ACCY 411 Test 3 (SU 17)
Stanley and Martin formed a partnership to engage in the trucking business. Stanley contributed the capital and Martin was to contribute the labor. Martin was involved in an accident while carrying goods on behalf of the partnership. Which of the following would Stanley not be liable for as a result of the accident? A. Illegal drug activities when Martin was also carrying illegal drugs in the truck unknown to Stanley. B. Illegal drug activities when the police discovered their business was transporting illegal drugs. C. Damages caused by the accident. D. Rental of the truck when the lessor thought it was dealing with Martin individually.
A.Illegal drug activities when Martin was also carrying illegal drugs in the truck unknown to Stanley.
When parties intend to create a partnership that will be recognized under the Revised Uniform Partnership Act, they must agree to 1. Conduct a Business for Profit 2. Share gross receipts from a Business A. No, No B. Yes, No C. Yes, Yes D. No, Yes
B. Yes, No
Wilson and Thomas are partners. Wilson contributed $150,000 to the partnership, and Thomas contributed $50,000. Wilson does 40% of the work, and Thomas does 60%. They do not have a partnership agreement that addresses the sharing of profits and losses. By the end of the year, the partnership has earned a profit of $200,000. What is Wilson's share of the profit under the Revised Uniform Partnership Act? A. $100,000 B. $150,000 C. $80,000 D. $120,000
A. $100,000
What business entity can be voluntarily dissolved and terminated without filing a dissolution document with the state of organization? A. A general partnership. B. A limited liability partnership. C. A limited partnership. D. A corporation.
A. A general partnership.
The Revised Uniform Partnership Act defines a partnership as A. An association of two or more persons to carry on as co-owners a business for profit. B. An entity created by following statutory requirements. C. A separate legal entity for most legal purposes. D. Any association of two or more persons or entities.
A. An association of two or more persons to carry on as co-owners a business for profit.
Eller, Fort, and Owens do business as Venture Associates, a general partnership. Trent Corp. brought a breach of contract suit against Venture and Eller individually. Trent won the suit and filed a judgment against both Venture and Eller. Venture then entered bankruptcy. Under the RUPA, Trent will generally be able to collect the judgment in full from A. Eller's personal assets. B. Partnership assets but not partner personal assets. C. The personal assets of Eller, Fort, and Owens. D. Eller's personal assets only after partnership assets are exhausted.
A. Eller's personal assets.
Ann Grand, a general partner, retired. The partnership held a testimonial dinner for her and invited 10 of its largest customers. A week later a notice was placed in various trade journals indicating that Grand had retired and was no longer associated with the partnership in any capacity. After the appropriate public notice of Grand's retirement, which of the following best describes her legal status? A. Grand has the apparent authority to bind the partnership in contracts she makes with persons unaware of her retirement who have previously dealt with the partnership. B. The release of Grand by the remaining partners and the assumption of all past and future debts of the partnership by them via a hold-harmless clause constitutes a novation. C. Grand has no liability to past creditors upon her retirement from the partnership if they all have been informed of her withdrawal and her release from liability. D. Grand has the legal status of a limited partner for the 3 years it takes to pay her the balance of the purchase price of her partnership interest.
A. Grand has the apparent authority to bind the partnership in contracts she makes with persons unaware of her retirement who have previously dealt with the partnership.
A partner's duty of loyalty does not extend to A. Gross negligence. B. Competing with the partnership. C. Exploiting a partnership opportunity. D. Acting as a party with an adverse interest.
A. Gross negligence.
Under the Revised Uniform Partnership Act, which of the following statements, if any, are correct regarding the effect of the assignment of an interest in a general partnership? I. The assignee is personally responsible for the assigning partner's share of past and future partnership debts. II. The assignee is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership. A. II only. B. I only. C. Neither I nor II. D. Both I and II.
A. II only.
A limited liability partnership (LLP) A. Is typically adopted by providers of professional services. B. Offers a liability shield only for professional malpractice. C. Starts as a corporation. D. Is ordinarily treated as a legal entity to the same extent as a corporation.
A. Is typically adopted by providers of professional services.
James Quick was a partner in the Fast, Sure, and Quick Factors partnership. He subsequently died. His will left everything to his wife including a one-third interest in the land and building owned by Fast, Sure, and Quick. Which of the following statements is true? A. Mrs. Quick has the right to receive a settlement for her husband's interest in the partnership. B. Mrs. Quick automatically becomes the partner of Fast and Sure upon her husband's death. C. Mrs. Quick is a one-third owner of Fast, Sure, and Quick's land and building. D. The real property in question was held by the partnership as a tenancy in common.
A. Mrs. Quick has the right to receive a settlement for her husband's interest in the partnership.
Unless the partnership agreement prohibits it, a partner in a general partnership may validly assign rights to 1. Partnership Property 2. Partnership Distribution A. No, Yes B. No, No C. Yes, No D. Yes, Yes
A. No, Yes
Fil and Breed are 50% partners in F&B Cars, a used-car dealership. F&B maintains an average used-car inventory worth $150,000. On January 5, National Bank obtained a $30,000 judgment against Fil and Fil's child on a loan that Fil had cosigned and on which Fil's child had defaulted. National sued F&B to be allowed to attach $30,000 worth of cars as part of Fil's interest in F&B's inventory. Will National prevail in its suit? A. No, because the judgment was not against the partnership. B. No, because attachment of the cars would dissolve the partnership by operation of law. C. Yes, because Fil's interest in the partnership inventory is an asset owned by Fil. D. Yes, because National had a valid judgment against Fil.
