CPA Regulation (REG) : Business Law - General

Study concepts, example questions & explanations for CPA Regulation (REG)

varsity tutors app store varsity tutors android store

Example Questions

← Previous 1

Example Question #1 : Business Law General

Which of the following pairs of elements must a client prove to hold an accountant liable for common law fraud?

Possible Answers:

Material misrepresentation and breach of contract.

Freedom from contributory negligence and loss.

Intent to deceive and perjury.

Scienter and justifiable reliance.

Correct answer:

Scienter and justifiable reliance.

Explanation:

Common law fraud requires five elements all to be met: 1) misrepresentation of a material fact by the defrauding party; 2) scienter (intent to deceive); 3) intent to induce reliance; 4) reasonable reliance, and 5) actual damages to another party.

Example Question #2 : Business Law General

Which of the following circumstances generally will cause a discharge of contractual duties by operation of law?

Possible Answers:

Impossibility of performance

Novation

Anticipatory retaliation

Accord and satisfaction

Correct answer:

Impossibility of performance

Explanation:

“Operation of law” refers to legal consequences of events based on legal principles, rather than from an individual’s action or a court order. In the event that performance becomes impossible (e.g., a person contracted to provide services dies or becomes incapacitated), this necessarily discharges the duties of performance.

Example Question #1 : Business Law General

If a party to a contract engages in an anticipatory repudiation of the contract, which of the following statements is correct?

Possible Answers:

The repudiation is a material breach of the contract.

The other party never has a duty to mitigate any losses resulting from the repudiation.

The other party cannot take action against the repudiating party until the time for performance has passed and performance has not occurred.

The repudiating party cannot retract the anticipatory repudiation.

Correct answer:

The repudiation is a material breach of the contract.

Explanation:

Anticipatory repudiation occurs when a party declares that he or she does not intend to fulfill the obligations of a contract. This creates a material breach wherein the other party may take action prior to the repudiating party’s attempt at performance. The repudiating party may retract the repudiation unless the other party has cancelled or materially changed the contract.

Example Question #4 : Business Law General

In determining whether the consideration requirement to form a contract has been satisfied, the consideration exchanged by the parties to the contract must be:

Possible Answers:

Legally sufficient

Fair and reasonable under the circumstances

Of approximately equal value

Exchanged simultaneously by the parties

Correct answer:

Legally sufficient

Explanation:

To be effective, consideration must be legally sufficient which means something that the law recognizes as consideration.

Example Question #5 : Business Law General

ABC offered, in writing, to sell DEF a parcel of land for $200,000. If ABC dies, the offer will: 

Possible Answers:

Remain open for a reasonable time period after ABC’s death

Automatically terminate despite DEF’s prior acceptance

Terminate prior to DEF’s acceptance only if DEF received notice of ABC’s death

Automatically terminate prior to DEF’s acceptance

Correct answer:

Automatically terminate prior to DEF’s acceptance

Explanation:

The death of an offeror prior to acceptance terminates the offer by operation of law without notice to the offeree.

Example Question #6 : Business Law General

The statute of limitations time period would begin from which of the following dates if there is a breach in a construction contract?

Possible Answers:

The date the contract is breached

The date the contract is declared

The date the contract is signed

The date the work began

Correct answer:

The date the contract is breached

Explanation:

The statute of limitations begins when the contract is breached when the wrongdoing has begun. None of these other dates would be the starting period.

Example Question #7 : Business Law General

The registration requirements of the Securities Act of 1933 are intended to provide information to the SEC to enable it to:

Possible Answers:

Ensure that investors are provided with adequate information on which to base investment decisions.

Assure investors of the accuracy of the facts presented in the financial statements.

Prevent public offerings of securities when management fraud or unethical conduct is suspected.

Evaluate the merits of the securities being offered.

Correct answer:

Ensure that investors are provided with adequate information on which to base investment decisions.

Explanation:

The primary goal of the Securities Act of 1933 is to ensure that investors have sufficient information in order to inform investment decisions; the SEC does not assure the accuracy of the information or assess the financial merits of it.

Example Question #8 : Business Law General

Under the Securities Act of 1933, the registration of an interstate securities offering is:

Possible Answers:

Mandatory, unless the cost to the issuer is prohibitive.

Required, unless there is an applicable exemption.

Intended to prevent the marketing of securities which pose serious financial risks.

Required only in transactions involving more than $500,000.

Correct answer:

Required, unless there is an applicable exemption.

Explanation:

Several securities do not require registration, such as a Certificate of Deposit, securities issued by a governmental or non-profit organization, insurance policies, or short-term commercial paper (with a maturity of less than nine months). Issuer cost, riskiness, and dollar amounts are irrelevant with respect to the registration requirement.

Example Question #9 : Business Law General

Under the liability provisions of Section 18 of the Securities Exchange Act of 1934, for which of the following actions would an accountant generally be liable?

Possible Answers:

Negligently filing a reporting corporation’s tax return with the IRS.

Negligently approving a reporting corporation’s incorrect internal financial forecasts.

Intentionally preparing and filing with the SEC a reporting corporation’s incorrect quarterly report.

Intentionally failing to notify a reporting corporation’s audit committee of defects in the verification of accounts receivable.

Correct answer:

Intentionally preparing and filing with the SEC a reporting corporation’s incorrect quarterly report.

Explanation:

Section 18 of the 1934 Act addresses only intentionally false or misleading representations in a registration statement.

Example Question #10 : Business Law General

An accuracy related penalty applies to the portion of tax underpayment attributable to A) Negligence or a disregard of the tax rules or regulations B) Any substantial understatement of income tax:

Possible Answers:

Neither

Both

A

B

Correct answer:

Both

Explanation:

Accuracy-related penalties apply to the portion of tax underpayments attributable to negligence or disregard of tax rules and regulation as well as to any substantial understatement of income tax.

← Previous 1
Learning Tools by Varsity Tutors