Wiley CPAexcel Exam Review 2021 Test Bank: Business Environment and Concepts : Get effective and efficient instruction for the BEC portion of the CPA exam in 2021

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Wiley CPAexcel - REG - Assessment Review blaw1 9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 1/100 Question 1 intro.creat.sec.aq.... 005_0819 LOS: List the requirements for the creation of a security interest. Lesson Reference: Introduction and Creation of Security Interests Difficulty: hard Bloom Code: 4 Emily has been running a flower shop as a sole proprietor. She purchased refrigerators for her flowers for $25,000 with Pimco Bank providing the funds for the order and purchase of those refrigerators. On February 1, Emily signed a security agreement presented to her by Pimco Bank that covered the refrigerators and all other after-acquired equipment in the flower shop. The refrigerators were delivered on March 10. On March 11, Pimco Bank filed a financing statement covering the refrigerators. On which date was the security interest attached? February 1 March 10 March 11 The security interest has not yet attached because the bank was not the actual seller of the goods. Rationale  February 1 Incorrect. In order to create a security interest, there must be a security agreement, an underlying debt, and interest in the collateral. Those three elements were not all present on February 1. Rationale  March 10 Correct! Once Emily has an interest in the refrigerators, the security interest attaches. With the refrigerators being delivered, we know that she has an interest in the collateral and meets the third requirement for attachment. Rationale  March 11 Incorrect. The security interest attached earlier than this date, when the three components were met: Debtor owes creditor money, debtor has an interest in the collateral, and there is a record of the security agreement. Rationale  The security interest has not yet attached because the bank was not the actual seller of the goods. Incorrect. A creditor who advances money for a purchase, although not the seller, can hold a valid security interest.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 2/100 Question 2 BSTR-0071 Lesson Reference: Termination Difficulty: medium Under the Revised Uniform Limited Partnership Act and in the absence of a contrary agreement by the partners, which of the following events is most likely to dissolve a limited partnership? A majority vote in favor by the partners. A two-thirds vote in favor by the partners. A withdrawal of a majority of the limited partners. Withdrawal of the only general partner. Rationale  A majority vote in favor by the partners. This answer is incorrect because dissolution requires unanimous consent of all partners. Rationale  A two-thirds vote in favor by the partners. This answer is incorrect because dissolution requires unanimous consent of all partners. Rationale  A withdrawal of a majority of the limited partners. This answer is incorrect because withdrawal by all limited partners would be required to dissolve the partnership. Rationale  Withdrawal of the only general partner. This answer is correct because the withdrawal of the only general partner will dissolve the partnership.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 3/100 Question 3 AICPA.081958REG-2.D.1 Lesson Reference: Criminal Liability Difficulty: medium Bloom Code: 3 Turtle was audit partner on ABC Accounting's audit of Jemison Corporation. Turtle knew that the audit was ineptly performed, although he hoped (without much reason) that the financial statements were accurate. He certified them as such. Which of the following is true? If a court decided that Turtle had acted willfully, he could be held criminally liable under the federal securities laws. If a court decided that Turtle had acted negligently, he could be held criminally liable under the federal securities laws. Both A and B. None of the above. Rationale  If a court decided that Turtle had acted willfully, he could be held criminally liable under the federal securities laws. The federal securities laws' criminal provisions punish "willful" violations of the 1933 and 1934 securities acts. Rationale  If a court decided that Turtle had acted negligently, he could be held criminally liable under the federal securities laws. Mere negligence is an insufficient basis for criminal liability under the federal securities laws. Rationale  Both A and B. Because B is wrong, this answer is necessarily wrong. Rationale  None of the above. Because A is correct, this answer is necessarily wrong.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 4/100 Question 4 BSTR-0028B Lesson Reference: Selection of a Business Entity Difficulty: medium Which form(s) of a business organization can have characteristics common to both the corporation and the general partnership? Limited liability company Subchapter S corporation Yes Yes Yes No No Yes No No Rationale  Yes Yes A limited liability company provides for limited liability of its members, similar to the limited liability of the shareholders of a corporation. However, it typically has a limited duration of existence, similar to that of a partnership in which the death or withdrawal of a member or partner causes the business to dissolve unless the remaining members or partners choose to continue the business. The limited liability company can also be taxed similar to a partnership if formed to do so. The Subchapter S corporation has the limited liability of the corporation but is taxed similar to a partnership. Rationale  Yes No A limited liability company provides for limited liability of its members, similar to the limited liability of the shareholders of a corporation. However, it typically has a limited duration of existence, similar to that of a partnership in which the death or withdrawal of a member or partner causes the business to dissolve unless the remaining members or partners choose to continue the business. The limited liability company can also be taxed similar to a partnership if formed to do so. The Subchapter S corporation has the limited liability of the corporation but is taxed similar to a partnership. Rationale  No Yes A limited liability company provides for limited liability of its members, similar to the limited liability of the shareholders of a corporation. However, it typically has a limited duration of existence, similar to that of a partnership in which the death or withdrawal of a member or partner causes the business to dissolve unless the remaining members or partners choose to continue the business. The limited liability company can also be taxed similar to a partnership if formed to do so. The Subchapter S corporation has the limited liability of the corporation but is taxed similar to a partnership. Rationale  No No A limited liability company provides for limited liability of its members, similar to the limited liability of the shareholders of a corporation. However, it typically has a limited duration of existence, similar to that of a partnership in which the death or withdrawal of a member or partner causes the business to dissolve unless the remaining members or partners choose to continue the business. The limited liability company can also be taxed similar to a partnership if formed to do so. The Subchapter S corporation has the limited liability of the corporation but is taxed similar to a partnership.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 5/100 Question 5 BSTR-0034B Lesson Reference: Selection of a Business Entity Difficulty: medium Under the federal Subchapter S Revision Act, all corporations are designated as Subchapter S corporations only. Either a Subchapter S corporation or a Subchapter C corporation. One of seven different types of corporations. Both a Subchapter S corporation and a Subchapter C corporation at the same time. Rationale  Subchapter S corporations only. The Act provides that a corporation is either a Subchapter S or Subchapter C co-poration but not both at the same time. Rationale  Either a Subchapter S corporation or a Subchapter C corporation. The federal Subchapter S Revision Act specifies that all corporations that do not meet the criteria of a Subchapter S corporation are categorized as a Subchapter C corporation. Rationale  One of seven different types of corporations. The Act provides that a corporation is either a Subchapter S or Subchapter C corporation but not both at the same time. Rationale  Both a Subchapter S corporation and a Subchapter C corporation at the same time. The Act provides that a corporation is either a Subchapter S or Subchapter C corporation but not both at the same time.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 6/100 Question 6 aq.type.contract.004_0718 Lesson Reference: Types of Contracts Difficulty: medium Bloom Code: 2 A contract with a minor is Voidable at the option of either the minor or adult parties (once they discover that there is a minor involved). Unenforceable. Void. Voidable at the option of the minor. Rationale  Voidable at the option of either the minor or adult parties (once they discover that there is a minor involved). Incorrect. The adult is bound to the contract and does not have the option of getting out after learning that he or she has contracted with a minor. Rationale  Unenforceable. Incorrect. Rationale  Void. Incorrect. Rationale  Voidable at the option of the minor. Correct! It is the minor's choice whether to honor the contract or disaffirm it any time prior to his or her 18th birthday and for a reasonable time thereafter.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 7/100 Question 7 PLR-0100 Lesson Reference: Privileged Communications, Confidentiality, and Privacy Acts Difficulty: medium Which of the following is required by the Gramm-Leach Bliley (Financial Modernization) Act of 1999? Accountants are prohibited from providing confidential client information to outsourcing firms. Accountants may provide confidential client information only to outsourcing firms that the accountants have an equity interest in. Accountants are responsible for maintaining the confidentiality of information that is outsourced for processing. Accountants may provide confidential client information only to outsourcing firms that are subject to federal laws and regulations regarding confidentiality. Rationale  Accountants are prohibited from providing confidential client information to outsourcing firms. This answer is incorrect. Firms may outsource processing of client information. Rationale  Accountants may provide confidential client information only to outsourcing firms that the accountants have an equity interest in. This answer is incorrect. Accountants are not required to have an equity interest in the firm. Rationale  Accountants are responsible for maintaining the confidentiality of information that is outsourced for processing. This answer is correct. The Gramm-Leach Bliley (Financial Modernization) Act of 1999 contains this requirement. Rationale  Accountants may provide confidential client information only to outsourcing firms that are subject to federal laws and regulations regarding confidentiality. This answer is incorrect. Accountants are allowed to outsource information processing to firms outside the U.S. and not subject to U.S. laws or regulations.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 8/100 Question 8 aq.exempt.trans.007_2-18 Lesson Reference: Exempt Transactions and Securities Difficulty: medium Bloom Code: 3 Pix Corporation needs to raise $7.5 million within the next 12 months. It wishes to do so without filing a registration statement with the SEC. It will need to raise money in more than one state. Which of the following is the best option for Pix? Rule 504 Rule 506 Regulation Crowdfunding Rule 147A Rationale  Rule 504 Incorrect. The cap for Rule 504 is $5 million in a 12-month period. Rationale  Rule 506 Correct! Rule 506 will work if all the requirements are met. Rationale  Regulation Crowdfunding Incorrect. The cap for Regulation Crowdfunding is $1 million (inflation-adjusted) in a 12-month period. Rationale  Rule 147A Incorrect. Rule 147A will not work for an offering making sales to nonresidents.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 9/100 Question 9 malpract.liab.002 Lesson Reference: Common Law Duties and Liabilities to Clients and Third Parties Difficulty: medium CPA Lurie placed a disclaimer in his engagement letter with tax client Wert. The disclaimer essentially stated that Wert promised not to sue Lurie for any errors Lurie might make. If problems arise and Wert seeks to sue Lurie, which of the following types of claims will be barred by the disclaimer? Breach of contract Negligence Fraud None of the above. Rationale  Breach of contract Choice A: Incorrect. Most courts are not inclined to give effect to disclaimer provisions in breach of contract cases. Rationale  Negligence Choice B: Incorrect. Most courts are not inclined to give effect to disclaimer provisions in negligence contract cases. Rationale  Fraud Choice C: Incorrect. No court will give effect to disclaimer provisions in a fraud case. Rationale  None of the above. Choice D: Correct! Most courts will not allow professionals to escape liability for their professional wrongs by use of such a contractual provision.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 10/100 Question 10 BSTR-0041 Lesson Reference: Authority of Owners and Managers Difficulty: medium Fairwell is executive vice president and treasurer of Wonder Corporation. He was named as a party in a shareholder derivative action in connection with certain activities he engaged in as a corporate officer. In the lawsuit, it was determined that he was liable for negligence in performance of his duties. Fairwell seeks indemnity from the corporation for his liability. The board would like to indemnify him. The Articles of Incorporation do not contain any provisions regarding indemnification of officers and directors. Indemnification Is not permitted since the Articles of Incorporation do not so provide. Is permitted only if he is found not to have been grossly negligent. Cannot include attorney’s fees since he was found to have been negligent. May be permitted by court order despite the fact the Fairwell was found to be negligent. Rationale  Is not permitted since the Articles of Incorporation do not so provide. This answer is incorrect because the court in which the action or suit was brought may determine that, despite the adjudication of liability, the director or officer is fairly and reasonably entitled to indemnification under the circumstances. Rationale  Is permitted only if he is found not to have been grossly negligent. This answer is incorrect because in shareholder derivative suits, normally no indemnification is permitted where the director or officer has been adjudged to be liable for negligence in the performance of his duty to the corporation. However, indemnification may be permitted under certain circumstances. Rationale  Cannot include attorney’s fees since he was found to have been negligent. This answer is incorrect because under indemnification, Fairwell is entitled to expenses, judgments, fines, and amounts actually paid and reasonably incurred by him, which include reasonable attorney’s fees. Rationale  May be permitted by court order despite the fact the Fairwell was found to be negligent. This answer is correct because corporations have the power to properly indemnify their directors or officers for expenses incurred in defending suits against them for conduct undertaken in their official and representative capacity on behalf of the corporation. However, in shareholder derivative suits, normally no indemnification is permitted where the director or officer has been adjudged to be liable for negligence in the performance of his duty to the corporation. However, if the court in which the action or suit was brought determines that, despite the adjudication of liability, the director or officer is fairly and reasonably entitled to indemnification under the circumstances, then indemnification may be permitted regardless of the fact that the Articles of Incorporation do not provide therefor.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 11/100 Question 11 BSTR-0065B Lesson Reference: Formation Difficulty: medium Norwood was a promoter of Parker Corporation. On March 15, Norwood purchased some real estate from Burrows in Parker's name and signed the contract "Norwood, as agent of Parker Corporation." Parker Corporation, however, did not legally come into existence until June 10. Norwood never informed Burrows on or before March 15 that Parker Corporation was not yet formed. After the corporation was formed, the board of directors refused to adopt the preincorporation contract made by Norwood concerning the real estate deal with Burrows. Burrows sued Parker, Norwood, and the board of directors. Which of the following is correct? None of these parties can be held liable. Norwood only is liable. Norwood and Parker are liable but not the board of directors. Norwood, Parker, and the board of directors are all liable. Rationale  None of these parties can be held liable. Norwood is liable. Rationale  Norwood only is liable. Norwood is personally liable on the contract because he signed the contract and agency law will not protect him. This is true because he was not an agent, even though he claimed to be, because there was no principal to authorize him when the contract was made on March 15. Rationale  Norwood and Parker are liable but not the board of directors. Since the corporation never adopted the contract by words or actions, it is not liable. The board of directors is not personally liable either because they never agreed to the contract. Rationale  Norwood, Parker, and the board of directors are all liable. Since the corporation never adopted the contract by words or actions, it is not liable. The board of directors is not personally liable either because they never agreed to the contract.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 12/100 Question 12 BSTR-0080B Lesson Reference: Rights and Duties Difficulty: medium Which of the following statements is a general requirement for the merger of two corporations? The merger plan must be approved unanimously by the stockholders of both corporations. The merger plan must be approved unanimously by the boards of both corporations. The absorbed corporation must amend its articles of incorporation. The stockholders of both corporations must be given due notice of a special meeting, including a copy or summary of the merger plan. Rationale  The merger plan must be approved unanimously by the stockholders of both corporations. Unanimous approval is not needed by either the stockholders or the boards of either corporation. Rationale  The merger plan must be approved unanimously by the boards of both corporations. Unanimous approval is not needed by either the stockholders or the boards of either corporation. Rationale  The absorbed corporation must amend its articles of incorporation. The absorbed corporation will no longer exist after the merger plan is accomplished. Rationale  The stockholders of both corporations must be given due notice of a special meeting, including a copy or summary of the merger plan. As one of the steps leading up to a merger of two corporations, the stockholders need to be given notice of the merger plan. This is true of the stockholders of both corpora-tions, so a special meeting is called inviting both sets of stockholders.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 13/100 Question 13 AICPA.081903REG-1D Lesson Reference: Licensing and Disciplinary Systems Difficulty: medium Bloom Code: 2 When an ethics complaint carrying national implications arises, which entity typically handles it? SEC. PCAOB. State CPA society. AICPA. Rationale  SEC. The SEC will handle legal matters within its jurisdiction but not ethics complaints. Rationale  PCAOB. The PCAOB will handle legal matters within its jurisdiction but not ethics complaints. Rationale  State CPA society. Where ethical complaints arise, the AICPA handles certain types, including matters of national concern. The state CPA societies will handle the rest. Rationale  AICPA. The AICPA handles ethical complaints with national implications.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 14/100 Question 14 BANK-0030 Lesson Reference: Discharge and Reaffirmation Agreements Difficulty: medium Dark Corp. is a general creditor of Blue. Blue filed a petition in bankruptcy under the liquidation provisions of the Bankruptcy Code. Dark wishes to have the bankruptcy court either deny Blue a general discharge or not have its debt discharged. The discharge will be granted and it will include Dark’s debt even if Dark’s debt is unscheduled. Dark was a secured creditor which was not fully satisfied from the proceeds obtained upon disposition of the collateral. Blue has unjustifiably failed to preserve the records from which Blue’s financial condition might be ascertained. Blue had filed for and received a previous discharge in bankruptcy under the liquidation provisions within 8 years of the filing of the present petition. Rationale  Dark’s debt is unscheduled. This answer is incorrect because unscheduled debts are not discharged in a bankruptcy proceeding. Rationale  Dark was a secured creditor which was not fully satisfied from the proceeds obtained upon disposition of the collateral. This answer is correct because the fact that the debt of a secured party was not fully satisfied from the proceeds obtained from disposition of the collateral will not result in a denial of a general discharge, nor will the remaining portion of the secured debt be nondischargeable. In such situations the secured party has the same priority as a general unsecured creditor (lowest priority) concerning the unpaid portion of the debt. Rationale  Blue has unjustifiably failed to preserve the records from which Blue’s financial condition might be ascertained. This answer is incorrect because a debtor who fails to keep books will be denied a general discharge. Rationale  Blue had filed for and received a previous discharge in bankruptcy under the liquidation provisions within 8 years of the filing of the present petition. This answer is incorrect because a debtor who has received a previous discharge in bankruptcy under the liquidation provisions within 8 years will be denied a general discharge.