A. No, because the judgment was not against the partnership.
A seven-person partnership lacks a partnership agreement. Under the Revised Uniform Partnership Act, how many votes are required to approve an extraordinary transaction of partnership business? A. Seven votes. B. Four votes. C. Six votes. D. Five votes.
A. Seven votes.
Rivers and Lee want to form a partnership. For the partnership agreement to be enforceable, it must be in writing if A. The agreement cannot be completed within 1 year from the date of its formation. B. The partnership intends to buy and sell real estate. C. Rivers and Lee reside in different states. D. Either Rivers or Lee is to contribute $500 or more in capital.
A. The agreement cannot be completed within 1 year from the date of its formation.
Under the RUPA, in which of the following situations will a partner in a limited liability partnership (LLP) most likely be personally liable? A. The partner who personally incurs an obligation in the conduct of partnership business. B. The managing partner in the Texas office when individuals in the New York office engaged in fraudulent activities. C. A nonmanaging partner in an office where another partner committed negligence. D. The managing partner in the New York office when an employee in the office who was supervised by another partner engaged in fraudulent activities.
A. The partner who personally incurs an obligation in the conduct of partnership business.
Three independent sole proprietors decided to pool their resources and form a partnership. The business assets and liabilities of each were transferred to the partnership. The partnership commenced business on September 1, but the parties did not execute a formal partnership agreement until October 15. Which of the following is true? A. The partnership began its existence on September 1. B. If the partnership's duration is indefinite, the partnership agreement must be in writing and signed. C. In the absence of a partnership agreement specifically covering division of losses among the partners, they will be deemed to share them in accordance with their capital contributions. D. The existing creditors must consent to the transfer of the individual business assets to the partnership.
A. The partnership began its existence on September 1.
Buster and Rover formed a partnership to invest in real estate. However, Buster also decided to sell TVs on the side. Buster went to Harold, a wholesaler, and purchased 20 TVs on credit in the name of the partnership. Harold knew the partnership was formed for the purpose of investing in real estate because he had been solicited to be one of the partners. If Buster does not pay for the TVs, A. The partnership is not liable because it is not a trading partnership. B. Harold can seize Buster's partnership interest and collect his or her profits. C. As a partner, Rover is personally liable to Harold. D. The partnership is liable because Buster had apparent authority to sign for the TVs as a partner.
A. The partnership is not liable because it is not a trading partnership.
A partner in a general partnership is usually not entitled to which of the following? A. To be liable only for personal negligence. B. To review accounting records. C. To participate in management. D. To enter into a contract with a third party without the consent of the other partners.
A. To be liable only for personal negligence.
A general partnership by estoppel may be recognized when A. To prevent injustice, an actual partnership does not exist. B. The partnership files to do business under a fictitious name. C. The business is carried on for profit. D. A contract cannot be performed within 1 year of its making.
A. To prevent injustice, an actual partnership does not exist.
Wind, who has been a partner in the PLW general partnership for 4 years, decides to withdraw from the partnership despite a written partnership agreement that states, "No partner may withdraw for a period of 5 years." Under the Revised Uniform Partnership Act (RUPA), what is the result of Wind's withdrawal? A. Wind's withdrawal causes dissociation from the partnership despite being in violation of the partnership agreement. B. Wind's withdrawal is not effective until Wind obtains a court-ordered decree of dissolution. C. Wind's withdrawal causes a dissolution of the partnership by operation of law. D. Wind's withdrawal has no bearing on the continued operation of the partnership by the remaining partners.
A. Wind's withdrawal causes dissociation from the partnership despite being in violation of the partnership agreement.
Smith and James were partners in S and J Partnership. The partnership agreement stated that all profits and losses were allocated 60% to Smith and 40% to James. The partners decided to terminate and wind up the partnership. The following was the balance sheet for S and J on the day of the windup: Cash: $40,000 Accounts receivable: 12,000 Property and equipment: 38,000 Total assets: $90,000 Accounts payable: $24,000 Smith, capital: 30,000 James, capital: 36,000 Total liabilities and capital: $90,000 Of the total accounts receivable, $10,000 was collected, and the remainder was written off as bad debt. All liabilities of S and J were paid by the partnership. The property and equipment are sold for $32,000. Under the Revised Uniform Partnership Act, what amount of cash was distributed to Smith? A. $26,000 B. $25,200 C. $30,000 D. $34,800
B. $25,200
Which of the following partners of a limited liability partnership (LLP) may avoid personal liability when a partner commits a negligent act? A. The supervisor of the negligent partner. B. All the partners other than the negligent partner and his or her supervisor. C. All the partners other than the negligent partner. D. All the partners.
B. All the partners other than the negligent partner and his or her supervisor.
A joint venture is A. An enterprise of numerous co-owners in a nonprofit undertaking. B. An association of persons engaged as co-owners in a single undertaking for profit. C. A corporate enterprise for a single undertaking of limited duration. D. An association limited to no more than two persons in business for profit.
B. An association of persons engaged as co-owners in a single undertaking for profit.
After withdrawal of a general partner, Johnson contributed $25,000 for a 25% share of the general partnership's profits and losses. The partnership had a $120,000 basis in assets and $20,000 in liabilities before Johnson's contribution. After admission to an existing partnership, the new general partner A. Assumes the debts of the withdrawing partner. B. Assumes a proportionate share of previously existing partnership liabilities. C. Has a right to participate in management in proportion to the partner's interest. D. Does not have the right to inspect partnership books and records.
B. Assumes a proportionate share of previously existing partnership liabilities.
Under modern statutes, the two general prerequisites to the declaration of a dividend are I. Corporate solvency. II. A resolution by the directors to declare a dividend. A. I only. B. Both I and II. C. II only. D. Neither I nor II.
