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    Accounting Case Study Questions

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    Any 7 of the following 10 questions may be answered:
    1. If a digging dog found some deadly dirt, what government agency would you contact about it? Why would you contact the agency you have named?

    2. Michael and Lisa were married in 1980 and immediately moved into a house that was titled in Michael's name only. In 1982, Lisa gave birth to a son and, two years later, she gave birth to another son. The family of four continued to live in the same house that was in Michael's name and everything seemed to be fine. One Sunday evening, in February 1988, Michael told Lisa that he was going to drive up to the store to buy a few cigars. He never returned from the store. Lisa called the police, and an investigation ensued. The police did find Michael in an adjoining state a few days later. He told the police that he simply did not want to be married anymore and had left Lisa and the kids. Having committed no crime, the police let him be, and reported their findings to Lisa.
    Lisa continued to live in the same house. She paid all the bills related to its upkeep, paid the annual taxes, and paid the mortgage. In 1994, she obtained an uncontested divorce from Michael without the assistance of an attorney. All she wanted was the divorce, and she made no claim for child support or alimony. In addition, no court decision was made as to what to do with the house. Lisa continued to live in the house with her kids, who eventually went away to college, got married, and started their own adult lives. Now it's January 2009, and Lisa has decided that the house is too much for her. Despite the difficult economy, she wants to try to sell the house and contacts a real estate agent. The real estate agent conducts a search of the land records and discovers that the house is still titled in Michael's name. The agent tells Lisa that she (Lisa) cannot sell the house without Michael's approval. Lisa has long lost touch with Michael and has no idea where he is or if he is even alive.
    Give a brief explanation of what legal theory might be available to Lisa that would permit her to become owner of the house and to then sell it.

    3. Joan is 80 years old and expects to die within the next six months. She wants to make sure her favorite niece, Sally, gets her diamond ring. While visiting one day, Joan says to Sally, "I want you to have my ring when I die, so I will keep it hidden under the rug for you. After I'm gone, come on by and get it." Sally says, "I accept your gift. Thank you." Joan dies a month later. Her Last Will and Testament says that Suzie, another niece, is to get the ring. Sally and Suzie then get into an argument over who gets the ring. Sally says she is entitled to it because it was a gift from Joan. Suzie says she gets the ring because of the Last Will and Testament. Address Sally's and Suzie's claims and explain who gets the ring. Give the legal theory for your answer.

    4. The Acme Life Insurance Company sends out 5,000 emails to prospective customers to announce that it has just hired Frank Unctious as its newest sales representative. Joan receives one of the emails and, being in the market for life insurance, calls Frank to set up an appointment. Frank stops by her house, and they discuss life insurance options. Joan says she will think it over and get back in touch. A few weeks go by, during which time Acme become disenchanted with Frank's inability to increase sales. Acme then fires Frank. After he leaves the office, Frank calls Joan to see if she has decided on a life insurance policy. He doesn't mention that he has just been fired. Joan says that she wants to purchase a policy, and Frank sets up a time that afternoon to stop by to visit Joan. He fills out the correct forms, which he still has in his briefcase, and stops by Joan's house. She signs the forms and gives Frank a deposit of $1,000.00. Frank tells Joan that she will receive the official policy in the mail in a few weeks but, since she paid the deposit, she is now covered (and assume that is a correct statement of how life insurance policies work). Frank manages to cash the check, which was made payable to Acme, and leaves town. A week later, Joan dies. Her heirs find the life insurance papers and make a claim for the proceeds to Acme. Acme says it has no knowledge of any policy and refuses to pay the proceeds. Under what theory of liability might the insurance company have to pay Joan's heirs? Explain your answer.

    5. Explain this statement: while all types of employment discrimination might be ethically or morally wrong, all forms of employment discrimination are not illegal. Give the legal reasons for your answer.

    6. Chloe and Cal have been dating steadily for the last year. Unbeknownst to Chloe, Cal purchases a diamond engagement ring for Chloe with plans to give it to her during a vacation at a resort. One night they are walking on the beach. Cal has the diamond ring in his pocket. Chloe decides she wants to take a midnight swim and, after undressing, dives into the ocean. Cal undresses, carefully folds his clothes, makes sure the ring is still in the pocket, and then joins Chloe in the water. Chloe gets out of the water first and, in a playful mood, tosses Cal's clothes all over the beach. Horrified that the ring might be lost, Cal retrieves the clothes and discovers the diamond ring is gone. He is afraid to tell Chloe what happened and leaves the beach without searching for the ring. A few days late, while in a local pub, Cal notices another woman at the bar, and she is wearing Chloe's diamond ring. He and the woman get into an argument about the ring and who is entitled to it. The woman tells Cal, "finders keepers, losers weepers." The pub owner overhears the argument and then he gets into it by saying he owns that part of the beach where the woman found the ring and that he is actually entitled to the ring. Who gets the ring? Give the legal reason for your answer.

