BUL3310 Unit 13 Quiz
Which of the following best describes the "double taxation" on corporate profits? The profits of a corporation are taxed at twice the rate of the highest individual tax rate. The income an individual gets from dividends is taxed at twice the rate of the income he gets from wages. 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
Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends
T or F: Absent a contrary provision in the partnership agreement, all partners have equal rights in the management of the business.
True
T or F: In a Limited Liability Company, the losses and profits pass through to the shareholders.
True
T or F: Investors favor using Limited Partnerships to invest in commercial real estate because they can use the depreciation of the property as a tax loss.
True
T or F: Partner A defrauded a client of the partnership. Partners B and C are jointly and severally liable with A to the client, even though they were unaware of the fraud.
True
T or F: Partnership books must be kept in the firm's place of business and be accessible to all partners
True
T or F: Premiums paid by corporations for the health insurance it provides to employees are tax-deductible expenses.
True
T or F: The Tax Code does not allow corporations to deduct as expenses excessive or unreasonable compensation to officers and employees.
True
T or F: The bankruptcy of a partner will cause the dissolution of the partnership by operation of law.
True
T or F: The capital contribution of each partner is a liability to the partnership and must be returned to the partner when the partnership ends.
True
T or F: The provisions of the law AND the partnership agreement govern the operations of the partnership.
True
T or F: Under RUPA, a partnership may take title to real property as a tenancy in partnership.
True
May is one of three limited partners in a limited partnership. Each limited partner made a capital contribution of $50,000. Assume there is a judgment against the partnership for $300,000 and that both the partnership and the general partner are insolvent. What is the maximum amount that May will have to pay on the judgment? 0: May is a limited partner so has no liability for the debts of the partnership under any circumstances. $50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that. $100,000: May will be liable for up to 1/3 of the judgment since there are three limited partners. $300,000: As a limited partner May has joint and several liability for the debts of the partnership so she could be personally liable for the full amount.
$50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that.
AMJ Partnership has 3 partners: Amy made a 60,000 capital contribution; May, made a 20,000 capital contribution; and June made a 10,000 capital contribution. The partnership agreement is silent about how profits will be divided. If the partnership makes 90,000 in profits, how will it be distributed? 60,000 to Amy; 20,000 to May; 10,00 to June 30,000 each to Amy, May and June 45,000 to Amy; 30,000 to May; 15,000 to June The partners will have to determine the distribution by a 23 partnership vote
30,000 each to Amy, May and June
Which of the following is NOT one of the recognized disadvantages of doing business as a corporation? A corporation must comply with a great number of state and federal regulations. Corporate profits are subject to double taxation. A corporation must qualify to do business in each state in which it engages in business activities. A corporation can be in existence for a maximum of ninety-nine years.
A corporation can be in existence for a maximum of ninety-nine years.
Which of the following is not required to create a partnership? A written agreement between the parties. Two or more persons An understanding to share profits and losses A common interest and intent to conduct business activities together.
A written agreement between the parties.
Phil has a partnership interest in Best Bike. He has been denied access to the books and records and he suspects that one of the partners is engaging in secret business transactions using partnership funds. Phil wants to know the status of the business. Phil should request an______:
Accounting
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? 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 because he assumed management of Commercial. Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties. Under no circumstances can John be liable beyond his capital contribution.
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 decisions would require a unanimous vote of the partners? Hiring an accountant to prepare the partnership information return for federal taxes. Buying materials from a new supplier. Having the parking lot repaved and installing new lights. Admitting a new partner into the partnership
Admitting a new partner into the partnership
Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership As rent For wages As an annuity to the spouse of a deceased partner All of the above
All of the above
An important factor to consider in the creation of a business organization is: Liability Control Taxation All of the above are important factors to consider
All of the above are important factors to consider
Which of the following would bring about the dissolution of the partnership? The time the partnership is to last, as stated in the partnership agreement, has expired All of the partners agree to end the partnership One of the partners dies. All of the above would bring about the dissolution of a partnership
All of the above would bring about the dissolution of a partnership
Subchapter S corporation will avoid double taxation if which of the following applies? All the shareholders agree to be taxed as in a partnership The corporation files Articles of Partnership in the state where it has its principal place of business The corporation has no retained earnings All of the above
All the shareholders agree to be taxed as in a partnership
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.
Buy and sell
The purpose of a buy and sell agreement is to Create a trading partnership Arrange for the evaluation of the business and the method for financing the purchase of a withdrawing or deceased partner's interest. Determine the compensation for partners who manage the business. Set guide lines for selling the goodwill of the business.
Arrange for the evaluation of the business and the method for financing the purchase of a withdrawing or deceased partner's interest.
The written agreement between two or more persons that creates a partnership and sets for the rights and duties of each partner is the_____________.
Articles of partnership
Which of the following statements is true about a partnership name? The name is an asset of the partnership that may be sold or assigned The name must include the word "company" in it. The partnership must comply with the state's assume name provisions. Both a and c
Both a and c
The court order directing that the share of profits due a partner be given to his or her creditor to satisfy a judgment is a ____ order.
Charging
What kind of business organization is subject to the most regulation at the state and federal level? Corporation Partnership Limited Partnership Professional Association
Corporation
Frank is a seller of 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
Estoppel
T or F: A business organized as a proprietorship may have up to, but not more than, thirty-five owners
False
T or F: A corporation can be in existence for a maximum of ninety-nine years.
