Discuss AICPA CPA-Business Exam Topic 3 Question 111

Smith was an officer of CCC Corp. As an officer, the business judgment rule applies to Smith in which of the following ways?

ABecause Smith is not a director, the rule does not apply.

BIf Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally not liable to CCC for damages caused.

CIf Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally liable to CCC for damages caused, but CCC may elect to reimburse Smith for any damages Smith paid.

DIf Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally liable to CCC for damages caused, and CCC is prohibited from reimbursing Smith for any damages Smith paid.

Suggested Answer: B

Choice 'b' is correct. The business judgment rule applies to officers as well as directors, who in their capacity, act in a manner the officer believes to be in the best interest of the corporation, and with the care an ordinarily prudent person in a like position would exercise. If the standards of the business judgment rule are met, the officer is not liable to the company for resulting damages.

Choices 'a', 'c', and 'd' are incorrect, per the above rule.

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31 comments · newest first

Ramonita 10 months ago

Totally agree with B! Good faith mistakes shouldn't lead to liability.

Clement 10 months ago

Wait, I thought officers had more liability than directors?

Hoa 10 months ago

I think A is misleading. The rule can apply to officers.

Major 10 months ago

C sounds plausible, but I'm not sure about the reimbursement part.

Freeman 10 months ago

B is correct! Business judgment rule protects officers too.

Rolland 11 months ago

I’m leaning towards option B too, but I wonder if there are exceptions that could make Smith liable despite the good faith aspect.

Lino 11 months ago

I feel like I saw a practice question similar to this, but I can't recall if officers are treated the same as directors under the rule.

Shad 11 months ago

I think option B sounds right because it mentions good faith and honest mistakes, which are key elements of the business judgment rule.

Alesia 11 months ago

I remember discussing the business judgment rule in class, but I'm not sure if it applies to officers like Smith.

Tegan 12 months ago

Hmm, this is a tricky one. I'm not totally sure about the differences between the options, but I think option B sounds right based on my understanding of the business judgment rule.

Veronika 12 months ago

Easy peasy! Since Smith is an officer, not a director, the business judgment rule doesn't apply to him at all. Gotta be option A.

Kip 12 months ago

I'm a bit confused on the nuances here. Does the business judgment rule apply differently to officers versus directors? I'll need to re-read the question and options carefully.

Nickie 1 year ago

Okay, I think I've got this. The business judgment rule generally protects officers like Smith from liability for honest mistakes, so I'll go with option B.

Ernestine 1 year ago

Hmm, this question seems tricky. I'll need to carefully consider the differences between the answer choices to determine how the business judgment rule applies to Smith as an officer.

Marjory 1 year ago

I believe the answer is B, as long as Smith acted in good faith.

Theodora 1 year ago

I'm going with B. The business judgment rule is all about protecting officers from liability for reasonable decisions, even if they turn out badly.

Julie 1 year ago

↳ replying to Theodora

I agree with B. The business judgment rule is there to protect officers like Smith from being held personally liable for their decisions.

Scot 1 year ago

↳ replying to Theodora

B) If Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally not liable to CCC for damages caused.

Mari 1 year ago

↳ replying to Theodora

A) Because Smith is not a director, the rule does not apply.

Ruth 1 year ago

Ha! As if Smith would ever make an 'honest' mistake. Probably lining his own pockets, if you ask me.

Joaquin 1 year ago

↳ replying to Ruth

Ha! As if Smith would ever make an 'honest' mistake. Probably lining his own pockets, if you ask me.

Georgiann 1 year ago

↳ replying to Ruth

B) If Smith makes, in good faith, a serious but honest mistake in judgment, Smith is generally not liable to CCC for damages caused.

Raylene 1 year ago

↳ replying to Ruth

A) Because Smith is not a director, the rule does not apply.

Bok 1 year ago

I'm not sure, but I think it's either B or C.

Izetta 1 year ago

I agree with Theola, because the business judgment rule protects officers like Smith.

Theola 1 year ago

I think the answer is B.

Nieves 1 year ago

I'm not so sure. D seems more accurate to me - if Smith makes a mistake, he's generally liable and CCC can't reimburse him.

Dallas 1 year ago

Hmm, I think B is the correct answer. The business judgment rule protects officers like Smith from liability for honest mistakes, as long as they act in good faith.

Rodolfo 1 year ago

↳ replying to Dallas

That's right, CCC may choose to reimburse Smith for any damages he paid if he made the mistake in good faith.

Diane 1 year ago

↳ replying to Dallas

Yes, as long as Smith acts in good faith and makes a serious but honest mistake in judgment, he is generally not liable to CCC for damages.

Georgiana 1 year ago

↳ replying to Dallas

I agree, the business judgment rule is there to protect officers like Smith from liability for honest mistakes.

AICPA CPA-Business Exam - Topic 3 Question 111 Discussion