Under the Uniform Partnership Act, which of the following statements is(are) correct regarding the effect of the assignment of an interest in a general partnership?I). The assignee is personally responsible for the assigning partner's share of past and future partnership debts.II). The assignee is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership.
Answer(s): B
Choice "b" is correct. A partner may assign his or her interest in the partnership. The effect of such an assignment is to transfer the partner's right to receive the partner's share of profits or surplus only. Such an assignment does not cause dissolution or make the assignee a new partner. The assignor is still regarded as a partner and is liable for past and future partnership debts. The assignee, since he is not a partner, is not liable for past and future partnership debts. Choice "a" is incorrect. The assignee of an interest in a general partnership is not personally responsible for the assigning partner's share of past and future partnership debts but is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership. Choice "c" is incorrect. The assignee of an interest in a general partnership is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership but is not personally responsible for the assigning partner's share of past and future partnership debts. Choice "d" is incorrect. The assignee of an interest in a general partnership is entitled to the assigning partner's interest in partnership profits and surplus on dissolution of the partnership but is not personally responsible for the assigning partner's share of past and future partnership debts.
Smith and James were partners in S and J Partnership. The partnership agreement stated that all profits and losses were allocated 60 percent to Smith and 40 percent to James. The partners decided to terminate and wind up the partnership. The following was the balance sheet for S and J on the day of the windup:Of the total accounts receivable, $10,000 was collected and the remainder was written off as bad debt. All liabilities of S and J were paid by the partnership. The property and equipment are sold for $32,000. Under the Uniform Partnership Act, what amount of cash was distributed to Smith?
Answer(s): A
Choice "a" is correct. Upon termination of the partnership creditors are paid first. After payment of creditors, each partner is deemed to have an account that is charged or credited an amount equal to the partner's contribution plus or minus the partner's share of any profits or losses. The agreement between Smith and James was that profits and losses would be allocated 60% to Smith and 40% to James. The partnership had $82,000 in assets ($40,000 in cash, $10,000 from accounts receivable, and $32,000 from property and equipment). The partnership had $90,000 in liabilities and capital. Of the $82,000 in assets, $24,000 is paid first to creditors. This leaves a balance of $58,000.Smith contributed $30,000 in capital and James contributed $36,000 in capital. With $66,000 owed in capital and only $58,000 available, there is a deficit of $8,000. By agreement, Smith is responsible for 60% of the $8,000 deficit or $4,800.Smith would be credited an amount equal to his capital ($30,000) minus his share of the loss ($4,800) or $25,200. Only choice "a" reflects this amount.Choices "b", "c", and "d" are incorrect, per the above calculation.
Leslie, Kelly, and Blair wanted to form a business. Which of the following business entities does not require the filing of organization documents with the state?
Choice "b" is correct. A joint venture is like a partnership. A partnership or joint venture can be formed without filing any documents with the state.Choice "a" is incorrect. Formation of a limited partnership requires the filing of a certificate of limited partnership with the state.Choice "c" is incorrect. A limited liability company may be formed only by filing articles of organization with the state.Choice "d" is incorrect. A corporation, including a Subchapter S corporation, may be formed only by filing articles of incorporation with the state.
Under the Revised Uniform Partnership Act, which of the following have the right to inspect partnership books and records?
Answer(s): C
Choice "c" is correct. Every partner in a partnership - whether active or inactive - has the right to inspect the partnership's books and records.Choice "a" is incorrect. Only a partner has a right to inspect the partnership's books and records; an employee of the partnership has no such right.Choice "b" is incorrect. Only current partners have a right to inspect the partnership's books and records; former partners do not have such a right.Choice "d" is incorrect. Only partners have a right to inspect a partnership's books and records. A transferee of a partner's interest has only the partner's right to distributions.
Berry, Drake, and Flanigan are partners in a general partnership. The partners made capital contributions as follows: Berry, $150,000; Drake, $100,000; and Flanigan, $50,000. Drake made a loan of $50,000 to the partnership. The partnership agreement specifies that Flanigan will receive a 50% share of profits, and Drake and Berry each will receive a 25% share of profits. Under the Revised Uniform Partnership Act and in the absence of any partnership agreement to the contrary, which of the following statements is correct regarding the sharing of losses?
Answer(s): D
Choice "d" is correct. Under the Revised Uniform Partnership Act, unless agreed otherwise, partners share losses in the same manner that they share profits. Choice "a" is incorrect. Under the Revised Uniform Partnership Act, unless agreed otherwise, partners share losses in the same manner that they share profits. Here, the partners agreed to share profits in a 2:1:1 ratio. Thus, losses will be shared in that manner rather than equally. Choice "b" is incorrect. Under the Revised Uniform Partnership Act, unless agreed otherwise, partners share losses in the same manner that they share profits. They are not shared in accordance with the partners' capital contributions.Choice "c" is incorrect. Under the Revised Uniform Partnership Act, unless agreed otherwise, partners share losses in the same manner that they share profits. They are not shared in accordance with the partners' capital contributions or loans.
Fil and Breed are 50% partners in F&B Cars, a used-car dealership. F&B maintains an average used- car inventory worth $150,000. On January 5, National Bank obtained a $30,000 judgement against Fil and Fil's child on a loan that Fil had cosigned and on which Fil's child had defaulted. National sued F&B to be allowed to attach $30,000 worth of cars as part of Fil's interest in F&B's inventory. Will National prevail in its suit?
Choice "a" is correct. A partner has no right to possess partnership property except for partnership purposes. Thus, a personal creditor of a partner has no right to attach items of partnership property to satisfy a partner's personal debt.Choice "b" is incorrect. There is no such rule. If the partnership were liable for the individual partner's debt, the cars could be attached and the partnership would not be dissolved. Choice "c" is incorrect. A partner has no right to possess partnership property except for partnership purposes. Thus, a personal creditor of a partner has no right to attach items of partnership property to satisfy a partner's personal debt.Choice "d" is incorrect. A partner has no right to possess partnership property except for partnership purposes. Thus, a personal creditor of a partner has no right to attach items of partnership property to satisfy a partner's personal debt.Limited Liability Partnership
Sam, CPA, is one of the partners in a limited liability partnership with other CPAs. Sam avoids personal liability for:
Choice "c" is correct.Rule: A partner in a LLP is personally liable for tort liabilities arising from his own negligence and the negligence of his direct subordinates and for breach of contract damages. He is NOT personally liable for the negligent actions committed by his partners.Choices "a", "b", and "d" are incorrect, per the above rule.
A limited liability partnership must:
Choice "a" is correct.Rule: To have limited liability, an LLP must file with the state a registration statement usually referred to as Articles of LLP. It is generally designed for professionals who desire to be partners with other like professionals and yet not have liability for the malpractice of their partners. Some states require that personal liability insurance (not property insurance) be carried to protect those harmed by the professionals' malpractice.Choices "b", "c", and "d" are incorrect, per the above rule.
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