Unit 13 Practice Test

Rank the following oil and gas programs from highest to lowest risk. I. income II. Exploratory III. Developmental

II, III, I

The person who organizes and registers a partnership is known as A. syndicator B. a property manager C. a program manager D. an underwriter

A. syndicator

A client invests $100,000 in a tax shelter as a limited partner, giving him a 10% interest in the program. The general partners cannot meet the expenses of the program. There is a mortgage balance remaining of $3 million. The property of the program is then liquidated for $1 million. How much does the investor get back from his original investment? A. $0 B. $10,000 C. $33,000 D. $100,000

A. $0

Which of the following would NOT be a valid use of the partnership democracy? A. Deciding which partnership assets should be liquidated to pay creditors B. Removing the general partner C. Consenting to an action of a general partner that is contrary to the agreement of limited partnership D. Consenting to a legal judgment against the partnership

A. Deciding which partnership assets should be liquidated to pay creditors

A customer has an annual income of $38,000 from a fairly secure job and is in the 28% bracket. She has a balanced portfolio of stocks and fixed-income securities and has $10,000 to invest in a limited partnership. She is willing to accept only a moderate amount of risk. Which of the following types of limited partnerships would be the most appropriate recommendation? A. Oil and gas income program B. Exploratory oil and gas drilling program C. New construction real estate limited partnership D. Blind pool raw land real estate limited partnership

A. Oil and gas income program

All of the following would be considered tax advantages relating to a DPP investment EXCEPT A. depreciation recapture B. depletion C. intangible drilling costs D. accelerated depreciation

A. depreciation recapture

A limited partnership becomes effective when A. the certificate is filed with the proper authorities B. all limited partnership interests are sold C. all LPs are notified that all units are sold D. the limited partnership registration is filed

A. the certificate is filed with the proper authorities

Which of the following statements describes an oil and gas blind pool offering? A. The oil exploration occurs in an area that is not adjacent to any known oil reserves B. Money is raised without a specific property being stated, and the GP selects the investments C. The income from producing wells is purchased at a discount from the present value of the projected future flows D. An unknown number of representatives participates in the sale of known partnership units

B. Money is raised without a specific property being stated, and the GP selects the investments

Each limited partner's share of partnership losses A. may be used to reduce ordinary income B. may be used to offset passive income C. are deductible up to $3,000 per year D. cause a dollar-for-dollar decrease in the market value of the limited partnership units

B. may be used to offset passive income

Which of the following sharing arrangements is the most common? A. Net operating profits interest B. Carried interest C. Functional allocation D. Overriding royalty interest

C. Functional allocation

What might happen if a limited partner begins making business decisions for the partnership? A. He may be removed from the partnership B. He may maintain his limited liability status C. He could jeopardize his limited liability status D. There would be no effect because of partnership democracy

C. He could jeopardize his limited liability status

In an investor expects to have a large amount of passive income over the next 2 years, which of the following programs will most likely lead to the largest amount of shelter? A. Equipment leasing B. Undeveloped land purchasing C. Oil and gas drilling D. Real estate income

C. Oil and gas drilling

A general partner is considered to have a conflict of interest with the business of a limited partnership if he A. manages the business B. loans money to the business C. borrow money from the business D. acts as agent for the business

C. borrow money from the business

A general partner is considered to have a conflict of interest with the business of a limited partnership if he A. manages the partnership's business B. loans money to the partnership C. borrows money from the partnership D. acts as agent for the partnership

C. borrows money from the partnership

DPP stands for A. direct placement program B. directed profits program C. direct participation program D. directors' and principals' program

C. direct participation program

When considering the purchase of a limited partnership interest, an investor should be most concerned with A. loss pass-through B. potential tax shelter C. economic viability D. short-term trading opportunities

C. economic viability

A subscription for a limited partnership is accepted when A. the proposed LP signs the partnership agreement B. the LP's check is cashed C. the GP signs the subscription agreement D. the certificate of limited partnership is filed

C. the GP signs the subscription agreement

If a limited partnership interest is sold, the gain or loss in the sale is the difference between the sales proceeds and A. the original basis B. the total of the deductible losses taken by the investor C. the adjusted basis D. the total of tax preference items allocated to the investor

C. the adjusted basis

The rights and liabilities of general and limited partners are listed in A. the certificate of partnership B. the Uniform Limited Partnership Act C. the agreement of limited partnership D. the partnership title

C. the agreement of limited partnership

When a certificate of limited partnership must be recorded, it must be filed A. before the change B. within 5 business days of the change C. within 30 days of the change D. within 60 days of the change

C. within 30 days of the change

All of the following are characteristics of both oil and gas and real estate limited partnerships EXCEPT A. limited liability B. depreciation C. deferral of benefits D. depletion

D. depletion

All of the following statements are true with respect to a limited partnership subscription agreement EXCEPT A. the investor's registered representative must verify that the investor has provided accurate information B. the general partner endorses the subscription agreement, signifying that a limited partner is suitable C. the investor's signature indicates that he has read the prospectus D. the general partner's signature grants the limited partners power of attorney to conduct the partnership's affairs

D. the general partner's signature grants the limited partners power of attorney to conduct the partnership's affairs

Intangible drilling costs can include all of the following EXCEPT A. wages B. fuel C. land surveys D. well casing

D. well casing

An investor in a limited partnership generating passive losses can offset these against I. passive income from other partnerships II. rental income from direct investments in real estate III. dividends received from listed securities IV. Capital gains from sale of unlisted securities

I and II

Which of the following statements are TRUE? I. DPPs flow through income and losses to owners II. Corporations have a limited life III. Limited partnerships must have at least one general partner and one limited partner IV. DPPs are not required to have a profit motive if generating passive losses

I and III

Which of the following corporate characteristics do most limited partnerships avoid? I. Continuity of life II. Limited liability III. Centralized management IV. Free transferability of interest

I and IV

Which of the following limited partnership programs provide potential tax credits to partners? I. Rehabilitation of historic properties II. Equipment leasing III. Developmental oil and gas programs IV. Government-assisted housing programs

I and IV

Which of the following statements regarding limited partnerships are TRUE? I. Maximum commission in selling partnership offerings is 5% II. Maximum commission in selling partnership offerings is 10% III. Commissions taken are deducted from the original investment to determine beginning basis IV. Commissions taken are not deducted from the original investment to determine beginning basis

II and IV

When conducting a discussion with a client about the merits of investing in a DPP, all of the following could be tax advantages EXCEPT I. accelerated depreciation II. depletion allowances III. recapture of depreciation IV. tangible drilling costs

III and IV

In considering a direct participation program, rank the following in order of priority. I. Tax write-offs II. Liquidity and marketability III. Potential for economic gain

III, I,II

Which of the following sequences reflects the priority, from first to last, of payments made when a limited partnership is liquidated? I. General partners II. Limited partners III. General creditors IV. Secured creditors

IV, III, II, I