INSTRUCTIONS
There should be 6-8 pages, double spaced and only 1 inch margins, please. The answer may exceed the page limitations.This is not a group project. Each student should work alone. READ THE QUESTIONS CAREFULLY BEFORE ANSWERING.
In order to do well on this test you must refer to materials in the chapters, including cases, and you may also refer to the handouts and in-class case studies and discussions. Make sure to use the legal and business terms that you have learned in the course and apply them to the facts of the questions.When you use a legal term, provide an explanation of its meaning and/or any legal test that explains how it is applied to any factual situation. If there is a case that supports your argument, make sure to explain the reasons.
1. Using the course readings and materials, explain how legitimate accounting methods facilitate fraud. Give examples.
2. Explain what Arthur Leavitt meant by the "erosion" of the quality of financial reporting. Give examples.
3. The South Miami Engineering Company of Florida (SMEC) recently began marketing a unique test that can predict what the stability of soil will be during a flood. This test benefits property owners because it allows them to determine whether a building will be structurally stable in flood conditions. No one else performs this test in Florida. SMEC did not invent the test, but instead purchased the rights to a license for the entire geographical area of south Florida from a vendor.
SMEC hired and trained Xavier, an experienced engineer, to perform this test. SMEC provided Xavier an employment contract for Xavier to sign. The contract contained the following non-competition clause:
"In the event Xavier leaves the employ of SMEC, he agrees not to perform or provide similar testing services within the State of Florida for six years. Xavier read and signed the agreement. After one year, Xavier quit work at SMEC and opened up his own engineering company. His company provided engineering services, including a test very similar to the one performed by SMEC. The test was not developed from any information gained during Xavier's employment at SMEC. Instead, one of SMEC's competitors developed a different prototype of the test and licensed its use to Zavier's company. SMEC's sales declined after Xavier's company began performing the similar test.
When SMEC learned that Xavier had opened his own engineering firm and was performing a similar test, it sued Xavier for breach of the noncompetition clause.
a.Is the non-competition provision between SMEC and Xavier enforceable? Explain.
(Florida courts will rarely refuse to enforce a non-compete agreement due to its length or geographic scope. Instead, courts often employ the "blue pencil" to reign impermissibly broad terms within the limits of Fla. Stat. § 542.335)See, final exam attachment.
b. Assuming the non-competition provision is enforceable and was breached by Xavier, what types of damages might SMEC be entitled to?
4. A development company has decided to raise capital from private investors to build strip shopping malls in three separate towns in south Florida. Your consulting firm has been retained to advise the company on the form of business organization to be used to facilitate the transaction. The development company wants to keep the three investments separate. It is not intended that profits be shared between investor groups. The investment transactions should be wound up and terminated within 90 days after the completion of the construction. Investors will receive the return of their investment with an additional 6% return on investment. What form of business organization would you recommend and why?