Chapter 1: Business and Its Legal Environment 1
Chapter 1
Business and
Its Legal Environment
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.NA question new to this edition of the Test Bank.
+A question modified from the previous edition of the Test Bank.
=A question included in the previous edition of the Test Bank.
true/false questions
1.The law establishes rights, duties, and privileges that are consistent with the values of society.
ANSWER:TPAGE:2type:=
BUSPROG: ReflectiveLO: 1-1Bloom’s:Comprehension
Dif: EasyAICPA: BB-Critical Thinking
2.Law includes enforceable rules governing relationships between individuals and their society.
ANSWER:TPAGE:2TYPE:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Knowledge
DIF:EasyAICPA: BB-Legal
3.A federal law that conflicts with the U.S. Constitution will be deemed unconstitutional.
ANSWER:TPAGE:6TYPE:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Comprehension
DIF:ModerateAICPA: BB-Legal
4.Constitutional law includes only the U.S. Constitution.
ANSWER:FPAGE:6TYPE:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Knowledge
DIF:EasyAICPA: BB-Critical Thinking
5.A state law that conflicts with the U.S. Constitution will be deemed unconstitutional.
ANSWER:TPAGE:6TYPE:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Comprehension
DIF:ModerateAICPA: BB-Legal
6.The U.S. Constitution is the supreme law of the United States.
ANSWER:TPAGE:6TYPE:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
7.Whether a law is constitutional depends on its source.
ANSWER:FPAGE:6TYPE:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Comprehension
Dif: EasyAICPA: BB-Legal
8.A state constitution is supreme within the state’s borders so long as it does not conflict with the U.S. Constitution or a federal law.
ANSWER:TPAGE:6type:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Comprehension
Dif: MODERATEAICPA: BB-Legal
9.Federal statutes apply to all states.
ANSWER:TPAGE:6TYPE:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Comprehension
Dif: EasyAICPA: BB-Legal
10.No state has adopted the Uniform Commercial Code in its entirety.
ANSWER:FPAGE:6TYPE:+
BUSPROG: ReflectiveLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
11.Uniform laws apply in all states, including those in which the laws have not been adopted.
ANSWER:FPAGE:6type:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Comprehension
Dif: ModerateAICPA: BB-Legal
12.Administrative agencies are established to perform specific functions.
ANSWER:TPAGE:7TYPE:N
BUSPROG: AnalyticLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
13.Rules issued by administrative agencies now affect almost no aspect of a business’s operations.
ANSWER:FPAGE:7TYPE:N
BUSPROG: AnalyticLO: 1-1Bloom’s:Application
Dif: ModerateAICPA: BB-Legal
14.The basis for the U.S. legal system is the natural law school.
ANSWER:TPAGE:7TYPE:N
BUSPROG: EthicsLO: 1-2Bloom’s:Knowledge
Dif: EasyAICPA: BB-Critical Thinking
15.Courts can rely on the common law as a guide to interpreting legislation.
ANSWER:TPAGE:7TYPE:N
BUSPROG: AnalyticLO: 1-2Bloom’s:Comprehension
Dif: ModerateAICPA: BB-Legal
16.Common law is a term for the law that is known to most of us.
ANSWER:FPAGE:7type:=
BUSPROG: AnalyticLO: 1-2Bloom’s:Knowledge
Dif: EasyAICPA: BB-Critical Thinking
17.A decision on a given issue by a court is not binding on an inferior court.
ANSWER:FPAGE:9TYPE:=
BUSPROG: AnalyticLO: 1-3Bloom’s:Comprehension
Dif: EasyAICPA: BB-Legal
18.Judges use precedent when deciding a case in a common law legal system.
ANSWER:TPAGE:9TYPE:=
BUSPROG: AnalyticLO: 1-3Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
19.Stare decisis is a doctrine obligating judges to help persons who have failed to protect their own rights.
ANSWER:FPAGE:9TYPE:N
BUSPROG: AnalyticLO: 1-3Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
20.Courts do not depart from precedents.
ANSWER:FPAGE:9TYPE:=
BUSPROG: ReflectiveLO: 1-3Bloom’s:Comprehension
Dif: EasyAICPA: BB-Critical Thinking
21.A court may depart from a precedent if the court decides that the precedent should no longer be followed.
