Duties of Agents and Principals

Question 1

Question #2 (AICPA.900501REG-BL)
Generally, an agency relationship is terminated by operation of law in all of the following situations, except the

A. Principal’s death.
B. Principal’s incapacity.
C. Agent’s renunciation of the agency.
D. Agent’s failure to acquire a necessary business license.
An agency automatically terminates when the objective of the agency becomes illegal, as when a professional license is not obtained or an existing license is revoked.

Answer 1

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

Wrong Answer

D. Agent’s failure to acquire a necessary business license.

An agency automatically terminates when the objective of the agency becomes illegal, as when a professional license is not obtained or an existing license is revoked.

Question 2

Question #3 (AICPA.051148REG)
Under the agent’s duty to account, which of the following acts must a gratuitous agent perform?
Commingle funds Account for the principal’s property

 Yes 	 Yes 
 Yes 	 No 
 No 	        Yes 
 No 	         No

Answer 2

No Yes
C is the best answer, as agents have a duty not to commingle their funds with the principal’s funds, and should account for the principal’s property.

No No
D is not the best answer, as, although agent’s should not commingle their funds with their principal’s, they must be able to account for the principal’s property.