Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA PassMaster Questions–Regulation 5
Export Date: 10/30/08
1
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Contracts
CPA-01072
Type1 M/C
1. CPA-01072 Lw R02 #12
A-D
Corr Ans: C
PM#1
R 5-01
Page 16
Green was adjudicated incompetent by a court having proper jurisdiction. Which of the following
statements is correct regarding contracts subsequently entered into by Green?
a.
b.
c.
d.
All contracts are voidable.
All contracts are valid.
All contracts are void.
All contracts are enforceable.
CPA-01072
Explanation
Choice "c" is correct. Contracts entered into by one who has been adjudicated mentally incompetent are
void rather than voidable. Thus "a" is incorrect. Note that choices "b" (all contracts are valid) and "d" (all
contracts are enforceable) are the same answer. Since both cannot be correct, both must be wrong.
CPA-01076
Type1 M/C
2. CPA-01076 Lw R02 #13
A-D
Corr Ans: A
PM#2
R 5-01
Page 21
Which of the following actions if taken by one party to a contract generally will discharge the performance
required of the other party to the contract?
a.
b.
c.
d.
Material breach of the contract.
Delay in performance.
Tender.
Assignment of rights.
CPA-01076
Explanation
Choice "a" is correct. A material breach generally will discharge the nonbreaching party.
Choice "b" is not as good an answer as "a". While a delay in performance could cause a discharge, it will
do so only if the contract states that time is of the essence or the delay otherwise materially breaches the
contract.
Choice "c" is incorrect. Generally if a party tenders performance, the other party will also have to perform.
Tender of performance does not discharge the other party.
Choice "d" is incorrect. Generally, contracts are assignable, and an assignment of rights will not
discharge the other party from performing.
CPA-01084
Type1 M/C
3. CPA-01084 Lw R99 #8
A-D
Corr Ans: C
PM#3
R 5-01
Page 19
Which of the following will release all original parties to a contract but will maintain a contractual
relationship between the original parties?
a.
b.
c.
d.
Novation
Yes
Yes
No
No
Substituted
contract
Yes
No
Yes
No
CPA-01084
Explanation
Choice "c" is correct. In a Novation, the agreement is unchanged but one of the original parties is
released and a new party is substituted into their place.
2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
In a substituted contract, the original parties are both released from the original agreement but are both
bound by a new agreement.
CPA-01092
Type1 M/C
4. CPA-01092 Lw R99 #9
A-D
Corr Ans: A
PM#4
R 5-01
Page 24
Which of the following concepts affect(s) the amount of monetary damages recoverable by the
nonbreaching party when a contract is breached?
a.
b.
c.
d.
Forseeability
of damages
Yes
Yes
No
No
Mitigation
of damages
Yes
No
Yes
No
CPA-01092
Explanation
Choice "a" is correct. Consequential damages are recoverable for breach of contract only to the extent
they are foreseeable. And in every case, a nonbreaching party has a duty to mitigate damages-a duty to
make reasonable efforts to cut down on losses resulting from the breach. Failure to do so will preclude
the party from collecting damages that might have been avoided.
CPA-01109
Type1 M/C
A-D
Corr Ans: C
PM#5
R 5-01
5. CPA-01109 Lw Nov 95 #42 Page 9
Under the Sales Article of the UCC, when a written offer has been made without specifying a means of
acceptance but providing that the offer will only remain open for ten days, which of the following
statements represent(s) a valid acceptance of the offer?
I.
An acceptance sent by regular mail the day before the ten-day period expires that reaches the offeror
on the eleventh day.
II. An acceptance faxed the day before the ten-day period expires that reaches the offeror on the
eleventh day, due to a malfunction of the offeror's printer.
a.
b.
c.
d.
I only.
II only.
Both I and II.
Neither I nor II.
CPA-01109
Explanation
Choice "c" is correct. Under UCC 2-206, an offer that does not specify the means of acceptance may be
accepted by any means reasonable under the circumstances; thus the attempt to accept by mail or fax
was a proper means. Generally under the mailbox rule, an acceptance will be effective on dispatch
(including sending a fax) unless the offer specifies that acceptance will be effective only upon receipt.
Here, the offer merely says that it will remain open for 10 days; it does not require receipt of the
acceptance within 10 days. Thus, the mailbox rule applies and both the letter and the fax are valid
acceptances.
CPA-01117
Type1 M/C
A-D
Corr Ans: B
PM#6
R 5-01
6. CPA-01117 Lw May 95 #16 Page 13
Which of the following facts must be proven for a plaintiff to prevail in a common law negligent
misrepresentation action?
a. The defendant made the misrepresentations with a reckless disregard for the truth.
b. The plaintiff justifiably relied on the misrepresentations.
3
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
c. The misrepresentations were in writing.
d. The misrepresentations concerned opinion.
CPA-01117
Explanation
Choice "b" is correct. To make out an action for negligent misrepresentation, the plaintiff must show both
actual and justifiable reliance on the misrepresentation.
Choice "a" is incorrect. In negligent misrepresentation, the misrepresentation can arise out of conduct
that is negligent (i.e., simple carelessness); reckless disregard for truth is considered the equivalent of
fraud and is a much higher standard of misconduct.
Choice "c" is incorrect. Misrepresentations need not be in writing to give rise to a cause of action.
Choice "d" is incorrect. The misrepresentation must be of a material fact; misrepresentation of an opinion
generally will not support a cause of action for negligent misrepresentation.
CPA-01121
Type1 M/C
A-D
Corr Ans: A
PM#7
R 5-01
7. CPA-01121 Lw May 95 #17 Page 15
A building subcontractor submitted a bid for construction of a portion of a high-rise office building. The
bid contained material computational errors. The general contractor accepted the bid with knowledge of
the errors. Which of the following statements best represents the subcontractor's liability?
a.
b.
c.
d.
Not liable because the contractor knew of the errors.
Not liable because the errors were a result of gross negligence.
Liable because the errors were unilateral.
Liable because the errors were material.
CPA-01121
Explanation
Choice "a" is correct. Unilateral mistake is a defense to a contract if the nonmistaken party knew or
should have known of the mistake. Here, the contractor knew of the error.
Choice "b" is incorrect. Whether the mistake was due to ordinary negligence or gross negligence is
irrelevant in determining whether the mistake will constitute a contract defense.
Choice "c" is incorrect. Unilateral mistake is a defense to a contract if the nonmistaken party knew or
should have known of the mistake.
Choice "d" is incorrect. While mistake is grounds for a defense only if the mistake is material, materiality
is not all that is necessary. When the mistake is unilateral, as it is here, the nonmistaken party must also
have known of the mistake (or had cause to know of the mistake).
CPA-01126
Type1 M/C
A-D
Corr Ans: B
PM#8
R 5-01
8. CPA-01126 Lw May 95 #18 Page 20
Where the parties have entered into a written contract intended as the final expression of their
agreement, which of the following agreements will be admitted into evidence because they are not
prohibited by the parol evidence rule?
a.
b.
c.
d.
Subsequent
oral
agreements
Yes
Yes
No
No
CPA-01126
Prior
written
agreements
Yes
No
Yes
No
Explanation
4
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "b" is correct. The parol evidence rule prohibits introduction of prior written statements to vary the
terms of a fully integrated contract, but it does not bar the introduction of subsequent oral agreements.
CPA-01128
Type1 M/C
A-D
Corr Ans: A
PM#9
R 5-01
9. CPA-01128 Lw May 95 #19 Page 20
Which of the following types of conditions affecting performance may validly be present in contracts?
a.
b.
c.
d.
Conditions
precedent
Yes
Yes
Yes
No
Conditions
subsequent
Yes
Yes
No
Yes
Concurrent
conditions
Yes
No
Yes
Yes
CPA-01128
Explanation
Choice "a" is correct. A contract can have conditions precedent, subsequent, or concurrent.
CPA-01130
Type1 M/C
A-D
Corr Ans: A
PM#10
R 5-01
10. CPA-01130 Lw May 95 #20 Page 12
Grove is seeking to avoid performing a promise to pay Brook $1,500. Grove is relying on lack of
consideration on Brook's part. Grove will prevail if he can establish that:
a.
b.
c.
d.
Prior to Grove's promise, Brook had already performed the requested act.
Brook's only claim of consideration was the relinquishment of a legal right.
Brook's asserted consideration is only worth $400.
The consideration to be performed by Brook will be performed by a third party.
CPA-01130
Explanation
Choice "a" is correct. A contract generally must be supported by valid consideration. Valid consideration
will be present if there is a bargained for exchange of something of legal value. If the act promised has
already been performed, the bargain element fails. Thus, it is said that past consideration is no
consideration.
Choice "b" is incorrect. A contract generally must be supported by valid consideration. Relinquishment of
a legal right constitutes something of legal value. Thus, this is not a good defense for Grove.
Choice "c" is incorrect. As long as the consideration is not a sham, the courts will not inquire into the
adequacy of the consideration exchanged. $400 is not sham consideration; thus, the large disparity in
value of the consideration exchanged here is not a defense.
Choice "d" is incorrect. The benefits of a contract need not flow to the parties to constitute consideration,
the mere giving of a benefit or receipt of a detriment is sufficient.
CPA-01131
Type1 M/C
A-D
Corr Ans: B
PM#11
R 5-01
11. CPA-01131 Lw May 95 #21 Page 26
Generally, which of the following contract rights are assignable?
a.
b.
c.
d.
Option
contract rights
Yes
Yes
No
No
Malpractice
insurance
policy rights
Yes
No
Yes
No
5
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-01131
Explanation
Choice "b" is correct. Generally, all contract rights are assignable unless the assignment would result in a
change in the obligor's risk. Thus, option contract rights generally are assignable. Rights to malpractice
insurance are not assignable because the insurer's risk varies based on the identity (and characteristics)
of the insured.
CPA-01148
Type1 M/C
A-D
Corr Ans: A
PM#13
R 5-01
12. CPA-01148 Lw May 95 #23 Page 19
Which of the following actions will result in the discharge of a party to a contract?
a.
b.
c.
d.
Prevention of
performance
Yes
Yes
No
No
Accord and
satisfaction
Yes
No
Yes
No
CPA-01148
Explanation
Choice "a" is correct. Prevention of performance results in a discharge for breach of the implied duty of
cooperation. A party to a contract will also be discharged through an accord and satisfaction.
CPA-01079
Type1 M/C
13. CPA-01079 Lw R01 #5
A-D
Corr Ans: C
PM#14
R 5-01
Page 14
If a person is induced to enter into a contract by another person because of the close relationship
between the parties, the contract may be voidable under which of the following defenses?
a.
b.
c.
d.
Fraud in the inducement.
Unconscionability.
Undue influence.
Duress.
CPA-01079
Explanation
Choice "c" is correct. Undue influence is when a person in a position of trust or confidence takes unfair
advantage of the relationship such that the other party's free will to contract is overcome.
CPA-01155
Type1 M/C
A-D
Corr Ans: D
PM#15
R 5-01
14. CPA-01155 Lw May 95 #24 Page 15
Under a personal services contract, which of the following circumstances will cause the discharge of a
party's duties?
a.
b.
c.
d.
Death of the party who is to receive the services.
Cost of performing the services has doubled.
Bankruptcy of the party who is to receive the services.
Illegality of the services to be performed.
CPA-01155
Explanation
Choice "d" is correct. Illegality of the services to be performed always results in a discharge of duties.
This assumes that the services were legal at the time the contract was formed. If the services had been
illegal at the time of attempted formation, there would be no contract.
Choice "a" is incorrect. The death of the party who is to receive the services does not usually result in
discharge of duties under a personal services contract. However, death might make performance
6
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
impossible therefore causing a discharge (e.g., if doctor contracts to perform a bypass operation on
patient and patient dies before the operation can be performed, doctor is discharged from performing).
Choice "b" is incorrect. A party can be discharged from a contract for impossibility or commercial
impracticability, but a mere increase in costs does not make a performance impossible or impracticable.
Choice "c" is incorrect. Mere bankruptcy of the party to receive the services will not result in a discharge,
although discharge is possible if the bankruptcy constitutes anticipatory repudiation, such as when it
makes it very unlikely that the person receiving the services will be able to pay.
CPA-01160
Type1 M/C
A-D
Corr Ans: B
PM#16
R 5-01
15. CPA-01160 Lw May 95 #25 Page 16
Ordinarily, in an action for breach of a construction contract, the statute of limitations time period would be
computed from the date the:
a.
b.
c.
d.
Contract is negotiated.
Contract is breached.
Construction is begun.
Contract is signed.
CPA-01160
Explanation
Choice "b" is correct. The statute of limitations for breach of contract usually begins to run on the
occurrence of the breach.
CPA-01240
Type1 M/C
A-D
Corr Ans: D
PM#18
R 5-01
16. CPA-01240 Lw Nov 93 #22 Page 16
Teller brought a lawsuit against Kerr ten years after an oral contract was made and eight years after it
was breached. Kerr raised the statute of limitations as a defense. Which of the following allegations
would be most important to Kerr's defense?
a. The contract was oral.
b. The contract could not be performed within one year from the date made.
c. The action was not timely brought because the contract was entered into ten years prior to the
commencement of the lawsuit.
d. The action was not timely brought because the contract was allegedly breached eight years prior to
the commencement of the lawsuit.
CPA-01240
Explanation
Choice "d" is correct. Generally, the statute of limitations runs from the time the contract was breached,
not from the time the contract was entered (if the time the contract was entered were used, there would
be no remedy for breaches that occurred late in long-term contracts). Consequently, choice "c" is
incorrect.
Choice "a" is incorrect. Whether a contract is oral or written is most relevant to whether it is enforceable
under the Statute of Frauds.
Choice "b" is incorrect. Whether a contract could be performed within a year is most relevant to the
Statute of Frauds.
CPA-01252
Type1 M/C
A-D
Corr Ans: A
PM#21
R 5-01
17. CPA-01252 Lw Nov 93 #26 Page 23
Ames Construction Co. contracted to build a warehouse for White Corp. The construction specifications
required Ames to use Ace lighting fixtures. Inadvertently, Ames installed Perfection lighting fixtures,
7
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
which are of slightly lesser quality than Ace fixtures, but in all other respects meet White's needs. Which
of the following statements is correct?
a. White's recovery will be limited to monetary damages because Ames' breach of the construction
contract was not material.
b. White will not be able to recover any damages from Ames because the breach was inadvertent.
c. Ames did not breach the construction contract because the Perfection fixtures were substantially as
good as the Ace fixtures.
d. Ames must install Ace fixtures or White will not be obligated to accept the warehouse.
CPA-01252
Explanation
Choice "a" is correct. Contracts governed by the common law, especially construction contracts, do not
allow rescission for minor breaches, but limit the nonbreaching party to recovery of damages.
Choice "b" is incorrect. Contract law generally does not differentiate between intentional and inadvertent
breaches; damages are recoverable for both.
Choice "c" is incorrect. First, the facts say that Perfection fixtures were of a lesser quality than Ace
fixtures, and even if this were not true, there still would be a breach; the contract called for Ace fixtures
and so only the use of Ace fixtures would constitute full compliance with the contract.
Choice "d" is incorrect. Contracts governed by the common law, especially construction contracts follow
the doctrine of substantial performance. A party who receives substantially all of the benefit of the
bargain is bound to the contract and can seek only damages for any minor breaches.
CPA-01254
Type1 M/C
A-D
Corr Ans: C
PM#22
R 5-01
18. CPA-01254 Lw May 93 #21 Page 16
All of the following are effective methods of ratifying a contract entered into by a minor, except:
a.
b.
c.
d.
Expressly ratifying the contract after reaching the age of majority.
Failing to disaffirm the contract within a reasonable time after reaching the age of majority.
Ratifying the contract before reaching the age of majority.
Impliedly ratifying the contract after reaching the age of majority.
CPA-01254
Explanation
Choice "c" is correct. A minor can disaffirm any contract until a reasonable time after reaching the age of
majority. Thus, a "ratification" prior to reaching majority can be revoked and is not effective.
Choice "a" is incorrect. Express ratification after reaching the age of majority is one way to ratify a
contract.
Choice "b" is incorrect. Failing to disaffirm a contract within a reasonable time after reaching the age of
majority constitutes a ratification.
Choice "d" is incorrect. Impliedly ratifying after reaching the age of majority (e.g., by retaining the benefits
of the contract or failing to timely disaffirm) effectively ratifies a minor's contract.
CPA-01259
Type1 M/C
A-D
Corr Ans: A
PM#23
R 5-01
19. CPA-01259 Lw May 93 #22 Page 16
Which of the following statements correctly applies to a typical statute of limitations?
a. The statute requires that a legal action for breach of contract be commenced within a certain period of
time after the breach occurs.
b. The statute provides that only the party against whom enforcement of a contract is sought must have
signed the contract.
c. The statute limits the right of a party to recover damages for misrepresentation unless the false
statements were intentionally made.
8
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
d. The statute prohibits the admission into evidence of proof of oral statements about the meaning of a
written contract.
CPA-01259
Explanation
Choice "a" is correct. A statute of limitations requires that actions to enforce rights under a contract be
brought within a certain time after breach has occurred.
Choice "b" is incorrect. The Statute of Frauds, not statute of limitations, is concerned about who has
signed a contract.
Choice "c" is incorrect. The right to recover if there was an intentional false statement involves the
concept of scienter.
Choice "d" is incorrect. Oral statements offered to prove the meaning of a written contract involves the
parol evidence rule.
CPA-01263
Type1 M/C
A-D
Corr Ans: D
PM#24
R 5-01
20. CPA-01263 Lw May 93 #24 Page 27
On February 1, Burns contracted in writing with Nagel to sell Nagel a used car. The contract provided
that Burns was to deliver the car on February 15 and Nagel was to pay the $800 purchase price not later
than March 15. On February 21, Burns assigned the contract to Ross for $600. Nagel was not notified of
the assignment. Which of the following statements is correct?
a.
b.
c.
d.
By making the assignment, Burns impliedly warranted Nagel would pay the full purchase price.
The assignment to Ross is invalid because Nagel was not notified.
Ross will not be subject to any contract defenses Nagel could have raised against Burns.
By making the assignment, Burns impliedly warranted a lack of knowledge of any fact impairing the
value of the assignment.
CPA-01263
Explanation
Choice "d" is correct. Essentially, by the assignment, Burns sold the contract right to collect the $800
from Nagel. In such a case, the assignor warrants that he does not know of anything that would impair
the value of the assignment; otherwise, people would attempt to assign contracts whenever they knew of
a problem.
Choice "a" is incorrect. There is no implied warranty that the promisor will perform.
Choice "b" is incorrect. The obligor need not be given notice to effectively assign a contract right.
However, until the obligor receives notice, no liability is incurred by paying the assignor.
Choice "c" is incorrect. An assignee generally is subject to all of the defenses that the promisor would
have against the assignor relating to the contract (e.g., that the car was stolen).
CPA-01286
Type1 M/C
A-D
Corr Ans: A
PM#25
R 5-01
21. CPA-01286 Lw May 93 #25 Page 23
Master Mfg., Inc. contracted with Accur Computer Repair Corp. to maintain Master's computer system.
Master's manufacturing process depends on its computer system operating properly at all times. A
liquidated damages clause in the contract provided that Accur pay $1,000 to Master for each day that
Accur was late responding to a service request. On January 12, Accur was notified that Master's computer system failed. Accur did not respond to Master's service request until January 15. If Master sues
Accur under the liquidated damage provision of the contract, Master will:
a.
b.
c.
d.
Win, unless the liquidated damage provision is determined to be a penalty.
Win, because under all circumstances liquidated damage provisions are enforceable.
Lose, because Accur's breach was not material.
Lose, because liquidated damage provisions violate public policy.
9
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-01286
Explanation
Choice "a" is correct. A liquidated damages clause is enforceable if at the time of contracting it appears
that the amount of damages in case of breach would be difficult to assess and the amount is a
reasonable approximation of damages and not a penalty.
Choice "b" is incorrect. A liquidated damages clause is not enforceable if it constitutes a penalty, if actual
damages would be easy to assess at the time the contract was made, or if the liquidated damages
amount is not a reasonable approximation of actual damages.
Choice "c" is incorrect. The agreement of the parties made time of the essence under the contract, since
Master could not operate without its computer system and this fact was made clear to Accur. Thus, the
delay is a material breach.
Choice "d" is incorrect. Liquidated damages provisions do not violate public policy if at the time of
contracting it appears that the amount of damages in case of breach would be difficult to assess and the
amount is a reasonable approximation of damages and not a penalty.
CPA-01289
Type1 M/C
A-D
Corr Ans: B
PM#26
R 5-01
22. CPA-01289 Lw May 92 #21 Page 5
On September 10, Harris, Inc., a new car dealer, placed a newspaper advertisement stating that Harris
would sell 10 cars at its showroom for a special discount only on September 12, 13, and 14. On
September 12, King called Harris and expressed an interest in buying one of the advertised cars. King
was told that five of the cars had been sold and to come to the showroom as soon as possible. On
September 13, Harris made a televised announcement that the sale would end at 10:00 PM that night.
King went to Harris' showroom on September 14 and demanded the right to buy a car at the special
discount. Harris had sold the 10 cars and refused King's demand. King sued Harris for breach of
contract. Harris' best defense to King's suit would be that Harris':
a.
b.
c.
d.
Offer was unenforceable.
Advertisement was not an offer.
Television announcement revoked the offer.
Offer had not been accepted.
CPA-01289
Explanation
Choice "b" is correct. Advertisements are generally not offers, but invitations to negotiate. An
advertisement is an offer only if it is a promise to perform a very specific act conditioned upon
acceptance. If Harris' ad had stated that Harris would sell 10 specifically identified cars for a specified
price during the sale, Harris' advertisement would be an offer. Harris' actual advertisement is too vague
to be an offer.
Choice "a" is incorrect. The advertisement here is too vague to be considered an offer since it does not
specify which cars or what the special discount is.
Choice "c" is incorrect. The announcement did not revoke an offer because the original ad was too vague
to be considered an offer since it does not specify which cars or what the special discount is. Moreover,
generally revocations must be made through the same means as the offer. If the newspaper ad were an
offer, a television announcement would not be a sufficient way to revoke it.
Choice "d" is incorrect. The advertisement here is too vague to be considered an offer since it does not
specify which cars or what the special discount is. Thus, there was no offer to be accepted or not
accepted. Moreover, even if the ad were an offer, because all 10 cars had already been sold by the time
King came in to accept, any attempted acceptance was too late -- the offer had terminated because all 10
cars were sold.
CPA-01293
Type1 M/C
A-D
Corr Ans: D
PM#28
R 5-01
23. CPA-01293 Lw May 92 #24 Page 12
10
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
In which of the following situations does the first promise serve as valid consideration for the second
promise?
a. A police officer's promise to catch a thief for a victim's promise to pay a reward.
b. A builder's promise to complete a contract for a purchaser's promise to extend the time for
completion.
c. A debtor's promise to pay $500 for a creditor's promise to forgive the balance of a $600 liquidated
debt.
d. A debtor's promise to pay $500 for a creditor's promise to forgive the balance of a $600 disputed
debt.
CPA-01293
Explanation
Choice "d" is correct. Anything having legally recognized value can constitute consideration. If parties
legitimately disagree as to the amount owed under their contract, a promise to compromise, such as the
parties are doing here, has legal value and constitutes consideration since both parties are giving up the
right to litigate the dispute.
Choice "a" is incorrect. A promise to do something that one is already obligated to do has no legal value
and is not valid consideration under the preexisting legal duty rule. A police officer has a preexisting legal
duty to catch thieves; therefore, this promise cannot serve as consideration.
Choice "b" is incorrect. A promise to do something one is already obligated to do has no value and is not
valid consideration under the preexisting legal duty rule. Here, the builder already owed a duty to
complete the contract, and so his second promise to do so is not valid consideration.
Choice "c" is incorrect. If parties legitimately disagree as to the amount owed under their contract, a
promise to compromise has legal value and constitutes consideration since both parties are giving up the
right to litigate the dispute. However, here the amount owed is liquidated, which means that it is not in
dispute. A promise to compromise here has no legal value and cannot serve as consideration since there
is no legitimate right to litigate a liquidated claim.
CPA-01296
Type1 M/C
A-D
Corr Ans: D
PM#30
R 5-01
24. CPA-01296 Lw May 92 #26 Page 12
Carson agreed orally to repair Ives' rare book for $450. Before the work was started, Ives asked Carson
to perform additional repairs to the book and agreed to increase the contract price to $650. After Carson
completed the work, Ives refused to pay and Carson sued. Ives' defense was based on the Statute of
Frauds. What total amount will Carson recover?
a.
b.
c.
d.
$0
$200
$450
$650
CPA-01296
Explanation
Choice "d" is correct. The contract here is for services (repair of a book) and so is governed by the
common law. The common law requires modifications to be supported by consideration on both sides.
There is consideration on both sides here since Carson agreed to perform additional repairs and Ives
agreed to pay more. The Statute of Frauds is not a problem here since the contract is for services and
can be performed within a year (the examiners were trying to trick you by taking the contract over the
$500 threshold, but that threshold applies only to contracts for the sale of goods). Thus, the oral contract
is enforceable as modified.
Choices "a", "b", and "c" are incorrect, per the above answer.
CPA-01325
Type1 M/C
A-D
Corr Ans: A
PM#31
R 5-01
25. CPA-01325 Lw May 92 #27 Page 16
11
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
In an action for breach of contract, the statute of limitations time period would be computed from the date
of the:
a.
b.
c.
d.
Breach of the contract.
Signing of the contract.
Negotiation of the contract.
Commencement of the action.
CPA-01325
Explanation
Choice "a" is correct. In an action for breach of contract, the statute of limitations time is computed from
the date of the breach. Otherwise, in a long-term contract, the statute could run before the breach
occurs. Therefore, "b", "c", and "d" are incorrect.
CPA-01327
Type1 M/C
A-D
Corr Ans: B
PM#32
R 5-01
26. CPA-01327 Lw May 92 #28 Page 14
Which of the following, if intentionally misstated by a seller to a buyer, would be considered a fraudulent
inducement to make a contract?
a.
b.
c.
d.
Nonexpert opinion.
Appraised value.
Prediction.
Immaterial fact.