    7. Sharon owes Irma $500.00 for a small loan Irma gave to Sharon six months ago. Sharon has just received a check made payable to her from the Ajax Company, for work Sharon performed for Ajax. She endorses the check and writes on the back of the check, "Pay to the Order of Irma." She gives the check to Irma in payment of her indebtedness to Irma. Sharon tells Irma to hurry up and cash the check, because she (Sharon) thinks Ajax might want the check back when it finds out Sharon didn't complete all the work she was supposed to finish for Ajax. Irma doesn't have time to get to the bank so she puts the check on her kitchen table and forgets about it. In the meantime, Ajax does discover that Sharon had not completed the work for Ajax as originally thought, and it puts a stop payment on the check it gave to Sharon. A few days later, Irma gets around to depositing the check, but it is dishonored by her bank because of the stop payment order. In the meantime, Sharon has left town. Irma wonders if she can now bring a claim against Ajax for the $500.00 because of her possible rights as a holder in due course of the check. She asks your opinion on the matter. What is your answer to Irma? Give the legal reason for your answer?

    8. Lucy had been selling her exciting new product for a couple of years when she was approached by her neighbor, Wanda, who asked if she could sell for Lucy, inasmuch as she was a professional salesperson and could help out in the evenings and on weekends. She also said that she had a few thousand dollars that she "would like to put in the business," as it seemed like it was going to be a "goldmine!"
    Lucy thought this was a great idea. She took Wanda's money, bought some new equipment, and agreed to split the annual profits with Wanda 70%/30%. No documents were created to codify the arrangement, which was nothing more than described. Soon another neighbor advised Lucy that Wanda was talking to lenders about borrowing money for the business, and was seemingly quite cavalier in her driving of the company van while delivering products to customers. She said that she thought Wanda was "an accident waiting to happen." Further, the neighbor told Lucy to be careful, as she understood that Wanda's relationship with Lucy might well be that of a partner, and that Lucy might be liable for financial obligations or property damage caused by Wanda. Is the neighbor correct with her statements regarding Wanda's legal relationship with Lucy? Why or why not? Explain your answer.

    9. Frank Pierce is the sole stockholder and director of Ajax, Inc., a construction company in Anytown, U.S.A. Times are getting tough, and Frank is worried about his finances. He is mostly worried about keeping up the mortgage payments on his relatively new home that he purchased during the housing boom. The house, which is titled in his name, was a wedding present to his new wife. After sitting in his office for two weeks, with no telephone calls for new business, Frank decides to close up shop. He closes the corporate bank account, which has $30,000.00 in it, and deposits the money into a bank account in his name and in the name of his wife. He talks another construction company into purchasing the corporation's equipment and tools and gives that money, about $10,000.00, to his wife as an anniversary present. Three months later, while browsing the internet, he sees that Ajax, Inc. is being sued by several unpaid creditors. He shrugs and is unconcerned. He knows that he has protection from personal liability because of the corporate status. Should Frank be as unconcerned as he is? Might he have some legal problems personally from the unpaid creditors? Why or why not? Give the reasons for your answer.

    10. Mary is a dentist and Ed is an accountant. They are getting divorced from each other and have agreed on issues dealing with child custody and child support and alimony. In addition, they have agreed to sell their house and to split the proceeds equally. Not wanting to get into prolonged disputes with each other about the contents of the house and garage and who gets what, they decide to have a yard sale and to split the profits of the sale. On the day of the yard sale, they empty much of the contents of the house and garage onto their spacious front lawn and wait for buyers to show up. Things go well and by the end of the day, most of the contents have been sold and hauled away by the various buyers. One item that went unsold was a tractor lawn mower.

    Jacob, the next-door neighbor of Mary and Ed, has been keeping an eye on the progress of the yard sale all day and is very happy to see the lawn mower has not been sold. Thinking Mary and Ed will be anxious to get rid of it, now that no one else has bought it, he wanders over and offers Mary and Ed $750.00 for the lawn mower. Mary and Ed look at each other, shrug, and tell Jacob he has a deal. He pays cash for the tractor, starts it up, and drives it to his own garage.

    Mary and Ed move the next week. A few weeks later, Roger the Repo Man knocks on Jacob's door and says he has come to pick up the tractor, because his client, The Happy Lawn Tractor Company, has a security interest on the tractor until it is paid for. He explains to Jacob that Mary and Ed had purchased the tractor from the company the year before and were required to make 24 monthly payments. No payments have been received in three months. Roger shows Jacob some paperwork signed by Mary and Ed, and it does seem to support what Roger is saying.

    Jacob, who took a Business Law course, says to Roger, "Hey, I get to keep the tractor because I bought it in good faith from Mary and Ed and didn't know about any liens. I have superior rights to the tractor."

    Is Jacob correct? Explain your answer, giving the legal reasons.

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    Solution Preview

    Case 1
    I will call the US Department of Health and Human Services. The deadly dirt can result to potential harm to human beings; hence, this government agency would be the best agency to call.

    Case 3
    What Sally can do is to attack the validity of Joan's Last Will and Testament. For example, she can argue that it was not properly signed by the testator, Joan. In contesting the will's validity, Sally has the burden of proof. Sally needs to explore all legal avenues available for her to establish that Joan's unwritten promise to her that she will receive the diamond ring after Joan's demise has more legal basis than the will.
    However, if Sally fails and the courts disagree with her, then Suzie will get the ring.

    Case 5
    Not all forms of employment discrimination are illegal. For example, a food processing company such as a ...

    Solution Summary

    This solution provides answers to various accounting case study questions.