60

II only

Question 61

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

a. No more than 100 shareholders.
b. A nonresident alien as a shareholder.
c. An individual as a shareholder.
d. One class of stock.

Answer 61

A nonresident alien as a shareholder.

Question 62

Sack Company has been doing business as a partnership, but the owners decided to incorporate Sack in Delaware. Sack has branch offices in Delaware and Pennsylvania. Which of the following is correct?

a. Sack is foreign corporation in Pennsylvania.
b. Sack is a domestic corporation in Pennsylvania.
c. Sack must also incorporate in Pennsylvania because it has branch offices there.
d. Sack is de facto corporation in Pennsylvania.

Answer 62

Sack is foreign corporation in Pennsylvania.

Question 63

Generally, officers of corporation

Answer 63

Are agents and fiduciaries of the corporation, having actual and apparent authority to manage the business.

Question 64

Mullin, a director of Royal Corporation, wishes to sell a plot of land to the corporation. She is willing to sell the land for the fair market value but is concerned about a potential conflict of interest as a director dealing directly with her own corporation. Which of the following is(are) the minimum steps necessary for Mullin to not have a conflict of interest as director of Royal corporation?

I. She sells the plot of land to Royal in a fair and reasonable transaction for the corporation at the fair market value

Il. She discloses her ownership in the land to the board of directors and the board approves the transaction.

Ill. She discloses her ownership in the land to the shareholders and a majority appaves it.

Answer 64

I

Question 65

What term is used to describe partnership without specified duration?

Answer 65

A partnership at will.

Question 66

The president of a company has signed a $10 million contract with a construction company to build new corporate office. Which of the following corporate documents sets forth the scope of authority under which this transaction is governed?

a. Bylaws.
b. Certificate of Incorporation.
c. Charter.
d. Proxy statement.

Answer 66

Bylaws.

Question 67

Which of the following is characteristic of C corporation?

a. Must have only one class of stock.
b. Subject to double taxation on profits if dividends are paid.
c. Includes most privately held businesses.
d. Pays taxes on profits after paying dividends to shareholders.

Answer 67

Subject to double taxation on profits if dividends are paid.

Question 68

Which of the following entities does not require the approval of the state in which the entity is formed?

a. A limited liability partnership.
b. A general partnership.
c. A limited liability company.
d. A corporation.

Answer 68

A general partnership.

Question 69

Which of the following statements concerning treasury stock is correct?

a. A duly appointed trustee may vote treasury stock at a properly called shareholders’ meeting.
b. Cash dividends paid on treasury stock are transferred to stated capital.
c. A corporation may not purchase its own stock unless specifically authorized by its Articles of Incorporation.
d. Treasury stock may be resold at a price less than par value.

Answer 69

Treasury stock may be resold at a price less than par value.

Question 70

Which of the following statements concerning cumulative preferred stock is correct?

a. Preferred stock represents a type of debt security similar to corporate debentures.
b. Upon the dissolution of a corporation the preferred shareholders have priority over unsecured judgment creditors.
c. Upon the declaration of a cash dividend on the preferred stock, preferred shareholders become unsecured creditors of the corporation.
d. If dividends are not declared for any year, they become debts of the corporation for subsequent years.

Answer 70

Upon the declaration of a cash dividend on the preferred stock, preferred shareholders become unsecured creditors of the corporation.

Question 71

Which of the following actions is required to ensure the validity of contract between corporation and director of the corporation?

a. The director must resign from the board of directors.
b. An independent appraiser must render to the board of directors a fairness opinion on the contract.
c. The director must disclose the interest to the independent members of the board and refrain from voting.
d. The shareholders must review and ratify the contract.

Answer 71

The director must disclose the interest to the independent members of the board and refrain from voting.

Question 72

Wilson and Thomas are partners. Wilson contributed $150,000 to the partnership, and Thomas contributed $50,000. Wilson does 40% of the work, and Thomas does 60%. They do not have a partnership agreement that addresses the sharing of profits and losses. By the end of the year, the partnership has earned a profit of $200,000. What is Wilson’s share of the profit under the Revised Uniform Partnership Act?

Answer 72

$100,000

Question 73

of the following is considered corporate equity security?

a. A share of callable preferred stock.
b. A callable bond.
d. A shareholder’s appraisal right.
d. A shareholder’s preemptive right.

