AICPA AICPA Certifications CPA-TEST Questions & Answers

• Question 731:

  Park and Graham entered into a written partnership agreement to operate a retail store. Their agreement was silent as to the duration of the partnership. Park wishes to dissociate from the partnership. Which of the following statements is correct?

  A. Park may dissociate from the partnership at any time.

  B. Unless Graham consents to the dissociation, Park must apply to a court and obtain a decree ordering the dissociation.

  C. Park may not dissociate from the partnership unless Graham consents.

  D. Park may dissociate from the partnership only after notice of the proposed dissolution is given to all partnership creditors.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. Because the agreement is silent as to duration, it is a partnership at will. A partner

  may dissociate from a partnership at will at any time.

  Choice "b" is incorrect. Because the agreement is silent as to duration, it is a partnership at will. A partner

  may dissociate from a partnership at will at any time. No court order is required.

  Choice "c" is incorrect. Partnerships are consensual relationships, so any partner has the power to

  dissociate at any time; he or she need not obtain the consent of the other partners (though absent consent,

  the partner will be liable for damages if the dissociation is wrongful).

  Choice "d" is incorrect. There is no requirement of giving partnership creditors a formal notice of intent to

  dissociate, but it is a good idea to do so to avoid liability on future partnership obligations.

• Question 732:

  When parties intend to create a partnership that will be recognized under the Revised Uniform Partnership Act, they must agree to:

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: B

  Explanation:

  Choice "b" is correct. "Yes - No."

  Rule: A partnership is an agreement between two or more persons to carry on, as co-owners, a business

  for profit; partners share management and profits and losses, not gross receipts.

  Choices "a", "c", and "d" are incorrect, per the above rule.

• Question 733:

  On February 1, Addison, Bradley, and Carter, physicians, formed ABC Medical Partnership. Dr. Bradley was placed in charge of the partnership's financial books and records. On April 1, Dr. Addison joined the City Hospital Medical Partnership, retaining the partnership interest in ABC. On May 1, ABC received a writ of attachment from the court attaching Dr. Carter's interest in ABC. The writ resulted from Dr. Carter's failure to pay a credit card bill. On June 1, Dr. Addison was adjudicated bankrupt. On July 1, Dr. Bradley was sued by the other partners of ABC for an accounting of ABC's revenues and expenses. Under the Revised Uniform Partnership Act, which of the preceding events resulted in the dissociation of a partner?

  A. Dr. Addison joining the City Hospital Medical Partnership.

  B. Dr. Carter's interest in the partnership being attached by the court.

  C. Dr. Addison being adjudicated bankrupt.

  D. Dr. Bradley being sued for an accounting by the other partners of ABC.

  Correct Answer: C

  Explanation:

  Choice "c" is correct. The bankruptcy of a partner will result in the dissociation of a partner.

  Choice "a" is incorrect, because although joining the city hospital medical partnership could be construed

  as a breach of fiduciary duty owed to the other partners in ABC medical partnership, standing alone, it

  would not result in a dissociation.

  Choice "b" is incorrect. All that was attached was the partner's right to distributions, which does not cause

  dissociation.

  Choice "d" is incorrect, because although being sued might cause Dr. Bradley to resign, which would

  cause dissociation, standing alone, being sued by the other partners does not cause dissociation.

• Question 734:

  A general partnership must:

  A. Pay federal income tax.

  B. Have two or more partners.

  C. Have written articles of partnership.

  D. Provide for apportionment of liability for partnership debts.

  Correct Answer: B

  Explanation:

  Choice "b" is correct. A partnership is an organization of two or more persons who carry on a business for

  a profit.

  Choice "a" is incorrect. Partnerships do not pay federal income taxes; the partners report their shares of

  the partnership's income on their individual returns.

  Choice "c" is incorrect. A partnership agreement need not be in writing.

  Choice "d" is incorrect. If the partnership agreement is silent on the apportionment of liability for

  partnership debts, state law or the Uniform Partnership Act will cover the omission.

