LET 6e-TB-Ch01

Chapter 1
Business and Its

Legal Environment
TRUE/FALSE QUESTIONS
1.
The law establishes rights, duties, and privileges that are consistent
with the values of society.
ANSWER: T
PAGE:
NAT: AACSB Reflective
2.
PAGE:
2
AICPA Legal
TYPE:
The natural law philosopher believes that the law should reflect
universal moral and ethical principles that are part of human nature.
ANSWER: T
NAT: AACSB Ethics
5.
2
TYPE:
AICPA Critical Thinking
Law includes enforceable rules governing relationships between

individuals and their society.
ANSWER: T
NAT: AACSB Analytic
4.
How judges apply the law to specific disputes may depend in part on
their personal philosophical views.
ANSWER: T
PAGE:
3.
2
TYPE:
PAGE:
3
TYPE:
A federal law that conflicts with the U.S. Constitution will be deemed
unconstitutional.
ANSWER:
PAGE:
1
TYPE:
UNIT ONE: THE FOUNDATIONS
NAT: AACSB Analytic

6.
A state law that conflicts with the U.S. Constitution will be deemed
unconstitutional.
ANSWER: T
NAT: AACSB Analytic
7.
7
AICPA Legal
TYPE:
PAGE:
7
AICPA Legal
TYPE:
PAGE:
7
AICPA Legal
TYPE:
PAGE:
7
AICPA Legal
TYPE:
PAGE:
8
AICPA Legal
TYPE:
8
AICPA Legal
TYPE:
Federal statutes apply to all states.

ANSWER: T
NAT: AACSB Analytic
13.
PAGE:
Uniform laws apply in all states, including those in which the laws
have not been adopted.
ANSWER: F
NAT: AACSB Analytic
12.
A state constitution is supreme within the states borders so long as it

does not conflict with the U.S. Constitution or a federal law.
ANSWER: T
NAT: AACSB Analytic
11.
TYPE:
Whether a law is constitutional depends on its source.

ANSWER: F
NAT: AACSB Analytic
10.
7
AICPA Legal
The U.S. Constitution is the supreme law of the United States.

ANSWER: T
NAT: AACSB Analytic
9.
PAGE:
Constitutional law includes only the U.S. Constitution.

ANSWER: F
NAT: AACSB Analytic
8.
AICPA Legal
PAGE:
Every state has adopted the Uniform Commercial Code in its entirety.
CHAPTER 1: BUSINESS AND ITS LEGAL ENVIRONMENT
ANSWER: F
PAGE:
14.
8
AICPA Legal
TYPE:
Federal administrative agencies specify the powers of Congress.

ANSWER: F
NAT: AACSB Analytic
PAGE:
9
AICPA Legal
TYPE:
4
15.
State agency regulations take precedence over conflicting federal

agency regulations.
ANSWER: F
NAT: AACSB Analytic
16.
PAGE:
PAGE:
PAGE:
PAGE:
TYPE:
11
TYPE:
11
AICPA Legal
TYPE:
11
AICPA Legal
TYPE:
11
AICPA Legal
TYPE:
12
TYPE:
Courts do not depart from precedents.

ANSWER: F
PAGE:
22.
10
AICPA Legal
Stare decisis is a doctrine obligating judges to follow precedents

established within their jurisdictions.
ANSWER: T
NAT: AACSB Analytic
21.
PAGE:
Judges use precedent when deciding a case in a common law legal

system.
ANSWER: T
NAT: AACSB Analytic
20.
A decision on a given issue by a court is not binding on an inferior

court.
ANSWER: F
NAT: AACSB Analytic
19.
TYPE:
Common law is a term for the law that is known to most of us.
ANSWER: F
NAT: AACSB Analytic
18.
9
AICPA Legal
Common law is no longer a source of legal authority.

ANSWER: F
NAT: AACSB Analytic
17.
PAGE:
A court may depart from a precedent if the court decides that the
precedent should no longer be followed.
ANSWER: T
PAGE:
23.
12
TYPE:
A defendant is a person against whom a lawsuit is brought.