CPA-01327
Explanation
Choice "b" is correct. Fraud requires misrepresentation of a material fact. An intentionally misstated
appraised value is fraudulent inducement to enter into a contract, because an appraised value represents
a material fact.
Choice "a" is incorrect. Fraud requires misrepresentation of a material fact. Opinions are not facts.
Choice "c" is incorrect. Predictions are not material facts but rather are mere guesses as to what the
future may hold. Therefore, they cannot be the basis for fraud.
Choice "d" is incorrect. Immaterial facts cannot be the basis for a fraud defense since they are not very
relevant to the contract decision-making process.
CPA-01332
Type1 M/C
A-D
Corr Ans: C
PM#33
R 5-01
27. CPA-01332 Lw May 92 #29 Page 15
If a buyer accepts an offer containing an immaterial unilateral mistake, the resulting contract will be:
a.
b.
c.
d.
Void as a matter of law.
Void at the election of the buyer.
Valid as to both parties.
Voidable at the election of the seller.
CPA-01332
Explanation
Choice "c" is correct. An immaterial unilateral mistake is not a defense to a contract. A material unilateral
mistake can be a defense if the nonmistaken party either knew or should have known of the mistake.
Choices "a" and "b" are incorrect. Mistake never makes a contract void. At most, a contract based on a
mistake is voidable at the option of the adversely affected party.
Choice "d" is incorrect. A contract based on a material unilateral mistake is voidable at the option of the
adversely affected party. Although the mistake here apparently affects the seller, the facts state that it
was immaterial and so is not a ground for rescission.
12
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-01338
Type1 M/C
A-D
Corr Ans: A
PM#34
R 5-01
28. CPA-01338 Lw May 92 #30 Page 20
Under the parol evidence rule, oral evidence will be excluded if it relates to:
a.
b.
c.
d.
A contemporaneous oral agreement relating to a term in the contract.
Failure of a condition precedent.
Lack of contractual capacity.
A modification made several days after the contract was executed.
CPA-01338
Explanation
Choice "a" is correct. The parol evidence rule generally bars evidence of prior or contemporaneous oral
statements offered to vary the term of a fully integrated written contract. Oral evidence is permissible
when the contract is incomplete, ambiguous, invalid, or subject to a condition precedent, or when
modification is made after the original contract is written. A contemporaneous oral agreement will be
excluded.
Choice "b" is incorrect. Oral evidence is admissible to prove the failure of a condition precedent since this
does not vary the terms of the contract but rather is a collateral issue. The parol evidence rule bars only
prior or contemporaneous oral statements that seek to vary the contract's terms.
Choice "c" is incorrect. The parol evidence rule bars only prior and contemporaneous oral statements
that seek to vary the terms of a contract. It does not bar oral proof of subsequent modifications.
Choice "d" is incorrect. Oral evidence is permissible to prove an oral contract was made that modifies a
prior written contract. The parol evidence rule bars only prior or contemporaneous oral statements that
seek to vary the contract's terms.
CPA-01340
Type1 M/C
A-D
Corr Ans: C
PM#35
R 5-01
29. CPA-01340 Lw May 92 #32 Page 23
To cancel a contract and to restore the parties to their original positions before the contract, the parties
should execute a:
a.
b.
c.
d.
Novation.
Release.
Rescission.
Revocation.
CPA-01340
Explanation
Choice "c" is correct. A rescission "undoes" a contract and restores the parties to the positions they
would have been in if no contract were made.
Choice "a" is incorrect. In a novation, the original parties enter into a new contract that releases at least
one of the original parties and substitutes at least one new party. All involved parties must agree.
Choice "b" is incorrect, since a release simply discharges a party. It does not restore the party to their
original position.
Choice "d" is incorrect. A revocation refers to the withdrawal of an offer. A contract may not be revoked.
CPA-01353
Type1 M/C
A-D
Corr Ans: C
PM#39
R 5-01
30. CPA-01353 Lw Nov 92 #15 Page 16
Rail, who was 16 years old, purchased an $800 computer from Elco Electronics. Rail and Elco are
located in a state where the age of majority is 18. On several occasions Rail returned the computer to
Elco for repairs. Rail was very unhappy with the computer. Two days after reaching the age of 18, Rail
13
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
was still frustrated with the computer's reliability, and returned it to Elco, demanding an $800 refund. Elco
refused, claiming that Rail no longer had a right to disaffirm the contract. Elco's refusal is:
a. Correct, because Rail's multiple requests for service acted as a ratification of the contract.
b. Correct, because Rail could have transferred good title to a good faith purchaser for value.
c. Incorrect, because Rail disaffirmed the contract within a reasonable period of time after reaching the
age of 18.
d. Incorrect, because Rail could disaffirm the contract at any time.
CPA-01353
Explanation
Choice "c" is correct. A minor may disaffirm a contract within a reasonable time after reaching majority,
and two days is certainly a reasonable time.
Choice "a" is incorrect. A minor cannot ratify a contract until reaching majority. Thus, Rail's requests for
repairs before reaching majority are irrelevant.
Choice "b" is incorrect. A minor has a right to disaffirm contracts despite the minor's power to transfer
good title to a good faith purchaser.
Choice "d" is incorrect. A minor must disaffirm a contract within a reasonable time after reaching majority.
CPA-01405
Type1 M/C
A-D
Corr Ans: C
PM#41
R 5-01
31. CPA-01405 Lw Nov 92 #18 Page 14
Maco, Inc. and Kent contracted for Kent to provide Maco certain consulting services at an hourly rate of
$20. Kent's normal hourly rate was $90 per hour, the fair market value of the services. Kent agreed to
the $20 rate because Kent was having serious financial problems. At the time the agreement was
negotiated, Maco was aware of Kent's financial condition and refused to pay more than $20 per hour for
Kent's services. Kent has now sued to rescind the contract with Maco, claiming duress by Maco during
the negotiations. Under the circumstances, Kent will:
a.
b.
c.
d.
Win, because Maco refused to pay the fair market value of Kent's services.
Win, because Maco was aware of Kent's serious financial problems.
Lose, because Maco's actions did not constitute duress.
Lose, because Maco cannot prove that Kent, at the time, had no other offers to provide consulting
services.
CPA-01405
Explanation
Choice "c" is correct. Duress occurs when a person overcomes the will of another through wrongful force
or threats of imminent force. Economic duress generally is not recognized as a defense to contract, and
even where it is, it is usually required that the party taking advantage of the other party's poor financial
condition must have caused the poor condition.
Choice "a" is incorrect. The parties to a contract are free to drive the best bargain they can. It is not a
defense that the price agreed to was unfair.
Choice "b" is incorrect. A party is free to drive the best bargain he can in contracting. The fact that the
other party is in a poor financial condition does not change this rule.
Choice "d" is incorrect. Kent contracted to provide services for $20 per hour and the state of his other
offers for work is unrelated to the contract here.
CPA-01408
Type1 M/C
A-D
Corr Ans: B
PM#42
R 5-01
32. CPA-01408 Lw Nov 92 #20 Page 14
Miller negotiated the sale of Miller's liquor store to Jackson. Jackson asked to see the prior year's
financial statements. Using the store's checkbook, Miller prepared a balance sheet and profit and loss
statement as well as he could. Miller told Jackson to have an accountant examine Miller's records
because Miller was not an accountant. Jackson failed to do so and purchased the store in reliance on
14
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Miller's financial statements. Jackson later learned that the financial statements included several errors
that resulted in a material overstatement of assets and net income. Miller was not aware that the errors
existed. Jackson sued Miller, claiming Miller misrepresented the store's financial condition and that
Jackson relied on the financial statements in making the decision to acquire the store. Which of the
following statements is correct?
a. Jackson will prevail if the errors in the financial statements were material.
b. Jackson will not prevail because Jackson's reliance on the financial statements was not reasonable.
c. Money damages is the only remedy available to Jackson if, in fact, Miller has committed a
misrepresentation.
d. Jackson would be entitled to rescind the purchase even if the errors in the financial statements were
not material.
CPA-01408
Explanation
Choice "b" is correct. Since Miller did not intentionally misrepresent the store's financial condition (i.e.,
the misrepresentation was unintentional), the misrepresentation is a defense only if reliance on it was
reasonable. It was not reasonable to rely here since Miller told Jackson that Miller did not know what he
was doing and that Jackson should hire an accountant.
Choice "a" is incorrect. Even if the misrepresentations were material, because Miller's misrepresentation
was innocent, it is actionable only if Jackson reasonably relied on the misrepresentation. Jackson did not
reasonably rely on the misrepresentation, because Miller had told him that Miller was not an accountant
and that Jackson should have Miller's work checked.
Choice "c" is incorrect. For misrepresentation, the injured party has a choice of avoiding the contract (and
getting the purchase price back) or damages.
Choice "d" is incorrect, since Jackson would have to prove that the errors were "material" in order to
rescind the agreement.
CPA-01411
Type1 M/C
A-D
Corr Ans: C
PM#43
R 5-01
33. CPA-01411 Lw Nov 92 #21 Page 25
Ferco, Inc. claims to be a creditor beneficiary of a contract between Bell and Allied Industries, Inc. Allied
is indebted to Ferco. The contract between Bell and Allied provides that Bell is to purchase certain goods
from Allied and pay the purchase price directly to Ferco until Allied's obligation is satisfied. Without
justification, Bell failed to pay Ferco and Ferco sued Bell. Ferco will:
a.
b.
c.
d.
Not prevail, because Ferco lacked privity of contract with either Bell or Allied.
Not prevail, because Ferco did not give any consideration to Bell.
Prevail, because Ferco was an intended beneficiary of the contract between Allied and Bell.
Prevail, provided Ferco was aware of the contract between Bell and Allied at the time the contract
was entered into.
CPA-01411
Explanation
Choice "c" is correct. Intended beneficiaries (persons who were intended to be benefited by a contract
other than the bargaining parties) can enforce the contract as soon as their rights vest. Here, Allied
clearly intended Ferco to receive benefits of the contract and Ferco's rights vested upon filing suit for
Bell's breach, if not before.
Choice "a" is incorrect. Intended beneficiaries are in privity (one of the parties to a contract) since they
are actually named in the contract.
Choice "b" is incorrect. There is no requirement that an intended beneficiary give consideration; it is
sufficient that consideration flows between the other parties.
Choice "d" is incorrect. An intended beneficiary need not know of the contract when it is made; his or her
rights may vest in the contract later by relying on it, assenting to it, or bringing suit on it.
15
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-01414
Type1 M/C
A-D
Corr Ans: C
PM#44
R 5-01
34. CPA-01414 Lw Nov 92 #22 Page 20
In negotiations with Andrews for the lease of Kemp's warehouse, Kemp orally agreed to pay one-half of
the cost of the utilities. The written lease, later prepared by Kemp's attorney, provided that Andrews pay
all of the utilities. Andrews failed to carefully read the lease and signed it. When Kemp demanded that
Andrews pay all of the utilities, Andrews refused, claiming that the lease did not accurately reflect the oral
agreement. Andrews also learned that Kemp intentionally misrepresented the condition of the structure
of the warehouse during the negotiations between the parties. Andrews sued to rescind the lease and
intends to introduce evidence of the parties' oral agreement about sharing the utilities and the fraudulent
statements made by Kemp. The parol evidence rule will prevent the admission of evidence concerning
the:
a.
b.
c.
d.
Oral agreement
regarding who
pays the utilities
Yes
No
Yes
No
Fraudulent
statements
by Kemp
Yes
Yes
No
No
CPA-01414
Explanation
Choice "c" is correct. The parol evidence rule prohibits introduction of prior or contemporaneous oral
statements that seek to vary the terms of a written contract, thus Andrews will not be able to introduce
evidence of the oral agreement regarding utilities since the written contract already has a conflicting
provision. However, Andrews will be able to introduce evidence of Kemp's fraudulent statements
because the parol evidence rule has an exception for fraudulent statements.
Choices "a", "b", and "d" are incorrect, per the above.
CPA-01417
Type1 M/C
A-D
Corr Ans: C
PM#45
R 5-01
35. CPA-01417 Lw Nov 92 #23 Page 20
Rogers and Lennon entered into a written computer consulting agreement that required Lennon to
provide certain weekly reports to Rogers. The agreement also stated that Lennon would provide the
computer equipment necessary to perform the services, and that Rogers' computer would not be used.
As the parties were executing the agreement, they orally agreed that Lennon could use Rogers'
computer. After executing the agreement, Rogers and Lennon orally agreed that Lennon would report on
a monthly, rather than weekly, basis. The parties now disagree on Lennon's right to use Rogers'
computer and how often Lennon must report to Rogers. In the event of a lawsuit between the parties, the
parol evidence rule will:
a. Not apply to any of the parties' agreements because the consulting agreement did not have to be in
writing.
b. Not prevent Lennon from proving the parties' oral agreement that Lennon could use Rogers'
computer.
c. Not prevent the admission into evidence of testimony regarding Lennon's right to report on a monthly
basis.
d. Not apply to the parties' agreement to allow Lennon to use Rogers' computer because it was
contemporaneous with the written agreement.
CPA-01417
Explanation
Choice "c" is correct. The parol evidence rule prohibits introduction of prior or contemporaneous oral
statements that seek to vary the terms of a written contract. It does not prohibit introduction of
subsequent oral statements that modify the contract.
Choice "a" is incorrect. The parol evidence rule applies whenever there is a written contract, not only to
contracts that must be in writing because of the Statute of Frauds.
16
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "b" is incorrect. The parol evidence rule prohibits introduction of prior or contemporaneous oral
statements that seek to vary the terms of a written contract. The agreement that Lennon could use
Rogers' computer is different from what the contract provides and was made contemporaneously with the
written contract. Thus, the parol evidence rule will bar its introduction.
Choice "d" is incorrect. The parol evidence rule bars contemporaneous oral statements that seek to vary
the terms of a written contract.
CPA-01420
Type1 M/C
A-D
Corr Ans: A
PM#46
R 5-01
36. CPA-01420 Lw Nov 92 #24 Page 25
Wilcox Co. contracted with Ace Painters, Inc. for Ace to paint Wilcox's warehouse. Ace, without advising
Wilcox, assigned the contract to Pure Painting Corp. Pure failed to paint Wilcox's warehouse in
accordance with the contract specifications. The contract between Ace and Wilcox was silent with regard
to a party's right to assign it. Which of the following statements is correct?
a.
b.
c.
d.
Ace remained liable to Wilcox despite the fact that Ace assigned the contract to Pure.
Ace would not be liable to Wilcox if Ace had notified Wilcox of the assignment.
Ace's duty to paint Wilcox's warehouse was nondelegable.
Ace's delegation of the duty to paint Wilcox's warehouse was a breach of the contract.
CPA-01420
Explanation
Choice "a" is correct. In the absence of an agreement to the contrary, the assignment of a contract does
not relieve the assignor of his/her obligations under the contract. Here, Ace remains liable to Wilcox even
though Ace assigned (delegated) its contractual responsibility to Pure.
Choice "b" is incorrect. Notice alone isn't enough to remove liability. Ace could avoid liability by creating
a new agreement (novation) between Wilcox and Pure.
Choice "c" is incorrect. Only duties that involve specialized personal skills (i.e., rely heavily on the
personal attributes of the person performing) cannot be delegated, and a contract to paint a warehouse
does not rely on specialized skills, as would a contract to paint a portrait.
Choice "d" is incorrect. The duty to paint a building does not involve highly specialized skills and,
therefore, is delegable. Since Ace's duty to paint Wilcox's warehouse could be delegated, the act of
delegating was not a breach of contract.
CPA-01424
Type1 M/C
A-D
Corr Ans: A
PM#47
R 5-01
37. CPA-01424 Lw Nov 92 #25 Page 20
On June 15, 1990, Alpha, Inc. contracted with Delta Manufacturing, Inc. to buy a vacant parcel of land
Delta owned. Alpha intended to build a distribution warehouse on the land because of its location near a
major highway. The contract stated that: "Alpha's obligations hereunder are subject to the vacant parcel
being rezoned to a commercial zoning classification by July 31, 1991." Which of the following statements
is correct?
a. If the parcel is not rezoned by July 31, and Alpha refuses to purchase it, Alpha would not be in breach
of contract.
b. If the parcel is rezoned by July 31, and Alpha refuses to purchase it, Delta would be able to
successfully sue Alpha for specific performance.
c. The contract is not binding on either party because Alpha's performance is conditional.
d. If the parcel is rezoned by July 31, and Delta refuses to sell it, Delta's breach would not discharge
Alpha's obligation to tender payment.
CPA-01424
Explanation
Choice "a" is correct. The parties created a contract that makes Alpha's duty to pay subject to a condition
precedent -- the rezoning of the parcel by July 31. If the parcel is not rezoned by July 31, Alpha's duty to
pay never arises. Therefore, Alpha would not be in breach.
17
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "b" is incorrect. Generally, only the buyer can get specific performance of a contract for the sale
of land because money damages, the legal remedy, is adequate for the seller since the seller is only
getting money.
Choice "c" is incorrect. Contracts may be conditional; inclusion of a condition -- whether precedent,
concurrent, or subsequent -- does not render a contract unenforceable.
Choice "d" is incorrect. Delta's refusal to sell would constitute failure of a condition concurrent. In a buysell contract, the parties' duty to perform usually are concurrent conditions -- the buyer doesn't have a
duty to buy until the seller tenders and the seller does not have a duty to sell until the buyer tenders the
price. If the seller refuses to tender the land here, Alpha's obligation to pay would be discharged by
failure of the condition concurrent.
CPA-01427
Type1 M/C
A-D
Corr Ans: D
PM#48
R 5-01
38. CPA-01427 Lw Nov 91 #24 Page 26
Yost contracted with Egan for Yost to buy certain real property. If the contract is otherwise silent, Yost's
rights under the contract are:
a.
b.
c.
d.
Assignable only with Egan's consent.
Nonassignable because they are personal to Yost.
Nonassignable as a matter of law.
Generally assignable.
CPA-01427
Explanation
Choice "d" is correct. Most contracts are assignable unless they involve personal services or the
assignment would vary the risks or burdens of the contract. Normally a real estate contract is assignable.
Choices "a", "b", and "c" are incorrect. Generally, unless a contract involves specialized personal
services or otherwise relies heavily on the personal attributes of the parties, it is assignable without
consent. A contract to purchase real estate does not involve personal services, therefore no consent is
needed.
CPA-04779
Type1 M/C
A-D
Corr Ans: D
PM#49
R 5-01
39. CPA-04779 Released 2005 Page 17
Kram sent Fargo, a real estate broker, a signed offer to sell a specified parcel of land to Fargo for
$250,000. Kram, an engineer, had inherited the land. On the same day that Kram's letter was received,
Fargo telephoned Kram and accepted the offer. Which of the following statements is correct under the
common law statute of frauds?
a.
b.
c.
d.
No contract could be formed because Fargo's acceptance was oral.
No contract could be formed because Kram's letter was signed only by Kram.
A contract was formed and would be enforceable against both Kram and Fargo.
A contract was formed but would be enforceable only against Kram.
CPA-04779
Explanation
Choice "d" is correct. A contract was formed between Kram and Fargo because Kram made a valid offer
and Fargo made a valid acceptance of that offer. Under the Statute of Frauds, contracts involving
interests in real estate require some kind of writing to be enforceable. Both parties need not sign the
writing. Only the party to be charged must sign. The original signed offer from Kram would be a sufficient
writing to satisfy the Statute of Frauds if Fargo is seeking to enforce the contract. Since Fargo accepted
by telephone, there is no writing signed by Fargo. Thus, the contract could be enforced against Kram, but
could not be enforced against Fargo due to the lack of a signed writing by Fargo.
Choices "a" and "b" are incorrect because they state that no contract was formed. There was a contract.
The Statute of Frauds does not make oral contracts invalid, it only makes them unenforceable.
18
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "c" is incorrect because the contract could not be enforced against Fargo. A real estate contract
is within the Statute of Frauds, and a contract within the Statute of Frauds generally is enforceable
against a party only if that party signed a written memorandum containing the material terms of the
contract.
CPA-04783
Type1 M/C
A-D
Corr Ans: D
PM#50
R 5-01
40. CPA-04783 Released 2005 Page 16
On May 25, Fresno sold Bronson, a minor, a used computer. On June 1, Bronson reached the age of
majority. On June 10, Fresno wanted to rescind the sale. Fresno offered to return Bronson's money and
demanded that Bronson return the computer. Bronson refused, claiming that a binding contract existed.
Bronson's refusal is:
a. Not justified, because Fresno is not bound by the contract unless Bronson specifically ratifies the
contract after reaching the age of majority.
b. Not justified, because Fresno does not have to perform under the contract if Bronson has a right to
disaffirm the contract.
c. Justified, because Bronson and Fresno are bound by the contract as of the date Bronson reached the
age of majority.
d. Justified, because Fresno must perform under the contract regardless of Bronson's minority.
CPA-04783
Explanation
Choice "d" is correct. In this problem, Fresno was an adult and Bronson was a minor at the time of
contracting. The common law gives minors the right to disaffirm a contract anytime while a minor or
within a reasonable time after becoming an adult. Only the minor has the right to disaffirm. The adult
may not disaffirm the contract.
Choice "a" is incorrect. Fresno, the adult, is bound by the contract unless Bronson disaffirms. Bronson
does not have to ratify.
Choice "b" is incorrect. Fresno, the adult, is bound by the contract unless Bronson disaffirms. Fresno
does not have the right to get out of the contract. Only Bronson, the minor, does.
Choice "c" is incorrect. Fresno was bound by the contract on the date it was made. Bronson becomes
bound upon ratifying or failing to disaffirm the contract within a reasonable time after reaching the age of
majority.
CPA-04788
Type1 M/C
A-D
Corr Ans: C
PM#51
R 5-01
41. CPA-04788 Released 2005 Adapted Page 25
West, Inc. and Barton entered into a contract. After receiving valuable consideration from Egan, West
assigned its rights under the Barton contract to Egan. In which of the following circumstances would
West not be liable to Egan?
a.
b.
c.
d.
West released Barton.
West breached the contract.
Egan released Barton.
Barton paid West.
CPA-04788
Explanation
Choice "c" is correct. In an assignment for consideration, the assignor and obligor are both liable to the
assignee. However, if the assignee releases the obligor, it will serve to release the assignor as well.
Thus, if Egan (the assignee) releases Barton (the obligor), West (the assignor) will be released as well.
Choice "a" is incorrect. In an assignment for consideration, the assignor and obligor are both liable to the
assignee. Thus, if West (the assignor) released Barton (the obligor), West would remain liable to Egan
(the assignee) because Egan paid consideration to be assigned West's rights.
19
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "b" is incorrect. In an assignment for consideration, the assignor owes a contractual duty to the
assignee. If the assignor breaches his contract with the obligor so that the obligor is discharged from
performing for the assignee, the assignee can hold the assignor liable.
Choice "d" is incorrect. In an assignment for consideration, the assignor and the obligor are both liable to
the assignee. Thus, if Barton (the obligor) pays West (the assignor) it does nothing to extinguish the
obligation owed to Egan (the assignee). Therefore, it would not constitute a release of West (the
assignor).
CPA-05272
Type1 M/C
A-D
Corr Ans: B
PM#63
R 5-01
42. CPA-05272 Released 2006 Page 14
Which of the following types of mistake will generally make a contract unenforceable and allow it to be
rescinded?
a.
b.
c.
d.
A unilateral mistake of fact.
A mutual mistake of fact.
A unilateral mistake of value.
A mutual mistake of value.
CPA-05272
Explanation
Choice "b" is correct. A mutual mistake of a material fact will make a contract voidable at the option of the
adversely affected party.
Choice "a" is incorrect. Generally, a unilateral mistake of fact does not make the contract voidable. The
mistaken party can avoid a contract on the basis of a unilateral mistake only if the other party either knew
or should have known of the mistake.
Choice "c" is incorrect. Only mistakes as to material facts can make a contract unenforceable. Value
generally is not a fact but, rather, is a matter of opinion.
Choice "d" is incorrect. Only mistakes as to material facts can make a contract unenforceable. Value
generally is not a fact but, rather, is a matter of opinion.
CPA-05296
Type1 M/C
A-D
Corr Ans: B
PM#64
R 5-01
43. CPA-05296 Released 2006 Page 26
Which of the following contract rights can generally be assigned?
a.
b.
c.
d.
The right to receive personal services.
The right to receive a sum of money.
The right of an insured to coverage under a fire insurance policy.
A right whose assignment is prohibited by statute.
CPA-05296
Explanation
Choice "b" is correct. Generally, one can assign rights under a contract with the exception of personal
services or when the assignment increases the obligor's risk. The right to receive money is a very
common right that is assignable.
Choice "a" is incorrect. Generally, the right to receive personal services is not assignable.
Choice "c" is incorrect. Generally one cannot assign a right if the assignment will vary the obligor's risk.
Insurance policies are contracts involving the assessment of risk. Therefore, coverage rights under these
contracts are not assignable.
Choice "d" is incorrect. If a statute prohibits assignment of a particular right then, obviously, the right is
not assignable by operation of law.
CPA-05527
Type1 M/C
A-D
Corr Ans: D
PM#65
R 5-01
20
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
44. CPA-05527 Released 2007 Page 10
Which of the following promises is supported by legally sufficient consideration and will be enforceable?
a. A person's promise to pay a real estate agent $1,000 in return for the real estate agent's earlier act of
not charging commission for selling the person's house.
b. A parent's promise to pay one child $500 because that child is not as wealthy as the child's sibling.
c. A promise to pay the police $250 to catch a thief.
d. A promise to pay a minor $500 to paint a garage.
CPA-05527
Explanation
Choice "d" is correct. To constitute consideration, there must be a bargained for exchange of something
of value. A detriment to the promisee or a benefit to the promisor constitutes value. A promise to pay a
minor $500 to paint a garage constitutes a detriment to the promisee -- the promisee is not otherwise
bound to pay the minor $500 to paint the garage, and the minor's painting the garage constitutes valid
consideration to support the promise to pay $500.
Choice "a" is incorrect. To constitute consideration, there must be a bargained for exchange of value. A
detriment to the promisee or a benefit to the promisor constitutes value. Past acts generally do not
constitute valid consideration because the acts were not bargained for. Thus, a promise to pay $1,000 in
return for a prior performed act (not charging for services) is not supported by consideration.
