Review R1 to R6 Flashcards
Under Chapter 11 of the federal Bankruptcy Code, which of the following would not be eligible for reorganization?
Reorganizations are considered to be nontaxable events and will exist if the reorganization can demonstrate a continuity of business. A continuity of business means that the company will be able to continue operating or continue business operations subsequent to the reorganization.
Savings and loan corporation.
Savings and loan corporations may not participate in Chapter 11 (or Chapter 7) bankruptcy proceedings.
Retail (and wholesale) sole proprietorships, advertising partnerships and CPA professional corporations may file under Chapter 11 of the Bankruptcy Code.
Bolt Corp. dismissed Ace as its general sales agent and notified all of Ace’s known customers by letter. Young Corp., a retail outlet located outside of Ace’s previously assigned sales territory, had never dealt with Ace. Young knew of Ace as a result of various business contacts. After his dismissal, Ace sold Young goods, to be delivered by Bolt, and received from Young a cash deposit for 20% of the purchase price. It was not unusual for an agent in Ace’s previous position to receive cash deposits. In an action by Young against Bolt on the sales contract, Young will:
Win, because Bolt’s notice was inadequate to terminate Ace’s apparent authority.
Although Bolt gave known customer’s notice of Ace’s dismissal, some courts might also require a notice placed in a newspaper to terminate Ace’s apparent authority as to people, like Young, who had heard of Ace.
Although Ace lacked express authority, a court might find that he had apparent authority since Bolt had held Ace out as its agent previously.
Apparent authority is a legal relationship between an agent and a principal that allows the agent to act on the principal’s behalf, even if the principal didn’t explicitly grant them that power.
A CPA sued a former client for nonpayment of the final bill. Although happy with the CPA’s performance of services, the client claimed that the CPA is not entitled to the final bill payment because the contract between the client and the CPA failed to meet the Statute of Frauds. The client argues that the contract allowed up to 15 months for the CPA to complete the work, the contract price was well over $5,000, and although the client sent signed checks to the CPA, the client did not sign the contract. Which of the following statements about this situation is correct?
The Statute of Frauds does not apply, allowing enforcement of the contract terms.
Under the Statute of Frauds, certain contracts are unenforceable unless the party against whom enforcement is sought has signed a writing containing the material terms of the contract. There is no such writing here, but the contract is not one within the Statute of Frauds. Contracts that by their terms cannot be performed within one year from the making of the contract are within the statute, and so are contracts for the sale of goods for $500 or more. Here, while the contract allowed the CPA up to 15 months to complete performance, nothing indicates that performance could not be completed within a year. Therefore, that branch of the Statute does not apply. And although the contract price was $5,000, this is a contract for services and so the $500 threshold does not apply, either.
The corporate dividends-received deduction:
Is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period.
The corporate dividends-received deduction is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period of more than 45 days.
Eller, Fort and Owens are members of Venture Associates, LLC. Trent Corp. brought a breach of contract suit against Venture for a contract executed by Eller as an agent of the LLC. If Trent prevails, Trent will generally be able to collect the judgment from:
The LLC’s assets only.
Rule: Members of an LLC are not personally liable for the LLC’s obligations. Moreover, an agent is not liable on a contract the agent enters into on behalf of a disclosed principal. Here, the contract was entered into by Eller on behalf of Venture, an LLC, and Eller disclosed that he was acting only as an agent of Venture. Thus, Trent Corp. can collect from the LLC’S assets only.
Which of the following facts is(are) generally included in a corporation’s articles of incorporation?
YES. Name of
registered
agent
YES. Number of
authorized
shares
Rule: The articles of incorporation generally must contain both the name of a registered agent upon whom process may be served and the number of shares authorized to be issued.
Which of the following statements is correct with respect to the reorganization provisions of Chapter 11 of the federal Bankruptcy Code?
The commencement of a bankruptcy case may be voluntary or involuntary.
Under Bankruptcy Code Section 303, creditors may petition a debtor involuntarily into a Chapter 11 bankruptcy reorganization proceeding.
The general rule in a reorganization is that a trustee is not appointed.
There is no requirement of insolvency for filing a voluntary reorganization petition.
Under the Revised Model Business Corporation Act, which of the following statements is correct regarding corporate officers of a public corporation?
A corporation may be authorized to indemnify its officers for liability incurred in a suit by stockholders.
Under the Sales Article of the UCC, most goods sold by merchants are covered by certain warranties. An example of an express warranty would be a warranty of:
Conformity of goods to sample.
Under the UCC, any affirmation of fact or promise constitutes an express warranty. Any model, sample, or description also gives rise to an express warranty that the goods will be in conformity with the sample, model, or description.
With regard to an agreement for the sale of real estate, the Statute of Frauds:
Does not require that the agreement be signed by all parties.
The Statute of Frauds does not actually require an agreement to be signed by any party; instead, it requires written proof of the material terms of the agreement to be evidenced by a writing signed by the party being sued.
Jones, Smith, and Bay wanted to form a company called JSB 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. Bay was going to be the only individual giving management advice to the company and wanted to be a member of JSB through his current company, Channel, Inc. Which of the following would be the most appropriate business structure to meet all of their concerns?
Limited liability partnership.
An LLP does not pay taxes on its earnings. Instead, the profits and losses flow through to the partners as in a general partnership. The LLP files an informational tax return like that of a general partnership. The partners may agree to have the entity managed by one or more of the partners. A partner may be another entity.
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.
A reorganization plan under Chapter 11 will not be approved unless the plan provides for the full payment of administration expenses (and for full payment to certain other classes of creditors, too).
A registered agent for a corporation incorporated in Delaware would:
Have legal documents served on it on behalf of the corporation, if the corporation is sued.
A registered agent is an agent for the corporation who would accept service of process in the event the corporation is involved in a lawsuit.
An accrual-basis C corporation that prepared its financial statements based on GAAP recorded $800,000 of bad debt expense. The total amount of bad debts that actually became worthless was $930,000. In respect to bad debt expense, what type of disclosure should the corporation show on Schedule M-3?
A temporary difference in which tax deductions exceed book deductions by $130,000.
For GAAP purposes, accrual-basis corporations are required to determine bad debt expense based on the allowance method. However, for tax purposes the bad debt deduction is based on the direct write-off method. Thus, the corporation in this problem deducted $930,000 of bad debts on its tax return but recorded a bad debt expense of only $800,000 on its GAAP financial statements. Thus, tax deductions exceeded book deductions by $130,000. The book/tax difference in the bad debt deduction is considered a temporary difference.
To cancel a contract and to restore the parties to their original positions before the contract, the parties should execute a:
Rescission
A rescission “undoes” a contract and restores the parties to the positions they would have been in if no contract were made.