ANSWER:TPAGE:9TYPE:=
BUSPROG: ReflectiveLO: 1-3Bloom’s:Comprehension
Dif: ModerateAICPA: BB-Critical Thinking
22.Equity is a branch of unwritten law that seeks to supply remedies of equal measure to the parties in a legal dispute.
ANSWER:FPAGE:10type:N
BUSPROG: AnalyticLO: 1-3Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
23.A court’s direction to a party to do or to refrain from doing a particular act is a rescission.
ANSWER:FPAGE:10TYPE:=
BUSPROG: AnalyticLO: 1-3Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
24.Monetary damages is a remedy at law.
ANSWER:TPAGE:10TYPE:=
BUSPROG: AnalyticLO: 1-3Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
25.A defendant is a person against whom a lawsuit is brought.
ANSWER:TPAGE:10TYPE:=
BUSPROG: AnalyticLO: 1-3Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
26.A plaintiff is a person against whom a lawsuit is brought.
ANSWER:FPAGE:10TYPE:=
BUSPROG: AnalyticLO: 1-3Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
27.Equitable remedies include injunctions.
ANSWER:TPAGE:10TYPE:=
BUSPROG: AnalyticLO: 1-3Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
28.In most states, the courts no longer grant “equitable” remedies.
ANSWER:FPAGE:10TYPE:N
BUSPROG: AnalyticLO: 1-3Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
29.How judges apply the law to specific disputes may depend in part on their personal philosophical views.
ANSWER:TPAGE:12TYPE:=
BUSPROG: ReflectiveLO: 1-3Bloom’s:Comprehension
Dif: ModerateAICPA: BB-Critical Thinking
30.A substantive law creates or defines legal rights and obligations.
ANSWER:TPAGE:12TYPE:=
BUSPROG: AnalyticLO: 1-5Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
31.Criminal law focuses on duties that exist between persons.
ANSWER:FPAGE:13TYPE:=
BUSPROG: AnalyticLO: 1-5Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
32.International law is the law of a foreign nation and varies from country to country.
ANSWER:FPAGE:13TYPE:=
BUSPROG: AnalyticLO: 1-5Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
33.A reference to “28 U.S.C. Section 1332” means that a federal court’s decision can be found on page 28 of section 1332 of the United States Cases.
ANSWER:FPAGE:18TYPE:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Research
34.Rules and regulations adopted by federal administrative agencies are compiled in the Code of Federal Regulations.
ANSWER:TPAGE:19TYPE:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Research
35.Most state trial court decisions are not published.
ANSWER:TPAGE:19TYPE:=
BUSPROG: AnalyticLO: 1-5Bloom’s:Knowledge
Dif: EasyAICPA: BB-Research
MULTIPLE-CHOICE questions
1.In Nebraska, the highest-ranking (superior) law is
a.a case decided by the Nebraska Supreme Court.
b.a provision in the Nebraska constitution.
c.a rule created by a Nebraska state administrative agency.
d.a statute enacted by the Nebraska legislature.
ANSWER:BPAGE:4TYPE:=
BUSPROG: ReflectiveLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
2.Krystal is a federal judge. Krystal’s judicial decisions are part of case law. This law includes interpretations of primary sources of law. These sources include
a.administrative regulations.
b.articles in law reviews and other legal journals.
c.compilations summarizing court decisions on particular topics.
d.legal encyclopedias.
ANSWER:APAGE:4TYPE:N
BUSPROG: ReflectiveLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
3.Under Ohio’s state constitution, the Ohio Environmental Protection Agency issues a new rule, the Polk County Commission approves a new property tax measure, and the professors and students at Ohio Law School publish the results of their most recent legal research. Sources of law do not include
a.the measures approved by local governing bodies.
b.the results of legal scholars’ research.
c.the rules issued by state administrative agencies.
d.the states’ constitutions.
ANSWER:BPAGE:4type:N
BUSPROG: ReflectiveLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
4.Lewis is a state court judge. Like other judges, Lewis often refers to secondary sources of law for guidance. These sources include
a.official comments to statutes.
b.other states’ statutes.
c.state constitutions.
d.the U.S. Constitution.