Choice "b" is incorrect. To constitute consideration, there must be a bargained for exchange of value. A
detriment to the promisee or a benefit to the promisor constitutes value. Here, there is no bargained for
exchange. The promise is gratuitous and not supported by consideration.
Choice "c" is incorrect. To constitute consideration, there must be a bargained for exchange of value. A
detriment to the promisee or a benefit to the promisor constitutes value. A promise to perform a preexisting duty does not constitute valid consideration. Because a police officer already owes a crime
victim a duty to catch the perpetrator, the police officer's promise to perform his duty does not constitute
valid consideration.
CPA-05542
Type1 M/C
A-D
Corr Ans: A
PM#66
R 5-01
45. CPA-05542 Released 2007 Page 23
For which of the following contracts will a court generally grant the remedy of specific performance?
a.
b.
c.
d.
A contract for the sale of a patent.
A contract of employment.
A contract for the sale of fungible goods.
A contract for the sale of stock that is traded on a national stock exchange.
CPA-05542
Explanation
Choice "a" is correct. Specific performance is a court order to perform under the terms of a contract.
Generally, it is available only in contracts for unique or rare property. A patent, by definition, is unique.
Therefore, specific performance would be available to enforce a contract for the sale of a patent.
Choice "b" is incorrect. Specific performance is not available to enforce a contract of employment -- at
least not in an action by the employer -- because it would be tantamount to an order of involuntary
servitude.
Choice "c" is incorrect. Specific performance is available only to enforce a contract involving unique or
rare property. It is not available to enforce a contract for fungible goods, as such goods are easily
replaced.
Choice "d" is incorrect. Specific performance is available only to enforce a contract involving unique or
rare property. It is not available to enforce a contract for fungible items. Stock traded on a national
securities exchange is fungible.
Sales
21
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-01604
Type1 M/C
46. CPA-01604 Lw R03 #10
A-D
Corr Ans: D
PM#1
R 5-02
Page 34
Under the Sales Article of the UCC, which of the following statements is correct regarding risk of loss and
title to the goods under a sale or return contract?
a. Title and risk of loss are shared equally between the buyer and the seller.
b. Title remains with the seller until the buyer approves or accepts the goods, but risk of loss passes to
the buyer immediately following delivery of the goods to the buyer.
c. Title and risk of loss remain with the seller until the buyer pays for the goods.
d. Title and risk of loss rest with the buyer until the goods are returned to the seller.
CPA-01604
Explanation
Choice "d" is correct. In a sale or return, the buyer has title and risk of loss unless and until the goods are
returned to the seller.
Choices "a", "b", and "c" are incorrect, per the above.
CPA-01605
Type1 M/C
47. CPA-01605 Lw R03 #13
A-D
Corr Ans: C
PM#2
R 5-02
Page 36
An appliance seller promised a restaurant owner that a home dishwasher would fulfill the dishwashing
requirements of a large restaurant. The dishwasher was purchased but it was not powerful enough for
the restaurant. Under the Sales Article of the UCC, what warranty was violated?
a.
b.
c.
d.
The implied warranty of marketability.
The implied warranty of merchantability.
The express warranty that the goods conform to the seller's promise.
The express warranty against infringement.
CPA-01605
Explanation
Choice "c" is correct. Any affirmation of fact or promise that becomes part of the basis of the bargain
creates an express warranty.
Choice "a" is incorrect. There is no warranty under the Sales Article entitled the "warranty of
marketability."
Choice "b" is incorrect. The warranty of merchantability is a promise that the goods will be fit for their
ordinary purposes. Nothing here indicates that the home dishwasher would be unfit for its ordinary
purpose of washing dishes in a home.
Choice "d" is incorrect. The warranty against infringement is a promise that the goods sold do not infringe
on another's patents or copyrights. Nothing indicates that this warranty was breached here.
CPA-01635
Type1 M/C
48. CPA-01635 Lw R03 #14
A-D
Corr Ans: B
PM#3
R 5-02
Page 41
Under the Sales Article of the UCC, which of the following circumstances will relieve a buyer from the
obligation of accepting a tender or delivery of goods?
I. If the goods do not meet the buyer's needs at the time of the tender or delivery.
II. If the goods at the time of the tender or delivery do not exactly conform to the requirements of the
contract.
a.
b.
c.
d.
I only.
II only.
Both I and II.
Neither I nor II.
22
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-01635
Explanation
Choice "b" is correct. A buyer may reject goods if they do not conform to the contract in any way. This is
known as the perfect tender doctrine. However, the mere fact that the goods do not meet the buyer's
needs at the time of tender or delivery is not a ground for rejection if the goods conform to the contract.
Choices "a", "c", and "d" are incorrect. Each of these choices incorrectly address either I and/or II.
CPA-01638
Type1 M/C
49. CPA-01638 Lw R03 #15
A-D
Corr Ans: D
PM#4
R 5-02
Page 28
Under the Sales Article of the UCC, which of the following statements is correct regarding a good faith
requirement that must be met by a merchant?
a.
b.
c.
d.
The merchant must adhere to all written and oral terms of the sales contract.
The merchant must provide more extensive warranties than the minimum required by law.
The merchant must charge the lowest available price for the product in the geographic market.
The merchant must observe the reasonable commercial standards of fair dealing in the trade.
CPA-01638
Explanation
Choice "d" is correct. The UCC imposes an obligation of good faith on both parties to a contract. For
merchants, this includes the duty to observe reasonable commercial standards.
Choice "a" is incorrect. Under the parol evidence rule, a merchant would not have to adhere to oral
statements made before a written contract was made if the written contract appears to be a total
integration of the entire deal.
Choice "b" is incorrect. A merchant need not go beyond the warranties required by law.
Choice "c" is incorrect. There is no rule requiring merchants to sell at the lowest prices.
CPA-01640
Type1 M/C
50. CPA-01640 Lw R03 #16
A-D
Corr Ans: B
PM#5
R 5-02
Page 34
Under the Sales Article of the UCC, which of the following statements is correct regarding a seller's
obligation under a F.O.B. destination contract?
a. The seller is required to arrange for the buyer to pick up the conforming goods at a specified
destination.
b. The seller is required to tender delivery of conforming goods at a specified destination.
c. The seller is required to tender delivery of conforming goods at the buyer's place of business.
d. The seller is required to tender delivery of conforming goods to a carrier who delivers to a destination
specified by the buyer.
CPA-01640
Explanation
Choice "b" is correct. Under an F.O.B. destination contract, the seller has the risk of loss until he places
conforming goods into the buyer's hands at the named destination, not necessarily the buyer's place of
business.
Choices "a", "c", and "d" are incorrect, per the above.
CPA-01643
Type1 M/C
51. CPA-01643 Lw R03 #17
A-D
Corr Ans: B
PM#6
R 5-02
Page 30
Under the Sales Article of the UCC, in an auction announced in explicit terms to be without reserve, when
may an auctioneer withdraw the goods put up for sale?
23
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
I. At any time until the auctioneer announces completion of the sale.
II. If no bid is made within a reasonable time.
a.
b.
c.
d.
I only.
II only.
Either I or II.
Neither I nor II.
CPA-01643
Explanation
Choice "b" is correct. In an auction without reserve, the goods must be sold if an offer is made. Of
course, if no offer is made within a reasonable time, the goods need not be sold. Item I describes a sale
with reserve.
Choices "a", "c", and "d" are incorrect. Each of these choices incorrectly addresses either I and/or II.
CPA-01702
Type1 M/C
52. CPA-01702 Lw R02 #19
A-D
Corr Ans: A
PM#8
R 5-02
Page 30
A sheep rancher agreed, in writing, to sell all the wool shorn during the shearing season to a weaver.
The contract failed to establish the price and a minimum quantity of wool. After the shearing season, the
rancher refused to deliver the wool. The weaver sued the rancher for breach of contract. Under the
Sales Article of the UCC, will the weaver win?
a.
b.
c.
d.
Yes, because this was an output contract.
Yes, because both price and quantity terms were omitted.
No, because quantity cannot be omitted for a contract to be enforceable.
No, because the omission of price and quantity terms prevents the formation of a contract.
CPA-01702
Explanation
Choice "a" is correct. Under the UCC, a contract to buy all of one's requirements or to sell all of one's
output is valid even though an exact quantity is not stated. In addition, price and time for delivery are not
essential terms under the UCC. As a general rule, the only essential term under the UCC is quantity
except, as in this case, when it is an output or requirements contract.
Choice "b" is incorrect. First, the contract has a quantity term -- the rancher's output for the season.
Thus, this choice is factually incorrect. Second, if it were missing a quantity term, that would be a reason
preventing enforcement.
Choice "c" is incorrect. Although it is true that an agreement is unenforceable under the Sales Article if it
lacks a quantity term, the UCC treats output as an acceptable quantity term.
Choice "d" is incorrect because when a price term is omitted, the UCC implies a reasonable price, and the
contract here does have a quantity term because output is considered an acceptable quantity.
CPA-01706
Type1 M/C
53. CPA-01706 Lw R01 #9
A-D
Corr Ans: C
PM#9
R 5-02
Page 31
EG Door Co., a manufacturer of custom exterior doors, verbally contracted with Art Contractors to design
and build a $2,000 custom door for a house that Art was restoring. After EG had completed substantial
work on the door, Art advised EG that the house had been destroyed by fire and Art was canceling the
contract. EG finished the door and shipped it to Art. Art refused to accept delivery. Art contends that the
contract cannot be enforced because it violated the Statute of Frauds by not being in writing. Under the
Sales Article of the UCC, is Art's contention correct?
a. Yes, because the contract was not in writing.
b. Yes, because the contract cannot be fully performed due to the fire.
c. No, because the goods were specially manufactured for Art and cannot be resold in EG's regular
course of business.
24
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
d. No, because the cancellation of the contract was not made in writing.
CPA-01706
Explanation
Choice "c" is correct. The Statute of Frauds requires contracts involving the sales of goods to be in
writing if they exceed $500 (MYLEGS). However, if any of these exceptions apply, an oral contract will be
enforceable:
Specially manufactured (custom) goods
Written confirmation between merchants
Admitted
Performed and accepted
Choice "a" is incorrect. Although the contract is within the Statute of Frauds because it involves the sale
of goods for $500 or more and Art did not sign a memorandum sufficient to satisfy the Statute, the
contract is nevertheless enforceable against Art under an exception to the Statute for specially
manufactured goods.
Choice "b" is incorrect. The fire did nothing to prevent performance of the contract. EG was still able to
manufacture the door and Art was still able to pay for it.
Choice "d" is incorrect. Nothing in the UCC requires cancellations to be in writing.
CPA-01711
Type1 M/C
54. CPA-01711 Lw R99 #15
A-D
Corr Ans: C
PM#10
R 5-02
Page 33
Under the Sales Article of the UCC, when a contract for the sale of goods stipulates that the seller ship
the goods by common carrier "F.O.B. purchaser's loading dock," which of the parties bears the risk of loss
during shipment?
a.
b.
c.
d.
The purchaser, because risk of loss passes when the goods are delivered to the carrier.
The purchaser, because title to the goods passes at the time of shipment.
The seller, because risk of loss passes only when the goods reach the purchaser's loading dock.
The seller, because risk of loss remains with the seller until the goods are accepted by the purchaser.
CPA-01711
Explanation
Choice "c" is correct. When a contract for the sale of goods includes an F.O.B. (free on board) delivery
term, that term controls risk of loss. The seller has the risk of loss until the goods are delivered at the
location named after the F.O.B. term. Here, the location is the purchaser's loading dock, so risk of loss
remains with the seller until the goods are delivered there.
Choice "a" is incorrect. When the delivery term is F.O.B. purchaser's loading dock, risk of loss does not
pass to the purchaser until the goods are delivered at the purchaser's loading dock.
Choice "b" is incorrect. Under the UCC, risk of loss does not depend upon title, but rather upon the
delivery term.
Choice "d" is incorrect. Risk of loss under an F.O.B. term passes when the goods are delivered at the
named location, not when the goods are accepted by the purchaser.
CPA-01714
Type1 M/C
A-D
Corr Ans: B
PM#11
R 5-02
55. CPA-01714 Lw Nov 95 #41 Page 28
Under the Sales Article of the UCC, a firm offer will be created only if the:
a. Offer states the time period during which it will remain open.
b. Offer is made by a merchant in a signed writing.
c. Offeree gives some form of consideration.
25
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
d. Offeree is a merchant.
CPA-01714
Explanation
Choice "b" is correct. A firm offer (an offer that must remain open despite the absence of consideration)
can be made only by merchants and must be in a signed writing.
Choice "a" is incorrect. If a firm offer does not state its period of irrevocability, it will remain open for a
reasonable time not to exceed three months.
Choice "c" is incorrect. A firm offer is an offer that must remain open despite the lack of consideration.
Choice "d" is incorrect. The offeree need not be a merchant in a firm offer situation; only the offeror need
be a merchant.
CPA-01717
Type1 M/C
A-D
Corr Ans: B
PM#12
R 5-02
56. CPA-01717 Lw Nov 95 #43 Page 37
Under the Sales Article of the UCC, the warranty of title:
a. Provides that the seller cannot disclaim the warranty if the sale is made to a bona fide purchaser for
value.
b. Provides that the seller deliver the goods free from any lien of which the buyer lacked knowledge
when the contract was made.
c. Applies only if it is in writing and signed by the seller.
d. Applies only if the seller is a merchant.
CPA-01717
Explanation
Choice "b" is correct. The warranty of title is a guarantee from the seller that the goods are delivered free
of all liens of which the buyer is unaware.
Choice "a" is incorrect. The warranty of title can be disclaimed by specific language or circumstance.
Choice "c" is incorrect. The warranty of title arises automatically in every sale of goods; it need not be in
writing.
Choice "d" is incorrect. The warranty of title arises automatically in every sale of goods; even when the
seller is not a merchant.
CPA-01722
Type1 M/C
A-D
Corr Ans: D
PM#13
R 5-02
57. CPA-01722 Lw Nov 95 #44 Page 39
To establish a cause of action based on strict liability in tort for personal injuries that result from the use of
a defective product, one of the elements the injured party must prove is that the seller:
a.
b.
c.
d.
Was aware of the defect in the product.
Sold the product to the injured party.
Failed to exercise due care.
Sold the product in a defective condition.
CPA-01722
Explanation
Choice "d" is correct. An action for strict product liability will succeed only if the product was in a defective
condition when sold, the seller was in the business of selling goods, the defect caused the plaintiff's
injury, and the product was expected to and did reach the consumer without substantial change.
Choice "a" is incorrect. The seller need not have been aware of the defect.
Choice "b" is incorrect. Strict product liability extends to all foreseeable users, privity is not required.
Choice "c" is incorrect. The seller need not have failed to exercise due care; liability is strict and can be
imposed even on a careful seller.
26
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-01724
Type1 M/C
A-D
Corr Ans: B
PM#14
R 5-02
58. CPA-01724 Lw Nov 95 #45 Page 31
Under the Sales Article of the UCC, which of the following factors is most important in determining who
bears the risk of loss in a sale of goods contract?
a.
b.
c.
d.
The method of shipping the goods.
The contract's shipping terms.
Title to the goods.
How the goods were lost.
CPA-01724
Explanation
Choice "b" is correct. Assuming that the loss occurred under a shipment contract, risk of loss under the
UCC is controlled by the shipping terms, not by title.
Choice "a" is incorrect. The method of shipping the goods (e.g., car vs. train) is irrelevant to who bears
the risk of loss under the UCC; the shipping terms are the key when the contract is a shipment contract.
Choice "c" is incorrect. Risk of loss under the UCC is controlled by the shipping terms in a shipment
contract, not by title.
Choice "d" is incorrect. Risk of loss under the UCC is controlled by the shipping terms in a shipment
contract, not by how the goods were lost.
CPA-01727
Type1 M/C
A-D
Corr Ans: C
PM#15
R 5-02
59. CPA-01727 Lw Nov 95 #46 Page 33
Under the Sales Article of the UCC, in an F.O.B. place of shipment contract, the risk of loss passes to the
buyer when the goods:
a.
b.
c.
d.
Are identified to the contract.
Are placed on the seller's loading dock.
Are delivered to the carrier.
Reach the buyer's loading dock.
CPA-01727
Explanation
Choice "c" is correct. In an F.O.B. place of shipment contract, risk of loss passes when the goods are
placed in the hands of a carrier at the seller's loading dock.
Choice "a" is incorrect. Risk of loss would pass on identification only if the parties specifically so
provided.
Choice "b" is incorrect. In an F.O.B. place of shipment contract, it is not sufficient just to get the goods to
the loading dock; risk does not pass until the goods are placed in the hands of a carrier there.
Choice "d" is incorrect. In an F.O.B. place of shipment contract, risk of loss passes when the goods are
placed in the hands of a carrier at the seller's loading dock.
CPA-01729
Type1 M/C
A-D
Corr Ans: B
PM#16
R 5-02
60. CPA-01729 Lw Nov 95 #47 Page 40
Under the Sales Article of the UCC, which of the following rights is(are) available to the buyer when a
seller commits an anticipatory breach of contract?
Demand
assurance of
performance
Cancel the
contract
Collect
punitive
damages
27
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
a.
b.
c.
d.
Yes
Yes
Yes
No
Yes
Yes
No
Yes
Yes
No
Yes
Yes
CPA-01729
Explanation
Choice "b" is correct. On an anticipatory breach of contract (or repudiation) the nonbreaching party has a
right to demand assurances of performance or to cancel the contract. There is no right to punitive
damages under contract law in general, even on anticipatory breach.
CPA-01732
Type1 M/C
A-D
Corr Ans: B
PM#17
R 5-02
61. CPA-01732 Lw Nov 95 #48 Page 31
Under the Sales Article of the UCC, and unless otherwise agreed to, the seller's obligation to the buyer is
to:
a. Deliver the goods to the buyer's place of business.
b. Hold conforming goods and give the buyer whatever notification is reasonably necessary to enable
the buyer to take delivery.
c. Deliver all goods called for in the contract to a common carrier.
d. Set aside conforming goods for inspection by the buyer before delivery.
CPA-01732
Explanation
Choice "b" is correct. Absent an agreement otherwise, the seller is not obligated to deliver the conforming
goods to the buyer, but merely needs to hold them for the buyer's disposition.
Choice "a" is incorrect. Absent an agreement otherwise, a seller has no duty to deliver the conforming
goods to the buyer.
Choice "c" is incorrect. Absent an agreement otherwise, a seller has no duty to deliver the conforming
goods to a common carrier.
Choice "d" is incorrect. Absent an agreement otherwise, a seller need not hold the conforming goods
aside for inspection before delivery.
CPA-01734
Type1 M/C
A-D
Corr Ans: B
PM#18
R 5-02
62. CPA-01734 Lw Nov 95 #49 Page 41
Under the Sales Article of the UCC, which of the following statements regarding liquidated damages is
(are) correct?
I. The injured party may collect any amount of liquidated damages provided for in the contract.
II. The seller may retain a deposit of up to $500 when a buyer defaults even if there is no liquidated
damages provision in the contract.
a.
b.
c.
d.
I only.
II only.
Both I and II.
Neither I nor II.
CPA-01734
Explanation
Choice "b" is correct. I: An injured party cannot necessarily collect "any amount" of liquidated damages
specified in a contract. UCC 2-718(1) restricts recovery to reasonable liquidated damages; any amounts
above a reasonable amount are considered unenforceable penalties. II: Under UCC 2-718(2)(b), a seller
can usually retain up to $500 of the buyer's deposit on the buyer's breach.
28
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-01744
Type1 M/C
A-D
Corr Ans: A
PM#19
R 5-02
63. CPA-01744 Lw Nov 95 #50 Page 41
Under the Sales Article of the UCC, which of the following rights is available to a seller when a buyer
materially breaches a sales contract?
a.
b.
c.
d.
Right to cancel
the contract
Yes
Yes
No
No
Right to recover
damages
Yes
No
Yes
No
CPA-01744
Explanation
Choice "a" is correct. When a buyer materially breaches a contract, the seller may cancel or seek
damages.
CPA-01750
Type1 M/C
A-D
Corr Ans: A
PM#20
R 5-02
64. CPA-01750 Lw Nov 94 #50 Page 28
Under the Sales Article of the UCC, which of following statements is correct?
a.
b.
c.
d.
The obligations of the parties to the contract must be performed in good faith.
Merchants and nonmerchants are treated alike.
The contract must involve the sale of goods for a price of more than $500.
None of the provisions of the UCC may be disclaimed by agreement.
CPA-01750
Explanation
Choice "a" is correct. The Sales Article imposes a duty of good faith on all parties.
Choice "b" is incorrect. Certain provisions of the Sales Article differentiate between merchants and
nonmerchants (e.g., only a merchant makes the implied warranty of merchantability).
Choice "c" is incorrect. The Sales Article applies to all sales of goods. The $500 limit refers to the
Statute of Frauds within the Sales Article.
Choice "d" is incorrect. Most provisions of the Sales Article can be varied by agreement (e.g., warranties
may be disclaimed).
CPA-01759
Type1 M/C
A-D
Corr Ans: D
PM#22
R 5-02
65. CPA-01759 Lw Nov 94 #53 Page 39
High sues the manufacturer, wholesaler, and retailer for bodily injuries caused by a power saw High
purchased. Which of the following statements is correct under strict liability theory?
a. Contributory negligence on High's part will always be a bar to recovery.
b. The manufacturer will avoid liability if it can show it followed the custom of the industry.
c. Privity will be a bar to recovery insofar as the wholesaler is concerned if the wholesaler did not have a
reasonable opportunity to inspect.
d. High may recover even if he cannot show any negligence was involved.
CPA-01759
Explanation
Choice "d" is correct. An action for strict product liability does not require a showing of negligence. The
product must have been unreasonably dangerous when it left the seller's hands.
Choice "a" is incorrect. In an action for strict liability in tort, High's contributory negligence would be
irrelevant.
29
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "b" is incorrect. Custom in the industry is good evidence that there was no negligence, but a
whole industry can be found to be following a negligent practice, and industry custom is not a defense in
a strict liability product liability case.
Choice "c" is incorrect. The fact that the wholesaler did not have an opportunity to inspect is not a
defense.
CPA-01764
Type1 M/C
A-D
Corr Ans: D
PM#23
R 5-02
66. CPA-01764 Lw Nov 94 #54 Page 32
Under the Sales Article of the UCC, which of the following events will result in the risk of loss passing
from a merchant seller to a buyer?
Tender of the goods
at the seller's
place of business
a.
Yes
b.
Yes
c.
No
d.
No
Use of the seller's
truck to deliver
the goods
Yes
No
Yes
No
CPA-01764
Explanation
Choice "d" is correct. In a noncarrier case, risk of loss passes from a merchant seller on actual delivery of
the goods into the buyer's possession. Mere tender at the seller's place of business does not pass the
risk. Neither does the seller's using its truck to deliver the goods. (Note that since the seller is using its
own truck, this is a noncarrier case-no common carrier was involved.) UCC 2-509
CPA-01767
Type1 M/C
A-D
Corr Ans: D
PM#24
R 5-02
67. CPA-01767 Lw Nov 94 #55 Page 40
Under the Sales Article of the UCC, which of the following events will release the buyer from all its
obligations under a sales contract?
a.
b.
c.
d.
Destruction of the goods after risk of loss passed to the buyer.
Impracticability of delivery under the terms of the contract.
Anticipatory repudiation by the buyer that is retracted before the seller cancels the contract.
Refusal of the seller to give written assurance of performance when reasonably demanded by the
buyer.
CPA-01767
Explanation
Choice "d" is correct. Failure to give adequate assurances when reasonably demanded is a form of
anticipatory repudiation. It constitutes a breach and discharges the buyer. UCC 2-609
Choice "a" is incorrect. If the goods are destroyed after the risk of loss passes to the buyer, the buyer is
obligated to pay for the goods since the buyer had the risk.
Choice "b" is incorrect. If the delivery terms are impracticable, the buyer must accept delivery by some
other reasonable means.
Choice "c" is incorrect. If the buyer repudiates, the seller has the right to hold the buyer to the contract;
the buyer is not discharged unless the seller cancels. If the buyer retracts the repudiation in a timely
fashion, the contract is treated as if there were no repudiation and the buyer remains liable in full.
CPA-01770
Type1 M/C
A-D
Corr Ans: C
PM#25
R 5-02
68. CPA-01770 Lw Nov 94 #56 Page 42
30
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Rowe Corp. purchased goods from Stair Co. that were shipped C.O.D. Under the Sales Article of the
UCC, which of the following rights does Rowe have?
a.
b.
c.
d.
The right to inspect the goods before paying.
The right to possession of the goods before paying.
The right to reject nonconforming goods.
The right to delay payment for a reasonable period of time.
CPA-01770
Explanation
Choice "c" is correct. Under a C.O.D. contract, a buyer has a reasonable time after delivery in which to
inspect the goods and reject them if they are nonconforming. UCC 2-512
Choice "a" is incorrect. In a C.O.D. contract, there is no right to inspect the goods before delivery, as
there is a duty to pay cash on delivery. UCC 2-513
Choice "b" is incorrect. Under the Sales Article the general rule is that payment and possession are
concurrent conditions-there is no general right to possession before payment.
Choice "d" is incorrect. A C.O.D. contract requires payment on delivery.
CPA-01776
Type1 M/C
A-D
Corr Ans: A
PM#26
R 5-02
69. CPA-01776 Lw May 94 #42 Page 28
Under the UCC Sales Article, which of the following statements is correct concerning a contract involving
a merchant seller and a non-merchant buyer?
a.
b.
c.
d.
Whether the UCC Sales Article is applicable does not depend on the price of the goods involved.
Only the seller is obligated to perform the contract in good faith.
The contract will be either a sale or return or sale on approval contract.
The contract may not involve the sale of personal property with a price of more than $500.
CPA-01776
Explanation
Choice "a" is correct. The Sales Article applies to all contracts for the sale of goods, regardless of price.
UCC 2-102
Choice "b" is incorrect. All parties are bound by the obligation of good faith under the UCC.