ANSWER: T
NAT: AACSB Analytic
PAGE:
14
AICPA Legal
TYPE:
6
24.
Equity is a branch of unwritten law that seeks to supply remedies

other than damages.
ANSWER: T
NAT: AACSB Analytic
25.
TYPE:
PAGE:
14
AICPA Legal
TYPE:
PAGE:
14
AICPA Legal
TYPE:
PAGE:
14
AICPA Legal
TYPE:
PAGE:
14
AICPA Legal
TYPE:
A substantive law creates or defines legal rights and obligations.

ANSWER: T
NAT: AACSB Analytic
31.
14
AICPA Legal
Equitable remedies include injunctions and decrees of specific

performance.
ANSWER: T
NAT: AACSB Analytic
30.
PAGE:
A courts direction to a party to do or to refrain from doing a

particular act is a rescission.
ANSWER: F
NAT: AACSB Analytic
29.
In most states, a court can grant legal remedies or equitable

remedies, but not both in the same case.
ANSWER: F
NAT: AACSB Analytic
28.
TYPE:
Monetary damages is a remedy at law.

ANSWER: T
NAT: AACSB Analytic
27.
14
AICPA Legal
A plaintiff is a person against whom a lawsuit is brought.

ANSWER: F
NAT: AACSB Analytic
26.
PAGE:
PAGE:
15
AICPA Legal
TYPE:
Criminal law focuses on duties that exist between persons.

ANSWER: F
NAT: AACSB Analytic
PAGE:
16
AICPA Legal
TYPE:
32.
International law is the law of a foreign nation and varies from

country to country.
ANSWER: F
NAT: AACSB Analytic
PAGE:
17
AICPA Legal
TYPE:
8
33.
A reference to 28 U.S.C. Section 1432 means that a federal courts

decision can be found on Page 28 of Section 1432 of the United
States Cases.
ANSWER: F
NAT: AACSB Analytic
34.
23
TYPE:
AICPA Research
Rules and regulations adopted by federal administrative agencies are

compiled in the Code of Federal Regulations.
ANSWER: T
NAT: AACSB Analytic
35.
PAGE:
PAGE:
24
TYPE:
AICPA Research
Most state trial court decisions are not published.

ANSWER: T
NAT: AACSB Analytic
PAGE:
24
TYPE:
AICPA Research
MULTIPLE-CHOICE QUESTIONS
1.
To Pete, the written law of a particular society at a particular time is

most significant. Pete is
a.
b.
c.
d.
a
a
a
a
legal positivist.
legal rationalist.
legal realist.
person who adheres to the natural law tradition.
ANSWER: A
NAT: AACSB Analytic
2.
PAGE:
3
TYPE:
To Opal, the law is a tool for promoting justice. This is a view of what
is sometimes called
a.
b.
c.
d.
promotional jurisprudence.
the just society.
the sociological school.
utilitarianism.
ANSWER: C
NAT: AACSB Analytic
PAGE:
4
TYPE:
10
3.
Voters in North Carolina approve a new state constitution, after which

the Ocean City Council passes new ordinances, the North Carolina
Department of Parks and Recreation issues new rules, and the Ocean
City Chamber of Commerce sends out new instructions. Sources of
law do not include
a.
b.
c.
d.
instructions issued by the Ocean City Chamber of Commerce.

ordinances passed by the Ocean City Council.
rules issued by the North Carolina Department of Parks and
Recreation.
state constitutions passed by popular vote.
ANSWER: A
PAGE:
4.
a
a
a
a
case decided by the Nebraska Supreme Court.

provision in the Nebraska constitution.
rule created by a Nebraska state administrative agency.
statute enacted by the Nebraska legislature.
ANSWER: B
PAGE:
7
AICPA Legal
TYPE:
Hawaii passes a state law that violates the U.S. Constitution. This law
can be enforced by
a.
b.
c.
d.
no one.
the federal government only.
the state of Hawaii only.
the United States Supreme Court only.
ANSWER: A
PAGE:
6.
TYPE:
In Nebraska, the highest-ranking (superior) law is

a.
b.
c.
d.
5.
6
AICPA Legal
7
AICPA Legal
TYPE:
If a provision in the Florida state constitution conflicts with a

provision in the U.S. Constitution
a.
b.
c.
d.
neither provision applies.

