Q&A Hero

Q: Jerzy is an accountant whose clients include Kopper Kettle Restaurants, Inc. For a violation of securities laws, Jerzy may be subject to a. comprehensive liability. b. corporate liability. c. criminal liability. d. no liability.

Q: Applied Methods Corporation promises to give stock options to Brad, a production designer, for processes he has already designed. This promise is a. enforceable because it is a new contract. b. enforceable because it is an illusory promise. c. enforceable because it is supported by past consideration. d. unenforceable.

Q: In most courts, auditors cannot be held liable to third parties for negligence in the performance of their duties.

Q: Lacy is an accountant who prepares her clients' tax returns. Muff is not an accountant, but he also prepares tax returns for clients. Under the In­ternal Revenue Code, liability for preparing a false return may be im­posed on a. Lacy and Muff. b. Lacy only. c. Muff only. d. neither Lacy nor Muff.

Q: Coverage Interstate, Inc. (CII), coordinates an insurance network that includes 1 million potential patients. By contracting with CII, a medical provider gains access to the network in exchange for accepting payments at lower than prevailing market rates. Doctors, Inc., contracts with CII but, when few patients are forthcoming, files a suit to recover the difference between the contract and market rates. Under the reasoning of Case 12.2, Seaview Orthopaedics v. National Healthcare Resources, Inc., the court will likely rule that the contract is a. enforceable because consideration is not required for this contract. b. enforceable because the contract does not lack consideration. c. not enforceable because Doctors received few patients. d. not enforceable because the contract lacks consideration.

Q: Jeff offers Kelly $1,000 for her three-year-old laptop computer. Kelly accepts. If a dispute arises, a court would likely a. enforce the deal after questioning the adequacy of consideration. b. not question the adequacy of the consideration. c. rewrite the deal after questioning the adequacy of consideration. d. set aside the deal after questioning the adequacy of consideration.

Q: If a third party will be affected by a contract, the parties to the contract are in privity with the third party.

Q: Longway Trucking, Inc., files a suit against Midge, an accountant, under the antifraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission. To succeed in recovering damages, Longway must show that Midge a. acted with scienter. b. bought or sold a security. c. is incompetent. d. knows nothing about securities.

Q: A professional's gross negligence in performing a duty constitutes actual fraud.

Q: Meri, an accountant, includes a false statement in a report for Novelty Paper Products, Inc. (NPPI) that is filed with the Securities and Exchange Com­mission. When Otho buys stock in NPPI and loses money on the investment, he files a suit against Meri, alleging fraud under the 1934 Securities Exchange Act. To avoid liability, Meri can show that she a. intended to defraud NPPI, not Otho. b. intended to profit on stock trades generally, not only with Otho. c. is an otherwise competent accountant. d. was not aware her statement was false.

Q: Bertha is an accountant with Chocolate Shoppes Corporation. Doral buys Chocolate stock and loses money on the investment. To recover from Bertha under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Se­curities and Exchange Commission, Doral must prove a. nothing. b. scienter, fraud, and reliance only. c. scienter, fraud, reliance, and materiality only. d. scienter, fraud, reliance, materiality, and causation.

Q: A professional can be liable for fraud whether or not he or she acted with fraudulent intent.

Q: American Engineering, Inc., defends against a breach-of-contract suit by Beta Corporation by claiming that the consideration for their contract was inadequate. A court will not normally evaluate the adequacy of consideration unless it is a. a service. b. grossly inadequate. c. in the form of a forbearance. d. not yet paid.

Q: Jill promises to pay Kyle $500 because "he does not have as much money as other people." Jill's promise is a. enforceable because society wants people to keep their promises. b. enforceable because the redistribution of wealth is a valid social goal. c. not enforceable because Jill could have given more. d. not enforceable because Kyle has not given consideration in return.

Q: Malpractice is professional negligence.

Q: Pat, an accountant, includes a false statement in a report for Quantity Overstock, Inc., that is filed with the Securities and Exchange Commis­sion. Quantity publishes a misleading ad about its future prospects. Rita sees the ad and calls Stan, who buys stock in Quantity. Under Section 18 of the Securities Ex­change Act of 1934, liability may attach to a. Pat's report. b. Quantity's ad. c. Rita's call. d. Stan's purchase.

Q: Harry promises to pay Larry not to park in a no-parking zone in front of Harry's house. The agreement is a. enforceable because Larry is giving up the right to do something that he would otherwise do in the absence of the agreement. b. enforceable because the agreement accomplishes Larry's goal that the no-parking zone in front of his house be kept clear. c. not enforceable because Larry has no legal right to park in the no-parking zone. d. not enforceable because the no-parking zone is owned by the city.