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 15/100 Question 15 CONT-0014 Lesson Reference: Offer and Acceptance Difficulty: medium On March 1, Mirk Corp. wrote to Carr offering to sell Carr its office building for $280,000. The offer stated that it would remain open until July 1. It further stated that acceptance must be by telegram and would be effective only upon receipt. On May 10, Mirk mailed a letter to Carr revoking its offer of March 1. Carr did not learn of Mirk’s revocation until Carr received the letter on May 17. Carr had already sent a telegram of acceptance to Mirk on May 14, which was received by Mirk on May 16. Which of the following statements is correct? Carr’s telegram of acceptance was effective on May 16. Mirk’s offer of March 1 was irrevocable and therefore could not be withdrawn prior to July 1. Mirk’s letter of revocation effectively terminated its offer of March 1 when mailed. Carr’s telegram of acceptance was effective on May 14. Rationale  Carr’s telegram of acceptance was effective on May 16. This answer is correct. Generally, an offeror may revoke an offer at any time prior to acceptance by the offeree. However, notice of revocation must be received by the offeree before the revocation becomes effective. Since Carr’s telegram of acceptance was received by Mirk and became effective on May 16, per the terms of the offer, and Mirk did not receive the letter of revocation until May 17, acceptance occurred on May 16, and the letter of revocation was not effective. Rationale  Mirk’s offer of March 1 was irrevocable and therefore could not be withdrawn prior to July 1. This answer is incorrect. Generally an offeror can revoke an offer at any time prior to acceptance by the offeree. Rationale  Mirk’s letter of revocation effectively terminated its offer of March 1 when mailed. This answer is incorrect. Notice of revocation must be received by the offeree before the revocation becomes effective. Rationale  Carr’s telegram of acceptance was effective on May 14. This answer is incorrect. The offer stated that acceptance would only be effective upon receipt by the offeror.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 16/100 Question 16 AICPA.980504BEC-BL Lesson Reference: Rights and Duties Difficulty: medium Bloom Code: 2 For what purpose will a stockholder of a publicly held corporation be permitted to file a stockholder's derivative suit in the name of the corporation? To compel payment of a properly declared dividend. To enforce a right to inspect corporate records. To compel dissolution of the corporation. To recover damages from corporate management for an ultra vires management act. Rationale  To compel payment of a properly declared dividend. This answer is incorrect, because a claim to force payment of a dividend seeks to redress an injury to the shareholder who has not been paid, and therefore is primarily an individual injury redressable by an individual suit, not a derivative suit. Rationale  To enforce a right to inspect corporate records. This answer is incorrect, because a claim to enforce a right to inspect corporate records seeks to redress an injury to the shareholder who has not been accorded the inspection right and therefore is primarily an individual injury redressable by an individual suit, not a derivative suit. Rationale  To compel dissolution of the corporation. This answer is incorrect, because a claim to compel dissolution of the corporation is usually filed to advance an individual shareholder's interests and therefore is primarily an individual injury redressable by an individual suit, not a derivative suit. Rationale  To recover damages from corporate management for an ultra vires management act. Shareholders can sue the corporation and its officers and directors for injuries done to them individually. Shareholders may also file derivative lawsuits against persons who have injured the corporation. A shareholder's derivative suit is so named because the shareholder is not suing for an individual injury done to him/her but, instead, for an injury done to the corporation. The shareholder stands in the proverbial shoes of the corporation to bring an action to remedy an injury done to it. A shareholder who sued to force payment of dividends, to enforce a right to inspect records, or to compel dissolution, would most likely be suing to redress an injury done to him/her individually. Such an injury is remedied through an individual lawsuit brought on the shareholder's own behalf, not a derivative lawsuit brought on the corporation's behalf. This is why Choices A, B, and C are not correct. However, an ultra vires act would likely injure the corporation itself, which is why it is the most logical candidate for a derivative suit and why Choice D is the best answer.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 17/100 Question 17 SALE-0041 Lesson Reference: Formulas for Damages Difficulty: medium On April 5, Anker, Inc. furnished Bold Corp. with Anker’s financial statements dated March 31. The financial statements contained misrepresentations which indicated that Anker was solvent when in fact it was insolvent. Based on Anker’s financial statements, Bold agreed to sell Anker 90 computers, “FOB—Bold’s loading dock.” On April 14, Anker received 60 of the computers. The remaining 30 computers are in the possession of the common carrier and in transit to Anker. With respect to the remaining 30 computers in transit, which of the following statements is correct if Anker refuses to pay Bold in cash and Anker is not in possession of a negotiable document of title covering the computers? Bold may stop delivery of the computers to Anker since their contract is void due to Anker’s furnishing of the false financial statements. Bold may stop delivery of the computers to Anker despite the fact that title had passed to Anker. Bold must deliver the computers to Anker on credit since Anker has not breached the contract. Bold must deliver the computers to Anker since the risk of loss had passed to Anker. Rationale  Bold may stop delivery of the computers to Anker since their contract is void due to Anker’s furnishing of the false financial statements. This answer is incorrect. The furnishing of false financial statements does not void the contract, instead it extends the time the seller has to reclaim goods already delivered to the insolvent buyer. Rationale  Bold may stop delivery of the computers to Anker despite the fact that title had passed to Anker. This answer is correct. A seller is entitled to stop the delivery of goods in the hands of a carrier if an insolvent buyer who is not in possession of the document of title refuses to pay cash. Therefore, Bold may stop delivery of the computers since Anker refuses to pay in cash and is not in possession of the document of title. Rationale  Bold must deliver the computers to Anker on credit since Anker has not breached the contract. This answer is incorrect. A seller is entitled to stop the delivery of goods in the hands of a carrier if an insolvent buyer who is not in possession of the document of title refuses to pay cash. Therefore, Bold may stop delivery of the computers since Anker refuses to pay in cash and is not in possession of the document of title. Rationale  Bold must deliver the computers to Anker since the risk of loss had passed to Anker. This answer is incorrect. The fact that Anker has assumed risk of loss will not prevent Bold from stopping delivery of the computers.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 18/100 Question 18 BANK-0019 Lesson Reference: Bankruptcy Process Difficulty: medium On February 28, Master, Inc. had total assets with a fair market value of $1,200,000 and total liabilities of $990,000. On January 15, Master made a monthly installment note payment to Acme Distributors Corp., a creditor holding a properly perfected security interest in equipment having a fair market value greater than the balance due on the note. On March 15, Master voluntarily filed a petition in bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. One year later, the equipment was sold for less than the balance due on the note to Acme. Master’s payment to Acme could Be set aside as a preferential transfer because the fair market value of the collateral was greater than the installment note balance. Be set aside as a preferential transfer unless Acme showed that Master was solvent on January 15. Not be set aside as a preferential transfer because Acme was over secured. Not be set aside as a preferential transfer if Acme showed that Master was solvent on March 15. Rationale  Be set aside as a preferential transfer because the fair market value of the collateral was greater than the installment note balance. This answer is incorrect. This payment could not be a preferential transfer since the creditor did not receive more than he would have under a Chapter 7 liquidation. Rationale  Be set aside as a preferential transfer unless Acme showed that Master was solvent on January 15. This answer is incorrect. This payment could not be a preferential transfer since the creditor did not receive more than he would have under a Chapter 7 liquidation. Furthermore, the need is for the debtor to be insolvent rather than solvent at the point of the alleged preferential transfer. Rationale  Not be set aside as a preferential transfer because Acme was over secured. This answer is correct. The trustee has the power to set aside preferential transfers made to a creditor within 90 days before the filing of the bankruptcy petition while the debtor is insolvent. To be a preferential transfer, it must be a transfer for an antecedent debt that enables the creditor to receive more than s/he otherwise would have in a Chapter 7 liquidation. Since the creditor already had a perfected security interest in the equipment, he did not receive a preferential transfer because at that time the equipment had a fair market value greater than the note. This is true because perfected security interests have a priority above all others in the bankruptcy proceedings. Rationale  Not be set aside as a preferential transfer if Acme showed that Master was solvent on March 15. This answer is incorrect. This is not a preferential transfer whether Master was solvent or not on any of the dates in the question.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 19/100 Question 19 AICPA.920509REG-BL Lesson Reference: Duties of Agents and Principals Difficulty: easy Bloom Code: 2 Ogden Corp. hires Thorp as a sales representative for nine months at a salary of $3,000 per month, plus 4% of sales. Which of the following statements is correct? Thorp is obligated to act solely in Ogden's interest in matters concerning Ogden's business. The agreement between Ogden and Thorp formed an agency coupled with an interest. Ogden does not have the power to dismiss Thorp during the nine-month period without cause. The agreement between Ogden and Thorp is not enforceable, unless it is in writing and signed by Thorp. Rationale  Thorp is obligated to act solely in Ogden's interest in matters concerning Ogden's business. Thorp is an agent, as he has been hired to act on Ogden's behalf by representing it. A primary duty of an agent is one of loyalty - an agent must act in his principal's interests and not his own when participating in matters affecting the principal's business. Rationale  The agreement between Ogden and Thorp formed an agency coupled with an interest. An agency coupled with an interest is one that is created primarily for the benefit of the AGENT. For example: Alex borrows $100,000 from Bill, and gives Bill some of his stock to secure the loan. He says to Bill, "In case I do not repay you, I give you agency power to sell my stock to get your money." Bill has an agency coupled with an interest. Rationale  Ogden does not have the power to dismiss Thorp during the nine-month period without cause. There is nothing in the contract that guarantees Thorp's job. Most agency agreements may be terminated at the will of either side if there is not a prohibition in the original agreement. Rationale  The agreement between Ogden and Thorp is not enforceable, unless it is in writing and signed by Thorp. Most agency agreements need not be in writing. Generally, a writing is required only if the agent will be conveying interests in real property, such as houses and land.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 20/100 Question 20 BSTR-0048 Lesson Reference: Rights and Duties Difficulty: medium A stockholder’s right to inspect books and records of a corporation will be properly denied if the purpose of the inspection is to Commence a stockholder’s derivative suit. Obtain stockholder names for a retail mailing list. Solicit stockholders to vote for a change in the board of directors. Investigate possible management misconduct. Rationale  Commence a stockholder’s derivative suit. This answer is incorrect. This purpose relates to a shareholder’s interest as an owner of the corporation. Rationale  Obtain stockholder names for a retail mailing list. This answer is correct. The shareholder’s right may be denied if the corporation can show that the shareholder’s motive is for an unwarranted purpose, for a purpose hostile to the corporation (to engage in competing business), or to satisfy idle curiosity. Obtaining a stockholder list for its commercial value (a retail mailing list) is considered an unwarranted purpose that is not related to the shareholder’s corporate interest. Rationale  Solicit stockholders to vote for a change in the board of directors. This answer is incorrect. This purpose relates to a shareholder’s interest as an owner of the corporation. Rationale  Investigate possible management misconduct. This answer is incorrect. This purpose relates to a shareholder’s interest, and the purpose is substantiated by more than idle curiosity.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 21/100 Question 21 SECU-0012B Lesson Reference: Perfection of Security Interests Difficulty: medium Rally Co. has purchased some inventory from Kantar Corporation to sell to customers who will use the inventory primarily for consumer use. Which of the following is not correct? If Kantar sells the inventory to Rally on credit and takes out a security interest using the inventory as collateral, this a purchase money security interest. If Kantar sells the inventory to Rally on credit and takes out a security interest using the inventory as collateral, this is a purchase money security interest in consumer goods. If Kantar sells the inventory to Rally but Rally pays for it by getting a loan from a bank who takes out a security interest using the inventory as collateral, this is a purchase money security interest. If a customer purchases some inventory on credit from Rally for home use and signs a written security agreement presented by Rally that lists the inventory as collateral for the credit, this is a purchase money security interest in consumer goods. Rationale  If Kantar sells the inventory to Rally on credit and takes out a security interest using the inventory as collateral, this a purchase money security interest. This does describe a PMSI since Kantar retained a security interest in the same items sold on credit to secure payment. Rationale  If Kantar sells the inventory to Rally on credit and takes out a security interest using the inventory as collateral, this is a purchase money security interest in consumer goods. Because Kantar has a security interest in the inventory it sold and is also using the same inventory as collateral for the credit, this is a purchase money security interest. However, because the items Rally purchased are inventory, not consumer goods, in Rally's hands, this is not a PMSI in consumer goods. Rationale  If Kantar sells the inventory to Rally but Rally pays for it by getting a loan from a bank who takes out a security interest using the inventory as collateral, this is a purchase money security interest. A PMSI includes a third party giving a loan who retains a security interest in the same items purchased by the loan. Rationale  If a customer purchases some inventory on credit from Rally for home use and signs a written security agreement presented by Rally that lists the inventory as collateral for the credit, this is a purchase money security interest in consumer goods. A PMSI in consumer goods since the customer purchased the items for his/her home use.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 22/100 Question 22 worker.law.reg.005 Lesson Reference: Worker Classification Laws and Regulations Difficulty: medium XYZ Corporation classified large numbers of its workers as independent contractors, but in litigation brought by the IRS, the court held that they were actually employees who had been deprived of their rightful benefits. Which of the following is likely true if XYZ's classification was erroneous, but not intentional? An unintentional error is not punished in this context. Even an unintentional error will result in XYZ paying stiff fines. XYZ's unintentional error will probably not be punished if its decision had a reasonable basis within the meaning of the safe harbor that exists of these decisions. All of the above. Rationale  An unintentional error is not punished in this context. Choice a: Incorrect. Even unintentional misclassifications are often punished. Rationale  Even an unintentional error will result in XYZ paying stiff fines. Choice b: Incorrect. An unintentional misclassification might result if stiff fines, but this will not be the case if XYZ can fit within the safe harbor. Rationale  XYZ's unintentional error will probably not be punished if its decision had a reasonable basis within the meaning of the safe harbor that exists of these decisions. Choice c: Correct! If XYZ can fit itself within the safe harbor by proving that it had a reasonable basis for its classification, perhaps one based on an IRS letter ruling, it will probably not be punished. Rationale  All of the above. Choice d: Because the first and second choices are incorrect, the last choice cannot be correct.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 23/100 Question 23 AICPA.911130REG-BL Lesson Reference: Distribution of Debtor’s Estate Difficulty: easy Bloom Code: 2 Which of the following claims would have the highest priority in the distribution of a bankruptcy estate under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code if the petition was filed June 1, 20XX? Federal tax lien filed May 15, 20XX. A secured debt properly perfected on February 10, 20XX. Trustee's administration cost filed September 30, 20XX. Employee wages due March 30, 20XX. Rationale  Federal tax lien filed May 15, 20XX. A secured creditor with a perfected interest will generally have top priority. After secured creditors are paid, the bankruptcy code sets forth an order of priority for unsecured creditors. A federal tax lien is fairly low on that list. The administrative expenses would come first among the unsecured claims, followed by wages, and the tax lien would come last. Rationale  A secured debt properly perfected on February 10, 20XX. A secured creditor with a perfected interest will generally have top priority. After secured creditors are paid, the bankruptcy code sets forth an order of importance for unsecured creditors. The administrative expenses would come first among the unsecured claims, followed by the wages, and the tax lien would come last. Rationale  Trustee's administration cost filed September 30, 20XX. A secured creditor with a perfected interest will generally have top priority. After secured creditors are paid, the bankruptcy code sets forth an order of importance for unsecured creditors. The administrative expenses would come first among the unsecured claims, followed by the wages, and the tax lien would come last. Rationale  Employee wages due March 30, 20XX. A secured creditor with a perfected interest will generally have top priority. After secured creditors are paid, the bankruptcy code sets forth an order of importance for unsecured creditors. The administrative expenses would come first among the unsecured claims, followed by the wages, and the tax lien would come last.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 24/100 Question 24 CONT-0089 Lesson Reference: Defining Performance and Breach Difficulty: medium Diel entered into a written contract to sell a building to Stone. The contract was properly recorded. Stone breached the contract and Diel has brought an action for breach of contract. Stone pleads the statute of limitations as a defense. The time period fixed by the statute of limitations is uniform throughout the states. recording of the contract stops the running of the statute of limitations. time period fixed by the statute of limitations begins when the contract is recorded. remedy sought by Diel will be barred when the period of time provided by the statute of limitations has expired. Rationale  time period fixed by the statute of limitations is uniform throughout the states. This answer is incorrect because the time period fixed under the statute of limitations varies from state to state. Rationale  recording of the contract stops the running of the statute of limitations. This answer is incorrect because the recording of a contract has no impact on the running of the statute of limitations. Rationale  time period fixed by the statute of limitations begins when the contract is recorded. This answer is incorrect because the time period covered by the statute of limitations begins to run from the date on which the cause of action occurred, not from the date of recording. Rationale  remedy sought by Diel will be barred when the period of time provided by the statute of limitations has expired. This answer is correct because the statute of limitations bars action at law on contracts unless they are brought within prescribed periods of time. In this case, if Diel did not bring an action against Stone before the statute of limitations had expired, the court would rule in favor of Stone and would not allow Diel to pursue the action further.