Question 1:

An Audit Manager, in a CPA firm named Old and Grumpy, LLC , was authorized to negotiate the details of an audit engagement for a client named Hurtin, Inc. Following successful negotiations the Audit Manager properly signed an engagement letter (contract) and delivered it to Hurtin, Inc. where the Chief Financial Officer properly signed the engagement letter on behalf of Hurtin, Inc.

The audit was never performed by Old and Grumpy, LLC and as a result Hurtin, Inc. suffered substantial monetary losses. Hurtin, Inc. sued both the Audit Manager and Old and Grumpy, LLC for breach of contract.

Required: Under the Law of Agency, explain fully the relationships of the Parties and also the liability (if any) of Audit Manager and Old and Grumpy, LLC.

Question 2:

While the Audit Manager from the previous question (Question 1) was in the parking lot of Hurtin, Inc., after delivering the engagement letter, his car hit and caused $50,000 in property damage to Hurtin, Inc.'s building. . Hurtin, Inc. sued both the Audit Manager and Old and Grumpy, LLC for Tort damages.

Required: Under the Law of Agency, explain fully the relationships of the Parties and also the liability (if any) of Audit Manager and Old and Grumpy, LLC.

Question 3:

A regional CPA firm has 10 office locations in the New England area. The offices require regular maintenance to maintain a neat and professional appearance. During the past 5 years the CPA firm has used only Mr. Wright to perform the required maintenance. Mr. Wright is self employed and is paid on an hourly basis based upon invoices submitted to the CPA firm. Mr. Wright maintains a business office at his home and uses only his own tools while working and spends approximately 50% of his time working at the various CPA office locations.

Recently, Mr. Wright was demolishing an old building using dynamite to make way for a new building at one of the CPA office locations. During the blasting activity an unrelated 3rd Party was severely injured. The 3rd Party sued both the CPA firm and Mr. Wright for monetary damages under the Law of Agency. The CPA firm raised the defense that Mr. Wright was an Independent Contractor.

Required:

• Explain in detail what the court will consider in making their decision on the CPA firms defense.

• Will the CPA firm be held liable ?

• Will Mr. Wright be held liable ?

Question 4:

The shareholders of Enrot Corporation lost their entire investment when Enrot filed for bankruptcy. Enrot had no assets remaining after creditors had been paid. The shareholders sued and were awarded a $10,000,000 court judgement for negligence against the CPA general partnership which audited the financial statements of Enrot.

Addition facts;

The CPA partnership has an insurance policy which covers the negligent acts of the CPA's. in the amount of $5,000,000.

The net assets of the CPA partnership amount to $2,000,000.

The net assets of the partners are as follows;

Partner Net Assets

A $ 100,000

B $ 2,000,000

C $ 4,000,000

Total $ 6,100,000

Required:

Make a detailed, step-by-step, chronological plan for the shareholders (your clients) for the full collection of their $10,000,000 judgement.

Question 5:

Little Billy is 16 years old and agreed to purchase a new computer from a computer store. Terms of sale called for payment to be made 30 days after delivery. Little Billy received the computer and completely destroyed the computer while setting it up in his bedroom (there was no fault attributable to the computer store or the product itself). Little Billy refuses to pay the purchase price.

Required: Advise the computer store owner on the collection the purchase price.

Question 6:

The following related statements were exchanged between two individuals negotiating the sale of an automobile.

Required: Label each as either an Offer, Rejection, Counter Offer, or Acceptance.

• "I will buy your car for $1,500."

• "I will not sell the car for $1,500, but I will sell it to you for $1,800."

• "I will buy your car for no more than $1,700."

• " O.K., I agree to sell it to you for $1,700."

Was a valid contract formed by any of the above statements ?

Question 7:

Big Bank loaned $100,000 to ABC Corporation. Arthur Apple signed an agreement with Big Bank to act as guarantor for the ABC Corporation loan. Patty Pear signed an agreement with Big Bank to act as surety for the ABC Corporation loan. After a period of one year, ABC Corporation was unable to make the scheduled payment to Big Bank and defaulted on the loan.

Required: Explain, in detail, how Big Bank should proceed to collect on the loan against:

• Arthur Apple

• Patty Pear

What rights Arthur Apple and Patty Pear have if they are required to pay Big Bank ?