REG Deck 4 Flashcards
When a debtor defaults in a suretyship situation, the credit may do any of the following in any order:
Immediately demand apyment from the surety
Immediately demand payment from the debtor
Immediately go after collateral, if there is any
The _______ must be in writing
guaranty
enforcement of the creditor’s rights against the principal debtor.
subrogation
What must a creditor do before seeking payment from a guarantor?
First attempt to collect from the principal debtor
Under the Statute of Frauds a promise to pay the debt or default of another (a “surety” contract) must be evidenced by a __________________________________
writing signed by the surety
the right a surety has against the debtor to force the solvent debtor to pay a debt when the debtor refuses to do so.
exoneration
a right one surety has against the surety’s co-sureties to force them to pay their share of the debt.
contribution
__________ ____________of the underlying obligation discharges the surety.
Full payment
What are some events that release a non-compensated surety from liability?
The creditor failed to notify the surety of a partial surrender of the principal debtor’s collateral.
Modification by the principal debtor and creditor of their contract that materially increases the surety’s risk of loss.
an agreement between a debtor and at least two creditors that the creditors will take less than full payment to discharge the debts owed by the debtor to the creditors who participate in the composition agreement
composition of creditors
a transfer of some or all of a debtor’s property to a trustee who then uses the property to pay the creditors
assignment for the benefit of creditors
a legal right or claim against a property or asset that is used to secure the payment of a debt or the performance of some obligation
lien
arises from improvements made on real property.
mechanic’s lien
arises from improvements made to personal property
artisan’s lien
an order by the court to a sheriff to seize a person’s property
writ of attachment
an order to a third person who holds property of the debtor to turn the property over to a creditor
garnishment
occurs when a debtor transfers property with the intent to hinder, delay, or defraud any of her creditors
fraudulent conveyance
Most mistakes have no effect on a contract. There are two exceptions to this rule:
contracts based on a mutual mistake of materail facts are voidable by either party
contracts based on a unilateral mistake of material facts are voidable if the other party knew or should have known a mistake was being made
What are the things that a secured creditor can do after default of the debtor?
Peacefully reposses the goods
bring an action to reduce the claim to judgment and have the goods repossessed and sold judicially
sell the goods and apply the proceeds toward the debt
What are the three requirements to attachment?
Parties agree to create a security interest through a security agreement
debtor must have rights in the collateral
credit must give value
Article 9 of the Uniform Commercial Code specifically includes any sale of ___________ ___________.
accounts receivable
Under the Secured Transactions Article of the UCC, what secured transaction document must be signed by the debtor?
security agreement
A _______ _________ is not effective against anyone before it attaches to the collateral.
security interest
A _________ in equipment has priority over a perfected security interest in the same equipment as long as the ________ is perfected within _____ days of delivery of the collateral to the debtor.
PMSI
PMSI
20
gives the secured party priority over most subsequent creditors, but not all
perfecting a security interest
What are the things that a financing statement must contain in order to perfect a security interest?
The name and address of the debtor and of secured party
a description of the collateral
Perfection is automatic with attachment in the case of a PMSI (Purchase Money Security Interest) in _______ __________.
consumer goods
A seller who sells goods on credit and retains a security interest in the goods to secure the purchase price has a ______________________________________________________.
purchase money security interest (PMSI)
W/hat is the tax treatment when somebody moves because of a relocation of where they work: the employer reimburses them for expenses for a certain percentage but not for the whole amount?
The reimbursement increases taxable income
The expenses that are not reimbursed are not deductible
What is an easy way to determine whether most assets is a capital asset?
When you sell the asset, is a capital gain(loss) the result of the selling.
an exception is if it used in the ordinary course of business
Under the liquidation provisions of chapter 7 of the U.S. Bankruptcy Code, certain property acquired by the debtor after the filing of the petition become part of the bankruptcy estate. An example of such property is:
The estate includes income generated from estate propertya nd property the debtor receives wtihin 180 days after filing of the petition from:
an inheritance
a property settlement from a divorce
a beneficial interest in life insurance
muni bond interest
Which types of bankruptcy is a trustee required?
Chapter 7 and Chapter 13
What are examples of people who cannot file a chapter 11 reorganization?
stockbroker
commodity broker
created upon filing a petition in bankruptcy stops any attempt by creditors to collect through the garnishment of the debtor’s wages
automatic stay
What are examples of people who cannot file a chapter 7 liquidation?
Railroads
savings institutions
insurance companies
banks
small business investment companies
A debtor need not be _____________ to file a voluntary petition under Chapter 7
insolvent
Who cannot be petitioned involuntarily into bankruptcy?
farmers and nonprofit charities
If a debtor is not paying debts as they become due and and has ________ or more unsecured creditors, at least _________ of the unsecured creditors who together are owed at least ____________ must join to bring an involuntary petition.
12
three
$18,600
If a debtor has fewer than ___ creditors, any ______ or more creditors who are owed at least ____________ in unsecured debt may petition the debtor involuntarily into bankruptcy.
