WGU D216 BUSINESS LAW FOR ACCOUNTANTS EXAM–
QUESTIONS AND ANSWERS | VERIFIED AND WELL DETAILED
ANSWERS PLUS RATIONALES | GUARANTEED PASS | LATEST
EXAM UPDATE | EXAM PREP | STUDY GUIDE | PRACTICE
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1. A certified public accountant is reviewing a client’s incorporation documents and
corporate governance structure. Which of the following sources of law primarily governs
the internal affairs and governance of a corporation?
A. Federal tax statutes enacted by Congress
B. The corporate law of the state of incorporation
C. Uniform Commercial Code Article 2
D. Common law rulings of federal district courts
The internal affairs doctrine dictates that the laws of the state in which a business
incorporates govern its internal operations, management structure, and the fiduciary duties of
its officers and directors. Federal statutes and the Uniform Commercial Code address specific
commercial transactions or tax obligations rather than general internal corporate governance.
2. During an audit, a staff accountant notes that a client’s board of directors authorized a
high-risk transaction that ultimately caused massive financial loss. Shareholders are now
suing the directors. Under the business judgment rule, how will the court evaluate the
directors' conduct?
A. The court will hold directors strictly liable for any financial loss resulting from poor business
choices.
B. The court will presume directors acted on an informed basis, in good faith, and with
honest belief that actions were in the best corporate interest.
C. The court will independently substitute its own business judgment for that of the board of
directors.
D. The court will automatically void the transaction if it yielded a negative return on investment.
The business judgment rule protects directors and officers from liability for business decisions
made in good faith, with due care, and without a conflict of interest, even if those decisions
turn out poorly. Courts refuse to second-guess business decisions unless fraud, bad faith, or
gross negligence is proven.
,3. Two partners in an accounting firm decide to dissolve their partnership. Under standard
partnership law, what is the correct legal sequence of distributing partnership assets upon
winding up?
A. Return of capital contributions first, payment of outside creditors second, and distribution of
remaining profits to partners last.
B. Payment of outside creditors first, repayment of partner loans and capital contributions
second, and distribution of remaining assets to partners as profits last.
C. Distribution of profits equally among partners first, payment of outside creditors second, and
return of capital contributions last.
D. Proportional distribution of all remaining assets directly to partners first, followed by
payment of external creditors from partner personal funds.
During partnership dissolution and winding up, the law requires that outside creditors,
including non-partner trade creditors and lenders, be paid first. Next, partner loans and
capital contributions are returned, and any remaining surplus is distributed to partners
according to their profit-sharing agreement.
4. An auditor is examining a contract where a company agreed to purchase software
licenses. The contract was signed by a corporate vice president who lacked actual authority
to bind the company to contracts over fifty thousand dollars. However, the vendor
reasonably believed the officer had authority based on the officer's title and past company
practices. Which agency concept binds the corporation to this contract?
A. Express actual authority
B. Apparent authority
C. Ratification by silence
D. Inherent agency power of sub-agents
Apparent authority arises when a principal's manifestations or actions cause a third party to
reasonably believe that an agent possesses the authority to act on the principal's behalf, even if
actual authority is lacking. The corporation is bound because a reasonable third party relied
on the apparent authority conveyed by the corporate office.
5. A corporate officer diverts a lucrative business opportunity away from their corporation
and takes it for personal financial gain without first presenting it to the board of directors.
What legal doctrine has this officer violated?
A. The doctrine of ultra vires
,B. The corporate opportunity doctrine
C. The business judgment rule
D. The principle of respondeat superior
The corporate opportunity doctrine is an aspect of the fiduciary duty of loyalty, which
prohibits directors, officers, and key employees from exploiting business opportunities
discovered in their corporate capacity for personal benefit without first offering them to the
corporation.
6. A manufacturing firm enters into an oral agreement to purchase raw materials worth
four thousand dollars from a supplier. The supplier delivers half the goods, and the
manufacturing firm accepts and pays for them. Under the Uniform Commercial Code,
what is the status of the remaining executory portion of the contract?
A. The entire contract is completely void because it was not reduced to a signed writing.
B. The contract is enforceable only to the extent of the goods already received and paid
for.
C. The contract is completely unenforceable under the common law statute of frauds.
D. The contract is fully enforceable for the remaining goods because partial performance
validates the transaction for goods accepted and paid for.
Under Uniform Commercial Code Section 2-201, a contract for the sale of goods priced at five
hundred dollars or more generally requires a writing. However, an oral contract is
enforceable with respect to goods for which payment has been made and accepted or which
have been received and accepted, but it remains unenforceable for unperformed, unaccepted
portions.
