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AICPA CPA-Business Exam Questions
CPA Business Environment and Concepts (Page 19 )

Updated On: 28-Feb-2026
Page 19 of 107
PDF with 530 Questions

A parent corporation owned more than 90% of each class of the outstanding stock issued by a subsidiary corporation and decided to merge that subsidiary into itself. Under the Revised Model Business Corporation Act, which of the following actions must be taken?

  1. The subsidiary corporation's board of directors must pass a merger resolution.
  2. The subsidiary corporation's dissenting stockholders must be given an appraisal remedy.
  3. The parent corporation's stockholders must approve the merger.
  4. The parent corporation's dissenting stockholders must be given an appraisal remedy.

Answer(s): B

Explanation:

Choice "b" is correct. In a short form merger (one between a parent and a subsidiary 90% of which is owned by the parent), the subsidiary's shareholders have a right to dissent and take advantage of the appraisal remedy.
Choice "a" is incorrect. The subsidiary's board is not required to take any action in a short-form merger.
Choice "c" is incorrect. The parent corporation's shareholders have no right to approve or disapprove a short-form merger.
Choice "d" is incorrect. The parent corporation's shareholders have no right to dissent to a short- form merger.



Davis, a director of Active Corp., is entitled to:

  1. Serve on the board of a competing business.
  2. Take sole advantage of a business opportunity that would benefit Active.
  3. Rely on information provided by a corporate officer.
  4. Unilaterally grant a corporate loan to one of Active's shareholders.

Answer(s): C

Explanation:

Choice "c" is correct. As a director of the corporation Davis may rely on information provided to him/her by a corporate officer. A corporate director is under no obligation to verify information given to him by management (corporate officers).
Choice "a" is incorrect. A director is not entitled to serve on the board of a competing business.
Doing so would be a breach of fiduciary duty.
Choice "b" is incorrect. A director may not take sole advantage of a business opportunity that would benefit the corporation. Doing so would be a breach of fiduciary duty. Choice "d" is incorrect. A director may not unilaterally grant a corporate loan to one of the corporation's shareholders. Directors generally must act through a majority vote at a directors' meeting.



Knox, president of Quick Corp., contracted with Tine Office Supplies, InC. to supply Quick's stationery on customary terms and at a cost less than that charged by any other supplier. Knox later informed Quick's board of directors that Knox was a majority stockholder in Tine. Quick's contract with Tine is:

  1. Void because of Knox's self-dealing.
  2. Void because the disclosure was made after execution of the contract.
  3. Valid because of Knox's full disclosure.
  4. Valid because the contract is fair to Quick.

Answer(s): D

Explanation:

Choice "d" is correct. If a corporation enters into a contract and a director has a conflict of interest in the transaction, the contract is voidable unless the director makes full disclosure of all of the facts to the disinterested directors or the shareholders, who then approve the transaction, or the director can prove that the transaction was fair to the corporation. The stationery purchase was fair to Quick, since it was purchased at a below-market price. Thus, the contract is valid. Choice "a" is incorrect. A director's self-dealing does not automatically make a contract voiD. The contract can be upheld if it was fair.
Choice "b" is incorrect. A director's self-dealing does not automatically make a contract voiD. The contract can be upheld if it was fair.
Choice "c" is incorrect. If a corporation enters into a contract and a director has a conflict of interest in the transaction, the contract is voidable unless the director makes full disclosure of all of the facts to the disinterested directors or shareholders, who then approve the transaction, or the director can prove that the transaction was fair. Mere disclosure after the contract was adopted does not automatically render the contract valid.



A stockholder's right to inspect books and records of a corporation will be properly denied if the purpose of the inspection is to:

  1. Commence a stockholder's derivative suit.
  2. Obtain stockholder names for a retail mailing list.
  3. Solicit stockholders to vote for a change in the board of directors.
  4. Investigate possible management misconduct.

Answer(s): B

Explanation:

Choice "b" is correct. In general, a shareholder has a right to inspect the books and records of a corporation for purposes related to the stockholder's interest in the corporation. This right will be denied where the purpose is not reasonably related to their status as a shareholder. Obtaining stockholder names to create a retail mailing list is a personal purpose. Choices "a", "c", and "d" are incorrect. The following reasons for shareholders to inspect the books of the corporation are reasonably related to their status as shareholders:
A . To commence a stockholder's derivative suit.
C . To solicit stockholders to vote for a change in the board of directors.
D . To investigate possible management misconduct.



Which of the following documents would most likely contain specific rules for the management of a business corporation?

  1. Articles of incorporation.
  2. Bylaws.
  3. Certificate of authority.
  4. Shareholders' agreement.

Answer(s): B

Explanation:

Choice "b" is correct. The bylaws are adopted by the incorporators or directors, are not required to be filed, and generally will contain rules desired regarding the operation of the corporation. Choice "a" is incorrect. Articles of incorporation are filed with the state and contain information regarding the formation of the corporation.
Choice "c" is incorrect. A certificate of authority is filed with the foreign state that a business wishes to do business in and with permission from that state.
Choice "d" is incorrect. A shareholder agreement is a contract between shareholders for any rights or duties agreed upon between the parties.



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