Answer 73

A share of callable preferred stock.

Question 74

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

a. General partnerships may not be converted to limited liability partnerships because they must be terminated first.
b. The limited partners may not participate in the management of the company.
c. Official formation is not necessary for a limited partnership other than two or more people carrying on as co-owners of business for profit.
d. A limited partnership has no general partners.

Answer 74

The limited partners may not participate in the management of the company.

Question 75

In general, which of the following must be contained in Articles of Incorporation?

a. Names of states in which the corporation will be doing business.
b. Name of the state in which the corporation will maintain its principal place of business.
c. Names of the initial officers and their terms of office.
d. Classes of stock authorized for issuance.

Answer 75

Classes of stock authorized for issuance.

Question 76

In the absence of specific provision in general partnership agreement, partnership losses will be allocated

Answer 76

In the same manner as partnership profits.

Question 77

What is the most likely effect if court pierces the corporate veil?

a. The corporation can be held liable for acts of the directors.
b. The corporation can be held liable for acts of nonofficer employees of the corporation.
c. The corporation’s shareholders can be assigned liability for the corporation’s debts.
d. The corporation can lose its tax-exempt status.

Answer 77

The corporation’s shareholders can be assigned liability for the corporation’s debts

Question 78

On February I, Hoffman made an offer to subscribe to 100 shares of $10 par value common stock of Pack Corporation stock for $70 per share. On March I, Pack Corporation agreed to the subscription offer. Under the stock subscription contract, Hoffman paid $2,000 immediately and agreed to pay $1,000 by April 15 with the remainder due on June I. On May 15, Pack Corporation was forced into bankruptcy and the creditors are seeking payment from Hoffman. Which of the following is correct concerning the amount the creditors can require Hoffman pay?

a. None because Hoffman is not yet a shareholder until he fully pays for the stock.
b. $4,000 because this is the amount Hoffman still owes the corporation under the subscription agreement.
c. None because although he has not paid the full subscription price, he fulfilled his contract fully up until the date of the bankruptcy.
d. None because he has paid in more than the $10 par value for 100 shares of stock.

Answer 78

$4,000 because this is the amount Hoffman still owes the corporation under the subscription agreement.

Question 79

Under the Revised Uniform Partnership Act, which of the following statements is(are) correct regarding the effect of the assignment of an interest in general partnership?

I. The assignee is personally responsible for the assigning partner’s share of past and future partnership debts.

Il. The assignee is entitled to the assigning partner’s interest in partnership profits and surplus on dissolution of the partnership

Answer 79

II only

Question 80

If no provisions are made in the partnership agreement, general partnership allocates profits and losses based on the

Answer 80

Number of partners.

Question 81

Fil and Breed are partners in Cars, a used-car dealership. maintains an average used-car inventory worth $150,000. On January 5, National Bank obtained a $30,000 judgment against Fil and Fil’s child on a loan that Fil had cosigned and on which Fil’s child had defaulted. National sued to be allowed to attach $30,000 worth of cars as part of Fil’s interest in F&B’s inventory. Will National prevail in its suit?

Answer 81

No, because the judgment was not against the partnership.

Question 82

Kinder, Lau, and Sanders form partnership under the Revised Uniform Partnership Act (RUPA). Which of the following is not true concerning the partnership itself?

Answer 82

The partners have joint but not several liability for business debts.

Question 83

What is the doctrine under which corporation is made liable for the torts of its employees, committed within the scope of their employment?

Answer 83

Respondeat superior.

Question 84

Under the Revised Uniform Limited Partnership Act and in the absence of contrary agreement by the partners, which of the following events is most likely to dissolve a limited partnership?

a. A majority vote in favor by the partners.
b. A withdrawal of a majority of the limited partners.
c. Withdrawal of the only general partner.
d. A two-thirds vote in favor by the partners.

Answer 84

Withdrawal of the only general partner.

Question 85

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

Answer 85

$20,000 and $30,000

Question 86

Which of the following decreases stockholder equity?

a. Distribution to owners.
b. Acquisition of assets in a cash transaction.
c. Investments by owners.
d. Issuance of stock.

Answer 86

Distribution to owners.

Question 87

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

Answer 87

Limited liability partnership.