Q: Under rules of professional misconduct, an attorney should not engage in conduct involving deceit.

Q: Mona, an accountant, prepares for NuTech Corporation a financial statement that omits a material fact. The financial statement is included in NuTech's registration statement, which Pam reads. Pam buys NuTech stock. Under Section 11 of the Securities Act of 1933, for Mona to be liable for the omission, Pam must show that a. Pam relied on the omission. b. Pam suffered a loss on the stock. c. Pam knew about the omission before making her purchase. d. the omission had no causal connection to her loss.

Q: Rollo promises to perform, for a price, shoe repair services in affiliation with Togs "˜n Things, a clothing store. To support a contract, the consideration exchanged by the parties must be a. adequately considerate. b. equally valuable. c. legally sufficient. d. wisely priced.

Q: Each state establishes rules that govern the conduct of attorneys

Q: Quentin, an accountant, prepares for Ruff n" Reddy Concrete Corporation a financial state­ment that omits a material fact. The statement is included in Ruff n" Reddy's registration statement filed with the Securities and Exchange Commission. Timor, who reads the statement, and Ubi, who does not, each buy Ruff n" Reddy stock. Under Section 11 of the Securities Act of 1933, Quentin may be liable to a. neither Timor nor Ubi. b. Timor and Ubi. c. Timor only. d. Ubi only.

Q: Alan, the owner of Bar-B-Q Café, announces that he plans to paint its front fluorescent red. Carol, the owner of Dress Shop next door, promises to pay Alan $1,000 to use a more conservative color. Alan agrees. Carol's promise is a. enforceable, because Alan agreed to refrain from doing something that he was legally entitled to do. b. enforceable, because Alan would resent Carol if she never paid. c. unenforceable, because Alan agreed to refrain from doing something that he was legally entitled to do. d. unenforceable, because Alan's color choice was offensive to Carol.

Q: Attorneys are required to be familiar with well-settled principles of law applicable to a case.

Q: Lulu, an accountant, conducts an audit of Microstuff Toys, Inc. After the conclu­sion of the audit, the working papers created in preparing the audit must be a. disposed of immediately. b. kept until the Public Company Accounting Oversight Board's review. c. maintained for seven years. d. retained forever.

Q: Under the doctrine of promissory estoppel, every gratuitous promise is binding if the promisee changes position in reliance on the promise.

Q: A client's negligence is never a defense to a charge of negligence against an accountant.

Q: Hadley, an accountant, accumulates working papers while performing an audit for Ilene. After the audit, these documents belong to a. Hadley, with Ilene having a right of access to the papers. b. Ilene, with Hadley having a right of access to the papers. c. neither Hadley nor Ilenethe papers must be disposed of. d. the Public Company Accounting Oversight Board.

Q: Promissory estoppel requires reliance of a substantial and definite character.

Q: An accountant can avoid liability by proving that his or her negligence was only the proximate cause of the cli­ent's loss.

Q: Craig is an accountant whose clients include Digby Excavation Corporation. Elbert is Craig's attorney. Under the common law and by statute in many states, working papers that Craig develops when preparing financial reports for Digby are owned by a. Craig. b. Digby. c. Elbert. d. no onethe papers must be destroyed immediately after use.

Q: Failing to pay damages as agreed in a covenant not to sue is a breach of contract.

Q: Promises to pay debts barred by a statute of limitations are not enforceable due to the absence of consideration.

Q: An opinion that disclaims any liability for false or misleading financial statements is too general.

Q: Boris is an accountant. Under the Sarbanes-Oxley Act of 2002, the degree of government oversight over the public accounting practices of Boris and other accountants was a. decreased. b. increased. c. new. d. unchanged.

Q: Doug is an accountant whose clients include Everyday Products, Inc. (EPI). Under the Ultramares rule, if Doug is negligent in his work for EPI, he could be liable to a. EPI and any third party. b. EPI and third parties who are foreseen users of his work for EPI. c. EPI and third parties who are reasonably foresee­able users of his work for EPI. d. EPI only.

Q: A qualified opinion must be specific and identify the reason for the qualification.

Q: An accountant is required to discover every impropriety, defalcation, and fraud in a client's books.

Q: A release always bars further recovery.