False
T or F: A doctor who practices as part of a professional association cannot be sued for malpractice.
False
T or F: A limited partnership has to have at least two general partners and at least one limited partner
False
T or F: A new partner is liable only to the extent of his or her capital contribution for the already existing debts of the partnership.
False
T or F: A partnership cannot have a provision for the continuation of a the partnership upon the death of one of the partners.
False
T or F: Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business.
False
T or F: In a partnership for a term of years, each partner has both the power and the right to withdraw from the partnership at any time.
False
T or F: Marshaling of assets is the tax doctrine that allows income to be taxed only at the owner level and not at the organization level.
False
T or F: Subchapter S corporations may have a maximum of 100 shareholders.
False
T or F: The owner of a limited liability company (LLC) has unlimited personal liability for the debts of the LLC.
False
T or F: The partnership must pay interest each year on the capital contributions of the partners.
False
If a partnership agreement does not say how losses will be shared, they will be shared
In whatever way the profits are shared.
Which of the following issues do not require a unanimous vote of the partners? Admission of a new partner Confession of a judgment against the partnership Disposal of the good will of the business Hiring an office manager for 40 hours a week.
Hiring an office manager for 40 hours a week.
Jim and Fred had been equal partners in J amp; F Industries for 20 years. Jim has died and Fred is now in the process of winding up the partnership. Which of the following statements about the winding up process is false? Fred is entitled to compensation for winding up the business. Jim's estate is entitled to an accounting Jim's estate is entitled to participate in the winding up process. If there are not enough assets in the partnership to pay off all the debts, Jim's estate will be liable for one half of the losses.
Jim's estate is entitled to participate in the winding up process.
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 a ____ .
Joint venture
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______
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? Joint venture Limited partnership Professional association General 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? Joint venture General partnership Trading group Limited partnership
Joint venture
States give corporations many rights, among them is 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?
Legal capacity
Which of the following statements about the limited partner in a limited partnership is false? Limited partners may participate fully in the management of the partnership. There must be at least one limited partner. Limited partners must approve any changes to the partnership agreement. Limited partnerships that invest in real estate are typically good tax shelters for the limited partners.
Limited partners may participate fully in the management of the partnership.
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?
Marshaling of assets
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? Yes, as an equal owner of the business Sid was entitled to equal notice. No, Sid did not receive the notice because of his own negligence in attending to partnership correspondence. No, the partnership is liable under the doctrine of respondeat superior 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 ____________limited partners.
One
Why are corporations said to have a burden of "double tax"? Profits are taxed at the corporate level as income and again at the shareholder level as dividends Corporations are taxed at both the state and federal level. Corporations must file federal tax returns twice a year because their taxing period runs for only six months Corporations compute their federal tax liability by multiplying their state tax liability by two.
Profits are taxed at the corporate level as income and again at the shareholder level as dividends
Corporations are said to have a burden of "double tax" because Profits are taxed at the corporate level as income and again at the shareholder level as dividends. Corporations are taxed at both the state and federal level. Corporations must file federal tax returns twice a year because their taxing period runs for only 6 months. Corporations compute their federal tax liability by multiplying their state tax liability by 2.
Profits are taxed at the corporate level as income and again at the shareholder level as dividends.
A partner who does not participate in the management of the partnership is a ________ partner.
Silent
A partner who does not participate in the management of the business is a ____ partner; a partner who participates in decisions and advises management, but whose partnership interest is not known to third parties is a ____ partner.
Silent, secret
Which of the following statements about proprietorships is true? Proprietorships are taxable entities apart from the owners. A business can have up to thirty-five owners and still be a 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.
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? The right to participate in the management of the business. The right to draw yearly interest on his or her capital contribution The right to inspect the partnership books and records The right to sue for an accounting if another partner has taken a secret profit.
The right to draw yearly interest on his or her capital contribution
Which of the following statements about LLC's is false? LLC's are a relatively new form of business organization. There is an extensive body of law based on court decisions governing LLC's. Shareholders have no personal liability for the debts of the LLC. The LLC is not a taxable entity
There is an extensive body of law based on court decisions governing LLC's.
T or F: A partner in a trading partnership has the implied power to make warranties on goods sold by the partnership.
True
T or F: A sole proprietorship is not a taxable entity; all profits or losses are reported and taxed as individual income.
True
Which of the following statements about the rights and duties of doctors who practice medicine in a professional corporation is true? Doctors have no personal liability for medical malpractice suits. Because they are also owners of the corporation, doctors have no protection from discrimination based on age. The professional corporation can have no more than ten owner-employee doctors. They are eligible to participate in tax advantaged pension plans.
They are eligible to participate in tax advantaged pension plans.
What is the limit of shareholders in subchapter S corporations?
Thirty-five
T or F: A buy and sell agreement normally specifies the terms under which a withdrawing or deceased partner's interest will be bought out.
True
T or F: A corporation must qualify to do business in each state where it conducts business activities.
True
T or F: A dormant partner is one who does not participate in the management of the business and whose identity is not known to third parties.
True
T or F: A limited partnership must have at least one general partner and one limited partner.
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 ____ .
Winding up