B. Both I and II.
Under the Revised Uniform Partnership Act (RUPA), which of the following statements concerning the powers and duties of partners in a general partnership is(are) true? I. Each partner is an agent of every other partner and acts as both a principal and an agent in any business transaction within the scope of the partnership agreement. II. Each partner is subject to joint and several liability on partnership debts and contracts. A. I only. B. Both I and II. C. II only. D. Neither I nor II.
B. Both I and II.
Dawn was properly admitted as a partner in the ABC Partnership after purchasing Jim's partnership interest. Jim immediately withdrew. The partnership agreement states that the partnership will continue on the withdrawal or admission of a partner. Unless the partners otherwise agree, A. Jim will be permitted to recover from the other partners the full amount that Jim paid on account of partnership debts incurred before Dawn's admission. B. Dawn's personal liability for existing partnership debts will be limited to Dawn's interest in partnership property. C. Jim will automatically be released from personal liability for partnership debts incurred before Dawn's admission. D. Dawn will be subjected to unlimited personal liability for partnership debts incurred before being admitted.
B. Dawn's personal liability for existing partnership debts will be limited to Dawn's interest in partnership property.
Fact Pattern: Downs, Frey, and Vick formed the DFV General Partnership to act as manufacturers' representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate for 5 years. After the fourth year, the partners agreed to terminate the partnership. At that time, the partners' capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000. Under the RUPA, if Frey died before the partnership terminated, A. Downs and Vick would have Frey's interest in the partnership. B. Downs and Vick, as a majority of the partners, would have been able to continue the partnership. C. The partnership would automatically dissolve. D. The partnership would have continued even if Downs and Vick decided not to purchase Frey's partnership interest.
B. Downs and Vick, as a majority of the partners, would have been able to continue the partnership.
Which of the following statements is true concerning liability when a partner in a general partnership commits a tort while engaged in partnership business? A. The partnership is the only party liable. B. Each partner is jointly and severally liable. C. The partner committing the tort is the only party liable. D. Each partner is liable to pay an equal share of any judgment.
B. Each partner is jointly and severally liable.
Many states require partnerships to file the partnership name under laws known as fictitious name statutes. These statutes A. Are designed to clarify the rights and duties of the members of the partnership. B. Have little effect on the creation or operation of a partnership other than the imposition of a fine or other minor penalty for noncompliance. C. Are designed primarily to provide registration for tax purposes. D. Require a proper filing as a condition precedent to the valid creation of a partnership.
B. Have little effect on the creation or operation of a partnership other than the imposition of a fine or other minor penalty for noncompliance.
A general partnership must A. Have written articles of partnership. B. Have two or more partners. C. Pay federal income tax. D. Provide for apportionment of liability for partnership debts.
B. Have two or more partners.
Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a partner. After the assignment, Bean may assert the rights to I. Participation in the management of TLC II. Cobb's share of TLC's partnership profits A. I only. B. II only. C. I and II. D. Neither I nor II.
B. II only.
Under the Revised Uniform Partnership Act, which of the following have the right to inspect partnership books and records? A. Former partners. B. Inactive partners. C. Employees. D. Transferees of partners' interests.
B. Inactive partners.
Which of the following statements is correct regarding a limited liability company's operating agreement? A. It must be in writing. B. It is designed to forestall and resolve disputes among the owners. C. It must be filed with a central state agency. D. It is necessary for a limited liability company to exist.
B. It is designed to forestall and resolve disputes among the owners.
Which of the following statements about the form of a general partnership agreement is true? A. It must be in writing if any partner contributes more than $500 in capital. B. It must be in writing if the partnership is to last for longer than 1 year. C. It must be in writing if partnership profits would not be equally divided. D. It could not be oral if the partnership would deal in real estate.
B. It must be in writing if the partnership is to last for longer than 1 year.
General partnerships and LLPs vary in terms of A. Termination. B. Liability. C. Capitalization. D. Taxation.
B. Liability.
Case Corp. is incorporated in State A. Under the Revised Model Business Corporation Act, which of the following activities engaged in by Case requires that Case obtain a certificate of authority to do business in State B? A. Maintaining bank accounts in State B. B. Maintaining an office in State B to conduct intrastate business. C. Collecting corporate debts in State B. D. Hiring employees who are residents of State B.
B. Maintaining an office in State B to conduct intrastate business.
General partners have a fiduciary relationship with each other. Accordingly, a general partner A. May take advantage of a business opportunity within the scope of the partnership enterprise if the partnership agreement will terminate before the benefit will be received. B. May not earn a secret profit in dealings with the partnership or partners. C. Must exercise a degree of care and skill as a professional. D. May engage in a business that competes with the partnership if it is operated with his or her own resources.
B. May not earn a secret profit in dealings with the partnership or partners.
Fact Pattern: Ted Fein, a partner in the ABC Partnership, wishes to withdraw from the partnership and sell his interest to Ian Gold. All of the other partners in ABC have agreed to admit Gold as a partner and to hold Fein harmless for the past, present, and future liabilities of ABC. A provision in the original partnership agreement states that the partnership will continue upon the death or withdrawal of one or more of the partners. The agreement to hold Fein harmless for all past, present, and future liabilities of ABC will A. Prevent partnership creditors from holding Fein personally liable only as to those liabilities of ABC existing at the time of Fein's withdrawal. B. Not affect the rights of partnership creditors to hold Fein personally liable for those liabilities of ABC existing at the time of his withdrawal. C. Permit Fein to recover from the other partners only amounts he has paid in excess of his proportionate share. D. Prevent partnership creditors from holding Fein personally liable for the past, present, and future liabilities of ABC.