Q: Toby is an accountant whose clients include U-All Company. If Toby is negligent in his work for U-All, most courts would hold him liable to U-All and a. any third party. b. no third party. c. third parties who are foreseen users of the work. d. third parties who are reasonably foresee­able users of the work.

Q: Quibble Game Company's liabilities exceed its assets. Quibble hires Roo & Slay, an accounting firm, to prepare a balance sheet. Through Roo & Slay's negligent omissions, the sheet shows a positive net worth. Town Bank relies on the balance sheet to make a loan to Quibble. When Quibble defaults, Town files a suit against Roo & Slay. Under the Restatement rule, Roo & Slay is most likely a. liable because Roo & Slay owed a duty of care to Quibble. b. liable because Roo & Slay owed a duty to any foreseeable user. c. liable if Roo & Slay knew that Town would rely on the balance sheet. d. not liable because Roo & Slay and Town were not in privity.

Q: An accountant normally will be held liable to the client for incorrect judgment.

Q: A release is a contract in which one party forfeits the right to pursue a legal claim against another.

Q: Generally, an accountant must exercise the degree of care that an ordinarily prudent accountant would exercise.

Q: An accord and satisfaction is used to discharge a liquidated debt.

Q: Marquis Company's liabilities exceed its assets, but the firm's employees falsify its books to reflect a positive net worth. Marquis hires Nan & Ollie, an accounting firm, to prepare a balance sheet, which is certified to show a positive net worth. Pure Credit Corporation relies on the balance sheet to make a loan to Marquis. When the firm defaults, Pure Credit files a suit against Nan & Ollie. Under the Ultramares rule, the accounting firm is most likely a. liable because Nan & Ollie owed a duty of care to all third parties. b. liable because Nan & Ollie owed a duty of care to Marquis. c. liable because Nan & Ollie owed a duty to any foreseeable user. d. not liable because Nan & Ollie and Pure Credit were not in privity.

Q: Lars accuses Moe, an attorney, of committing malpractice. Malpractice is a. a breach of ethics. b. a defalcation. c. a mistake in judgment. d. professional negligence.

Q: Accountants and other professionals may not be held liable for negligence in the performance of their service.

Q: Cashing a check in an amount for less than a balance owed and on which the debtor has written "payment in full" will discharge a liquidated debt.

Q: Grover Nut Company files a suit against Hud, its former account­ant, alleging actual fraud. Grover must prove a. intent to deceive. b. misrepresentation of a non-material fact. c. the lack of an injury. d. unjustifiable reliance.

Q: Accountants and other professionals do not face liability under the common law for any breach of contract.

Q: Any promise made with respect to a past event is enforceable because the event is certainit has already occurred.

Q: Lebron, an attorney, allows a statute of limitations to lapse on a claim by Midwest Metal Fabrication Company, a client. Lebron a. can be held liable for malpractice. b. has violated an ethical standard but cannot be held liable. c. is subject to criminal penalties under the statute of limitations. d. will be automatically disbarred.

Q: An obligation is enforceable only if it is supported by past consideration.

Q: Professionals are obligated to adhere to standards of performance generally accepted within their profession.

Q: Daisy Daycare, Inc., files a suit against Eldon, its former accountant, al­leging constructive fraud. Eldon may be held liable a. if Daisy cannot prove actual fraud. b. if Eldon was grossly negligent in the performance of his duties. c. only if Eldon acted with fraudulent intent. d. only if the court adopts the Ultramares rule.

Q: Odiferous Waste Company is a subsidiary of Precarious Investments, Inc. Odiferous op­erates a hazardous waste disposal site. QuikChem Corporation is one of many parties who generate waste disposed of at the site. Odiferous borrows money from Regal Bank, which takes over the site when Odiferous goes bankrupt. The Environmental Protection Agency discov­ers a leak at the site. Can any of these private parties be forced to pay for the clean up? If so, who?

Q: Two parties can mutually agree to rescind a contract only if one of the parties has fully performed his or her duties.

Q: Extraordinary difficulties that were unforeseen at the time a contract was formed do not justify a demand for additional compensation.

Q: Milo buys an all-terrain-vehicle (ATV) from No-Limit Toys, Inc., on credit but makes no payments on the account. Odell, the owner of No-Limit Toys, calls Milo at home on a Monday morning at three a.m. Odell represents himself as PayNow Collection Agency and demands payment "or else." The next day, Odell sends Milo notice that he has thirty days in which to request verification of the debt and that its payment will be suspended during that time, but that if he does not pay the full amount due within five business days, Odell will arrange for the "destruction of Milo's good credit rating." Which laws has Odell violated, if any, and in what ways?