Question 88

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

a. A shareholder of Golden Enterprises to enjoin the sale.
b. Hidalgo Corporation to avoid performance.
c. Golden enterprises to avoid performance.
d. Golden Enterprises to rescind the consummated sale.

Answer 88

A shareholder of Golden Enterprises to enjoin the sale.

Question 89

Which of the following is not considered an advantage of the corporation over the partnership?

a. The corporation results in individuals owning the corporation paying less taxes than those owning partnership.
b. Perpetual existence of corporation.
c. It is typically easier to raise large amounts of capital in the corporation versus the partnership.
d. The corporation owners have limited liability.

Answer 89

The corporation results in individuals owning the corporation paying less taxes than those owning partnership.

Question 90

Generally, Articles of Incorporation must contain all of the following except the

a. Name of the corporation.
b. Names of initial officers and their terms of office.
c. Names of the incorporators.
d. Number of shares authorized.

Answer 90

Names of initial officers and their terms of office.

Question 91

In partnership, unanimous consent of the partners is needed for which of the following?

I. Admission of new partner.

Il. Purchasing goods for the partnership.

Answer 91

I only

Question 92

Unless otherwise provided for, the assignment of partnership interest will result in the

Answer 92

Assignee obtaining the right to receive the share of the profits to which the assignor would have otherwise been entitled.

Question 93

Cabrillo is a limited partner in the Ferrell Limited Partnership. When Cabrillo joined the firm, she put in $10,000 as a capital contribution. During the past year, she got involved in the management of Ferrell partnership. A client, who knew of Cabrillo’s involvement in managing Ferrell, was severely injured when an employee of Ferrell negligently dropped a steel beam on the client. The client brought suit against Ferrell Limited Partnership and all of its partners. What is Cabrillo’s potential liability?

Answer 93

Unlimited personal liability.

Question 94

The principle that protects corporate directors from personal liability for acts performed in good faith on behalf of the corporation is known as

Answer 94

The business judgment rule.

Question 95

Which of the following disqualifies an entity from an S corporation election?

a. A exempt organization shareholder.
b. Seventy-seven individual shareholders (including four married couples).
c. An estate shareholder.
d. A nonresident alien shareholder.

Answer 95

A nonresident alien shareholder.

Question 96

A corporation purchases back several shares of its own stock and classifies them as treasury stock.Which of the following is correct?

a. The corporation may vote on the treasury stock.
b. The corporation is the recipient of the dividends of the treasury stock.
c. Treasury stock is considered issued and outstanding.
d. The corporation may purchase the treasury stock at below par value.

Answer 96

The corporation may purchase the treasury stock at below par value.

Question 97

Frey Corp. has 1,000 shares of issued and outstanding common stock. Frey’s articles of incorporation permit a stockholder who owns or more of the outstanding stock or who has owned the stock for longer than six months to inspect Frey’s books and records. Ace, who has owned 25 shares of Frey stock for four months, wants to inspect the bocks and records. Under the Revised Model Business Corporation Act, which of the following statements is correct regarding Ace’s right to inspect the bocks and records?

a. Ace must wait two months before being allowed to inspect the books and records.
b. Ace may, after giving five days’ written notice, inspect the bocks and records to provide a list of Frey stockholders to Ace’s broker.
c. Ace may, after giving five days’ written notice, inspect the bocks and records to determine the value of Frey stock.
d. Ace must purchase an additional 25 shares of Frey stock before being allowed to inspect the books and records.

Answer 97

Ace may, after giving five days’ written notice, inspect the bocks and records to determine the value of Frey stock.

Question 98

Rivers and Lee want to form partnership. For the partnership agreement to be enforceable, it must be in writing if

Answer 98

The agreement cannot be completed within one year from the date on which it will be entered into.

Question 99

Which of the following can be an advantage of limited liability company over an S corporation?

a. Incentive stock options can be used to compensate owners.
b. Owners receive limited liability protection.
c. Double taxation of profits is avoided.
d. Appreciated property can be distributed tax-free to an owner

Answer 99

Appreciated property can be distributed tax-free to an owner

Question 100

West owns 5,000 shares of $7 cumulative preferred stock of Sky Corp. During the first year of operations, cash dividends of $7 per share were declared on Sky’s preferred stock but were never paid. In the second year of operations, dividends on Sky’s preferred stock were neither declared nor paid. If Sky is dissolved, which of the following statements is correct?

a. West will have priority over the claims of Sky’s debenture bond owners.
b. Sky will be liable to West as an unsecured creditor for $35,000.
c. Sky will be liable to West as an unsecured creditor for $70,000.
d. West will have priority over the claims of Sky’s unsecured judgment creditors.

