CHAPTER 24
Principal-Agent Relationship
MULTIPLE-CHOICE QUESTIONS
Circle the letter of the best answer.
1.The right of an agent to require the principal to pay for personal losses incurred by the agent while the agent is performing business for the principal is called
a.rebate.
b.reimbursement.
c.indemnification.
d.recovery.
2.Browning hired Barrett to paint her house for the sum of $2,500. Barrett would be classified as a(n)
a.general agent.
b.special agent.
c.independent contractor.
d.employee.
3.All profits that result from an agency
a.belong solely to the agent.
b.belong solely to the principal.
c.are divided equally between the principal and the agent.
d.are divided according to the agreement between the principal and the agent.
4.A real estate agent hired to sell a house is considered a(n)
a.independent contractor.
b.employee.
c.general agent.
d.special agent.
5.A principal legally can appoint an agent by
a.a written contract only.
b.an oral contract only.
c.putting a notice in a newspaper.
d.either a written or an oral contract.
6.A person can act as
a.both an employee and an independent contractor.
b.both an employee and an agent.
c.both an employer and an employee.
d.all of the above.
7.Agents who do not receive compensation are called
a.free agents.
b.special agents.
c.gratuitous agents.
d.general agents.
8.In an emergency, an agency relationship can be created by
a.ratification.
b.appearance.
c.duress.
d.necessity.
9.The major difference between a special agent and a general agent is
a.the amount of compensation paid.
b.the way the agency is created.
c.the authority given to the agent.
d.the type of work the principal does.
10.A formal written document authorizing one person to act for another is called a(n)
a.appointment.
b.power of attorney.
c.employment contract.
d.bailment agreement.
11.When an agent makes a contract for a deceased principal, the contract is
a.binding on the agent.
b.binding on the principal’s estate.
c.voidable.
d.void.
12.Doan authorized Marple to sell Doan’s car for not less than $2,000 for a commission of 10%. Marple sold the car for $2,400. How much must Marple give Doan?
a.$2,000.
b.$2,000 less the commission.
c.$2,200.
d.$2,400 less the commission.
13.An agent is given formal written authority to sign checks for her principal. This formal written authorization is called a(n)
a.affidavit.
b.power of attorney.
c.notary.
d.certification.
14.Morales, a general agent for the Kincaid Manufacturing Company, was notified of the company’s bankruptcy. Which of the following statements about the principal-agent relationship is true?
a.Contracts made by an agent after the bankruptcy of the principal are binding on the principal.
b.A general agent is liable as a guarantor of the bankrupt principal’s unpaid accounts.
c.The principal’s bankruptcy has no effect on the principal-agent agreement.
d.The bankruptcy of the principal terminates the agency agreement.
15.A principal-agent relationship can be terminated by
a.the death of a third party.
b.the request of a third party.
c.mutual agreement between principal and agent.
d.the bankruptcy of a third party.