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Chapter 44

Consumer Law

MULTIPLE CHOICE QUESTIONS

A1. Through unfair trade practices, Super Sales Company induces Trey and other consumers to enter into one-sided deals. This may be subject to sanctions under

a. federal and state law. b. federal law only. c. no law, according to the principles of freedom to contract. d. state law only.

ANSWER: A PAGE: 905 TYPE: N NAT: AACSB Reflective AICPA Legal

B1. Through careless manufacturing practices, Insta-Market Company makes and sells unsafe products to Jess and other consumers. This may be subject to sanctions under

a. federal and state law. b. federal law only. c. no law, according to the principles of freedom to contract. d. state law only.

ANSWER: A PAGE: 905 TYPE: N NAT: AACSB Reflective AICPA Legal

A2. Frosty’s Appliance Store advertises freezers at a “Special Low Price of $299.” When Garth tries to buy one of the freezers, Huey, the salesperson, tells him that they are all sold and no more are obtainable. Huey adds that Frosty’s has other freezers for $2,299. This is

a. a legitimate sales technique. b. bait-and-switch advertising. c. counteradvertising. d. puffery.

ANSWER: B PAGE: 906 TYPE: = NAT: AACSB Reflective AICPA Legal

B2. Orange Company makes computers. The company’s ad states that “if you aren’t eatin’ an Orange, you aren’t gettin’ any ‘C.” ” The Federal Trade Commission would consider this ad

a. false and misleading. b. false only. c. misleading only. d. neither false nor misleading.

answer: D PAGE: 905 TYPE: = NAT: AACSB Reflective AICPA Legal

A3. Miracle Products, Inc., engages in deceptive advertising when it markets its product Weight-Off as able to help consumers lose weight in their sleep. Miracle is ordered to include in all future advertising of Weight-Off the statement, “Weight-Off will not cause anyone to lose weight in their sleep.” This is

a. a counteradvertising order. b. a multiple product order. c. bait-and-switch advertising. d. excessive abuse of authority.

ANSWER: A PAGE: 906 TYPE: = NAT: AACSB Reflective AICPA Legal

B3. Precise GPS Company’s ad states that its product is “the finest that money can buy.” Because of this ad, the Federal Trade Commission is most likely to issue

a. a cease-and-desist order only. b. a cease-and-desist order or a counteradvertising order. c. a counteradvertising order only. d. neither a cease-and-desist order nor a counteradvertising order.

answer: D PAGE: 906 TYPE: = NAT: AACSB Reflective AICPA Legal

A4. Vanna and many other consumers complain to the Federal Trade Commission (FTC) that a Whoopie Wonders Company ad is deceptive. The FTC’s first step is to

a. draft a formal complaint. b. investigate. c. issue a cease-and-desist order. d. require counteradvertising.

ANSWER: B PAGE: 906 TYPE: N NAT: AACSB Reflective AICPA Legal

B4. Cleaners & Solvents, Inc. (CSI), engages in deceptive advertising when it markets its product Dirt Remover as able to kill germs over long periods of time. In an action against CSI regarding Dirt Remover, the firm is ordered to stop its false advertising of Dirt Remover and other products. This is

a. a counteradvertising order. b. a multiple product order. c. bait-and-switch advertising. d. excessive abuse of authority.

ANSWER: B PAGE: 906 TYPE: = NAT: AACSB Reflective AICPA Legal

A5. Consumer Products, Inc. (CPI), in its ads, makes claims about its products that are obvious exaggerations and claims that are false but appear to be true. CPI may be subject to sanctions for

a. neither the false claims nor the obvious exaggerations. b. only the false claims. c. only the obvious exaggerations. d. the false claims and the obvious exaggerations.

answer: B PAGE: 906 TYPE: = NAT: AACSB Reflective AICPA Legal

B5. GR8 Fashion, Inc., complains to the Federal Trade Commission (FTC) about an ad broadcast by Hott Clothes Company, GR8’s competitor. The FTC investigates and concludes that the ad is deceptive. The FTC’s next step is to

a. conduct negotiations between the competitors. b. draft a formal complaint. c. issue a cease-and-desist order. d. permit A to broadcast similarly deceptive counteradvertising.