7. A CPA firm is hired to perform an independent audit for a publicly traded client. During
the engagement, the firm discovers intentional accounting fraud perpetrated by top
management. The firm decides to cover up the misstatements to protect its ongoing audit
fees. Under federal securities laws, what potential legal liability does the CPA firm face?
A. Strict liability solely under state common law breach of contract
B. Civil and criminal liability for securities fraud under the Securities Exchange Act of
1934
C. Absolute immunity because accountants are independent contractors rather than corporate
agents
, D. Exclusively administrative sanctions from state boards of accountancy without court
involvement
Accountants who intentionally participate in or conceal corporate fraud can face severe civil
and criminal penalties under federal securities statutes, including the Securities Exchange Act
of 1934 and the Sarbanes-Oxley Act, for aiding and abetting securities fraud.
8. An investor purchases preferred stock in a newly formed corporation. The corporation
fails to follow statutory incorporation procedures, such as failing to file articles of
incorporation with the state. Later, the corporation incurs substantial debt. Can the
investor be held personally liable for these business debts?
A. Yes, because the defective incorporation means no valid corporation was formed, often
resulting in partnership treatment where investors face personal liability.
B. No, because passive investors in corporate entities enjoy absolute statutory immunity from all
business liabilities regardless of formation errors.
C. Yes, but only if the investor actively managed daily corporate operations.
D. No, because the doctrine of ultra vires protects shareholders from defective entity formation.
When promoters or investors fail to substantially comply with mandatory incorporation
statutes, a de jure corporation is not formed. Courts may treat the enterprise as a general
partnership, exposing participants to joint and several personal liability for business debts,
unless doctrines like corporation by estoppel apply.
9. A disgruntled minority shareholder files a lawsuit alleging that the majority
shareholders have engaged in oppressive conduct and frozen the minority out of corporate
distributions while paying themselves excessive salaries. What equitable remedy is
commonly sought and granted in close corporation shareholder oppression disputes?
A. Mandatory federal bankruptcy liquidation
B. Judicial dissolution or a court-ordered buyout of the minority shares at fair value
C. Immediate criminal imprisonment of the board of directors
D. Automatic conversion of the corporation into a general partnership
In close corporations, minority shareholders lack a ready public market to sell their shares.
When majority shareholders engage in oppressive, unfair, or fraudulent conduct, courts
frequently grant equitable remedies such as ordering the corporation or majority to buy out
the minority shares at fair value or decreeing judicial dissolution.
QUESTIONS AND ANSWERS | VERIFIED AND WELL DETAILED
ANSWERS PLUS RATIONALES | GUARANTEED PASS | LATEST
EXAM UPDATE | EXAM PREP | STUDY GUIDE | PRACTICE
TEST| DOWNLOAD INSTANT PDF
1. A certified public accountant is reviewing a client’s incorporation documents and
corporate governance structure. Which of the following sources of law primarily governs
the internal affairs and governance of a corporation?
A. Federal tax statutes enacted by Congress
B. The corporate law of the state of incorporation
C. Uniform Commercial Code Article 2
D. Common law rulings of federal district courts
The internal affairs doctrine dictates that the laws of the state in which a business
incorporates govern its internal operations, management structure, and the fiduciary duties of
its officers and directors. Federal statutes and the Uniform Commercial Code address specific
commercial transactions or tax obligations rather than general internal corporate governance.
2. During an audit, a staff accountant notes that a client’s board of directors authorized a
high-risk transaction that ultimately caused massive financial loss. Shareholders are now
suing the directors. Under the business judgment rule, how will the court evaluate the
directors' conduct?
A. The court will hold directors strictly liable for any financial loss resulting from poor business
choices.
B. The court will presume directors acted on an informed basis, in good faith, and with
honest belief that actions were in the best corporate interest.
C. The court will independently substitute its own business judgment for that of the board of
directors.
D. The court will automatically void the transaction if it yielded a negative return on investment.
The business judgment rule protects directors and officers from liability for business decisions
made in good faith, with due care, and without a conflict of interest, even if those decisions
turn out poorly. Courts refuse to second-guess business decisions unless fraud, bad faith, or
gross negligence is proven.
,3. Two partners in an accounting firm decide to dissolve their partnership. Under standard
partnership law, what is the correct legal sequence of distributing partnership assets upon
winding up?
A. Return of capital contributions first, payment of outside creditors second, and distribution of
remaining profits to partners last.
B. Payment of outside creditors first, repayment of partner loans and capital contributions
second, and distribution of remaining assets to partners as profits last.
C. Distribution of profits equally among partners first, payment of outside creditors second, and
return of capital contributions last.
D. Proportional distribution of all remaining assets directly to partners first, followed by
payment of external creditors from partner personal funds.
