QUESTION: 37

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?

The partners will share equally in any partnership losses.
The partners will share in losses on a pro rata basis according to the capital contributions.
The partners will share in losses on a pro rata basis according to the capital contributions and loans made to the partnership.
The partners will share in losses according to the allocation of profits specified in the partnership agreement.

Answer(s): D

Explanation:

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.

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QUESTION: 38

Fil and Breed are 50% partners in A&B Company, a used-car dealership. A&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 A&B to be allowed to attach $30,000 worth of cars as part of Fil's interest in A&B's inventory. Will National prevail in its suit?

No, because the judgement was not against the partnership.
No, because attachment of the cars would dissolve the partnership by operation of law.
Yes, because National had a valid judgement against Fil.
Yes, because Fil's interest in the partnership inventory is an asset owned by Fil.

Answer(s): A

Explanation:

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.

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QUESTION: 39

Sam, CPA, is one of the partners in a limited liability partnership with other CPAs. Sam avoids personal liability for:

The wrongful acts of employees acting under his supervision.
His own negligent acts.
The malpractice of his partners regarding errors and omissions.
The negligent actions of his subordinates under his direct control.

Answer(s): C

Explanation:

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.

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QUESTION: 40

A limited liability partnership must:

File registration documents with the state in which it is formed.
Hold all partners personally liable for all debts and liabilities of the partnership and partners.
Carry no less than one hundred thousand dollars of property insurance.
Not have partners with professional licenses.

Answer(s): A

Explanation:

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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QUESTION: 38

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QUESTION: 39

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QUESTION: 40

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