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Exam 13: Partnerships

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Question 41

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Which of the following statements is TRUE about a limited partnership?

A) The general partner takes on greater liability than the limited partners.
B) In a limited partnership, all partners are considered to be limited partners.
C) The general partner has first claim on the profit of the partnership.
D) The partners all share equally in the profit or losses of the partnership.

E) All of the above
F) None of the above

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Question 42

True/False

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The profit of a partnership is not taxed directly. Instead, each partner reports his or her share on his or her personal profit tax return.

A) True
B) False

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Question 43

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If the partnership has debts or liabilities that CANNOT be paid from partnership assets, any one of the partners may be held personally liable.

If a partnership agreement specifies a formula for the sharing of profits, such as according to each partner's investment, but is silent on how losses should be shared, then losses will be shared equally among the partners.

W. Bell and C. Quirk started a partnership in 2013. Because Bell contributed a larger amount toward the partnership at inception, the partnership agreement specified the following split of profits and losses in a two- phase allocation. The first allocation would split profits and losses in proportion to the partners' relative capital balances up to 20% of those balances. The remainder would be split evenly. At the end of the first year, the partnership had a loss of $40 000. Partners' capital balances were as follows: (This is not like the example in the chapter.) W. Bell: $102 000 C. Quirk: $18 000 How much of the loss was allocated to W. Bell?

When one partner leaves the partnership for any reason, the old partnership ceases to exist.

On 1 August 2013, Larry Goldstein and Rafi Hassan created a partnership to produce software for online advertising. Goldstein was a lawyer and would handle all the legal matters, but Hassan was the technical whiz and would do all of the production and sales. Because most of the work would be done by Hassan, the partnership agreement specified that the yearly profit would be split in a two- phase allocation. The first $100 000 of annual profit would be split among Goldstein and Hassan in a 1:4 ratio (one part to Goldstein, four parts to Hassan) . Any profit above $100 000 would be split evenly. At the onset, both men contributed $200 000 to the partnership and made no withdrawals during 2013. At the end of 2013, the partnership earned $175 000 of profit. At the end of 2013, after the year's profit was distributed, what was the balance in Goldstein's capital account?

Whenever there is a change in the mix of partners, the old partnership is dissolved and a new one begins.

When a new person wishes to be admitted into an existing partnership that consists of two partners and wishes to obtain an equal share (1/3 share)of the new partnership, the amount that the new person must invest is required to be the average of the capital balances of the existing partners.

If the partnership agreement does NOT specifically state how profits and losses are to be distributed, then the partners will share profits and losses equally.

A partnership has an indefinite life.

The key difference between a partnership income statement and a standard business income statement is that the partnership income statement:

When a new person wishes to join an existing partnership, the difference between what the new partner contributes and the value the new partner receives in capital is either a bonus to the existing partners or a bonus to the new partner.

When a partnership is liquidated, the assets are sold for market value and the gains and losses distributed appropriately to the partners' capital accounts. The final cash distribution should be split according to the specified distribution of profits and losses as stated in the partnership agreement.

A partnership agreement includes all of the following EXCEPT the: