Q&A Hero

Q: An involuntary bailee: A. has the right to destroy the property in any circumstance. B. has the right to use the property in any circumstance. C. is obliged to find the owner and return the property under any circumstance. D. is obliged to assume control of the property in certain circumstances.

Q: When John, a dealer in antique furniture, stores his goods in a commercial warehouse, it is a: A. bailment for the sole benefit of John. B. bailment for the sole benefit of the storage company. C. bailment for the mutual benefit of John and the storage company. D. bailment for mutual benefit of the government and storage company.

Q: Nellie owned a Great Dane that she entered in dog shows on a regular basis. When she went on vacation, she asked her neighbor, Wilson, to take care of the dog. Wilson agreed to do so without asking to be paid for his services. Before leaving, Nellie gave Wilson instructions about how to care for the dog, but Wilson did not follow her instructions or restrain the dog. While Nellie was on vacation, a car hit the dog when it ran into the street. Which of the following statements is true? A. A bailment does not exist because Nellie did not pay Wilson anything to take care of the dog. B. A bailment was created, but since it was a bailment for the sole benefit of the bailor, Wilson had no duty to care for the dog. C. A bailment for the sole benefit of the bailor was created, which holds Wilson responsible for gross negligence. D. A bailment for the sole benefit of the bailee was created, meaning that Wilson will be held strictly liable to Nellie, for the dog's injuries.

Q: Identify the statement that is true of a bailee's duty of care. A. The bailee is liable to the bailor even if the property is lost or damaged without the fault or negligence of the bailee. B. If the bailment is solely for the benefit of the bailor then, the bailee may be held to a higher degree of care. C. If the bailment is for the sole benefit of the bailee then, the bailee may be held to a lower degree of care. D. The bailee must use the same kind of care a reasonable person would use to protect his own property in a mutual benefit bailment.

Q: If a bailee misdelivers the bailed property at the termination of the bailment: A. the bailee is liable to the bailor. B. the bailor assumed the risk and is liable. C. neither the bailee nor the bailor is liable. D. both the bailee and the bailor are equally liable.

Q: I.M. Handy was the sole proprietor of Handy's Upholstery Service. Green brought some items of furniture to Handy's place of business and left them there for the purpose of having them reupholstered. Handy and Green did not have any specific discussion concerning what Handy would charge for his services. Under these circumstances: A. a bailment for the sole benefit of the bailor was created even though the parties did not specifically discuss compensation. B. a bailment for mutual benefit was created which entitles Handy to compensation from Green for the reasonable value of his services. C. a bailment was not created and hence, Handy is not liable to any payment. D. a bailment was created only for the storage of property for which Handy is entitled only to storage services.

Q: When Martha of Martha's Homemade Pies gives a freshly baked apple-cinnamon double-crust pie to her sales clerk to put in the window case for display, the clerk: A. has possession of the pie. B. has custody of the pie. C. is a bailee to Martha. D. has ownership of the pie.

Q: Which of these actions are applicable under the Uniform Gifts to Minors Act? A. Adults are prohibited from making gifts of unregistered securities to minors. B. Adults can make a gift of money to minors by depositing the money with a bank in an account in the donor's name. C. Gifts of registered securities can be made by merely delivering the securities to a bank trustee. D. Gifts of unregistered securities can be made by registering the securities in the name of another adult.

Q: Which of the following statements is true about accession? A. Accession is the intermixing of goods belonging to different owners in such a way that the goods cannot later be separated. B. Even if work is done on personal property without the consent of the owner, he has to reimburse for the improvements. C. Usually the person who improved the property in good faith is entitled to recover the cost of the improvement made to it. D. Under accession, the owner of the original property generally doesn't become the owner of the improvements.

Q: Mary parked her car in a municipal parking lot. She locked her car, and kept her keys. When she returned, she discovered that someone had deliberately scratched "I love Reggie" into her car door, causing $150 in damage. Mary wants to sue the city for failing to protect her car from vandals. In this situation: A. a bailment was not created and, therefore, the city was under no duty to protect Mary's automobile from vandals. B. a bailment for the benefit of the bailor was created and, therefore, the city owed Mary only the duty to exercise minimal care in protecting the automobile. C. a bailment for the benefit of the bailee was created and, therefore, the city owed Mary a duty to exercise more than ordinary care in protecting her automobile. D. a bailment for mutual benefit was created and both parties owe a duty of reasonable care in protecting the automobile from the acts of third parties.

Q: Oscar drove his 1963 Rambler automobile to the Park & Run, Inc. parking garage. Oscar delivered the keys to the attendant and left the premises. The attendant parked the car. Oscar did not tell the attendant that there was an antique painting valued at $5,000 in the trunk of the car. A thief entered the parking garage, pried open the trunk of Oscar's car, and stole the painting. In this regard, identify the correct statement. A. Park & Run is a bailee only to the automobile, but not to the painting. B. Park & Run is a bailee as to both the automobile and the painting. C. A bailment for the painting will be created automatically when Park & Run accepted delivery and possession of the car. D. A bailment for the car and the painting will be created only if Park & Run makes an express warranty.

Q: The statute that allows finders of property to clear their title to the property after taking steps to see whether the true owner can be located is: A. the estray statute. B. the statute of limitations. C. the statute of repose. D. the nonclaim statute.

Q: If Susan found Tom's backpack in Biblio Bookstore: A. Susan would have the right to hold the mislaid property for Tom. B. the bookstore would have the right to hold the mislaid property for Tom. C. Susan would acquire possession and ownership of the backpack. D. the bookstore would acquire possession and ownership of the backpack.

Q: The statute that requires the true owner of property to claim it or bring a legal action to recover possession of it within a certain number of years after it has been mislaid is the ____. A. estray statute B. real property statute C. ownership statute D. statute of limitations

Q: Uncle Fred is about to undergo a major operation. Fred gives his watch to his nephew, Harry, and tells Harry he wants him to have it if he does not survive the operation. Uncle Fred's gift to Harry is a: A. gift inter vivos. B. general gift. C. residuary gift. D. gift causa mortis.

Q: James and Maria dated for two years. On the event of their second anniversary, James gave Maria a $20,000 diamond engagement ring. Two months later, James called off the engagement without giving Maria any valid reason. Under the traditional rule: A. James may not recover the ring as it was a gift made in contemplation of marriage. B. Maria must return the ring as the engagement is broken by mutual consent. C. the ring must be sold and the proceeds divided between James and Maria. D. Maria may retain the ring only if she pays its fair value to James.

Q: Which of the following statements is true with regard to the possession of a wild animal? A. The first person to take possession of a wild animal acquires its ownership rights. B. Personal ownership rights are never given to individuals for wild animals. C. Wild animals caught in traps are usually considered to be the property of the first person who finds the animal. D. To take possession of a wild animal found in a forest, a person must have the ownership rights of the property in which the animal was found.

Q: Jose gave Joon the permission to hunt on his land. While hunting, Joon discovered a Civil War-era sword half buried in the dirt. Under these circumstances: A. Joon is the owner of the sword. B. Jose is the owner of the sword. C. Jose and Joon share joint ownership of the sword. D. the government is the owner of the sword.

Q: When the finder of a lost property knows who the owner is and refuses to return it to him/her: A. the finder is liable to revest the title of the property back to the owner. B. the finder will not be found guilty of conversion. C. the finder will be found guilty of accession. D. the finder is liable to pay the owner the fair value of the property.

Q: George rented a car from RentaCar Co. When he returned the car to RentaCar Co., he forgot to retrieve his wallet from the glove compartment. What is the status of the wallet? A. Lost B. Mislaid C. Abandoned D. Unowned

Q: If property is mislaid by its owner: A. the finder of the property has the right to hold the property for the rightful owner. B. the finder can be held guilty of conversion and must pay the owner the fair value of the property. C. the finder acquires no rights to the property. D. the first person who thereafter takes possession of it with the intent of claiming ownership becomes its owner.

Q: An example of intangible property would be ____. A. an MP3 Player B. a tree cut down C. a patent D. land

Q: Marcie works for a large software company as a security analyst. In her free time away from work, she likes to develop computer games. Who is likely to be considered the owner of the games that Marcie has developed? A. The software company B. Marcie C. Marcie and the software company jointly own the games Marcie develops D. The person who uses the game first

Q: Dave purchased a plot of land that was owned by Ron. After he purchased the property, Dave discovered that the land contained valuable mineral deposits and quarried them. Ron, who did not know that the land contained valuable minerals at the time of sale, sues Dave to recover the value of the mineral deposits. Under these circumstances: A. Dave is the owner of the deposits because they became his personal property upon quarry. B. Dave is the owner of the deposits because the mineral deposits became part of the land under the doctrine of fixture. C. Ron can recover the fair market value of the mineral deposits because he did not intend to make a gift of personal property under these circumstances. D. Ron can rescind the sale because Dave is liable for conversion under these circumstances.

Q: Which of the following statements about tangible property is true? A. It has no physical existence. B. It is subject to tax in the state in which it is located. C. It is only owned by the government or a government unit. D. It is only taxable in the state where its owner lives.

Q: If a person permits a neighbor to borrow a wheelbarrow free of charge, a bailment for the benefit of the bailee has been created.

Q: If a bailment is solely for the benefit of the bailor, then the bailee may be held to a somewhat higher degree of care.

Q: A bailor, in a bailment for mutual benefit, can be held liable for injuries sustained by the bailee if the rented property is not fit for the purpose for which it was rented and causes injury.

Q: An involuntary bailee does not have the right to use property that was found by chance.

Q: In the United States, private ownership of property is protected by the: A. Fifth Amendment to the Constitution. B. Ninth Amendment to the Constitution. C. Tenth Amendment to the Constitution. D. Fourteenth Amendment to the Constitution.

Q: A person who finds lost property has a better right to that property than anyone, other than the true owner.

Q: A promise to make a gift is usually enforceable.

Q: As a general rule, the owner of the original personal property becomes the owner of the improvements.

Q: When a person goes into a restaurant, and hangs his hat and coat on an unattended rack, it creates a bailment.

Q: In a bailment situation, the bailor retains the title to the item of property.

Q: In determining whether a bailment was created, one must know whether the person to whom the property was delivered intended to assume possession and control over the property.

Q: Tangible property is taxable in the state where its owner lives.

Q: If Megan hires Pablo to paint her portrait, Megan is the owner of the painting.

Q: Wildlife is not a type of property.

Q: Real property which is detached from the earth can be turned into personal property.

Q: A purchaser of securities sold on a stock exchange lost all or part of his investment as a result of an accountant's errors in preparing a corporation's financial statements. Explain why he/she would not prefer to sue the accountant under Rule 10b-5.

Q: When might an accountant issue a qualified opinion and a disclaimer?

Q: Describe the accountant-client privilege.

Q: Bob retained Wanda, a CPA, to prepare his federal income tax return. In the course of preparing the return, Wanda had several conferences with Bob, during which conferences she made notes. In addition, Bob furnished Wanda with a number of documents concerning transactions in which Bob had been involved. The IRS ultimately brought suit against Bob, claiming that he had underpaid his actual tax liability by a substantial amount. The IRS arranged for a subpoena to be served on Wanda. The subpoena purported to require her to produce, in court, Bob's documents and the notes she had made during conversations with Bob. Wanda sought to resist the order on the basis that the conversations were held in confidence, for the purpose of preparing Bob's tax return, and that the notes were made and documents were delivered in furtherance of the same purpose. Wanda claimed, therefore, that what the IRS sought was privileged information and that since neither she nor Bob had waived the privilege, she should not have to produce what the IRS sought. Is Wanda's argument sound? Why or why not?

Q: Legal rights that have economic value but are not connected with an object can also be considered as property.

Q: An accountant may have conducted a limited audit that she does not feel able to offer an opinion as to the accuracy of the client's financial statements. In such situations, the accountant may issue a(n): A. qualified opinion. B. disclaimer. C. unaudited statement. D. opinion letter.

Q: Which of the following statements is correct with regard to working papers prepared by an accountant? A. They are owned by the client. B. The accountant may need to justify his work before the IRS or a court. C. The accountant can dispose of them as he/she pleases. D. The client does not possess the right of access to the working papers.

Q: Identify the true statement concerning communications between clients and accountants. A. In most states, communications between clients and accountants are treated the same way communications between clients and attorneys are treated. B. Communications between clients and accountants are treated by courts as privileged in the vast majority of states. C. Even if a state has a statute creating an accountant-client privilege, federal courts are inclined not to give such statutes any effect in cases involving federal taxes. D. The accountant may not be forced to testify about the client's records and about conversations that the accountant had with the client.

Q: The CPA firm of Knox & Knox has been subpoenaed to testify and produce its correspondence and working papers in connection with a lawsuit brought against Johnson, one of its clients. Regarding the firm's attempt to avoid having to present such evidence, which of the following is correct? A. Federal law recognizes such a privilege if the accountant is certified. B. The privilege of confidentiality is available regarding working papers since the accountant is deemed to own them. C. The privilege of confidentiality is as widely available as the attorney/client privilege. D. In the absence of a specific statutory provision, the law does not recognize the existence of the privileged communication rule between accountants and their clients.

Q: List the five major judicial approaches to third-party negligence actions.

Q: Section 18(a) of the 1934 Act: A. requires that the plaintiff prove reliance. B. makes an accountant liable for accidental mistakes in the audit. C. is not triggered by reliance. D. requires the accountant to prove that he exercised due diligence.

Q: Which of the following is true of the criminal liabilities under 1933 and 1934 Securities Act? A. A willful misrepresentation, including an omission, in a registration statement is made a criminal act under the 1933 Act. B. The 1933 and 1934 Act makes it a crime to willfully make a false or misleading statement in reports that are required to be filed under the act. C. The criminal provisions of 1933 and 1934 Act specifically mention that they will be used against accountants. D. A willful violation of Rule 10b-5 is a crime under the 1933 Securities Act.

Q: Which of the following statement is true of the Sarbanes-Oxley Act of 2002? A. It requires foreign accounting firms to register with the Public Company Accounting Oversight Board if they audit public companies. B. The act reduces criminal penalties for securities fraud. C. Its registration and reporting provisions apply only to U.S. companies listed on U.S. securities exchanges. D. Section 106 of the act deals expressly with national accounting firms.

Q: After an audit, an accountant certifies the financial statement by issuing a(n): A. certificate of audit. B. opinion letter. C. memorandum. D. amicus brief.

Q: The accountant issues a(n) _____ if the audited financial statements accurately reflect the client's financial condition in compliance with GAAP. A. unqualified opinion B. disclaimer C. unaudited statement D. opinion letter

Q: Under Rule 10b-5 of the 1934 Act: A. the plaintiff must prove that the accountant acted with scienter. B. the intent to deceive is not an element of the offense. C. an accountant may be liable to a purchaser for a misstatement of material fact in the registration statement. D. an accountant must prove he exercised due diligence to escape liability.

Q: Titus, a CPA, certified a client's financial statements because he believed they were correct, on the basis of his use of standard accounting and auditing practices. Later, while doing further work for the same client, Titus discovered information leading him to the conclusion that the financial statements he had certified were false and misleading. Which of the following statements is correct? A. Titus has a duty of loyalty only to the third parties who must have reasonably relied on the accuracy of those financial statements. B. Titus can have no liability to anyone if he chooses not to reveal the unreliability of the financial statements, because when he certified them, he had good reason to believe they were accurate. C. Titus has a duty to disclose the unreliability of the financial statements to anyone he knows is relying on the financial statements. D. Titus has a duty to inform his client of what he has discovered, but he has no duty to inform any third parties.

Q: Section 11(a) imposes liability on accountants for: A. misstatements or omissions of material facts furnished in registration statements. B. inadvertent error in the information provided by the client. C. accidental miscalculations in audits. D. statements of opinion.

Q: Rowell and Associates, a CPA firm, was engaged by American Widget Corp. to audit its annual financial statements. American Widget officials told Rowell that the company planned a new issue of stock and that Rowell's audit report would be included in the registration statement. Rowell's audit team "booked" several large sales for which no written contracts or orders appeared in the files, but for which verbal confirmations were given by "customers" during telephone conversations initiated by American Widget personnel. The customers were nonexistent; the purchases never were made. American Widget went bankrupt shortly thereafter. Several investors in the new common stock then sued Rowell. Rowell's audit team truly believed the sales in question had been made and that the customers had confirmed the validity of the sales. In view of these facts, the plaintiffs: A. will lose their suit because they cannot show that Rowell committed a willful wrong. B. will win their suit if it is a Rule 10b-5 suit, because Rowell was negligent. C. will win their suit if it is brought under Section 11 of the Securities Act of 1933, because Rowell cannot prove due diligence. D. will lose the suit because they cannot show that Rowell was aware of the oversight.

Q: Under Section 11(a) of the 1933 Act, accountants: A. are liable only if privity of contract is with the purchaser. B. are liable for materially defective registration statements unless they can prove that they exercised due diligence. C. are liable only to purchasers who relied upon the omissions or falsities in the registration statements. D. are not liable to any purchaser of securities issued pursuant to a defective registration statement.

Q: An investor seeking to recover stock market losses from a CPA firm, based upon an unqualified opinion on financial statements that accompanied a registration statement, must establish that: A. there was a false statement or omission of a material fact contained in the audited financial statement. B. he/she assumed the financial statements to be accurate. C. the investor completely relied on the CPA firm's opinion for investing in the stock market. D. the losses were the result of a downturn in the price of securities.

Q: Rule 10b-5 prohibits any person from making a misstatement or omission of a material fact in connection with: A. the purchase and not the sale of securities. B. the mortgage of a property. C. the purchase or sale of any security. D. the purchase or sale of a property.

Q: The Restatement approach to third-party negligence suits against accountants: A. requires that the accountant be unaware of the third parties. B. holds that the accountant is liable only to those third parties who are unreasonably foreseeable. C. does not protect the typical investor who was unknown to the accountant and his/her client when the financial statements were prepared. D. requires that the accountant be unaware of the third parties reliance on the financial statements.

Q: Under the Reasonably Foreseeable Users approach: A. the accountant could be liable to third parties who are unknown but reasonably foreseeable users. B. a negligent accountant is exposed to lesser liability than in the Restatement approach. C. the accountant could be liable to third parties who are specifically foreseeable users. D. a negligent accountant is exposed to lesser liability than in the Ultramares approach.

Q: Under the Balancing Approach, the third party: A. cannot recover unless in privity. B. cannot recover unless the accountant knew the purpose of reports and the identity of user. C. may recover when the accountant knew audited material would be used. D. may recover if determinative factors make liability desirable.

Q: An accountant's duty of care: A. is limited to their actions during the audit. B. extends beyond her/his actions during the audit itself. C. has been greatly limited by the courts. D. does not comply with GAAS and GAAP standards.

Q: A showing of fraud requires: A. comparative negligence. B. inadvertent error. C. scienter. D. contributory negligence.

Q: Which of the following statements is true of the recovery by a creditor on the theory that the creditor was a third-party beneficiary of the contract employing the accountant? A. To recover the creditor must show that only he stood to benefit from the contract. B. To recover the creditor must show that the accountant was aware of the fact that the audit was ordered to satisfy the demand of the creditor. C. To recover the creditor must prove that the accountant performed the work in a negligent fashion, to the injury of the creditor. D. The creditor is prohibited by law, in most states, from bringing such a suit.

Q: The near privity approach was adopted by courts in contrast to the strict privity rule of the: A. Balancing approach. B. Reasonably Foreseeable Users approach. C. Ultramares approach. D. Restatement approach.

Q: The Ultramares approach is a: A. strict privity approach. B. near privity approach. C. reasonable person approach. D. no delegation approach.

Q: Under the near privity approach, accountants may be liable in negligence to third parties when: A. he/she was unaware that the financial reports were to be used for a particular purpose. B. the identity of the third parties were unknown to the accountant but, the accountant knew that these third parties would rely on the reports. C. the fact that the third party would rely on the reports were unknown to the accountant. D. there has been some conduct on the part of the accountant linking him/her to the third party that evidences the accountant's understanding of the third party's reliance.

Q: The party asserting the work product privilege bears the burden of establishing that the documents he seeks to protect were prepared in anticipation of litigation.

Q: Generally accepted accounting principles: A. limit recovery to those with a direct contractual relationship to the accountant. B. apply to the way business transactions should be recorded. C. give directions to accountants in auditing the books of an enterprise. D. protect the investor who is unknown to the accountant when the financial statements are prepared.

Q: Winslow Manufacturing sought a loan from National Lending Corporation. In connection with the loan application, National required that Winslow submit certain audited financial statements. Winslow had an audit performed by an independent CPA, who submitted his report to Winslow under the presumption that his report was to be used solely for the purpose of negotiating a loan from National. After National rejected Winslow's loan application, Winslow submitted the CPA's report to other lenders in connection with its loan applications with them. It was subsequently learned that the CPA, despite the exercise of reasonable care, had failed to discover a sophisticated embezzlement scheme by Winslow's chief accountant. Under these circumstances, the CPA is: A. liable to any creditor who extended a loan to Winslow. B. liable to Winslow to return the audit fee because credit was not extended by National. C. liable to Winslow for any losses Winslow suffered as a result of the CPA's failure to discover the embezzlement. D. not liable to any of the parties.

Q: A CPA firm agrees to complete an audit by the 28th of February because it has been informed of a deadline set by a prospective lender to the client. If the audit report is not finished until the end of March then: A. the firm would be liable even though the delay was due to the client's having obstructed performance of the audit. B. the accounting firm would not be liable if they had other deadlines to meet at the same time. This could be used as a complete defense. C. the accountant would be liable for the client's resulting loss if the lender has no more funds available at that time. D. the firm would not be liable if they have delegated their responsibilities to another CPA firm.

Q: Which of the following statements is true of negligence by an accountant? A. The failure of an accountant to discover fraud by the client's employees or others is in itself proof of negligence by the accountant. B. The investigative techniques used by accountants will always uncover the fraud of a skillful and careful crook. C. The traditional defenses of contributory negligence and comparative negligence can apply in a negligence action against an accountant. D. It is not necessary to notify an appropriate person in management if an accountant has a basis for suspicion of fraud.

Q: Saxon Inc. entrusted Thomas Simpson, an independent CPA, to prepare an audit report to apply for a loan from Sharp Lenders. Simpson merely accepted the accuracy of the client's books without proper investigation while representing that he had completed Saxon's audit. A careful audit, however, would have discovered that an employee of Saxon's was regularly embezzling funds from him. Simpson is: A. liable to any creditor who extended a loan to Saxon Inc. based upon the audited financial statements. B. not liable to Saxon Inc. to return the audit fee because credit was not extended by Sharp. C. liable to Saxon Inc. for any losses he suffered as a result of Simpson's failure to discover the embezzlement. D. not liable to any of the parties as he does not owe them the duty of skill or care.

Q: Liability under Rule 10b-5 of the 1934 Act requires scienter.

Q: An accountant's liability to third persons for negligence is generally barred by the privity doctrine unless the accountant should have foreseen that the third party would rely on the audit.

Q: An accountant may be found liable for aiding and abetting if she encourages or participates in the publication of misleading information.