BUL3310 Unit 10 Quiz
Which of the following is/are a recognized advantage of doing business as a corporation? *(select all the correct answers)* a.) A corporation can have perpetual existence. b.) A corporation does not have to report income for corporate revenue. c.) Investors have extremely limited liability for the debts of the corporation. d.) Usury laws do not apply to corporations.
-a corporation can have perpetual existence. -investors have extremely limited liability for the debts of the corporation. -usury laws do not apply to corporations
Which of the following is/are advantages of a general partnership? *(select all the correct answers)* a.) Partners have limited liability for the debts of the partnership. b.) General partneships do not owe any taxes. c.) All partners have equal management rights. d.) The costs to form a partnership are minimal.
-all partners have equal management rights. -the costs to form a partnership are minimal.
Jay, who is a partner in an accounting firm, is being sued for malpractice by a client. If the jury finds for the client, which of the following parties will have liability on the judgment? *(select all the correct answers)* a.) Each of the other partners individually b.) Each of the employees of the partnership individually c.) Jay individually d.) The partnership as an entity
-each of the other partners individually -Jay individually -the partnership is an entity
Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership as/for: *(select all the correct answers)* a.) For wages b.) As an annuity to the spouse of a deceased partner c.) As dividends to the participants d.) As rent
-for wages -as an annuity to the spouse of a deceased partner -as rent
A partnership that fails to comply with a state's assumed name statute *(select all the answers that are correct)* a.) May exposed the partners to criminal liability b.) Will not be able to use the courts of the state to sue its debtors c.) Will be given a trade name by the attorney general d.) Will default to a Subchapter S corporation.
-may exposed the partners to criminal liability -will not be able to use the courts of the state to sue its debtors
Which of the following statements is true about a partnership name? *(select all the correct answers)* a.) The name must include the word "company" in it. b.) The name must comply with the Federal patent provisions. c.) The partnership must comply with the state's assume name provisions. d.) The name is an asset of the partnership that may be sold or assigned.
-the partnership must comply with the state's assume name provisions. -the name is an asset of the partnership that may be sold or assigned.
Subchapter S corporations are limited to _________ shareholders. a.) 100 b.) 35 c.) There is no limit to the number of shareholders in a Subchapter S corporation. d.) 10
100
The maximum number of shareholders a Subchapter S corporation may have is a.) 35 b.) 25 c.) 100 d.) 1000
100
The AMJ Partnership has 3 partners: Amy, who made a 60,000 capital contribution; May, who made a 20,000 capital contribution; and June, whose capital contribution was 10,000. The partnership agreement is silent about how profits will be divided. If the partnership makes 90,000 in profits, how will it be distributed? a.) 60,000 to Amy; 20,000 to May; 10,00 to June b.) 30,000 each to Amy, May and June c.) The partners will have to determine the distribution by a 23 partnership vote. d.) 45,000 to Amy; 30,000 to May; 15,000 to June
30,000 each to Amy, May, and June
John was a limited partner in Commercial Properties Limited. When the general partner became ill, John took over all the management duties of Commercial Properties. Ace Office Equipment, a supplier of Commercial Properties, is suing Commercial Properties over several months of unpaid bills. Under modern laws governing the operation of limited partnerships, which of the following statements best describes John's personal liability for Commercial's debt to Ace Office Equipment? a.) Ace can hold John personally liable for Commercial's debt because he assumed management of Commercial. b.) Under no circumstances can John be liable beyond his capital contribution. c.) Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties. d.) Ace can hold John personally liable for Commercial's debt because he is a limited partner in the business.
Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties.
Which of the following abbreviations would NOT be used by a professional corporation as a required part of its name? a.) S.C. b.) Inc. c.) PC d.) LLC
LLC
Megan has joined Alliance Partners, making a 50,000 capital contribution. Alliance has been in business for 10 years and Megan is worried about her liability for pre-existing debts. Which statement best describes her liability for the debts Alliance had when she joined the partnership? a.) Megan has unlimited personal liability and her entire capital contribution may be used to satisfy the debts. b.) Megan has no personal liability for the debts and her capital contribution cannot be used to satisfy old debts. c.) Megan has no personal liability for the debts, but her entire capital contribution may be used to satisfy them. d.) Megan has unlimited personal liability, but her capital contribution cannot be used because it is new money.
Megan has no personal liability for the debts, but her entire capital contribution may be used to satisfy them.
