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CLEP Introductory Business Law Practice Test

10 free sample questions with answers and explanations. See how you'd score on the real CLEP exam.

Question 1Unit 1: The Legal System

What type of warranty is implied by law when a seller fails to disclaim it?

A
A) Express warranty
B
B) Implied warranty of merchantability
C
C) Implied warranty of fitness for a particular purpose
D
D) Warranty of title
E
E) Warranty against infringement

Explanation

Implied warranty of merchantability is correct because the UCC implies a warranty of merchantability in contracts for the sale of goods by a seller who is a merchant with respect to goods of that kind, unless the warranty is expressly disclaimed, meaning that the goods must be fit for the ordinary purposes for which such goods are used.

Question 2Unit 1: The Legal System

What is the purpose of the 'perfect tender' rule under the UCC?

A
A) To allow buyers to return defective goods for a full refund
B
B) To permit sellers to make minor adjustments to goods after delivery
C
C) To enable buyers to reject goods that do not meet contract specifications
D
D) To require sellers to provide a warranty for all goods
E
E) To limit the liability of sellers for damages caused by defective goods

Explanation

Enabling buyers to reject goods that do not meet contract specifications is correct because the perfect tender rule under the UCC gives buyers the right to reject goods if the goods do not conform to the contract in any respect, allowing for the return or replacement of non-conforming goods.

Question 3Unit 1: The Legal System

Under the UCC, what is the term for a seller's assurance that a product will perform as promised?

A
A) Warranty
B
B) Guarantee
C
C) Contract
D
D) Agreement
E
E) Promise

Explanation

Warranty is correct because a warranty is an express or implied promise by the seller that the goods will meet certain standards or perform as promised, giving the buyer recourse if the goods fail to meet these standards.

Question 4Unit 1: The Legal System

What is the purpose of the Uniform Commercial Code (UCC) in sales law?

A
A) To govern contracts between employers and employees
B
B) To regulate transactions involving goods
C
C) To oversee real estate transactions
D
D) To manage intellectual property disputes
E
E) To handle bankruptcy cases

Explanation

Regulating transactions involving goods is correct because the UCC primarily deals with sales and other transactions involving goods, by providing a standardized framework for these transactions.

Question 5Unit 1: The Legal System

What is the purpose of a corporate annual report?

A
A) To provide information to customers about the company's products and services
B
B) To provide information to investors about the company's financial performance
C
C) To provide information to employees about the company's benefits and policies
D
D) To provide information to the government about the company's tax obligations
E
E) To provide information to the media about the company's marketing strategy

Explanation

To provide information to investors about the company's financial performance is correct because a corporate annual report is a document that provides information about the company's financial performance, including its income statement, balance sheet, and cash flow statement, as well as information about the company's operations, management, and future prospects.

Question 6Unit 1: The Legal System

What is the term for a person who has ownership interest in a corporation?

A
A) Director
B
B) Officer
C
C) Employee
D
D) Shareholder
E
E) Partner

Explanation

A Shareholder is correct because a shareholder is a person who owns shares of stock in a corporation and has a claim on a portion of the company's assets and profits.

Question 7Unit 1: The Legal System

What is the purpose of a corporate bylaw?

A
A) To establish the company's mission and vision
B
B) To outline the company's organizational structure and procedures
C
C) To define the company's products and services
D
D) To establish the company's marketing strategy
E
E) To determine the company's financial goals

Explanation

To outline the company's organizational structure and procedures is correct because a corporate bylaw is a document that outlines the company's internal rules and procedures, including the roles and responsibilities of officers and directors, the process for holding meetings, and the procedure for amending the bylaws.

Question 8Unit 1: The Legal System

What is the difference between a merger and an acquisition?

A
A) A merger is a combination of two companies, an acquisition is the purchase of one company by another
B
B) A merger is the purchase of one company by another, an acquisition is a combination of two companies
C
C) A merger is a type of joint venture, an acquisition is a type of partnership
D
D) A merger is a type of bankruptcy, an acquisition is a type of restructuring
E
E) A merger is a type of dissolution, an acquisition is a type of liquidation

Explanation

A merger is a combination of two companies, an acquisition is the purchase of one company by another is correct because a merger involves the combination of two or more companies to form a new company, whereas an acquisition involves the purchase of one company by another company.

Question 9Unit 1: The Legal System

What is the term for the process of a corporation buying back its own stocks?

A
A) Issuance
B
B) Repurchase
C
C) Dividend
D
D) Merger
E
E) Acquisition

Explanation

Repurchase is correct because it is the term used to describe the process of a corporation buying back its own stocks, which can help to reduce the number of outstanding shares and increase earnings per share.

Question 10Unit 1: The Legal System

What is the difference between a C Corporation and an S Corporation?

A
A) C Corporation has unlimited liability, S Corporation has limited liability
B
B) C Corporation can issue stocks, S Corporation cannot
C
C) C Corporation is taxed twice, S Corporation is taxed once
D
D) C Corporation has a limited number of shareholders, S Corporation has no limit
E
E) C Corporation can only be owned by individuals, S Corporation can be owned by other corporations

Explanation

C Corporation is taxed twice, S Corporation is taxed once is correct because C Corporations are subject to double taxation, where the corporation is taxed on its profits and the shareholders are taxed on their dividends, whereas S Corporations are pass-through entities and only taxed at the individual level.

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