Q: Unforeseen difficulties that justify a demand for additional compensation include risks ordinarily assumed in business.

Q: Remote Disposal Company operates a hazardous waste storage facility. Concerned that there may be a release of chemicals from the site, Remote sells the property to Serene Developers, Inc. If there is a release, Remote is most likely a. liable. b. not liable because the site was sold before the release. c. not liable because Remote was concerned about the release. d. not liable because Remote no longer operates the facility.

Q: Ezra, an accountant, intentionally misstates a material fact to mislead Fruit Packing Industries, Inc., a client. Fruit Packing justifiably relies on the misstatement to its detriment. Ezra is most likely liable for a. actual fraud. b. constructive fraud. c. destructive fraud. d. virtual fraud.

Q: A promise to do something that one has no prior legal duty to do is not consideration.

Q: Hi-Yield Agriculture, Inc., makes a pesticide with a one-in-a-million risk to people of developing cancer from exposure. This substance must be a. disposed of before anyone develops cancer. b. registered before it is sold. c. taken off the market and placed in temporary storage. d. used only in a way that avoids exposure to people.

Q: Omar can be described as "a reasonably competent general practitioner of ordinary skill, experience, and capacity." This is the normal standard for judging a. a client's performance. b. an attorney's performance. c. anyone's performance. d. no one's performance.

Q: Yvon, an accountant, is charged with negli­gence by Zesty Sauce, Inc., a client. Yvon may successfully defend against the claim if she can show that a. scienter was lacking. b. she complied with all generally accepted accounting principles. c. the negligence was not the proximate cause of the client's losses. d. the negligence was only contributory.

Q: Inadequate consideration may reflect a lack of bargained-for exchange.

Q: Metro City operates its own municipal public drinking water system for which the Environmental Protection Agency has set maximum levels of pollutants. Metro does not use any equipment to meet these standards. With regard to any contamination of the water, under the Safe Drinking Water Act, this is most likely a. a violation. b. not a violation because Metro does not set the standards. c. not a violation because water is not a stationary source. d. not a violation because Metro does not use any equipment.

Q: A barge owned by Oceanic Shipping Company discharges some of the oil contained in its hold into the sea and onto the shore. Under the Oil Pollution Act, this is most likely a. a violation. b. not a violation because an oil discharge is not pollution. c. not a violation because a floating barge is not a stationary source. d. not a violation because a ship's hold is not a point source.

Q: Failing to use the word consideration in an agreement means that no consideration has been given.

Q: Jaime, an accountant, contracts to perform services for Kase. Jaime acts in good faith and conforms to generally accepted accounting principles, but makes a mistake in judgment. Jaime is most likely a. liable if Jaime failed to discover a defalcation. b. liable if Jaime failed to discover a fraud. c. liable if Jaime failed to discover an impropriety. d. not liable.

Q: Consideration need not be given as part of a bargained-for exchange to create an enforceable contract.

Q: Tiny is an accountant. Tiny's violation of generally accepted accounting principles and generally accepted auditing standards a. does not indicate that Tiny was negligent. b. is prima facie evidence that Tiny was negligent. c. precludes Tiny from raising any defense against a negligence claim. d. will never subject Tiny to liability.

Q: Without a permit from the U.S. Army Corps of Engineers, Holiday Timeshares, Inc., fills a wetlands area that it owns before constructing a residential resort. Under the Clean Water Act, this is most likely a. a violation. b. not a violation because a permit is not needed to fill wetlands. c. not a violation because the area was filled before construction. d. not a violation because there was no discharge of pollution.

Q: Legally sufficient consideration is something of value in the eyes of the law.

Q: Pluto accuses Quark, an accountant, of committing defalcation. This is a. embezzlement. b. general misconduct. c. professional negligence. d. throwing something out of a window.

Q: Vending Products Company operates a vending machine manufacturing plant on Wandering River. Discharging pollutants from the plant into the river can re­sult in a. civil penalties and criminal penalties. b. civil penalties only. c. criminal penalties only. d. no penalties.

Q: Leslie, an accountant, enters into a contract to provide services to Marty. Leslie does not finish the work within the contract's deadline. Leslie is a. liable for breach of contract. b. not liable, because Leslie is a professional. c. not liable, because Leslie's failure must have been Marty"˜s fault. d. not liable, because the work took longer than foreseen.

Q: If a promise is made, it will be enforced.