A partnership that buys and sells commodities is a ________________ partnership; a partnership that produces goods or sells services is a _____________ partnership. a.) Code--------------------------statutory b.) Code--------------------------common law c.) Trading-----------------------non-trading d.) Trading-----------------------common law
Trading-----------------------non-trading
Which of the following is not required to create a partnership? a.) A written agreement between the parties. b.) Two or more persons c.) An understanding to share profits and losses d.) A common interest and intent to conduct business activities together.
a written agreement between the parties.
Phil has a ¼ partnership interest in Green & Sons. He has been denied access to the partnership books and records for over a year and he suspects that one of the partners has been engaging in secret business transactions using partnership funds. Phil wants to know the status of the business. Phil's remedy in this situation is to go to a court of equity for an ______________. a.) Decree of insolvency b.) Marshalling order c.) Charging order d.) Accounting
accounting
Subchapter S corporation will avoid double taxation only if which of the following applies? *(select all the correct answers)* a.) The corporations bylaws require all the revenue to be distributed to the shareholders at the end of each tax year. b.) The corporation has no retained earnings. c.) All the shareholders agree to be taxed as in a partnership. d.) The corporation files Articles of Partnership in the state where it has its principal place of business.
all the shareholders agreed to be taxed as in a partnership
Which of the following statements about the rights and duties of doctors who practice medicine in a professional corporation is true? a.) are eligible to participate in tax advantaged pension plans. b.) The professional corporation can have no more than 10 owner-employee doctors. c.) Doctors have no personal liability for medical malpractice suits. d.) Because they are also owners of the corporation, doctors have no protection from discrimination based on age.
are eligible to participate in tax advantaged pensions
The formal document that represents the agreement of the parties to form a partnership is the ___________. a.) Uniform Act of Partnership b.) Partnership certificate c.) Partnership charter d.) Articles of partnership
articles of partnership
The capital contribution of a partner may consist in all of the following except a.) Cash b.) Business experience c.) Patent rights d.) Real property
business experience
The agreement among the partners that spells out how the firm's assets will be valued and how the interests of a retiring or deceased partner will be bought out is a(n)_____________________ agreement. a.) Marshalling b.) Buy and Sell c.) Reciprocity d.) Accounting
buy and sell
The court order directing that the share of profits due a partnerbe given to his or her creditor to satisfy a judgment is a _________________ order. a.) Charging b.) Marshaling c.) Accounting d.) Collection
charging
John, a partner in KLM Partners, had a personal loan from First Bank for 35,000. First Bank got a judgment against John after he defaulted on the loan. First Bank can reach John's interest in KLM Partners and require that a receiver be appointed to take John's share of the partnership profits to satisfy the judgment. The court order that will do this is an ________________ a.) Accounting order b.) Marshalling order c.) Attachment order d.) Charging order
charging order
What is the form of business organization that is subject to the most regulation at the state and federal level? a.) Corporation b.) Professional Association c.) Limited Partnership d.) Partnership
corporation
What is the form of business organization that is subject to the most regulation at the state and federal level? a.) Limited Partnership b.) Partnership c.) Corporation d.) Professional Association
corporation
Which of the following best describes the "double taxation" on corporate profits? a.) The income an individual gets from dividends is taxed at twice the rate of the income he gets from wages. b.) Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income. c.) The profits of a corporation are taxed at twice the rate of the highest individual tax rate. d.) The IRS is twice as likely to audit returns with dividend income as it is to audit returns with income from wages only.
corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income.