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 25/100 Question 25 SECU-0025 Lesson Reference: Priorities in Security Interests Difficulty: medium Roth and Dixon both claim a security interest in the same collateral. Roth’s security interest attached on January 1, and was perfected by filing on March 1. Dixon’s security interest attached on February 1, and was perfected on April 1, by taking possession of the collateral. Which of the following statements is correct? Roth’s security interest has priority because Roth perfected before Dixon perfected. Dixon’s security interest has priority because Dixon’s interest attached before Roth’s interest was perfected. Roth’s security interest has priority because Roth’s security interest attached before Dixon’s security interest attached. Dixon’s security interest has priority because Dixon is in possession of the collateral. Rationale  Roth’s security interest has priority because Roth perfected before Dixon perfected. This answer is correct because perfection of a security interest takes place when all of the elements for attachment have occurred as well as one of the alternate methods of perfection. Roth’s security interest was perfected on March 1. Dixon’s security interest was perfected on April 1. Therefore, Roth’s security interest has priority over that of Dixon because Roth’s was perfected first. Rationale  Dixon’s security interest has priority because Dixon’s interest attached before Roth’s interest was perfected. This answer is incorrect because the comparison is between the perfection dates of March 1, (the date Roth perfected) and April 1, (the date Dixon perfected). Rationale  Roth’s security interest has priority because Roth’s security interest attached before Dixon’s security interest attached. This answer is incorrect because the dates of perfection are relevant rather than the dates of attachment. Rationale  Dixon’s security interest has priority because Dixon is in possession of the collateral. This answer is incorrect because the dates of the perfection control the priorities, not the method of perfection.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 26/100 Question 26 BSTR-0010 Lesson Reference: Operations: Nonfinancial Factors Difficulty: medium Ted Fein, a partner in the ABC Partnership, wishes to withdraw from the partnership and sell his interest to Gold. All of the other partners in ABC have agreed to admit Gold as a partner and to hold Fein harmless for the past, present, and future liabilities of ABC. A provision in the original partnership agreement states that the partnership will continue upon the death or withdrawal of one or more of the partners. As a result of Fein’s withdrawal and Gold’s admission to the partnership, Gold Is personally liable for partnership liabilities arising before and after his admission as a partner. Has the right to participate in the management of ABC. Acquired only the right to receive Fein’s share of the profits of ABC. Must contribute cash or property to ABC in order to be admitted with the same rights as the other partners. Rationale  Is personally liable for partnership liabilities arising before and after his admission as a partner. This answer is incorrect. A person admitted as a partner into an existing partnership is only liable for existing debts of the partnership to the extent of the incoming partner’s capital contribution. Rationale  Has the right to participate in the management of ABC. This answer is correct. An incoming partner has the same rights as all of the existing partners. Thus, an incoming partner has the right to participate in the management of the partnership. Rationale  Acquired only the right to receive Fein’s share of the profits of ABC. This answer is incorrect. An incoming partner has the same rights as all of the existing partners. Rationale  Must contribute cash or property to ABC in order to be admitted with the same rights as the other partners. This answer is incorrect. A partner need not make a capital contribution to be admitted with the same rights as the other partners.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 27/100 Question 27 AICPA.920519BEC-BL Lesson Reference: Financial Structure Difficulty: hard Bloom Code: 2 Price owns 2,000 shares of Universal Corp.'s $10 cumulative preferred stock. During its first year of operations, cash dividends of $5 per share are declared on the preferred stock, but were never paid. In the second year, dividends on the preferred stock were neither declared, nor paid. If Universal is dissolved, which of the following statements is correct? Universal will be liable to Price as an unsecured creditor for $10,000. Universal will be liable to Price as a secured creditor for $20,000. Price will have priority over the claims of Universal's bond owners. Price will have priority over the claims of Universal's unsecured judgment creditors. Rationale  Universal will be liable to Price as an unsecured creditor for $10,000. Cumulative preferred stock gives the holder the right to payment of dividends before common shareholders are paid. It does not guarantee that dividends will be declared, but if dividends are declared, they must be paid. Once a corporation declares dividends, the payments become corporate debt. Here, Price is owed $5 x 2,000 shares = $10,000. He is an unsecured creditor, because this debt has not been secured by a separate agreement that creates a security interest. His debt does not have priority over judgment creditors, bond owners, or secured creditors. Rationale  Universal will be liable to Price as a secured creditor for $20,000. This answer is incorrect, because the amount is wrong and shareholders are typically unsecured creditors for declared, but unpaid dividends. Corporate property is not typically used as a security for unpaid dividends. Rationale  Price will have priority over the claims of Universal's bond owners. This answer is incorrect, because bondholders typically have priority over preferred shareholders who, in turn, typically have priority over common shareholders. Rationale  Price will have priority over the claims of Universal's unsecured judgment creditors. This answer is incorrect, because preferred shareholders are viewed as part-equity holders and therefore are in line behind creditors, such as judgment holders.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 28/100 Question 28 BSTR-0031B Lesson Reference: Rights and Duties Difficulty: medium Owners and managers of a limited liability company (LLC) owe A duty of due care. A duty of loyalty. Both a duty of due care and a duty of loyalty. Neither a duty of due care or a duty of loyalty. Rationale  A duty of due care. Owners and managers of an LLC owe a duty of due care. They also owe a duty to be loyal to their LLC. Rationale  A duty of loyalty. Owners and managers of an LLC owe a duty of due care. They also owe a duty to be loyal to their LLC. Rationale  Both a duty of due care and a duty of loyalty. Owners and managers of an LLC owe a duty of due care. They also owe a duty to be loyal to their LLC. Rationale  Neither a duty of due care or a duty of loyalty. Owners and managers of an LLC owe a duty of due care. They also owe a duty to be loyal to their LLC.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 29/100 Question 29 CONT-0039 Lesson Reference: Contracts: Defenses to Formation Difficulty: medium A party to a contract who seeks to rescind the contract because of that party’s reliance on the unintentional but materially false statements of the other party will assert Reformation. Actual fraud. Misrepresentation. Constructive fraud. Rationale  Reformation. This answer is incorrect. Reformation is a remedy used to correct a mutual or unilateral mistake. Reformation allows for the contract to be rewritten so that it is in agreement with the original intentions of the contract. In this case, the party is seeking rescission; he wants to cancel the contract and return both parties to their precontract positions. Rationale  Actual fraud. This answer is incorrect. Actual fraud requires scienter or intent to mislead. In this case, the materially false misstatement was unintentional. Rationale  Misrepresentation. This answer is correct. Misrepresentation may involve an innocent misstatement made in good faith (i.e., there is no scienter or intent to mislead). In order to rescind a contract because of a misrepresentation, the rescinding party must prove that there was a misrepresentation of a material fact, that there was reliance on this fact, and that there was injury as a result. Rationale  Constructive fraud. This answer is incorrect. Constructive fraud requires reckless disregard for the truth (i.e., more than unintentional conduct).9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 30/100 Question 30 CONT-0008B Lesson Reference: Writing and Records: The Statute of Frauds Difficulty: medium Cherry contracted orally to purchase Picks Company for $1,500,000 if it is profitable for one full year after the making of the oral contract. An auditor would be brought in at the end of the year to verify this. Even though the company turns out to be profitable during the upcoming year, Cherry refuses to go through with the contract, claiming that it was unenforceable because it was not in writing. Is Cherry correct? Yes, because the contract could not be completed within one year. Yes, because the contract was for $500 or more. No, because the company was profitable as agreed for one year. No, because Picks Company relied on Cherry's promise. Rationale  Yes, because the contract could not be completed within one year. Contracts that cannot be performed within one year must be in writing. In this case Cherry agreed to purchase Picks Company if an audit after one year shows that the company has been profitable. This would take longer than a year to perform. Rationale  Yes, because the contract was for $500 or more. The $500 provision is in the Uniform Commercial Code for a sale of goods. Rationale  No, because the company was profitable as agreed for one year. Despite the actual profitability, the contract could not be completed within one year of the making of the contract. Rationale  No, because Picks Company relied on Cherry's promise. Although promissory estoppel may be used in the absence of a writing, there are not the facts sufficient to show promissory estoppel.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 31/100 Question 31 tb.exempt.trans.006_0718 Lesson Reference: Exempt Transactions and Securities Difficulty: medium Bloom Code: 3 The Salmon Croquette Corporation (SCC) is investigating an offering under Rule 147A. Which of the following will its lawyers learn once they have completed their research? SCC will not be allowed to use Rule 147A if it is an investment company. SCC may not use general advertising to sell its securities under Rule 147A. SCC must be incorporated in the state where it intends to hold the Rule 147A offering. The shares SCC sells will not be burdened by any resale restrictions. Rationale  SCC will not be allowed to use Rule 147A if it is an investment company. Correct! Although most in-state issuers may use Rule 147A, investment companies cannot. Rationale  SCC may not use general advertising to sell its securities under Rule 147A. Incorrect. Although general solicitation may not be used under Rule 147, it may be used under Rule 147A. However, issuers must be careful not to sell securities to nonresidents. Rationale  SCC must be incorporated in the state where it intends to hold the Rule 147A offering. Incorrect. SCC must have its principal place of business in the state where it intends to hold the offering. It may also be incorporated there, but it need not be. Rationale  The shares SCC sells will not be burdened by any resale restrictions. Incorrect. Rule 147A investors may not resell the exempt securities to nonresidents for at least six months.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 32/100 Question 32 AICPA.950525REG-BL Lesson Reference: Defining Performance and Breach Difficulty: easy Bloom Code: 3 Ordinarily, in an action for breach of a construction contract, the statute of limitations time period would be computed from the date the Contract is negotiated. Contract is breached. Construction is begun. Contract is signed. Rationale  Contract is negotiated. The statute of limitations will begin to run when a cause of action accrues. In this example, that is when the contract is breached. Rationale  Contract is breached. The statute of limitations will begin to run when a cause of action accrues. In this example, that is when the contract is breached. Rationale  Construction is begun. The statute of limitations will begin to run when a cause of action accrues. In this example, that is when the contract is breached. Rationale  Contract is signed. The statute of limitations will begin to run when a cause of action accrues. In this example, that is when the contract is breached.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 33/100 Question 33 AICPA.REG.purp.req.pay-0019 Lesson Reference: Purposes, Requirements and Provisions of the 1934 Act Difficulty: medium Under the Section 10(b) Rule 10b-5 antifraud provisions of the Securities Exchange Act of 1934, which of the following conditions must a plaintiff prove to recover damages from an accountant? The plaintiff is in privity of contract with the accountant. The plaintiff relied on the accountant's intentional misstatement of material facts. The plaintiff is free from contributory negligence. The accountant acted without due diligence. Rationale  The plaintiff is in privity of contract with the accountant. Incorrect. Privity of contract is not a requirement for a successful 10b-5 suit. Investors may under the proper circumstances sues lawyers, accountants, officers, directors, and all sorts of defendants whom they did not purchase shares from. Rationale  The plaintiff relied on the accountant's intentional misstatement of material facts. CORRECT! Section 10(b)/Rule 10b-5 are fraud provisions; they do not remedy mere negligence. Rationale  The plaintiff is free from contributory negligence. Incorrect. Because Section 10(b)/Rule 10b-5 are fraud provisions, mere carelessness by a plaintiff does not provide a defense. Rationale  The accountant acted without due diligence. Incorrect. Accountants are not liable under Section 10(b)/Rule 10b-5 for merely acting carelessly.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 34/100 Question 34 BSTR-0105 Lesson Reference: Financial Structure Difficulty: medium Under the Revised Model Business Corporation Act, which of the following dividends is not defined as a distribution? Cash dividends. Property dividends. Liquidating dividends. Stock dividends. Rationale  Cash dividends. This answer is incorrect because it is defined as a distribution under the Act. Rationale  Property dividends. This answer is incorrect because it is defined as a distribution under the Act. Rationale  Liquidating dividends. This answer is incorrect because it is defined as a distribution under the Act. Rationale  Stock dividends. This answer is correct. A stock dividend is not defined as a distribution under the Revised Model Business Corporation Act.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 35/100 Question 35 BSTR-0060 Lesson Reference: Formation Difficulty: medium Under the Revised Model Business Corporation Act, which of the following items of information should be included in a corporation’s Articles of Incorporation (charter)? Name and address of each preincorporation subscriber. Number of shares authorized. Name and address of the corporation’s promoter. Election of either C corporation or S corporation status. Rationale  Name and address of each preincorporation subscriber. This answer is incorrect because the name and address of each incorporator should be included, not the name and address of each preincorporation subscriber. Rationale  Number of shares authorized. This answer is correct because the Articles of Incorporation should include the number of shares authorized. Rationale  Name and address of the corporation’s promoter. This answer is incorrect because the name and address of the registered agent of the corporation should be included, not the name and address of the corporation’s promoter. Rationale  Election of either C corporation or S corporation status. This answer is incorrect because the election of C or S corporation status is a federal tax election.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 36/100 Question 36 FEDE-0014B Lesson Reference: Exempt Transactions and Securities Difficulty: medium Under Regulation D of the Securities Act of 1933, which of the following conditions apply to private placement offerings? The securities Cannot be sold for longer than a six-month period. Cannot be the subject of an immediate unregistered reoffering to the public. Must be sold to accredited institutional investors. Must be sold to fewer than twenty nonaccredited investors. Rationale  Cannot be sold for longer than a six-month period. There is no such restriction of sale. Rationale  Cannot be the subject of an immediate unregistered reoffering to the public. The private placement exemption permits sales of an unlimited number of securities for any dollar amount when sold to accredited investors. This exemption also allows sales to up to 35 nonaccredited investors if they are also sophisticated investors under the Act. Resales of these securities are restricted to six months after the date that the issuer sells the last of the securities. Rationale  Must be sold to accredited institutional investors. Sales may be made to an unlimited number of accredited investors and up to 35 nonaccredited investors. Rationale  Must be sold to fewer than twenty nonaccredited investors. Sales can be made to up to 35 nonaccredited investors.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 37/100 Question 37 AICPA.100993REG-SIM Lesson Reference: Internal Revenue Code and Regulations Related to Tax Return Preparers Difficulty: medium Bloom Code: 2 Under which of the following scenarios will Jenny be in trouble under Section 6713's confidentiality provisions? When she sells a celebrity client's confidential tax information to a tabloid newspaper. When she discloses a rich client's confidential tax information pursuant to court order. When she shows several of her clients' tax returns to another accountant performing a peer review of Jenny's firm. All of the above. Rationale  When she sells a celebrity client's confidential tax information to a tabloid newspaper. This is an improper disclosure of the client's confidential information and will violate 6713 (as well as 7216). Rationale  When she discloses a rich client's confidential tax information pursuant to court order. TRPs must comply with court orders and to do so will not violate 6713 (or 7216) any more than it would violate confidentiality responsibilities under the Code of Professional Conduct. Rationale  When she shows several of her clients' tax returns to another accountant performing a peer review of Jenny's firm. TRPs may disclose for purposes of peer reviews and to do so will not violate 6713 (or 7216) any more than it would violate confidentiality responsibilities under the Code of Professional Conduct. Rationale  All of the above. If B and C are incorrect, D is necessarily incorrect as well.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 38/100 Question 38 AICPA.950529REG-BL Lesson Reference: Prebankruptcy Options, and Introduction to and Declaration of Bankruptcy Difficulty: medium Bloom Code: 2 Dart Inc., a closely held corporation, was petitioned involuntarily into bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. Dart contested the petition. Dart has not been paying its business debts as they became due, has defaulted on its mortgage loan payments, and owes back taxes to the IRS. The total cash value of Dart's bankruptcy estate after the sale of all assets and payment of administration expenses is $100,000. Dart has the following creditors: - Fracon Bank is owed $75,000 principal and accrued interest on a mortgage loan secured by Dart's real property. The property was valued at and sold, in bankruptcy, for $70,000. - The IRS has a $12,000 recorded judgment for unpaid corporate income tax. - JOG Office Supplies has an unsecured claim of $3,000 that was timely filed. - Nanstar Electric Co. has an unsecured claim of $1,200 that was not timely filed. - Decoy Publications has a claim of $14,000, of which $2,000 is secured by Dart's inventory that was valued and sold, in bankruptcy, for $2,000. The claim was timely filed. Which of the following statements would correctly describe the result of Dart's opposing the petition? Dart will win because the petition should have been filed under Chapter 11. Dart will win because there are not more than 12 creditors. Dart will lose because it is not paying its debts as they become due. Dart will lose because of its debt to the IRS. Rationale  Dart will win because the petition should have been filed under Chapter 11. When debts are not paid as they become due, a Chapter 7 involuntary bankruptcy is perfectly appropriate. In addition to those who cannot file a voluntary petition, only two classes of persons or businesses are protected from involuntary bankruptcy proceedings: farmers and charitable institutions. Rationale  Dart will win because there are not more than 12 creditors. There is no requirement that there be more than 12 creditors. So long as the creditors filing a petition have $13,425 or more in unsecured claims, a petition may be validly filed. Rationale  Dart will lose because it is not paying its debts as they become due. A challenge will fail if debts are not paid as they become due. It will also fail if a receiver was appointed to take control of the debtor's property within 120 days prior to the filing of the involuntary petition. Rationale  Dart will lose because of its debt to the IRS. A debt to the IRS does not necessarily have this effect. The keys are whether petitioners have $13,425 or more in unsecured debts and whether debts are generally paid as they become due.