• Question 735:

  When a partner in a general partnership lacks actual or apparent authority to contract on behalf of the partnership, and the party contracted with is aware of this fact, the partnership will be bound by the contract if the other partners:

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: B

  Explanation:

  Choice "b" is correct. "Yes - No."

  Rule: The authority of partners is governed by agency law. Under agency law, a principal is not bound to

  the third party unless the agent had actual authority or apparent authority. When the agent has no actual

  authority and no apparent authority, the principal (in this case the partnership) will only be liable if it

  chooses to adopt the agreement (i.e., ratify).

  Rule: Amending the partnership agreement (presumably to grant authority) will not cause the partnership

  to be bound because authority must exist at the time the contract is made or the partnership must ratify the

  contract.

  Choices "a", "c", and "d" are incorrect, per the above rules.

• Question 736:

  What term is used to describe a partnership without a specified duration?

  A. A perpetual partnership.

  B. A partnership by estoppel.

  C. An indefinite partnership.

  D. A partnership at will.

  Correct Answer: D

  Explanation: Choice "d" is correct. A partnership at will is a partnership with no definite term (i.e., without specified duration). Such a partnership can be terminated at any time. Choice "a" is incorrect. A partnership without a specified duration is called a partnership at will, not a perpetual partnership. There is no such thing as a perpetual partnership because a partnership is not perpetual. A partnership may be dissolved after a partner dies or otherwise dissociates from the partnership. Choice "b" is incorrect. A partnership by estoppel is the appearance of a partnership when there is no formal partnership. If parties who are not partners give the appearance to third parties that they are partners, the law may deem the parties to be a partnership by estoppel. The parties will be treated as partners, even though they are not. Choice "c" is incorrect. The legal term for a partnership of indefinite duration is a partnership at will, not an indefinite partnership.

• Question 737:

  ABC Corp. and XYZ Corp. are contemplating entering into an unincorporated joint venture. Such a joint venture:

  A. Will be treated as a partnership in most important legal respects.

  B. Must be dissolved upon the completion of a single undertaking.

  C. Will be treated as an association for federal income tax purposes and taxed at the prevailing corporate rates.

  D. Must file a certificate of limited partnership with the appropriate state agency.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. The legal requirements, the consequences, the advantages, and disadvantages of

  forming a joint venture generally are identical to those of a general partnership. Joint ventures are treated

  as a partnership in most important legal aspects.

  Choice "b" is incorrect. A joint venture need not be dissolved upon the completion of a single undertaking.

  Joint ventures may be formed for a single transaction or for a related series of transactions.

  Choice "c" is incorrect because a joint venture would be taxed like a partnership, not a corporation.

  Choice "d" is incorrect because a joint venture, like a partnership, may be formed without filing with the

  state.

• Question 738:

  Which of the following forms of business can be formed with only one individual owning the business?

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: B

  Explanation:

  Choice "b" is correct. A sole proprietorship and (in most states) a limited liability company can be formed

  with only one owner. A partnership requires two or more partners.

  Choices "a", "c", and "d" are incorrect per the explanation above.

• Question 739:

  Formation of which of the following types of business does not require the filing of documents with the state?

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: C

  Explanation:

  Choice "c" is correct. A sole proprietorship can be formed without filing with the state. Formation of either a

  corporation or a limited partnership requires a filing.

  Choices "a", "b", and "d" are incorrect per the above.

• Question 740:

  A sole proprietorship would be an ideal form of business to select if:

  A. The individual desired no liability beyond his capital investment.

  B. The individual wanted to be able sell the business at will.

  C. The individual wanted the business to be a separate entity from the sole proprietor.

  D. The individual wanted the business to continue indefinitely.

  Correct Answer: B

  Explanation:

  Choice "b" is correct. A sole proprietor is free to transfer or sell the business at will.

  Choice "a" is incorrect because a sole proprietor is personally liable for all obligations of the business.

  Choice "c" is incorrect. A sole proprietorship is not considered an entity separate from the sole proprietor.

  Choice "d" is incorrect because a sole proprietorship ends with the death of the sole proprietor.