CPA Regulation (REG) : Contract Law

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

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Example Questions

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.

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