the provisions are balanced to reach a compromise.
the state constitution takes precedence.
the U.S. Constitution takes precedence.
11
ANSWER: D
PAGE:
7.
7
AICPA Legal
TYPE:
The River City Council, the Santa Clara County Board, the Texas state
legislature, and the U.S. Congress pass laws. These laws constitute
a.
b.
c.
d.
administrative law.
case law.
stare decisis.
statutory law.
ANSWER: D
PAGE:
7
TYPE:
Mary is a consultant to the National Conference of Commissioners on

Uniform State Laws. This organization
a.
b.
c.
d.
adopts uniform laws for the states.

applies uniform laws to the states.
drafts uniform laws for adoption by the states.
imposes uniform laws on the states.
ANSWER: C
PAGE:
10.
only to matters not covered by state law.

only to those states that adopt the statute.
to all of the states.
to none of the states.
ANSWER: C
PAGE:
9.
TYPE:
The U.S. Congress passes a new federal statute that sets different
standards for the liability of businesses selling defective products.
This statute applies
a.
b.
c.
d.
8.
7
AICPA Legal
8
TYPE:
The Federal Trade Commission (FTC) is a government agency that

issues rules, orders, and decisions. The Georgia state legislature
enacts statutes. The Jackson County Board and the Peach City
Council enacts ordinances. Administrative law includes
12
a.
b.
c.
d.
all law that affects a businesss operation.

decisions, orders, and rules of the FTC.
ordinances enacted by county board and the city council.
statutes enacted by the state legislature.
ANSWER: B
PAGE:
11.
8
AICPA Legal
TYPE:
Jay is a federal judge. Jays judicial decisions are part of case law. This
law includes interpretations of
a.
b.
c.
d.
administrative regulations only.

constitutional provisions only.
statutes only.
administrative regulations, constitutional
statutes.
ANSWER: D
PAGE:
provisions,
11
TYPE:
and
Areas of the law not governed by statutory or administrative law are

a.
b.
c.
d.
governed by the common law.

open to each individuals own interpretation.
regulated by the states under the U.S. Constitution.
subject to local ordinances.
ANSWER: A
NAT: AACSB Analytic
14.
all states.
forty-five states.
twenty-five states.
no states.
ANSWER: A
PAGE:
13.
TYPE:
The Uniform Commercial Code has been adopted, at least in part, in

a.
b.
c.
d.
12.
8
AICPA Legal
PAGE:
11
AICPA Legal
TYPE:
The common law is referred to as the common law because

a.
it is the law that is familiar to most of us.
13
b.
c.
d.
it was originally applied only to commoners.

it was more or less uniform throughout England.
the law was issued by courts of common pleas.
ANSWER: C
PAGE:
11
AICPA Legal
TYPE:
14
15.
The federal government and the state governments constitute the

U.S. legal system. This system is based on the legal system of
a.
b.
c.
d.
Ancient Greece.
Ancient Rome.
England.
France.
ANSWER: C
PAGE:
16.
administrative regulations.
court decisions.
federal and state statutes.
proposed uniform laws.
ANSWER: B
PAGE:
11
AICPA Legal
TYPE:
In Abel v. Baker, a state supreme court held that a minor could cancel
a contract for the sale of a car. Now a trial court in the same state is
deciding Charles v. Delta, a case with similar facts. Under the
doctrine of stare decisis, the trial court is likely to
a.
b.
c.
d.
allow the minor to cancel the contract.