ANSWER: B PAGE: 906 TYPE: N NAT: AACSB Reflective AICPA Legal

A6. Penny Stock Company faxes ads to Quality Personnel Corporation and other businesses without the recipients’ permission. This is

a. illegal. b. legal and smart because such ads are generally cheap. c. legal but not smart because such ads are generally ineffective. d. legal but only potentially smart, depending on the response rate.

ANSWER: A PAGE: 908 TYPE: N NAT: AACSB Reflective AICPA Legal

B6. Travel Tours Company faxes ads to Uri and other individual consumers without the recipients’ permission. This is subject to

a. a cease-and-desist order by the Federal Trade Commission. b. no sanctions. c. possible fines by the Federal Communications Commission. d. rescission on the order of the Federal Reserve Board.

ANSWER: C PAGE: 908 TYPE: N NAT: AACSB Reflective AICPA Legal

A7. To generate sales, Yakkity-Yak, Inc., uses phone solicitation. Under federal law and Federal Trade Commission regulations, in soliciting business, Yakkity-Yak’s telemarketers must

a. disclose all material facts related to a sale. b. identify the seller’s name (only if asked). c. refrain from calling consumers who have not requested a call. d. speak clearly and conspicuously.

ANSWER: A PAGE: 908 TYPE: N NAT: AACSB Reflective AICPA Legal

B7. Like other manufacturers and sellers, Useful Products Company packages its products with labels. Under federal law, such labels must be

a. accurate and use easily understood words. b. bright and feature eye-catching colors. c. graphically distinctive and well-designed. d. interesting and revealing to the average consumer.

ANSWER: A PAGE: 909 TYPE: N NAT: AACSB Reflective AICPA Legal

A8. Like other manufacturers and sellers, Peoples Products Corporation labels its goods. Federal labeling and packaging rules are enforced by the Federal Trade Commission and

a. the U.S. Department of Commerce. b. the U.S. Department of Health and Human Services. c. the U.S. Department of Justice. d. the U.S. Department of the Treasury.

answer: B PAGE: 909 TYPE: = NAT: AACSB Reflective AICPA Legal

B8. Ron signs a contract with Sam, a door-to-door salesperson for Tutors, Inc., to buy a foreign-language course. To cancel the contract, Ron has up to

a. three days. b. thirty days. c. sixty days. d. ninety days.

ANSWER: A PAGE: 909 TYPE: = NAT: AACSB Reflective AICPA Legal
A9. Special Roast Coffee, Inc., processes and sells a variety of coffee products. Special Roast’s product packages must include

a. neither the contents’ net quantity nor the product’s identity. b. the contents’ net quantity and the product’s identity. c. the contents’ net quantity only. d. the product’s identity only.

ANSWER: B PAGE: 909 TYPE: = NAT: AACSB Reflective AICPA Legal

B9. Friendly Loan Company extends credit in the ordinary course of its business. Under the Truth-in-Lending Act, Friendly must inform potential borrowers of

a. credit terms offered by other lenders and its own credit terms. b. only credit terms offered by other lenders. c. only its own credit terms. d. only the credit terms that will convince borrowers to “close the deal.”

ANSWER: C PAGE: 910 TYPE: = NAT: AACSB Reflective AICPA Legal

A10. Luscious Treats, Inc., wants to market a new snack food. On the product’s label, standard nutrition facts are

a. mandated by the U.S. Chamber of Commerce. b. required by the Nutrition Labeling and Education Act. c. strictly voluntary. d. warranted by the nature of the food.

ANSWER: B PAGE: 909 TYPE: = NAT: AACSB Reflective AICPA Legal

B10. Brad borrows $20,000 from City Bank to repair his home and to buy a car. Brad buys a stereo from Delta Discount Store in a transaction financed by Delta. If these parties are subject to the Truth-in-Lending Act, Regulation Z applies to

a. the car loan only. b. the home repair loan only. c. the retail installment sale only. d. the car loan, the home repair loan, and the retail installment sale.