B. Not affect the rights of partnership creditors to hold Fein personally liable for those liabilities of ABC existing at the time of his withdrawal.
Which of the following will result in a dissolution of a partnership under the RUPA? A. The assignment by a partner of his or her entire partnership interest. B. Notice to a partnership at will of a partner's express will to withdraw. C. The death of a partner as long as his or her will provides that his executor shall become a partner in his or her place. D. The bankruptcy of a partner as long as the partnership itself remains solvent.
B. Notice to a partnership at will of a partner's express will to withdraw.
Lewis, Clark, and Beal entered into a written agreement to form a partnership. The agreement required that the partners make the following capital contributions: Lewis, $40,000; Clark, $30,000; and Beal, $10,000. It was also agreed that, in the event the partnership experienced losses in excess of available capital, Beal would contribute additional capital to the extent of the losses. The partnership agreement was otherwise silent about division of profits and losses. Which of the following statements is true? A. Profits are to be divided among the partners in proportion to their relative capital contributions . B. Profits are to be divided equally among the partners. C. Losses will be allocated in a manner different from the allocation of profits because the partners contributed different amounts of capital. D. Beal's obligation to contribute additional capital would have an effect on the allocation of profit or loss to Beal.
B. Profits are to be divided equally among the partners.
To raise capital, a general partnership can do all of the following except A. Borrow money from a family member. B. Sell shares of the business. C. Receive personal capital of the partners. D. Secure a business loan from a bank.
B. Sell shares of the business.
Hancock, LLP, is an organization of professionals who have not incorporated. It is required to file which document with the secretary of state? A. Foreign limited partnership registration. B. Statement of qualification. C. Certificate of limited partnership. D. Partnership by estoppel.
B. Statement of qualification.
Which of the following statements best describes the effect of the assignment of an interest in a general partnership? A. The assignee is responsible for a proportionate share of past and future partnership debts. B. The assignment transfers the assignor's interest in partnership profits and losses and the right to distributions. C. The assignee becomes a partner. D. The assignment automatically dissolves the partnership.
B. The assignment transfers the assignor's interest in partnership profits and losses and the right to distributions.
The partnership of Joe Baker, Art Green, and Guy Madison is insolvent. The partnership's liabilities exceed its assets by $123,000. The liabilities include a $25,000 loan from Madison. Green is personally insolvent. His personal liabilities exceed his personal assets by $13,500. Green has filed a voluntary petition in bankruptcy. Under these circumstances, partnership creditors A. Must proceed against the partnership and all the general partners in one lawsuit so that losses may be shared equitably among the partners. B. Will have the first claim to partnership property to the exclusion of the personal creditors of Green. C. Rank first in payment and all (including Madison) will share proportionately in the partnership assets to be distributed. D. Do not have the right to share pro rata with Green's personal creditors in Green's personal assets.
B. Will have the first claim to partnership property to the exclusion of the personal creditors of Green.
Unless otherwise provided for in the partnership agreement, the assignment of a partner's interest in a general partnership will A. Result in the termination of the partnership. B. Not affect the assigning partner's liability to third parties for obligations existing at the time of the assignment. C. Transfer the assigning partner's right to bind the partnership to contracts to the assignee. D. Transfer the assigning partner's rights in specific partnership property to the assignee.
B.Not affect the assigning partner's liability to third parties for obligations existing at the time of the assignment.
Park and Graham entered into a written partnership agreement to operate a retail store. Their agreement was silent as to the duration of the partnership or its purposes. Which of the following statements is true? A. Park may dissolve the partnership by any reasonable means. B. Park may dissociate from the partnership at any time. C. Unless Graham consents to a dissolution, Park must apply to a court and obtain a decree ordering the dissolution. D. Park may dissolve the partnership only after notice of the proposed dissolution is given to all partnership creditors.
B.Park may dissociate from the partnership at any time.
D, E, F, and G formed a general partnership. Their written partnership agreement provides that the profits will be divided so that D will receive 40%; E, 30%; F, 20%; and G, 10%. There is no provision for allocating losses. At the end of its first year, the partnership has losses of $200,000. Before allocating losses, the partners' capital account balances are D, $120,000; E, $100,000; F, $75,000; and G, $11,000. G refuses to make any further contributions to the partnership. Ignore the effects of federal partnership tax law. What is G's share of the partnership losses? A. $39,000 B. $9,000 C. $20,000 D. $50,000
C. $20,000
Gillie, Taft, and Dall are partners in an architectural firm. The partnership agreement is silent about the payment of salaries and the division of profits and losses. Gillie works full-time in the firm, and Taft and Dall each work half-time. Taft invested $120,000 in the firm, and Gillie and Dall invested $60,000 each. Dall is responsible for bringing in 50% of the business, and Gillie and Taft 25% each. How should profits of $120,000 for the year be divided? Gillie, Taft, Dall A. $60,000; $30,000; $30,000 B. $30,000; $30,000; $60,000 C. $40,000; $40,000; $40,000 D. $30,000; $60,000; $30,000
C. $40,000; $40,000; $40,000
Fact Pattern: Downs, Frey, and Vick formed the DFV General Partnership to act as manufacturers' representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate for 5 years. After the fourth year, the partners agreed to terminate the partnership. At that time, the partners' capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000. Vick's share of the undistributed losses will be A. $0 B. $1,000 C. $9,000 D. $10,000
C. $9,000
What type of business organization may generally be formed without filing an organizational document or certificate with a state government agency or office? A. A limited liability company. B. A limited partnership. C. A general partnership. D. A corporation.