Answer 100

Sky will be liable to West as an unsecured creditor for $35,000.

Question 101

Toby invested $25,000 in a limited partnership with Connor and Blair. Toby was a general partner in the limited partnership. The partnership failed to pay Kelly $45,000 for services on behalf of the partnership. Which of the following statements is generally correct regarding Toby’s liability under the Revised Uniform Limited Partnership Act?

a. Toby was liable for $25,000 because this was a limited partnership.
b. Toby was liable for $45,000 because Toby was a general partner.
c. Toby was liable for zero because this was a partnership debt, not a personal debt
d. Toby was liable for $15,000 because this was a limited partnership.

Answer 101

Toby was liable for $45,000 because Toby was a general partner.

Question 102

A major characteristic of the corporation is its recognition as a separate legal entity. As such it is capable of withstanding attacks upon its valid existence by various parties who would wish to disregard its existence or “pierce the corporate veil” for their own purposes. The corporation will normally be able to successfully resist such attempts except when

a. The corporation was created with tax savings in mind.
b. The corporation being attacked is a wholly owned subsidiary of its parent corporation.
c. The corporation was created in order to insulate the assets of its owners from personal liability.
d. The creation of and transfer of property to the corporation amounts to a fraud upon creditors.

Answer 102

The creation of and transfer of property to the corporation amounts to a fraud upon creditors.

Question 103

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

a. Limited partnerships may legally exist without filing a certificate of limited partnership.
b. Limited partners have the same rights, responsibilities, and authority as general partners.
c. Limited partners may lose limited liability if they participate in management activities.
d. Limited partners may contribute cash only and may not contribute services as their capital contributions.

Answer 103

Limited partners may lose limited liability if they participate in management activities.

Question 104

Ted Fein, a partner in the ABC Partnership, wishes to withdraw from the partnership and sell his interest to Gold. All of the other partners in ABC have agreed to admit Gold as a partner and to hold Fein harmless for the past, present, and future liabilities of ABC. A provision in the original partnership agreement states that the partnership will continue upon the death or withdrawal of one or more of the partners. As a result of Fein’s withdrawal and Gold’s admission to the partnership, Gold

Answer 104

Has the right to participate in the management of ABC.

Question 105

Darla, Jack, and Sam have formed a partnership with each agreeing to contribute $100,000. Jack and Sam each contributed $100,000 cash. Darla contributed $75,000 cash and agreed to pay an additional $25,000 two years later. After one year of operations the partnership is insolvent. The liabilities and FMV of the assets of the partnership are as follows:

Assets:

Cash $40,000

Trade accounts receivable 35,000

Receivable from Darla 25,000

Equipment 100,000

Liabilties :

Trade accounts payable 410,000

Both Jack and Sam are personally insolvent. Darla has a net worth of $750,000. If Darla is a general partner, What is her maximum potential liability?

Answer 105

$235,000

Question 106

A limited partnership was formed under the Revised Uniform Limited Partnership Act with several general partners and several limited partners. In order to admit a new limited partner, what written approval is needed?

Answer 106

All of the general and limited partners.

Question 107

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

a. Common shares have a higher priority on liquidation than debt.
b. Common shares typically have a fixed maturity date, but debt does not.
c. Common shareholders and debt holders have an ownership interest in the corporation.
d. Common shares represent an ownership interest in the corporation, but debt holders do not have an ownership interest.

Answer 107

Common shares represent an ownership interest in the corporation, but debt holders do not have an ownership interest.

Question 108

Smith was an officer of CCC Corp. As an officer, the business judgment rule applied to Smith in which of the following ways?

a. If Smith makes, in good faith, serious but honest mistake in judgment, Smith is generally not liable to CCC for damages caused.
b. If Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally liable to CCC for damages caused, and CCC is prohibited from reimbursing Smith for any damages Smith paid.
c. If Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally liable to CCC for damages caused, but CCC may elect to reimburse Smith for any damages Smith paid.
d. Because Smith is not a director, the rule does not apply.

Answer 108

If Smith makes, in good faith, serious but honest mistake in judgment, Smith is generally not liable to CCC for damages caused.