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 39/100 Question 39 AICPA.REG.rights.duties-0020 Lesson Reference: Rights and Duties Difficulty: medium Peters owned 500 shares of common stock in Kidsmart, Inc. Accordingly, Peters had the right to Automatically receive a dividend in any quarter in which the corporation made a profit. Inspect the corporate records on demand. Vote for the election and removal of the board of directors. Vote for and remove the corporate officers and set their compensation. Rationale  Automatically receive a dividend in any quarter in which the corporation made a profit. Incorrect. Common stock does not carry any automatic right to receive dividends, and the decision whether to pay dividends in a quarter in which the corporation made a profit is within the discretion of the board of directors. Rationale  Inspect the corporate records on demand. Incorrect. Shareholders have inspection rights, but these are not automatic and upon demand. Rationale  Vote for the election and removal of the board of directors. CORRECT! The shareholder franchise allows owners of a corporation to vote for the election and removal of the board of directors (but not of the officers, who are chosen by and serve at the pleasure of the board). Rationale  Vote for and remove the corporate officers and set their compensation. Incorrect. Shareholders do not play a director role in the hiring and firing of officers, nor in the setting of their compensation.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 40/100 Question 40 PLR-0058B Lesson Reference: Regulations Governing Practice Before the Internal Revenue Service Difficulty: medium Which of the following acts by a CPA will not result in a CPA incurring an IRS penalty? Failing, without reasonable cause, to provide the client with a copy of an income tax return. Failing, without reasonable cause, to sign a client's tax return as preparer. Understating a client's tax liability as a result of an error in calculation. Negotiating a client's tax refund check when the CPA prepared the tax return. Rationale  Failing, without reasonable cause, to provide the client with a copy of an income tax return. IRC §6695(a) imposes a $50 penalty upon income tax return preparers who fail to furnish a copy of the return to the taxpayer. Rationale  Failing, without reasonable cause, to sign a client's tax return as preparer. IRC §6695(b) imposes a $50 penalty upon income tax return preparers who fail to sign a return, unless the failure is due to reasonable cause. Rationale  Understating a client's tax liability as a result of an error in calculation. There is no code section imposing a penalty for the understating of a client's tax liability due to an error in calculation. Rationale  Negotiating a client's tax refund check when the CPA prepared the tax return. IRC §6695(f) imposes a $500 penalty upon income tax return preparers who endorse or otherwise negotiate a client's tax refund checks.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 41/100 Question 41 CONT-0047 Lesson Reference: Writing and Records: The Statute of Frauds Difficulty: medium Walker tells Side that she will hire him for 10 months’ work for $6,000 per month starting 6 months from now. Side accepts. When Side proceeds to work for Walker, Walker refuses, pointing out that their contract was not in writing. Side admits the lack of a written contract but claims they still have an enforceable contract. Who wins? Side because Walker admitted to having an oral contract with Side. Side because the actual employment period is for 6 months, that is, less than 1 year. Walker because this contract needed to be in writing. Walker because this contract was for $6,000 and thus needed to be in writing. Rationale  Side because Walker admitted to having an oral contract with Side. This answer is incorrect because admitting to an oral contract under common law does not make it enforceable under the Statute of Frauds. Rationale  Side because the actual employment period is for 6 months, that is, less than 1 year. This answer is incorrect because the 1-year period begins from the making of the contract. Rationale  Walker because this contract needed to be in writing. This answer is correct. This contract could not be completed until 16 months after the making of the contract. Therefore, it had to be written since it fell under the Statute of Frauds since it could not be completed within 1 year of the making of the contract. Rationale  Walker because this contract was for $6,000 and thus needed to be in writing. This answer is incorrect because under common law the dollar amount is not the issue as it can be under the Uniform Commercial Code.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 42/100 Question 42 FEDE-0038 Lesson Reference: Purposes, Requirements and Provisions of the 1934 Act Difficulty: medium Which of the following statements is(are) correct concerning issuers of securities registered under the Securities Exchange Act of 1934? I. The issuers must have each Form 10-K audited by an independent public accountant. II. The issuers must have each Form 10-Q audited by an independent public accountant. III. The issuers must have each Form 10-Q audited by an independent public accountant except for the fourth fiscal quarter of each of its fiscal years. I only. II only. I and II only. I and III only. Rationale  I only. This answer is correct. The Form 10-K must be audited by an independent public accountant, but the Form 10-Q need not be audited. The Form 10-Q is submitted to the SEC for the first 3 fiscal quarters of the issuer’s fiscal year. Rationale  II only. This answer is incorrect. The Form 10-Q must be reviewed but not audited. Rationale  I and II only. This answer is incorrect. The Form 10-Q must be reviewed but not audited. Rationale  I and III only. This answer is incorrect. The Form 10-Q must be reviewed but not audited.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 43/100 Question 43 aq.termination.002_17 Lesson Reference: Termination Difficulty: hard Amanda is a member of the Ames Network LLC. She has had some conflict with other members of the LLC and is seeking your advice. Please tell Amanda which of the following is true. Agreeing to become the member of an LLC is a very important commitment, and Amanda must remain a member until either she dies or the LLC dissolves. If Amanda seeks to dissolve the LLC and can obtain the agreement of a majority of other LLC members, the LLC will dissolve under the Revised Uniform Limited Liability Company Act (RULLCA). If Amanda can prove that she is a minority member of the LLC and that the members in control of the LLC are looting the LLC's assets for their own personal benefit, she can likely successfully sue for dissolution. Amanda should avoid loaning any money to the LLC, because if it dissolves she cannot possibly get any of that money back. Rationale  Agreeing to become the member of an LLC is a very important commitment, and Amanda must remain a member until either she dies or the LLC dissolves. Incorrect. Amanda's death would cause her to be dissociated as a member, according to the Revised Uniform Limited Liability Company Act (RULLCA). So would the LLC's dissolution. But Amanda may also dissociate simply by giving notice. She also can be dissociated if she is expelled pursuant to the operating agreement. Rationale  If Amanda seeks to dissolve the LLC and can obtain the agreement of a majority of other LLC members, the LLC will dissolve under the Revised Uniform Limited Liability Company Act (RULLCA). Incorrect. This will occur only if the LLC operating agreement provides that majority agreement authorizes dissolution. In the absence of such a provision in the operating agreement, the RULLCA requires consent of all members for dissolution. Other causes of dissolution include passage of 90 days without any members and court orders of dissolution based on it not being reasonably practicable to operate in conformity with the operating agreement or if those in control of the company are acting fraudulent or oppressively. Rationale  If Amanda can prove that she is a minority member of the LLC and that the members in control of the LLC are looting the LLC's assets for their own personal benefit, she can likely successfully sue for dissolution. Correct! The Revised Uniform Limited Liability Company Act (RULLCA) provides for dissolution via court order if a member sues and shows that those in control are behaving illegally, fraudulently, or oppressively. Rationale  Amanda should avoid loaning any money to the LLC, because if it dissolves she cannot possibly get any of that money back. Incorrect. The Revised Uniform Limited Liability Company Act (RULLCA) contains detailed provisions regarding winding up a dissolving LLC's business. These provisions include gathering together its assets and paying its obligations to creditors, including members who are creditors.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 44/100 Question 44 CONT-0083 Lesson Reference: Defining Performance and Breach Difficulty: medium Meek & Co., CPAs, was engaged by Reed, the president of Sulk Corp., to issue by June 15, year 1, an opinion on Sulk’s financial statements for the fiscal year ended March 31, year 1. Meek’s engagement and its fee of $20,000 were approved by Sulk’s board of directors. Meek did not issue its opinion until June 30 because of Sulk’s failure to supply Meek with the necessary information to complete the audit. Sulk refuses to pay Meek. If Meek sues Sulk, Meek will Prevail based on the contract. Prevail based on the quasi contract. Lose, since it breached the contract. Lose, since the June 15 deadline was a condition precedent to Sulk’s performance. Rationale  Prevail based on the contract. This answer is correct. Meek & Co., CPAs, and Sulk Corp. have entered into a valid contract which required that Meek issue an opinion by June 15, year 1. However, Meek did not breach its contract due to failure to perform by the agreed-upon date because the alleged breach was caused by Sulk’s failure to provide Meek with the necessary information. In every contract there is an implied agreement that the parties to the contract will not interfere with or hinder the other party’s performance. Rationale  Prevail based on the quasi contract. This answer is incorrect. A quasi contract is an implied-in-law rather than express agreement which results when one of the parties has been unjustly enriched at the expense of the other. The law creates such a contract when there is no binding agreement present to keep the unjust enrichment from occurring. In this case, Meek and Sulk have entered into a valid contract which would be binding on both parties. Rationale  Lose, since it breached the contract. This answer is incorrect. Meek did not breach the contract due to failure to perform by the agreed-upon date because the alleged breach was caused by Sulk’s failure to provide Meek with the necessary information. Rationale  Lose, since the June 15 deadline was a condition precedent to Sulk’s performance. This answer is incorrect. The condition is only effective as long as Sulk does not interfere with Meek’s ability to perform. Actually Sulk’s supplying the necessary information would be a condition precedent to Meek’s duty to perform.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 45/100 Question 45 SECU-0004B Lesson Reference: Perfection of Security Interests Difficulty: medium Perfection of a security interest permits the secured party to protect its interest by Avoiding the need to file a financing statement. Preventing another creditor from obtaining a security interest in the same collateral. Establishing priority over the claims of most subsequent secured creditors. Denying the debtor the right to possess the collateral. Rationale  Avoiding the need to file a financing statement. There are three methods of obtaining perfection and one of them is filing a financing statement. Rationale  Preventing another creditor from obtaining a security interest in the same collateral. Subsequent creditors may still obtain security interests in the same collateral although they will normally obtain a lower priority. Rationale  Establishing priority over the claims of most subsequent secured creditors. Perfection of a security interest is important in that it establishes for a secured party priority over the claims that may be made by most subsequent secured creditors. Rationale  Denying the debtor the right to possess the collateral. Incorrect because of times the debtor retains possession of the collateral.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 46/100 Question 46 aq.consideration.005_0818 Lesson Reference: Contracts: Consideration Difficulty: medium Bloom Code: 2 Riley Snow is having his bathroom remodeled. The total cost of the remodeling is $11,000, as described in the contract Riley had negotiated with Marble Baths, Inc. Shortly after Marble Baths began work on the bathroom, the supervisor discovered significant problems with Riley's plumbing. Plumbing repair was not part of the remodeling contract. Marble Baths told Riley that there would be an additional $2,500 cost for the remodeling because of the problems with the plumbing. Marble Baths told Riley that without the repairs, he would risk water damage and mold in the bathroom. Which of the following is correct about Riley's rights? The demand for the additional $2,500 is enforceable if Riley agrees to it. The demand for the additional $2,500 is not enforceable because Marble Baths has no new detriment to support the modification of the price. The demand for the additional $2,500 constitutes duress and would be unenforceable. Riley could agree and then claim duress as a defense to performing on the contract. Rationale  The demand for the additional $2,500 is enforceable if Riley agrees to it. Correct! Under common law (services), a modification of a contract for more consideration is enforceable if both sides are experiencing new detriment. Here, Riley has detriment of additional cost, but Marble has detriment of additional work. Rationale  The demand for the additional $2,500 is not enforceable because Marble Baths has no new detriment to support the modification of the price. Incorrect. There is new detriment—the repair of the plumbing, which was not part of the original contract. Rationale  The demand for the additional $2,500 constitutes duress and would be unenforceable. Incorrect. Riley still has a choice, but there is no duress in a contractor disclosing the need for additional repairs and the risk of not making those repairs. Rationale  Riley could agree and then claim duress as a defense to performing on the contract. Incorrect. If Riley agrees (and he does not have to), then the modification is enforceable because there is new detriment on both sides and the elements of duress are not present—there is no threat of force.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 47/100 Question 47 AICPA.930548REG-BL Lesson Reference: Perfection of Security Interests Difficulty: easy Bloom Code: 2 Which of the following transactions would illustrate a secured party perfecting its security interest by taking possession of the collateral? A bank receiving a mortgage on real property. A wholesaler borrowing to purchase inventory. A consumer borrowing to buy a car. A pawnbroker lending money. Rationale  A bank receiving a mortgage on real property. One method of perfecting an interest is by taking physical possession of it. A bank does not take physical possession of a home when it receives a mortgage; it simply receives rights in the house if mortgage payments are not made. Rationale  A wholesaler borrowing to purchase inventory. One method of perfecting an interest is by taking physical possession of it. In this case, taking possession of the purchased inventory is impractical. Rationale  A consumer borrowing to buy a car. One method of perfecting an interest is by taking physical possession of it. In this case, taking possession is impractical because it denies the buyer the purpose of buying the car. Rationale  A pawnbroker lending money. One method of perfecting an interest is by taking physical possession of it. When a pawnbroker lends money, s/he takes physical possession of the collateral for sale if the loan is not repaid according to the terms of the loan agreement.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 48/100 Question 48 AICPA.901113REG-BL Lesson Reference: Authority of Owners and Managers Difficulty: medium Bloom Code: 3 Acorn and Bean are general partners in a farm machinery business. Acorn contracts, on behalf of the partnership, to purchase ten tractors from Cobb Corp. Unknown to Cobb, Acorn is not authorized by the partnership agreement to make such contracts. Bean refuses to allow the partnership to accept delivery of the tractors and Cobb seeks to enforce the contract. Cobb will Lose, because Acorn's action was beyond the scope of Acorn's implied authority. Prevail, because Acorn had implied authority to bind the partnership. Prevail, because Acorn had apparent authority to bind the partnership. Lose, because Acorn's express authority was restricted, in writing, by the partnership agreement. Rationale  Lose, because Acorn's action was beyond the scope of Acorn's implied authority. This answer is incorrect, because buying tractors for inventory is what a farm machinery business does. Such action is clearly within the scope of implied authority. However (as noted in the next answer), by express agreement the partners can limit implied authority as they did here. Rationale  Prevail, because Acorn had implied authority to bind the partnership. This answer is incorrect, because Cobb will prevail, but not because of implied authority. Implied authority is the authority to take action to carry out express orders. There cannot be implied authority if it is not based on express authority. Cobb will win, because Acorn had apparent authority. Rationale  Prevail, because Acorn had apparent authority to bind the partnership. This answer is correct, as Cobb will win because Acorn had apparent authority. This exists whenever a third party reasonably believes that the partner has authority to sign a contract. Cobb's belief was perfectly reasonable, as one can assume that a partner is authorized to perform normal business activities, such as purchasing equipment, for a partnership. Rationale  Lose, because Acorn's express authority was restricted, in writing, by the partnership agreement. This answer is incorrect, because, even in the absence of express authority, apparent authority can exist and did here because the facts stipulate that Cobb was unaware of the limitation to Acorn's authority. Cobb's reliance on that apparent authority was reasonable, since this is the type of action that a partner in such a business would typically have the authority to take.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 49/100 Question 49 FEDE-0007 Lesson Reference: The Registration Process Difficulty: medium Unless an exemption applies to an offering of securities, the Securities Act of 1933 requires preparation and filing of a Registration statement Prospectus Yes Yes Yes No No Yes No No Rationale  Yes Yes This answer is correct because in attempting to assure that potential investors are provided with all material information needed to make a prudent investment decision, the Securities Act of 1933 requires issuers to file both a registration statement and a prospectus. Rationale  Yes No This answer is incorrect because the Securities Act of 1933 requires preparation and filing of both a registration statement and a prospectus. Rationale  No Yes This answer is incorrect because the Securities Act of 1933 requires preparation and filing of both a registration statement and a prospectus. Rationale  No No This answer is incorrect because the Securities Act of 1933 requires preparation and filing of both a registration statement and a prospectus.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 50/100 Question 50 FEDE-0024B Lesson Reference: Purposes, Requirements and Provisions of the 1934 Act Difficulty: medium The Securities Exchange Commission promulgated Rule 10b-5 from power it was given the Securities Exchange Act of 1934. Under this rule, it is unlawful for any person to use a scheme to defraud another in connection with the Purchase of any security Sale of any security Yes Yes Yes No No Yes No No Rationale  Yes Yes Under Rule 10b-5, it is unlawful to use schemes to defraud in connection with the purchase or sale of any security. Note that this rule was made from powers given the SEC under the Securities Exchange Act of 1934, which applies to purchases in addition to sales of securities. Rationale  Yes No Under Rule 10b-5, it is unlawful to use schemes to defraud in connection with the purchase or sale of any security. Rationale  No Yes Under Rule 10b-5, it is unlawful to use schemes to defraud in connection with the purchase or sale of any security. Rationale  No No Under Rule 10b-5, it is unlawful to use schemes to defraud in connection with the purchase or sale of any security.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 51/100 Question 51 AICPA.101026REG-SIM Lesson Reference: Privileged Communications, Confidentiality, and Privacy Acts Difficulty: medium Bloom Code: 2 Girard gave tax advice to Frontenac Corporation. The Department of Justice and IRS are now investigating certain tax shelter transactions that Frontenac Corp. entered into. Girard is resisting their requests for information by citing the tax practitioner's privilege of §7525 of the I.R.C. To which of the following would that privilege be inapplicable? Criminal proceedings. Written advice in connection with promotion of a tax shelter. A and B. None of the above. Rationale  Criminal proceedings. This answer is accurate, because criminal proceedings are an exception, but it is not the best choice because B is also accurate. Rationale  Written advice in connection with promotion of a tax shelter. This answer is accurate, because written advice in connection with promotion of tax shelters constitutes an exception, but it is not the best choice because A is also accurate. Rationale  A and B. Because §7525 applies to neither criminal proceedings nor written advice in connection with tax shelters, this is the best answer. Rationale  None of the above. Because §7525 applies to neither criminal proceedings nor written advice in connection with tax shelters, this answer is incorrect.