BUL 3310 Unit 10 Quiz Questions
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
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? 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
The maximum number of shareholders a Subchapter S corporation may have is 25 35 100 1000
35
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.
A partnership will not terminate by operation of law if A partner dies A partner files for bankruptcy A partner becomes insolvent The purpose of the partnership becomes illegal
A partner becomes insolvent
Phil has a 1/4 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 ______________. Charging order Marshalling order Accounting Decree of insolvency
Accounting
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______: Charging order Marshalling order Accounting Decree of insolvency
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
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? The partnership as an entity Jay individually Each of the other partners individually All of the above have liability on the judgment.
All of the above have liability on the judgment.
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 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 formal document that represents the agreement of the parties to form a partnership is the ___________. Partnership charter Partnership certificate Articles of partnership Uniform Act of Partnership
Articles of partnership
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 incorporation Articles of partnership By laws charter
Articles of partnership
Bill is a limited partner in K&L Limited Partnership. Which of the following statements about his partnership interests is false? Bill made a capital contribution to K&L Bill has a right to share in K&L profits. Bill must share in K&L losses up to his capital contribution. Bill has a right to make management decisions for K&L.
Bill has a right to make management decisions for K&L.
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
A partnership that fails to comply with a state's assumed name statute Will be given a trade name by the attorney general Will not be able to use the courts of the state to sue its debtors May exposed the partners to criminal liability Both b and c
Both b and c
The capital contribution of a partner may consist in all of the following except Patent rights Cash Business experience 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. Reciprocity Marshalling Buy and sell Accounting
Buy and sell
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 Marshaling Accounting Collection
Charging
What is the form of business organization that is subject to the most regulation at the state and federal level? Corporation Partnership Limited Partnership Professional Association
Corporation
What kind of business organization is subject to the most regulation at the state and federal level? Corporation Partnership Limited Partnership Professional Association
Corporation
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
Any change in the identity of the partners, whether through death, withdrawal, or the adding of a new partner, results in the ________________of the old partnership. Termination Winding up Dissolution Disengagement
Dissolution
A partner who does not participate in management and whose existence is not known by the public is a _____________ Silent partner Dormant partner Secret partner Phantom
Dormant Partner
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 The complicity theory Vicarious liability Estoppel Respondeat superior
Estoppel
A corporation can be in existence for a maximum of ninety-nine years. True False
False
A doctor who practices as part of a professional association cannot be sued for malpractice. True False
False
A joint venture cannot sue or be sued. True False
False
A limited partnership has to have at least two general partners and at least one limited partner True False
False
A partner's capital contribution may consist in business experience or service to the firm. True False
False
A partnerhsip cannot have a provision for the continuation of a the partnership upon the death of one of the partners. True False
False
A partnership is a taxable entity. True False
False
Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business. True False
False
An incoming partner has unlimited personal liability for the already existing debts of the partnership. True 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. True 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. True False
False
In a closely held corporation, the shareholders will be personally liable for torts committed by employees of the corporation if committed while carrying out their employee duties. True False
False
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. True 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. True False
False
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 False
False
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 False
False
Partnerships are required to use the term "Company" in their names. True False
False
The owner of a limited liability company (LLC) has unlimited personal liability for the debts of the LLC. True False
False
The owner of a limited liability company LLC has unlimited personal liability for the debts of the LLC. True False
False
The partnership must pay interest each year on the capital contributions of the partners. True 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. True False
False
In a limited partnership LP, what are the partners who have unlimited personal liability for the debts of the LP? General partners Joint partners Limited partners 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?" Proprietorship General partnership Subchapter S corporation Limited Liability Company
General partnership
In a limited partnership, the _________partner has unlimited personal liability for the debts of the partnership; the ____________partner is liable only to the extent of his or her capital contribution. Limited-----------------general General----------------limited Senior------------------limited General----------------junior
General----------------limited
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 ____ . general partnership limitied partnership Joint venture proprietorship
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
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? Goodwill Legal capacity Business identity Competitive advantage
Legal Capacity
Partnership agreements often fund the purchase of a deceased partners' partnership interests with Life insurance policies Distributions of retained earnings Levies on partnership interests Partner advances
Life insurance policies
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? Equitable distribution Comity of assets Marshaling of assets Partnership partition
Marshaling of assets
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? Megan has unlimited personal liability and her entire capital contribution may be used to satisfy the debts. 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. Megan has no personal liability for the debts and her capital contribution cannot be used to satisfy old debts.
Megan has no personal liability for the debts, but her entire capital contribution may be used to satisfy them.
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? 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. No, the shareholder-employees will have do return the excess portion of their salaries to the corporation. 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.
No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends.