Question 109

Which of the following would be grounds for the judicial dissolution of corporation on the petition of shareholder?

a. Refusal of the board of directors to declare a dividend.
b. Waste of corporate assets by the board of directors.
c. Failure by the corporation to file its annual report with the state.
d. Loss operations of the corporation for three years.

Answer 109

Waste of corporate assets by the board of directors.

Question 110

The owners of limited liability company are known as which of the following?

a. Stockholders.
b. Partners.
c. Shareholders.
d. Members.

Answer 110

Members

Question 111

Able and Baker are corporations, the shares of which are publicly traded. Baker plans to merge into Able. Which of the following is requirement of the merger?

a. The IRS must approve the merger.
b. The creditors of Baker must approve the merger.
c. The boards of directors of both Able and Baker must approve the merger.
d. The common stockholders of Baker must receive common stock of Able.

Answer 111

The boards of directors of both Able and Baker must approve the merger.

Question 112

Reilly has agreed to purchase some stock of Jansen Corporation. Which of the following types of consideration or value is(are) sufficient to purchase this stock?

I. Services already performed by Reilly.

Il. Services promised by Reilly to be performed at later date.

Ill. Negotiable promissory note to pay cash.

Answer 112

I, II, and III

Question 113

Which form of business entity has the following attributes?

I. Limited liability for all its owners.

II. Can permit all its owners to participate in management and control of the entity.

III. Absent an agreement to the contrary, is dissolved on the death, withdrawal, or bankruptcy of an owner.

Answer 113

A limited liability company

Question 114

The business judgment rule is a rule that immunizes corporate

Answer 114

Management from liability for actions that result in corporate losses or damages if the actions are undertaken in good faith and are within both the power of the corporation and the authority of management to make.

Question 115

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

a. Stanley may not enforce any of the contract with Lehman Company.
b. Lehman is in breach of this contract since its agent, Stearn, made this contract with Stanley.
c. Stearn is personally liable on this contract.
d. Lehman cannot be liable on this contract for any of the 6,000 parts because Lehman never orally or in writing adopted the contract.

Answer 115

Stearn is personally liable on this contract.

Question 116

Fairwell is executive vice president and treasurer of Wonder Corporation. He was named as a party in a shareholder derivative action in connection with certain activities he engaged in as a corporate officer. In the lawsuit, it was determined that he was liable for negligence in performance of his duties. Fairwell seeks indemnity from the corporation for his liability. The board would like to indemnify him. The Articles of Incorporation do not contain any provisions regarding indemnification of officers and directors. Indemnification

Answer 116

May be permitted by court order despite the fact the Fairwell was found to be negligent.

Question 117

Which of the following documents would most likely contain specific rules for the management of business corporation?

a. Bylaws.
b. Certificate of authority.
c. Shareholders’ agreement.
d. Articles of incorporation.

Answer 117

Bylaws.

Question 118

Smith and James were partners in S and J Partnership. The partnership agreement stated that all profits and losses were allocated to 60% Smith and 40% to James. The partners decided to terminate and wind up the partnership. The following was the balance sheet for S and J on the day of the windup:

Cash $40,000

Accounts receivable 12,000

Property and equipment 38,000

Total assets $90,000

Accounts payable $24,000

Smith, capital 30,000

James, capital 36,000

Total liabilities and capital $90,000

Of the total accounts receivable, $10,000 was collected and the remainder was written off as bad debt. All liabilities of S and J were paid by the partnership. The property and equipment are sold for $32,000. Under the Uniform Partnership Act, What amount of cash was distributed to Smith?

Answer 118

$25,200

Question 119

A consolidation of corporations usually requires all of the following except

a. Approval by the board of directors of each corporation.
b. Provision for an appraisal buyout of dissenting stockholders.
c. Receipt of voting stock by all stockholders of the original corporations.
d. An affirmative vote by the holders of a majority of each corporation’s voting shares.

Answer 119

Receipt of voting stock by all stockholders of the original corporations.

Question 120

Davis, an inventor, developed a new product but lacked money to get the product to the marketplace. Before creating a corporation to raise capital, Davis leased office space and equipment, entered into contracts with third parties, and identified investors. Who has liability for preincorpcration debts?

Answer 120

Davis is liable until the corporation assumed the debts in novation.