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 52/100 Question 52 AGEN-0005B Lesson Reference: Tort Liability of Agents and Principals Difficulty: medium Pine, an employee of Global Messenger Co., was hired to deliver highly secret corporate documents for Global's clients throughout the world. Unknown to Global, Pine carried a concealed pistol. While Pine was making a delivery, he suspected an attempt was being made to steal the package, drew his gun and shot Kent, an innocent passerby. Kent will not recover damages from Global if Global discovered that Pine carried a weapon and did nothing about it. Global instructed its messengers not to carry weapons. Pine was correct and an attempt was being made to steal the package. Pine's weapon was unlicensed and illegal. Rationale  Global discovered that Pine carried a weapon and did nothing about it. If the employer did nothing to instruct the employee about the use of the weapon, this could help establish negligence on the part of the employer and would not prevent the use of the doctrine of respondeat superior, which makes employers liable for the tortious acts of their employees within the scope of the employment. Rationale  Global instructed its messengers not to carry weapons. The employer is liable for torts of the employee committed within the course and scope of the employment even if the employee was violating the employer's instructions Rationale  Pine was correct and an attempt was being made to steal the package. Even if the employee's suspicions were correct, the shooting of an innocent passerby should establish at least negligence for which the em-ployer and the employee are liable. Rationale  Pine's weapon was unlicensed and illegal. In general, the employer is not responsible for the crimes of the employee unless the employer aided or permitted the illegal activity, even if the activity was within the scope of the employment.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 53/100 Question 53 CONT-0010B Lesson Reference: Writing and Records: The Statute of Frauds Difficulty: medium Joan Silver had viewed some land that she wished to purchase. It was offered for sale by Daniel Tweney over the Internet for $200,000. Silver believes this to be a good deal for her and thus wishes to purchase it. Silver and Tweney have communicated online and wish to make a contract for the land over the Internet. Which of the following statements is (are) correct? I. Because this contract is covered by the Statute of Frauds, this contract cannot be accomplished over the Internet. II. Because of the parol evidence rule, this contract cannot be completed over the Internet. III. Because this contract is covered by the Uniform Commercial Code, it may not be accomplished over the Internet. Only I is correct. I and II only are correct. I and III only are correct. Neither I, II, nor III is correct. Rationale  Only I is correct. Even though this contract falls under the Statute of Frauds and, therefore, generally must be written and signed, most states have passed laws allowing contracts to be made over the Internet to facilitate commerce. The statutes encourage technology to overcome concerns over authenticity of such contracts. Rationale  I and II only are correct. The parol evidence rule does not specify when a contract must be written and signed. Rationale  I and III only are correct. A sale of land is governed by common law rules and not the UCC. Rationale  Neither I, II, nor III is correct. Even though this contract falls under the Statute of Frauds and, therefore, generally must be written and signed, most states have passed laws allowing contracts to be made over the Internet to facilitate commerce. The statutes encourage technology to overcome concerns over authenticity of such contracts.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 54/100 Question 54 BANK-0045_2-18 Lesson Reference: Bankruptcy Process Difficulty: medium On April 1, Roe borrowed $100,000 from Jet to pay Roe’s business expenses. On June 15, Roe gave Jet a signed security agreement and financing statement covering Roe’s inventory. Jet immediately filed the financing statement. On July 1, Roe filed for bankruptcy. Under the Bankruptcy Code, can Roe’s trustee in bankruptcy set aside Jet’s security interest in Roe’s inventory? Yes, because a security agreement may only cover goods actually purchased with the borrowed funds. Yes, because Roe giving the security interest to Jet created a voidable preference. No, because the security interest was perfected before Roe filed for bankruptcy. No, because the loan proceeds were used for Roe’s business. Rationale  Yes, because a security agreement may only cover goods actually purchased with the borrowed funds. This answer is incorrect because laws concerning security agreements do not have that stated limitation. Rationale  Yes, because Roe giving the security interest to Jet created a voidable preference. This answer is correct since preferential transfers include those made within the previous ninety days while insolvent and include those made for antecedent debts including a security interest given by a debtor to secure antecedent debts. Rationale  No, because the security interest was perfected before Roe filed for bankruptcy. This answer is incorrect because security interests given by debtors to secure antecedent debts may be set aside by the trustee in bankruptcy when given within the previous ninety days. Rationale  No, because the loan proceeds were used for Roe’s business. This answer is incorrect because security agreement laws are not limited because the loan proceeds were used for Roe’s business.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 55/100 Question 55 SECU-0012 Lesson Reference: Perfection of Security Interests Difficulty: medium The Town Bank makes collateralized loans to its customers at 1% above prime on certified securities owned by the customer, subject to existing margin requirements. In doing so, which of the following is correct? Notification of the issuer is necessary in order to perfect a security interest. Filing is a permissible method of perfecting a security interest in the securities if the circumstances dictate. Any dividend or interest distributions during the term of the loan belong to the bank. A perfected security interest in the securities can only be obtained by possession. Rationale  Notification of the issuer is necessary in order to perfect a security interest. This answer is incorrect. There is no need to notify the issuer in order to perfect a security interest in securities. Rationale  Filing is a permissible method of perfecting a security interest in the securities if the circumstances dictate. This answer is correct. Although most parties perfect securities and instruments through possession or control, filing will also perfect a security interest in securities. Rationale  Any dividend or interest distributions during the term of the loan belong to the bank. This answer is incorrect. Dividends and interest earned during the secured transaction are the property of the debtor. Rationale  A perfected security interest in the securities can only be obtained by possession. This answer is incorrect. A perfected security interest in certified securities can only be obtained by possession, control, or filing.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 56/100 Question 56 AICPA.950517REG-BL Lesson Reference: Contracts: Defenses to Formation Difficulty: medium Bloom Code: 3 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? 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. Rationale  Not liable because the contractor knew of the errors. Usually, a unilateral mistake is not a defense to contractual liability. However, when the error is computational and the other party knew or should have known of the error, it may be used as a defense. Rationale  Not liable because the errors were a result of gross negligence. Computational errors do not amount to gross negligence. Furthermore, the degree of negligence is not a factor in whether unilateral mistakes may be used as a defense. The nature of the error and knowledge of the general contractor are the keys. Rationale  Liable because the errors were unilateral. The fact that this was a unilateral mistake does not necessarily prohibit the subcontractor from escaping liability. When the error is computational and the other party knew or should have known of the error, the subcontractor may escape liability. Rationale  Liable because the errors were material. Whether the errors were material is not a factor in whether unilateral mistakes may be used as a defense. The nature of the error and knowledge of the general contractor are the keys.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 57/100 Question 57 aq.aca.0007 Lesson Reference: Affordable Care Act Difficulty: hard Under his health care plan, Tran has a deductible of $1,200, a coinsurance of 20%, and an out-of-pocket limit that matches the federal maximum of $6,850 (in 2016). Tran has significant surgery for which his bill is $5,000, hospitalization for which his bill is $40,000, and home health care after he leaves the hospital which comes to $4,000. How much of the hospital bill will Tran pay, assuming he pays the three bills in the order mentioned? $40,000 $6,850 $3,425 $4,890 Rationale  $40,000 Choice a: Incorrect. Certainly Tran will not pay the entire bill. Rationale  $6,850 Choice b: Incorrect. This number is the federal maximum expense for Tran for the year, but for him to pay this amount; he would have had to make no payment on the surgery bill, which is unrealistic. Rationale  $3,425 Choice c: Incorrect. This is just a number that is one-half of the federal maximum. Rationale  $4,890 Choice d: Correct! And here's why. Tran first pays for the surgery–$1,200 for the deductible and then the co-pay which is 20% × $3800 ($5,000 cost − $1,200 deductible) which is $760. So far, he has paid $1,960 ($1,200 + $760), which is less that the maximum. Then Tran turns to the hospital bill. His deductible has been exhausted, so he would pay, absent the ceiling, coinsurance of 20% of $40,000, or $8,000. However, this puts him well over the maximum. He would pay only $6,850 (the maximum) minus $1,960 (the amount he has already paid), which comes to $4,890. The health insurer will pay the other $35,110 ($40,000 − $4,890). And it will pay the entire cost of the home health care ($4,000) and all of the rest of Tran's essential medical care expenses for the rest of the year.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 58/100 Question 58 AICPA.931159REG-BL Lesson Reference: Perfection of Security Interests Difficulty: medium Bloom Code: 2 Grey Corp. sells computers to the public. Grey sold and delivered a computer to West on credit. West executed and delivered to Grey a promissory note for the purchase price and a security agreement covering the computer. West purchased the computer for personal use. Grey did not file a financing statement. Is Grey's security interest perfected? Yes, because Grey retained ownership of the computer. Yes, because it was perfected at the time of attachment. No, because the computer was a consumer good. No, because Grey failed to file a financing statement. Rationale  Yes, because Grey retained ownership of the computer. Filing is not necessary to perfect this security interest, because Grey has a purchase money security interest (PMSI) in the computer to be used for personal use (a consumer good). A PMSI arises when a creditor extends credit that is used to purchase the collateral, as a consumer good, which is the computer in this security agreement. A PMSI is perfected automatically at the time the interest attaches. Grey did not retain ownership of the computer. Rationale  Yes, because it was perfected at the time of attachment. Filing is not necessary to perfect this security interest, because Grey has a purchase money security interest (PMSI) in the computer to be used for personal use (a consumer good). A PMSI arises when a creditor extends credit that is used to purchase the collateral, as a consumer good, which is the computer in this security agreement. A PMSI is perfected automatically at the time the interest attaches. Rationale  No, because the computer was a consumer good. Filing is not necessary to perfect this security interest, because Grey has a purchase money security interest (PMSI) in the computer to be sued for personal use (a consumer good). A PMSI arises when a creditor extends credit that is used to purchase the collateral, as a consumer good, which is the computer in this security agreement. A PMSI is perfected automatically at the time the interest attaches. The fact that the computer is a consumer good is irrelevant. Any good can be the subject of a PMSI. Rationale  No, because Grey failed to file a financing statement. Filing is not necessary to perfect this security interest, because Grey has a purchase money security interest (PMSI) in the computer to be used for personal use (a consumer good). A PMSI arises when a creditor extends credit that is used to purchase the collateral, as a consumer good, which is the computer in this security agreement. A PMSI is perfected automatically at the time the interest attaches.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 59/100 Question 59 AICPA.060652REG Lesson Reference: Exempt Transactions and Securities Difficulty: easy Bloom Code: 2 Which of the following securities is exempt from registration under the Securities Act of 1933? Municipal bonds. Securities sold by a discount broker. Pre-incorporation stock subscriptions. One-year notes issued to raise working capital. Rationale  Municipal bonds. Governmental securities are exempt from registration under the 1933 Act. Rationale  Securities sold by a discount broker. Securities sold by a discount broker are not exempt from registration under the 1933 Act. Rationale  Pre-incorporation stock subscriptions. Pre-incorporation stock certificates are not exempted under the 1933 Act. Rationale  One-year notes issued to raise working capital. One-year notes issued to raise working capital are not exempted from registration under the 1933 Act.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 60/100 Question 60 CONT-0017B Lesson Reference: Contracts: Discharge of Performance Difficulty: medium 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 Lose, because it could have purchased potatoes from other growers to deliver to LBC. Lose, unless it can show that the purchase of substitute potatoes for delivery to LBC would make the contract unprofitable. Win, because the infestation was an act of nature that could not have been anticipated by Maco. Win, because both Maco and LBC are assumed to accept the risk of a crop failure. Rationale  Lose, because it could have purchased potatoes from other growers to deliver to LBC. Events occurring after a contract is entered into usually do not affect performance. Some exceptions to this rule include subsequent illegality of the performance, death of a party, or destruction of the subject matter, all of which constitute impossibility of performance. In this case, even though Maco's own potatoes were destroyed, it wasn't specified that Maco's own potato crop be used to fulfill the contract. It was not impossible, therefore, for Maco to perform, because he could have purchased potatoes from another grower to deliver to LBC. If there had been a worldwide infestation of the potato crop, Maco would have reason to not perform on the basis of impossibility. Rationale  Lose, unless it can show that the purchase of substitute potatoes for delivery to LBC would make the contract unprofitable. Events occurring after a contract is entered into usually do not affect performance. Some exceptions to this rule include subsequent illegality of the performance, death of a party, or destruction of the subject matter, all of which constitute impossibility of performance. In this case, even though Maco's own potatoes were destroyed, it wasn't specified that Maco's own potato crop be used to fulfill the contract. It was not impossible, therefore, for Maco to perform, because he could have purchased potatoes from another grower to deliver to LBC. If there had been a worldwide infestation of the potato crop, Maco would have reason to not perform on the basis of impossibility. Rationale  Win, because the infestation was an act of nature that could not have been anticipated by Maco. Events occurring after a contract is entered into usually do not affect performance. Some exceptions to this rule include subsequent illegality of the performance, death of a party, or destruction of the subject matter, all of which constitute impossibility of performance. In this case, even though Maco's own potatoes were destroyed, it wasn't specified that Maco's own potato crop be used to fulfill the contract. It was not impossible, therefore, for Maco to perform, because he could have purchased potatoes from another grower to deliver to LBC. If there had been a worldwide infestation of the potato crop, Maco would have reason to not perform on the basis of impossibility. Rationale  Win, because both Maco and LBC are assumed to accept the risk of a crop failure. Events occurring after a contract is entered into usually do not affect performance. Some exceptions to this rule include subsequent illegality of the performance, death of a party, or destruction of the subject matter, all of which constitute impossibility of performance. In this case, even though Maco's own potatoes were destroyed, it wasn't specified that Maco's own potato crop be used to fulfill the contract. It was not impossible, therefore, for Maco to perform, because he could have purchased potatoes from another grower to deliver to LBC. If there had been a worldwide infestation of the potato crop, Maco would have reason to not perform on the basis of impossibility.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 61/100 Question 61 AICPA.090595REG_2-18 Lesson Reference: Introduction and Creation of Security Interests Difficulty: medium Bloom Code: 3 Under the Secured Transactions Article of the UCC, all of the following are needed to create enforceable security interest except A security agreement must exist. The secured party must give value. The debtor must have rights in the collateral. A financing statement must be filed. Rationale  A security agreement must exist. Incorrect. This is a requirement to create an enforceable security interest. Rationale  The secured party must give value. Incorrect. This is a requirement to create an enforceable security interest. Rationale  The debtor must have rights in the collateral. Incorrect. This is a requirement to create an enforceable security interest. Rationale  A financing statement must be filed. Correct! Unless the collateral is in the possession of the secured party, there must be a written or authenticated security agreement (describing the collateral), the secured party must give the debtor something of value, and the debtor must have rights in the collateral. Thus, A, B, and C are requirements to create an enforceable security interest. Perfection (by filing) is merely a means which gives third parties notice of the secured party's priority interest in case of debtor default and not a requirement to create the security interest.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 62/100 Question 62 PLR-0005 Lesson Reference: Licensing and Disciplinary Systems Difficulty: medium Which of the following is(are) true concerning internal auditors? I. Internal auditors must be independent from the entire corporation or entity they are auditing. II Internal auditors must have a CPA license. I only. II only. Neither I nor II. Both I and II. Rationale  I only. This answer is incorrect because internal auditors must be independent of activities they audit since they are employees of the organization they are auditing. Rationale  II only. This answer is incorrect because internal auditors do not need a CPA license but may instead get CIA designation. Rationale  Neither I nor II. This answer is correct. Internal auditors are required to be independent of the activities they are auditing, not the entire firm since they are employees of that firm. Although some internal auditors do hold a CPA license, they are not required to be CPAs. Rationale  Both I and II. This answer is incorrect. Internal auditors do not need a CPA license but may instead get CIA designation.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 63/100 Question 63 BANK-0007_0120 Lesson Reference: Bankruptcy Process Difficulty: medium A bankrupt who has voluntarily filed for and received a discharge in bankruptcy under the liquidation provisions (Ch. 7) Is precluded from owning or operating a similar business for 2 years. Must surrender for distribution to the creditors amounts received as an inheritance if the receipt occurs within 180 days after filing of the petition. Will receive a discharge of any and all debt owed by him as long as he has not committed a bankruptcy offense. Can obtain another voluntary discharge in bankruptcy under Chapter 7 after 5 years have elapsed from the date of the prior filing. Rationale  Is precluded from owning or operating a similar business for 2 years. This answer is incorrect because the bankruptcy provisions do not preclude a bankrupt from owning or operating a similar business for 2 years. Rationale  Must surrender for distribution to the creditors amounts received as an inheritance if the receipt occurs within 180 days after filing of the petition. This answer is correct because a bankrupt’s estate consists of property owned at the time of the filing of the petition and property received by way of inheritance bequest, devise, property settlement with spouse, divorce decree, or life insurance within 6 months after the filing of the petition. An inheritance received 180 days after the filing of the petition must be surrendered for distribution. Rationale  Will receive a discharge of any and all debt owed by him as long as he has not committed a bankruptcy offense. This answer is incorrect because the bankruptcy provisions will not discharge all of a bankrupt’s debts. For example, educational loans, governmental fines and taxes incurred 3 years prior to the filing, and debts arising out of false pretenses are not discharged in bankruptcy. Rationale  Can obtain another voluntary discharge in bankruptcy under Chapter 7 after 5 years have elapsed from the date of the prior filing. This answer is incorrect because a bankrupt cannot obtain another voluntary discharge in bankruptcy under Chapter 7 until 8 years have elapsed from the date of the prior filing.