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CPA Regulation Notes - Chapters 5,6,7

CPA Regulation Notes - Chapters 5,6,7

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Published by: Future CPA on Jun 29, 2009
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 Becker Auditing 2009 Edition Chapters 5 7 Page 1 of 7
Chapter 5
Employer-Employee LawThe Fair Labor Standards Act = wages and hours.The National Labor Relations Act = collective bargaining (i.e., unions) activities.The Taft-Hartley Act = labor relations.The ADA prohibits discrimination; it does not govern wages and hours.Subrogation is the right a surety has by which he succeeds to the creditor's rights against the principalwhen the surety pays the principal's obligations.Exoneration is the right a surety has against the debtor to force the solvent debtor to pay a debt when thedebtor refuses to do so.Contribution is a right one surety has against his co-sureties to force them to pay their share of the debt.Attachment is not a right of suretyship, but rather is a remedy imposed against property of someone whoowes a creditor money.Some contracts have to be in writing because they can easily be denied by the other party in contempt ofthe contract. An example is the "Promises to pay debts barred by Statute of Limitations", which statesthat "a promise to pay a debt barred by the statute of limitation is enforceable if it is in writing, but to theextent of the writing". There are six contracts that require some type of writing to be enforceable. Bothparties on these contracts need not sign the writing, but only the party to be charged (i.e. party trying toavoid the contract) must sign.The six contracts are: “MYLEGS”1) Contracts where the consideration is
marriage
 2) Contracts which by their terms cannot be performed within one
year
 3) Contracts involving interest in
land
 4) Contracts by
executors
or similar representatives to pay estate debts out of personal funds.5) Contracts for sale of
goods
for $500 or more, AND6) Contracts to act as
surety
(i.e. to pay the debts of another)When the statute of frauds is involved, contract law requires that the contract be in writing. The six majorcontracts that must be in writing are marriage, contracts that will take more than one year to complete,anything involving interests in land, contracts by executors, sales of goods for $500 or more, and to act asa surety.Some contracts have to be in writing as an act of law. Many contracts that are only oral should be put inwriting so that all parties are protected and all parties are completely clear on the terms.
 
 Becker Auditing 2009 Edition Chapters 5 7 Page 2 of 7
Chapter 6
Subrogation is the right a surety has by which he succeeds to the creditor's rights against the principalwhen the surety pays the principal's obligations.Exoneration is the right a surety has against the debtor to force the solvent debtor to pay a debt when thedebtor refuses to do so.Contribution is a right one surety has against his co-sureties to force them to pay their share of the debt.Attachment is not a right of suretyship, but rather is a remedy imposed against property of someone whoowes a creditor money.To be negotiable, an instrument must:1. Be in Writing2. Signed by the maker (note) or drawer (draft)3. Can be payable on demand or definite time4. Payable to the bearer or to the order of5. Must be in money6. Unconditional promise to pay7. No other unauthorized instructionA writ of attachment is simply an order by the court to a sheriff to seize a person's property. It can beapplied to either personal property or real property, and so it can be used when a person owns no realproperty. Garnishment is an order to a third person who holds property of the debtor to turn the propertyover to a creditor. The property involved usually is a debt, such as wages. There is no requirement thatthe property be the debtor's real property.A composition of creditors is agreement between a debtor and at least two creditors that the creditors willtake less than full payment to discharge their debts. It results in discharge of the debts in full because acontract is created by the cross-promises of the parties (i.e., the cross-promises serve as consideration,so the preexisting duty rule is avoided). An assignment for the benefit of creditors is a transfer of some orall of a debtor's property to a trustee, who then uses the property to pay off creditors. There is nodischarge of debts here because no contract is formed with the creditors to take less than full payment.Homework Reading – Documents of Title & Letters of CreditArticle 7:- Warehouse Receipts: represent goods stored in a warehouse- Bills of Lading: represent goods that are being transported by a carrier- Purpose is similar to the commercial paper- Commercial paper = safe way to transfer cash- Warehouse receipts and bills of lading = safe way to transfer title to goods that are stored orbeing transported- Person who holds title has right to have the goods represented by the document delivered to himby issuer of doc.- An issuer who delivers goods pursuant to doc title is not liable for misdelievery if it issubsequently discovered that the person to whom the goods were delivered was not actuallyauthorized to receive themIssuance:- Issuer of title is bailee (a person who holds goods belonging to another the bailor)- No required for issuer to be licensed or bonded
 
 Becker Auditing 2009 Edition Chapters 5 7 Page 3 of 7
Negotiability – negotiable if goods are delivered to order or bearer:- Negotiable if “bearer” or “to the order of” a named person- Similar to commercial paper, advantage to holding title:
o
A holder of a duly negotiated document of title (similar to HDC) is subject to only a fewdefences
o
To be a holder of duly negotiated document of title:
Give present value for title
Take the title in good faith
Without any notice of an adverse claim or defense
Purchaser must obtain it in the regular course of business or financing***Must know what makes a title negotiable – it is negotiable if by its terms goods are to be delivered to“bearer” or “to the order of” a named person.Bearer title is negotiated by delivery alone.Order document requires delivery of the document plus a valid signature of the person named on thedocument.Forgery of the person’s signature is not proper negotiation. The warehouseman or carrier is liable to thetrue owner if the goods are delivered to one who presented a document with a forgery.Person transfers a title (like commercial paper) makes warranties:- Document is genuine- No knowledge of any fact that would impair the document’s validity or value- Negotiation or transfer is rightful and effectiveNegotiable title delivery requirements:Issuer delivers documents to whoever is legally in possession of the document or to a party designatedby the holder.- Bearer documents = goods must be delivered only to party possessing the bearer document- Order documents = goods must be delivered only to the order of that party or to one holding adocument propertly endorsed by that partyCarrier/warehouse takes possession of documentGoods delivered with missing title = warehouse/carrier liable for any damagesNon-negotiable titles delivery requirements:Goods delivered to party named in document (not the one possessing the document)Party named is consigneeCarrier/warehouse doesn’t take possession of documentWarehouse ReceiptTitle issued by warehouseman entitling a named person, order, or bearer of receipt to delivery of storedgoods.Warehouse receipt must include:- Where the goods are being stored (
location)
 -
Date 
the receipt was issued- Number
 
of the receipt- Who is to receive the goods (negotiable = bearer, order / non-negotiable = specified person)- Fees and storage rates-
Description of goods 
or packaging containing them- Warehouseman’s signature
 
or that of an authorized agent
o
If any terms missing, warehouseman is liable for any loss caused by the missinginformation

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