The State of Florida Enters into a Contract with Treasure

question 71

Multiple Choice

The State of Florida enters into a contract with Treasure Salvors governing the salvage of a Spanish galleon that sunk in the 1600s.Under the terms of the contract,the salvagers agree to relinquish 25% of the items recovered to the State of Florida in return for the right to salvage on state lands.At the time the parties enter into the contract,they both believe that the seabed where the ship lies is state land.Subsequently,the United States Supreme Court holds that the continental shelf on which the ship rests has never been owned by Florida.The salvagers sue to rescind the contract.The contract:

• A) cannot be rescinded.
• B) should be avoided because the parties made a mutual mistake.
• C) should be enforced because,although there is a mutual mistake,it is not material.
• D) will be enforceable because the United States government will automatically step into the shoes of the State of Florida.

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Definitions:

Perpetual Inventory System

This technique documents transactions of inventory sales or purchases in real-time, utilizing computer-based point-of-sale systems and software designed for managing company assets.

Physical Inventory

The process of counting the actual items of inventory in stock to verify records and accounts.

Single-Step Income Statement

A form of income statement in which the total of all expenses is deducted from the total of all revenues.

Gross Profit

The difference between sales revenue and the cost of goods sold before deducting overhead, payroll, taxes, and interest.