disregard the previous case.
order the minor to cancel the contract.
require the minor to fulfill the contract.
ANSWER: A
PAGE:
18.
TYPE:
As a judge, Phil applies common law rules. These rules develop from
a.
b.
c.
d.
17.
11
AICPA Legal
11
TYPE:
Jill is an appellate court judge. In this capacity, Jill establishes a rule

of law. Under the doctrine of stare decisis, the principle must be
adhered to by
a.
b.
c.
d.
all courts.
courts of lower rank only.
that court and courts of lower rank.
that court only.
15
ANSWER: C
NAT: AACSB Analytic
19.
PAGE:
12
TYPE:
In Best Sales Corp. v. Carol, the court decides that a precedent is

incorrect or inapplicable. With this in mind, the court
a.
b.
c.
d.
may rule contrary to the precedent.

must apply the precedent.
must refuse to decide the particular case.
must stand on the decided case.
ANSWER: A
PAGE:
12
AICPA Legal
TYPE:
In Hi-Sales Co. v. Imports, Inc., there is no precedent on which the

court can base a decision. The court can consider
a.
b.
c.
d.
neither public policy nor social customs and values.

public policy only.
public policy or social customs and values.
social customs and values only.
ANSWER: C
PAGE:
22.
as different as possible.
as similar as possible.
at odds.
exactly identical.
ANSWER: B
PAGE:
21.
TYPE:
Kurt is a judge hearing the case of Local Co. v. Macro Corp. Applying
the relevant rule of law to the facts of the case requires Kurt to find
previously decided cases that, in relation to the case under consideration, are
a.
b.
c.
d.
20.
12
AICPA Legal
12
TYPE:
A state trial court has before it Eagle Manufacturing Co. v. Fine

Products Corp., a case with no binding authority. The court can
a.
b.
not refuse to decide the Eagle case.

postpone deciding Eagle indefinitely.
16
c.
d.
postpone deciding Eagle until there is binding authority.

refuse to decide Eagle.
ANSWER: A
PAGE:
12
AICPA Legal
TYPE:
17
23.
In an action against Elin, Frank obtains a remedy. This is

a.
b.
c.
d.
an administrative agencys enforcement of its rule.

a principle of the law derived from earlier court cases.
a statute enacted by a state legislature or Congress.
the legal means to enforce a right or to redress a wrong.
ANSWER: D
PAGE:
24.
the
the
the
the
appellant.
appellee.
defendant.
plaintiff.
ANSWER: D
PAGE:
14
AICPA Legal
TYPE:
Standard Business Company appeals a decision against it, in favor of

Top Flight Corporation, from a lower court to a higher court. Standard
is
a.
b.
c.
d.
the
the
the
the
appellant.
appellee.
defendant.
plaintiff.
ANSWER: A
PAGE:
26.
TYPE:
Nett Corporation files a suit against Omega, Inc., alleging that Omega
breached a contract to sell Nett a computer system for $140,000.
Nett is
a.
b.
c.
d.
25.
13
AICPA Legal
14
AICPA Legal
TYPE:
Holly is a state court judge. Ilsa appears in a case in Hollys court,

claiming that Jim breached a contract. As in most state courts, Holly
may
a.
b.
c.
d.
award damages, cancel the contract, or direct a party to do or

not to do an act.
award damages only.
cancel the contract only.
direct a party to do or not to do a particular act only.
18
ANSWER: A
PAGE:
14
AICPA Legal
TYPE:
19
27.
In a suit against Chad, Dodie obtains the cancellation of a contract,

which is
a.
b.
c.
d.
a decree of specific performance.

an award of damages.
an injunction.
rescission.
ANSWER: D
PAGE:
28.
a direction to a party to do or refrain from doing a particular

an award of compensation.
an order to perform what was promised.
the cancellation of a contract.
ANSWER: C
PAGE:
14
AICPA Legal
TYPE:
Guru Internet, Inc. (GII), is an Internet service provider. GIIs tech

support employees are on strike. Six of the workers are blocking GIIs
door. To get them away from the door, GII should obtain
a.
b.
c.
d.
a decree of specific performance.