ANSWER: D PAGE: 910 TYPE: = NAT: AACSB Reflective AICPA Legal

A11. In the ordinary course of business, Xtra Charge Company sells goods to Yvon and other consumers on credit under installment sales contracts that typically require at least one year of monthly payments. Xtra does not disclose all of the credit terms to its customers. This is most likely to result in

a. a cease-and-desist order. b. a fine. c. no sanctions. d. rescission of the contracts.

ANSWER: D PAGE: 910 TYPE: N NAT: AACSB Reflective AICPA Legal

B11. Owen signs an installment contract with Pixel Video Store to finance the purchase of a new Quotient-brand plasma HD-TV for $4,999. This transaction is subject to

a. no federal law. b. the Fair Credit Reporting Act. c. the Telecommunications Act. d. the Truth-in-Lending Act.

ANSWER: D PAGE: 910 TYPE: = NAT: AACSB Reflective AICPA Legal

A12. Wheels & Deals Corporation is subject to the Truth-in-Lending Act, which concerns

a. the credit-worthiness of certain financial institutions and lenders. b. the disclosure of credit terms in certain transactions. c. the limits on certain types of credit that a creditor may grant. d. the limits on certain types of debt that a consumer can accrue.

ANSWER: B PAGE: 910 TYPE: N NAT: AACSB Analytic AICPA Legal

B12. Consumer Finance Corporation (CFC) extends credit to consumers. CFC is subject to the Equal Credit Opportunity Act, which prohibits credit discrimination based on

a. disability. b. education. c. income. d. marital status.

ANSWER: D PAGE: 911 TYPE: + NAT: AACSB Reflective AICPA Legal

A13. Kristen receives unsolicited merchandise in the mail. Kristen

a. may keep the merchandise without any obligation to the sender. b. must return the merchandise within five days to avoid payment. c. must return the merchandise within fifteen days to avoid payment. d. must return the merchandise within thirty days to avoid payment.

ANSWER: A PAGE: 910 TYPE: = NAT: AACSB Reflective AICPA Legal

B13. In the ordinary course of business, EZ Funds Corporation offers credit to Fay and other consumers and reports on the loans to credit agencies. To save time and money, EZ generally does not correct or update its reported information. This is most likely to result in

a. a levy of a nominal fine. b. an assessment of damages. c. an order of rescission of the loan contracts. d. no sanctions.

ANSWER: B PAGE: 911 TYPE: N NAT: AACSB Reflective AICPA Legal

A14. Shep buys a car from his neighbor, Tyrone, for $8,000 and agrees to make monthly payments of $800 until the price is paid. This transaction is subject to

a. the Fair and Accurate Credit Transactions Act. b. the Fair Credit Reporting Act. c. the Truth-in-Lending Act. d. none of the choices.

ANSWER: D PAGE: 910 TYPE: + NAT: AACSB Reflective AICPA Legal

B14. Kirk receives an unsolicited credit card in the mail and tosses it on his desk. Without Kirk’s permission, his roommate Leif uses the card to buy a new personal computer for $1,000. Kirk is

a. liable for $1,000. b. liable for $500. c. liable for $50. d. not liable for any amount.

ANSWER: D PAGE: 911 TYPE: = NAT: AACSB Reflective AICPA Legal

A15. Bodie’s application to City Bank for a credit card is denied. Bodie can obtain information on her credit history in a credit agency’s files under

a. no federal law. b. the Equal Credit Opportunity Act. c. the Fair Credit Reporting Act. d. the Fair Debt Collection Practices Act.

ANSWER: C PAGE: 911 TYPE: = NAT: AACSB Reflective AICPA Legal

B15. Eva borrows $10,000 from First National Bank to remodel a room in her home. This transaction is subject to

a. the Consumer Leasing Act. b. the Magnuson-Moss Warranty Act. c. the Truth-in-Lending Act. d. the Uniform Commercial Code.

