AICPA Business Environment and Concepts (BEC) CPA Business Environment and Concepts Exam Questions in PDF

Free AICPA CPA Business Environment and Concepts Dumps Questions (page: 3)

Which of the following is not necessary to create an express partnership?

  1. Execution of a written partnership agreement.
  2. Agreement to share ownership of the partnership.
  3. Intention to conduct a business for profit.
  4. Intention to create a relationship recognized as a partnership.

Answer(s): A

Explanation:

Choice "a" is correct. A written partnership agreement, while certainly desirable, is not usually necessary to form a valid partnership; partnership agreements are not normally subject to the statute of frauds.
Choice "b" is incorrect. A partnership is an association of two or more persons who agree to carry on as co-owners of a business for profit. Thus, an agreement to share ownership of the partnership is a requirement for creating an express partnership.
Choice "c" is incorrect. A partnership is an association of two or more persons who agree to carry on as co-owners of a business for profit. Thus, an intent to carry on a business for a profit is a requirement for creating an express partnership.
Choice "d" is incorrect. A partnership is an association of two or more persons who agree to carry on as co-owners of a business for profit. The intent to create a business relationship recognized as a partnership is a requirement for creating an express partnership.



Eller, Fort, and Owens do business as Venture Associates, a general partnership. Trent Corp. brought a breach of contract suit against Venture and Eller individually. Trent won the suit and filed a judgment against both Venture and Eller. Trent will generally be able to collect the judgment from:

  1. Partnership assets only.
  2. The personal assets of Eller, Fort, and Owens only.
  3. Eller's personal assets only after partnership assets are exhausted.
  4. Eller's personal assets only.

Answer(s): C

Explanation:

Choice "c" is correct.
When a judgment is obtained against both a partnership and an individual general partner, the plaintiff must proceed against the partnership assets first and then the assets of any individual general partner. The partnership assets must be exhausted before any general partner's individual assets can be attached.
Choices "a", "b", and "d" are incorrect, per the above rule.



Heather, Erika, and Shelby are members in HES LLC. Heather works 40 hours per week and Erika and Shelby work 20 hours per week. Heather contributed $30,000 to the LLC and Erika and Shelby contributed $60,000 each. Erika and Shelby have each originated 45% of the LLC's business and Heather has originated the other 10%.
If HES were a general partnership, who controls management?

  1. Heather, because she works the most.
  2. Erika and Shelby equally because they contributed the most.
  3. Heather, Erika, and Shelby equally because of state law.
  4. Erika and Shelby, because they originate most of the work.

Answer(s): C

Explanation:

Choice "c" is correct.
Rule: Absent an agreement to the contrary, partners have equal management authority. Choices "a", "b", and "d" are incorrect, per the above rule.



Rivers and Lee want to form a partnership. For the partnership agreement to be enforceable, it must be in writing if:

  1. Rivers and Lee reside in different states.
  2. The agreement cannot be completed within one year from the date on which it will be entered into.
  3. Either Rivers or Lee is to contribute more than $500 in capital.
  4. The partnership intends to buy and sell real estate.

Answer(s): B

Explanation:

Choice "b" is correct. A transaction which cannot be completed within a year must be in writing to be enforceable.
Choice "a" is incorrect. Residence of the prospective partners is not relevant. Choice "c" is incorrect. The statute of frauds $500 threshold applies to the sale of goods only. Choice "d" is incorrect. Transactions in land are within the statute of frauds, but the possibility that a partnership may engage in a real estate transaction is not a transaction in land.



Which of the following statements is correct regarding the division of profits in a general partnership when the written partnership agreement only provides that losses be divided equally among the partners?
Profits are to be divided:

  1. Based on the partners' ratio of contribution to the partnership.
  2. Based on the partners' participation in day-to-day management.
  3. Equally among the partners.
  4. Proportionately among the partners.

Answer(s): C

Explanation:

Choice "c" is correct.
Rule: When the partnership agreement is silent as to how profits are to be divided, they are divided equally. Note also that when the agreement is silent, losses are treated similar to profits, there is no reverse rule that profits are treated like losses.
Choices "a", "b", and "d" are incorrect, per the above rule.



Downs, Frey, and Vick formed the DFV general partnership to act as manufacturers' representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate for five years.
After the fourth year, the partners agreed to terminate the partnership. At that time, the partners' capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000.
Which of the following statements about the form of the DFV partnership agreement is correct?

  1. It must be in writing because the partnership was to last for longer than one year.
  2. It must be in writing because partnership profits would not be equally divided.
  3. It could be oral because the partners had explicitly agreed to do business together.
  4. It could be oral because the partnership did not deal in real estate.

Answer(s): A

Explanation:

Choice "a" is correct. Under the statute of frauds, an agreement, which by its terms cannot be performed within a year, must be evidenced by a writing containing the material terms and signed by the parties to be charged. Absent a writing, the partnership will be treated as a partnership at will. Choice "b" is incorrect. There is no requirement that partnership agreements be in writing merely because profits will be divided unequally.
Choice "c" is incorrect. The statute of frauds requires contracts that cannot by their terms be performed within one year to be evidenced by a writing containing the material terms and signed by the parties to be charged.
Choice "d" is incorrect.
Whether or not a partnership is to deal in real estate is irrelevant to whether the partnership agreement must be in writing.



Downs, Frey, and Vick formed the DFV general partnership to act as manufacturers' representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate for five years.
After the fourth year, the partners agreed to terminate the partnership. At that time, the partners' capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000.
Vick's share of the undistributed losses will be:

  1. $0
  2. $1,000
  3. $9,000
  4. $10,000

Answer(s): C

Explanation:

Rule: Where the partnership agreement is silent, losses are shared in the same proportion as profits. Choice "c" is correct. Vick was entitled to 30% of the profits and so will be responsible for 30% of the undistributed $30,000 loss, or $9,000.
Choices "a", "b", and "d" are incorrect, per the above rule.



Lewis, Clark, and Beal entered into a written agreement to form a partnership. The agreement required that the partners make the following capital contributions: Lewis, $40,000, Clark, $30,000, and Beal, $10,000. It was also agreed that in the event the partnership experienced losses in excess of available capital, Beal would contribute additional capital to the extent of the losses. The partnership agreement was otherwise silent about division of profits and losses.
Which of the following statements is correct?

  1. Profits are to be divided among the partners in proportion to their relative capital contributions.
  2. Profits are to be divided equally among the partners.
  3. Losses will be allocated in a manner different from the allocation of profits because the partners contributed different amounts of capital.
  4. Beal's obligation to contribute additional capital would have an effect on the allocation of profit or loss to Beal.

Answer(s): B

Explanation:

Choice "b" is correct.
Rule: Regardless of the contributions and obligations of the partners, unless the partnership agreement specifically states otherwise, all partners are entitled to an equal share of the profits. Choices "a", "c", and "d" are incorrect, per the above rule.



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