Choice "c" is incorrect. The presumption is that all sales are final. A sale or return or sale on approval
(both of which allow the return of the goods) is available only if the parties so provide.
Choice "d" is incorrect. The Sales Article covers all sales of goods. If the purchase price is $500 or more,
a writing may be required to enforce the contract under the Sales Article's Statute of Frauds, but the
Sales Article still applies.
CPA-01779
Type1 M/C
A-D
Corr Ans: A
PM#27
R 5-02
70. CPA-01779 Lw May 94 #43 Page 37
Vick bought a used boat from Ocean Marina that disclaimed "any and all warranties" in connection with
the sale. Ocean was unaware the boat had been stolen from Kidd. Vick surrendered it to Kidd when
confronted with proof of the theft. Vick sued Ocean. Who is likely to prevail and why?
a.
b.
c.
d.
Vick, because the implied warranty of title has been breached.
Vick, because a merchant cannot disclaim implied warranties.
Ocean, because of the disclaimer of warranties.
Ocean, because Vick surrendered the boat to Kidd.
CPA-01779
Explanation
Choice "a" is correct. Every sale includes a warranty that the seller has title unless the warranty is
specifically disclaimed or the facts give the buyer notice that there is no such warranty. The warranty is
31
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
not disclaimed by general disclaimers such as the one here disclaiming "any and all warranties." UCC 2312
Choice "b" is incorrect. Any seller, including a merchant, can disclaim the warranty of title, but the method
here-general disclaimer-is not a sufficient disclaimer.
Choice "c" is incorrect. The warranty of title is not disclaimed by general disclaimers such as the one
here disclaiming "any and all warranties."
Choice "d" is incorrect. There is a warranty of title implied in every sale, breach of which gives rise to an
action for damages. The fact that the buyer here turned over the stolen merchandise to its true owner
does nothing to alleviate the seller's breach of warranty.
CPA-01787
Type1 M/C
A-D
Corr Ans: B
PM#30
R 5-02
71. CPA-01787 Lw May 94 #47 Page 41
Under the UCC Sales Article, which of the following legal remedies would a buyer not have when a seller
fails to transfer and deliver goods identified to the contract?
a.
b.
c.
d.
Suit for specific performance.
Suit for punitive damages.
Purchase substitute goods (cover).
Recover the identified goods (capture).
CPA-01787
Explanation
Choice "b" is correct. The Sales Article does not provide for punitive damages. UCC 2-711
Choice "a" is incorrect. The Sales Article allows an aggrieved buyer specific performance when substitute
goods cannot be purchased; e.g., where the subject matter is unique. UCC 2-716
Choice "c" is incorrect. "Cover" (purchase of substitute goods) is one of the basic remedies available to
the buyer where a seller refuses to deliver goods. UCC 2-712
Choice "d" is incorrect. Where goods have been identified (and the buyer has paid part of the purchase
price), the buyer may take possession of the goods through a replevy action. UCC 2-716
CPA-01801
Type1 M/C
A-D
Corr Ans: C
PM#31
R 5-02
72. CPA-01801 Lw Nov 93 #49 Page 33
Which of the following statements applies to a sale on approval under the UCC Sales Article?
a.
b.
c.
d.
Both the buyer and seller must be merchants.
The buyer must be purchasing the goods for resale.
Risk of loss for the goods passes to the buyer when the goods are accepted after the trial period.
Title to the goods passes to the buyer on delivery of the goods to the buyer.
CPA-01801
Explanation
Choice "c" is correct. In a sale on approval, risk of loss passes to the buyer on approval of the goods.
UCC 2-327
Choice "a" is incorrect. A sale on approval does not require that either party be a merchant.
Choice "b" is incorrect. If the buyer is purchasing for resale, it generally is a sale or return. In any case,
there is no such requirement for a sale on approval.
Choice "d" is incorrect. In a sale on approval, title does not pass to the buyer on delivery; rather it passes
when the buyer approves the goods.
CPA-01809
Type1 M/C
A-D
Corr Ans: D
32
PM#32
R 5-02
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
73. CPA-01809 Lw Nov 93 #50 Page 31
Which of the following statements would not apply to a written contract governed by the provisions of the
UCC Sales Article?
a.
b.
c.
d.
The contract may involve the sale of personal property.
The obligations of a nonmerchant may be different from those of a merchant.
The obligations of the parties must be performed in good faith.
The contract must involve the sale of goods for a price of $500 or more.
CPA-01809
Explanation
Choice "d" is correct. Any contract can be in writing under Article 2. If the contract is for the sale of
goods for $500 or more a writing is required under the Statute of Frauds, but this does not mean that a
writing is not permitted for contracts involving less money. UCC 2-102
Choice "a" is incorrect. A written contract under Article 2 can involve personal property; it may not involve
real property.
Choice "b" is incorrect. Some obligations under Article 2 do differ depending on whether merchants are
involved (e.g., the implied warranty of merchantability arises only in sales by merchants).
Choice "c" is incorrect. All contracts under the UCC are subject to the good faith requirement.
CPA-01814
Type1 M/C
A-D
Corr Ans: A
PM#33
R 5-02
74. CPA-01814 Lw Nov 93 #51 Page 29
On May 2, Handy Hardware sent Ram Industries a signed purchase order that stated, in part, as follows:
"Ship for May 8 delivery 300 Model A-X socket sets at current dealer price. Terms 2/10/net
30."
Ram received Handy's purchase order on May 4. On May 5, Ram discovered that it had only 200 Model
A-X socket sets and 100 Model W-Z socket sets in stock. Ram shipped the Model A-X and Model W-Z
sets to Handy without any explanation concerning the shipment. The socket sets were received by
Handy on May 8.
Which of the following statements concerning the shipment is correct?
a.
b.
c.
d.
Ram's shipment is an acceptance of Handy's offer.
Ram's shipment is a counteroffer.
Handy's order must be accepted by Ram in writing before Ram ships the socket sets.
Handy's order can only be accepted by Ram shipping conforming goods.
CPA-01814
Explanation
Choice "a" is correct. Under Article 2 an offer can be accepted by a promise to ship or by prompt
shipment. Shipment of nonconforming goods constitutes both an acceptance and a breach unless a
notice is sent prior to shipping that the goods are only an accommodation.
Choice "b" is incorrect. Shipment of nonconforming goods is not a counteroffer. It is generally both an
acceptance and a breach.
Choice "c" is incorrect. In a goods contract, acceptance of an offer can be made merely by shipping
goods.
Choice "d" is incorrect. Shipment of goods is an acceptance, whether or not the goods conform. If they
do not conform, the shipment is also a breach.
CPA-01821
Type1 M/C
A-D
Corr Ans: C
PM#34
R 5-02
75. CPA-01821 Lw Nov 93 #52 Page 37
On May 2, Handy Hardware sent Ram Industries a signed purchase order that stated, in part, as follows:
33
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
"Ship for May 8 delivery 300 Model A-X socket sets at current dealer price. Terms 2/10/net
30."
Ram received Handy's purchase order on May 4. On May 5, Ram discovered that it had only 200 Model
A-X socket sets and 100 Model W-Z socket sets in stock. Ram shipped the Model A-X and Model W-Z
sets to Handy without any explanation concerning the shipment. The socket sets were received by
Handy on May 8.
Assuming a contract exists between Handy and Ram, which of the following implied warranties would
result?
I. Implied warranty of merchantability.
II. Implied warranty of fitness for a particular purpose.
III. Implied warranty of title.
a.
b.
c.
d.
I only.
III only.
I and III only.
I, II, and III.
CPA-01821
Explanation
Choice "c" is correct. Every sale of goods by a merchant includes an implied warranty of merchantability.
Ram appears to be a wholesaler or a manufacturer, and in either case would qualify as a merchant.
Thus, the warranty of merchantability will arise here. A warranty of fitness for particular purpose arises
only where the buyer relies on the seller to choose goods suitable for the buyer's purposes, and here
Handy was not relying on Ram to choose suitable goods but instead specified the goods it wanted. Thus,
the warranty of fitness will not arise here. Every sale of goods includes a warranty that the seller has title
to the goods unless the warranty is disclaimed explicitly or by the circumstances. Thus, the warranty of
title would arise here. UCC 2-312, 2-314, 2-315
CPA-01856
Type1 M/C
A-D
Corr Ans: D
PM#38
R 5-02
76. CPA-01856 Lw Nov 93 #57 Page 41
Cara Fabricating Co. and Taso Corp. agreed orally that Taso would custom manufacture a compressor
for Cara at a price of $120,000. After Taso completed the work at a cost of $90,000, Cara notified Taso
that the compressor was no longer needed. Taso is holding the compressor and has requested payment
from Cara. Taso has been unable to resell the compressor for any price. Taso incurred storage fees of
$2,000. If Cara refuses to pay Taso and Taso sues Cara, the most Taso will be entitled to recover is:
a.
b.
c.
d.
$92,000
$105,000
$120,000
$122,000
CPA-01856
Explanation
Choice "d" is correct. Despite the fact that the contract here was oral and for the sale of goods for $500
or more, it is enforceable under the Statute of Frauds because the compressor constitutes specially
manufactured goods, and so the contract falls within an exception to the Statute of Frauds. A seller can
bring an action for the full contract price when it is unable to sell the goods that a buyer refuses to accept.
The seller can also recover incidental damages such as costs of storage. Thus, Taso would be able to
recover the full $120,000 contract price plus the $2,000 in storage fees.
CPA-05539
Type1 M/C
A-D
Corr Ans: B
PM#39
R 5-02
77. CPA-05539 Released 2007 Page 43
34
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Grill deals in the repair and sale of new and used clocks. West brought a clock to Grill to be repaired.
One of Grill's clerks mistakenly sold West's clock to Hone, another customer. Under the Sales Article of
the UCC, will West win a suit against Hone for the return of the clock?
a.
b.
c.
d.
No, because the clerk was not aware that the clock belonged to West.
No, because Grill is a merchant to whom goods had been entrusted.
Yes, because Grill could not convey good title to the clock.
Yes, because the clerk was negligent in selling the clock.
CPA-05539
Explanation
Choice "b" is correct. Generally, a person cannot pass on better title than the person has. However, if the
owner of goods entrusts them to a merchant who deals in goods of that kind, and the merchant sells them
in the ordinary course of the merchant's business, then the merchant has the power to transfer title to the
goods. West was the owner of the clock and he entrusted the clock to Grill, who deals in new and used
clocks. Grill sold the clock to Hone in the ordinary course of business. Thus, Grill had the power to pass
on good title to the clock and did so when one of Grill's clerks mistakenly sold the clock to Hone. Because
Hone has title to the clock, West cannot recover it from Hone. However, West does have an action for
damages against Grill.
Choice "a" is incorrect. Generally, a person cannot pass on better title than the person has. However, if
the owner of goods entrusts them to a merchant who deals in goods of that kind, and the merchant sells
them in the ordinary course of the merchant's business, then the merchant has the power to transfer title
to the goods. Although "a" gives the correct result, it is irrelevant whether or not the clerk was aware that
the clock belonged to West.
Choice "c" is incorrect. Generally, a person cannot pass on better title than the person has. However, if
the owner of goods entrusts them to a merchant who deals in goods of that kind, and the merchant sells
them in the ordinary course of the merchant's business, then the merchant has the power to transfer title
to the goods; thus, "c" is incorrect.
Choice "d" is incorrect. Generally, a person cannot pass on better title than the person has. However, if
the owner of goods entrusts them to a merchant who deals in goods of that kind, and the merchant sells
them in the ordinary course of the merchant's business, then the merchant has the power to transfer title
to the goods It is irrelevant whether the clerk was negligent.
Employer-Employee Law (required homework reading)
CPA-01917
Type1 M/C
78. CPA-01917 Lw R02 #16
A-D
Corr Ans: D
PM#1
R 5-03
Page 47
Which of the following parties generally is ineligible to collect workers' compensation benefits?
a.
b.
c.
d.
Minors.
Truck drivers.
Union employees.
Temporary office workers.
CPA-01917
Explanation
Choice "d" is correct. Workers' compensation programs are state run programs designed to enable
employees to recover for injuries incurred while on the job. Most employers must participate in the
programs; however, there are a few exceptions, including an exception for employers employing casual
workers. A temporary office worker would be considered a casual employee.
Choices "a", "b", and "c" are incorrect because there is no exception for minors, truck drivers or union
employees.
CPA-01918
Type1 M/C
79. CPA-01918 Lw R97 #4
A-D
Corr Ans: A
PM#2
R 5-03
Page 49
35
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Which of the following statements is(are) correct regarding the authority of the Occupational Safety and
Health Administration (OSHA)?
I.
II.
a.
b.
c.
d.
OSHA is authorized to establish standards that protect employees from exposure to substances that
may be harmful to their health.
OSHA is authorized to develop safety equipment and require employers to instruct employees in its
use.
I only.
II only.
Both I and II.
Neither I nor II.
CPA-01918
Explanation
Choice "a" is correct. The general purpose of OSHA is to ensure workplace safety for employees. To
further this goal, OSHA is authorized to establish regulations aimed at eliminating workplace hazards of
all kinds, including exposure to substances that may be harmful to employees' health. OSHA is not
authorized to actually develop safety equipment, or require instruction for its use.
CPA-01919
Type1 M/C
A-D
Corr Ans: A
PM#3
R 5-03
80. CPA-01919 Lw Nov 95 #31 Page 44
Under the Federal Insurance Contributions Act (FICA), which of the following acts will cause an employer
to be liable for penalties?
a.
b.
c.
d.
Failure to
supply taxpayer
identification
numbers
Yes
Yes
No
No
Failure to
make timely
FICA
deposits
Yes
No
Yes
No
CPA-01919
Explanation
Choice "a" is correct. Failure to supply taxpayer ID numbers and failure to make timely FICA deposits
can both result in penalties.
CPA-01939
Type1 M/C
A-D
Corr Ans: B
PM#4
R 5-03
81. CPA-01939 Lw Nov 95 #32 Page 46
Taxes payable under the Federal Unemployment Tax Act (FUTA) are:
a.
b.
c.
d.
Calculated as a fixed percentage of all compensation paid to an employee.
Deductible by the employer as a business expense for federal income tax purposes.
Payable by employers for all employees.
Withheld from the wages of all covered employees.
CPA-01939
Explanation
Choice "b" is correct. FUTA tax is payable by the employer. It is deductible as a business expense. It is
not withheld and is not payable on all wages.
Choice "a" is incorrect. The FUTA tax is not a fixed rate on all compensation. It applies only up to a
$7,000 ceiling.
Choice "c" is incorrect. The FUTA tax applies only to employers who have a quarterly payroll of at least
$1,500 or employ at least one employee at least one day a week for 20 weeks during a year.
Choice "d" is incorrect. The employer pays FUTA tax. The tax is not withheld from employees' wages.
36
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-01940
Type1 M/C
A-D
Corr Ans: A
PM#5
R 5-03
82. CPA-01940 Lw Nov 95 #33 Page 48
Which of the following claims is (are) generally covered under workers' compensation statutes?
a.
b.
c.
d.
Occupational
disease
Yes
Yes
No
No
Employment aggravated
preexisting disease
Yes
No
Yes
No
CPA-01940
Explanation
Choice "a" is correct. Workers' compensation covers both occupational diseases and aggravations of
preexisting diseases.
CPA-01942
Type1 M/C
A-D
Corr Ans: B
PM#6
R 5-03
83. CPA-01942 Lw Nov 95 #34 Page 47
Generally, which of the following statements concerning workers' compensation laws is correct?
a.
b.
c.
d.
The amount of damages recoverable is based on comparative negligence.
Employers are strictly liable without regard to whether or not they are at fault.
Workers' compensation benefits are not available if the employee is negligent.
Workers' compensation awards are payable for life.
CPA-01942
Explanation
Choice "b" is correct. Workers' compensation liability is nearly strict liability; the employer's fault is
irrelevant.
Choice "a" is incorrect. The amount recovered depends entirely on the employee's injury; comparative
negligence is irrelevant.
Choice "c" is incorrect. Benefits are available as long as injury was not intentional by the employee.
Choice "d" is incorrect. Workers' compensation usually terminates at the latest at retirement age, and
often is merely a lump sum payment.
CPA-01943
Type1 M/C
A-D
Corr Ans: C
PM#7
R 5-03
84. CPA-01943 Lw Nov 95 #35 Page 49
Under the Age Discrimination in Employment Act, which of the following remedies is(are) available to a
covered employee?
a.
b.
c.
d.
Early retirement
Yes
Yes
No
No
Back pay
Yes
No
Yes
No
CPA-01943
Explanation
Choice "c" is correct. The Age Discrimination Act provides for injunctions and back pay, but not early
retirement.
CPA-01944
Type1 M/C
A-D
Corr Ans: A
37
PM#8
R 5-03
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
85. CPA-01944 Lw Nov 95 #36 Page 48
Which of the following Acts prohibit(s) an employer from discriminating among employees based on sex?
Equal
Pay Act
Yes
Yes
No
No
a.
b.
c.
d.
Title VII of the
Civil Rights Act
Yes
No
Yes
No
CPA-01944
Explanation
Choice "a" is correct. The Equal Pay Act prohibits discrimination in compensation based on sex. Title VII
prohibits discrimination in the hiring, firing, promotion, compensation, etc., based on many traits, including
sex.
CPA-01947
Type1 M/C
A-D
Corr Ans: A
PM#9
R 5-03
86. CPA-01947 Lw Nov 95 #37 Page 50
Under the Fair Labor Standards Act, which of the following pay bases may be used to pay covered,
nonexempt employees who earn, on average, the minimum hourly wage?
Hourly
Yes
Yes
Yes
No
a.
b.
c.
d.
Weekly
Yes
Yes
No
Yes
Monthly
Yes
No
Yes
Yes
CPA-01947
Explanation
Choice "a" is correct. Hourly, weekly, and monthly pay bases are proper for a nonexempt employee as
long as the employee makes at least minimum wage.
CPA-01958
Type1 M/C
A-D
Corr Ans: B
PM#10
R 5-03
87. CPA-01958 Lw Nov 95 #38 Page 50
Under the Fair Labor Standards Act, if a covered, nonexempt employee works consecutive weeks of 45,
42, 38, and 33 hours, how many hours of overtime must be paid to the employee?
a.
b.
c.
d.
0
7
18
20
CPA-01958
Explanation
Choice "b" is correct. Nonexempt employees are entitled to overtime pay whenever they work more than
40 hours in any given weekly period. Therefore, the employee is entitled to overtime of five hours from
week 1 and 2 hours from week 2. Weeks 3 and 4 do not offset the entitlement.
CPA-02008
Type1 M/C
A-D
Corr Ans: A
PM#11
R 5-03
88. CPA-02008 Lw Nov 95 #39 Page 51
Under the Employee Retirement Income Security Act of 1974 (ERISA), which of the following areas of
private employer pension plans is(are) regulated?
a.
Employee vesting
Yes
Plan funding
Yes
38
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
b.
c.
d.
Yes
No
No
No
Yes
No
CPA-02008
Explanation
Choice "a" is correct. ERISA regulates both the vesting of pension plans and the funding of the plans (at
least to the extent that they are defined contribution plans).
CPA-02010
Type1 M/C
A-D
Corr Ans: D
PM#12
R 5-03
89. CPA-02010 Lw Nov 95 #40 Page 51
Which of the following employee benefits is (are) exempt from the provisions of the National Labor
Relations Act?
a.
b.
c.
d.
Sick pay
Yes
Yes
No
No
Vacation pay
Yes
No
Yes
No
CPA-02010
Explanation
Choice "d" is correct. Neither sick pay nor vacation pay are exempt from the National Labor Relations
Act.
CPA-02028
Type1 M/C
A-D
Corr Ans: D
PM#13
R 5-03
90. CPA-02028 Lw May 95 #36 Page 45
Which of the following payments are deducted from an employee's salary?
a.
b.
c.
d.
Unemployment
compensation
insurance
Yes
Yes
No
No
Worker's
compensation
insurance
Yes
No
Yes
No
CPA-02028
Explanation
Choice "d" is correct. Unemployment compensation insurance and workers' compensation insurance
both are paid by the employer. They are not deducted from the employee's wages.
CPA-02033
Type1 M/C
A-D
Corr Ans: C
PM#14
R 5-03
91. CPA-02033 Lw May 95 #37 Page 49
Under which of the following conditions is an on-site inspection of a workplace by an investigator from the
Occupational Safety and Health Administration (OSHA) permissible?
a.
b.
c.
d.
Only if OSHA obtains a search warrant after showing probable cause.
Only if the inspection is conducted after working hours.
At the request of employees.
After OSHA provides the employer with at least 24 hours notice of the prospective inspection.
CPA-02033
Explanation
Choice "c" is correct. OSHA allows inspections at the request of employees. 29 U.S.C. §657(f)(1)
39
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "a" is incorrect. OSHA provides for searches without a warrant based on probable cause. 29
U.S.C. §657(a)
Choice "b" is incorrect. OSHA provides for searches during regular business hours or at other reasonable
times. 29 U.S.C. §657(a)
Choice "d" is incorrect. There is no 24-hour notice requirement.
CPA-02037
Type1 M/C
A-D
Corr Ans: A
PM#15
R 5-03
92. CPA-02037 Lw May 95 #38 Page 49
Under the provisions of the Americans With Disabilities Act of 1990, in which of the following areas is a
disabled person protected from discrimination?
a.
b.
c.
d.
Public
transportation
Yes
Yes
No
No
Privately
operated public
accommodations
Yes
No
Yes
No
CPA-02037
Explanation
Choice "a" is correct. Title II of the ADA [42 U.S.C. §12101 et seq.] prohibits discrimination by public
transportation while Title III prohibits discrimination by privately operated public accommodations.
CPA-02040
Type1 M/C
A-D
Corr Ans: B
PM#16
R 5-03
93. CPA-02040 Lw May 95 #39 Page 50
When verifying a client's compliance with statutes governing employees' wages and hours, an auditor
should check the client's personnel records against relevant provisions of which of the following statutes?
a.
b.
c.
d.
National Labor Relations Act.
Fair Labor Standards Act.
Taft-Hartley Act.
Americans With Disabilities Act.
CPA-02040
Explanation
Choice "b" is correct. The Fair Labor Standards Act governs wages and hours.
Choice "a" is incorrect. The National Labor Relations Act governs collective bargaining (i.e., unions)
activities.
Choice "c" is incorrect. The Taft-Hartley Act governs labor relations.
Choice "d" is incorrect. The ADA prohibits discrimination; it does not govern wages and hours.
CPA-02072
Type1 M/C
A-D
Corr Ans: B
PM#17
R 5-03
94. CPA-02072 Lw May 95 #40 Page 51
Under the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), which of the
following statements is correct?
a.
b.
c.
d.
Employees are entitled to have an employer established pension plan.
Employers are prevented from unduly delaying an employee's participation in a pension plan.
Employers are prevented from managing retirement plans.
Employees are entitled to make investment decisions.
40
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-02072
Explanation
Choice "b" is correct. Employers cannot unduly delay an employee's participation in a pension plan.
Choice "a" is incorrect. ERISA does not establish a right to a pension plan; it just regulates pension plans
if they are adopted.
Choice "c" is incorrect. Under ERISA, employers can manage retirement plans.
Choice "d" is incorrect. ERISA does not give employees an absolute right to make investment decisions.
CPA-02074
Type1 M/C
A-D
Corr Ans: B
PM#18
R 5-03
95. CPA-02074 Lw Nov 94 #35 Page 45
For the entire year 1993, Ral Supermarket, Inc. conducted its business operations without any permanent
or full-time employees. Ral employed temporary and part-time workers during each of the 52 weeks in
the year. Under the provisions of the Federal Unemployment Tax Act (FUTA), which of the following
statements is correct regarding Ral's obligation to file a federal unemployment tax return for 1993?
a. Ral must file a 1993 FUTA return only if aggregate wages exceeded $100,000 during 1993.
b. Ral must file a 1993 FUTA return because it had at least one employee during at least 20 weeks of
1993.
c. Ral is obligated to file a 1993 FUTA return only if at least one worker earned $50 or more in any
calendar quarter of 1993.
d. Ral does not have to file a 1993 FUTA return because it had no permanent or full-time employees in
1993.
CPA-02074
Explanation
Choice "b" is correct. All employers who have quarterly payrolls of at least $1,500 or who employ at least
one person one day a week for twenty weeks in a year must participate in FUTA.
CPA-02076
Type1 M/C
A-D
Corr Ans: D
PM#19
R 5-03
96. CPA-02076 Lw Nov 94 #36 Page 47
Which of the following provisions is basic to all workers' compensation systems?
a. The injured employee must prove the employer's negligence.
b. The employer may invoke the traditional defense of contributory negligence.
c. The employer's liability may be ameliorated by a co-employee's negligence under the fellow-servant
rule.
d. The injured employee is allowed to recover on strict liability theory.
CPA-02076
Explanation
Choice "d" is correct. Generally, an employer is strictly liable for an employee's injuries under a workers'
compensation statute.
Choice "a" is incorrect. The employee need not show that the employer was negligent; the employer's
liability is similar to strict liability.
Choice "b" is incorrect. The employer is liable for an employee's injuries despite the employee's
negligence; contributory negligence is not a defense.
Choice "c" is incorrect. Workers' compensation statutes generally remove the fellow servant doctrine as a
defense.
CPA-02077
Type1 M/C
A-D
Corr Ans: B
PM#20
R 5-03
97. CPA-02077 Lw Nov 94 #38 Page 49
41
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Under the Federal Age Discrimination in Employment Act, which of the following practices would be
prohibited?
a.
b.
c.
d.
Compulsory
retirement of
employees below
the age of 65
Yes
Yes
No
No
Termination of
employees
between the
ages of 65 and
70 for cause
Yes
No
Yes
No
CPA-02077
Explanation
Choice "b" is correct. Compulsory retirement is generally prohibited before age 70 under the Act. There
is no prohibition against terminating an employee of any age for cause.
CPA-02078
Type1 M/C
A-D
Corr Ans: A
PM#21
R 5-03
98. CPA-02078 Lw Nov 94 #39 Page 50
Under the Federal Fair Labor Standards Act, which of the following would be regulated?
a.
b.
c.
d.