ANSWER:APAGE:4TYPE:N
BUSPROG: ReflectiveLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
5.Hawaii enacts a state law that violates the U.S. Constitution. This law can be enforced by
a.no one.
b.the federal government only.
c.the state of Hawaii only.
d.the United States Supreme Court only.
ANSWER:APAGE:6type:=
BUSPROG: ReflectiveLO: 1-1Bloom’s:Comprehension
Dif: EasyAICPA: BB-Legal
6.The legislature of the state of Missouri enacts a new statute that sets standards for the liability of businesses selling defective products. This statute applies
a.only in Missouri.
b.only in Missouri and its border states.
c.in all states.
d.in all states but only to matters not covered by other states’ laws.
ANSWER:APAGE:6type:N
BUSPROG: ReflectiveLO: 1-2Bloom’s:Comprehension
Dif: EasyAICPA: BB-Legal
7.The River City Council, the Santa Clara County Board, the Texas state legislature, and the U.S. Congress enact laws.These laws constitute
a.administrative law.
b.case law.
c.stare decisis.
d.statutory law.
ANSWER:DPAGE:6TYPE:=
BUSPROG: ReflectiveLO: 1-1Bloom’s:Comprehension
Dif: EasyAICPA: BB-Critical Thinking
8.The U.S. Congress enacts a new federal statute that imposes liability on businesses emitting significant amounts of a certain pollutant into the environment. This statute applies
a.only to matters not covered by state law.
b.only to those states that adopt the statute.
c.to all of the states.
d.to none of the states.
ANSWER:CPAGE:6type:=
BUSPROG: ReflectiveLO: 1-2Bloom’s:Application
Dif: ModerateAICPA: BB-Legal
9.The Federal Trade Commission (FTC) is a government agency that issues rules, orders, and decisions. The Georgia state legislature enacts statutes. The Jackson County Board and the Peach City Council enacts ordinances. Administrative law includes
a.all law that affects a business’s operation.
b.the rules, orders, and decisions of the Federal Trade Commission.
c.statutes enacted by the Georgia state legislature.
d.ordinances created by the Jackson County Board and the city council of Peach City, Georgia.
ANSWER:BPAGE:7type:=
BUSPROG: ReflectiveLO: 1-1Bloom’s:Comprehension
Dif: EasyAICPA: BB-Legal
10.Crater Tools Company may be subject to regulations issued by the Occupational Safety and Health Administration (OSHA). Like other administrative agencies, the OSHA affects
a.almostevery aspect of a business’s operations.
b.almostno aspect of a business’s operations.
c.a firm’s capital structure and financing, but nothing else.
d.a firm’s hiring and firing procedures, but nothing else.
ANSWER:APAGE:7type:N
BUSPROG: ReflectiveLO: 1-2Bloom’s:Application
Dif: ModerateAICPA: BB-Legal
11.The Securities Exchange Commission (SEC) is an administrative agency. Like other administrative agencies, the SEC was established to
a.act as a liaison between federal and state governments.
b.impose uniform laws on the states.
c.perform a specific function.
d.standardize laws for the executive and judicial branches.
ANSWER:CPAGE:7type:N
BUSPROG: ReflectiveLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
12.The federal government and the state governments constitute the U.S. legal system. This system is based on the legal system of
a.Ancient Greece.
b.England.
c.France.
d.the natural law school.
ANSWER:BPAGE:7type:+
BUSPROG: ReflectiveLO: 1-2Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
13.As a judge, Potter applies common law rules. These rules develop from
a.administrative regulations.
b.court decisions.
c.federal and state statutes.
d.proposed uniform laws.
ANSWER:BPAGE:7type:=
BUSPROG: ReflectiveLO: 1-2Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
14.Jill is an appellate court judge. In this capacity, Jill establishes a rule of law. Under the doctrine of stare decisis, the principle must be adhered to by
a.all courts.
b.courts of lower rank only.
c.that court and courts of lower rank.
d.that court only.
ANSWER:CPAGE:9type:=
BUSPROG: ReflectiveLO: 1-2Bloom’s:Comprehension
Dif: EasyAICPA: BB-Legal
15.In Ben v. City Car Dealership, a state supreme court held that a minor could cancel a contract for the sale of a car. Now a trial court in the same state is deciding Daphne v. Even Steven Auto Deals, Inc.,, a case with similar facts. Under the doctrine of stare decisis, the trial court is likely to
a.allow the minor in the Daphne case to cancel the contract.
b.disregard the Ben case.
c.order the minor in the Daphne case to cancel the contract.
d.require the minor in the Daphne case to fulfill the contract.
