Ralph Sold a Motel to Steve by Stating That He

question 32

Multiple Choice

Ralph sold a motel to Steve by stating that he had paid $250,000 for it and that his net average annual profit from the business has been $40,000.In reality he paid $100,000 for the motel and has earned a net average annual profit of only $30,000.Steve made no attempt to verify the statements until after the transaction was completed.In this case:

• A) Ralph has committed fraudulent misrepresentation and the contract is voidable at Steve's option.
• B) Steve is bound by the contract,because he failed to verify the statements which were made to him.
• C) the contract is not voidable,but Steve may sue for damages.
• D) the contract is automatically void.

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Definitions:

GAAP

Generally Accepted Accounting Principles, a set of accounting standards and practices used in the United States to ensure the accuracy and consistency of financial reporting.

Bad Debt Expense

A charge to the income statement that represents the amount of non-collectable accounts receivable that occurs in a given period.

Open Invoice

An invoice that has been issued by a seller to a buyer, but has not yet been paid.

Credit Card Payment

A transaction method allowing purchasers to buy goods or services using credit issued by a bank or financial institution.