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 64/100 Question 64 AICPA.080911BEC-1A1 Lesson Reference: Rights and Duties Difficulty: medium Bloom Code: 2 Mary buys an interest in the ABC accounting firm and thereby joins Adam, Betty, and Chen as an equal one-fourth partner. Mary thinks the firm's prices are a little high. When an acquaintance consults Mary about having the firm do her personal income tax return, Mary tells her: "Just come over to my house this weekend. I'll do the return for you and charge you only half of what my firm would charge." Which partnership duty, if any, has Mary breached? Duty of care. Duty of loyalty in the form of no competition Duty of loyalty in the form of no disclosure of confidential information. All of the above. Rationale  Duty of care. No carelessness is involved here. Rationale  Duty of loyalty in the form of no competition By taking this potential client away from the business, Mary has breached the duty of loyalty by competing with the firm. Rationale  Duty of loyalty in the form of no disclosure of confidential information. No confidential information is being disclosed. Rationale  All of the above. Because the B choice is correct, the D choice cannot be correct.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 65/100 Question 65 aq.form.off.acc.001_2017 Lesson Reference: Offer and Acceptance Difficulty: hard Bloom Code: 3 Barron offers in writing to sell her 13,000 acre cattle ranch to Reese for $5 million, the offer to remain open until March 15. On March 1, Goad offers Barron $5.8 million for the ranch. Reese hears of this offer on March 11 and faxes his unqualified acceptance of Barron's offer. Barron's offer to Reese Is revoked if Reese, before accepting, learned that Barron has sold the ranch to Goad. Can be withdrawn any time prior to March 15. May be withdrawn only in writing. Cannot be withdrawn since it is a firm offer involving the sale of land. Rationale  Is revoked if Reese, before accepting, learned that Barron has sold the ranch to Goad. Correct. An offer can be withdrawn any time prior to acceptance (unless it is a UCC firm offer or is supported by consideration, as with an option contract). The knowledge of the sale is an effective revocation. Rationale  Can be withdrawn any time prior to March 15. Incorrect. The correct way to state this is "Can be withdrawn any time prior to acceptance or March 15, whichever comesfirst." Rationale  May be withdrawn only in writing. Incorrect. While certain types of contracts have to be in writing, offers and revocations can be withdrawn. Rationale  Cannot be withdrawn since it is a firm offer involving the sale of land. Incorrect. UCC firm offers involve goods, not land.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 66/100 Question 66 BSTR-0053B Lesson Reference: Financial Structure Difficulty: medium Gallagher Corporation issued 100,000 shares of $40 par value stock for $50 per share to various investors. Subsequently, Gallagher purchased back 10,000 of those shares for $30 per share and held them as treasury stock. When the price of the stock recovered somewhat, Gallagher sold this treasury stock to Thomas for $35 per share. Which of the following statements is correct? I. Gallagher's purchase of the stock at below par value is illegal. II. Gallagher's purchase of the stock at below par value is void as an ultra vires act. III. Gallagher's resale of the treasury stock at below par value is valid. I only. II only. III only. I and II only. Rationale  I only. Par value is the minimum amount that a corporation may sell stock initially. Par value does not apply to the corporation's purchase of stock; nor does par value apply to treasury stock. Gallagher originally sold the stock at above par value. Rationale  II only. Par value is the minimum amount that a corporation may sell stock initially. Par value does not apply to the corporation's purchase of stock; nor does par value apply to treasury stock. Gallagher originally sold the stock at above par value. Rationale  III only. Par value is the minimum amount that a corporation may sell stock initially. Par value does not apply to the corporation's purchase of stock; nor does par value apply to treasury stock. Gallagher originally sold the stock at above par value. Rationale  I and II only. Par value is the minimum amount that a corporation may sell stock initially. Par value does not apply to the corporation's purchase of stock; nor does par value apply to treasury stock. Gallagher originally sold the stock at above par value.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 67/100 Question 67 BANK-0002B_0120 Lesson Reference: Prebankruptcy Options, and Introduction to and Declaration of Bankruptcy Difficulty: medium Dart Inc., a closely held corporation, was petitioned involuntarily into bankruptcy under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code. Dart contested the petition. Dart has not been paying its business debts as they became due, has defaulted on its mortgage loan payments, and owes back taxes to the IRS. The total cash value of Dart's bankruptcy estate after the sale of all assets and payment of administration expenses is $100,000. Dart has the following creditors: Fracon Bank is owed $75,000 principal and accrued interest on a mortgage loan secured by Dart's real property. The property was valued at and sold, in bankruptcy, for $70,000. The IRS has a $12,000 recorded judgment for unpaid corporate income tax. JOG Office Supplies has an unsecured claim of $3,000 that was timely filed. Nanstar Electric Co. has an unsecured claim of $1,200 that was not timely filed. Decoy Publications has a claim of $14,000, of which $2,000 is secured by Dart's inventory that was valued and sold, in bankruptcy, for $2,000. The claim was timely filed. Which of the following events will follow the filing of the Chapter 7 involuntary petition? Trustee will be appointed Stay against creditor collection proceedings will go into effect Yes Yes Yes No No Yes No No Rationale  Yes Yes Once a valid petition in bankruptcy is filed, this automatically stays other legal proceedings against the debtor's estate. Also, the court appoints an interim trustee. Rationale  Yes No Once a valid petition in bankruptcy is filed, this automatically stays other legal proceedings against the debtor's estate. Rationale  No Yes The court appoints an interim trustee. Rationale  No No Once a valid petition in bankruptcy is filed, this automatically stays other legal proceedings against the debtor's estate. Also, the court appoints an interim trustee.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 68/100 Question 68 CONT-0021 Lesson Reference: Contracts: Consideration Difficulty: medium Which of the following will be legally binding on all parties despite lack of consideration? An irrevocable oral promise by a merchant to keep an offer open for 60 days. A promise to donate money to a charity which the charity relied upon in incurring large expenditures. A promise to pay for the college education of the child of a person who saved the promisor’s life. A signed modification to a contract to purchase a parcel of land. Rationale  An irrevocable oral promise by a merchant to keep an offer open for 60 days. This answer is incorrect. An irrevocable oral promise by a merchant to keep an offer open for 60 days is an option contract that must be supported by consideration. A firm offer under the UCC requires a written offer signed by the merchant. Rationale  A promise to donate money to a charity which the charity relied upon in incurring large expenditures. This answer is correct. A promise to donate money to a charity which the charity relied upon in incurring large expenditures is a situation involving promissory estoppel. Promissory estoppel acts as a substitute for consideration and renders the promise enforceable. The elements necessary for promissory estoppel are (1) detrimental reliance on a promise, (2) reliance on the promise is reasonable and foreseeable, and (3) damage results (injustice) if the promise is not enforced. Rationale  A promise to pay for the college education of the child of a person who saved the promisor’s life. This answer is incorrect. The failure to enforce a promise to pay for a child’s college education will not result in damages, and therefore, promissory estoppel would not apply. Promissory estoppel acts as a substitute for consideration and renders the promise enforceable. Rationale  A signed modification to a contract to purchase a parcel of land. This answer is incorrect. The modification of a contract requires consideration, unless the contract involves the sale of goods under the UCC.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 69/100 Question 69 BSTR-0049 Lesson Reference: Financial Structure Difficulty: medium West owns 5,000 shares of $7 cumulative preferred stock of Sky Corp. During the first year of operations, cash dividends of $7 per share were declared on Sky’s preferred stock but were never paid. In the second year of operations, dividends on Sky’s preferred stock were neither declared nor paid. If Sky is dissolved, which of the following statements is correct? West will have priority over the claims of Sky’s debenture bond owners. West will have priority over the claims of Sky’s unsecured judgment creditors. Sky will be liable to West as an unsecured creditor for $35,000. Sky will be liable to West as an unsecured creditor for $70,000. Rationale  West will have priority over the claims of Sky’s debenture bond owners. This answer is incorrect. West has become a general unsecured creditor for the declared dividends and will have the same priority as the debenture (unsecured) bond owners. Rationale  West will have priority over the claims of Sky’s unsecured judgment creditors. This answer is incorrect. West has become a general unsecured creditor for the declared dividends and will have the same priority as the unsecured judgment creditors. Rationale  Sky will be liable to West as an unsecured creditor for $35,000. This answer is correct. Upon declaration, a cash dividend on preferred stock becomes a legal debt of the corporation, and the preferred shareholders become unsecured creditors of the corporation. However, any dividends not paid in any year concerning cumulative preferred stock are not a liability of the corporation until they are declared. Therefore, Sky will be liable to West as an unsecured creditor for $35,000 which is the amount of the declared dividends. Rationale  Sky will be liable to West as an unsecured creditor for $70,000. This answer is incorrect. The undeclared dividends did not become a legal liability to Sky.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 70/100 Question 70 aq.tort.liab.004_0718 Lesson Reference: Tort Liability of Agents and Principals Difficulty: hard Bloom Code: 4 Xavier works in the call center of a California debt collection firm, Debt Specialists. Debt Specialists provides training for all new employees on the Fair Debt Collection Practices Act (FDCPA), which protects debtors from calls after 9:00 p.m. and before 8:00 a.m. The Debt Specialist trainer told Xavier's training group that it was grounds for termination if they violated this rule. Xavier was making calls to California debtors starting at 6:00 a.m. when he worked the early shift. (The early shift starts at 6:00 a.m. because it is then 9:00 a.m. on the East Coast.) Xavier realized he could improve his collection numbers through the early calls and continued to make them. He also violated the FDCPA by calling debtors more than three times and by telling debtors’ employers about the amount of the debt owed and how long the debt had not been paid (another FDCPA violation). Several debtors filed suit against Debt Specialists for violation of the FDCPA, harassment, and invasion of privacy. Which of the following is a correct statement about Debt Specialist's liability? Debt Specialists could never be held liable for Xavier's intentional conduct, only his negligent conduct. Only Xavier can be held liable for his intentional conduct. Only Debt Specialists can be held liable for Xavier's actions because it did not provide adequate training. Debt Specialists could be held liable to the debtors if it failed to adequately train or supervise its employees even though the agent's conduct is intentional. Rationale  Debt Specialists could never be held liable for Xavier's intentional conduct, only his negligent conduct. Incorrect. A principal can be held liable for the intentional torts of an agent if the principal was aware of the conduct and took no action to stop it. Rationale  Only Xavier can be held liable for his intentional conduct. Incorrect. Xavier is liable for his intentional conduct, but it is possible that a principal can be held liable for the tortious conduct through knowledge of the conduct and not stopping it or for the failure to adequately supervise the agent. Rationale  Only Debt Specialists can be held liable for Xavier's actions because it did not provide adequate training. Incorrect. Agents are always liable for their own torts and violations of the law. There remains a question as to whether their principals are held liable (control, master-servant relationship). Rationale  Debt Specialists could be held liable to the debtors if it failed to adequately train or supervise its employees even though the agent's conduct is intentional. Correct! This statement is true. Even when conduct violates the law or goes beyond the authority of the agent, the principal can be held liable for the failure to supervise.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 71/100 Question 71 AICPA.081939REG-2A.2 Lesson Reference: Duties of Agents and Principals Difficulty: medium Bloom Code: 2 The Silvas wish to sell their house and they talk to Bisbee, a real estate agent. Bisbee convinces the Silvas to form a joint venture with him. He would take responsibility for selling the property in exchange for 10% of the proceeds. The Silvas want at least $80,000. Bisbee tells the Silvas that he has sold the property for $100,000 and delivers to them a check for $90,000. The Silvas are pleased until they learn that Bisbee was an owner of the corporation that bought the property and that Bisbee thought it was worth more than $100,000. The Silvas wish to sue Bisbee. Which of the following is true? Since the Silvas got more than they were expecting, they have no valid lawsuit. Because Bisbee had an undisclosed conflict of interest, the Silvas can win. A and B. None of the above. Rationale  Since the Silvas got more than they were expecting, they have no valid lawsuit. The Silvas were entitled to recover the most that a willing buyer would pay for the property, even if that exceeded their expectations. Rationale  Because Bisbee had an undisclosed conflict of interest, the Silvas can win. Bisbee's responsibility as the joint venture's agent is to get the highest value for the joint venture, so this is the right answer. Obviously, Bisbee had an incentive not to pay the highest price if he is part of the buying entity as well. His conflict of interest breached his fiduciary duty to the Bisbees. Rationale  A and B. Because A is wrong, this answer is necessarily wrong as well. Rationale  None of the above. Because B is correct, this answer is necessarily wrong9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 72/100 Question 72 DBCR-0009B Lesson Reference: Suretyship: Rights of Parties Difficulty: medium Reuter Bank loaned Sabean Corporation $500,000 in writing. As part of the agreement, Reuter required that the three owners of Sabean act as sureties on the loan. The corporation also required that some real estate owned by Sabean Corporation be used as collateral for 40% of the loan. The collateral and suretyship agreements were put in writing and signed by all relevant parties. When the $500,000 loan became due, which of the following rights does Reuter Bank have? I. May demand payment of the full amount immediately from the sureties when the corporation defaults on the loan. II. May demand payment of the full amount immediately from the sureties even if Reuter does not attempt to recover any amount from the collateral. III. May attempt to recover up to $200,000 from the collateral and the remainder from the sureties, even if the remainder is more than $300,000. IV. Must first attempt to collect the debt from Sabean Corporation before it can resort to the sureties or the collateral. I and III only. II only. I, II, and III only. IV only. Rationale  I and III only. The creditor, Reuter Bank, has a lot of flexibility in remedies. Although Reuter may attempt to collect from Sabean when the loan is due, it is not required to but instead may resort to the sureties or to the collateral up to the 40% agreed upon, or both. Rationale  II only. The creditor, Reuter Bank, has a lot of flexibility in remedies. Although Reuter may attempt to collect from Sabean when the loan is due, it is not required to but instead may resort to the sureties or to the collateral up to the 40% agreed upon, or both. Rationale  I, II, and III only. The creditor, Reuter Bank, has a lot of flexibility in remedies. Although Reuter may attempt to collect from Sabean when the loan is due, it is not required to but instead may resort to the sureties or to the collateral up to the 40% agreed upon, or both. Rationale  IV only. Although Reuter may attempt to collect from Sabean when the loan is due, it is not required to but instead may resort to the sureties or to the collateral up to the 40% agreed upon, or both.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 73/100 Question 73 BSTR-0074 Lesson Reference: Selection of a Business Entity Difficulty: medium In which type of business entity is the entire ownership most freely transferable? General partnership. Limited partnership. Corporation. Limited liability company. Rationale  General partnership. This answer is incorrect because a partnership requires approval of all partners to transfer an ownership interest. Rationale  Limited partnership. This answer is incorrect because a limited partnership requires approval of all partners to transfer an ownership interest. Rationale  Corporation. This answer is correct because a regular corporation generally has freely transferable stock. Rationale  Limited liability company. This answer is incorrect because a limited liability company or LLC requires approval of all partners to transfer an ownership interest.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 74/100 Question 74 PLR-0062B Lesson Reference: Regulations Governing Practice Before the Internal Revenue Service Difficulty: medium A practitioner is in violation of Circular 230 if the practitioner Publishes the availability of a written schedule of fees containing hourly rates. Charges a contingent fee for filing an original tax return. Informs a client of the possible penalties that may apply to a position taken on a tax return. Relies, without verification, upon information furnished by the client. Rationale  Publishes the availability of a written schedule of fees containing hourly rates. A practitioner is in violation of Circular 230 if the practitioner charges a contingent fee for preparing and filing an original tax return. However, a contingent fee may be charged in representing a client in connection with an IRS examination of an original return, or an amended return or claim for refund or credit. Additionally, a contingent fee may be charged for services rendered in connection with any judicial proceeding arising under the Code. Rationale  Charges a contingent fee for filing an original tax return. A practitioner is in violation of Circular 230 if the practitioner charges a contingent fee for preparing and filing an original tax return. However, a contingent fee may be charged in representing a client in connection with an IRS examination of an original return, or an amended return or claim for refund or credit. Additionally, a contingent fee may be charged for services rendered in connection with any judicial proceeding arising under the Code. Rationale  Informs a client of the possible penalties that may apply to a position taken on a tax return. A practitioner is in violation of Circular 230 if the practitioner charges a contingent fee for preparing and filing an original tax return. However, a contingent fee may be charged in representing a client in connection with an IRS examination of an original return, or an amended return or claim for refund or credit. Additionally, a contingent fee may be charged for services rendered in connection with any judicial proceeding arising under the Code. Rationale  Relies, without verification, upon information furnished by the client. A practitioner is in violation of Circular 230 if the practitioner charges a contingent fee for preparing and filing an original tax return. However, a contingent fee may be charged in representing a client in connection with an IRS examination of an original return, or an amended return or claim for refund or credit. Additionally, a contingent fee may be charged for services rendered in connection with any judicial proceeding arising under the Code.