12
one
$18,600
After a Chapter 7 bankruptcy, the debtor may not obtain another bankruptcy for how many years?
eights years
Transfers made within ___________ years of the filing date with an intent to hinder, delay, or defraud creditors or any transfer where the debtor received less than equivalent value while the debtor was insolvent are ________ __________ and may be set aside by the trustee
two
fraudulent transfers
Under the reorganization provisions of Chapter 11 of the U.S. Bankruptcy Code, after a reorganization plan is confirmed, and a final decree closing the proceedings entered, which of the following events usually occurs?
reorganized corporate debtor is discharged from all debts except as otherwise provided in the plan and applicable law
While a corporation or a partnership may voluntarily or involuntarily be petitioned into a Chapter 7 bankruptcy, a corporation or a partnership is “____________,” while an individual is “____________.”
dissolved
discharged
What debts will not be discharged by a bankruptcy?
WAFTED
Willful and malicious injury
Alimony
Fraud
Taxes
Educational loans
Debts undisclosed in the bankruptcy petition
Who has to confirm a reorganization plan?
Only the court
Under Chapter 11 of the federal Bankruptcy Code, which of the following actions is necessary before the court may confirm a reorganization plan?
provision for full payment of administration expenses
The Statute of Frauds does not apply to contracts that can be fully performed within _______ year.
one
The first _____________ of group term life insurance is a nontaxable fringe benefit. Amounts exceeding this are taxable based on IRS tables.
$50,000
What is the treatment for the unrecovered portion of annuity payments?
The unrecovered portion can be an itemized deduction
If a taxpayer performs a service and receives a car what is the income and basis of the car?
The income is the fair market value of the car
The basis is also the FMV of the car
What do you do on the exam if a real date is used instead of a generic date?
This means that the date matters in regards to the tax treatment
An example is alimony received from a divorce that was settled on or before December 31, 2018
What are deduction to arrive at adjusted gross income called?
adjustments
Individuals are typically ______ _______
cash basis
What type of credit is the earned income credit?
Refundable credit which means it can decreased tax owed below $0
What is the individual capital losses rule?
Offset $3,000 of ordinary income or gains
No Carryback
Can be carried forward indefinitely
What is the tax rule versus GAAP rule on purchased Goodwill?
Tax rule: Amortized on a straight-line basis over 15 years
GAAP rule: Not amortized, test for impairment
What type of employment insurance are both paid by the employer?
Unemployment compensation insurance
Worker’s compensation insurance
What happens if an employer pays an employee’s portion of FICA and does not seek reimbursement of the payment from the employee?
The payment is considered to be a business expense deductible by the employer
The payment would also be taxable income to the employee
What does FICA stand for?
Federal Insurance Contributions Act
What are the things that social security benefits cover?
old age and survivors insurance
disability insurance
Medicare
supplemental security income
How much of employee’s wages is taxable for FUTA?
The first $7,000 of covered employee’s wages
All employers who have quarterly payrolls of at least ________________ or who employ at least ____ person(s) for 20 week sin a year must participate in the system.
$1,500
one
What is the federal unemployment tax rate?
6% on the first $7,000 per year of compensation for each employee
What is the credit against the federal tax due for payments made on account of statement unemployment taxes?
5.4% on the first $7,000
What is the thing to remember regarding worker’s compensation law?
Employers are strictly liable regardless of fault
What income is subject to to FICA (federal insurance contributions act) for self-employed person’s?
Net profits that exceed $400 in a year
How are nonbusiness bad debt losses treated?
short-term capital losses in the year that the debt becomes totally worthless
Which of the following statements is generally correct regarding the liability of a CPA who negligently gives an opinion on an audit of a client’s financial statements?
The CPA is liable to anyone in a class of third parties who the CPA knows will rely on the opinion
When is interest income on Series EE savings Bonds tax-exempt income?
When it is used to pay for higher education for the taxpayer, a spouse, or dependents
What are the responses of a taxpayer to a 90 day letter?
1) Pay the tax deficiency
2) File a petition with the U.S. tax court
What is the pass key in regard to whether a contract has to be in writing?
An offer or acceptance does not have to be in writing
What is the mailbox rule?
Only makes acceptances effective when they are sent
In regards to contract formation: revocations, rejections, and counteroffers are effective only upon _________.
receipt of them
What makes a contract void?
Fraud in the execution
Duress (physical)
Illegality
Adjudicated incompentency
According to the statute of frauds, what are the six contract requiring writing?
MYLEGS acronym
Contracts in which the consideration is MARRIAGE
Contracts which by their terms cannot be performed within a YEAR
Contracts involving interest in LAND
Conbracts by EXECUTORS or similar representatives to pay estate debts out of personal funds
Contracts for the sale of GOODS for $500 or more
Contract to act as a SURETY
What is the thing to remember regarding statute of frauds, contracts that have to be signed, who must have signed them?