Which of the following is the order in which partnership assets will be distributed upon termination of the partnership? Outside-creditors, partner-creditors, undistributed profits, capital contributions. Capital contributions, outside-creditors, partner-creditors, undistributed profits. Partner-creditors, outside-creditors, undistributed profits, capital contributions 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__________. Limited partnership Limited liability company Partnership Professional association
Partnership
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
Which of the following statements about the taxation of corporations is false? Premiums paid for employee health insurance plans are fully deductible. Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule. Salaries paid to employees are deductible expenses for the corporation. Most states impose license fees or franchise taxes on corporations doing business in the state.
Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule.
A partner who does not participate in the management of the partnership is a ________partner. Silent Dormant Secret Junior
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. Dormant-------------------Silent Secret----------------------Dormant Silent----------------------Secret Silent-------------------Dormant
Silent----------------------Secret
Another name for a tax option corporation is a Limited liability Company Professional corporation Subchapter S corporation Joint venture
Subchapter S corporation
What is another name for a Subchapter S Corporation? Hybrid Limited Partnership Tax option corporation Limited Liability Company Professional Corporation
Tax option corporation
Which of the following is not normally included in the Partnership Agreement? The name of the partnership. The capital contribution of each partner. A buy and sell agreement The daily work schedule for each partner.
The daily work schedule for each partner.
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.
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? Ten Thirty-five 100 Tere is no limit
Thirty-five
A partnership whose primary business purpose is the buying and selling of goods is a ________partnership. Professional Entrepreneurial Trading Non-trading
Trading
A partnership that buys and sells commodities is a _______________partnership; a partnership that produces goods or sells services is a _____________partnership. Code--------------------------statutory Code--------------------------common law Trading-----------------------non-trading Trading-----------------------common law
Trading------------------non-trading
A Subchapter S corporation is taxed in the same way a partnership is taxed. True False
True
A buy and sell agreement normally specifies the terms under which a withdrawing or deceased partner's interest will be bought out. True False
True
A corporation must qualify to do business in each state where it conducts business activities. True 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. True False
True
A limited partnership must have at least one general partner and one limited partner. True False
True
A limited partnership must have at least one general partner and one limited partner. True 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. True False
True
A partner in a trading partnership has the implied power to make warranties on goods sold by the partnership. True False
True
A partner in a trading partnership has the implied power to make warranties on goods sold by the partnership. True False
True
A partnership maybe created by an express agreement between the parties or it may be implied from their conduct. True False
True
A person may become a partner without making a capital contribution. True False
True
A sole proprietorship is not a taxable entity; all profits or losses are reported and taxed as individual income. True False
True
Absent a contrary provision in the partnership agreement, all partners have equal rights in the management of the business. True False
True
If the partnership agreement does not state how long the partnership is to last, a partnership- at- will is created. True False
True
In a Limited Liability Company, the losses stay with the corporation although the profits pass through to the shareholders. True False
True
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 False
True
Legal capacity is the ability of an organization to sue and to own property. True False
True
Members of professional associations and professional corporations are eligible under the Tax Code to participate in pension and profit-sharing plans. True False
True
One partner has the ability to veto the admission of a new partner into the business. True False
True
Partners are agents of the partnership and of the other partners individually. True False
True
Partners have unlimited personal liability for the debts incurred by the partnership. True False
True
Partnership books must be kept in the firm's place of business and be accessible to all partners True 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. True False
True
Premiums paid by corporations for the health insurance it provides to employees are tax-deductible expenses. True False
True
Professional corporations are business entities organized under state law. True False
True
Shareholders of a corporation may also be employees of that corporation. True False
True
Shareholders of corporations pay taxes on the dividends distributed to them by the corporation. True False
True
The Tax Code does not allow corporations to deduct as expenses excessive or unreasonable compensation to officers and employees. True False
True
The bankruptcy of a partner will cause the dissolution of the partnership by operation of law. True 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. True False
True
The provisions of the law AND the partnership agreement govern the operations of the partnership. True False
True
Under RUPA, a partnership may take title to real property as a tenancy in partnership. True False
True
Usury laws do not apply to corporations when they borrow money. True 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 ____ . Dissolution Winding up Marshaling of assets Termination
Winding up
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
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 Marshaling Accounting Collection
charging
A business organized as a proprietorship may have up to, but not more than, thirty-five owners True False
false
A partnership whose primary purpose is to manufacture things or to provide services is a ____________partnership. Professional Entrepreneurial Trading Non-trading
non-trading
By statute, a limited partnership must have a minimum of ___________general partners. one two four five
one
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? Double taxation Pass through Dividend retention Income averaging
pass through
Unless agreed to otherwise, all partners have an equal vote in the management decisions of the partnerships. True False
true
