Regulation Answer Key

1. Correct: d

Explanation: Under strict liability theory, if the plaintiff establishes the four points listed, the seller will be held liable whether the seller was negligent or at fault for the product's defect.

2. Correct: c

Explanation: The Securities Act of 1933 requires a public issuer of stock that has made a registered offering to issue a report on Form 10-K annually.

3. Correct: c

Explanation: Party A, who made the error, cannot void the contract under all circumstances, but the contract can be voided if party B was aware of the error or if the error was significant enough that Party B should have recognized it.

4. Correct: d

Explanation: Consulting services include consultations, advisory services, transaction services, product services, implementation services, and staff and support services.

5. Correct: d

Explanation: Filing your own fraudulent tax return violates ethical standards of the profession and would result in expulsion from the AICPA. Accepting large gifts from a client is likely to impair your independent status, as would performing management functions for a client (see ET 191).

6. Correct: c

Explanation: To file a voluntary bankruptcy petition under Chapter 7 of the Federal Bankruptcy Code, it is necessary show debts, but there is no minimum number of creditors to which the person must owe those debts.

7. Correct: d

Explanation: When a debtor owes a creditor, and conveys property with the intent of defrauding the creditor, delaying the creditor, or keeping the creditor from taking possession of the property, the debtor has fraudulently conveyed the property.

8. Correct: c

Explanation: According to the Uniform Commercial Code, Article 2, Part 3, the agreement may shift the allocation of the risk or divide the risk between the parties.

9. Correct: d

Explanation: An agency relationship will be terminated by operation of law if the agreement's subject becomes illegal, if the principal dies or is incapacitated, or if the principal goes bankrupt.

10. Correct: a

Explanation: An agent will typically be held liable under a contract made with a third party if the principal is undisclosed or partially disclosed, but the agent is not liable if the principal is fully disclosed.

11. Correct: b

Explanation: Worker's compensation is not deducted from an employee's salary-it is paid solely by the employer, and because temporary workers are typically independent contractors or employed by an agency, they typically do not collect it. However, it is true that worker's compensation covers burial expenses, payments to surviving children, and more.

12. Correct: d

Explanation: For adverse possession, the following must exist: Open and notorious possession, hostile possession, actual possession, continuous possession, and exclusive possession. Statement of intent is not necessary.

13. Correct: d

Explanation: Party B must sell the consumer good if Party A's deposit was more than 60% of the original price. Party B can keep the money needed to match the total original sales price, and may also keep money necessary to pay off repossession and sales expenses. Party B must return any additional funds to Party A.

14. Correct: c

Explanation: To have an insurance interest in property, it is necessary to have a legal interest and a possibility of pecuniary loss. The legal interest may be in the form of an ownership interest, but it can also be a security interest, and therefore an ownership interest is not a necessary precondition.

15. Correct: c

Explanation: A CPA can hand over a client's working papers with the client's consent or if a subpoena for those papers is presented.

16. Correct: c

Explanation: The UCC Sales Article allows a plaintiff who sues for and proves fraud to either affirm the contract and sue the other party for damages under the tort of deceit or to rescind the contract and sue the other party for damages that arose from the fraud.

17. Correct: c

Explanation: Regulation D of the Securities Act of 1933 does restrict resales of the securities for a time period of two years after the issuer sells the last of the securities. Point I is incorrect because there is no maximum dollar amount placed on the sale, and point II is incorrect because the number of investors sold to is limited to thirty-five, not fifty.

18. Correct: c

Explanation: The four standards that must be met for a note to be negotiable are: (1) the note must be written and signed by its maker; (2) it must contain an unconditional promise to pay a fixed amount in money; (3) the note must be payable at a definite time or on demand; and (4) the note must be payable to order or to the bearer.

19. Correct: a

Explanation: According to the Revised UCC Secured Transaction Article, the financing statement must include the debtor's and creditor's names, and a description or list of the collateral, but there is no need to include the creditor's signature or the location of the collateral.

20. Correct: a

Explanation: Under the UCC's Revised Article 3, the check was negotiable even though it was postdated, and was not properly payable until the date written on the check. The bank, however, is not liable for cashing the check unless the drawer notified the bank of the postdating.