C. A general partnership.
Harry, Harriet, and Horance operate the Triple H used car lot as a general partnership. Pursuant to their agreement, each drives a Triple H vehicle to and from work, makes various business trips about the city either from home or the lot, and keeps a "for sale" sign displayed in the vehicle's windshield. Each car is for sale at all times of the day and night and at any location. One afternoon, Harriet was driving on a business trip when her car collided with one driven by Paine, who was seriously injured. Harriet's conduct was found to be criminally negligent. In a tort action by Paine against Harry, Harriet, and Horance, both as individuals and as the Triple H partnership, who is liable? A. Only Harriet because a crime cannot be imputed to the partnership. B. Only Harriet and Triple H. C. All defendants because Harriet was acting within the ordinary course of the partnership business. D. Only Harriet because her tort was not authorized by the other partners.
C. All defendants because Harriet was acting within the ordinary course of the partnership business.
Vicky is an owner of Company A. She has no direct rights to manage the company. Vicky is an owner of a A. Limited liability company (LLC). B. General partnership. C. C corporation. D. Sole proprietorship.
C. C corporation.
Which of the following statements is true regarding the division of profits in a general partnership when the written partnership agreement only provides that losses be divided equally among the partners? Profits are to be divided A. Based on the partners' participation in day-to-day management. B. Proportionately among the partners. C. Equally among the partners. D. Based on the partners' ratio of contribution to the partnership.
C. Equally among the partners.
James Fine is doing business as Fine's Apparels, a sole proprietorship. In the past year Fine had regularly joined with Charles Walters in the marketing of bathing suits and beach accessories. Which of the following factors is the most important in ascertaining whether Fine and Walters have created a partnership relationship? A. Fine and Walters did not intend to be partners. B. Each has a separate business of his own that he operates independently. C. Fine and Walters divide the net profits equally on a quarterly basis. D. A partnership agreement is not in existence.
C. Fine and Walters divide the net profits equally on a quarterly basis.
Grey and Carr entered into a written partnership agreement to operate a hardware store. Their agreement was silent as to the duration of the partnership. Grey wishes to dissolve the partnership. Which of the following is true? A. Grey may dissolve the partnership only after notice of the proposed dissolution is given to all partnership creditors. B. Unless Carr consents to a dissolution, Grey must apply to a court and obtain a decree ordering the dissolution. C. Grey may dissociate from the partnership at any time. D. Grey may dissociate from the partnership and not be liable for any pre- or post-dissociation obligations.
C. Grey may dissociate from the partnership at any time.
Fact Pattern: Ted Fein, a partner in the ABC Partnership, wishes to withdraw from the partnership and sell his interest to Ian Gold. All of the other partners in ABC have agreed to admit Gold as a partner and to hold Fein harmless for the past, present, and future liabilities of ABC. A provision in the original partnership agreement states that the partnership will continue upon the death or withdrawal of one or more of the partners. As a result of Fein's withdrawal and Gold's admission to the partnership, Gold A. Is personally liable for partnership liabilities arising before and after his admission as a partner. B. Must contribute cash or property to ABC to be admitted with the same rights as the other partners. C. Has the right to participate in the management of ABC. D. Acquired only the right to receive Fein's share of the profits of ABC.
C. Has the right to participate in the management of ABC.
Which of the following statement(s) is (are) usually true regarding general partners' liability? I. All general partners are jointly and severally liable for partnership torts. II. All general partners are liable only for those partnership obligations they actually authorized. A. Both I and II. B. II only. C. I only. D. Neither I nor II.
C. I only.
Major Supply, Inc., is seeking a judgment against Les Danforth on the basis of a representation made by Dirk Coleman, in Danforth's presence, that they were in partnership together doing business as the D & C Trading Partnership. Major Supply received an order from Coleman on behalf of D & C and shipped $800 worth of goods to Coleman. Coleman has defaulted on payment of the bill and is insolvent. Danforth denies he is Coleman's partner and that he has any liability for the goods. Insofar as Danforth's liability is concerned, which of the following is true? A. Because Danforth did not make the statement about being Coleman's partner, he is not liable. B. Danforth is not liable if he is not in fact Coleman's partner. C. If Major Supply gave credit in reliance upon the misrepresentation by Coleman, Danforth is a partner by estoppel. D. Because the "partnership" is operating under a fictitious name (the D & C Trading Partnership), a filing is required and Major Supply's failure to ascertain whether there was in fact such a partnership precludes it from recovering.
C. If Major Supply gave credit in reliance upon the misrepresentation by Coleman, Danforth is a partner by estoppel.
Jones, Smith, and Bay wanted to form a company called JSB Co. but were unsure about which type of entity would be most beneficial based on their concerns. They all desired the opportunity to make tax-free contributions and distributions when appropriate. They wanted earnings to accumulate tax-free. They did not want to be subject to personal holding company tax and did not want double taxation of income. Bay was going to be the only individual giving management advice to the company and wanted to be a member of JSB through his current company, Channel, Inc. Which of the following would be the most appropriate business structure to meet all of their concerns? A. S corporation. B. Proprietorship. C. Limited liability partnership. D. C corporation.
C. Limited liability partnership.
The following are nontax-related characteristics of certain business entities: 1. Unless provided otherwise, all owners have management rights. 2. All owners have limited liability. 3. Formation requires a public filing. 4. A transferee of an owner's financial interest does not become an owner. The entities with the foregoing characteristics are A. General partnerships and corporations. B. Sole proprietorships and limited liability partnerships. C. Limited liability partnerships and limited liability companies. D. General partnerships and limited liability companies.