Minimum
wage
Yes
Yes
Yes
No
Number of
hours in the
workweek
Yes
Yes
No
Yes
Overtime
Yes
No
Yes
Yes
CPA-02078
Explanation
Choice "a" is correct. The FLSA contains provisions on the minimum wage, overtime, and workweek
hours.
CPA-02079
Type1 M/C
A-D
Corr Ans: B
PM#22
R 5-03
99. CPA-02079 Lw Nov 94 #40 Page 52
Which of the following statements correctly describes the funding of noncontributory pension plans?
a.
b.
c.
d.
All of the funds are provided by the employees.
All of the funds are provided by the employer.
The employer and employee each provide 50% of the funds.
The employer provides 90% of the funds, and each employee contributes 10%.
CPA-02079
Explanation
Choice "b" is correct. A noncontributory pension plan is one where the employer makes all of the
contributions to the plan; the employee makes no contributions.
CPA-02082
Type1 M/C
100. CPA-02082
A-D
Corr Ans: A
PM#23
R 5-03
Lw May 94 #26 Page 44
Syl Corp. does not withhold FICA taxes from its employees' compensation. Syl voluntarily pays the entire
FICA tax for its share and the amounts that it could have withheld from the employees. The employees'
share of FICA taxes paid by Syl to the IRS is:
a. Deductible by Syl as additional compensation that is includible in the employees' taxable income.
42
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
b. Not deductible by Syl because it does not meet the deductibility requirement as an ordinary and
necessary business expense.
c. A nontaxable gift to each employee, provided that the amount is less than $1,000 annually to each
employee.
d. Subject to prescribed penalties imposed on Syl for its failure to withhold required payroll taxes.
CPA-02082
Explanation
Choice "a" is correct. If an employer pays an employee's portion of FICA and does not seek
reimbursement of the payment from the employee, the payment is considered to be a business expense
deductible by the employer and taxable income to the employee.
Choice "b" is incorrect. The payment is treated as additional compensation to an employee and does
constitute an ordinary business expense.
Choice "c" is incorrect. The payment is treated as additional compensation to the employee; it is not a
gift.
Choice "d" is incorrect. There is no penalty if the employer pays the employee's contribution.
CPA-02086
Type1 M/C
101. CPA-02086
A-D
Corr Ans: B
PM#24
R 5-03
Lw May 94 #27 Page 49
Which of the following statements is correct regarding the scope and provisions of the Occupational
Safety and Health Act (OSHA)?
a.
b.
c.
d.
OSHA requires employers to provide employees a workplace free from risk.
OSHA prohibits an employer from discharging an employee for revealing OSHA violations.
OSHA may inspect a workplace at any time regardless of employer objection.
OSHA preempts state regulation of workplace safety.
CPA-02086
Explanation
Choice "b" is correct. OSHA contains a "whistleblower" protection provision.
Choice "a" is incorrect. OSHA does not require a risk-free work environment; that would be impossible.
Rather, OSHA regulations generally try to make workplaces as safe as they reasonably can be.
Choice "c" is incorrect. OSHA does not allow inspection at any time, for example, inspections generally
must be during normal hours of operation.
Choice "d" is incorrect. OSHA allows states to adopt other safety regulations.
CPA-02089
Type1 M/C
102. CPA-02089
A-D
Corr Ans: B
PM#25
R 5-03
Lw May 94 #28 Page 48
Under Title VII of the 1964 Civil Rights Act, which of the following forms of discrimination is not
prohibited?
a.
b.
c.
d.
Sex.
Age.
Race.
Religion.
CPA-02089
Explanation
Choice "b" is correct. Title VII prohibits discrimination on the basis of race, religion, sex, national origin,
etc., but it does not prohibit age discrimination. There is another federal statute for that.
Choice "a" is incorrect. Title VII prohibits discrimination in the basis of sex.
Choice "c" is incorrect. Title VII prohibits discrimination on the basis of race.
43
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "d" is incorrect. Title VII prohibits discrimination on the basis of religion.
CPA-02091
Type1 M/C
103. CPA-02091
A-D
Corr Ans: A
PM#26
R 5-03
Lw May 94 #29 Page 50
Which of the following statements is correct under the Federal Fair Labor Standards Act?
a. Some workers may be included within the minimum wage provisions but exempt from the overtime
provisions.
b. Some workers may be included within the overtime provisions but exempt from the minimum wage
provisions.
c. All workers are required to be included within both the minimum wage provisions and the overtime
provisions.
d. Possible exemptions from the minimum wage provisions and the overtime provisions must be
determined by the union contract in effect at the time.
CPA-02091
Explanation
Choice "a" is correct. Some workers, for example cab drivers, must be paid at least minimum wage but
need not be paid overtime. These are generally described as exempt workers.
Choice "b" is incorrect. If workers are within the overtime provisions, they also are within the minimum
wage provisions.
Choice "c" is incorrect. Not all workers are subject to the minimum wage requirements. For example,
farm workers need not be paid minimum wage.
Choice "d" is incorrect. The exemptions do not depend on a union contract.
CPA-02094
Type1 M/C
104. CPA-02094
A-D
Corr Ans: D
PM#27
R 5-03
Lw May 94 #30 Page 52
Under the Federal Consolidated Budget Reconciliation Act of 1985 (COBRA), when an employee
voluntarily resigns from a job, the former employee's group health insurance coverage that was in effect
during the period of employment with the company:
a. Automatically ceases for the former employee and spouse, if the resignation occurred before normal
retirement age.
b. Automatically ceases for the former employee's spouse, but continues for the former employee for an
18-month period at the former employer's expense.
c. May be retained by the former employee at the former employee's expense for at least 18 months
after leaving the company, but must be terminated for the former employee's spouse.
d. May be retained for the former employee and spouse at the former employee's expense for at least
18 months after leaving the company.
CPA-02094
Explanation
Choice "d" is correct. COBRA requires employers to provide former employees and their spouses and
dependents insurance at the former employee's rate for 18 months after the employee resigns.
Choice "a" is incorrect. COBRA requires the insurance to be made available to the employee for 18
months.
Choice "b" is incorrect. COBRA requires the insurance to be available to the former employee's spouse
as well as the former employee.
Choice "c" is incorrect. COBRA requires the insurance to be available to the former employee's spouse
as well as to the former employee.
44
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-02097
Type1 M/C
105. CPA-02097
A-D
Corr Ans: B
PM#28
R 5-03
Lw Nov 93 #35 Page 44
After serving as an active director of Lee Corp. for 20 years, Ryan was appointed an honorary director
with the obligation to attend directors' meetings with no voting power. In 1992, Ryan received an
honorary director's fee of $5,000. This fee is:
a.
b.
c.
d.
Reportable by Lee as employee compensation subject to social security tax.
Reportable by Ryan as self-employment income subject to social security self-employment tax.
Taxable as "Other income" by Ryan, not subject to any social security tax.
Considered to be a gift not subject to social security self-employment or income tax.
CPA-02097
Explanation
Choice "b" is correct. Directors are treated as independent contractors. Thus, their compensation is selfemployment income.
Choice "a" is incorrect. Only wages are taxable as employee income. A director does not receive wages
from his corporation, but rather stands as an independent contractor.
Choice "c" is incorrect. Income derived from performing services for an employer constitutes wages, not
other income.
Choice "d" is incorrect. Since Ryan is obligated to attend meetings to receive the $5,000, it is not a gift.
CPA-02100
Type1 M/C
106. CPA-02100
A-D
Corr Ans: A
PM#29
R 5-03
Lw Nov 93 #36 Page 47
Which one of the following statements concerning workers' compensation laws is generally correct?
a.
b.
c.
d.
Employers are strictly liable without regard to whether or not they are at fault.
Workers' compensation benefits are not available if the employee is negligent.
Workers' compensation awards are not reviewable by the courts.
The amount of damages recoverable is based on comparative negligence.
CPA-02100
Explanation
Choice "a" is correct. Under workers' compensation laws, employers are generally strictly liable for
injuries to employees.
Choice "b" is incorrect. Workers' compensation is available for injuries incurred on the job as long as they
were not purposely self-inflicted.
Choice "c" is incorrect. Decisions of all government agencies are reviewable by the courts as a matter of
due process.
Choice "d" is incorrect. The amount recoverable under workers' compensation is based on the nature of
the injury and has nothing to do with contributory negligence.
CPA-02102
Type1 M/C
107. CPA-02102
A-D
Corr Ans: B
PM#30
R 5-03
Lw May 93 #26 Page 45
Which of the following forms of income, if in excess of the annual exempt amount, will cause a reduction
in a retired person's social security benefits?
a.
b.
c.
d.
Annual proceeds from an annuity.
Director's fees.
Pension payments.
Closely held corporation stock dividends.
CPA-02102
Explanation
45
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "b" is correct. Social security benefits will be reduced if a person earns income from labor beyond
the exempt amount. Income for working as a director constitutes income from labor.
Choice "a" is incorrect. Social security benefits will be reduced if a person earns income from labor
beyond the exempt amount. Proceeds from an annuity do not constitute income from labor.
Choice "c" is incorrect. Social security benefits will be reduced if a person earns income from labor
beyond the exempt amount. Pension benefits do not constitute income from labor.
Choice "d" is incorrect. Social security benefits will be reduced if a person earns income from labor
beyond the exempt amount. Dividends from stock do not constitute income from labor.
CPA-02108
Type1 M/C
108. CPA-02108
A-D
Corr Ans: A
PM#31
R 5-03
Lw May 93 #27 Page 46
Taxes payable under the Federal Unemployment Tax Act (FUTA) are:
a.
b.
c.
d.
Deductible by the employer as a business expense for federal income tax purposes.
Payable by employers for all employees.
Withheld from the wages of all covered employees.
Calculated as a fixed percentage of all compensation paid to an employee.
CPA-02108
Explanation
Choice "a" is correct. Employers can deduct the expense of FUTA as an ordinary business expense.
Choice "b" is incorrect. Casual employers do not have to pay FUTA. An employer has to pay only if at
least one employee one day a week for each of 20 weeks in a year is employed.
Choice "c" is incorrect. Unemployment taxes are paid by the employer, not the employee.
Choice "d" is incorrect. There is a maximum amount payable for each employee, so the amount due is
not a fixed percentage of all sums paid to employees.
CPA-02133
Type1 M/C
109. CPA-02133
A-D
Corr Ans: B
PM#32
R 5-03
Lw May 93 #28 Page 47
Kroll, an employee of Acorn, Inc., was injured in the course of employment while operating a forklift
manufactured and sold to Acorn by Trell Corp. The forklift was defectively designed by Trell. Under the
state's mandatory workers' compensation statute, Kroll will be successful in:
a.
b.
c.
d.
Obtaining workers'
compensation
benefits
Yes
Yes
No
No
A negligence
action against
Acorn
Yes
No
Yes
No
CPA-02133
Explanation
Choice "b" is correct. Workers' compensation statutes are intended to provide strict liability insurance for
injuries incurred while on the job, so Kroll will be able to recover for the injuries incurred because of the
design defect, even though his employer had nothing to do with the accident. However, the trade off is
that the employee cannot bring a negligence action against the employer.
CPA-05264
Type1 M/C
110. CPA-05264
A-D
Corr Ans: D
PM#33
R 5-03
Released 2006 Page 51
46
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Under the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), which of the
following statements is(are) correct regarding employee rights?
I. Employers are required to establish either a contributory or noncontributory employee pension plan.
II. Employers are required to include employees as pension-plan managers.
a.
b.
c.
d.
I only.
II only.
Both I and II.
Neither I nor II.
CPA-05264
Explanation
Choice "d" is correct. The Employment Retirement Income Security Act (ERISA) does not require
employers to have retirement plans or require contributions to existing retirement plans. ERISA does not
mandate that employers are required to include employees as pension-plan managers. ERISA does
establish standards for funding and investing and imposes fiduciary duties on pension fund managers.
Only choice "d" reflects that employers are not required to establish a pension plan and employees do not
need to be included as pension-plan managers.
CPA-05525
Type1 M/C
111. CPA-05525
A-D
Corr Ans: D
PM#34
R 5-03
Released 2007 Page 37
Thorn purchased a used entertainment system from Sound Corp. The sales contract stated that the
entertainment system was being sold "as is." Under the Sales Article of the UCC, which of the following
statements is (are) correct regarding the seller's warranty of title and against infringement?
I.
Including the term "as is" in the sales contract is adequate communication that the seller is conveying
the entertainment system without warranty of title and against infringement.
II. The seller's warranty of title and against infringement may be disclaimed at any time after the contract
is formed.
a.
b.
c.
d.
I only.
II only.
Both I and II.
Neither I nor II.
CPA-05525
Explanation
Choice "d" is correct. Under the Sales Article, all sales of goods include a warranty that the seller has title
to the goods being sold unless the warranty is specifically disclaimed or the circumstances of the sale
indicate that no such warranty is being made (e.g., a sheriff's sale). A disclaimer must be made before or
contemporaneously with the sale. A later disclaimer would be ineffective. Thus, neither I nor II is correct.
Choices "a", "b", and "c" are incorrect, per the above.
Supplemental Questions
CPA-02212
Type1 M/C
112. CPA-02212
A-D
May 90 #11
Corr Ans: A
PM#1
R 5-99
Page 10
To satisfy the consideration requirement for a valid contract, the consideration exchanged by the parties
must be:
a.
b.
c.
d.
Legally sufficient.
Payable in legal tender.
Simultaneously paid and received.
Of the same economic value.
CPA-02212
Explanation
47
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "a" is correct. Consideration to be binding must be "legally sufficient." Some of the more common
examples of consideration include money, a promise, acting, not acting, etc.
Choice "b" is incorrect. There is no requirement that all consideration be payable in legal tender. For
example, a promise to perform an act can be consideration.
Choice "c" is incorrect. Consideration does not have to be simultaneously paid and received. For
example, consideration may be a promise to perform an act in the future.
Choice "d" is incorrect. Consideration need not have the same economic value. It merely needs to be
bargained for.
CPA-02217
Type1 M/C
113. CPA-02217
A-D
May 90 #12
Corr Ans: B
PM#2
R 5-99
Page 7
On September 27, Summers sent Fox a letter offering to sell Fox a vacation home for $150,000. On
October 2, Fox replied by mail agreeing to buy the home for $145,000. Summers did not reply to Fox.
Do Fox and Summers have a binding contract?
a.
b.
c.
d.
No, because Fox failed to sign and return Summers' letter.
No, because Fox's letter was a counteroffer.
Yes, because Summers' offer was validly accepted.
Yes, because Summers' silence is an implied acceptance of Fox's letter.
CPA-02217
Explanation
Choice "b" is correct. In a common law contract situation, such as the contract for the sale of real
property here, a communication will be effective as an acceptance only if it assents to each and every
term of the offer (the mirror image rule). If a communication includes a term different from one in the
offer, it constitutes a rejection of the offer and a counteroffer, which the original offeror may accept or
reject. Summers offered to sell the home to Fox for $150,000 and Fox agreed to buy it for $145,000.
Thus, Fox's communication is a counteroffer and a rejection of Summers' offer. Summers did nothing to
accept Fox's counteroffer, thus no contract was formed.
Choice "a" is not as good an answer as choice "b" because although Fox's response to Summers' offer
was a rejection and a counteroffer (because it did not mirror the terms of the offer), acceptance of the
counteroffer did not require Summer's to sign Fox's letter and return it. For example, Summers could
have accepted the offer by sending Fox a fax saying, "I accept."
Choice "c" is incorrect. In a common law contract situation, such as the contract for the sale of land here,
a communication will be effective as an acceptance only if it assents to each and every term of the offer
(the mirror image rule). If a communication includes a term different form one in the offer, it constitutes a
counteroffer and a rejection. Here, Summers offered to sell Fox the house for $150,000 and Fox agreed
to buy it for $145,000. Thus, Fox's response was not an acceptance, but rather a rejection and
counteroffer.
Choice "d" is incorrect. This choice implicitly recognizes that Fox's response to Summers' offer was a
counteroffer and a rejection under the mirror image rule (because Fox offered to buy the house for a
different price than the price at which Summers offered to sell it). However, it erroneously suggests that
Summers' silence constitutes an acceptance. Generally, silence does not constitute an acceptance
unless the parties have previously agreed otherwise. Nothing in the facts suggests the parties here made
such an agreement.
CPA-02219
Type1 M/C
114. CPA-02219
A-D
May 90 #13
Corr Ans: C
PM#3
R 5-99
Page 9
On November 1, Yost sent a telegram to Zen offering to sell a rare vase. The offer required that Zen's
acceptance telegram be sent on or before 5:00 P.M. on November 2. On November 2, at 3:00 P.M., Zen
48
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
sent an acceptance by overnight mail. It did not reach Yost until November 5. Yost refused to complete
the sale to Zen. Is there an enforceable contract?
a.
b.
c.
d.
Yes, because the acceptance was made within the time specified.
Yes, because the acceptance was effective when sent.
No, because Zen did not accept by telegram.
No, because the offer required receipt of the acceptance within the time specified.
CPA-02219
Explanation
Choice "c" is correct. Generally, an acceptance by any reasonable means will be effective on dispatch.
However, the offeror is the master of his or her offer and may attach any conditions that he or she desires
to the offer. Here, Yost's offer stated that an acceptance telegram must be sent by November 3. Thus,
acceptance by overnight mail was invalid.
Choice "a" is incorrect. Although the acceptance letter was mailed on time, a letter was not a proper
means of acceptance here because the offer stated that an acceptance telegram must be sent.
Choice "b" is incorrect. It states the mailbox rule, but that rule is inapplicable here because the
acceptance was by an invalid means -- the offer specified that acceptance must be by telegram and Zen
mailed his acceptance.
Choice "d" is incorrect. The offer required a timely mailing of a telegram acceptance and not actual
receipt.
CPA-02222
Type1 M/C
115. CPA-02222
A-D
May 90 #14
Corr Ans: D
PM#4
R 5-99
Page 8
Opal offered, in writing, to sell Larkin a parcel of land for $300,000. If Opal dies, the offer will:
a.
b.
c.
d.
Terminate prior to Larkin's acceptance only if Larkin received notice of Opal's death.
Remain open for a reasonable period of time after Opal's death.
Automatically terminate despite Larkin's prior acceptance.
Automatically terminate prior to Larkin's acceptance.
CPA-02222
Explanation
Choice "d" is correct. The death of an offeror prior to acceptance terminates the offer by operation of law
without notice to the offeree.
Choice "a" is incorrect, because notice is not necessary for an offer to terminate by operation of law.
Choice "b" is incorrect, because the offer terminated by operation of law upon Opal's death.
Choice "c" is incorrect, because if the offeree accepts prior to the offeror's death, the offer cannot be
revoked because a contract was formed.
CPA-02231
Type1 M/C
116. CPA-02231
A-D
May 90 #17
Corr Ans: B
PM#5
R 5-99
Page 16
Payne entered into a written agreement to sell a parcel of land to Stevens. At the time the agreement
was executed, Payne had consumed alcoholic beverages. Payne's ability to understand the nature and
terms of the contract was not impaired. Stevens did not believe that Payne was intoxicated. The contract
is:
a.
b.
c.
d.
Void as a matter of law.
Legally binding on both parties.
Voidable at Payne's option.
Voidable at Steven's option.
CPA-02231
Explanation
49
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "b" is correct. Formation of a contract requires capable parties. Therefore, intoxication may be a
defense to formation. However, merely drinking alcoholic beverages, particularly when there is no
serious impairment of judgment, will not interfere with the ability of parties to enter into a contract.
Choice "a" is incorrect. Even if Payne was intoxicated, at most the contract would be voidable; it would
not be void.
Choice "c" is incorrect. A contract will be voidable due to intoxication only if a party was intoxicated.
Here, the facts indicate that Payne was not intoxicated and that Stevens did not believe that Payne was
intoxicated. Therefore, the contract is not voidable on intoxication grounds.
Choice "d" is incorrect. Even if Payne was intoxicated, the contract would be voidable at Payne's option;
not at Steven's option. Moreover, the facts indicate that Payne was not intoxicated, so the intoxication
defense is not available here.
CPA-02254
Type1 M/C
117. CPA-02254
A-D
May 90 #19
Corr Ans: A
PM#6
R 5-99
Page 25
Union Bank lent $200,000 to Wagner. Union required Wagner to obtain a life insurance policy naming
Union as beneficiary. While the loan was outstanding, Wagner stopped paying the premiums on the
policy. Union paid the premiums, adding the amounts paid to Wagner's loan. Wagner died and the
insurance company refused to pay the policy proceeds to Union. Union may:
a.
b.
c.
d.
Recover the policy proceeds because it is a creditor beneficiary.
Recover the policy proceeds because it is a donee beneficiary.
Not recover the policy proceeds because it is not in privity of contract with the insurance company.
Not recover the policy proceeds because it is only an incidental beneficiary.
CPA-02254
Explanation
Choice "a" is correct. Union Bank has extended credit to Wagner while requiring that Wagner secure a
life insurance policy with Union named as the beneficiary. Union becomes a third party creditor
beneficiary. A third party creditor beneficiary may enforce the obligation owed.
Choice "b" is incorrect. There is no evidence here of a "gift," rather, there is a creditor-debtor relationship.
Choice "c" is incorrect. Because Union was named in the contract as a beneficiary, there is privity.
Choice "d" is incorrect. Since Union Bank is a creditor beneficiary, it is an intended beneficiary and not
merely an incidental beneficiary.
CPA-02262
Type1 M/C
118. CPA-02262
A-D
May 90 #20
Corr Ans: A
PM#7
R 5-99
Page 17
With regard to an agreement for the sale of real estate, the Statute of Frauds:
a.
b.
c.
d.
Does not require that the agreement be signed by all parties.
Does not apply if the value of the real estate is less than $500.
Requires that the entire agreement be in a single writing.
Requires that the purchase price be fair and adequate in relation to the value of the real estate.
CPA-02262
Explanation
Choice "a" is correct. The Statute of Frauds does not require that an agreement be signed by all parties,
merely the party to be charged. Where signatures are missing it may result in a contract not being
enforceable against that party.
Choice "b" is incorrect. The $500 threshold concerns sale of goods and not real estate.
Choice "c" is incorrect. There is no such rule. The contract could be made up of a series of writings, that
when taken together reflect the material terms of the contract.
50
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "d" is incorrect. There is no such rule. The Statute of Frauds is concerned with whether certain
contracts are evidenced by the party to be held liable under the contract and not with the fairness and
adequacy of the price.
CPA-02266
Type1 M/C
119. CPA-02266
A-D
May 90 #22
Corr Ans: C
PM#8
R 5-99
Page 25
On August 1, Neptune Fisheries contracted in writing with West Markets to deliver to West 3,000 pounds
of lobsters at $4.00 a pound. Delivery of the lobsters was due October 1 with payment due November 1.
On August 4, Neptune entered into a contract with Deep Sea Lobster Farms which provided as follows:
"Neptune Fisheries assigns all the rights under the contract with West Markets dated August 1 to Deep
Sea Lobster Farms." The best interpretation of the August 4 contract would be that it was:
a.
b.
c.
d.
Only an assignment of rights by Neptune.
Only a delegation of duties by Neptune.
An assignment of rights and a delegation of duties by Neptune.
An unenforceable third-party beneficiary contract.
CPA-02266
Explanation
Choice "c" is correct. Generally, an "assignment" of a "contract" will be considered both an assignment of
rights and a delegation of duties unless the contract or circumstances show a contrary intent. The right to
receive money is always assignable, so there is no problem with the assignment here. Similarly, the duty
to deliver lobsters is not personal, so it may be delegated.
Choice "a" is incorrect. An "assignment" of a "contract" will usually be considered to be both an
assignment of rights and a delegation of duties unless the contract or circumstances show a contrary
intent. Since the duty to deliver lobster is not personal, the assignment here will include a delegation of
duties.
Choice "b" is incorrect. Generally, an "assignment" of a "contract" will be considered both an assignment
of rights and a delegation of duties, and there is no reason here to believe that the assignment did not
include an assignment of the right to receive money, since such a right is fully assignable.
Choice "d" is incorrect. A third-party beneficiary contract names or at least indicates that the contract
between the parties is for the benefit of another. The August 4 contract here does not do so, rather it is
merely an assignment.
CPA-02268
Type1 M/C
120. CPA-02268
A-D
May 90 #23
Corr Ans: B
PM#9
R 5-99
Page 15
Paco Corp., a building contractor, offered to sell Preston several pieces of used construction equipment.
Preston was engaged in the business of buying and selling equipment. Paco's written offer had been
prepared by a secretary who typed the total price as $10,900, rather than $109,000, which was the
approximate fair market value of the equipment. Preston, on receipt of the offer, immediately accepted it.
Paco learned of the error in the offer and refused to deliver the equipment to Preston unless Preston
agreed to pay $109,000. Preston has sued Paco for breach of contract. Which of the following
statements is correct?
a. Paco will not be liable because there has been a mutual mistake of fact.
b. Paco will be able to rescind the contract because Preston should have known that the price was
erroneous.
c. Preston will prevail because Paco is a merchant.
d. The contract between Paco and Preston is void because the price set forth in the offer is substantially
less than the equipment's fair market value.
CPA-02268
Explanation
51
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "b" is correct. A contract can be rescinded for unilateral mistake if the nonmistaken party either
knew or should have known of the mistake. Since Preston was in the business of buying and selling
equipment, he should have known that the price here was too low.
Choice "a" is incorrect. The mistake here was unilateral -- only Paco was mistaken as to the price it
intended. A mutual mistake requires that both parties be mistaken. While it is true that Preston should
have known of the mistake, this does not make Preston mistaken.
Choice "c" is incorrect. Although Paco is a merchant, merchant status is irrelevant to the result here. The
rule is that a contract may be rescinded for a unilateral mistake where the nonmistaken party either knew
or should have known of the mistake. It is clear that Preston should have known of the mistake here, and
thus Preston will not prevail.
Choice "d" is incorrect. The courts will not assess the adequacy of consideration and parties are free to
bargain as they desire. A low price will not make a contract void.