Only the party to be charged (the party trying to avoid the contract)
What remedy is not available for breach of contract?
punitive damages
Punitive damages are available for fraud
What is the goal for remedies of damages for breach of a contract?
To put the non-breaching party in as good a position as he would have been had there been no breach
What are the three things that needs to be to qualify as a merchant’s firm offer?
The seller must be a merchant
The offer must be in writing and signed by the merchant
The offer must give assurances that it will be kept open for a certain time
What does the firm offer rule do?
There is no consideration required to make the offer irrevocable
In an S corporation, how are non-deductible expenses such as penalties and fines treated for tax purposes?
Included in ordinary business income
Absent an agreement to the contrary a limited liability company is ______________ on the death, withdrawal, or bankruptcy of an owner.
dissolved
What type of business organization may generally be formed without filing an organizational document or certificate with a state government agency or office?
a partnership or a sole proprietorship
What are the three things necessary to form a general partnership?
two or more persons
agreement expressly or impliedly
carry on as co-owners as a business for profit
(no agreement in writing is required)
an association of persons engaged as co-owners in a single (special transaction) undertaking for profit
joint venture
The legal requirements, the consequences, the advantages, and disadvantages of forming a joint venture generally are identical to those of a _________ ___________
general partnership
When entering into contracts, ______ must exist at the time the contract is made or the partnership must ______ the contract.
authority
ratify
The Revised Uniform Partnership Act (RUPA) requires that any partnership matters not in the ordinary course of business be approved by how many partners or what proportion?
all partners
This is classified as an extraordinary transaction of partnership business
What are the rights that an assignee of an interest in a partnership receives?
rights to profits and surplus
When the partnership agreement is silent as to how profits are to be divided, how are they divided?
Profits are divided equally among the partners.
Under the Revised Uniform Partnership Act, how are losses treated if not stated in the partnership agreement?
Losses are treated in the same manner that profits are treated
What is the rule when a partnership agreement does not state the duration of the partnership?
The partners may withdraw at any time
Partners are entitled to share in the profits of the partnership but are not entitled to _______________ unless otherwise agreed to in the partnership agreement
compensation
What will result in the dissociation of a partner
the bankruptcy
What document is filed with a state to form and LLC?
Articles of Organization
Absent an agreement otherwise, all members of an LLC generally participate in management, and their voting strength is determined by what?
Proportion of ownership interest based on a member’s capital contribution
What happens to an LLC if a member dies?
The LLC is dissolved unless the other members consent to continue
What is the exception to the rule of a dividend received deduction in regards to taxable income?
Lessor of:
Dividend received * ownership percentage reduction
Taxable income * ownership percentage reduction
What happens to an S corp when they are a shareholder of a C corp?
Nothing happens, S-corps can be shareholders of C-corps
C-corps cannot be shareholders of S-corps
Corporate existence may be _________________, which is an advantage of the corporate form of doing business.
perpetual
a new party (the corporation) is substituted for an old party (the promoter) in the contract. All parties must agree
novation
an agent for the corporation who would accept service of process in the event the corporation is involved in a lawsuit.
registered agent
Under which of the following circumstances would a promoter be relieved of personal liability on contracts entered into while engaged in forming a corporation?
The promoter is only relieved of personal liability on pre-incorporation contracts when there is a novation
a person who procures capital and other commitments for a corporation to be formed
promoter
adopted by the incorporators or directors, are not required to be filed, and generally will contain rules for running the corporation
bylaws
What is an example of the corporate veil being pierced and shareholders being personally liable for the company’s debts?
Commingling shareholders’ personal funds with the corporation’s funds is a breach of corporate formalities designed to create and keep the corporation as a separate legal entity
The corporation is thinly capitalized at the time of formation. (has a lot of debt compared with equity)
a contractual right to purchase stock
warrant
What happens to a shareholder when a corporation declares a dividend?
The shareholder becomes and unsecured creditor
Which of the following statements is correct regarding a shareholder’s right to inspect corporate books and records? The right:
Requires that the demand to inspect be for a proper purpose
The Revised Model Business Corporation Act (RMBCA) provides that any shareholder may inspect a corporation’s books and records on _________ days notice for a proper purpose, and this right may not be limited or abolished by the articles or bylaws
five
an action by a stockholder in the name of the corporation to recover damages or to seek some other remedy on behalf of the corporation when the corporation does not enforce its own rights
derivative action
The principle that protects corporate directors from personal liability for acts performed in good faith on behalf of the corporation is known as:
the business judgement rule
The right to purchase new issuances of additional stock in order to maintain current proportional ownership
pre-emptive right
What business entity can be voluntarily dissolved and terminated only by filing a dissolution document with the state of organization?
A corporation
says that not just anyone who suffers a loss because of an accountant’s mistake can sue them. Only people or companies that the accountant was specifically working for, or that the accountant knew would rely on their work, can sue.
ultra mares rule
This means only parties in privity can sue