C. Limited liability partnerships and limited liability companies.
Which of the following statements is true regarding the apparent authority of a partner to bind the partnership in dealings with third parties? Under the RUPA, the apparent authority A. Will be effectively limited by a formal resolution of the partners of which third parties are unaware. B. Must be derived from the express powers and purposes contained in the partnership agreement. C. May allow a partner to bind the partnership to representations made in connection with the sale of goods. D. Would permit a partner to submit a claim against the partnership to arbitration.
C. May allow a partner to bind the partnership to representations made in connection with the sale of goods.
Generally, under the Revised Uniform Partnership Act, a partnership has which of the following characteristics? 1. Unlimited Duration 2. Obligation for Payment of Federal Income Tax A. No, Yes B. Yes, No C. No, No D. Yes, Yes
C. No, No
If no provisions are made in an agreement, a general partnership allocates profits and losses based on the A. Value of actual contributions made by each partner. B. Number of hours each partner worked in the partnership during the year. C. Number of partners. D. Number of years each partner belonged to the partnership.
C. Number of partners.
Which of the following is an advantage of forming an LLP instead of a general partnership? A. The termination procedures of an LLP. B. LLPs are pass-through entities. C. Partners are subject to a broad personal liability shield. D. The creation and continuation of an LLP requires compliance with statutory provisions.
C. Partners are subject to a broad personal liability shield.
Jackie Daniels, Jess Beal, and Sid Wade agreed to form the DBW Partnership to engage in the import-export business. They had been life-long friends and had engaged in numerous business dealings with each other. It was orally agreed that Daniels would contribute $20,000, Beal $15,000 and Wade $5,000. It was also orally agreed that in the event the venture proved to be a financial disaster all losses above the amounts of capital contributed would be assumed by Daniels and that she would hold her fellow partners harmless from any additional amounts lost. The partnership was consummated with a handshake and the contribution of the agreed-upon capital by the partners. There were no other express agreements. Under these circumstances, which of the following is true? A. The partnership is a nullity because the agreement is not contained in a signed writing. B. Profits are to be shared in accordance with the relative time each devotes to partnership business during the year. C. Profits are to be divided equally. D. Profits are to be divided in accordance with the relative capital contributions of each partner.
C. Profits are to be divided equally.
A parent and children currently own and operate a farm as equal partners. Under the Revised Uniform Partnership Act, what effect would the death of the parent have on the partnership? A. The estate of the deceased partner automatically becomes a partner. B. The partnership would be dissolved and wound up. C. The surviving partners could continue the partnership. D. A partnership agreement could not have governed the continuation of the partnership.
C. The surviving partners could continue the partnership.
The apparent authority of a partner to bind the partnership in dealing with third parties A. Would permit a partner to submit a claim against the partnership to arbitration. B. Will be effectively limited by a formal resolution of the partners of which third parties are unaware. C. Will be effectively limited by the filing of a statement of partnership authority. D. Must be derived from the express powers and purposes contained in the partnership agreement.
C. Will be effectively limited by the filing of a statement of partnership authority.
Locke and Vorst were general partners in a kitchen equipment business. On behalf of the partnership, Locke contracted to purchase 15 stoves from Gage. Unknown to Gage, Locke was not authorized by the partnership agreement to make such contracts. Vorst refused to allow the partnership to accept delivery of the stoves, and Gage sought to enforce the contract. Gage will A. Win, because Locke had express authority to bind the partnership. B. Lose, because Locke was not an agent of the partnership. C. Win, because Locke had apparent authority to bind the partnership. D. Lose, because Locke's action was not authorized by the partnership agreement.
C. Win, because Locke had apparent authority to bind the partnership.
When a party deals with a partner who lacks actual or apparent authority, a general partnership will be bound by the resulting contract if the other partners 1. Ratify the contract 2. Amend the partnership agreement A. No, No B. No, Yes C. Yes, No D. Yes, Yes
C. Yes, No
In a general partnership, which of the following acts must be approved by all the partners? A. Authorization of a partnership capital expenditure. B. Conveyance of real property owned by the partnership. C. Admission of a partner. D. Dissolution of the partnership.
C.Admission of a partner.
The partnership agreement for Owen Associates, a general partnership, provided that profits be paid to the partners in the ratio of their financial contribution to the partnership. Moore contributed $10,000, Noon contributed $30,000, and Kale contributed $50,000. For the year ended December 31, Owen had losses of $180,000. What amount of the losses should be allocated to Kale? A. $20,000 B. $90,000 C. $60,000 D. $100,000
D. $100,000
D, E, F, and G formed a general partnership. Their written partnership agreement provides that the profits will be divided so that D will receive 40%; E, 30%; F, 20%; and G, 10%. There is no provision for allocating losses. At the end of its first year, the partnership has losses of $200,000. Before allocating losses, the partners' capital account balances are D, $120,000; E, $100,000; F, $75,000; and G, $11,000. G refuses to make any further contributions to the partnership. Ignore the effects of federal partnership tax law. After losses are allocated to the partners' capital accounts and all liabilities are paid, the partnership's sole asset is $106,000 in cash. How much will E receive on dissolution of the partnership? A. $40,000 B. $35,333 C. $29,500 D. $37,000
D. $37,000
Eric, Teri, and Jana formed a partnership. Their cash contributions were $60,000 by Eric, $36,000 by Teri, and $24,000 by Jana. Jana will be responsible for 80% of day-to-day operations. Teri has unlimited liability, and each of the other partners is liable for 25% of the partnership debt. If the partnership agreement does not state how profits are to be shared, the Revised Uniform Partnership Act (RUPA) provides for which arrangement? Eric Terri Jana A. 10% 10% 80% B. 50% 30% 20% C. 25% 50% 25% D. 33.3% 33.3% 33.3%
D. 33.3% 33.3% 33.3%
The most significant distinction between a general partner and a joint venturer is that A. Only a partner has a right to an accounting. B. A joint venturer is personally liable for debts of the entity. C. Neither is liable for taxes on entity profits. D. A joint venturer has less apparent authority.
