A1. Twisted Dipsy Pretzels Inc. offers entrepreneurs the opportunity to operate a franchise under the Twisted Dipsy trade name as a member of a select group of dealers that engage in the retail pretzel-concession busines
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A1. Twisted Dipsy Pretzels Inc. offers entrepreneurs the opportunity to operate a franchise under the Twisted Dipsy trade name as a member of a select group of dealers that engage in the retail pretzel-concession business. To potential investors, Twisted Dipsy makes earnings claims. For those claims, the franchisor must have
a. a hypothetical basis.
b. a reasonable basis.
c. an actual basis.
d. no basis.
: B PAGE: 710 TYPE: N
NAT: AACSB Reflective AICPA Legal
CHAPTER 38—INSIGHT INTO ETHICS:
FIDUCIARY DUTIES OF LLC MANAGERS
A2. Kirby is a manager of Jumpstart Fitness LLC, a limited liability company. Jumpstart is formed in a state that imposes fiduciary duties on LLC managers. Kirby owes these duties to
a. Jumpstart’s members.
b. Jumpstart’s suppliers.
c. Jumpstart’s customers.
d. none of the choices.
: A PAGE: 745 TYPE: N
NAT: AACSB Reflective AICPA Legal
CHAPTER 39—SHIFTING LEGAL PRIORITIES FOR BUSINESS:
THE LATEST RECESSION RE-IGNITES THE INTERNET TAXATION DEBATE
A3. First Editions, Inc., a book dealer based in Texas, does business in all fifty states exclusively online. According to a decision of the United States Supreme Court, for an individual state to compel an out-of-state business to collect and remit state taxes, the business must have in that state
a. a substantial physical presence.
b. a potential marketing base.
c. an accessible Web site.
d. a party paid to solicit business for its products.
: A PAGE: 755 TYPE: N
NAT: AACSB Reflective AICPA Legal
CHAPTER 40—INSIGHT INTO ETHICS:
IS THE BUSINESS JUDGMENT RULE OVERLY PROTECTIVE?
A4. Metro Credit Corporation lends to borrowers to finance the construction of new houses and the sale and purchase of existing homes. Despite a decline in the housing market and other “red flags,” Metro’s directors do not change the lending practices of the firm, which suffers significant losses. The directors are most likely liable for a breach of
a. no duty, right, or rule
b. the business judgment rule.
c. the duty of loyalty.
d. the right of compensation.
: A PAGE: 780 TYPE: N
NAT: AACSB Reflective AICPA Legal
CHAPTER 42—SHIFTING LEGAL PRIORITIES FOR BUSINESS:
SEC DISCLOSURES AND CLIMATE CHANGE
A5. Cool Corporation makes energy-saving air conditioning units. Cool anticipates a change in the demand for its products as a consequence of climate change. One argument in favor of requiring Cool to disclose this information is that it could lead to
a. additional protections under the Sarbanes-Oxley Act of 2002.
b. an increase in the number of shareholder suits against competitors.
c. sound investment decisions by investors.
d. the conversion of Cool from publicly held to privately held.
: C PAGE: 813 TYPE: N
NAT: AACSB Reflective AICPA Legal
UNIT EIGHT—FOCUS ON ETHICS:
BUSINESS ORGANIZATIONS
A6. Logan is a director for Metal Masters Company. Ordinarily, Logan owes fiduciary duties only to
a. himself.
b. Metal Masters’s creditors.
c. Metal Masters’s personnel.
d. Metal Masters’s shareholders.
: D PAGE: 856 TYPE: =
NAT: AACSB Reflective AICPA Legal
A7. Sayer is an employee of Thorny Foliage Eradication, Inc. Sayer tweets messages about Thorny Foliage to employees and outside interested parties, including investors and others. According to the Securities and Exchange Commission, Sayer’s messages are subject to
a. federal securities laws.
b. international communications regulations.
c. state blog and tweet rules.
d. no law.
: A PAGE: 857 TYPE: N
NAT: AACSB Reflective AICPA Legal
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