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 75/100 Question 75 AGEN-0023 Lesson Reference: Duties of Agents and Principals Difficulty: medium Ritz hired West for 6 months as an assistant sales manager at $4,000 a month plus 3% of sales. Which of the following is correct? The employment agreement must be in writing and signed by the party to be charged. The agreement between Ritz and West formed an agency coupled with an interest. West must disclose any interests he has which are adverse to Ritz in matters concerning Ritz’s business. West can be dismissed by Ritz during the 6 months only for cause. Rationale  The employment agreement must be in writing and signed by the party to be charged. This answer is incorrect. The Statute of Frauds would not require that The described agency relationship be contained in a signed writing since it is possible for the contract to be performed within 1 year. Rationale  The agreement between Ritz and West formed an agency coupled with an interest. This answer is incorrect. The mere right of the agent to receive a percentage of proceeds is not sufficient to constitute an agency coupled with an interest. In order to have an agency coupled with an interest, the agent must have either a property interest or a security interest in the subject matter of the agency relationship. Rationale  West must disclose any interests he has which are adverse to Ritz in matters concerning Ritz’s business. This answer is correct. As a fiduciary to the principal, an agent must act in the best interest of the principal. Therefore, the agent has an obligation to refrain from competing with or acting adversely to the principal, unless the principal knows and approves of such activity. Rationale  West can be dismissed by Ritz during the 6 months only for cause. This answer is incorrect. In all agency relationships, except agencies coupled with an interest, the principal always has the power to dismiss the agent. However, the principal does not necessarily have the right to terminate the relationship. In certain situations the dismissed agent could sue for breach of contract.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 76/100 Question 76 PLR-0071 Lesson Reference: Licensing and Disciplinary Systems Difficulty: medium The Joint Ethics Enforcement Program involves joint enforcement of the ethics rules of The AICPA and state societies. The AICPA and the PCAOB. The SEC and the PCAOB. The AICPA and the SEC. Rationale  The AICPA and state societies. This answer is correct. The Joint Ethics Enforcement Program involves joint enforcement of ethics rules of the AICPA and state societies. Rationale  The AICPA and the PCAOB. This answer is incorrect. The PCAOB enforces its own ethics rules. Rationale  The SEC and the PCAOB. This answer is incorrect. The SEC and the PCAOB both enforce their own ethics rules. Rationale  The AICPA and the SEC. This answer is incorrect. The SEC enforces its own ethics rules.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 77/100 Question 77 AICPA.120601REG Lesson Reference: Operations: Nonfinancial Factors Which of the following statements is correct regarding a limited liability company's operating agreement? It must be filed with a central state agency. It must be in writing. It is designed to forestall and resolve disputes among the owners. It is necessary for a limited liability company to exist. Rationale  It must be filed with a central state agency. Most states do not require the filing of LLC operating agreements, although written versions of such agreements are almost always a good idea. Rationale  It must be in writing. Most states do not require either the filing of an LLC operating agreement or that the agreement be in writing (although a written agreement is usually a good idea). Rationale  It is designed to forestall and resolve disputes among the owners. This is the purpose of an LLC operating agreement, which is why it is a good idea that these be in writing and filed with the state (although this is not required). Rationale  It is necessary for a limited liability company to exist. Most states do not require the filing of LLC operating agreements for the LLC to come into existence.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 78/100 Question 78 AICPA.100999REG-SIM Lesson Reference: Licensing and Disciplinary Systems Difficulty: easy Bloom Code: 2 Iola has had a few serious professional problems. Which of the following will probably cause a state board of accountancy to revoke her license or order a lesser punishment? Failing to complete required continuing professional education. Failing to pay her own income tax. Violating professional standards. All of the above. Rationale  Failing to complete required continuing professional education. This answer is accurate, because failing to complete required continuing professional education will likely elicit sanctions, but it is not the best answer because all choices are accurate as well. Rationale  Failing to pay her own income tax. This answer is accurate, because failing to pay one's income tax will likely elicit sanctions, but it is not the best answer because all choices are accurate as well. Rationale  Violating professional standards. This answer is accurate, because violating professional standards will likely elicit sanctions, but it is not the best answer because all choices are accurate as well. Rationale  All of the above. All listed acts will likely be cause for serious sanction.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 79/100 Question 79 SALE-0024B Lesson Reference: Formulas for Damages Difficulty: medium 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? Recover damages Cancel the contract Collect punitive damages A. Yes Yes Yes B. Yes Yes No C. Yes No Yes D. No Yes Yes Row A Row B Row C Row D Rationale  Row A Punitive damages are not an available remedy in either the common law or the UCC. Rationale  Row B The buyer has the following remedies against the seller: upon receipt of nonconforming goods, the buyer may reject the goods, accept the goods, or accept any unit and reject the remainder; the buyer has the right to cover (purchase goods elsewhere upon the seller's breach); the buyer may recover damages (not punitive) for nondelivery of goods or repudiation of the sales contract by the seller; the buyer may recover damages (not punitive) for breach in regard to accepted goods; the buyer may recover goods identified in the contract in possession of the seller upon the seller's insolvency; the buyer may sue for specific performance when the goods are unique; the buyer has the right of replevin (form of legal action to recover specific goods from the seller which are being withheld from the buyer wrongfully); the buyer can cancel the contract; the buyer has a security interest in the goods after the seller's breach; the buyer can recover liquidated damages. Punitive damages, however, are not an available remedy in either the common law or the UCC. Rationale  Row C Punitive damages are not an available remedy in either the common law or the UCC. Rationale  Row D Punitive damages are not an available remedy in either the common law or the UCC.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 80/100 Question 80 AICPA.900547REG-BL Lesson Reference: Issues of Passage of Title and Risk of Loss Difficulty: medium Bloom Code: 2 On September 10, Bell Corp. entered into a contract to purchase 50 lamps from Glow Manufacturing to be used in Bell Corp's executive company offices. 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 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. Rationale  Bell is regarded as a merchant. A company acts as a merchant when it sells goods of the type it normally sells in its normal course of business or holds himself or herself out as having knowledge or skill peculiar to the purchase of goods. Bell, as a purchaser of these lamps, is not acting as a merchant in this contract. Rationale  The lamps were not identified to the contract. The seller is the one who must identify goods by segregating them from general inventory and associating them with a specific contract before title would pass to the buyer. Since this has not yet been done, the buyer will have no rights in the goods under the contract. Rationale  Glow became insolvent fewer than 10 days after receipt of Bell's prepayment. The time of insolvency is not important because for the 10-day rule to apply the goods must be identified to the contract. What is important is the fact that the goods have not been identified at the time of this insolvency. The seller is the one who must identify goods by segregating them from general inventory and associating them with a specific contract. Since this has not yet been done, and the seller becomes insolvent, the buyer will have no rights in the goods under the contract. Rationale  Bell did not pay the full price at the time of purchase. Bell would not have a right to the lamps even if it had fully paid, because they have not yet been identified to the contract. The seller is the one who must identify goods by segregating them from general inventory and associating them with a specific contract.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 81/100 Question 81 BSTR-0007B Lesson Reference: Operations: Nonfinancial Factors Difficulty: medium Which of the following is not true of a general partnership? Ownership by the partners may be unequal. It is a separate legal entity. An important characteristic is that the partners share in the profits equally. The partner may agree on unequal rights to participate in management. Rationale  Ownership by the partners may be unequal. The partners may agree that ownership in the partnership is unequal. Rationale  It is a separate legal entity. Under RUPA, the partnership is a separate legal entity. Rationale  An important characteristic is that the partners share in the profits equally. The partners may agree to share profits as well as losses unequally. Rationale  The partner may agree on unequal rights to participate in management. The partners may agree to share profits as well as losses unequally.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 82/100 Question 82 AICPA.941160REG-BL Lesson Reference: Rights of Secured Parties and Debtors Difficulty: easy Bloom Code: 2 Under the Secured Transactions Article of the UCC, which of the following remedies is available to a secured creditor when a debtor fails to make a payment when due? Proceed against the collateral Obtain a general judgment against the debtor Yes Yes Yes No No Yes No No Rationale  Yes Yes A secured creditor has a security interest in some collateral. If the debt is not repaid according to the agreement with the debtor, the secured creditor may peacefully repossess the collateral and either keep or sell the collateral to satisfy the debt. In the alternative, the creditor may sue the debtor for amounts owed, just as any other creditor can, and obtain a judgment against the debtor. Rationale  Yes No A secured creditor has a security interest in some collateral. If the debt is not repaid according to the agreement with the debtor, the secured creditor may peacefully repossess the collateral and either keep or sell the collateral to satisfy the debt. In the alternative, the creditor may sue the debtor for amounts owed, just as any other creditor can, and obtain a judgment against the debtor. Rationale  No Yes A secured creditor has a security interest in some collateral. If the debt is not repaid according to the agreement with the debtor, the secured creditor may peacefully repossess the collateral and either keep or sell the collateral to satisfy the debt. In the alternative, the creditor may sue the debtor for amounts owed, just as any other creditor can, and obtain a judgment against the debtor. Rationale  No No A secured creditor has a security interest in some collateral. If the debt is not repaid according to the agreement with the debtor, the secured creditor may peacefully repossess the collateral and either keep or sell the collateral to satisfy the debt. In the alternative, the creditor may sue the debtor for amounts owed, just as any other creditor can, and obtain a judgment against the debtor.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 83/100 Question 83 AICPA.940533REG-BL Lesson Reference: The Registration Process Difficulty: medium Bloom Code: 2 A tombstone advertisement May be substituted for the prospectus under certain circumstances. May contain an offer to sell securities. Notifies prospective investors that a previously offered security has been withdrawn from the market and is therefore effectively "dead." Makes known the availability of a prospectus. Rationale  May be substituted for the prospectus under certain circumstances. If a prospectus is required, it is required, period. Either a security is exempt and need not be registered, or it is non-exempt and requires a prospectus. For the latter type, no substitutions are permitted. Rationale  May contain an offer to sell securities. During the waiting period of 20 days immediately after registering with the SEC, "tombstone ads" may be placed. Tombstone ads are heavily restricted and may contain only limited information, such as the type of security and where a potential investor would acquire a prospectus. The ads must state that no offers will be accepted until the waiting period expires. Rationale  Notifies prospective investors that a previously offered security has been withdrawn from the market and is therefore effectively "dead." During the waiting period of 20 days immediately after registering with the SEC, tombstone ads may be placed. They announce soon-to-be-issued securities. Rationale  Makes known the availability of a prospectus. During the waiting period of 20 days immediately after registering with the SEC, tombstone ads may be placed. Tombstone ads are heavily restricted and may contain only limited information, such as the type of security and where a potential investor would acquire a now-available prospectus.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 84/100 Question 84 FEDE-0040 Lesson Reference: Purposes, Requirements and Provisions of the 1934 Act Difficulty: medium Under the provisions of the Securities Exchange Act of 1934, a corporation whose common stock is listed on a national stock exchange Is prohibited from making private placement offerings. Must submit Form 10-K to the SEC except in those years in which the corporation has made a public offering. Must distribute copies of Form 10-K to its shareholders. Is subject to having the registration of its securities suspended or revoked. Rationale  Is prohibited from making private placement offerings. This answer is incorrect. The corporation may still make private placement offerings, even though it has made a public offering. Rationale  Must submit Form 10-K to the SEC except in those years in which the corporation has made a public offering. This answer is incorrect. The Form 10-K must be filed with the SEC each year, regardless of whether the corporation has made a public offering during that year. Rationale  Must distribute copies of Form 10-K to its shareholders. This answer is incorrect. The Form 10-K is not required to be distributed to the shareholders but must only be filed with the SEC. Rationale  Is subject to having the registration of its securities suspended or revoked. This answer is correct. A corporation whose stock is listed on a national stock exchange is regulated under the provisions of the Securities Exchange Act of 1934. Under the 1934 Act, one of the sanctions available to the SEC is the revocation or suspension of the registration of the securities of any registrant.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 85/100 Question 85 SECU-0026 Lesson Reference: Priorities in Security Interests Difficulty: medium Kwik Bank loaned Crocker $30,000 to finance the purchase of appliances shipped to it from Cue Company. Crocker used the money from the loan to fully pay for the appliances. Kwik had Crocker sign a security agreement that listed as collateral the entire present and future inventory of Crocker. Kwik meant to file a financing statement but failed to do so. Duncan Company, aware of Kwik's security interest, extended credit to Crocker to purchase office supplies, which Crocker planned to sell at his store. Crocker failed to pay either Kwik or Duncan. Which of the following is correct? Kwik’s security interest is not enforceable against Crocker. Kwik’s security interest is enforceable against Crocker but does not have priority over Duncan. Kwik’s security interest is enforceable against Crocker and does have priority over Duncan. Kwik’s security interest has priority over Duncan as well as any other potential third parties. Rationale  Kwik’s security interest is not enforceable against Crocker. This answer is incorrect because attachment took place. Rationale  Kwik’s security interest is enforceable against Crocker but does not have priority over Duncan. This answer is incorrect because Duncan knew of the security interest. Rationale  Kwik’s security interest is enforceable against Crocker and does have priority over Duncan. This answer is correct. Kwik’s security interest against Crocker was enforceable because attachment took place due to the fact that there was a signed security agreement, Kwik gave value, and Crocker had rights in the collateral. Since Kwik did not perfect the security interest, it is not effective against third parties unless they were aware of it, such as Duncan was in this case. Rationale  Kwik’s security interest has priority over Duncan as well as any other potential third parties. This answer is incorrect because Kwik did not perfect the security interest.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 86/100 Question 86 aq.discharg.perf.007_0818 Lesson Reference: Contracts: Discharge of Performance Difficulty: medium Bloom Code: 2 If a house burns down after two parties have made a contract for its purchase and sale, The parties are discharged from performance on the contract. The contract is void. The contract is voidable at the option of the buyer. The contract is postponed until the facilities can be rebuilt. Rationale  The parties are discharged from performance on the contract. Correct! Destruction of the subject matter is grounds for discharge. Rationale  The contract is void. Incorrect. The contract is valid, but the parties are discharged because of the destruction of the subject matter. Rationale  The contract is voidable at the option of the buyer. Incorrect. Rationale  The contract is postponed until the facilities can be rebuilt. Incorrect. The parties part ways and the contract is off.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 87/100 Question 87 DBCR-0019 Lesson Reference: Suretyship: Introduction, Creation, and Types Difficulty: medium Lux Financial Corp. loaned Boe $100,000. At Lux’s request, Boe entered into an agreement with Frey and Harp for them to act as cosureties on the loan in the amount of $100,000 each. If Lux releases Harp without the consent of Frey or Boe, and Boe subsequently defaults, which of the following statements is correct? Frey will be liable for 50% of the loan balance. Lux's release of Harp will have no effect on Boe's and Frey's liability to Lux. Boe will be released for 50% of the loan balance. Frey will be liable for the entire loan balance. Rationale  Frey will be liable for 50% of the loan balance. This answer is correct. A discharge or release of one cosurety by a creditor results in a reduction of liability of the remaining cosurety. The remaining cosurety is released to the extent of the released cosurety’s pro rata share of debt liability, unless there is a reservation of rights by the creditor against the remaining cosurety. Frey and Harp each had maximum liability of $100,000. Thus, Lux’s release of Harp will result in Frey’s liability being reduced by Harp’s pro rata share of the total debt liability which was one half. Therefore, Frey’s liability has been reduced to $50,000 (i.e., 50% of the loan balance) due to the release of Harp as a cosurety. Rationale  Lux's release of Harp will have no effect on Boe's and Frey's liability to Lux. This answer is incorrect. A discharge or release of one cosurety by a creditor results in a reduction of liability of the remaining cosurety. The remaining cosurety is released to the extent of the released cosurety's pro rata share of debt liability, unless there is a reservation of rights by the creditor against the remaining cosurety. Frey and Harp each had maximum liability of $100,000. Thus, Lux's release of Harp will result in Frey's liability being reduced by Harp's pro rata share of the total debt liability which was one half. Therefore, Frey's liability has been reduced to $50,000 (i.e., 50% of the loan balance) due to the release of Harp as a cosurety. Rationale  Boe will be released for 50% of the loan balance. This answer is incorrect. The release of the cosurety does not release the principal debtor since the debtor’s obligation is not affected in any way by Lux’s release of Harp. Rationale  Frey will be liable for the entire loan balance. This answer is incorrect. A discharge or release of one cosurety by a creditor results in a reduction of liability of the remaining cosurety. The remaining cosurety is released to the extent of the released cosurety's pro rata share of debt liability, unless there is a reservation of rights by the creditor against the remaining cosurety. Frey and Harp each had maximum liability of $100,000. Thus, Lux's release of Harp will result in Frey's liability being reduced by Harp's pro rata share of the total debt liability which was one half. Therefore, Frey's liability has been reduced to $50,000 (i.e., 50% of the loan balance) due to the release of Harp as a cosurety.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 88/100 Question 88 CONT-0066 Lesson Reference: Contracts: Third Party Rights Difficulty: medium 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 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. Rationale  Entitled to recover from Rice only, because Rice breached the contract. This answer is incorrect. Only intended beneficiaries can maintain an action against the contracting parties for nonperformance. Rationale  Entitled to recover from either Locke or Rice because it detrimentally relied on the contract. This answer is incorrect. Only intended beneficiaries can maintain an action against the contracting parties for nonperformance. Rationale  Not entitled to recover because it is a donee beneficiary. This answer is incorrect. United is not a donee beneficiary since it was not the intent of the two contracting parties to confer a gift on United. Rationale  Not entitled to recover because it is an incidental beneficiary. This answer is correct. United is an incidental third-party beneficiary since it was not the intent of Locke and Rice to benefit United when they formed the contract. As such, United is not entitled to monetary damages since only intended beneficiaries can maintain an action against the contracting parties for nonperformance.