QUESTION: 13

Which of the following requirements must be met to have a valid partnership exist?

I). Co-ownership of all property used in a business.
II). Co-ownership of a business for profit.

I only.
II only.
Both I and II.
Neither I nor II.

Answer(s): B

Explanation:

Choice "b" is correct.
Rule: A partnership is defined as an association of two or more persons who agree to carry on as coowners a business for profit. Thus, II is necessary. However, there is no requirement that all property used in the business be co-owned; it may be owned by individual partners. Thus I is not necessary.
Choices "a", "c", and "d" are incorrect, per the above rule.

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QUESTION: 14

Locke and Vorst were general partners in a kitchen equipment business. On behalf of the partnership, Locke contracted to purchase 15 stoves from Gage. Unknown to Gage, Locke was not authorized by the partnership agreement to make such contracts. Vorst refused to allow the partnership to accept delivery of the stoves and Gage sought to enforce the contract. Gage will:

Lose, because Locke's action was not authorized by the partnership agreement.
Lose, because Locke was not an agent of the partnership.
Win, because Locke had express authority to bind the partnership.
Win, because Locke had apparent authority to bind the partnership.

Answer(s): D

Explanation:

Choice "d" is correct. Every partner is an agent of the partnership and has apparent authority to bind the partnership to contracts that appear to carry on in the usual way the business of the partnership. It would be usual for a partner in a kitchen equipment business to have authority to purchase stoves. Thus, Gage will win because of Locke's apparent authority.
Choice "a" is incorrect. Every partner is an agent for his partnership and has apparent authority to bind the partnership to contracts that appear to carry on in the usual way the business of the partnership.
Choice "b" is incorrect. Every partner is an agent of the partnership.
Choice "c" is incorrect. Locke did not have express authority to purchase the stoves. The facts state that Locke was not authorized to purchase the stoves and thus lacked express authority.

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QUESTION: 15

In a general partnership, the authorization of all partners is required for an individual partner to bind the partnership in a business transaction to:

Purchase inventory.
Hire employees.
Sell goodwill.
Sign advertising contracts.

Answer(s): C

Explanation:

Choice "c" is correct. All partners have apparent authority to enter into transactions apparently within the regular scope of the partnership business. No such authority exists, however, for transactions outside the regular scope of business. The sale of a business's goodwill is extraordinary and is outside the ordinary scope of business.
Thus, a partner must get authorization from all other partners to make the sale.
Choice "a" is incorrect. All partners have apparent authority to enter into transactions apparently within the regular scope of the partnership business. Purchasing inventory is within the regular scope of business, so a partner need not get permission from the other partners to bind the partnership.
Choice "b" is incorrect. All partners have apparent authority to enter into transactions apparently within the regular scope of the partnership business. Hiring employees is within the regular scope of a business, so a partner need not get permission from the other partners to bind the partnership.
Choice "d" is incorrect. All partners have apparent authority to enter into transactions apparently within the regular scope of the partnership business. Entering into advertising contracts is within the regular course of business, and so a partner need not get permission from the other partners to bind the partnership.

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QUESTION: 16

On dissolution of a general partnership, distributions will be made on account of:

I). Partners' capital accounts.
II). Amounts owed partners with respect to profits.
III). Amounts owed partners for loans to the partnership.

In the following order:

III, I, and II.
I, II, and III.
II, III, and I.
III, II, and I.

Answer(s): A

Explanation:

Choice "a" is correct.
Rule: On dissolution of a general partnership the "order of distribution" would be as follows:

III). General partner loans.
I). Partners' capital accounts.
II). General partners' profits.
Choices "b", "c", and "d" are incorrect, per the above rule.

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QUESTION: 15

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QUESTION: 16

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