AICPA Exam CPA-Business Topic 3 Question 111 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 111
Topic #: 3

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.

Show Suggested Answer

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.

by Charolette at May 05, 2025, 07:56 AM

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1 months 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.

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Rodolfo

2 days ago

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

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Diane

8 days ago

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.

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Georgiana

18 days ago

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

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