CPA-02272
Type1 M/C
121. CPA-02272
A-D
May 90 #24
Corr Ans: D
PM#10
R 5-99
Page 24
Rice contracted with Locke to build an oil refinery for Locke. The contract provided that Rice was to use
United pipe fittings. Rice did not do so. United learned of the contract and, anticipating the order,
manufactured additional fittings. United sued Locke and Rice. United is:
a.
b.
c.
d.
Entitled to recover from Rice only, because Rice breached the contract.
Entitled to recover from either Locke or Rice because it detrimentally relied on the contract.
Not entitled to recover because it is a donee beneficiary.
Not entitled to recover because it is an incidental beneficiary.
CPA-02272
Explanation
Choice "d" is correct. Generally, only parties and intended third party beneficiaries can enforce a
contract. Generally, to qualify as an intended third party beneficiary, the purpose of the contract must
have been to give a benefit directly to the third party. In determining the purpose of the contract, a court
will consider factors such as whether the third party was named in the contract. However, nothing in the
facts here indicates that either party intended to benefit United. Most likely, Locke mentioned United only
to assure the quality of the fittings, not to benefit United. Therefore, United is not an intended third party
beneficiary, but rather is merely an incidental beneficiary, with no rights under the contract.
Choices "a", "b", and "c" are incorrect, because United is an incidental third party, not a donee beneficiary
nor a creditor beneficiary.
CPA-02275
Type1 M/C
122. CPA-02275
A-D
May 90 #25
Corr Ans: D
PM#11
R 5-99
Page 19
Wren purchased a factory from First Federal Realty. Wren paid 20% at the closing and gave a note for
the balance secured by a 20-year mortgage. Five years later, Wren found it increasingly difficult to make
payments on the note and defaulted. First Federal threatened to accelerate the loan and foreclose if
Wren continued in default. First Federal told Wren to make payment or obtain an acceptable third party
to assume the obligation. Wren offered the land to Moss, Inc. for $10,000 less than the equity Wren had
in the property. This was acceptable to First Federal and at the closing Moss paid the arrearage,
assumed the mortgage and note, and had title transferred to its name. First Federal released Wren. The
transaction in question is a (an):
a.
b.
c.
d.
Purchase of land subject to a mortgage.
Assignment and delegation.
Third party beneficiary contract.
Novation.
CPA-02275
Explanation
52
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "d" is correct. In a novation, a new contract substitutes a new party for an old party in an existing
contract. That is what happened here.
Choice "a" is incorrect. As will be discussed in Regulation 2 (Property), a person who takes "subject to" a
mortgage does not agree to be personally liable on the mortgage. Here, Moss agreed to be personally
liable, making this an assumption of a mortgage rather than taking subject to a mortgage.
Choice "b" is incorrect. In an assignment/delegation situation, the assignor (Wren) continues to be liable
on the obligation. Here, Moss was substituted for Wren when Moss assumed the mortgage, so Wren has
no rights or duties under the original contract.
Choice "c" is incorrect. The transaction is best described as a novation because there is a substitution of
parties.
CPA-02276
Type1 M/C
123. CPA-02276
A-D
Nov 90 #23
Corr Ans: C
PM#12
R 5-99
Page 14
For a purchaser of land to avoid a contract with the seller based on duress, it must be shown that the
seller's improper threats:
a.
b.
c.
d.
Constituted a crime or tort.
Would have induced a reasonably prudent person to assent to the contract.
Actually induced the purchaser to assent to the contract.
Were made with the intent to influence the purchaser.
CPA-02276
Explanation
Choice "c" is correct. Duress is threatening speech or action that actually overcomes a person's free will
and makes his or her apparent consent invalid. Thus, duress focuses on whether the wrongdoer's
actions actually affected the other party.
Choice "a" is incorrect, since the defense of duress does not require that the improper threats constitute a
"crime" or "tort." It need only wrongfully exert pressure on a person to overpower his or her will.
Choice "b" is incorrect, since the defense of duress focuses on the actual party involved and not on a
"reasonable person" test.
Choice "d" is incorrect. The defense of duress does not require that the threats be made with the intent to
influence a party.
CPA-02281
Type1 M/C
124. CPA-02281
A-D
Nov 90 #25
Corr Ans: B
PM#13
R 5-99
Page 23
Parc hired Glaze to remodel and furnish an office suite. Glaze submitted plans that Parc approved. After
completing all the necessary construction and painting, Glaze purchased minor accessories that Parc
rejected because they did not conform to the plans. Parc refused to allow Glaze to complete the project
and refused to pay Glaze any part of the contract price. Glaze sued for the value of the work performed.
Which of the following statements is correct?
a.
b.
c.
d.
Glaze will lose because Glaze breached the contract by not completing performance.
Glaze will win because Glaze substantially performed and Parc prevented complete performance.
Glaze will lose because Glaze materially breached the contract by buying the accessories.
Glaze will win because Parc committed anticipatory breach.
CPA-02281
Explanation
Choice "b" is correct. In a contract for personal services, such as the remodeling contract here, the
doctrine of substantial performance applies; i.e., the duty of payment arises if a party has substantially
performed. The Uniform Commercial Code Sales Article's "perfect tender" rule does not apply. Thus,
because Glaze has substantially performed, Parc's duty to pay has arisen. Moreover, while ordinarily the
party to whom performance is owed would be able to set off from the contract price the valve of the
53
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
insubstantial nonconformities, Parc will not be able to do so here because Parc prevented Glaze from
completing performance, which would serve to discharge Glaze from any remaining performance that was
a condition precedent to payment.
Choice "a" is incorrect. Because Parc would not allow Glaze to complete the contract, Parc's actions
constitute a breach by Parc that discharges Glaze from any remaining duties.
Choice "c" is incorrect. The nonconformity of the accessories is a minor breach and Glaze was
discharged from completing performance because Parc would not allow Glaze to complete performance.
Therefore, Parc was not in material breach.
Choice "d" is incorrect. Parc's action here was not an anticipatory repudiation because anticipatory
repudiation can arise only where duties are executory, and here Glaze had already substantially
performed. Rather, Parc actually breached an implied condition of cooperation.
CPA-02287
Type1 M/C
125. CPA-02287
A-D
May 91 #12
Corr Ans: A
PM#14
R 5-99
Page 5
Carson Corp., a retail chain, asked Alto Construction to fix a broken window at one of Carson's stores.
Alto offered to make the repairs within three days at a price to be agreed on after the work was
completed. A contract based on Alto's offer would fail because of indefiniteness as to the:
a.
b.
c.
d.
Price involved.
Nature of the subject matter.
Parties to the contract.
Time for performance.
CPA-02287
Explanation
Choice "a" is correct. To be a valid basis for a contract, an offer must state essential terms of the contract
in a definite and certain way. At common law, the price is an essential contract term. The proposed
agreement here is for services (to fix a broken window) and so is governed by the common law. Thus,
the contract here will fail for lack of the price term. Note that if this were treated as a contract for the sale
of goods (e.g., a pane of glass), the contract would not fail; a reasonable price term would be implied by
the Uniform Commercial Code Sales Article.
Choice "b" is incorrect, since the nature of the subject matter (repair a window) can be objectively
determined.
Choice "c" is incorrect, since it is clear who the parties to the contract are (Carson Corp. and Alto
Construction).
Choice "d" is incorrect, since the time for performance can be determined (i.e., within 3 days).
CPA-02289
Type1 M/C
126. CPA-02289
A-D
May 91 #13
Corr Ans: D
PM#15
R 5-99
Page 16
On reaching majority, a minor may ratify a contract in any of the following ways, except by:
a.
b.
c.
d.
Failing to disaffirm within a reasonable time after reaching majority.
Orally ratifying the entire contract.
Acting in a manner that amounts to ratification.
Affirming, in writing, some of the terms of the contract.
CPA-02289
Explanation
Choice "d" is correct. The term "ratification" refers to the process by which a minor by his/her action or
"inaction" legally accepts an entire contract after he/she reaches the age of majority. Accepting some of
the terms is not "ratification."
54
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "a" is incorrect, since failing to disaffirm within a reasonable time after reaching majority is a way
in which a minor may be held to have ratified a contract.
Choice "b" is incorrect, since orally ratifying the entire contract is a way in which a minor may be held to
have ratified a contract.
Choice "c" is incorrect, since acting in a manner that amounts to ratification is a way in which a minor may
be held to have ratified a contract.
CPA-02290
Type1 M/C
127. CPA-02290
A-D
May 91 #15
Corr Ans: D
PM#16
R 5-99
Page 16
In 1959, Dart bought an office building from Graco under a written contract signed only by Dart. In 1991,
Dart discovered that Graco made certain false representations during their negotiations concerning the
building's foundation. Dart could have reasonably discovered the foundation problems by 1965. Dart
sued Graco claiming fraud in the formation of the contract. Which of the following statements is correct?
a. The parol evidence rule will prevent the admission into evidence of proof concerning Dart's
allegations.
b. Dart will be able to rescind the contract because both parties did not sign it.
c. Dart must prove that the alleged misrepresentations were part of the written contract because the
contract involved real estate.
d. The statute of limitations would likely prevent Dart from prevailing because of the length of time that
has passed.
CPA-02290
Explanation
Choice "d" is correct. The statute of limitations on Dart's fraud claim will begin to run when Dart
reasonably could have discovered the fraud (1965). The limitations period on most contracts claims
generally varies from two to six years. Here, Dart waited about 26 years before bringing his claim, and
the statute of limitations surely would have expired before he filed.
Choice "a" is incorrect. Although the parol evidence rule generally prohibits introduction of prior or
contemporaneous statements to vary the terms of a written contract, it does not prohibit introduction of
evidence of fraud.
Choice "b" is incorrect. Although the Statute of Frauds generally requires a contract for the sale of land to
be evidenced by a writing signed by the party sought to be held liable (Dart), the 32 years of performance
under the contract here would be sufficient to take the contract out of the Statute.
Choice "c" is incorrect. There is no "equal dignities" rule for fraud. Thus, an oral fraud can be proved
even if the underlying contract had to be in writing to be enforceable under the Statute of Frauds.
CPA-02291
Type1 M/C
128. CPA-02291
A-D
May 91 #16
Corr Ans: A
PM#17
R 5-99
Page 3
Kay, an art collector, promised Hammer, an art student, that if Hammer could obtain certain rare artifacts
within two weeks, Kay would pay for Hammer's postgraduate education. At considerable effort and
expense, Hammer obtained the specified artifacts within the two-week period. When Hammer requested
payment, Kay refused. Kay claimed that there was no consideration for the promise. Hammer would
prevail against Kay based on:
a.
b.
c.
d.
Unilateral contract.
Unjust enrichment.
Public policy.
Quasi contract.
CPA-02291
Explanation
55
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "a" is correct. A unilateral contract is formed when a promise is exchanged for an act. This is
what occurred here: Kay promised to pay for Hammer's education in exchange for Hammer's obtaining
rare artifacts and Hammer performed. Thus, a unilateral contract was formed.
Choices "b", "c", and "d" are strongly related and are all incorrect. Under certain circumstances, where no
actual contract exists (usually where a person will be unjustly enriched), as a matter of public policy, a
court will impose the equitable remedy of quasi contract (a remedy that imposes contract-like duties on a
person to avoid unjust enrichment). Quasi contract is not needed here because an actual, unilateral
contract was formed between the parties: Kay promised to pay for Hammer's education in exchange for
Hammer's obtaining rare artifacts and Hammer performed; thus, forming the contract.
CPA-02292
Type1 M/C
129. CPA-02292
A-D
May 91 #17
Corr Ans: B
PM#18
R 5-99
Page 18
Bond and Spear orally agreed that Bond would buy a car from Spear for $475. Bond paid Spear a $100
deposit. The next day, Spear received an offer of $575, the car's fair market value. Spear immediately
notified Bond that Spear would not sell the car to Bond and returned Bond's $100. If Bond sues Spear
and Spear defends on the basis of statute of frauds, Bond will probably:
a.
b.
c.
d.
Lose, because the agreement was for less than the fair market value of the car.
Win, because the agreement was for less than $500.
Lose, because the agreement was not in writing and signed by Spear.
Win, because Bond paid a deposit.
CPA-02292
Explanation
Choice "b" is correct. Under the Statue of Frauds, contracts for the sale of goods of $500 or more must
be evidenced by a writing. A car is goods, but the contract price here was $475, so no writing was
required.
Choice "a" is incorrect, because consideration does not have to be economically adequate; it merely
needs to have legal sufficiency.
Choice "c" is incorrect, because the contract price was less than $500. Thus, the statute of frauds does
not apply.
Choice "d" is incorrect. The contract here is enforceable because the parties mutually exchanged
promises. The deposit is irrelevant.
CPA-02293
Type1 M/C
130. CPA-02293
A-D
May 91 #18
Corr Ans: C
PM#19
R 5-99
Page 11
Dunne and Cook signed a contract requiring Cook to rebind 500 of Dunne's books at 80¢ per book.
Later, Dunne requested, in good faith, that the price be reduced to 70¢ per book. Cook agreed orally to
reduce the price to 70¢. Under the circumstances, the oral agreement is:
a. Enforceable, but proof of it is inadmissible into evidence.
b. Enforceable, and proof of it is admissible into evidence.
c. Unenforceable, because Dunne failed to give consideration, but proof of it is otherwise admissible
into evidence.
d. Unenforceable, due to the statute of frauds, and proof of it is inadmissible into evidence.
CPA-02293
Explanation
Choice "c" is correct. Since this contract is for services (rebinding books) the agreement is governed by
the common law of contracts. Under the common law of contracts a contract modification is treated like a
separate contract and requires consideration. Nevertheless, proof of the modification would be
admissible into evidence. The parol evidence rule prohibits introduction of prior or contemporaneous oral
statements and prior written statements to vary the terms of a fully integrated written contract (i.e., one
56
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
purporting to reflect the whole agreement). It does not prohibit introduction of evidence of subsequent
agreements, such as the modification here.
Choices "a" and "b" are incorrect. The oral agreement is unenforceable because a contract to rebind
books is a service contract, which is governed by the common law. At common law, modification of a
contract must be supported by consideration, and no consideration was given for the modification here.
On the other hand, proof of the oral agreement attempting to modify the contract would be admissible
under the parol evidence rule because that rule does not bar introduction of evidence that a contract was
modified after it was made.
Choice "d" is incorrect. The Statute of Frauds makes service contracts unenforceable unless they are
evidenced by a writing signed by the party to be charged if the contract cannot be performed within a
year. The contract here does not indicate that it cannot be performed within a year. Moreover, proof of
the oral modification would be admissible into evidence because the parol evidence rule does not bar
admission of evidence that a written contract was subsequently modified.
CPA-02294
Type1 M/C
131. CPA-02294
A-D
May 91 #21
Corr Ans: C
PM#20
R 5-99
Page 14
To prevail in a common law action for innocent misrepresentation, the plaintiff must prove:
a.
b.
c.
d.
The defendant made the false statements with a reckless disregard for the truth.
The misrepresentations were in writing.
The misrepresentations concerned material facts.
Reliance on the misrepresentations was the only factor inducing the plaintiff to enter into the contract.
CPA-02294
Explanation
Choice "c" is correct. Innocent misrepresentation may be used as a defense in contract action. It
requires proof of the same elements as fraudulent misrepresentation except for intent. Thus, it requires
proof of a material misrepresentation of fact, and intent to reduce reliance, actual and justifiable reliance
by the contracting party, and damages.
Choice "a" is incorrect. Making a false statement with reckless disregard for its truth is one way to prove
scienter, which is a requirement of constructive fraud (fraudulent misrepresentation) rather than innocent
misrepresentation.
Choice "b" is incorrect, since the misrepresentation can be made orally or in writing.
Choice "d" is incorrect. There is no requirement that the misrepresentation be the only factor that the
plaintiff relied on in entering the contract; it can be one of several factors.
CPA-02295
Type1 M/C
132. CPA-02295
A-D
May 91 #22
Corr Ans: C
PM#21
R 5-99
Page 24
Graham contracted with the city of Harris to train and employ high school dropouts residing in Harris.
Graham breached the contract. Long, a resident of Harris and a high school dropout, sued Graham for
damages. Under the circumstances, Long will:
a. Win, because Long is a third-party beneficiary entitled to enforce the contract.
b. Win, because the intent of the contract was to confer a benefit on all high school dropouts residing in
Harris.
c. Lose, because Long is merely an incidental beneficiary of the contract.
d. Lose, because Harris did not assign its contract rights to Long.
CPA-02295
Explanation
Choice "c" is correct. Only intended third party beneficiaries can enforce a contract. To qualify as an
intended third party beneficiary, there must be an intent to give a benefit directly to the third person. The
contract here calls for Graham to hire and train drop outs. It would be unreasonable to assume that he
57
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
would have to hire and train all drop outs. Therefore, the contract does not intend to directly benefit any
particular drop out, so Long cannot qualify as an intended beneficiary. At best, Long is an incidental
beneficiary and as such unable to enforce the contract between Graham and the city. For this reason
choice "b" is incorrect.
Choice "a" is incorrect. Per the above discussion, Long is not an intended beneficiary.
Choice "d" is incorrect. The issue here is not whether there was an assignment but whether there was an
intent to benefit the party through an enforceable third party beneficiary contract.
CPA-02296
Type1 M/C
133. CPA-02296
A-D
May 91 #23
Corr Ans: A
PM#22
R 5-99
Page 18
Maco Corp. contracted to sell 1,500 bushels of potatoes to LBC Chips. The contract did not refer to any
specific supply source for the potatoes. Maco intended to deliver potatoes grown on its farms. An insect
infestation ruined Maco's crop but not the crops of other growers in the area. Maco failed to deliver the
potatoes to LBC. LBC sued Maco for breach of contract. Under the circumstances, Maco will:
a. Lose, because it could have purchased potatoes from other growers to deliver to LBC.
b. Lose, unless it can show that the purchase of substitute potatoes for delivery to LBC would make the
contract unprofitable.
c. Win, because the infestation was an act of nature that could not have been anticipated by Maco.
d. Win, because both Maco and LBC are assumed to accept the risk of a crop failure.
CPA-02296
Explanation
Choice "a" is correct. Under the facts presented Maco did not contract to sell the crop from his land, but
merely "1,500 bushels of potatoes." Therefore, Maco would be required to come up with substituted
potatoes from another source. The theory of "impossibility of performance" would not apply here since
"potatoes" are otherwise available to the seller.
Choice "b" is incorrect. There is no requirement that a contract be profitable to be enforceable.
Choice "c" is incorrect because it is untrue crop failures are somewhat common and thus are foreseeable.
If a party wants to protect itself against liability for crop failure, the issue should be specifically addressed
in the contract. Otherwise, the courts will generally hold that the seller assumes risks that the crops will
fail.
Choice "d" is incorrect. Generally, only one party will be held to assume the risk that a supply will fail; not
both parties. If the contract is silent, the seller usually is the one held to have assumed the risk of failure.
CPA-02297
Type1 M/C
134. CPA-02297
A-D
May 91 #24
Corr Ans: B
PM#23
R 5-99
Page 23
In general, a clause in a real estate contract entitling the seller to retain the purchaser's downpayment as
liquidated damages if the purchaser fails to close the transaction, is enforceable:
a.
b.
c.
d.
In all cases, when the parties have a signed contract.
If the amount of the downpayment bears a reasonable relationship to the probable loss.
As a penalty, if the purchaser intentionally defaults.
Only when the seller cannot compel specific performance.
CPA-02297
Explanation
Choice "b" is correct. A clause in a contract that provides for liquidated damages will be enforceable if the
amount of the damages clause bears a reasonable relationship to the probable loss. Liquidated damages
clauses will not be enforced where they are so high as to constitute a penalty.
Choice "a" is incorrect. A liquidated damage clause is enforceable only when, at the time of contracting, it
would be difficult to determine actual damages that might arise from a breach and the amount set is a
58
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
reasonable approximation of actual damages. Thus, a liquidated damages clause is not enforceable
merely because the parties have signed a written contract.
Choice "c" is incorrect. A liquidated damages clause is never enforceable if it constitutes a penalty, even
if the other party intentionally breaches the contract.
Choice "d" is incorrect. This choice states a misapplication of the law backwards. Specific performance
generally is not available if the legal remedy (money damages) is inadequate. However, the opposite
(that money damages are not available when specific performance is available) is not true. Just as an
aside, the presence of a liquidated damages clause is treated as an alternative remedy and does not
prevent a court from granting a specific performance where it is otherwise available.
CPA-02300
Type1 M/C
135. CPA-02300
A-D
Nov 91 #21
Corr Ans: A
PM#24
R 5-99
Page 13
The intent, or scienter, element necessary to establish a cause of action for fraud will be met if the plaintiff
can show that the:
a.
b.
c.
d.
Defendant made a misrepresentation with a reckless disregard for the truth.
Defendant made a false representation of fact.
Plaintiff actually relied on the defendant's misrepresentation.
Plaintiff justifiably relied on the defendant's misrepresentation.
CPA-02300
Explanation
Choice "a" is correct. A misrepresentation made with the reckless disregard for the truth will satisfy the
"intent" or "scienter" element to prove fraud.
Choice "b" is incorrect. Intent will not be presumed from the mere fact that the defendant made a false
representation. The statement must be made with actual knowledge of its falsity or with reckless
disregard of its truth in order to be made with scienter.
Choice "c" is incorrect, since the element of reliance does not establish the intent element, even though it
would be needed in a cause of action for fraud. To establish scienter, a statement must be made with
actual knowledge of its falsity or with reckless disregard for its truth.
Choice "d" is incorrect, since the element of reliance (whether actual or justified) does not establish the
intent element. To establish scienter, a statement must be made with actual knowledge of its falsity or
with reckless disregard as to its truth.
CPA-02301
Type1 M/C
136. CPA-02301
A-D
Nov 91 #22
Corr Ans: B
PM#25
R 5-99
Page 23
Under common law and under the UCC Sales Article, a plaintiff who proves fraud in the formation of a
contract may:
a.
b.
c.
d.
Elect to rescind the contract and need not return the consideration received from the other party.
Be entitled to rescind the contract and sue for damages resulting from the fraud.
Be entitled to punitive damages provided physical injuries resulted from the fraud.
Rescind the contract even if there was no reliance on the fraudulent statement.
CPA-02301
Explanation
Choice "b" is correct. Under common law and under article 2 of the UCC a plaintiff who establishes fraud
in the formation of sales contract may act to rescind the contract and also seek to collect damages for the
fraud.
Choice "a" is incorrect, since the election to rescind the contract would require that the plaintiff return the
consideration received from the other party.
59
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "c" is incorrect. Fraud is an intentional tort, and punitive damages are available for intentional
torts. However, a plaintiff need not prove physical injuries to recover punitive damages in a case of fraud.
Choice "d" is incorrect. Proof of fraud requires proof of reliance on the fraudulent statement.
CPA-02303
Type1 M/C
137. CPA-02303
A-D
Nov 91 #25
Corr Ans: C
PM#26
R 5-99
Page 19
On May 25, 1991, Smith contracted with Jackson to repair Smith's cabin cruiser. The work was to begin
on May 31, 1991. On May 26, 1991, the boat, while docked at Smith's pier, was destroyed by arson.
Which of the following statements is correct with regard to the contract?
a.
b.
c.
d.
Smith would not be liable to Jackson because of mutual mistake.
Smith would be liable to Jackson for the profit Jackson would have made under the contract.
Jackson would not be liable to Smith because performance by the parties would be impossible.
Jackson would be liable to repair another boat owned by Smith.
CPA-02303
Explanation
Choice "c" is correct. Where, after a contract is made, the subject matter of the contract is destroyed
without the fault of either party, the contract is rendered impossible. Performance by the parties is
discharged, and neither party is liable for damages.
Choice "a" is incorrect. Mistake is measured at the time the contract is made. The defense of mistake
would not be applicable here because the subject matter of the contract existed at the time the contract
was entered into.
Choice "b" is incorrect. Since performance of the contract was impossible, damages will not be awarded
to Jackson. The destruction of the subject matter was not the fault of Smith or Jackson.
Choice "d" is incorrect. The contract was one for the repair of a specific boat; it cannot be transferred to
another boat without both parties' assent. Absent such mutual assent, destruction of the subject matter
after the contract was formed and through no fault of either contracting party releases the parties of
liability.
CPA-02307
Type1 M/C
138. CPA-02307
A-D
May 92 #33
Corr Ans: D
PM#27
R 5-99
Page 25
Egan contracted with Barton to buy Barton's business. The contract provided that Egan would pay the
business debts Barton owed Ness and that the balance of the purchase price would be paid to Barton
over a 10 year period. The contract also required Egan to take out a decreasing term life insurance policy
naming Barton and Ness as beneficiaries to ensure that the amounts owed Barton and Ness would be
paid if Egan died.
Which of the following would describe Ness' status under the contract and insurance policy?
a.
b.
c.
d.
Contract
Donee beneficiary
Donee beneficiary
Creditor beneficiary
Creditor beneficiary
Insurance policy
Donee beneficiary
Creditor beneficiary
Donee beneficiary
Creditor beneficiary
CPA-02307
Explanation
Choice "d" is correct. Since Ness has extended credit to Barton and since Barton has sold his business
to Egan, with a contractual requirement that Egan pay Ness, Ness is a creditor beneficiary of both the
contract and the insurance policy.
Choices "a", "b", and "c" are incorrect, per the above.
60
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-02308
Type1 M/C
139. CPA-02308
A-D
May 92 #34
Corr Ans: C
PM#28
R 5-99
Page 25
Egan contracted with Barton to buy Barton's business. The contract provided that Egan would pay the
business debts Barton owed Ness and that the balance of the purchase price would be paid to Barton
over a 10 year period. The contract also required Egan to take out a decreasing term life insurance policy
naming Barton and Ness as beneficiaries to ensure that the amounts owed Barton and Ness would be
paid if Egan died.
Barton's contract rights were assigned to Vim, and Egan was notified of the assignment. Despite the
assignment, Egan continued making payments to Barton. Egan died before completing payment and Vim
sued Barton for the insurance proceeds and the other payments on the purchase price received by
Barton after the assignment. To which of the following is Vim entitled?
a.
b.
c.
d.