ANSWER: C PAGE: 812 TYPE: = NAT: AACSB Reflective AICPA Legal

A16. On behalf of RiteNow Collection Agency, Sid poses as a police officer in an attempt to collect payment from Tylo for a shipment of scuba equipment that she returned to Undersea Company two months earlier. This violates

a. no federal law. b. the Fair Credit Reporting Act. c. the Fair Debt Collection Practices Act. d. the Truth-in-Lending Act.

ANSWER: C PAGE: 913 TYPE: + NAT: AACSB Reflective AICPA Legal

B16. Quik Collection Agency calls Pat several times a day, and sometimes in the middle of the night, about an overdue bill that Regal Sporting Goods turned over to Quik for collection. This is a violation of

a. no federal law. b. the Fair and Accurate Credit Transactions Act. c. the Fair Debt Collection Practices Act. d. the Truth-in-Lending Act.

ANSWER: C PAGE: 913 TYPE: = NAT: AACSB Reflective AICPA Legal

A17. Dita takes out a student loan from Everloan Bank. When she fails to make the scheduled payments for six months, Everloan advises her of further action that it will take. This violates

a. no federal law. b. the Fair and Accurate Credit Transactions Act. c. the Fair Debt Collection Practices Act. d. the Truth-in-Lending Act.

ANSWER: A PAGE: 913 TYPE: = NAT: AACSB Reflective AICPA Legal

B17. Furniture Depot sells Gail a bedroom suite on credit. Gail fails to make the scheduled payments for six months. Furniture Depot sends her a letter, asking for immediate payment. This is a violation of

a. no federal law. b. the Fair and Accurate Credit Transactions Act. c. the Fair Debt Collection Practices Act. d. the Truth-in-Lending Act.

ANSWER: A PAGE: 913 TYPE: = NAT: AACSB Reflective AICPA Legal

A18. Kip opens an account at a Lotsa Goodies Store, and buys a digital music player and other items, but makes no payments on the account. To collect the debt, Mako, the manager, contacts Kip’s parents. This violates

a. no federal law. b. the Fair and Accurate Credit Transactions Act. c. the Fair Debt Collection Practices Act. d. the Truth-in-Lending Act.

ANSWER: A PAGE: 913 TYPE: = NAT: AACSB Reflective AICPA Legal

B18. The credit department of Mega-Mart calls Nora at work about an overdue bill. Nora’s employer objects. Mega-Mart continues to call Nora at work. This is a violation of

a. no federal law. b. the Fair and Accurate Credit Transactions Act. c. the Fair Debt Collection Practices Act. d. the Truth-in-Lending Act.

ANSWER: C PAGE: 913 TYPE: = NAT: AACSB Reflective AICPA Legal

A19. Green Grocer Corporation makes and markets a variety of processed food products. The federal agency responsible for enforcing health regulations concerning food is

a. the Consumer Product Safety Commission. b. the Federal Reserve Board of Governors. c. the Federal Trade Commission. d. the Food and Drug Administration.

ANSWER: D PAGE: 914 TYPE: = NAT: AACSB Reflective AICPA Legal

B19. Corner Market sells groceries. Delite Food & Drug Store sells groceries and fills prescriptions. The party with the chief responsibility to prevent unsafe food and drugs from being sold is

a. Corner Market and Delite Food & Drug Store. b. Delite Food & Drug Store only. c. the Federal Trade Commission. d. the Food and Drug Administration.

answer: D PAGE: 914 TYPE: = NAT: AACSB Reflective AICPA Legal

A20. Fun-E Products, Inc., makes and sells toys. The government agency that has the authority to remove a potentially hazardous toy from the market is

a. the Consumer Product Safety Commission. b. the Federal Reserve Board of Governors. c. the Federal Trade Commission. d. the Food and Drug Administration.

ANSWER: A PAGE: 916 TYPE: = NAT: AACSB Reflective AICPA Legal

B20. Steel Tool Company makes and sells tools. One of the tools is believed to be hazardous. The appropriate government agency may require Steel to

a. export the tool and sell it only abroad. b. increase the price to cover the cost of any injuries or damage. c. reduce the price to indicate the hazard to consumers. d. remove the tool from the market.

answer: D PAGE: 916 TYPE: = NAT: AACSB Reflective AICPA Legal

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