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Free CPA-Business Exam Braindumps (page: 30)

Page 30 of 132
PDF with 530 Questions

The apparent authority of a partner to bind the partnership in dealing with third parties:

  1. Will be effectively limited by a formal resolution of the partners of which third parties are aware.
  2. Will be effectively limited by a formal resolution of the partners of which third parties are unaware.
  3. Would permit a partner to submit a claim against the partnership to arbitration.
  4. Must be derived from the express powers and purposes contained in the partnership agreement.

Answer(s): A

Explanation:

Choice "a" is correct. This is really an agency question on apparent authority. Apparent authority is authority that a third party reasonably believes an agent has. If the third party is aware of a restriction on the agent's authority, the third party cannot reasonably believe that the agent has the restricted authority.
Choice "b" is incorrect. A formal resolution of the partners will not be effective to destroy authority if a third party is aware of the resolution, but not if the third party is unaware of the resolution.
Choice "c" is incorrect. Submitting a claim to arbitration is an extraordinary act. A partner has apparent authority only to enter into transactions apparently carrying on in the usual way the business of the partnership. There is no apparent authority to enter into an extraordinary transaction.
Choice "d" is incorrect. Apparent authority is derived from what a reasonable person believes concerning the authority of a partner based on the partnership's actions toward the third party; authority derived from the express powers and purposes contained in the partnership agreement is actual authority.



Grey and Carr entered into a written partnership agreement to operate a hardware store. Their agreement was silent as to the duration of the partnership. Grey wishes to withdraw from the partnership. Which of the following statements is correct?

  1. Unless Carr consents to a withdrawal, Grey must apply to a court and obtain a decree allowing withdrawal.
  2. Grey may not withdraw unless Carr consents.
  3. Grey may withdraw only after notice of the proposed dissolution is given to all partnership creditors.
  4. Grey may withdraw from the partnership at any time.

Answer(s): D

Explanation:

Choice "d" is correct.
Rule: Where a partnership agreement does not state the duration of the partnership, the partners may withdraw at any time. The partner need not obtain consent of the other partners or of the court.
Choices "a" and "b" are incorrect, per the above rule.

Choice "c" is incorrect. A partner has no duty to inform creditors of his intent to withdraw in order for the withdrawal to be effective (although notice is needed to limit the partner's personal liability).



The limited liability of the shareholders of a closely-held corporation will most likely be disregarded if the shareholders:

  1. Lend money to the corporation.
  2. Are also corporate officers, directors, or employees.
  3. Undercapitalized the corporation when it was formed.
  4. Formed the corporation solely to limit their personal liability.

Answer(s): C

Explanation:

Choice "c" is correct. The "corporate veil" can be pierced in situations in which the corporation was undercapitalized at formation, where it is the alter ego of the shareholders, or when it used to perpetrate a fraud.
Choice "a" is incorrect. Shareholders may lend money to their corporation. This does not make such shareholders personally liable for the corporation's debt.
Choice "b" is incorrect. Officers, directors, and employees are not personally liable for the corporation's debt, and there is no reason to change this role merely because such persons also own shares.
Choice "d" is incorrect. The desire to limit liability is a valid reason to adopt the corporate form and will not, by itself, allow the "corporate veil" to be pierced.



Acorn and Bean were general partners in a farm machinery business. Acorn contracted, on behalf of the partnership, to purchase 10 tractors from ABC Corp. Unknown to ABC, Acorn was not authorized by the partnership agreement to make such contracts. Bean refused to allow the partnership to accept delivery of the tractors and ABC sought to enforce the contract. ABC will:

  1. Lose because Acorn's action was beyond the scope of Acorn's implied authority.
  2. Prevail because Acorn had implied authority to bind the partnership.
  3. Prevail because Acorn had apparent authority to bind the partnership.
  4. Lose because Acorn's express authority was restricted, in writing, by the partnership agreement.

Answer(s): C

Explanation:

Choice "c" is correct. A general partner has apparent authority to bind the partnership and other partners in respect to all ordinary transactions within the apparent scope of the partnership business. A farm machinery business probably regularly purchases tractors. Thus, there was apparent authority here.
Choices "a" and "b" are incorrect. Implied authority is authority that an agent reasonably believes he or she was given by the principal along with any express authority. Because Acorn knew that he did not have express authority to make the contracts here, he could not reasonably believe that he had implied authority to do so.
Choice "d" is incorrect. The seller was not aware of Acorn's lack of express authority. Therefore, ABC relied on Acorn's apparent authority.



Page 30 of 132



Post your Comments and Discuss AICPA CPA-Business exam with other Community members:

Venkatesh commented on September 08, 2023
I don't see Internal Control/Information technology related questions
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Jay jain commented on May 25, 2023
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