Frank is in the business of selling imported pottery. To induce a new wholesaler to sell him goods on credit, Frank and his brother Ed told the wholesaler that Ed was a partner in the business. In fact, Ed had no partnership interest and Frank was a sole proprietor. Ed now has liability to the wholesaler based on a.) Estoppel b.) The complicity theory c.) Respondeat superior d.) Vicarious liability
estoppel
A business organized as a proprietorship may have up to, but not more than, thirty-five owners. a.) True b.) False
false
A corporation can be in existence for a maximum of ninety-nine years. a.) True b.) False
false
A doctor who practices as part of a professional association cannot be sued for malpractice. a.) True b.) False
false
A limited partnership has to have at least two general partners and at least one limited partner a.) True b.) False
false
A partner's capital contribution may consist in business experience or service to the firm. a.) True b.) False
false
A partnership is a taxable entity. a.) True b.) False
false
An incoming partner has unlimited personal liability for the already existing debts of the partnership. a.) True b.) False
false
Debbie, the manager of a large furniture store, receives a bonus each year equal to 2% of the business' net profits. Under RUPA, this is conclusive evidence that Debbie has a partnership interest in the business. a.) True b.) False
false
If a partner assigns his or her interest in a partnership to a creditor, the assignee steps into the shoes of the partner and becomes entitled to participate in the management of the business. a.) True b.) False
false
If a personal creditor of Partner A wants to attach A's partnership interest in satisfaction of the debt, he would do so through a marshalling order. a.) True b.) False
false
Marshaling of assets is the tax doctrine that allows income to be taxed only at the owner level and not at the organization level. a.) True b.) False
false
Partners may use partnership property for both partnership and personal reasons. a.) True b.) False
false
Subchapter S corporations cannot have more than thirty-five shareholders, each of whom must sign the election to be taxed in a manner similar to a partnership. a.) True b.) False
false
The owner of a limited liability company LLC has unlimited personal liability for the debts of the LLC. a.) True b.) False
false
The partnership must pay interest each year on the capital contributions of the partners. a.) True b.) False
false
Vic and Thom bought an antique Corvette at auction with the intent of restoring it and selling it for a profit, which they will share equally. Vic and Thom have formed a professional association. a.) True b.) False
false
In a limited partnership LP, what are the partners who have unlimited personal liability for the debts of the LP? a.) Limited partners b.) Joint partners c.) General partners d.) Silent partners
general partners
Which business entity is defined as "an association of two or more owners who carry on as co-owners a business for profit?" a.) General partnership b.) Limited Liability Company c.) Subchapter S corporation d.) Proprietorship
general partnership
A person who becomes a partner by estoppel a.) Has no partnership rights, only liability to creditors who believed he was a partner. b.) Has the right to veto any decision where unanimous consent is required c.) Has the right to share in the day to day management of the partnership d.) Has the right to share in the profits earned by the partnership
has no partnership rights, only liability to creditors who believed he was a partner.
Nelson and Jack are both avid sailors. When a sailing acquaintance put his older, but still highly desirable, boat up for sale, Nelson and Jack agreed to pool their resources to buy and fix up the boat, then sell it and split the profits. This is an example of an______ a.) Proprietorship b.) General partnership c.) Limited partnership d.) Joint venture
joint venture
Which business entity has the following characteristics: an informal association of two or more persons that is formed to accomplish a single business transaction? a.) General partnership b.) Joint venture c.) Professional association d.) Limited partnership
joint venture
Which of the following is an informal association of two or more persons who agree to engage as co-owners in a single business transaction? a.) Trading group b.) Joint venture c.) Limited partnership d.) General partnership
joint venture
If a business has the power to own property, enter into contracts, and sue others in court, it is said to have a.) Legal capacity b.) legal authority c.) corporate authority d.) legal standing
legal capacity
States give corporations many rights, among them the right to sue and the right to own property in the corporation's name. What do such legal rights collectively constitute for a corporation? a.) Competitive advantage b.) Goodwill c.) Legal capacity d.) Business identity
legal capacity
Partnership agreements often fund the purchase of a deceased partners' partnership interests with a.) Levies on partnership interests b.) Distributions of retained earnings c.) Partner advances d.) Life insurance policies
life insurance policies
What is the equitable rule that 1 distributes assets of an insolvent partnership first to creditors of the partnership and 2 does not let partnership creditors reach the assets of individual partners until the partners' personal creditors are satisfied? a.) Equitable distribution b.) Partnership partition c.) Marshaling of assets d.) Comity of assets
marshaling of assets
Allfam is a closely held family corporation, many of whose shareholders are employees of the corporation. In an attempt to reduce its taxes, Allfam paid its shareholder-employees enormous salaries and deducted the salaries as a corporate expense. Is Allfam permitted to do this? a.) No, the shareholder-employees will have do return the excess portion of their salaries to the corporation. b.) No, the IRS will disallow the deductions for this year, but will allow the corporation to treat them as carry-forward losses for next year. c.) No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends. d.) Yes, this is a legitimate way for closely held corporations to reduce their taxes.
no, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends.