Payments on
purchase price
No
No
Yes
Yes
Insurance proceeds
Yes
No
Yes
No
CPA-02308
Explanation
Choice "c" is correct. Vim (assignee) is entitled to obtain the payments on the purchase price since
Barton improperly accepted the purchase payments from Egan after the assignment. Vim is also entitled
to receive the insurance proceeds since Vim was a creditor beneficiary of Barton's contract rights. Once
notified of the assignment, Egan was obligated to make the payments to Vim.
Choices "a", "b", and "d" are incorrect, per the above.
CPA-02324
Type1 M/C
140. CPA-02324
A-D
Nov 92 #11
Corr Ans: B
PM#29
R 5-99
Page 9
On February 12, Harris sent Fresno a written offer to purchase Fresno's land. The offer included the
following provision: "Acceptance of this offer must be by registered or certified mail, received by Harris no
later than February 18 by 5:00 p.m. CST." On February 18, Fresno sent Harris a letter accepting the offer
by private overnight delivery service. Harris received the letter on February 19. Which of the following
statements is correct?
a.
b.
c.
d.
A contract was formed on February 19.
Fresno's letter constituted a counteroffer.
Fresno's use of the overnight delivery service was an effective form of acceptance.
A contract was formed on February 18 regardless of when Harris actually received Fresno's letter.
CPA-02324
Explanation
Choice "b" is correct. No contract was formed. The letter was not a valid acceptance because it was not
in a proper form (by private overnight delivery rather than by registered or certified mail, as required in the
offer) and was not received on time. The mailbox rule does not apply here because the offeror opted out
of the rule by stating that the acceptance had to be received by a specific time. Since the attempted
acceptance arrived late, it will be deemed a counteroffer.
Choice "a" is incorrect. There is no contract since the offeree's response was a counteroffer (rejection, by
not responding in time through a proper means, plus a new offer).
Choice "c" is incorrect. The offeree (Fresno) has not complied with the offeror's (Harris) requested
method of acceptance.
Choice "d" is incorrect. The offeror was specific when he/she required that the acceptance must be
received by the offeror by 5:00 PM CST by February 18. In such a case, the mailbox rule does not apply,
which means that the acceptance is not effective on dispatch and instead is effective only upon receipt, if
timely.
61
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-02327
Type1 M/C
141. CPA-02327
A-D
Nov 92 #14
Corr Ans: A
PM#30
R 5-99
Page 19
Castle borrowed $5,000 from Nelson and executed and delivered to Nelson a promissory note for $5,000
due on April 30. On April 1 Castle offered, and Nelson accepted, $4,000 in full satisfaction of the note.
On May 15, Nelson demanded that Castle pay the $1,000 balance on the note. Castle refused. If Nelson
sued for the $1,000 balance Castle would:
a.
b.
c.
d.
Win, because the acceptance by Nelson of the $4,000 constituted an accord and satisfaction.
Win, because the debt was unliquidated.
Lose, because the amount of the note was not in dispute.
Lose, because no consideration was given to Nelson in exchange for accepting only $4,000.
CPA-02327
Explanation
Choice "a" is correct. Nelson's acceptance of Castle's offer to pay a lesser amount on an earlier date
constituted an accord and satisfaction. The "executed" accord and satisfaction results in a discharge of
Castle's obligation to pay anything beyond the $4,000. The earlier date constituted new consideration.
Choices "b", "c", and "d" are related and all are incorrect. At common law, a contract cannot be modified
without consideration. However, where a debt is unliquidated (i.e., the amount owed is in dispute, an
agreement to pay a specific amount is enforceable because both parties give consideration to support the
agreement (i.e., they both give up the fight to litigate the disputed amount). Here the debt does not
appear to be unliquidated, as no one disputes that the note was for $5,000. Nevertheless, the
modification is enforceable because there is consideration in both sides -- Castle agreed to pay earlier
than required in exchange for Nelson accepting less than the original contract called for.
CPA-02329
Type1 M/C
142. CPA-02329
A-D
Nov 92 #19
Corr Ans: D
PM#31
R 5-99
Page 16
The statute of limitations for an alleged breach of contract:
a.
b.
c.
d.
Does not apply if the contract was oral.
Requires that a lawsuit be commenced and a judgment rendered within a prescribed period of time.
Is determined on a case by case basis.
Generally commences on the date of the breach.
CPA-02329
Explanation
Choice "d" is correct. Generally speaking the statute of limitations commences on the date of the alleged
breach. The statute of limitations refers to the time period in which the case must be filed. The time
period varies from state to state depending on the type of case.
Choice "a" is incorrect, since the statute of limitations applies to all contracts (oral and written), although
the limitations period for oral contracts often is shorter than that for written contracts.
Choice "b" is incorrect, since the statute of limitations refers to the time period for filing the case and not
to when a case might be heard or a judgment rendered.
Choice "c" is incorrect, since the statute of limitations is not determined on a case by case basis but
rather by state law depending on the type of case.
CPA-02335
Type1 M/C
143. CPA-02335
A-D
Nov 97 #10
Corr Ans: D
PM#32
R 5-99
Page 26
Which of the following statements is(are) correct regarding a valid assignment?
I.
An assignment of an interest in a sum of money must be in writing and must be supported by legally
sufficient consideration.
62
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
II. An assignment of an insurance policy must be made to another party having an insurable interest in
the property.
a.
b.
c.
d.
I only.
II only.
Both I and II.
Neither I nor II.
CPA-02335
Explanation
Choice "d" is correct. Neither I nor II.
Choice "I" is incorrect. An assignment of rights (in a contract) to another person may be oral or written
and may be gratuitous.
Choice "II" is incorrect. For property insurance, the assignee need only have an insurable interest at the
time of the loss.
Choices "a", "b", and "c" are incorrect, per above rule.
CPA-02338
Type1 M/C
144. CPA-02338
A-D
Nov 97 #11
Corr Ans: D
PM#33
R 5-99
Page 11
Which of the following statements is correct regarding the effect of the expiration of the period of the
statute of limitations on a contract?
a. Once the period of the statute of limitations has expired, the contract is void.
b. The expiration of the period of the statute of limitations extinguishes the contract's underlying
obligation.
c. A cause of action barred by the statute of limitations may not be revived.
d. The running of the statute of limitations bars access to judicial remedies.
CPA-02338
Explanation
Choice "d" is correct. The running of the statute of limitations bars access to judicial remedies, i.e., it
makes the contract unenforceable, but does not make the contract invalid or void in any way.
Choice "a" is incorrect. Once the period of the statute of limitations has expired, a party cannot be sued,
but the contract is valid. The running of the statute of limitations does not make the contract void; it only
makes it unenforceable.
Choice "b" is incorrect. The expiration of the period of the statute of limitations does not extinguish the
contract's underlying obligation; it merely bars judicial methods to enforce the contract.
Choice "c" is incorrect. A cause of action barred by the statute of limitations may be revived e.g., by
sending a written promise to perform under the contract.
CPA-02341
Type1 M/C
145. CPA-02341
A-D
Nov 89 #46
Corr Ans: A
PM#34
R 5-99
Page 29
Cookie Co. offered to sell Distrib Markets 20,000 pounds of cookies at $1.00 per pound, subject to certain
specified terms for delivery. Distrib replied in writing as follows:
"We accept your offer for 20,000 pounds of cookies at $1.00 per pound, weighing scale to have valid city
certificate."
Under the UCC:
a.
b.
c.
d.
A contract was formed between the parties.
A contract will be formed only if Cookie agrees to the weighing scale requirement.
No contract was formed because Distrib included the weighing scale requirement in its reply.
No contract was formed because Distrib's reply was a counteroffer.
63
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-02341
Explanation
Choice "a" is correct. The UCC does not follow the mirror image rule; instead, generally anything that
looks like an acceptance will operate as an acceptance, even if it contains new terms. In such a case, a
contract generally is formed even if the offeror fails to agree to the new terms. Thus, even though the
acceptance contained an additional term regarding the weighing scale, it is an effective acceptance.
Indeed, even if this contract were at common law, the acceptance probably would have been found valid.
The requirement of a valid city certificate for the weighing scale probably would be considered to be an
implied condition of the offer.
Thus, choices "b", "c", and "d" are incorrect.
CPA-02343
Type1 M/C
146. CPA-02343
A-D
Nov 89 #52
Corr Ans: A
PM#35
R 5-99
Page 41
Under the UCC Sales Article, if a buyer wrongfully rejects goods, the aggrieved seller may:
a.
b.
c.
d.
Resell the goods
and sue for damages
Yes
Yes
No
No
Cancel the
agreement
Yes
No
Yes
No
CPA-02343
Explanation
Choice "a" is correct. Yes - Yes.
Under the UCC Sales Article the seller's remedies upon the buyer's breach include:
a. Canceling the agreement and/or
b. Reselling the goods and recovering damages.
CPA-02346
Type1 M/C
147. CPA-02346
A-D
May 90 #40
Corr Ans: C
PM#36
R 5-99
Page 31
To satisfy the UCC Statute of Frauds regarding the sale of goods, which of the following must generally
be in writing?
a.
b.
c.
d.
Designation of the parties as buyer and seller.
Delivery terms.
Quantity of the goods.
Warranties to be made.
CPA-02346
Explanation
Choice "c" is correct. Under the UCC (Article 2) a written contract for the sale of goods must contain
some indication of the quantity of the goods being sold.
Choice "a" is incorrect. A contract for the sale of goods does not require that there be a designation of
the parties as buyer and seller in writing.
Choice "b" is incorrect. A contract for the sale of goods implies that delivery is at the seller's place of
business unless otherwise provided. The place for delivery need not be stated in writing.
Choice "d" is incorrect. A contract for the sale of good implies the existence of certain warranties unless
properly excluded.
CPA-02349
Type1 M/C
148. CPA-02349
A-D
May 90 #43
Corr Ans: A
PM#37
R 5-99
Page 36
64
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
An important factor in determining if an express warranty has been created is whether the:
a.
b.
c.
d.
Statements made by the seller became part of the basis of the bargain.
Sale was made by a merchant in the regular course of business.
Statements made by the seller were in writing.
Seller intended to create a warranty.
CPA-02349
Explanation
Choice "a" is correct. Any statement of fact or promise made by the seller that becomes part of the basis
of the bargain creates an "express warranty."
Choice "b" is incorrect. Express warranties can be made by merchants and non-merchants alike.
Choice "c" is incorrect. Express warranties may be either written or oral.
Choice "d" is incorrect. The intent of the seller is not a factor in the creation of an express warranty: any
statement of fact or promise made by the seller that becomes part of the basis of the bargain creates an
express warranty even if the seller did not intend to create an express warranty.
CPA-02352
Type1 M/C
149. CPA-02352
A-D
May 90 #44
Corr Ans: D
PM#38
R 5-99
Page 33
Cey Corp. entered into a contract to sell parts to Deck, Ltd. The contract provided that the goods would
be shipped "F.O.B. Cey's warehouse." Cey shipped parts different from those specified in the contract.
Deck rejected the parts. A few hours after Deck informed Cey that the parts were rejected, they were
destroyed by fire in Deck's warehouse. Cey believed that the parts were conforming to the contract.
Which of the following statements is correct?
a. Regardless of whether the parts were conforming, Deck will bear the loss because the contract was a
shipment contract.
b. If the parts were nonconforming, Deck had the right to reject them, but the risk of loss remains with
Deck until Cey takes possession of the parts.
c. If the parts were conforming, risk of loss does not pass to Deck until a reasonable period of time after
they are delivered to Deck.
d. If the parts were nonconforming, Cey will bear the risk of loss, even though the contract was a
shipment contract.
CPA-02352
Explanation
Choice "d" is correct. Shipment of nonconforming goods constitutes a breach of contract. When there is
a breach, risk of loss is generally borne by the breaching party no matter whether the contract is
"shipment" or "destination." Therefore, "a" and "b" are incorrect.
Choice "c" is incorrect. If the goods were conforming, the risk of loss in a "shipment contract" would pass
to the buyer as soon as the goods were placed in the hands of the carrier. The contract here was a
shipment contract because it provided that delivery was F.O.B. Cey's warehouse, which means risk of
loss passed as soon as the goods left Cey's warehouse.
CPA-02357
Type1 M/C
150. CPA-02357
A-D
May 90 #46
Corr Ans: C
PM#39
R 5-99
Page 29
Jefferson Hardware ordered three hundred Ram hammers from Ajax Hardware. Ajax accepted the order
in writing. On the final date allowed for delivery, Ajax discovered it did not have enough Ram hammers to
fill the order. Instead, Ajax sent three hundred Strong hammers. Ajax stated on the invoice that the
shipment was sent only as an accommodation. Which of the following statements is correct?
a. Ajax's note of accommodation cancels the contract between Jefferson and Ajax.
b. Jefferson's order can only be accepted by Ajax's shipment of the goods ordered.
c. Ajax's shipment of Strong hammers is a breach of contract.
65
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
d. Ajax's shipment of Strong hammers is a counteroffer and no contract exists between Jefferson and
Ajax.
CPA-02357
Explanation
Choice "c" is correct. The examiners were trying to trick you here. Under the Sales Article, an offer can
be accepted by shipment, and shipment of nonconforming goods can constitute both an acceptance and
an immediate breach unless the accepting party states that the shipment was made only as an
accommodation. But here, the contract was already formed - it is not a case where shipment constitutes
an acceptance of an offer, so the accommodation rule does not apply. Thus, the shipment of a different
brand of hammers constitutes a breach of contract.
Choice "a" is incorrect. Under the UCC Sales Article, an offer to purchase goods can be accepted by
prompt shipment. Where nonconforming goods are sent, they constitute both an acceptance and a
breach unless the seller informs the buyer that the nonconforming goods were sent only as an
accommodation. Here, however, the contract had already been accepted by a letter. Thus, the shipment
was not the acceptance and the above rule does not apply. In any case, an accommodation shipment
serves as a counteroffer; it does not cancel an existing contract.
Choice "b" is incorrect. Under the Sales Article, an offer to buy goods generally can be accepted by
either an acceptance, such as the letter here, or by shipment of conforming of nonconforming goods.
Choice "d" is incorrect. This would be correct if Ajax had not already accepted Jefferson's offer, because
the shipment would have been considered an accommodation shipment. But because Ajax had already
accepted Jefferson's offer, the shipment of nonconforming hammers constituted a breach.
CPA-02362
Type1 M/C
151. CPA-02362
A-D
May 90 #47
Corr Ans: B
PM#40
R 5-99
Page 42
On September 10, Bell Corp. entered into a contract to purchase 50 lamps from Glow Manufacturing.
Bell prepaid 40% of the purchase price. Glow became insolvent on September 19 before segregating, in
its inventory, the lamps to be delivered to Bell. Bell will not be able to recover the lamps because:
a.
b.
c.
d.
Bell is regarded as a merchant.
The lamps were not identified to the contract.
Glow became insolvent fewer than 10 days after receipt of Bell's prepayment.
Bell did not pay the full price at the time of purchase.
CPA-02362
Explanation
Choice "b" is correct. A buyer (Bell) may recover goods from an insolvent seller (Glow) if the goods are
"identified to the contract" and the buyer made a payment within 10 days before insolvency. Although
Bell made payment within 10 days before insolvency, the goods were not identified to the contract (i.e.,
segregated). Thus, Bell will not recover.
Choice "a" is incorrect. A buyer (Bell) may recover goods from an insolvent seller (Glow) if the goods are
"identified to the contract" and the buyer made a payment within 10 days before insolvency. Although
Bell made payment within 10 days before insolvency, the goods were not identified to the contract (i.e.,
segregated). It makes no difference whether the buyer is a merchant or non-merchant.
Choice "c" is incorrect. If the goods would have been identified to the contract and Glow became
insolvent fewer than 10 days after Bell's prepayment, Bell would have been able to recover.
Choice "d" is incorrect. A buyer (Bell) may recover goods from an insolvent seller (Glow) if the goods are
"identified to the contract" and the buyer made a payment within 10 days before insolvency. Although
Bell made payment within 10 days before insolvency, the goods were not identified to the contract (i.e.,
segregated). Payment in full is not required at the time of purchase to recover goods from an insolvent
seller.
CPA-02368
Type1 M/C
A-D
Corr Ans: D
PM#41
R 5-99
66
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
152. CPA-02368
May 90 #48
Page 42
Eagle Corporation solicited bids for various parts it uses in the manufacture of jet engines. Eagle
received six offers and selected the offer of Sky Corporation. The written contract specified a price for
100,000 units, delivery on June 1 at Sky's plant, with payment on July 1. On June 1, Sky had completed
a run. When Eagle's truck arrived to pick up the parts on June 1, Sky refused to deliver claiming the
contract price was too low. Eagle was unable to cover in a reasonable time. Its production lines were in
danger of shutdown because the parts were not delivered. Eagle would probably:
a.
b.
c.
d.
Have as its only remedy the right of replevin.
Have the right of replevin only if Eagle tendered the purchase price on June 1.
Have as its only remedy the right to recover dollar damages.
Have the right to obtain specific performance.
CPA-02368
Explanation
Choice "d" is correct. The Sales Article gives a buyer the right to obtain specific performance when the
goods involved are unique or in other proper circumstances. While the goods here are not unique, the
circumstances are proper for specific performance because Eagle cannot obtain substitute goods and,
without the goods Eagle's plant, may have to close. Thus, specific performance is available.
Choice "a" is incorrect. Eagle cannot replevy the parts unless they have been identified to the contract,
and nothing indicates that they have yet been identified. Moreover, replevin is not Eagle's only remedy.
Instead, Eagle could sue for damages or specific performance. Thus, "a" is factually incorrect.
Choice "b" is incorrect. The contract here called for payment on July 1, so Eagle would not have to
tender payment until then.
Choice "c" is incorrect. The buyer has the right to sue for the property itself in place of money damages
(or may replevy the goods if they have been identified). As noted above the remedy of "specific
performance" is available where the object of the contract is "unique" or "special" and the buyer is unable
to cover.
CPA-02384
Type1 M/C
153. CPA-02384
A-D
Nov 90 #21
Corr Ans: A
PM#42
R 5-99
Page 30
Which of the following requires consideration to be binding on the parties?
a.
b.
c.
d.
Material modification of a contract involving the sale of real estate.
Ratification of a contract by a person after reaching the age of majority.
A written promise signed by a merchant to keep an offer to sell goods open for 10 days.
Material modification of a sale of goods contract under the UCC.
CPA-02384
Explanation
Choice "a" is correct. A common law contract (not Article 2 UCC) requires the element of consideration
for any material change (modification) to the contract. A contract to sell real estate is governed by
common law principles.
Choice "b" is incorrect. The process of ratification does not require consideration.
Choice "c" is incorrect. Under the firm offer rule a merchant's written offer to hold an offer open for 10
days needs no consideration to be binding.
Choice "d" is incorrect. Under Article 2 of the UCC (Sales Article) a sales contract may be modified
without any additional consideration as long as the modification is sought in good faith.
CPA-02388
Type1 M/C
154. CPA-02388
A-D
May 91 #49
Corr Ans: C
PM#43
R 5-99
Page 31
Under a contract governed by the UCC Sales Article, which of the following statements is correct?
67
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
a. Unless both the seller and the buyer are merchants, neither party is obligated to perform the contract
in good faith.
b. The contract will not be enforceable if it fails to expressly specify a time and a place for delivery of the
goods.
c. The seller may be excused from performance if the goods are accidentally destroyed before the risk
of loss passes to the buyer.
d. If the price of the goods is less than $500, the goods need not be identified to the contract for title to
pass to the buyer.
CPA-02388
Explanation
Choice "c" is correct. Under Article 2 of the UCC the seller of goods may be excused from performance if
the goods (subject matter of the contract) are accidentally destroyed before the risk of loss passes to the
buyer and performance is thereby rendered impossible.
Choice "a" is incorrect since the UCC requires that all parties to a contract act in good faith.
Choice "b" is incorrect. In the absence of a place for delivery the UCC provides for the "seller's place" of
business. In the absence of a time for delivery the UCC provides a reasonable time.
Choice "d" is incorrect. In all cases the goods must be identified to the contract for title to pass to the
buyer.
CPA-02393
Type1 M/C
155. CPA-02393
A-D
May 91 #50
Corr Ans: A
PM#44
R 5-99
Page 37
Under the UCC Sales Article, the implied warranty of merchantability:
a.
b.
c.
d.
May be disclaimed by a seller's oral statement that mentions merchantability.
Arises only in contracts involving a merchant seller and a merchant buyer.
Is breached if the goods are not fit for all purposes for which the buyer intends to use the goods.
Must be part of the basis of the bargain to be binding on the seller.
CPA-02393
Explanation
Choice "a" is correct. Under Article 2 of the UCC the implied warranty of merchantability may be
disclaimed in a number of ways. One such way is by the use of an oral statement that mentions
merchantability.
Choice "b" is incorrect. Under the UCC the implied warranty of merchantability can only be given where
the seller is a "merchant" of goods. The buyer may be a merchant or a non-merchant.
Choice "c" is incorrect. This answer concerns the implied warranty of "fitness" and not merchantability.
The warranty of merchantability mainly is a warranty that the goods are fit for ordinary purposes.
Choice "d" is incorrect. An "express" warranty must be part of the basis of the bargain; this is not true of
the "implied" warranties.
CPA-02397
Type1 M/C
156. CPA-02397
A-D
May 91 #51
Corr Ans: A
PM#45
R 5-99
Page 31
Yost Corp., a computer manufacturer, contracted to sell 15 computers to Ivor Corp., a computer retailer.
The contract specified that delivery was to be made by truck to Ivor's warehouse. Instead, Yost shipped
the computers by rail. When Ivor claimed that Yost did not comply with the contract, Yost told Ivor that
there had been a trucker's strike when the goods were shipped. Ivor refused to pay for the computers.
Under these circumstances, Ivor:
a. Is obligated to pay for the computers because Yost made a valid substituted performance.
b. Is obligated to pay for the computers because title to them passed to Ivor when Ivor received them.
c. May return the computers and avoid paying for them because of the way Yost delivered them.
68
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
d. May return the computers and avoid paying for them because the contract was void under the theory
of commercial impracticability.
CPA-02397
Explanation
Choice "a" is correct. Under the UCC, if the parties agreed that delivery would be made in a certain way
and the agreed method becomes impossible, the seller must arrange for other commercially reasonable
transportation and the buyer must accept. Therefore, "c" is incorrect. Impracticability is not a defense, so
"d" is incorrect too.
Choice "b" is incorrect. Under the UCC title to the goods passes to the buyer when the goods are
delivered to a carrier (shipment or destination contracts).
CPA-02403
Type1 M/C
157. CPA-02403
A-D
May 91 #52
Corr Ans: D
PM#46
R 5-99
Page 41
Gray Fabricating Co. and Pine Corp. agreed orally that Pine would custom manufacture a processor for
Gray at a price of $80,000. After Pine completed the work at a cost of $60,000, Gray notified Pine that
the processor was no longer needed. Pine is holding the processor and has requested payment from
Gray. Pine has been unable to resell the processor for any price. Pine incurred storage fees of $1,000.
If Gray refuses to pay Pine and Pine sues Gray, the most Pine will be entitled to recover is:
a.
b.
c.
d.
$60,000
$61,000
$80,000
$81,000
CPA-02403
Explanation
Choice "d" is correct. Where the buyer of specially manufactured goods breaches the contract and the
seller is unable to resell the goods, the seller may recover as damages the contract price ($80,000) plus
reasonable incidental expenses, such as the costs of storage ($1,000).
Note: An oral agreement in excess of $500 is binding in the sale of "special order goods" as an exception
to the Statute of Frauds.
Choices "a", "b", and "c" are incorrect. Where the buyer of specially manufactured goods breaches the
contract and the seller is unable to resell the goods, the seller may recover as damages the contract price
($80,000) plus reasonable incidental expenses, such as the costs of storage ($1,000). The seller is not
limited to his or her costs ($60,000 or $61,000) or the contract price ($80,000).
CPA-02406
Type1 M/C
158. CPA-02406
A-D
May 91 #54
Corr Ans: D
PM#47
R 5-99
Page 32
West purchased a painting from Noll, who is not in the business of selling art. Noll tendered delivery of
the painting after receiving payment in full from West. West informed Noll that West would be unable to
take possession of the painting until later that day. Thieves stole the painting before West returned. The
risk of loss:
a.
b.
c.
d.
Remained with Noll, because West had not yet received the painting.
Remained with Noll, because the parties agreed on a later time of delivery.
Passed to West at the time the contract was formed and payment was made.
Passed to West on Noll's tender of delivery.
CPA-02406
Explanation
Choice "d" is correct. Under the UCC, risk of loss rules, the risk of loss passes to the buyer on tender of
delivery where the seller is a non-merchant who is making the delivery.
69
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choices "a" and "b" are incorrect. Where the seller is a nonmerchant, the risk of loss passed to the buyer
upon tender of delivery, despite the fact that the buyer stated that he would return later to pick the goods
up.
Choice "c" is incorrect. Under the UCC, where the seller is a nonmerchant and a shipment contract is not
involved, the risk of loss passes to the buyer on tender of delivery and not when the contract was formed.
CPA-02408
Type1 M/C
159. CPA-02408
A-D
May 91 #55
Corr Ans: A
PM#48
R 5-99
Page 33
Lazur Corp. agreed to purchase 100 radios from Wizard Suppliers, Inc. Wizard is a wholesaler of small
home appliances and Lazur is an appliance retailer. The contract required Wizard to ship the radios to
Lazur by common carrier, "F.O.B. Wizard Suppliers, Inc. Loading Dock."
Risk of loss for the radios during shipment to Lazur would be on:
a.
b.
c.
d.
Lazur, because the risk of loss passes when the radios are delivered to the carrier.
Wizard, because the risk of loss passes only when Lazur receives the radios.
Wizard, because it is a shipment contract.
Lazur, because title to the radios passes to Lazur at the time of shipment.
CPA-02408
Explanation
Choice "a" is correct. Under the UCC risk of loss rules the risk of loss passes to the buyer when the
goods are delivered to the carrier where the contract is a "shipment contract" (F.O.B. seller's loading
dock).
Choice "b" is incorrect, per "a" above.
Choice "c" is incorrect. While this is a shipment contract the UCC provides that the risk passes to the
buyer (Lazur) when the goods are delivered to the carrier.