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 89/100 Question 89 SECU-0008B Lesson Reference: Priorities in Security Interests Difficulty: medium Under the Revised Secured Transaction Article of the UCC, what would be the order of priority for the following security interests in consumer goods? I. Financing statement filed on April 1. II. Possession of the collateral by a creditor on April 10. III. Financing statement perfected on April 15. I, II, III. II, I, III. II, III, I. III, II, I. Rationale  I, II, III. Since security interest I was perfected first when the financing statement was filed on April 1, it has the first priority. Security interest II was perfected on April 10 when the creditor took possession of the collateral. It has the second priority. Security interest III has the third priority since it was perfected last on April 15. Rationale  II, I, III. Since security interest I was perfected first when the financing statement was filed on April 1, it has the first priority. Security interest II was perfected on April 10 when the creditor took possession of the collateral. It has the second priority. Security interest III has the third priority since it was perfected last on April 15. Rationale  II, III, I. Since security interest I was perfected first when the financing statement was filed on April 1, it has the first priority. Security interest II was perfected on April 10 when the creditor took possession of the collateral. It has the second priority. Security interest III has the third priority since it was perfected last on April 15. Rationale  III, II, I. Since security interest I was perfected first when the financing statement was filed on April 1, it has the first priority. Security interest II was perfected on April 10 when the creditor took possession of the collateral. It has the second priority. Security interest III has the third priority since it was perfected last on April 15.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 90/100 Question 90 BANK-0021 Lesson Reference: Bankruptcy Process Difficulty: medium The federal bankruptcy act contains several important terms. One such term is "insider." The term is used in connection with preferences and preferential transfers. Which among the following is not an "insider"? A secured creditor having a security interest in at least 25% or more of the debtor’s property. A partnership in which the debtor is a general partner. A corporation of which the debtor is a director. A close blood relative of the debtor. Rationale  A secured creditor having a security interest in at least 25% or more of the debtor’s property. This answer is correct. A secured creditor is not an "insider" for the purposes of a preferential transfer. Rationale  A partnership in which the debtor is a general partner. This answer is incorrect. A partner is an insider with regard to a partnership. Rationale  A corporation of which the debtor is a director. This answer is incorrect. A director is an insider with regard to a corporation. Rationale  A close blood relative of the debtor. This answer is incorrect. A close relative is an insider with regard to a debtor.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 91/100 Question 91 AGEN-0028 Lesson Reference: Tort Liability of Agents and Principals Difficulty: medium Brian purchased an automobile from Robinson Auto Sales under a written contract by which Robinson obtained a security interest to secure payment of the purchase price. Robinson reserved the right to repossess the automobile if Brian failed to make any of the required ten payments. Ambrose, an employee of Robinson, was instructed to repossess the automobile on the ground that Brian had defaulted in making the third payment. Ambrose took possession of the automobile and delivered it to Robinson. It was then discovered that Brian was not in default. Which of the following is incorrect? Brian has the right to regain possession of the automobile and to collect damages. Brian may sue and collect from either Robinson or Ambrose. If Ambrose must pay in damages, he will be entitled to indemnification from Robinson. Ambrose is not liable for the wrongful repossession of the automobile since he was obeying the direct order of Robinson. Rationale  Brian has the right to regain possession of the automobile and to collect damages. This answer is incorrect because the statement is true. The injured party, Brian, has the right to regain possession of his automobile and collect money damages for the tortious act of conversion committed upon him. Rationale  Brian may sue and collect from either Robinson or Ambrose. This answer is incorrect because the statement is true. Any third person injured by the agent’s or employee’s tortious act, when committed within the course of employment, can proceed against either the employee or employer--Ambrose being directly liable for his wrongful act, and Robinson being vicariously liable therefore. Brian can sue either, but can take judgment against only one. Rationale  If Ambrose must pay in damages, he will be entitled to indemnification from Robinson. This answer is incorrect because the statement is true. When the employee is held liable for a tortious act which was committed upon direct instructions from the employer, he has a right of indemnification against the employer for any damages he must pay a third person. Rationale  Ambrose is not liable for the wrongful repossession of the automobile since he was obeying the direct order of Robinson. This answer is correct because the statement is false. Ambrose’s act of repossessing the car constituted the tort of conversion. An agent or employee is always liable for his own torts, even if committed in the course of discharging his duties.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 92/100 Question 92 BSTR-0043 Lesson Reference: Operations: Nonfinancial Factors Difficulty: medium Generally, officers of a corporation Are selected by the shareholders. Are agents and fiduciaries of the corporation, having actual and apparent authority to manage the business. May be removed by the board of directors without cause only if the removal is approved by a majority vote of the shareholders. May declare dividends or other distributions to shareholders as they deem appropriate. Rationale  Are selected by the shareholders. This answer is incorrect because officers are appointed by the directors of a corporation who are in turn elected by the shareholders. Rationale  Are agents and fiduciaries of the corporation, having actual and apparent authority to manage the business. This answer is correct because officers of a corporation are agents of that corporation having actual and apparent authority to manage the business; consequently, officers occupy a fiduciary relationship with the corporation. Rationale  May be removed by the board of directors without cause only if the removal is approved by a majority vote of the shareholders. This answer is incorrect because officers may be removed by the board of directors without cause and without any form of approval from the shareholders whenever in the board’s judgment the best interests of the corporation are served. In such a case, the officer removed may have an action for breach of contract. Rationale  May declare dividends or other distributions to shareholders as they deem appropriate. This answer is incorrect because the directors of a corporation, and not the officers, have the power to declare dividends or other distributions to shareholders.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 93/100 Question 93 aq.types.remedies.006_2-18 Lesson Reference: Types of Remedies Difficulty: medium Bloom Code: 2 Jason's Jellies had a contract to furnish small jars of jelly to Ricardo's Bistro. Jason's was able to obtain several larger supply contracts that were more profitable, but Jason's could not continue to supply Ricardo's. Which of the following is correct about Ricardo's rights? Ricardo has a right to specific performance from Jason. Ricardo has the right to punitive damages because Jason breached deliberately. Ricardo is entitled to liquidated damages for each day that he lost service. Ricardo is entitled to compensatory and incidental damages. Rationale  Ricardo has a right to specific performance from Jason. Incorrect. Specific performance is available only under the UCC when the goods are rare or unique. Jelly does not qualify. Rationale  Ricardo has the right to punitive damages because Jason breached deliberately. Incorrect. Punitive damages are available in rare circumstances in contracts and generally only in fraud cases. Most breaches are intentional, but that conduct (breaching the contract) is not sufficient for punitive damages. Rationale  Ricardo is entitled to liquidated damages for each day that he lost service. Incorrect. There is no provision in the contract for liquidated damages. Rationale  Ricardo is entitled to compensatory and incidental damages. Correct! Ricardo can recover whatever the additional costs of finding a substitute contract along with the costs of obtaining such a supplier as well as any legal fees incurred to recover the cost differential.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 94/100 Question 94 SECU-0022 Lesson Reference: Priorities in Security Interests Difficulty: medium Cross has an unperfected security interest in the inventory of Safe, Inc. The unperfected security interest Is superior to the interest of subsequent lenders who obtain a perfected security interest in the property. Is subordinate to lien creditors of Safe whose lien interest arose prior to any subsequent perfection by Cross. Causes Cross to lose important rights against Safe as an entity. May only be perfected by Cross filing a financing statement. Rationale  Is superior to the interest of subsequent lenders who obtain a perfected security interest in the property. This answer is incorrect because a perfected security interest is superior to Cross’s unperfected security interest unless the perfected party had knowledge of Cross’s interest prior to perfection. Rationale  Is subordinate to lien creditors of Safe whose lien interest arose prior to any subsequent perfection by Cross. This answer is correct because lien creditors have priority over any unperfected security interest and any security interest perfected after the lien has attached. Rationale  Causes Cross to lose important rights against Safe as an entity. This answer is incorrect because Cross’s failure to perfect does not affect his rights against Safe. By not perfecting, Cross does not obtain the best possible rights in the collateral in relation to third parties. Rationale  May only be perfected by Cross filing a financing statement. This answer is incorrect because Cross may also perfect by taking possession of the property, Safe’s inventory. This could be done under a field warehousing arrangement.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 95/100 Question 95 BSTR-0021 Lesson Reference: Selection of a Business Entity Difficulty: medium Abbey brought in two friends, Burton and Chase, to mass produce and sell posters of Europe throughout the United States. They started the business in Miami where Burton and Chase each put in an initial capital contribution of $160,000 each. Abbey put in $10,000. They are not looking for any outside capital because they have ways to obtain any additional capital they may need. They each will manage the business. Which form of business organization should they form? A limited partnership with Burton and Chase as the limited partners to protect their larger investments. A limited partnership with all three being protected as limited partners. A general partnership. A corporation. Rationale  A limited partnership with Burton and Chase as the limited partners to protect their larger investments. This answer is incorrect because since all three are going to be involved in the management of the business, none of them can obtain the limited liability of a limited partnership. Rationale  A limited partnership with all three being protected as limited partners. This answer is incorrect because a limited partnership must have at least one general partner who retains the unlimited liability. Rationale  A general partnership. This answer is correct. Since Abbey, Burton, and Chase are forming a business from their own capital, they do not need the advantage of selling stock in a corporation. They would use the simpler partnership form of business. Note that there are no special liability problems either that would have suggested a corporate form. Rationale  A corporation. This answer is incorrect because they have no need for outside capital. Also, liability is not a major problem here.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 96/100 Question 96 AGEN-0003B Lesson Reference: Tort Liability of Agents and Principals Difficulty: medium Harris, while delivering parts to a customer for his employer, negligently ran into and injured Wolfe. Harris had been asked by his employer to make these deliveries even though Harris was using his personal pickup truck. Neither Harris nor the employer had insurance to cover this injury. Which of the following is correct? Wolfe can hold Harris liable but not the employer because Harris was driving his own vehicle. Wolfe can hold the employer liable but not Harris because the employer had asked Harris to make the deliveries. Wolfe can hold either Harris or the employer or both liable. Wolfe can hold either Harris or the employer liable but not both. Rationale  Wolfe can hold Harris liable but not the employer because Harris was driving his own vehicle. Both are liable since Harris was acting within the scope of the employment. The ownership of the vehicle does not change this. Rationale  Wolfe can hold the employer liable but not Harris because the employer had asked Harris to make the deliveries. Harris is liable for his own tort even though the employer can also be held liable. Rationale  Wolfe can hold either Harris or the employer or both liable. Since Harris was acting within the scope of his employment when he negligently injured Wolfe, both Harris and his employer are liable. Wolfe can recover from either one or both. Rationale  Wolfe can hold either Harris or the employer liable but not both. Wolfe may recover the full damages from either or may recover a portion of the damages from both.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 97/100 Question 97 AICPA.101045REG-SIM Lesson Reference: Privileged Communications, Confidentiality, and Privacy Acts Difficulty: medium Bloom Code: 3 Powhattan was surprised to learn how much income his tax client, Absurdco, Inc., was making. He thought that Absurdco's competitors might be interested in the information, so he sold it to one of them. When Absurdco found this out, it started investigating what consequences it might visit upon Powhattan. Which of the following is true? Powhattan may lose his CPA license. Powhattan may be sued civilly by the IRS. Powhattan may be prosecuted criminally by the Department of Justice. All of the above. Rationale  Powhattan may lose his CPA license. This choice is accurate because loss of license is frequently a consequence of breaching the confidentiality duty, but this is not the best choice because other choices are accurate as well. Rationale  Powhattan may be sued civilly by the IRS. This choice is accurate because civil tax code penalties are a potential consequence of breaching the confidentiality duty regarding tax information, but this is not the best choice because other choices are accurate as well. Rationale  Powhattan may be prosecuted criminally by the Department of Justice. This choice is accurate because criminal tax code penalties are a potential consequence of breaching the confidentiality duty regarding tax information, but this is not the best choice because other choices are accurate as well. Rationale  All of the above. All of the first three choices are potential consequences of breach of the duty of confidentiality.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 98/100 Question 98 BANK-0009 Lesson Reference: Bankruptcy Process Difficulty: medium Under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code, certain property acquired by the debtor after the filing of the petition becomes part of the bankruptcy estate. An example of such property is Inheritances received by the debtor within 180 days after the filing of the petition. Child support payments received by the debtor within one year after the filing of the petition. Social Security payments received by the debtor within 180 days after the filing of the petition. Wages earned by the debtor within one year after the filing of the petition. Rationale  Inheritances received by the debtor within 180 days after the filing of the petition. This answer is the correct answer. The estate of the debtor includes property received by the debtor within 180 days after the filing of the bankruptcy petition received by, among others, inheritance. Rationale  Child support payments received by the debtor within one year after the filing of the petition. This answer is incorrect because these need to be received within the 180-day period. Rationale  Social Security payments received by the debtor within 180 days after the filing of the petition. This answer is incorrect because Social Security payments are not covered in the 180-day period rule. Rationale  Wages earned by the debtor within one year after the filing of the petition. This answer is incorrect because the wages become a "new estate" and are not part of the estate of the debtor in bankruptcy.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 99/100 Question 99 AICPA.940549REG-BL Lesson Reference: Priorities in Security Interests Difficulty: easy Bloom Code: 2 Under the UCC Secured Transactions Article, which of the following after-acquired property may be attached to a security agreement given to a secured lender? Inventory Equipment Yes Yes Yes No No Yes No No Rationale  Yes Yes The debtor may give a security interest in either inventory or equipment that the debtor has rights to and the security agreement can also provide that this security interest applies to any inventory or equipment the debtor acquires in the future. Rationale  Yes No The debtor may give a security interest in equipment that the debtor has rights to and the security agreement can also provide for this security interest to apply to any equipment the debtor acquires in the future. Rationale  No Yes The debtor may give a security interest in inventory that the debtor has rights to, and the security agreement can also provide that this security interest applies to any inventory the debtor acquires in the future. Rationale  No No See the correct answer for an explanation.9/14/2020 Wiley CPAexcel - REG - Assessment Review https://app.efficientlearning.com/pv5/v8/5/app/cpa/reg.html?# 100/100 Question 100 AICPA.960503REG-BL Lesson Reference: Duties of Agents and Principals Difficulty: medium Bloom Code: 2 Which of the following statements represent(s) a principal's duty to an agent who works on a commission basis? I. The principal is required to maintain pertinent records, account to the agent, and pay the agent according to the terms of their agreement. II. The principal is required to reimburse the agent for all authorized expenses incurred, unless the agreement calls for the agent to pay expenses out of the commission. I only. II only. Both I and II. Neither I nor II. Rationale  I only. Agents owe many duties to principals. Principals owe only a few duties to their agents, but they are important. A principal must pay an agent whatever has been contracted. Paying according to the terms of an agreement necessarily encompasses maintaining pertinent records, so that the principal can properly account to the agent. Also, a principal must reimburse an agent for all authorized expenses, unless the agreement calls for the agent to pay them. The presumption is that the principal will pay an agent's expenses incurred within the scope of authority, absent agreement to the contrary. Rationale  II only. Agents owe many duties to principals. Principals owe only a few duties to their agents, but they are important. A principal must pay an agent whatever has been contracted. Paying according to the terms of an agreement necessarily encompasses maintaining pertinent records, so that the principal can properly account to the agent. Also, a principal must reimburse an agent for all authorized expenses, unless the agreement calls for the agent to pay them. The presumption is that the principal will pay an agent's expenses incurred within the scope of authority, absent agreement to the contrary. Rationale  Both I and II. Agents owe many duties to principals. Principals owe only a few duties to their agents, but they are important. A principal must pay an agent whatever has been contracted. Paying according to the terms of an agreement necessarily encompasses maintaining pertinent records, so that the principal can properly account to the agent. Also, a principal must reimburse an agent for all authorized expenses, unless the agreement calls for the agent to pay them. The presumption is that the principal will pay an agent's expenses incurred within the scope of authority, absent agreement to the contrary. Rationale  Neither I nor II. Agents owe many duties to principals. Principals owe only a few duties to their agents, but they are important. A principal must pay an agent whatever has been contracted. Paying according to the terms of an agreement necessarily encompasses maintaining pertinent records, so that the principal can properly account to the agent. Also, a principal must reimburse an agent for all authorized expenses, unless the agreement calls for the agent to pay them. The presumption is that the principal will pay an agent's expenses incurred within the scope o f authority, absent agreement to the contrary. [Show More]

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