D. A joint venturer has less apparent authority.
A partner's interest in specific partnership property is 1. Assignable to the Partner's individual Creditors 2. Subject to Attachment by the Partner's Individual Creditors A. Yes, No B. No, Yes C. Yes, Yes D. No, No
D. No, No
Mary is a general partner in Goldilock Bookstore, a brick and mortar store. Due to a decline in business, Mary and her partners have decided to close the bookstore and dissolve the partnership. Which of the following statements is true? A. The partnership is liable for a negative balance in a partner's account. B. The partners' liability for partnership debts will be discharged in bankruptcy. C. A statement of dissociation may be filed only by a dissociated partner. D. A partner without actual authority is liable for partnership debts after dissolution.
D. A partner without actual authority is liable for partnership debts after dissolution.
What term is used to describe a partnership without a specified duration? A. A perpetual partnership. B. A partnership by estoppel. C. An indefinite partnership. D. A partnership at will.
D. A partnership at will.
A general partner will not be personally liable for which of the following acts or transactions? A. A contract entered into by the partnership in which the other partners agree among themselves to hold the general partner harmless. B. A contract entered into by the majority of the other partners but to which the general partner objects. C. The gross negligence of one of the partnership's employees while carrying out the partnership business. D. A personal mortgage loan obtained by one of the other partners on his or her residence to which that partner, without authority, signed the partnership name on the note.
D. A personal mortgage loan obtained by one of the other partners on his or her residence to which that partner, without authority, signed the partnership name on the note.
Dowling is a promoter and has decided to use a limited partnership for conducting a securities investment venture. Which of the following is unnecessary to form the partnership? A. A limited partnership certificate must be signed by all general partners and filed in the proper office in the state. B. The partnership must have one or more general partners and one or more limited partners. C. A state statute must recognize limited partnerships. D. All limited partners' capital contributions must be paid in cash.
D. All limited partners' capital contributions must be paid in cash.
B approached L and proposed they form a partnership to exploit a profitable idea of B's. L declined, citing the risk of unlimited liability. B then proposed that L lend B $50,000 and that B go into the business as a sole proprietor. L would receive half the profits and the right to veto any of B's decisions. The debt would have a long-term maturity date to facilitate operation of the business during its development stage. If L accepts the above proposition, the likely result is that A. A debtor-creditor relationship exists between B and L. B. B and L are not partners as to each other, or third parties. C. If L promises orally to become a partner of B and to transfer real property to the business, the statute of frauds would prohibit enforcement of the promise. D. B and L have formed a partnership even if they did not intend to.
D. B and L have formed a partnership even if they did not intend to.
Fox, Harrison, and Dodge are the general partners of a limited partnership. If the limited partnership certificate is silent on these matters, the general partners A. Can admit additional limited partners if a majority of the general and limited partners consent to do so. B. Cannot admit any general or limited partners without amending the partnership agreement. C. Can admit additional general partners without consent of the limited partners if the general partners vote unanimously to do so. D. Cannot admit additional limited partners absent unanimous written consent or ratification by the limited partners.
D. Cannot admit additional limited partners absent unanimous written consent or ratification by the limited partners.
What is a possible disadvantage of forming a limited liability partnership (LLP) as opposed to remaining a general partnership? A. LLPs are pass-through entities. B. Partners are subject to a broad personal liability shield. C. Termination of an LLP involves the same process as in a general partnership. D. Creation and continuation require compliance with statutory provisions.
D. Creation and continuation require compliance with statutory provisions.
Banner and Smythe merged their competing retail service businesses, each of which previously had been operated as a sole proprietorship. Neither Banner nor Smythe filed any paperwork with the state. They agreed to equally share profits, management rights, and co-ownership rights. What is the status of the merged business? A. C corporation. B. Joint venture. C. Limited partnership. D. General partnership.
D. General partnership.
Laura Lark, a partner in DSJ, a general partnership, wishes to withdraw from the partnership and sell her interest to Ward. All of the other partners in DSJ have agreed to admit Ward as a partner and to hold Lark harmless for the past, present, and future liabilities of DSJ. As a result of Lark's withdrawal and Ward's admission, Ward A. Is personally liable for partnership liabilities arising before and after being admitted as a partner. B. Must contribute cash or property to DSJ to be admitted with full partnership rights. C. Acquired only the right to receive Lark's share of DSJ profits. D. Has the right to participate in DSJ's management.
D. Has the right to participate in DSJ's management.
Under the Revised Model Business Corporation Act (RMBCA), which of the following statements regarding a corporation's bylaws is (are) true? I. A corporation's initial bylaws shall be adopted by either the incorporators or the board of directors. II. A corporation's bylaws are contained in the articles of incorporation. A. Neither I nor II. B. II only. C. Both I and II. D. I only.
D. I only.
Which of the following circumstances may permit the piercing of the corporate veil of a closely held corporation and thus may cause its shareholders to be held personally liable? I. The corporation is thinly capitalized. II. The corporation borrows money from a shareholder without giving the shareholder a security interest in corporate assets. A. Neither I nor II. B. II only. C. Both I and II. D. I only.
D. I only.
In the absence of a specific provision in a general partnership agreement, partnership losses will be allocated A. In proportion to the partners' capital contributions and outstanding loan balances. B. Equally among the partners irrespective of the allocation of partnership profits. C. In proportion to the partners' capital contributions. D. In the same manner as partnership profits.