an award of damages.
an injunction.
a rescission.
ANSWER: C
PAGE:
30.
TYPE:
In a suit against Kathy, Lon obtains specific performance. This is

a.
act.
b.
c.
d.
29.
14
AICPA Legal
14
TYPE:
=
AICPA Decision Modeling
Lev is a judge. In his court, Lev may bar a suit if it is not filed within a
proper time according to
a.
b.
c.
d.
a statute of limitations.
the doctrine of stare decisis.
the chancellors discretion.
the kings conscience.
ANSWER:
PAGE:
15
TYPE:
20
NAT: AACSB Analytic
AICPA Legal
21
31.
Beth is a victim of Carlyles violation of a criminal law. Criminal law is

concerned with
a.
b.
c.
d.
the prosecution of private individuals by other private

individuals.
the prosecution of public officials by private individuals.
the relief available when a persons rights are violated.
wrongs committed against the public as a whole.
ANSWER: D
PAGE:
32.
d.
the laws of individual nations only.

treaties and international organizations only.
the laws of individual nations, and treaties and international
organizations.
none of the choices.
ANSWER: C
PAGE:
17
AICPA Legal
TYPE:
If the title of a case appears as Quality Sales Corp. v. Regional

Distribution Co., the party in whose favor the court decided is
a.
b.
c.
d.
Quality Sales.
Regional Distribution.
either party.
neither party.
ANSWER: C
NAT: AACSB Analytic
34.
TYPE:
When Overseas Exports, Inc., based in New York, does business

internationally, the firm may be subject to international law. The
sources of this law include
a.
b.
c.
33.
16
AICPA Legal
PAGE:
30
TYPE:
AICPA Research
The Montana Supreme Court decides the case of National Co. v.

Overseas Corp. Of nine justices, eight believe the judgment should be
in Nationals favor. Justice Pine disagrees and writes a separate
opinion. This opinion is
a.
b.
a concurring opinion.
a dissenting opinion.
22
c.
d.
a minority opinion.
a unanimous opinion.
ANSWER: B
NAT: AACSB Analytic
35.
PAGE:
30
TYPE:
AICPA Research
Metro City Center is an area of tourist attractions in Metro City. The

Centers director, under the citys authority, issues a rule to require
street performers to obtain permits. The Center cites Nobby, a
magician, for performing without a permit. Under the principles
discussed in A Sample Court Case, Berger v. City of Seattle, the
Center most likely acted
a.
b.
c.
d.
in violation
reasonably
reasonably
reasonably
of Nobbys rights under the First Amendment.

in issuing the rule but not in citing Nobby.
in citing Nobby but not in issuing the rule.
in the circumstances and under the law.
ANSWER: D
PAGE:
34
TYPE:
AICPA Research
ESSAY QUESTIONS
1.
In a lawsuit between Super Sales Corporation and Topper Associates,

Inc., the court applies the doctrine of stare decisis. What is this
doctrine? What does this doctrine have to do with the American legal
system?
ANSWER: In a common law legal system, past judicial decisions are
binding in current disputes with similar facts. This feature of the common law, which is the basis of the American legal system, is unique
because, unlike the law in other legal systems, it is judge-made law.
Within the common law system, when possible, judges attempt to be
consistent and to base their decisions on the principles suggested by
earlier cases. The body of principles and doctrines that form the
common law emerged over time as judges applied the principles
announced in earlier cases to subsequent legal controversies. The
practice of deciding cases with reference to former decisions, or
precedentsthe cornerstone of the American legal systemis called
the doctrine of stare decisis. Under this doctrine, judges are obligated
to follow the precedents established within their jurisdictions. This
23
helps courts to be more efficient, and makes the law more stable and
predictable.
PAGES:
1112
2.
TYPE:
=
AICPA Legal
The Olympic Torch Relay passed through Juneau, Alaska, on its way to
the winter games in Salt Lake City, Utah, in 2002. Students at JuneauDouglas High School (JDHS) were permitted to leave class to observe
the relay. As it passed in front of the school, Joseph Frederick, a
senior, and his friends unfurled a banner bearing the phrase: BONG
HiTS 4 JESUS. Deborah Morse, JDHSs principal, confiscated the
banner and suspended Frederick for ten days. Fredericks suit against
Morse was eventually appealed to the United States Supreme Court.
The Courts opinion in the case is at Morse v. Frederick, __ U.S. __,
147 S.Ct. 2618, 168 L.Ed.2d 290 (2007). Specifically where can this
opinion be found?
ANSWER: This caseMorse v. Frederick, __ U.S. __, 147 S.Ct. 2618,
168 L.Ed.2d 290 (2007)can be found in its entirety in volume 147 of
the Supreme Court Reporter, on page 2618, and in volume 168 of
Lawyers Edition of the Supreme Court Reports, on page 290. Both
publications are unofficial editions of the decisions of the United
States Supreme Court. The opinion may also be found in United
States Reports, the official edition of the Courts decisions, but the
blank lines indicate that the volume has not yet been published and
no page numbers have yet been assigned. The Court decided this
case in 2007.
PAGES:
26 &
27
TYPE:
AICPA Research