ANSWER:APAGE:9type:=
BUSPROG: ReflectiveLO: 1-3Bloom’s:Application
Dif: ModerateAICPA: BB-Critical Thinking
16.Sam is a judge hearing the case of Local Co. v. National Corp. Applying the relevant rule of law to the facts of the case requires Sam to find previously decided cases that, in relation to the case under consideration, are
a.as different as possible.
b.as similar as possible.
c.at odds.
d.exactly identical.
ANSWER:BPAGE:9type:=
BUSPROG: ReflectiveLO: 1-3Bloom’s:Comprehension
Dif: ModerateAICPA: BB-Critical Thinking
17.In Sales Distribution Corp. v. Consumer Products Co., the court decides that a precedent is incorrect or inapplicable. The court
a.may rule contrary to the precedent.
b.must apply the precedent.
c.must ask a higher court to rule on the case.
d.must refuse to decide the case.
ANSWER:APAGE:9type:+
BUSPROG: ReflectiveLO: 1-3Bloom’s:Knowledge
Dif: ModerateAICPA: BB-Legal
18.A state trial court has before it Eagle Manufacturing Co. v. Talon Products Corp., a case with no binding authority. The court can
a.not refuse to decide the Eagle case.
b.postpone deciding Eagle indefinitely.
c.postpone deciding Eagle until there is binding authority.
d.refuse to decide Eagle.
ANSWER:APAGE:9TYPE:=
BUSPROG: ReflectiveLO: 1-3Bloom’s:Comprehension
Dif: ModerateAICPA: BB-Legal
19.MaxiMart, Inc., is a discount retailer. MaxiMart’s customer service employees are on strike. Sixty of the workers block the entrances to one of MaxiMart’s stores. To get them away from the doors, MaxiMart should seek
a.an injunction.
b.damages.
c.rescission.
d.specific performance.
ANSWER:APAGE:10TYPE:=
BUSPROG: ReflectiveLO: 1-4Bloom’s:Application
Dif: ModerateAICPA: BB-Decision Modeling
20.In an action against Elin, Frank obtains a remedy. This is
a.an administrative agency’s enforcement of its rule.
b.a principle of the law derived from earlier court cases.
c.a statute enacted by a state legislature or Congress.
d.the legal means to recover a right or to redress a wrong.
ANSWER:DPAGE:10type:=
BUSPROG: ReflectiveLO: 1-4Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
21.In Export Co. v. Imports, Inc., there is no precedent on which the court can base a decision. The court can consider
a.neither public policy nor social customs and values.
b.public policy only.
c.public policy or social customs and values.
d.social customs and values only.
ANSWER:CPAGE:10TYPE:=
BUSPROG: ReflectiveLO: 1-3Bloom’s:Comprehension
Dif: EasyAICPA: BB-Critical Thinking
22.In a suit against Sandy, Taylor obtains a remedy. In the U.S. legal system, this remedy will most likely be
a.an injunction.
b.damages.
c.rescission.
d.specific performance.
ANSWER:BPAGE:10type:N
BUSPROG: ReflectiveLO: 1-4Bloom’s:Knowledge
Dif: EasyAICPA: BB-Critical Thinking
23.Network Corporation files a suit against Omega, Inc., alleging that Omega breached a contract to sell Network customized software. Network is
a.the appellant.
b.the appellee.
c.the defendant.
d.the plaintiff.
ANSWER:DPAGE:10TYPE:=
BUSPROG: ReflectiveLO: 1-5Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
24.In a suit against Clem, Dona obtains the cancellation of a contract. This is
a.an injunction.
b.damages.
c.rescission.
d.specific performance.
ANSWER:CPAGE:10type:+
BUSPROG: ReflectiveLO: 1-4Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
25.In a suit against Owen, Phil obtains specific performance. This is
a.an order to do or to refrain from doing a particular act.
b.an order to perform what was promised.
c.a payment of money or property as compensation.
d.the cancellation of a contract.