D. In the same manner as partnership profits.
Leslie, Kelly, and Blair wanted to form a business. Which of the following business entities does not require the filing of organization documents with the state? A. Limited liability company. B. Limited partnership. C. Subchapter S corporation. D. Joint venture.
D. Joint venture.
Under the RUPA, unless otherwise provided in a general partnership agreement, which of the following statements is true when a partner dies? 1. The Deceased Partner's Executor Would Automatically Become a Partner 2. The Deceased Partner's Estate Would Be Free from Any Partnership Liabilities Automatically 3. The Partnership Would Be Dissolved A. Yes, Yes, Yes B. No, Yes, No C. Yes, No, No D. No, No, No
D. No, No, No
The partners of College Assoc., a general partnership, decided to dissolve the partnership and agreed that none of the partners would continue to use the partnership name. Which of the following events will occur on dissolution of the partnership? I. Each Partner's Existing Liability Would Be Discharged II. Each Partner's Apparent Authority Would Continue A. Yes, No B. No, No C. Yes, Yes D. No, Yes
D. No, Yes
A CPA firm, operated as a general partnership, will dissolve by mutual agreement at the end of the year. During the year, distributions have been made to some partners in excess of their capital invested in the partnership. Which of the following statements is correct regarding the distribution of assets at the end of the partnership's existence? A. Creditors whose debts cannot be satisfied by the partnership assets will have no further recourse. B. Bankrupt partners must contribute capital to resolve their bankruptcy proceedings. C. The partnership must engage in additional activity to generate sufficient cash to pay all creditors. D. Partners with negative capital accounts must contribute additional funds to the partnership.
D. Partners with negative capital accounts must contribute additional funds to the partnership.
Joe Perone was a member of Caddy, Shack, & Perone, a general trading partnership. He died and the partnership is being liquidated in a bankruptcy proceeding, but Perone's estate is substantial. The creditors of the partnership are seeking to collect on their claims from Perone's estate. Which of the following statements is true insofar as their claims are concerned? A. The death of Perone caused a dissolution of the firm, thereby freeing his estate from personal liability. B. The liability of Perone's estate cannot exceed his capital contribution plus that percentage of the deficit attributable to his capital contribution. C. The creditors must first proceed against the remaining partners before Perone's estate can be held liable for the partnership's debts. D. Partnership creditors and Perone's personal creditors are on an equal footing regarding the assets of Perone's estate.
D. Partnership creditors and Perone's personal creditors are on an equal footing regarding the assets of Perone's estate.
X, Y, and Z have capital balances of $30,000, $15,000, and $5,000, respectively, in the XYZ Partnership. The general partnership agreement is silent as to the manner in which partnership losses are to be allocated but does provide that partnership profits are to be allocated as follows: 40% to X, 25% to Y, and 35% to Z. The partners have decided to dissolve and liquidate the partnership. After paying all creditors, the amount available for distribution will be $20,000. X, Y, and Z are individually solvent. Z will A. Personally have to contribute an additional $5,000. B. Receive $7,000. C. Receive $12,000. D. Personally have to contribute an additional $5,500.
D. Personally have to contribute an additional $5,500.
Billie Donovan, a partner of Monroe, Lincoln, and Washington, is considering selling or pledging all or part of her interest in the partnership. The partnership agreement is silent on the matter. Donovan may A. Sell her entire partnership interest and confer partner status upon the purchaser. B. Pledge her partnership interest, but only with the consent of the other partners. C. Sell part but not all of her partnership interest. D. Sell or pledge her entire partnership interest without causing a dissolution.
D. Sell or pledge her entire partnership interest without causing a dissolution.
Which of the following is a false statement about the taxation of an LLC? A. Members may elect to be taxed as partners. B. It may be advantageous for an LLC to be taxed as a corporation. C. Members may elect to be taxed as a corporation. D. Single-member LLCs must be taxed as corporations.
D. Single-member LLCs must be taxed as corporations.
Berry, Drake, and Flanigan are partners in a general partnership. The partners made capital contributions as follows: Berry, $150,000; Drake, $100,000; and Flanigan, $50,000. Drake made a loan of $50,000 to the partnership. The partnership agreement specifies that Flanigan will receive a 50% share of profits and that Drake and Berry each will receive a 25% share of profits. Under the Revised Uniform Partnership Act and in the absence of any partnership agreement to the contrary, which of the following statements is correct regarding the sharing of losses? A. The partners will share in losses on a pro rata basis according to the capital contributions and loans made to the partnership. B. The partners will share in losses on a pro rata basis according to the capital contributions. C. The partners will share equally in any partnership losses. D. The partners will share in losses according to the allocation of profits specified in the partnership agreement.
D. The partners will share in losses according to the allocation of profits specified in the partnership agreement.
Two CPAs organized their business as a general partnership. Which of the following advantages may have played a role in their selection of the general partnership form under the Revised Uniform Partnership Act? A. The partnership has a perpetual life that is not affected by a partner's expulsion or withdrawal. B. The partnership can raise capital with sale of common stock. C. The partners' risk of loss from the business is limited to the amount of capital each invested in the business. D. The partnership form of business organization allowed them to form their business without the requirement of filing organizational documents with a government agency.
D. The partnership form of business organization allowed them to form their business without the requirement of filing organizational documents with a government agency.
When the Revised Uniform Partnership Act applies and there is no general partnership agreement, which of the following events, if any, occur(s) when a partner dies? I. The Partner Is Dissociated II. The Deceased Partner's Estate Is Free From Any Partnership Liability A. No, No B. No, Yes C. Yes, Yes D. Yes, No
D. Yes, No