Choice "d" is incorrect. The risk of loss issue is separate from the title issue.
CPA-02411
Type1 M/C
160. CPA-02411
A-D
May 91 #56
Corr Ans: A
PM#49
R 5-99
Page 32
Lazur Corp. agreed to purchase 100 radios from Wizard Suppliers, Inc. Wizard is a wholesaler of small
home appliances and Lazur is an appliance retailer. The contract required Wizard to ship the radios to
Lazur by common carrier, "F.O.B. Wizard Suppliers, Inc. Loading Dock."
Under the UCC Sales Article:
a. Title to the radios passes to Lazur at the time they are delivered to the carrier, even if the goods are
nonconforming.
b. Lazur must inspect the radios at the time of delivery or waive any defects and the right to sue for
breach of contract.
c. Wizard must pay the freight expense associated with the shipment of the radios to Lazur.
d. Lazur would have the right to reject any shipment if Wizard fails to notify Lazur that the goods have
been shipped.
CPA-02411
Explanation
Choice "a" is correct. Under the UCC pertaining to shipment contracts, title to the goods passes to the
buyer when the goods are delivered to a common carrier. This rule applies even when the goods are
nonconforming goods.
Choice "b" is incorrect. The UCC provides that the buyer of goods may inspect the goods within a
reasonable period of time after the goods are delivered.
Choice "c" is incorrect. The contract "F.O.B. seller's loading dock" requires that the buyer (Lazur) pay the
freight expense.
70
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "d" is incorrect. The seller must notify the buyer that shipment has been made, but the failure to
do so will not give the buyer the right to reject the shipment unless the lack of notice causes a loss.
CPA-02420
Type1 M/C
161. CPA-02420
A-D
May 92 #53
Corr Ans: D
PM#50
R 5-99
Page 34
On May 2, Lace Corp., an appliance wholesaler, offered to sell appliances worth $3,000 to Parco, Inc., a
household appliance retailer. The offer was signed by Lace's president, and provided that it would not be
withdrawn before June 1. It also included the shipping terms: "F.O.B.-Parco's warehouse." On May 29,
Parco mailed an acceptance of Lace's offer. Lace received the acceptance on June 2.
If Lace inadvertently ships the wrong appliances to Parco and Parco rejects them two days after receipt,
title to the goods will:
a.
b.
c.
d.
Pass to Parco when they are identified to the contract.
Pass to Parco when they are shipped.
Remain with Parco until the goods are returned to Lace.
Revert to Lace when they are rejected by Parco.
CPA-02420
Explanation
Choice "d" is correct. Once the buyer has rightfully rejected the non-conforming goods, the title to the
goods reverts back to the seller.
Choice "a" is incorrect. Title to goods does not pass when the goods are identified to the contract.
Choice "b" is incorrect. Under the UCC, title generally passes when goods are delivered. Where the
seller has the duty to deliver to a destination other than the seller's place of business (here, the buyer's
warehouse), title does not pass until the goods are delivered at that location.
Choice "c" is incorrect. A rejection or other refusal by the buyer to receive or retain the goods, whether or
not justified, or a justified revocation of acceptance revests title to the goods in the seller at the time of
rejection or revocation of acceptance. Title does not remain with the buyer until the goals are returned to
the seller.
CPA-02455
Type1 M/C
162. CPA-02455
A-D
May 92 #54
Corr Ans: C
PM#51
R 5-99
Page 30
On May 2, Mason orally contracted with Acme Appliances to buy for $480 a washer and dryer for
household use. Mason and the Acme salesperson agreed that delivery would be made on July 2. On
May 5, Mason telephoned Acme and requested that the delivery date be moved to June 2. The Acme
salesperson agreed with this request. On June 2, Acme failed to deliver the washer and dryer to Mason
because of an inventory shortage. Acme advised Mason that it would deliver the appliances on July 2 as
originally agreed. Mason believes that Acme has breached its agreement with Mason. Acme contends
that its agreement to deliver on June 2 was not binding. Acme's contention is:
a.
b.
c.
d.
Correct, because Mason is not a merchant and was buying the appliances for household use.
Correct, because the agreement to change the delivery date was not in writing.
Incorrect, because the agreement to change the delivery date was binding.
Incorrect, because Acme's agreement to change the delivery date is a firm offer that cannot be
withdrawn by Acme.
CPA-02455
Explanation
Choice "c" is correct. Under the UCC, a contract involving "goods" may be modified without the need for
additional (new) consideration. Here, the subsequent modification is binding. Moreover, no writing was
required for the modification because the contract price, as modified, was less than $500.
Choice "a" is incorrect. Mason's status as a nonmerchant is irrelevant and Acme is bound to the June 2
delivery date because it was a valid modification. Under the UCC, a modification sought in good faith is
71
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
binding even absent consideration, and an oral modification is enforceable with a writing if the contract,
as modified, is not within the Statute of Frauds (i.e., it is for the sale of goods for less than $500).
Choice "b" is incorrect. The oral agreement to change the delivery date is enforceable here, because a
contract modification under the Sales Article is enforceable if the contract, as modified, is not within the
Statute (i.e., it is for the sale of goods for less than $500). Moreover, the agreement is binding despite
the lack of consideration because, under the Sales Article, a modification sought in good faith is binding
despite the lack of consideration.
Choice "d" is incorrect. A firm offer is a written offer by a merchant containing words of firmness (i.e., a
promise to keep the offer open). The agreement here is not an offer, but rather is a modification -- an
agreement between the parties to change their contract.
CPA-02458
Type1 M/C
163. CPA-02458
A-D
May 92 #55
Corr Ans: B
PM#52
R 5-99
Page 37
Which of the following conditions must be met for an implied warranty of fitness for a particular purpose to
arise in connection with a sale of goods?
I. The warranty must be in writing.
II. The seller must know that the buyer was relying on the seller in selecting the goods.
a.
b.
c.
d.
I only.
II only.
Both I and II.
Neither I nor II.
CPA-02458
Explanation
Choice "b" is correct. II only. The implied warranty of fitness is created where the seller of goods knows
at the time of the sale that the buyer is relying on the seller selecting the goods. The implied warranty of
fitness requires that the seller know of the buyer's intended use of the goods.
The implied warranty of fitness need not be in writing or even specifically mentioned.
Choices "a", "c", and "d" are incorrect, per above.
CPA-02462
Type1 M/C
164. CPA-02462
A-D
May 92 #56
Corr Ans: A
PM#53
R 5-99
Page 41
On February 15, Mazur Corp. contracted to sell 1,000 bushels of wheat to Good Bread, Inc. at $6.00 per
bushel with delivery to be made on June 23. On June 1, Good advised Mazur that it would not accept or
pay for the wheat. On June 2, Mazur sold the wheat to another customer at the market price of $5.00 per
bushel. Mazur had advised Good that it intended to resell the wheat. Which of the following statements
is correct?
a.
b.
c.
d.
Mazur can successfully sue Good for the difference between the resale price and the contract price.
Mazur can resell the wheat only after June 23.
Good can retract its anticipatory breach at any time before June 23.
Good can successfully sue Mazur for specific performance.
CPA-02462
Explanation
Choice "a" is correct. Good's statement constituted an anticipatory repudiation (i.e., an unequivocal
statement that the party would not perform). Anticipatory repudiation is an immediate breach, and it gives
the nonbreaching party several options, including the option to treat the contract as being breached,
reselling the goods, and recovering the difference between the contract price and the resale price.
Choice "b" is incorrect. Good's statement constituted an anticipatory repudiation (i.e., an unequivocal
statement that the party would not perform). In an anticipatory repudiation situation, the nonrepudiating
72
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
party has the option of treating the repudiation as an immediate breach; it need not wait until the original
date of performance. Thus, Mazur does not have to wait until June 23 to resell the goods.
Choice "c" is incorrect. A party who breaches through anticipatory repudiation can revoke its repudiation
only if the norepudiating party does not change its position in reliance on the repudiation. Here, Mazur
changes its position by reselling the wheat on June 2. Thus, Good's ability to revoke its anticipatory
repudiation was cut off on June 2.
Choice "d" is incorrect. Since the goods are not unique or special, the remedy known as specific
performance would not be available. Additionally, since Good (buyer) is the one who breached the
contract he/she cannot successfully sue.
CPA-02472
Type1 M/C
165. CPA-02472
A-D
May 92 #57
Corr Ans: A
PM#54
R 5-99
Page 37
Under the UCC Sales Article, an action for breach of the implied warranty of merchantability by a party
who sustains personal injuries may be successful against the seller of the product only when:
a.
b.
c.
d.
The seller is a merchant of the product involved.
An action based on negligence can also be successfully maintained.
The injured party is in privity of contract with the seller.
An action based on strict liability in tort can also be successfully maintained.
CPA-02472
Explanation
Choice "a" is correct. The implied warranty of "merchantability" can only arise where the seller of goods
is a merchant with respect to the goods involved.
Choice "b" is incorrect. The implied warranty of merchantability is separate and apart from the legal
theory known as negligence. Thus, whether a negligence claim can be brought is irrelevant to the
warranty claim.
Choice "c" is incorrect. The implied warranty of merchantability does not require that the injured party
(plaintiff) be in privity of contract with the seller (defendant). For example, it can extend to members of
the purchaser's household who are injured due to breach of the warranty.
Choice "d" is incorrect. The implied warranty of merchantability is separate and apart from the legal
theory known as strict liability in tort. Thus, whether a strict liability claim can be brought is irrelevant to a
warranty claim.
CPA-02476
Type1 M/C
166. CPA-02476
A-D
May 92 #59
Corr Ans: B
PM#55
R 5-99
Page 41
Under the UCC Sales Article, a seller will be entitled to recover the full contract price from the buyer when
the:
a.
b.
c.
d.
Goods are destroyed after title passed to the buyer.
Goods are destroyed while risk of loss is with the buyer.
Buyer revokes its acceptance of the goods.
Buyer rejects some of the goods.
CPA-02476
Explanation
Choice "b" is correct. Under the UCC a seller is entitled to recover the full contract price from the buyer
when the goods are destroyed while the risk of loss is with the buyer.
Choice "a" is incorrect. The buyer can assume the risk of loss long before title passes to the buyer. "Risk
of loss," rather than title, determines who recovers.
Choice "c" is incorrect. The seller will not be able to recover the full contract price where the buyer
properly revokes its acceptance of the goods. In such a case, the seller is not entitled to any damages
73
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
because revocation of acceptance is available only where the goods are nonconforming -- i.e., where the
seller has breached.
Choice "d" is incorrect. If the buyer has rejected some of the goods and the rejection was proper, the
seller would not be able to recover at all for any nonconforming goods. If the rejection was wrongful, the
seller still probably would not be able to recover the full contract price unless he was unable to resell the
wrongfully rejected goods.
CPA-02481
Type1 M/C
167. CPA-02481
A-D
May 92 #60
Corr Ans: A
PM#56
R 5-99
Page 36
Which of the following factors result(s) in an express warranty with respect to a sale of goods?
I.
II.
a.
b.
c.
d.
The seller's description of the goods as part of the basis of the bargain.
The seller selects goods knowing the buyer's intended use.
I only.
II only.
Both I and II.
Neither I nor II.
CPA-02481
Explanation
Choice "a" is correct. An "express" warranty is created by the seller's description of the goods which
forms part of the basis of the bargain between the parties. The "express" warranty does not require that
the seller select goods knowing the buyer's intended use.
Choices "b", "c", and "d" are incorrect, per the above.
CPA-02489
Type1 M/C
168. CPA-02489
A-D
May 95 #42
Corr Ans: C
PM#57
R 5-99
Page 28
Under the Sales Article of the UCC, when a written offer has been made without specifying a means of
acceptance but providing that the offer will only remain open for ten days, which of the following
statements represent(s) a valid acceptance of the offer?
I.
An acceptance sent by regular mail the day before the ten-day period expires that reaches the offeror
on the eleventh day.
II. An acceptance faxed the day before the ten-day period expires that reached the offeror on the
eleventh day, due to a malfunction of the offeror's printer.
a.
b.
c.
d.
I only.
II only.
Both I and II.
Neither I nor II.
CPA-02489
Explanation
Choice "c" is correct. Both I and II.
Under the UCC Sales Article, if the offer does not state that acceptance is effective upon receipt and does
not specify the means of acceptance, the offeree may invoke the "mailbox rule" and make the acceptance
effective upon dispatch by using any reasonable means of acceptance. Both regular mail and facsimile
transmission appear to be reasonable means of acceptance. Here, the offer did not state that the
acceptance had to be received within 10 days, but rather only that the offer was open for 10 days.
Neither did the offer specify any method for accepting. Thus, the mailbox rule applies and the
acceptances are effective upon dispatch; it is irrelevant that they were received on the eleventh day.
CPA-02503
Type1 M/C
A-D
Corr Ans: D
PM#58
R 5-99
74
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
169. CPA-02503
Nov 97 #13
Page 36
Under the Sales Article of the UCC, most goods sold by merchants are covered by certain warranties. An
example of an express warranty would be a warranty of:
a.
b.
c.
d.
Usage of trade.
Fitness for a particular purpose.
Merchantability.
Conformity of goods to sample.
CPA-02503
Explanation
Choice "d" is correct. Under the UCC, any affirmation of fact or promise constitutes an express warranty.
Any model, sample, or description also gives rise to an express warranty that the goods will be in
conformity with the sample, model, or description.
Choice "a" is incorrect. A usage of trade is a business practice common in a particular industry; it is not a
warranty.
Choice "b" is incorrect. The warranty of fitness for particular purpose arises when a seller knows of a
particular purpose for the goods being sold and the buyer relies on the seller to choose goods suitable for
that purpose. It is an implied warranty and not an express warranty.
Choice "c" is incorrect. "Merchantability" is an implied warranty that arises in every sale of goods by a
merchant. Among other things, it is a warranty that the goods sold will be fit for their ordinary purposes.
CPA-02509
Type1 M/C
170. CPA-02509
A-D
Nov 97 #14
Corr Ans: B
PM#59
R 5-99
Page 34
Under the Sales Article of the UCC, unless a contract provides otherwise, before title to goods can pass
from a seller to a buyer, the goods must be:
a.
b.
c.
d.
Tendered to the buyer.
Identified to the contract.
Accepted by the buyer.
Paid for.
CPA-02509
Explanation
Choice "b" is correct. Under the Sales Article of the UCC, if the parties do not agree to a time that title will
pass, it will pass on delivery. Before goods may be delivered, they must be identified as the ones that will
pass under the contract. Thus, choices "a" and "c" are incorrect.
Choice "d" is incorrect. Goods are commonly paid for after title to the goods has passed from a seller to a
buyer.
CPA-02515
Type1 M/C
171. CPA-02515
A-D
R98 #11
Corr Ans: A
PM#60
R 5-99
Page 41
Under the Sales Article of the UCC, the remedies available to a seller when a buyer breaches a contract
for the sale of goods may include:
a.
b.
c.
d.
The right to resell
goods identified to
the contract
Yes
Yes
No
No
CPA-02515
The right to
stop a carrier from
delivering the goods
Yes
No
Yes
No
Explanation
75
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "a" is correct. "Yes - Yes." Under the Sales Article of the UCC, a seller has the right to resell
goods identified to the contract and stop the carrier from delivering the goods when a buyer breaches the
contract.
CPA-02519
Type1 M/C
172. CPA-02519
A-D
R98 #12
Corr Ans: A
PM#61
R 5-99
Page 31
Under the Sales Article of the UCC and the United Nations Convention for the International Sale of Goods
(CISG), absent specific terms in an international sales shipment contract, when will risk of loss pass to the
buyer?
a.
b.
c.
d.
When the goods are delivered to the first carrier for transmission to the buyer.
When the goods are tendered to the buyer.
At the conclusion of the execution of the contract.
At the time the goods are identified to the contract.
CPA-02519
Explanation
Choice "a" is correct. Under the Sales Article of the UCC, absent any agreement to the contrary, risk of
loss passes to the buyer when the goods are delivered to the carrier. The rule is the same for domestic
and international shipments.
Choices "b", "c", and "d" are incorrect, because absent an agreement to the contrary, risk of loss passes
upon delivery to the carrier, not upon tender to the buyer, execution of the contract, or when the goods
are identified to the contract.
CPA-02523
Type1 M/C
173. CPA-02523
A-D
Nov 89 #32
Corr Ans: C
PM#62
R 5-99
Page 47
An employee will generally be precluded from collecting full worker's compensation benefits when the
injury is caused by:
a.
b.
c.
d.
Noncompliance
with the
employer's rules
No
Yes
No
Yes
An intentional,
self-inflicted
action
No
Yes
Yes
No
CPA-02523
Explanation
Choice "c" is correct. No - Yes.
An employee is precluded from collecting full worker's compensation benefits for intentional self-inflicted
injuries but not negligent (noncompliance with an employer's rules) injuries.
Choices "a", "b", and "d" are incorrect, as explained above.
CPA-02541
Type1 M/C
174. CPA-02541
A-D
May 90 #27
Corr Ans: D
PM#63
R 5-99
Page 46
Taxes payable under the Federal Unemployment Tax Act (FUTA) are:
a. Partially deductible by the covered employee for federal income tax purposes.
b. Calculated as a fixed percentage of all compensation paid to an employee.
c. Payable by all employers regardless of the total amount of compensation paid to individual
employees.
d. Deductible by the employer as a business expense for federal income tax purposes.
76
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-02541
Explanation
Choice "d" is correct. Taxes paid under "FUTA" are deductible by the employer as a business expense
for federal income tax purposes.
Choice "a" is incorrect. The employee does not get a deduction since the employee has not paid the tax.
Choice "b" is incorrect. Only the first $7,000 of a covered employee's wages is taxable.
Choice "c" is incorrect. An employer does not have to pay the tax unless the employer has a quarterly
payroll of at least $1,500.
CPA-02546
Type1 M/C
175. CPA-02546
A-D
Nov 90 #36
Corr Ans: B
PM#64
R 5-99
Page 44
Under the Federal Insurance Contributions Act (FICA), all of the following are considered wages, except:
a.
b.
c.
d.
Contingent fees.
Reimbursed travel expenses.
Bonuses.
Commissions.
CPA-02546
Explanation
Choice "b" is correct. Under FICA, wages are compensation for labor. Reimbursed travel expenses are
not considered wages and are not in gross income; therefore they are not subject to FICA.
Choice "a" is incorrect. Under FICA, wages are compensation for labor. Thus, contingent fees would be
considered as wages.
Choice "c" is incorrect. Under FICA, wages are compensation for labor. Thus, bonuses would be
considered as wages.
Choice "d" is incorrect. Under FICA, wages are compensation for labor. Thus, commissions would be
considered as wages.
CPA-02550
Type1 M/C
176. CPA-02550
A-D
May 91 #36
Corr Ans: D
PM#65
R 5-99
Page 45
Social security benefits may include all of the following, except:
a.
b.
c.
d.
Payments to divorced spouses.
Payments to disabled children.
Medicare payments.
Medicaid payments.
CPA-02550
Explanation
Choice "d" is correct. Social security benefits do not include Medicaid payments. Medicaid is a state run
program. The federal social security system contains four major benefit programs:
1. (OASI) old age and survivors insurance.
2. (DI) disability insurance.
3. (Medicare).
4. (SSI) supplemental security income.
Choices "a", "b", and "c" are incorrect, since social security benefits may include:
a. Payments to divorced spouses.
b. Payments to disabled children.
c. Medicare.
77
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-02554
Type1 M/C
177. CPA-02554
A-D
May 91 #37
Corr Ans: C
PM#66
R 5-99
Page 46
An employer having an experience unemployment tax rate of 3.2 % in a state having a standard
unemployment tax rate of 5.4% may take a credit against a 6.0% federal unemployment tax rate of:
a.
b.
c.
d.
3.0%
3.2%
5.4%
6.2%
CPA-02554
Explanation
Choice "c" is correct. The employer may take a credit against the federal unemployment tax in an equal
amount to the state rate. Here the state rate of 5.4% will be used since it is less than the federal rate.
CPA-02557
Type1 M/C
178. CPA-02557
A-D
Nov 91 #32
Corr Ans: C
PM#67
R 5-99
Page 44
Which of the following types of income is subject to taxation under the provisions of the Federal Insurance
Contributions Act (FICA)?
a.
b.
c.
d.
Interest earned on municipal bonds.
Capital gains of $3,000.
Car received as a productivity award.
Dividends of $2,500.
CPA-02557
Explanation
Choice "c" is correct. (Wages are subject to FICA) Since a car received as a productivity award would be
considered a substitute for wages/salary, the fair market value of the car would be subject to FICA
taxation.
Choices "a", "b", and "d" are incorrect, since the following forms of income would not be subject to
taxation under FICA.
a. Interest on municipal bonds
b. Capital gains
d. Dividends
CPA-02562
Type1 M/C
179. CPA-02562
A-D
Nov 91 #33
Corr Ans: A
PM#68
R 5-99
Page 46
An unemployed CPA generally would receive unemployment compensation benefits if the CPA:
a.
b.
c.
d.
Was fired as a result of the employer's business reversals.
Refused to accept a job as an accountant while receiving extended benefits.
Was fired for embezzling from a client.
Left work voluntarily without good cause.
CPA-02562
Explanation
Choice "a" is correct. Unemployment compensation benefits are available to an unemployed CPA (or
anyone else) who was discharged (fired) as a result of the employer's business reversals.
Choice "b" is incorrect. Unemployment benefits are not available where an unemployed individual
refuses to accept similar work while receiving extended benefits.
Choice "c" is incorrect. Unemployment benefits are not available where the unemployed CPA was fired
for embezzling.
Choice "d" is incorrect. Unemployment benefits are not available where the unemployed CPA left work
voluntarily without good cause.
78
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
CPA-02642
Type1 M/C
180. CPA-02642
A-D
Nov 91 #34
Corr Ans: B
PM#69
R 5-99
Page 47
Workers' Compensation laws provide for all of the following benefits, except:
a.
b.
c.
d.
Burial expenses.
Full pay during disability.
The cost of prosthetic devices.
Monthly payments to surviving dependent children.
CPA-02642
Explanation
Choice "b" is correct. Workers' compensation laws do not provide for "full" pay during a disability. With
disability benefits the employee may receive a percentage of his/her wages, but not "full" wages.
Choice "a" is incorrect. Workers' compensation laws can provide for burial expenses.
Choice "c" is incorrect. Workers' compensation laws can provide for the cost of a prosthetic device.
Choice "d" is incorrect. Workers' compensation laws can provide for payments to surviving dependent
children.
CPA-02646
Type1 M/C
181. CPA-02646
A-D
May 92 #36
Corr Ans: C
PM#70
R 5-99
Page 44
An employer who fails to withhold Federal Insurance Contributions Act (FICA) taxes from covered
employees' wages, but who pays both the employer and employee shares would:
a.
b.
c.
d.
Be entitled to a refund from the IRS for the employees' share.
Be allowed no federal tax deduction for any payments.
Have a right to be reimbursed by the employees for the employees' share.
Owe penalties and interest for failure to collect the tax.
CPA-02646
Explanation
Choice "c" is correct. An employer who fails to withhold FICA taxes from an employee's wages is liable
for the employee's portion. Once the employer pays both shares to the government, he/she has the right
to be reimbursed by the employee for the employee's share.
Choice "a" is incorrect. Where the employer fails to withhold, the employer becomes primarily liable for
the employee's share.
Choice "b" is incorrect. Employers are allowed a deduction for the employer's portion.
Choice "d" is incorrect. The penalties are based on the failure to pay and not on the failure to collect the
tax.
CPA-02648
Type1 M/C
182. CPA-02648
A-D
May 92 #37
Corr Ans: D
PM#71
R 5-99
Page 46
Unemployment tax payable under the Federal Unemployment Tax Act (FUTA), is:
a.
b.
c.
d.
Payable by all employers.
Deducted from employee wages.
Paid to the Social Security Administration.
A tax-deductible employer's expense.
CPA-02648
Explanation
79
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
Becker CPA Review, PassMaster Questions
Lecture: Regulation 5
Choice "d" is correct. An employer's payment under the Federal Unemployment Tax Act (FUTA) is a taxdeductible employer expense.
Choice "a" is incorrect. An employer that does not have a quarterly payroll of at least $1,500 or does not
employ at least one person one day a week for 20 weeks in a year does not have to pay.
Choice "b" is incorrect. The federal unemployment tax is paid by the employer and not deducted from the
employee's wages.
Choice "c" is incorrect. The federal unemployment tax is paid to the Internal Revenue Service and not to
the Social Security Administration.
CPA-02662
Type1 M/C
183. CPA-02662
A-D
May 92 #38
Corr Ans: A
PM#72
R 5-99
Page 47
Workers' Compensation Acts require an employer to:
a.
b.
c.
d.
Provide coverage for all eligible employees.
Withhold employee contributions from the wages of eligible employees.
Pay an employee the difference between disability payments and full salary.
Contribute to a federal insurance fund.
CPA-02662
Explanation
Choice "a" is correct. Workers' compensation laws require that employers provide coverage for all
eligible employees.
Choice "b" is incorrect. Workers' compensation contributions are made by the employer.
Choice "c" is incorrect. No such rule! Employees are paid a percentage of their wage subject to
established limitations.
Choice "d" is incorrect. There is no federal insurance fund. Workers' compensation laws are
administered at the state level.
CPA-02664
Type1 M/C
184. CPA-02664
A-D
Nov 96 #14
Corr Ans: C
PM#73
R 5-99
Page 49
Under the federal Age Discrimination in Employment Act, which of the following practices is prohibited?
a.
b.
c.
d.
Termination of employees between the ages of 65 and 70 for cause.
Mandatory retirement of any employee.
Unintentional age discrimination.
Termination of employees as part of a rational business decision.
CPA-02664
Explanation
Choice "c" is correct. The age discrimination in employment act ("ADEA") prohibits age discrimination,
whether intentional or unintentional.
Choice "a" is incorrect, because the ADEA does not prohibit termination for cause at any age.
Choice "b" is incorrect, because the ADEA does not prohibit mandatory retirement for employees over 40
if, for example, there is a bona fide occupational qualification.
Choice "d" is incorrect, because the ADEA does not prohibit termination of employees as part of a rational
business decision.
80
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.