Jim and Sid are partners in Widget Manufacturing. Jim read a letter from one of Widget's buyers asking for adequate assurances that Widget would be able to meet an upcoming contractual obligation. The demand was proper and, under Article 2, the buyer could treat the contract as breached if Widget did not respond to the demand within 3 months. Jim forgot to tell Sid about the demand and did not respond to it himself. Widget is now being sued by Buyer for 4,000 in damages for breach of contract. Sid contends that the partnership is not liable because only one partner was aware of the demand. Is Sid correct? a.) No, Sid did not receive the notice because of his own negligence in attending to partnership correspondence. b.) Yes, as an equal owner of the business Sid was entitled to equal notice. c.) No, the partnership is liable under the doctrine of respondeat superior d.) No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership.
no, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership.
By statute, a limited partnership must have a minimum of ___________ general partners a.) Five b.) One c.) Four d.) Two
one
Which of the following is the order in which partnership assets will be distributed upon termination of the partnership? a.) Outside-creditors, partner-creditors, undistributed profits, capital contributions. b.) Partner-creditors, outside-creditors, undistributed profits, capital contributions c.) Capital contributions, outside-creditors, partner-creditors, undistributed profits. d.) Outside-creditors, partner-creditors, capital contributions, undistributed profits.
outside-creditors, partner-creditors, capital contributions, undistributed profits.
The business entity that consists in an association of two or more persons to carry on as co-owners a business for profit is an __________. a.) Limited partnership b.) Limited liability company c.) Professional association d.) Partnership
partnership
What is the provision of the tax rule that makes income taxable only for the individuals who receive it, and not for the business entity that produces it? a.) Pass through b.) Income averaging c.) Double taxation d.) Dividend retention
pass through
Corporations are said to have a burden of "double tax" because a.) Corporations compute their federal tax liability by multiplying their state tax liability by 2. b.) Corporations are taxed at both the state and federal level. c.) Corporations must file federal tax returns twice a year because their taxing period runs for only 6 months. d.) Profits are taxed at the corporate level as income and again at the shareholder level as dividends.
profits are taxed at the corporate level as income and again at the shareholder level as dividends.
A partner who participates in the management of the partnership, but whose existence is not known to the public is a ______________ partner. a.) Senior b.) Secret c.) Silent d.) Dormant
secret
A partner who does not participate in the management of the partnership is a ________partner. a.) Silent b.) Secret c.) Dormant d.) Junior
silent
Partners hold title to partnership property as a.) Join tenants b.) Tenants by the entireties c.) Tenants in common d.) Tenants in partnership
tenants in partnership
A partnership need not give public notice of its dissolution if the dissolution was caused by a.) The bankruptcy of a partner b.) The wrongful withdrawal of a partner c.) The death of a partner d.) The expiration of the partnership's term of years
the bankruptcy of a partner
Which of the following statements about proprietorships is true? a.) Proprietorships are taxable entities apart from the owners. b.) A business can have up to thirty-five owners and still be a proprietorship. c.) The owner of a proprietorship is personally liable for all the debts of the d.) proprietorship. A proprietorship cannot generate more than 10 million in proceeds per tax year.
the owner of a proprietorship is personally liable for all the debts of the proprietorship.
Which of the following is not a right of a partner? a.) The right to draw yearly interest on his or her capital contribution b.) The right to sue for an accounting if another partner has taken a secret profit. c.) The right to participate in the management of the business. d.) The right to inspect the partnership books and records.
the right to draw yearly interest on his or her capital contribution
Which of the following statements about LLC's is false? a.) LLC's are a relatively new form of business organization. b.) The LLC is not a taxable entity. c.) There is an extensive body of law based on court decisions governing LLC's. d.) Shareholders have no personal liability for the debts of the LLC.
there is an extensive body of law based on court decisions governing LLC's
Bob, Sue and Jim were classmates in medical school who formed a professional corporation to practice medicine. Which of the following statements about their professional corporation is false? a.) They will be eligible for a tax-advantaged pension plan. b.) Bob, Sue and Jim may have special legal protections against discrimination as shareholder-employees of professional corporation c.) Their practice will have to include some designation of its status, such as "S.C." or "P.C." in its name. d.) They will be protected from their suits for medical malpractice.
