BUL3310 UNIT 10 QUIZ
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.
Which of the following would bring about the dissolution of the partnership?
(All of the above would bring about the dissolution of a 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
Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership
(All of the above) As rent For wages As an annuity to the spouse of a deceased partner
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?
(They will be protected from suits for medical malpractice.) They will be eligible for a tax-advantaged pension plan. Their practice will have to include some designation of its status, such as "S.C." or "P.C." in its name. Bob, Sue and Jim may have special legal protections against discrimination as shareholder-employees of the professional corporation.
The maximum number of shareholders a Subchapter S corporation may have is
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?
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 business activities. (A corporation can be in existence for a maximum of 99 years.)
A partnership will not terminate by operation of law if
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
Accounting
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 ______________.
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 only if Ace knew that John had taken over the management duties.
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 only if Ace knew that John had taken over the management duties.
Subchapter S corporation will avoid double taxation only if which of the following applies?
All the shareholders agree to be taxed as in a partnership.
The purpose of a buy and sell agreement is to
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 ___________.
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 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.)
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
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
Charging order
What is the form of business organization that is subject to the most regulation at the state and federal level?
Corporation
Which of the following best describes the "double taxation" on corporate profits?
Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income.
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.
Dissolution
A partner who does not participate in management and whose existence is not known by the public is a
Dormant partner
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
Estoppel
A business organized as a proprietorship may have up to, but not more than, thirty-five owners.
FALSE
A corporation can be in existence for a maximum of ninety-nine years.
FALSE
A doctor who practices as part of a professional association cannot be sued for malpractice.
FALSE
A limited partnership has to have at least two general partners and at least one limited partner
FALSE
A partner's capital contribution may consist in business experience or service to the firm.
FALSE
A partnership is a taxable entity.
FALSE
Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business.
FALSE
An incoming partner has unlimited personal liability for the already existing debts of the partnership.
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.
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.
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.
FALSE
Partners may use partnership property for both partnership and personal reasons.
FALSE
The owner of a limited liability company LLC has unlimited personal liability for the debts of the LLC.
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.
FALSE
Jim and Fred had been equal partners in J & 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.
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.
General----------------limited
Which of the following statements about a joint venture is TRUE?
Individuals form it to conduct a single, or very limited, business activity.
Which of the following is NOT a recognized advantage of doing business as a corporation?
Investors have extremely limited liability for the debts of the corporation. A corporation can have perpetual existence. Usury laws do not apply to corporations. (All of the above are advantages of doing business in corporate form).
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
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
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.
If a business has the power to own property, enter into contracts, and sue others in court, it is said to have
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?
Legal capacity
Partnership agreements often fund the purchase of a deceased partners' partnership interests with
Life insurance policies
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?
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?
No, the partnership is liable because notice to one partner is legally notice to all the partners and the partnership.
Which of the following is the order in which partnership assets will be distributed upon termination of the partnership?
Outside-creditors, partner-creditors, capital contributions, undistributed profits.
Which of the following is not an advantage of a general partnership?
Partners have limited liability for the debts of the partnership
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
Partnership
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__________.
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?
Pass through
The capital contribution of a partner may consist in all of the following except
Patent Rights Cash (Business Experience) Real Property
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.
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)
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
A Subchapter S corporation is taxed in the same way a partnership is taxed.
TRUE
A buy and sell agreement normally specifies the terms under which a withdrawing or deceased partner's interest will be bought out.
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
A joint venture cannot sue or be sued.
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
A partnership maybe created by an express agreement between the parties or it may be implied from their conduct.
TRUE
A sole proprietorship is not a taxable entity; all profits or losses are reported and taxed as individual income.
TRUE
If net profits are retained in a Subchapter S corporation, income tax must be paid by shareholders on these earnings even though the earnings have not yet been received.
TRUE
If the partnership agreement does not state how long the partnership is to last, a partnership- at- will is created.
TRUE
In a Limited Liability Company, the losses and profits pass through to the shareholders.
TRUE
One partner has the ability to veto the admission of a new partner into the business.
TRUE
Partners have unlimited personal liability for the debts incurred by the partnership.
TRUE
Partnership books must be kept in the firm's place of business and be accessible to all partners
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
Premiums paid by corporations for the health insurance it provides employees are tax-deductible expenses.
TRUE
Professional corporations are business entities organized under state law.
TRUE
Shareholders of corporations pay taxes on the dividends distributed to them by the corporation.
TRUE
Subchapter S corporations may have a maximum of 100 shareholders.
TRUE
The Tax Code does not allow corporations to deduct as expenses excessive or unreasonable compensation to officers and employees.
TRUE
The admission of a new partner automatically dissolves the partnership.
TRUE
The bankruptcy of a partner will cause the dissolution of the partnership by operation of law.
TRUE
Under RUPA, a partnership may take title to real property as a tenancy in partnership.
TRUE
Unless agreed to otherwise, partners are not entitled to compensation for work done to further the interests of the partnership.
TRUE
Usury laws do not apply to corporations when they borrow money.
TRUE
What is another name for a Subchapter S 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.)
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.
A partnership that buys and sells commodities is a _______________partnership; a partnership that produces goods or sells services is a _____________partnership.
Trading-----------------------non-trading
A partnership that fails to comply with a state's assumed name statute
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)
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
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?
Yes, allowing her name to be used with Bob's in the same letterhead created a partnership by estoppel
Which of the following statements about the rights and duties of doctors who practice medicine in a professional corporation is TRUE?
are eligible to participate in tax advantaged pension plans.
By statute, a limited partnership must have a minimum of ___________general partners.
one