ANSWER:BPAGE:10type:N
BUSPROG: ReflectiveLO: 1-4Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
26.Grady is a judge. In his court, Grady may bar a suit if it is not filed within a proper time according to
a.a statute of limitations.
b.the doctrine of stare decisis.
c.the chancellor’s discretion.
d.the king’s conscience.
ANSWER:APAGE:11type:=
BUSPROG: AnalyticLO: 1-4Bloom’s:Comprehension
Dif: ModerateAICPA: BB-Legal
27.To Cody, the written law of a particular society at a particular time is most significant. Cody is
a.a legal positivist.
b.a legal historian.
c.a legal realist.
d.a person who adheres to the natural law school.
ANSWER:APAGE:12type:N
BUSPROG: AnalyticLO: 1-1Bloom’s:Comprehension
Dif: EasyAICPA: BB-Critical Thinking
28.Beth is a victim of Carl’s violation of a criminal law. Criminal law is concerned with
a.the prosecution of private individuals by other private individuals.
b.the prosecution of public officials by private individuals.
c.the relief available when a person’s rights are violated.
d.wrongs committed against the public as a whole.
ANSWER:DPAGE:13type:=
BUSPROG: ReflectiveLO: 1-5Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
29.Overseas Exports, Inc., based in New York, does business internationally and may be subject to international law. The sources of this law include
a.the laws of individual nations only.
b.treaties and international organizations only.
c.the laws of individual nations, and treaties and international organizations.
d.none of the choices.
ANSWER:CPAGE:13TYPE:=
BUSPROG: ReflectiveLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
30.The title of a case appears as “Duck Sales Corp. v. Egret Supply Co.” The party in whose favor the case was decided
a.could be either party.
b.must be neither party.
c.must be Duck.
d.must be Egret.
ANSWER:APAGE:23type:N
BUSPROG: AnalyticLO: 1-5Bloom’s:Knowledge
Dif: EasyAICPA: BB-Research
Fact Pattern 1-1 (Questions 31–33 apply)
The Texas Supreme Court decides the case of Livewire Co. v. Power Corp. Of nine justices, five believe the judgment should be in Livewire’s favor. Justice Bellamy, one of the five, writes a separate opinion. The four justices who believe the judgment should be in Power’s favor join in a third separate opinion.
31.Refer to Fact Pattern 1-1. These opinions are collected and published in volumes called
a.citations.
b.codes.
c.regulations.
d.reporters.
ANSWER:DPAGE:19type:=
BUSPROG: AnalyticLO: 1-1Bloom’s:Knowledge
Dif: EasyAICPA: BB-Research
32.Refer to Fact Pattern 1-1. Bellamy’s opinion is
a.a concurring opinion.
b.a dissenting opinion.
c.a majority opinion.
d.aper curiam opinion.
ANSWER:APAGE:25type:=
BUSPROG: AnalyticLO: 1-3Bloom’s:Knowledge
Dif: EasyAICPA: BB-Research
33.Refer to Fact Pattern 1-1. The opinion joined by the four justices who favor Power is known as
a.a concurring opinion.
b.a dissenting opinion.
c.a majority opinion.
d.aper curiam opinion.
ANSWER:BPAGE:25type:=
BUSPROG: AnalyticLO: 1-3Bloom’s:Knowledge
Dif: EasyAICPA: BB-Research
34.Standard Business Company appeals a decision against it, in favor of Top Flight Corporation, from a lower court to a higher court. Standard is
a.the appellant.
b.the appellee.
c.the defendant.
d.the plaintiff.
ANSWER:APAGE:25TYPE:=
BUSPROG: ReflectiveLO: 1-5Bloom’s:Knowledge
Dif: EasyAICPA: BB-Legal
35.Law enforcement officers suspect Chris of drug trafficking. Without a warrant, the officers install a tracking device on a vehicle belonging to Chris’s mother. Tracking the vehicle with the device produces incriminating evidence, and Chris is charged with trafficking. He argues that the government’s use of the device violated his Fourth Amendment rights by subjecting him to an unlawful “search.” Under the principles discussed in “A Sample Court Case,” United States v. Jones, the court is most likely to rule that the officers’ installation of the device was
a.a search and an unlawful trespass.