they will be protected from their suits for medical malpractice
A partnership whose primary business purpose is the buying and selling of goods is a ________partnership. a.) Non-trading b.) Trading c.) Professional d.) Entrepreneurial
trading
A Subchapter S corporation is taxed in the same way a partnership is taxed. a.) True b.) False
true
A buy and sell agreement normally specifies the terms under which a withdrawing or deceased partner's interest will be bought out. a.) True b.) False
true
A corporation must qualify to do business in each state where it conducts business activities. a.) True b.) False
true
A dormant partner is one who does not participate in the management of the business and whose identity is not known to third parties. a.) True b.) False
true
A limited partnership must have at least one general partner and one limited partner. a.) True b.) False
true
A new partner is liable only to the extent of his or her capital contribution for the already existing debts of the partnership. a.) True b.) False
true
A partner in a trading partnership has the implied power to make warranties on goods sold by the partnership. a.) True b.) False
true
A partnership maybe created by an express agreement between the parties or it may be implied from their conduct. a.) True b.) False
true
A person may become a partner without making a capital contribution. a.) True b.) False
true
A sole proprietorship is not a taxable entity; all profits or losses are reported and taxed as individual income. a.) True b.) False
true
An advantage to doing business as a corporation is that ownership interests can be transferred without impact on day-to-day business operations. a.) True b.) False
true
If the partnership agreement does not state how long the partnership is to last, a partnership-at-will is created. a.) True b.) False
true
In a Limited Liability Company, the losses and profits pass through the shareholders a.) True b.) False
true
Legal capacity is the ability of an organization to sue and to own property. a.) True b.) False
true
One partner has the ability to veto the admission of a new partner into the business. a.) True b.) False
true
Partner A defrauded a client of the partnership. Partners Band C are jointly and severally liable with A to the client, even though they were unaware of the fraud. a.) True b.) False
true
Partners are agents of the partnership and of the other partners individually. a.) True b.) False
true
Partnership books must be kept in the firm's place of business and be accessible to all partners a.) True b.) False
true
Partnerships typically buy life insurance policies on each partner in order to fund the required purchase of the partner's interest in the partnership when the partner dies. a.) True b.) False
true
Premiums paid by corporations for the health insurance it provides employees are tax-deductible expenses. a.) True b.) False
true
Professional corporations are business entities organized under state law. a.) True b.) False
true
Shareholders of a corporation may also be employees of that corporation a.) True b.) False
true
Shareholders of corporations pay taxes on the dividends distributed to them by the corporation. a.) True b.) False
true
Subchapter S corporations are now allowed to have up to 100 shareholders (it cannot exceed 100 shareholders). a.) True b.) False
true
Subchapter S corporations may have a maximum of 100 shareholders. a.) True b.) False
true
The Tax Code does not allow corporations to deduct as expenses excessive or unreasonable compensation to officers and employees. a.) True b.) False
true
The admission of a new partner automatically dissolves the partnership. a.) True b.) False
true
The bankruptcy of a partner will cause the dissolution of the partnership by operation of law. a.) True b.) False
true
The capital contribution of each partner is a liability to the partnership and must be returned to the partner when the partnership ends. a.) True b.) False
true
Under RUPA, a partnership may take title to real property as a tenancy in partnership. a.) True b.) False
true
Unless agreed to otherwise, all partners have an equal vote in the management decisions of the partnerships. a.) True b.) False
true
Unless agreed to otherwise, partners are not entitled to compensation for work done to further the interests of the partnership. a.) True b.) False
true
Usury laws do not apply to corporations when they borrow money. a.) True b.) False
true
When a partnership ceases to exist, the process of reducing the firm's assets to cash, paying off the creditors, returning the capital contributions of the partners, and distributing profits is called __________________. a.) Winding up b.) Termination c.) Marshaling of assets d.) Dissolution
winding up
Bob and Sue, who are both attorneys, agreed to share office space and other overhead expenses in order to save money. They did not agree to form a partnership. They do not share profits or losses and neither has a say in the management of the other's business. The sign outside their door, and on their common letterhead, reads: "Bob Smith and Sue Jones, Attorneys at Law." Using this stationary, Bob purchased office equipment from Smart Buy. Sue at no time used the equipment and did not enter into the contract with Smart Buy. Bob did not pay for the equipment and Smart Buy wants to hold Sue liable. Is Sue liable as a partner for this purchase? a.) No, there was no sharing of profits or losses or management rights so there was no partnership. b.) Yes, allowing her name to be used with Bob's in the same letterhead created an express partnership. c.) Yes, allowing her name to be used with Bob's in the same letterhead created an implied partnership d.) Yes, allowing her name to be used with Bob's in the same letterhead created a partnership by estoppel
yes, allowing her name to be used with Bob's in the same letterhead created a partnership by estoppel