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Chapter 1

Business and Its

Law includes enforceable rules governing relationships between

UNIT ONE: THE FOUNDATIONS

NAT: AACSB Analytic

Federal statutes apply to all states.

A state constitution is supreme within the states borders so long as it

Whether a law is constitutional depends on its source.

The U.S. Constitution is the supreme law of the United States.

Constitutional law includes only the U.S. Constitution.

CHAPTER 1: BUSINESS AND ITS LEGAL ENVIRONMENT

Federal administrative agencies specify the powers of Congress.

UNIT ONE: THE FOUNDATIONS

State agency regulations take precedence over conflicting federal

Courts do not depart from precedents.

Stare decisis is a doctrine obligating judges to follow precedents

Judges use precedent when deciding a case in a common law legal

A decision on a given issue by a court is not binding on an inferior

Common law is no longer a source of legal authority.

CHAPTER 1: BUSINESS AND ITS LEGAL ENVIRONMENT

A defendant is a person against whom a lawsuit is brought.

UNIT ONE: THE FOUNDATIONS

Equity is a branch of unwritten law that seeks to supply remedies

A substantive law creates or defines legal rights and obligations.

Equitable remedies include injunctions and decrees of specific

A courts direction to a party to do or to refrain from doing a

In most states, a court can grant legal remedies or equitable

Monetary damages is a remedy at law.

A plaintiff is a person against whom a lawsuit is brought.

Criminal law focuses on duties that exist between persons.

CHAPTER 1: BUSINESS AND ITS LEGAL ENVIRONMENT

International law is the law of a foreign nation and varies from

UNIT ONE: THE FOUNDATIONS

A reference to 28 U.S.C. Section 1432 means that a federal courts

Rules and regulations adopted by federal administrative agencies are

Most state trial court decisions are not published.

To Pete, the written law of a particular society at a particular time is

CHAPTER 1: BUSINESS AND ITS LEGAL ENVIRONMENT

UNIT ONE: THE FOUNDATIONS

Voters in North Carolina approve a new state constitution, after which

instructions issued by the Ocean City Chamber of Commerce.

case decided by the Nebraska Supreme Court.

In Nebraska, the highest-ranking (superior) law is

If a provision in the Florida state constitution conflicts with a

neither provision applies.

CHAPTER 1: BUSINESS AND ITS LEGAL ENVIRONMENT

Mary is a consultant to the National Conference of Commissioners on

adopts uniform laws for the states.

only to matters not covered by state law.

The Federal Trade Commission (FTC) is a government agency that

UNIT ONE: THE FOUNDATIONS

all law that affects a businesss operation.

administrative regulations only.

Areas of the law not governed by statutory or administrative law are

governed by the common law.

The Uniform Commercial Code has been adopted, at least in part, in

The common law is referred to as the common law because

it is the law that is familiar to most of us.

CHAPTER 1: BUSINESS AND ITS LEGAL ENVIRONMENT

it was originally applied only to commoners.

UNIT ONE: THE FOUNDATIONS

The federal government and the state governments constitute the

allow the minor to cancel the contract.