During partnership dissolution and winding up, the law requires that outside creditors,
including non-partner trade creditors and lenders, be paid first. Next, partner loans and
capital contributions are returned, and any remaining surplus is distributed to partners
according to their profit-sharing agreement.
4. An auditor is examining a contract where a company agreed to purchase software
licenses. The contract was signed by a corporate vice president who lacked actual authority
to bind the company to contracts over fifty thousand dollars. However, the vendor
reasonably believed the officer had authority based on the officer's title and past company
practices. Which agency concept binds the corporation to this contract?
A. Express actual authority
B. Apparent authority
C. Ratification by silence
D. Inherent agency power of sub-agents
Apparent authority arises when a principal's manifestations or actions cause a third party to
reasonably believe that an agent possesses the authority to act on the principal's behalf, even if
actual authority is lacking. The corporation is bound because a reasonable third party relied
on the apparent authority conveyed by the corporate office.
5. A corporate officer diverts a lucrative business opportunity away from their corporation
and takes it for personal financial gain without first presenting it to the board of directors.
What legal doctrine has this officer violated?
A. The doctrine of ultra vires
,B. The corporate opportunity doctrine
C. The business judgment rule
D. The principle of respondeat superior
The corporate opportunity doctrine is an aspect of the fiduciary duty of loyalty, which
prohibits directors, officers, and key employees from exploiting business opportunities
discovered in their corporate capacity for personal benefit without first offering them to the
corporation.
6. A manufacturing firm enters into an oral agreement to purchase raw materials worth
four thousand dollars from a supplier. The supplier delivers half the goods, and the
manufacturing firm accepts and pays for them. Under the Uniform Commercial Code,
what is the status of the remaining executory portion of the contract?
A. The entire contract is completely void because it was not reduced to a signed writing.
B. The contract is enforceable only to the extent of the goods already received and paid
for.
C. The contract is completely unenforceable under the common law statute of frauds.
D. The contract is fully enforceable for the remaining goods because partial performance
validates the transaction for goods accepted and paid for.
Under Uniform Commercial Code Section 2-201, a contract for the sale of goods priced at five
hundred dollars or more generally requires a writing. However, an oral contract is
enforceable with respect to goods for which payment has been made and accepted or which
have been received and accepted, but it remains unenforceable for unperformed, unaccepted
portions.
7. A CPA firm is hired to perform an independent audit for a publicly traded client. During
the engagement, the firm discovers intentional accounting fraud perpetrated by top
management. The firm decides to cover up the misstatements to protect its ongoing audit
fees. Under federal securities laws, what potential legal liability does the CPA firm face?
A. Strict liability solely under state common law breach of contract
B. Civil and criminal liability for securities fraud under the Securities Exchange Act of
1934
C. Absolute immunity because accountants are independent contractors rather than corporate
agents
, D. Exclusively administrative sanctions from state boards of accountancy without court
involvement
Accountants who intentionally participate in or conceal corporate fraud can face severe civil
and criminal penalties under federal securities statutes, including the Securities Exchange Act
of 1934 and the Sarbanes-Oxley Act, for aiding and abetting securities fraud.
8. An investor purchases preferred stock in a newly formed corporation. The corporation
fails to follow statutory incorporation procedures, such as failing to file articles of
incorporation with the state. Later, the corporation incurs substantial debt. Can the
investor be held personally liable for these business debts?
A. Yes, because the defective incorporation means no valid corporation was formed, often
resulting in partnership treatment where investors face personal liability.
B. No, because passive investors in corporate entities enjoy absolute statutory immunity from all
business liabilities regardless of formation errors.
C. Yes, but only if the investor actively managed daily corporate operations.
D. No, because the doctrine of ultra vires protects shareholders from defective entity formation.
When promoters or investors fail to substantially comply with mandatory incorporation
statutes, a de jure corporation is not formed. Courts may treat the enterprise as a general
partnership, exposing participants to joint and several personal liability for business debts,
unless doctrines like corporation by estoppel apply.
9. A disgruntled minority shareholder files a lawsuit alleging that the majority
shareholders have engaged in oppressive conduct and frozen the minority out of corporate
distributions while paying themselves excessive salaries. What equitable remedy is
commonly sought and granted in close corporation shareholder oppression disputes?
A. Mandatory federal bankruptcy liquidation
B. Judicial dissolution or a court-ordered buyout of the minority shares at fair value
C. Immediate criminal imprisonment of the board of directors
D. Automatic conversion of the corporation into a general partnership
In close corporations, minority shareholders lack a ready public market to sell their shares.
When majority shareholders engage in oppressive, unfair, or fraudulent conduct, courts
frequently grant equitable remedies such as ordering the corporation or majority to buy out
the minority shares at fair value or decreeing judicial dissolution.
